1. Chapter 3 Retail Customers

2. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives  Explain the importance of population trends on retail planning.  List the social trends that retail managers should regularly monitor and describe their impact on retailing.

3. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives  Describe the changing economic trends and their effect on retailing.  Discuss the consumer shopping/purchasing model, including the key stages in the shopping/purchasing process.

4. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Introduction  Customer satisfaction - Occurs when the total shopping experience of the customer has been met or exceeded.  Customer services - Activities performed by the retailer that influence:services  the ease with which a potential customer can shop or learn about the store’s offering.  the ease with which a transaction can be completed once the customer attempts to make a purchase.  the customer’s satisfaction with the transaction.

5. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 3.1 - Personal Consumer Expenditures and Lagged Satisfaction (ACSI)

6. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Introduction  Market segmentation - Dividing of a heterogeneous consumer population into smaller, more homogeneous groups based on their characteristics.  Demographic  Psychographic Psychographic  Behavior  Geography

7. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 3.2 - How Current Trends Affect the way the Consumer Behaves

8. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Population Trends  Retailers often find it useful to group consumers according to population variables, such as population growth trends, age distributions, ethnic makeup, and geographic trends. It is useful for two reasons:  Data is often linked to marketplace needs.  Data is readily available and can be easily applied in analyzing markets. LO 1

9. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Population Growth  Any increase in domestic population growth will mean an increased demand for goods and services.  Even minimal growth in the total population will mean opportunities for retailers. LO 1

10. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Population Growth  As population growth slows, successful retailers must focus on taking market share away from competitors, managing gross margin by controlling selling price and cost price, and increasing the productivity of existing stores.  Another growth opportunity for retailers is international expansion. LO 1

11. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 3.3 - Boomers, Xers, and YersBoomersYers LO 1

12. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8000 boomers turn 60 every day Forth & TowneTowne Chicos J JillJill Out to eat Under 20 tweens20tweens

13. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Age Distribution  A retailer must  Understand the various needs of each age segment and know what motivates consumers to spend money.  Be able to speak the older consumers’ language, avoid talking down to or patronizing them, and shun ‘‘phony friendliness.’’  Understand that, as they age, older consumers need easy-to-navigate store layouts and clearly labeled merchandise. LO 1

14. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Age Distribution  Retailers will also need to shift the types of services provided if they are to gain the consumers’ dollar.  They must use the Internet to reach out to young consumers since most of them are technology savvy. LO 1

15. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ethnic Trends  In the last half-century the United States has moved from a predominantly white population to a society rich in racial and ethnic diversity.  The U.S. Census Bureau has projected that by 2042 non-Hispanic whites will no longer make up the majority of the population.  By 2050 the Hispanic population is expected to rise from 15 percent today to 30 percent. LO 1

16. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Ethnic Trends  Implications for retailersretailers  Retailers must understand Hispanic shoppers and their $1.2trillion of purchasing power. Retailers  When targeting Hispanics, retailers should not assume that  their population in the United States is homogeneous.  they behave the same in the marketplace. LO 1

17. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Geographic Trends  The location of consumers in relation to the retailer will often affect how they buy.  Retailers should be concerned about where their consumers reside.  All consumers want convenience and will therefore tend to patronize local retail outlets.  Considering mobility, the farther one moves from a prior residence, the more one needs to establish new retail shopping patterns. LO 1

18. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Geographic Trends  Implications for retailers  Northeastern and Midwestern retailers are experiencing slower growth, and national retailers are adding stores and distribution centers (warehouses) in the South and West.  Retailers should not assume that all consumers in a certain geographic area have the same purchasing habits.  Micromarketing - Tailoring of merchandise in each store to the preferences of its neighborhood. LO 1

19. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Geographic Trends  Every shift in consumer population patterns has major implications for retailers, especially when it comes to expenditures made for household products.  There are also opportunities in smaller markets.  As metropolitan statistical areas (MSAs) have begun to stabilize, secondary markets have become more attractive.  With the recent trend toward higher education, which results in more job variations, retailers can only expect consumer mobility to increase. LO 1

20. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Social Trends  Education  State of marriage  Divorce  Makeup of American households  Changing nature of work LO 2

21. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Education  The education level of the average American is increasing, and is the single most reliable indicator of a person’s income potential, attitudes, and spending habits.  Retailers can expect consumers to become increasingly sophisticated, discriminating, and independent in their search for consumer products.  Education is also a key determinant of the use of the Internet for shopping. LO 2

22. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. State of Marriage  Single-person households presents many opportunities for the retailer because of the increased need for a larger number of smaller houses complete with home furnishings.  With more men living alone, supermarkets will have to direct promotions toward their needs and habits. LO 2

23. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Divorce  Divorce may impact the way people shop once they are settled into their new homes. 250% increase since 1960  Retailers must make specific adjustments for divorced, working women with children by adjusting store hours, providing more consumer information, and changing the product assortment. LO 2

24. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Makeup of American Households  Boomerang effect - The recent trend of children returning to live with their parents after having already moved out.  Sandwich generational family or trigenerational family - Occurs when three generations (parents, grandparents, and children) live together in the same house. Sandwich  Retailers should recognize the differences in the changing structure in the makeup of households within the market. LO 2

25. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Changing Nature of Work  Retailers need to find ways to enrich job experiences and lower turnover.  One major opportunity for retailers is employing home-based and disabled workers.disabled  Since many individuals are holding multiple jobs, retailers can tap into this pool of individuals for part-time workers. LO 2

26. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Economic Trends  Income growth  Personal savings  Women in the labor force  Widespread use of credit LO 3

27. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Income Growth  A significant proportion of the lowest-income households move up the income scale over a 10- year period.  At the same time a significant proportion of the richest households move down the income scale.  The distribution of wealth is non-uniform. LO 3

28. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2006 median household income All $58,400 African American$38,200 Hispanic$40,000 Caucasian$61,200 Asian Pacific Islanders$74,600

29. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Income Growth  Disposable income - Personal income less personal taxes.  Discretionary income - Disposable income minus the money needed for necessities to sustain life. LO 3

30. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Income Growth  Implications for retailers  The imbalance in income growth across households has created an increased demand for value-oriented retailers such as discounters and manufacturers’ outlets.  The growth of recycled merchandise retailers and low cost retailers is due to the low income level and low income growth among some segments of the population.retailers LO 3

31. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Income Growth  Many Americans now use the Internet as a source to sell unwanted or unneeded merchandise and increase their income.  Ebay  Craig’s List  Others? LO 3

32. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Personal Savings  During most of the last decade, the economy, stock market, and the housing market experienced exceptionally strong growth, hence people stopped saving and began to invest in the stock market. LO 3

33. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Personal Savings  Implications for retailers  Retailers have benefited from the spending rather than the saving mindset of the consumer.  They must be prepared when Baby boomers and Gen Xers plan for retirement while simultaneously reducing their spending and increasing their savings.  As the marketplace becomes saturated with available workers, overall wages fall, which could negatively impact future retail sales. LO 3

34. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Women in Labor Force  Over the past five decades, women have become a dominant factor in the labor force.  Rise in the number of working women has protected many households from inflation and recession.  It has resulted in a huge increase in household income. LO 3

35. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Women in Labor Force  Implications for retailers  As the number of dual wage-earner families increases, many of these families have less time for shopping and are more prone to looking for convenience and additional services from retailers.  Bricks-and-mortar retailers must extend store hours and offer conveniences.  They should provide alternatives to in-store shopping, such as catalogs, online shopping, and even delivery if they want to compete for the time pressed shopper’s store loyalty. LO 3

36. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Widespread use of CreditCredit  Credit card usage has increased as a result of active promotional campaigns and low interest rates.card  Retailers benefit from credit cards; research shows that customers spend more when they use a credit card than when they must pay in cash.  However, a rise in liquidity crisis will leave little income for future retail purchases. LO 3

37. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 3.7 - Consumer Shopping and Purchasing Model LO 4

38. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Consumer Behavior ModelModel StimulusA cue that is external to the individual or a drive that is internal to the individual. CueAn object or phenomenon in the environment that is capable of eliciting a response. DriveA motivating force that directs behavior. Passive information gathering 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. LO 4

39. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Consumer Behavior Model  Problem recognition - Consumer’s desired state of affairs departs sufficiently from the actual state of affairs, placing the consumer in a state of unrest.  The level of one’s desire to resolve a particular problem depends on two factors:  The magnitude of the gap between the consumer’s desired and actual states.  The importance of the problem. LO 4

40. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 3.8 - Degrees of Consumer Problem Solving in Shopping and Purchasing LO 4

41. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Problem-Solving Stages  The first step is active information gathering where consumers proactively gather information.  The second step is evaluation of alternatives.  Consumers develop a set of attributes on which the purchase decision will be based.  Consumers narrow their consideration set to a more manageable number of attributes.  Consumers directly compare the key attributes of the alternatives remaining on their ‘‘short list.’’ LO 4

42. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Problem-Solving Stages  Set of attributes - The characteristics of the store and its products and services. LO 4

43. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Purchase  The purchase stage may include final negotiation, application for credit if necessary, and the determination of the terms of purchase.  The purchase stage is often seen by retailers as an opportunity to use suggestion selling to sell add- on or related purchases. LO 4

44. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Post-Purchase Evaluation  Immediately after the transaction, consumers form lasting impressions regarding the soundness of their purchase decision.  Post-purchase resentment - Arises after the purchase when the consumer becomes dissatisfied with the product, service, or retailer and thus begins to regret that the purchase was made. LO 4

45. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Post-Purchase Evaluation  If post-purchase resentment is not identified and rectified quickly by the retailer, it can have a long-term negative effect on the retailer’s bottom line.  If the retailer is proactive in its customer- satisfaction program and responds quickly to budding resentment, it can be overcome. LO 4