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… • The Product • Specifically what is purchased • Can be a tangible product or intangible service • 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. • When does the customer buy? • Time of day, Consistency, etc. • Who buys? • Purchaser vs. User, the Family-Buying-Unit, etc. • Where and How do they buy? • Location, Three-tailing (Showrooming), Size, Use, etc.
Grouping by Population Variables • 4 Most Common Population Variables: • 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: • Stealing market share • Controlling costs to enhance gross margins • Enhancing productivity (see Ch. 2) • Growth is possible by: • Expanding internationally • Limited though by slowing growth • 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: • Understand the various needs of each age segment and know what motivates those segments to spend money. • Speak older consumers’ language, avoid talking down to or patronizing them, and alter store layouts and location of merchandise for easy access. • Remember GenX and GenY are significant segments that cannot be overlooked. • Tailor services offered by targeted segment’s wants and needs. • 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: • 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 • Understand that Hispanic shoppers are not homogeneous • 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: • 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: • 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: • 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? • More than 55% of all families are DINKS • Over ¼ of households are “home aloners” • Unmarried “mingles” have increased 383% since 1980 and represent 6% of total households • Boomerang effect is increasing • When children return to live with their parents after having already moved out. • 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: • Focus on ways to enrich job experiences and lower turnover. • One opportunity is employing home-based & disabled workers. • 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: • Investment in the stock market • Overlooks the wealth effect • 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.
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: • The magnitude of the gap between the consumer’s desired and actual states. • The importance of the problem.
Problem Solving • Stage1: • Active information gathering (search) • Consumers proactively gather information. • Stage2: • Evaluation of alternatives • Develop a set of attributes on which the purchase will be based. • Narrow consideration set to a manageable number of attributes. • 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 • The importance of population trends and their likely impact on retail planning. • The social trends that retail managers should regularly monitor and their likely impact on retailing. • The changing economic trends and their effect on retailing. • The consumer shopping/purchasing model, including the key stages in the shopping/purchasing process.