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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?.

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chapter 3 retail customers
Chapter 3

Retail Customers

competition for a differential advantage
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
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 expenditures and lagged satisfaction acsi
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 to increase revenues profitability
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
Who is your customer?
  • Market segmentation
    • Dividing of a heterogeneous consumer population into smaller, more homogeneous groups based on their characteristics.
understanding the customer
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
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
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
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
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
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
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
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
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
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
Societal Trends
  • Education
  • State of marriage
  • Divorce
  • Makeup of American households
  • Changing nature of work
education
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
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
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
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
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
Economic Trends
  • Income growth
  • Personal savings
  • Women in the labor force
  • Widespread use of credit
income growth
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
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 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
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
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
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
  • 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
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
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.