MKTG 1058: DISTRIBUTION

CHANNELS

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Distribution Channels MKTG 1058LECTURE FOUR

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Retail CustomersLegal and Ethical

Behavior

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Retail Customers- Dunne Chapter 3

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Learning Objectives for Chapter 3:

1. Explain the importance of population trends to the retail manager.

2. List the social trends that retail managers should regularly monitor and describe their impact on retailing.

3. Describe the changing economic trends and their effect on retailing.

4. Discuss the consumer shopping/purchasing model, including the key stages in the shopping/purchasing process.

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Key notes You have all passed a course last

semester on Buyer Behavior This topic should be easy since it covers

the key issues of BB But we contextualize it to the retail

shopping experience and buying behaviors

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Introduction Retail Mix:

The combination of merchandise, assortment, price, promotion, customer service, and store layout that best serves the segments targeted by the retailer.

Retailers need to study buyer demographics, life style and shopping motives and preferences in order to align their retail mix to better meet customer needs

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Introduction Customer Satisfaction:

Occurs when the total shopping experienceof the customer has been met or exceeded.

This is important because it costs five times as much to get a new customer into your store as it does to retain a current customer.

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Introduction Customer Services:

Include the activities the retailer performs that influence (1) the ease with which a potential customer can shop or learn about the store’s offering, (2) the ease with which a transaction can be completed once the customer attempts to make a purchase, and (3) the customer’s satisfaction with the purchase.

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Shopping experiences and customer satisfaction If the customer is dissatisfied with

either the product offered or the services provided, then the customer is less likely to choose that retailer in the future, thus decreasing future sales.

Knowing what products to carry, as well as determining which customer services to offer, is a challenging exercise for retailers as they seek ways to improve the shopping experience.

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Current Trends Affect the Way the Consumer Behaves

Exhibit 3.2 4-10

Introduction Market Segmentation:

Is the dividing of a heterogeneous consumer population into smaller, more homogeneous groups based on their characteristics.

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Methods for Segmenting Retail Markets

Geographic Demographic

Buying situationsLifestyle

Segmenting Markets

Geo-demographic

Benefits

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Dollars & Sense Retailers who focus on understanding a well-

defined niche and serving that market with a differentiated offer will be more profitable than their competitors.

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Note: The chapter focuses on the US economy

and the demographicsWe would need to contextualize this to

fit the local retail market of Singapore and that of Asia

What are some of the differences in population demographics, culture, social structure and eventually consumer buying behaviors?

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Population Trends

Population

Growth

Age

Distribution

Geographic

Trends

LO 14-15

Social Trends

EducationState of Marriage andDivorce

Makeup of Households

ChangingNature ofWork

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Economic Trends

IncomeGrowth

PersonalSavings

Women in the Labor

Force

Widespread Use ofCredit

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Application of Consumer Behavior concepts to Marketing In your previous marketing course, you

would have covered all the key aspects of culture, social class, groups, motivation, learning, perception, attitudes, etc

How could you apply these concepts to retailing and marketing?

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The Kotler Model of Buyer Behavior

Factors influencing consumer behavior

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1

Source: Kotler, Armstrong and da Silva © 4-20

2

Source: Kotler, Armstrong and da Silva © 4-21

3

Source: Kotler, Armstrong and da Silva © 4-22

Do you remember this model from your previous BB course?

The text uses a modified Consumer Behavior Model:

Exhibit 3.64-24

Consumer Behavior Model Stimulus:

Refers to a cue that is external to the individual or a drive that is internal to the individual.

Cue:Refers to any object or phenomenon in the environment that is capable of eliciting a response.

Drive:Refers to a motivating force that directs behavior.

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Stimulus The individual is always involved in passive

information gathering, which consists of receiving and processing information regarding the existence and quality of merchandise, services, stores, shopping convenience, parking, advertising, and any other factors that a consumer might consider in making a decision of where to shop and what to purchase.

Retailers are competing with virtually all other organizations and individuals for the attention of the consumer.

To compete for this attention, retailers may employ various types of stimuli.

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Consumer Behavior Model Passive Information Gathering:

Is the receiving and processing of information regarding the existence and quality of merchandise, services, stores, shopping, convenience, pricing, advertising, and any other factors that a consumer might consider in making a purchase.

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Consumer Behavior Model Problem Recognition:

Occurs when the consumer’s desired state of affairs departs sufficiently from the actual state of affairs, placing the consumer in a state of unrest.

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Problem Recognition A critical factor triggering shopping behavior,

although it is not the beginning of the process.

This model also suggests that need recognition itself is not enough to trigger shopping behavior; rather, recognized need must be balanced against the perceived costs associated with resolving these needs.

Retailers must understand this "need versus barrier quotient" which triggers shopping activity.

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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.

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Hedonic Needs that Retailers can Satisfy

■ Stimulation Ex: Background music, visual displays, scents

■ Social experience Ex: Mixed-use developments, lifestyle centers

■ Learn new trends and fashions Ex: The Body Shop – learn how can live an

environmentally friendly lifestyle■ Satisfy need for power and status

Ex: Buying luxury brands from LV store■ Self-rewards

Ex: personalized makeovers■ Adventure

Treasure hunting for bargains

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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

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Degrees of Consumer Problem Solving in Shopping/Purchasing

Exhibit 3.74-33

Consumer Behavior Model Habitual problem solving:

Occurs when the consumer relies on past experiences and learning to convert the problem into a situation requiring less thought. The consumer has a strong preference for the brand to buy and the retailer from which to purchase it.

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Habitual Problem Solving

■ 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

Purchase decision process involving little or no conscious effo

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What Retailers Need to do for Customers to Engage in Habitual Decision Making

IT DEPENDS

■ If the customer habitually comes to you, reinforce behavior Make sure merchandise in stock Provide good service Offer rewards to loyal customer

■ If the customer goes to your competitor’s store, break the habit Offer special promotions

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Consumer Behavior Model Limited Problem Solving:

Occurs when the consumer has a strong preference for either the brand or the store, but not both.

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Limited Problem Solving

■ 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/PunchStock

Purchase decisions process involving moderate amount of effort and time

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■ It depends…■ If the Customer Is Coming to You, Provide a Positive

Experience and Create Loyalty Make Sure Customer is Satisfied Provide Good Service, Assortments, value Offer Rewards to Convert to Loyal Customer

■ If the Customer Goes to Your Competitor’s Store, Change Behavior Offer More Convenient Locations, Better Service

and Assortments

What do Retailers Need to do for Customers Engaged in Limited Problem Solving?

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Encouraging Impulse Buying

■ Impulse buying: one common type of limited problem solving

■ Influence by using prominent point-of-purchase (POP) or point-of-sale (POS) 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

PhotoLink/Getty Im

ages

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Consumer Behavior Model Extended Problem Solving:

Occurs when the consumer recognizes a problem but has decided on neither the brand nor the store.

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Extended Problem Solving

■ 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

Consumers devote time and effort analyzing alternatives

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What Retailers Need to do for Customers Engaged in

Extended Problem Solving

Provide a Lot of Information

-Use Salespeople rather than advertising to

communicatewith customers

Reduce the Risks

-Offer Guarantees

-Return Privileges© Royalty-Free/CORBIS

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Consumer Behavior Model Active Information Gathering:

Occurs when consumers proactively gather information.

Once consumers reach the shop trigger event, they move from need recognition into active information gathering.

In this phase, consumers gather and evaluate information that will eventually lead to a purchase decision

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Active Information Gathering (3 stages):1. Development of an initial

consideration set, the set of possibilities that should be considered, as well as the key attributes on which the purchase decision will be based.

2. In the second stage, consumers narrow the consideration set to a more manageable number of possibilities.

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3. In the final stage, consumers directly compare key attributes of alternatives remaining on the "short list."

Here consumers are very active in their search for specific information and often begin ascertaining actual prices through store visits or preliminary negotiating where appropriate.

One of the most important variables related to active information gathering is the information resources used by consumers.

As such, retailers can plan their marketing programs to communicate via the appropriate resources.

Active Information Gathering (3 stages):

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Information Search

■ Amount of Information Search Depends on the value from searching versus the cost of searching

■ Factors Affecting Amount of Information Search Product Characteristics

ComplexityCost

Customer Characteristics Past experiencePerceived riskTime pressure

Market CharacteristicsNumber of alternative brands

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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

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Consumer Behavior Model Set of Attributes:

Refers to the characteristics of the store and its products and services.The attributes could include a number of factors such as:

1. Merchandise : range and quality2. Convenience and location3. Customer services4. Prices5. Brand reputation

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Consumer Behavior Model Evaluate Alternatives:

Occurs when consumers make judgments regarding the individual product attributes of a retailer and/or product.

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Problem Solving Stages Based on information gathered in the

previous phase, consumers make a purchase decision, such as which product and store they intend to choose.

At this stage, consumers may decide not to buy, or may reach the buy trigger event, at which point they make a firm decision to purchase or negotiate for the purchase of an item.

We stress that these are "intent" decisions, because other factors can intervene before the transaction is completed.

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Evaluation of Alternatives

■ Multiattribute attitude model: 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

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Information Used in Evaluating Retailers

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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

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Information Eva Used in Buying Suit

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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

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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 Get exposure on search engines

like Google Try to be the top of the page More stores in the same area

(e.g., Starbucks)

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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

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Purchasing Merchandise or Services

■ 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?

Customers do not always purchase a brand with the highest overall evaluation.

The McG

raw-H

ill Companies, Inc./Jill Braaten, photographer

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Consumer Behavior Model Purchase:

The purchase stage may include final negotiation, application for credit if necessary, and the determination of the terms of purchase.

Retailers need to think of various strategies and inducements in order to stimulate purchase.

Lot depends on Point of Sales, Promotions and Customer Service.

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Consumer Behavior Model Post-Purchase Evaluation:

Consumer perceptions toward the retailer and/or product purchased after use and evaluation.

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Post-Purchase Stage Since the dynamic retail patronage model is

cyclical and never ends, successful retailers must concern themselves not only with the activities leading to the transaction, but also with what happens after the transaction, i.e. during the use and evaluation stage.

Post-Purchase Resentment:Arises when after the purchase the consumer becomes dissatisfied with the product, service, or retailer and thus begins to regret the purchase was made.

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Post-Purchase Stage Retailers must understand and either

avoid or quickly neutralize post-purchase resentment.

One method for doing this is customer satisfaction programs.

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Postpurchase Evaluation

■ Satisfaction 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

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Customer Loyalty

■ Brand Loyalty Committed to a Specific

Brand Reluctant to Switch to a

Different Brand May Switch Retailers to Buy

Brand

■ Store Loyalty Committed to a Specific

Retailer Reluctant to Switch Retailers

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Dynamic nature of retail BB Since the dynamic retail patronage model is

both dynamic and interactive, consumers can jump to and from the central stage of passive information gathering from virtually every other stage in the process.

It must be stressed that retailers must therefore be constantly vigilant to customer service, because there is not a beginning and end to shopping behavior

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Stages in the Buying Process (applied to a retailing context)

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Review of the BB model and implications for retailing/marketing

Problem Recognition

Information Search

Alternative Evaluation

Purchase

Post-Purchase

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Legal and Ethical BehaviorDunne Chapter 6

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Note: the PWPT slides for this chapter are provided in brief form. More

details are seen in the Lecture Note Summaries (Word Document)

Learning Objectives1. Explain how legislation constrains a

retailer’s pricing policies.2. Differentiate between legal and illegal

promotional activities.3. Explain the retailer’s responsibilities

regarding the products sold.4. Discuss the impact of governmental

regulation on a retailer’s behavior with other supply chain members.

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Learning Objectives5. Describe how various state and local laws,

in addition to federal regulations, must also be considered in developing retail policies.

6. Explain how a retailer’s code of ethics will influence its behavior.

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Note: this chapter is heavily skewed towards legislation and business practices in the US; you will need to consider how this is practiced in the local retail market. Ethics on the other hand should be universal in concept but not necessarily adopted in all retail markets.

Ethical and Legal Constraints Influencing Retailers

Exhibit 6.1 4-72

Pricing Constraints

Exhibit 6.4 4-73

Pricing ConstraintsHorizontal Price Fixing:Occurs when a group of competing retailers (or other channel members operating at a given level of distribution) establishes a fixed price at which to sell certain brands of products.

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Pricing ConstraintsVertical Price Fixing:Occurs when a retailer collaborates with the manufacturer or wholesaler to resell an item at an agreed-on price.

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Pricing ConstraintsPrice Discrimination:Occurs when two retailers buy an identical amount of “like grade and quality” merchandise from the same supplier but pay different prices.

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Price Discrimination Cost justification defense.

Changing market defense.

Meeting competition in good faith defense.

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Pricing ConstraintsDeceptive Pricing:Occurs when a misleading price is used to lure customers into the store; usually there are hidden charges or the item advertised may be unavailable.

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Pricing ConstraintsPredatory Pricing:Exists when a retail chain charges different prices in different geographic areas to eliminate competition in selected geographic areas.

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Promotional Constraints

Exhibit 6.54-80

Promotion Constraints

Deceitful Diversion of PatronageDeceptive AdvertisingDeceptive Sales Practices

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Promotion ConstraintsPalming Off:Occurs when a retailer represents that merchandise is made by a firm other than the true manufacturer.

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Deceptive Advertising Deceptive Advertising:

Occurs when a retailer makes false or misleading advertising claims about the physical makeup of a product, the benefits to be gained by its use, or the appropriate uses for the product.

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Deceptive Advertising Bait-and-Switch Advertising:

Advertising promoting a product at an unrealistically low price to serve as “bait” and then trying to “switch” the customer to a higher-priced product.

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Deceptive Sales PracticesFailing to be honest or omitting key facts in either ad of the sales presentation.

Using deceptive credit contracts.

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Product Constraints

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Product Constraints Product Liability Laws:

Deal with the seller’s responsibility to market safe products. These laws invoke the “foreseeability” doctrine, which states that a seller of a product must attempt to foresee how a product may be misused and warn the consumer against hazards of misuse.

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Product Constraints Expressed Warranties:

Are either written or verbalized agreements about the performance of a product and can cover all attributes of the merchandise or only one attribute.

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Product Constraints Implied Warranty of Merchantability:

Is made by every retailer when the retailer sells goods and implies that the merchandise sold is fit for the ordinary purpose for which the such goods are typically used.

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Product Constraints Implied Warranty of Fitness:

Is a warranty that implies that the merchandise is fit for a particular purpose and arises when the customer relies on the retailer to assist or make the selection of goods to serve a particular purpose.

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Channel Constraints

Exhibit 6.7 4-91

Supply Chain ConstraintsTerritorial Restrictions:Are attempts by the supplier, usually a manufacturer, to limit the geographic area in which a retailer may resell merchandise.

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Supply Chain Constraints

Dual Distribution:Occurs when a manufacturer sells to independent retailers and also through its own retail outlets.

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Dual Distribution

Ralph Lauren has a dual distribution strategy where it markets its Polo brand apparel through its own retail stores as well as through traditional department stores.

Exclusive DealingOne-Way Exclusive Dealing:

Occurs when the supplier agrees to give the retailer the exclusive right to merchandise the supplier’s product in a particular trade area.

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Exclusive Dealing Two-Way Exclusive Dealing:

Occurs when the supplier offers the retailer the exclusive distribution of a merchandise line or product in a particular trade if in return the retailer will agree to do something for the manufacturer such as heavily promote the supplier’s products or not handle competing brands.

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Tying Agreements Tying Agreement:

Exists when a seller with a strong product or service requires a buyer (the retailer) to purchase a weak product or service as a condition for buying a strong product or service.

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State, and Local Regulations Affecting Retailers

Exhibit 6.84-98

Ethics in Retailing

Ethical Behavior in Buying MerchandiseEthical Behavior in Selling MerchandiseEthical Behavior in Retailer-Employee Relationship

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Ethics in Retailing

Ethics:Is a set of rules for human moral behavior.

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Ethics in Retailing

Explicit Code of Ethics:Consists of a written policy that states what is ethical an unethical behavior.

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Ethics in Retailing Implicit Code of Ethics:Is an unwritten but well understood set of rules or standards of moral responsibility.

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Ethical Behavior in Buying Merchandise

Product QualitySourcingSlotting FeesBribery

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Ethical Behavior in Buying Merchandise Slotting Fees (Slotting Allowances):

Are fees paid by a vendor for space or a slot on a retailer’s shelves, as well as having its UPC number given a slot in the retailer’s computer system.

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Ethical Behavior in Buying Merchandise Markdown Money:

Is what retailers charge to suppliers when merchandise does not sell at what the supplier intended.

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Ethical Behavior in Selling Merchandise

Products Sold Should a retailer be allowed to sell any

product, as long as it is not illegal?

Selling Practices Should a salesperson, while not saying

anything wrong, be allowed not tell the customer all the facts?

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Ethical Behavior in the Retailer-Employee Relationship

Misuse of Company Assets

Job Switching

Employee Theft

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National Retail Federation Principles on Customer Data Privacy

Exhibit 6.94-108