Dunne, Lusch, & Carver

Chapter 3

Retail Customers

Competition for a Differential Advantage

• Easiest way to gain a differential advantage is by, first, understanding and addressing one’s customers’ needs/wants better than the competition.

What is Customer Satisfaction?

• Occurs when the total shopping experience of the customer has been met or exceeded.

• It’s a function of…1. The Product

• Specifically what is purchased• Can be a tangible product or intangible service

2. Customer services (3 categories)• Pre-transaction – affect the ease with which a potential

customer can shop and/or learn about the store’s offerings• Transaction – enhance the ease with which a transaction can

be completed once the customer attempts to do so.• Post-transaction – focus on maintaining/enhancing one’s

satisfaction with the transaction.

Personal Consumer Expendituresand Lagged Satisfaction (ACSI)

Note the larger lag during & after the “Great Recession” – consumers must also have funds available in order to purchase

Generating Satisfaction toIncrease Revenues & Profitability*

• Any customer can be satisfied by any retailer• But doing so is often unlikely to be profitable.

• The 3rd aspect of a market orientation was what??• Long-term profit orientation

• Retailers must go after only those customer groups whose needs/wants can be addressed profitably…

Who is your customer?

• Market segmentation

• Dividing of a heterogeneous consumer population into smaller, more homogeneous groups based on their characteristics.

Understanding the Customer*

• By answering three questions, retailers can better plan their offerings in order to increase customer satisfaction.

1. When does the customer buy?• Time of day, Consistency, etc.

2. Who buys?• Purchaser vs. User, the Family-Buying-Unit, etc.

3. Where and How do they buy?• Location, Three-tailing (Showrooming), Size, Use, etc.

How Current TrendsAffect the Way the Consumer Behaves

Grouping by Population Variables

• 4 Most Common Population Variables:1. Growth trends

2. Age distributions

3. Ethnic makeup

4. Geography

• Useful for two reasons:• Often linked to marketplace needs.• Data is readily available.

Population Growth

• Growth in domestic population means increased demand for goods and services.• Even minimal growth provides opportunities for

retailers.

• Trend: Steady decline• Three-decade decline in growth

• Projected 1% annual growth• Majority due to immigration

Implications of Declining Growth

• Must focus on:1. Stealing market share

2. Controlling costs to enhance gross margins

3. Enhancing productivity (see Ch. 2)

• Growth is possible by:1. Expanding internationally

• Limited though by slowing growth

2. Leveraging changes in demand for particular products• For example: PetSmart and Doggie Day Care

Age Distribution

• “Graying of America”• Overall increase in the median age

• 1980 = 30 yrs.; 2010 ≈ 37 yrs.

• Largely due to Boomers, but tempered by GenY• Boomers: 1946 to 1964

• 78 million

• GenX: 1965 to 1977• 47 million

• GenY: 1978 to 1994• 80 million

Implications of a Changing Distribution

• Successful retailers will:1. Understand the various needs of each age segment and

know what motivates those segments to spend money.

2. Speak older consumers’ language, avoid talking down to or patronizing them, and alter store layouts and location of merchandise for easy access.

3. Remember GenX and GenY are significant segments that cannot be overlooked.

4. Tailor services offered by targeted segment’s wants and needs.

5. Use the Internet to reach out to young consumers since most of them are technology savvy.

Ethnic Makeup*

• Movement towards Emerson’s “Melting Pot”• Non-Hispanic whites

• Today: 68%; Projected 2050: 46%

• Hispanics• Today: 15%; Projected 2050: 30%

• African-American• Today: 13%; Projected 2050: 15%

• Asian• Today: 5%; Projected 2050: 10%

Implication of Ethnicity Changes

• Given shrinking growth, successful retailers will:1. Understand Hispanic shoppers

• 65% are under 35• An average of 9 yrs. younger than overall U.S. population• Teen pop. projected to rise 62% by 2020; 10% for all teens

2. Understand that Hispanic shoppers are not homogeneous• Mexicans, Cubans, Spanish, etc. are all different• 2nd generation and beyond are more mainstream

3. Remember that African-Americans represent a significant population base, and the Asian-American population is expected to double by 2050.

Shifts in Geographic Centers

• Location of consumers will often affect how they buy

• Convenience is crucial, especially as one ages

• Access to transportation may expand one’s shopping radius

• Geographic mobility can erode one’s customer base over time

• E.g., South and West expansion

• Regional tastes will influence future consumption

Implication of Shifts in Geography

• Successful retailers will realize:• Growth opportunities are slowing in the Northeast and

Midwest

• Adding distribution centers in the South and West may be advantageous for national chains

• Shopping habits of all consumers in a certain geographic area are not always the same (see exhibit 3.5)

• Micromarketing – tailoring merchandise in each store to the preferences of one’s neighborhood or community

• Recent trends towards higher education will likely increase job variations and thus heightened consumer mobility

Societal Trends

• Education• State of marriage• Divorce• Makeup of American households• Changing nature of work

Education

• Educational level of the average American is increasing

• Particularly for women• Single most reliable indicator of a person’s income

potential, attitudes, and spending habits.• Average American = “Some college”

• Implication:• Educated consumers are:

1. More alert to price, quality, and advertising2. Increasingly sophisticated, discriminating, and independent

in their search for consumer products.3. More likely to use the Internet for shopping

State of Marriage

• Average age when people marry is increasing• 1970:

• less than 10% of males & 6% of females 30-34 not married

• 2007:• 32% of males & 24% of females 30-34 not married

• Implication:• Single-person households:

1. Increase the need for smaller homes complete with furnishings

2. Later hours of operation

3. Increase the need for understanding of the “male shopper”

Divorce

• 250% increase in divorce rates since 1960• Average divorce occurs approximately 7.2 yrs. after

marriage

• Implication:• Divorcees often need:

1. New homes complete with furnishings

2. Expanded hours of operation with child services (e.g., daycare or supervision), particularly for the working women

3. Convenience

4. Expanded shopping assistance and services (e.g., meal ideas)

Changing American Household

• Retailers commonly study the household to understand a given market, but what’s the “typical” household?

1. More than 55% of all families are DINKS2. Over ¼ of households are “home aloners”3. Unmarried “mingles” have increased 383% since 1980 and

represent 6% of total households4. Boomerang effect is increasing

• When children return to live with their parents after having already moved out.

5. Sandwich generational, or trigenerational, families on the rise• When three generations (parents, grandparents, and children) live

together in the same house.

Changing Nature of Work

• Individuals are less loyal to their employers.• 25% have held their job for less than 1 yr.

• Entry-level turnover approaches 75% per yr.• Costly to replace (over $5.8 billion in supermarket industry)

• Many hold multiple jobs to pay for expensive collections.

• Implications:1. Focus on ways to enrich job experiences and lower

turnover.• One opportunity is employing home-based & disabled workers.

2. Given many hold multiple jobs, pool of part-time workers exists

Economic Trends

• Income growth• Personal savings• Women in the labor force• Widespread use of credit

Income Growth

• The distribution of wealth is non-uniform.• African-American: $38,200• Hispanic: $40,000• White: $61,200• Asian-Pacific Islander: $74,600

• However, income mobility is quite high in the U.S.

• But what is income?• Disposable versus Discretionary income.

• Those selling necessities want disposable to increase & taxes to decrease, while luxury retailers focus on discretionary.

Personal Savings

• Many criticize the U.S. economic system as not rewarding personal savings.• 2007: .4% of disposable income

• Yet government reporting neglects to account for:1. Investment in the stock market

• Overlooks the wealth effect

2. Investment in the housing market• Overlooks (realized or unrealized) capital gains/losses

Women in Labor Force

• Women are a dominant factor in the labor force.• 60% of all women over 16 are in the labor force.

• 76% of those between 25 and 34• 62% are married with preschoolers

• Not the result of delaying family plans.

• They have protected many households from inflation and recession.

• Resulted in a huge increase in household income.• 18% rise in dual-income families’ income from 1990 to 2006

(after adjusting for inflation)

Widespread use of Credit

• Credit card usage has increased as a result of active promotional campaigns and low interest rates.

• Retailers benefit from credit cards• Customers spend more when they use a credit card

than cash.

• However, a rise in liquidity concerns will leave little income for future retail purchases.

Consumer Shopping and Purchasing Model

Problem Recognition

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

• Desire for resolution of the problem is a function of two factors: 1. The magnitude of the gap between the consumer’s

desired and actual states.

2. The importance of the problem.

Degrees of Consumer Problem Solvingin Shopping and Purchasing

Problem Solving

• Stage1:• Active information gathering (search)

• Consumers proactively gather information.

• Stage2:• Evaluation of alternatives

1. Develop a set of attributes on which the purchase will be based.

2. Narrow consideration set to a manageable number of attributes.

3. Directly compare key attributes of product alternatives on one’s ‘‘short list.’’

Purchase

• Purchase stage may include:• Final negotiation• Application for credit (if necessary)• Determination of the terms of purchase.

• This stage often seen by retailers as an opportunity to use suggestion selling.

Post-Purchase Evaluation

• Immediately after the transaction, consumers form lasting impressions regarding the soundness of their purchase.

• Post-purchase resentment• When the consumer is dissatisfied with the product, service, or

retailer and thus begins to regret that the purchase was made.

• Implication:• When not identified and corrected by the retailer, it can have a long-

term negative effect on the retailer’s bottom line.• Only when the retailer proactively, through the use of a customer-

satisfaction program , responds to budding resentment, can it be overcome

What You Should Have Learned…Chapter’s Learning Objectives

1. The importance of population trends and their likely impact on retail planning.

2. The social trends that retail managers should regularly monitor and their likely impact on retailing.

3. The changing economic trends and their effect on retailing.

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