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Chapter 4 Customer Buying Behavior Mc. Graw-Hill/Irwin Retailing Management, 7/e Copyright © 2008 by Chapter 4 Customer Buying Behavior Mc. Graw-Hill/Irwin Retailing Management, 7/e Copyright © 2008 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

The World of Retailing Introduction to Retailing Types of Retailers Multi-Channel Retailing Customer Buying The World of Retailing Introduction to Retailing Types of Retailers Multi-Channel Retailing Customer Buying Behavior 2

Questions ■ How do customers decide which retailer to go to and what merchandise Questions ■ How do customers decide which retailer to go to and what merchandise to buy? ■ What social and personal factors affect customer purchase decisions? ■ How can retailers get customers to visit their stores more frequently, and buy more merchandise during each visit? ■ Why and how do retailers group customers into market segments? 3

Illustration of Buying Process Eva Carlyn, a student at the University of Washing, is Illustration of Buying Process Eva Carlyn, a student at the University of Washing, is beginning to interview for jobs. For the first interviews on campus, Eva planned to wear the blue suit her parents bought her three years ago. But after looking at her suit, she realizes that it’s not stylish, and it shows signs of wear. She wants to make a strong first impression during her interviews, so she decides to buy a new suit. © Digital Vision 4

Illustration (Continued) Eva surfs the Internet for tips on dressing for interviews (www. collegegrad. Illustration (Continued) Eva surfs the Internet for tips on dressing for interviews (www. collegegrad. com and www. jobsearch. about. com) and looks through catalogs to see which styles are offered. However, she decides to go to retail store to try things on, and to have the suit in time for her first interview next week. She usually shops at Abercrombie & Fitch and American Eagle Outfitter, but neither sells business suits. Before going to the mall, she goes to Brand. Habit. com, a site that enables her to examine and compare the suits currently available at the mall. Armed with a list of possibilities, she goes directly to the stores that she reviewed on Brand. Habit. com. 5

Illustration (Continued) She likes to shop with Britt, but Britt is in Paris for Illustration (Continued) She likes to shop with Britt, but Britt is in Paris for the semester. Since she values Britt’s opinion, Eva shares her shopping list with Britt on Kaboodle. com. © Ingram Publishing/AGE Fotostock 6

Illustration (Continued) Evan wanders into Macy’s, as a salesperson approaches her in the career Illustration (Continued) Evan wanders into Macy’s, as a salesperson approaches her in the career women’s department. After asking her what type of suit she wants and her size, the salesperson shows her three suits. Eva photographs them with her cell phone, and text messages them to Britt in Paris. Britt likes all three, so Eva tries them on again. However, after messaging Britt more photos, all three individuals decide the 2 nd suit is the most appropriate for the interview. © Bananastock/Punchstock 7

Illustration (Continued) Eva is happy with the aesthetics of the suit: its color, fit, Illustration (Continued) Eva is happy with the aesthetics of the suit: its color, fit, fabric, and length. Although, she is about the costs of dry cleaning, and she realizes she’s spending more money than she had planned. Then Eva decides to buy it after another customer in the store tells her she appears very professional in the suit. As the salesperson walks with Eva to the cash register, they pass a display of scarves. The salesperson stops, picks up a scarf, and demonstrates to her how well the scarf complements the suit. As a result, Eva also decides to buy the scarf. 8

Stages in the Buying Process 9 Stages in the Buying Process 9

Types of Needs ■ Utilitarian Needs –satisfied when purchases accomplish a specific task. Shopping Types of Needs ■ Utilitarian Needs –satisfied when purchases accomplish a specific task. Shopping needs to be easy, and effortless like Sam’s or a grocery store. ■ Hedonic needs – satisfied when purchases accomplish a need for entertainment, emotional, and recreational experience as in department stores or specialty stores. 10

Hedonic Needs that Retailers can Satisfy ■ Stimulation n Ex: Background music, visual displays, Hedonic Needs that Retailers can Satisfy ■ Stimulation n Ex: Background music, visual displays, scents ■ Social experience n Ex: Mixed-use developments, lifestyle centers ■ Learn new trends and fashions n Ex: The Body Shop – learn how can live an environmentally friendly lifestyle ■ Satisfy need for power and status n Ex: Canyon Ranch – upscale health resorts ■ Self-rewards n Ex: personalized makeovers ■ Adventure n Treasure hunting for bargains 11

Conflicting Needs ■ Ex: Eva’s hedonic needs (wearing a DKNY suit to enhance self-image) Conflicting Needs ■ Ex: Eva’s hedonic needs (wearing a DKNY suit to enhance self-image) conflict with her budget, and her utilitarian need to get a job. ■ Customers make trade-offs between their conflicting needs ■ Cross shopping 12

Stimulating Need Recognition Suggestions by Sales Associates Advertising and Direct Mail Visual Merchandise in Stimulating Need Recognition Suggestions by Sales Associates Advertising and Direct Mail Visual Merchandise in store Special Events in the Store Signage Displays Free food sample Stockbyte/Punchstock Images 13

Information Search ■ Amount of Information Search Depends on the value from searching versus Information Search ■ Amount of Information Search Depends on the value from searching versus the cost of searching ■ Factors Affecting Amount of Information Search n n n Product Characteristics • Complexity • Cost Customer Characteristics • Past experience • Perceived risk • Time pressure Market Characteristics • Number of alternative brands 14

Sources of Information Internal Past experiences Memory Digital Vision / Getty Images External Consumer Sources of Information Internal Past experiences Memory Digital Vision / Getty Images External Consumer reports Advertising Word of mouth © Dynamic Graphics/Picture Quest 15

How Can Retailers Limit the Information Search? ■ ■ ■ Information from sales associates How Can Retailers Limit the Information Search? ■ ■ ■ Information from sales associates Provide an assortment of services Provide good assortments Everyday low pricing Credit Royalty-Free/CORBIS 16

Retailers encourage customers to spend time ■ The more time customers spend shopping, the Retailers encourage customers to spend time ■ The more time customers spend shopping, the more they will buy. n Customers who spend 40 mins in a store are more than twice as likely to buy than someone who spends 10 mins. Also, they typically buy 2 x as many items. ■ Stores use food and personal service n n n Talbots: attention of a sales associate, light snack City Furniture: Chocolate cookies Gymboree: television playing kids’ videos ■ Websites provide enjoyable experiences with technologies 17

Evaluation of Alternatives ■ Multiattribute attitude model: n n Customers see a retailer, product, Evaluation of Alternatives ■ Multiattribute attitude model: n n Customers see a retailer, product, or service as a collection of attributes or characteristics Predict a customer’s evaluation of a retailer, product, or service based on • Its performance on relevant attributes • the importance of those attributes to the customer 18

Information about Retailers Selling Groceries 19 Information about Retailers Selling Groceries 19

Information Used in Evaluating Retailers 20 Information Used in Evaluating Retailers 20

Information Needed to Use Multi-Attribute Model ■ Alternative Consumer Considering ■ Characteristic/Benefits Sought in Information Needed to Use Multi-Attribute Model ■ Alternative Consumer Considering ■ Characteristic/Benefits Sought in Making Store and Merchandise Choices ■ Ratings of Alternative Performance on Criteria ■ Importance of Criteria to Consumer 21

Information Eva Used in Buying Suit 22 Information Eva Used in Buying Suit 22

Information Needed to Use Multi-Attribute Model ■ Alternative retailers consumers can consider ■ Characteristic/Benefits Information Needed to Use Multi-Attribute Model ■ Alternative retailers consumers can consider ■ Characteristic/Benefits Sought in Making Store and Merchandise Choices ■ Ratings of Alternative Performance on Criteria ■ Importance weights that consumers attach to the merchandise 23

Getting into the Consideration Set ■ Consideration set: the set of alternatives the customer Getting into the Consideration Set ■ Consideration set: the set of alternatives the customer evaluates when making a selection ■ Retailers develop programs influencing top-of-mind awareness n n n Get exposure on search engines like Google Try to be the top of the page More stores in the same area (e. g. , Starbucks) 24

Methods for increasing the chance of store visit after getting into the consideration set Methods for increasing the chance of store visit after getting into the consideration set ■ Increase Performance Beliefs of Your Store ■ Decrease Performance Beliefs About Competitor ■ Increase Importance Weight of Attributes on which You Have an Advantage ■ Add a New Benefit on which You Excel 25

Purchasing Merchandise or Services Customers do not always purchase a brand with the highest Purchasing Merchandise or Services Customers do not always purchase a brand with the highest overall evaluation. The Mc. Graw-Hill Companies, Inc. /Jill Braaten, photographer ■ The high-rated item may not be available in the store. ■ How can a retailer increase the chances that customers will convert their merchandise evaluations into purchases? 26

Converting Merchandise or Services Evaluations into Purchases ■ Measure: the number of abandoning carts Converting Merchandise or Services Evaluations into Purchases ■ Measure: the number of abandoning carts in stores and at websites n n Don’t stock out of popular merchandise Reduce waiting times at checkout • Digital displays offering entertainment (Disney) • Apple stores – cell check-out Easy navigation and check-out at websites (amazon. com) Offer liberal return policies, money back guarantees, and refunds if same merchandise is available at lower prices from another retailer The Mc. Graw-Hill Companies, Inc. /Andrew Resek, photographer ■ Methods to reduce it: 27

Postpurchase Evaluation ■ Satisfaction n A post-consumption evaluation of how well a store or Postpurchase Evaluation ■ Satisfaction n A post-consumption evaluation of how well a store or product meets or exceeds customer expectations ■ Becomes part of the customer’s internal information that affects future store and product decisions ■ Builds store and brand loyalty 28

Types of Purchase Decisions ■ Extended Problem Solving -High financial or Social Risk ■ Types of Purchase Decisions ■ Extended Problem Solving -High financial or Social Risk ■ Limited Problem Solving -Some Prior Buying Experience ■ Habitual Decision Making -Store Brand, Loyalty 29

Extended Problem Solving Consumers devote time and effort analyzing alternatives ■ Financial risks – Extended Problem Solving Consumers devote time and effort analyzing alternatives ■ Financial risks – purchasing expensive products or services ■ Physical risks – purchases that will affect consumer’s health and safety ■ Social risks – consumers will believe product will affect how others view them 30

What Retailers Need to do for Customers Engaged in Extended Problem Solving Provide a What Retailers Need to do for Customers Engaged in Extended Problem Solving Provide a Lot of Information -Use Salespeople rather than advertising to communicate with customers Reduce the Risks -Offer Guarantees -Return Privileges © Royalty-Free/CORBIS 31

Limited Problem Solving Purchase decisions process involving moderate amount of effort and time ■ Limited Problem Solving Purchase decisions process involving moderate amount of effort and time ■ Customers engage in this when they have had prior experience with products or services ■ Customers rely more upon personal knowledge ■ Majority of customer decisions involve limited problem solving (c) Brand X Pictures/Punch. Stock 32

What do Retailers Need to do for Customers Engaged in Limited Problem Solving? ■ What do Retailers Need to do for Customers Engaged in Limited Problem Solving? ■ It depends… ■ If the Customer Is Coming to You, Provide a Positive Experience and Create Loyalty n Make Sure Customer is Satisfied n Provide Good Service, Assortments, value n Offer Rewards to Convert to Loyal Customer ■ If the Customer Goes to Your Competitor’s Store, Change Behavior n Offer More Convenient Locations, Better Service and Assortments 33

Encouraging Impulse Buying ■ Impulse buying: one common type of limited problem solving ■ Encouraging Impulse Buying ■ Impulse buying: one common type of limited problem solving ■ Influence by using prominent point-ofpurchase (POP) or point-of-sale (POS) n n n Photo. Link/Getty Images n Have Salespeople Suggest Add-ons Have Complementary Merchandise Displayed Near Product of Interest Use Signage in Aisle or Special Displays Put Merchandise Where Customers Are Waiting 34

Habitual Problem Solving Purchase decision process involving little or no conscious effort ■ For Habitual Problem Solving Purchase decision process involving little or no conscious effort ■ For purchases that aren’t important to the consumer ■ For merchandise consumers have purchased in the past ■ For consumers loyal to brands or a store 35

Customer Loyalty ■ Brand Loyalty n n n Committed to a Specific Brand Reluctant Customer Loyalty ■ Brand Loyalty n n n Committed to a Specific Brand Reluctant to Switch to a Different Brand May Switch Retailers to Buy Brand ■ Store Loyalty n n Committed to a Specific Retailer Reluctant to Switch Retailers 36

What Retailers Need to do for Customers to Engage in Habitual Decision Making IT What Retailers Need to do for Customers to Engage in Habitual Decision Making IT DEPENDS ■ If the customer habitually comes to you, reinforce behavior n Make sure merchandise in stock n Provide good service n Offer rewards to loyal customer ■ If the customer goes to your competitor’s store, break the habit n Offer special promotions 37

Social Factors Influencing the Buying Decision Process 38 Social Factors Influencing the Buying Decision Process 38

Family Influences Buying Decisions ■ Purchases are for entire family to use ■ Whole Family Influences Buying Decisions ■ Purchases are for entire family to use ■ Whole family participates in decision making process ■ Retailers work to satisfy needs of all family members Kids in the U. S. spend over $200 billion on personal items. They directly influence the purchase of another $300 billion worth of items such as food and clothing. 39

Reference Groups A reference group is one or more people whom a person uses Reference Groups A reference group is one or more people whom a person uses as a basis of comparison for beliefs, feelings and behaviors. (c) image 100/Punch. Stock Reference groups affect buying decisions by: ■ Offering information ■ Providing rewards for specific purchasing behaviors ■ Enhancing a consumer’s self-image 40

Reference Groups ■ Eva…. looks to n n Soccer player Mia Hamm and tennis Reference Groups ■ Eva…. looks to n n Soccer player Mia Hamm and tennis player Maria Sharapova for the selection of athletic wear Jessica Simpson for casual fashion advice ■ Store advocates: n n n Customers that like a store so much that they actively share their positive experiences with friends and family Victoria Secret Alpha Moms 41

Culture is the meaning, beliefs, morals and values shared by most members of a Culture is the meaning, beliefs, morals and values shared by most members of a society Western culture: individualism Eastern culture: collectivism Subcultures are distinctive groups of people within a culture 42

Criteria for Evaluating Market Segments ■ ■ Actionable Identifiable Substantial Reachable 43 Criteria for Evaluating Market Segments ■ ■ Actionable Identifiable Substantial Reachable 43

Methods for Segmenting Retail Markets Geo-demographic Geographic Lifestyle Segmenting Markets Benefits Demographic Buying situations Methods for Segmenting Retail Markets Geo-demographic Geographic Lifestyle Segmenting Markets Benefits Demographic Buying situations 44

Geo-demographic Segmentation “Birds of a feather Flock Together” PRIZM (Potential Rating Index by Zip Geo-demographic Segmentation “Birds of a feather Flock Together” PRIZM (Potential Rating Index by Zip Market – Claritas (www. Claritas. com) ESRI Tapestry Town and Gown Latino America College Town Singles Hispanic Middle Class Foreign Films (+) Boxing (+) Dogs (-) Dance Music (+) Sewing (-) Barbequing (-) Coca Cola (+) Avocados (+) Fast Food (+) Cosmopolitan (+) Friends (+) Touched By an Angel (+) Sports Illustrated (+) 45

Distribution of Gray Collar Aging Couples Near Suburbs 46 Distribution of Gray Collar Aging Couples Near Suburbs 46

VALS 2 American Lifestyle Segments 47 VALS 2 American Lifestyle Segments 47