Consumer Shopping Behavior

1. Retailing MKTG 3346 Consumer Shopping Behavior Professor Edward Fox Cox School of Business/SMU

2. Trip Buying or browsing? Specific need, or inventory replenishment Retailer Where to shop (order matters)? Mall/retail center vs. nearby store In-Store What product categories? Within each category, which products to consider? What about “impulse,” or unplanned items? Buy or defer? All Those Decisions…

3. Consumer Shopping Decisions Store Choice Category Selection Brand Choice Purchase Quantity

4. TripPurpose(s) of the Trip • Before determining where to shop, the consumer must determine the purpose(s) of the trip • Transaction • Information • Entertainment • Transaction… • Replenishment • Which retailer do I prefer? • Routine • Specific item • Where are desired items available? For transaction-focused shopping, convenience, price, and assortment are key criteria for store choice

5. TripPurpose(s) of the Trip • Information… • Product search • Assortment is the primary criterion • Price search • Expected prices are the key criterion • Entertainment… • Retailer advertising • Retailer reputation • Mall operators often stage entertainment to create excitement and draw customer traffic For information- and entertainment-focused shopping, proximity of a store to other stores (e.g., mall, “restaurant row”) is often a key criterion

6. TripPurpose(s) of the Trip PurposeShopper Classification Transaction Buyer (Goal Directed) Information Browser Entertainment Consumers browse in apparel and department stores; not grocery and drug stores

7. Trip and RetailerWhere to Shop and What to Buy Store choice “Where to shop” Category Selection “What to buy” Needed items, or shopping lists, often affect the choice of store

8. Trip and RetailerWhere to Shop and What to Buy • If the purpose is replenishment … Neighborhood StoreLow-Price Store Shoppers buy less than half as much on a trip to the neighborhood store, compared to a low-price stores

9. Trip and RetailerWhere to Shop and What to Buy If the purpose is replenishment … Shoppers engage in two types of trips: • “Stock up” • Spend more • Mainly on the weekend • “Fill in” • Driven by specific item(s) • Random occurrences

10. RetailerStore Choice Consumers report that their choice of store is driven by: • Convenience • Proximity to the shopper’s home • One-stop shopping convenience • Proximity to other stores (e.g., on the mall) • Price • Variety and assortment • Service

11. RetailerShopper’s Evaluation of Retailer Prices The general evaluation of a retailer prices is known as price image • Consumers can’t evaluate all the prices in a store, so price image depends on: • Prices of items that the consumer has considered buying • Are prices usually lower than competitors? • Consumers can’t easily evaluate how much lower • Better known brands are thought to have a greater effect on the retailer’s price image • Prices of sale items • Most salient to shoppers • Often displayed, too

12. RetailerShopper’s Evaluation of Retailer Assortment • Retailer assortment can be difficult for consumers to evaluate • It depends on the differences between products offered, as well as the number of products offered • The shopper’s general evaluation of a retailer product assortment is based on: • The number of SKUs offered • Whether preferred or “favorite” brands are available • Shelf or floor space devoted to the category

13. RetailerMulti-Store Shopping • Selecting a store may mean selecting more than one • Price or value search – order of store visits matters • Consumers meet different needs at non-competing retailers on the same trip • “Cherry picking” • The store(s) visited previously may change the probability of visiting that store tomorrow • Category-specific store preferences • Consumers may tradeoff price and convenience differently from trip to trip Multi-Store shopping is an important reason for retailers to locate their stores near other stores

14. RetailerMulti-Store Shopping • Over time, consumers may shop at many stores that sell similar items Correlations of Logarithm of Household Packaged Goods Expenditures Data Source: IRI panel of 189 panelists from Oct 1995 - Oct 1997

15. In-StoreWhat to Buy – Shopping List • Before shopping, customers often prepare a shopping list of items sought • On paper • US (1995) – 55% of grocery shoppers prepare shopping lists • Europe (1997/8) – 70% of grocery shoppers prepare shopping lists • Mental • In apparel and other non-CPG shopping, fewer items are sought so shopping lists are primarily mental

16. In-Store What to Buy – Shopping List • Shopping lists may be more or less specific • Product category • Brand – Though most customers use shopping lists, only 25% of brands purchased are pre-selected • Size Shopping lists, particularly mental lists, usually include only the product category (not the brand)

17. In-StoreWhat to Buy – Factors Influencing Purchase Decisions • Most purchase decisions are made in-store • US • POPAI – 65% in the 1980s; 81% in the 1990s • Europe • Retail Marketing Services – 75% in 1997/8 • 8% category selected for purchase, but not brand • 4% pre-selected brand was substituted • 64% unplanned purchases “P-O-P is significant as the ‘last three feet’ of a brand’s marketing campaign, and serves as the ‘closer’ for in-store purchasing decisions as well as an influencer for impulse purchases” POPAI, 1995

18. In-StoreWhat to Buy – Factors Influencing Purchase Decisions Source: POPAI, 1995

19. In-StoreWhat to Buy – Unplanned Purchases • Items for which purchase was not anticipated are considered “unplanned purchases” • Impulse • Non-impulse • Reminder • Suggestion • Impulse purchases can be stimulated • Merchandising around cash-wraps, entrances and other high-traffic areas • Store atmospherics (e.g., colors and smells) • Displays

20. In-Store What to Buy – Unplanned Purchases • Purchases which suggested/reminded by retailer are influenced by: • Display • Signage – e.g., shelf tags • Cross-merchandising • From the retailer’s perspective, these are “add-on” sales • The number of unplanned purchases increases with both variety and assortment offered by the retailer The bigger the store, the more unplanned purchases

21. In-Store What to Buy – Unplanned Purchases Unplanned purchases may be limited by the shoppers’ budget constraints and time constraints Browsers make more unplanned purchases

22. In-StoreBrand/Product Choice – Consideration Sets • To avoid spending all day in the store, shoppers limit their consideration to relatively few items • What – Consideration set is the subset of available products that is evaluated when making a choice • Why – limited cognitive resources • How – screen items unlikely to be of interest before evaluating them

23. In-StoreBrand/Product Choice – Consideration Sets Need Recognition Information Search • How/when is the consideration set formed Consideration Set Evaluation of Alternatives Intention to Purchase Purchase Decision

24. In-StoreBrand/Product Choice – Evaluation Factors • Price/value • Compared with what is on the shelf (in-store) • Compared with competitors (out of the store) • Compared with recalled prices • Quality • Performance (e.g., fabric weave and weight, cut) • Conformance (e.g., durability, workmanship) • Image • Familiarity / information – Reduces uncertainty of evaluation Brand can be a proxy for quality, if quality is unknown and can be a primary factor in determining the image associated with a product

25. In-StoreBrand/Product Choice – Consumer Evaluation • Retailers can affect consumers’ product evaluations by • Pricing • Vs. competitors • Between items on the shelf • Assortment • Number of items • Quality of items • Brand(s) of merchandise • Retailers may try to “up-sell,” or influence shoppers to purchase a higher-margin product, but they are more likely to pursue customer loyalty or “add-on” sales

26. In-StoreBrand/Product Choice – Consumer Evaluation • Brands are often a key component of the retailer’s positioning Barney’s New York JCPenney • Donna Karan • Dolce & Gabanna • Giorgio Armani • Jil Sander • Arizona • Lee • L.E.I. • Vanity Fair http://www.barneys.com http://www.jcpenney.com

27. In-StoreBrand/Product Choice – Private Label • Retailers may offer their own brands, known as “private labels” • Offer consumers more choice alternatives • Offer consumers lower-priced alternatives to the national brand • May appeal to more price-sensitive shoppers • Offer products that have higher margins than national brands • Offer products that are exclusive to the retailer

28. In-StoreBrand/Product Choice – Private Label • In general, shoppers prefer national brands to store brands, though: • Some retailers offer exclusively private labels • The Gap • Land’s End • Private label penetration varies by category • 64% of egg sales • 58% of milk sales • 30% of sour cream sales • Private label has higher penetration in certain countries • Britain

29. Private label examples In-StoreBrand/Product Choice – Private Label

30. In-StorePurchase Quantity • Purchase quantity is driven primarily by promotional discounts • The limited time availability leads customers to stockpile • Specific promotions encourage larger quantity purchases: • Of individual items • Buy one; get one free • 3 for the price of two • Trial size with purchase • Of goods in the store • Volume discounts • Frequent flyer-type programs