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 Expenditures
and Lagged Satisfaction (ACSI)
Note the larger lag during & after the “Great Recession” – consumers must
also have funds available in order to purchase
Generating Satisfaction to
Increase 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 Trends
Affect the Way the Consumer Behaves
Grouping by Population Variables
• 4 Most Common Population Variables:
1.
2.
3.
4.
Growth trends
Age distributions
Ethnic makeup
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
•
•
3.
Mexicans, Cubans, Spanish, etc. are all different
2nd generation and beyond are more mainstream
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.
2.
3.
More alert to price, quality, and advertising
Increasingly sophisticated, discriminating, and independent
in their search for consumer products.
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.
2.
3.
Increase the need for smaller homes complete with
furnishings
Later hours of operation
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.
2.
3.
4.
New homes complete with furnishings
Expanded hours of operation with child services (e.g.,
daycare or supervision), particularly for the working women
Convenience
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 DINKS
2. Over ¼ of households are “home aloners”
3. Unmarried “mingles” have increased 383% since 1980 and
represent 6% of total households
4. 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 Solving
in 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 longterm negative effect on the retailer’s bottom line.
• Only when the retailer proactively, through the use of a customersatisfaction 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.