Module 2: Retail Customer

Learning Outcomes
After reading this lesson you should be able to:
ӹ Explain the importance of population trends on retail planning
ӹ List the social trends that retail managers should regularly monitor and
describe their impact on retailing.
ӹ Describe the changing economic trends and their effects on retailing
ӹ Discuss the consumer shopping and purchasing model, including the key
stages in the shopping and purchasing process

INTRODUCTION
In this module, we examine the effects of the external environment on
retailing. We discuss how recent changes in the population and in social and economic
trends affect the way consumers behave and the implications of these changes for
retailers. We conclude with the development of a consumer shopping and purchasing
model that incorporates all of these factors to describe overall shopping and buying
practices.

MARKET SEGMENTATION AND CUSTOMER SATISFACTION

It was discussed earlier that that retailing consists of the final activities and
steps needed to place a product or service in the hands of the consumer. It was also
pointed out that a retailer, to be a high performer, must be able to differentiate itself
from the competition. In doing so, retail managers must realize that, with the possible
exception of supermarkets and gas stations, their stores can’t serve all possible
consumer types. Some consumers will never shop at a nearby Walmart; others will
never shop at a Saks Fifth Avenue, Nordstrom, or Neiman Marcus. Therefore, before
developing any plans, the successful retailer must first target a specific segment (or
segments) of the overall market and study the environmental factors (competition,
the behavior of the other supply-chain members, and legal and ethical factors) that
affect that segment. Only after determining what segment to target, can the retailer
decide on a location, format, and retail mix (the combination of merchandise
assortment, price, promotion, customer service, and store layout) that best serves the
selected segment.
The easiest way for retailers to differentiate themselves is to satisfy the
customer’s needs and wants better than the competition. This customer satisfaction,
as we will use the term, is different from customer service. Customer satisfaction is
determined by whether or not the total shopping experience has met or exceeded the
customer’s expectation. If it has, then the customer is said to have had a rewarding
shopping experience. Customer satisfaction is important because it costs the average
retailer five times as much money to get a new customer into a store as it does to make
a sale to someone who has already shopped there or to retain a current customer who
may be unhappy. Not only retailers, but also the nation’s economy, depend on the
customer having a satisfactory shopping experience.
In addition to the tangible product or intangible service offered for sale,
another part of the customer’s shopping experience is the services provided by the
retailer. These customer services are the activities performed by the retailer that
influence the following: (1) the ease with which a potential customer can shop or learn
about the store’s offering, (2) the ease with which a transaction can be completed once
the customer attempts to make a purchase, and (3) the customer’s satisfaction with the
product or service after purchase. These three elements correspond to the pre-
transaction, transaction, and post transaction components of customer service.
 Understanding different customer segments and their need for convenience might
stimulate the retailer to offer additional products through its website, thus providing a
critical service component to enhance the customer’s experience. As Exhibit 3.1 points out, it
is important that the retailer know and understand its customers.

Exhibit 3.1 How Current Trends Affect the Way the Consumer Behaves

In Exhibit 3.1 we see the three important types of trends—population, social, and
economic—that all retailers must monitor because they will affect the way customers
undertake the shopping process. As pointed out all retailers must perform three basic
strategies:
Get as many of the targeted consumers into the store as possible,
Convert these consumers into customers by having them purchase merchandise, and
Perform the first two strategies at the lowest cost possible that is consistent with the
level of service customers expect. If the retailer doesn’t understand its customers, it
won’t be able to accomplish the first two strategies.
Market segmentation is the method retailers use to segment, or break down, heterogeneous
consumer populations into smaller, more homogeneous groups based on certain
characteristics. Market segmentation helps retailers understand who their customers are,
how they think, and what they do.
Only after realizing the various segments to either target or not target can a retailer
hope to satisfy consumers’ needs better than the competition. For example, in the United
States, Walmart has determined that its Supercenters serve three general market segments:
brand aspirational (people with low incomes who are obsessed with names such as
KitchenAid), price-sensitive affluent (wealthier shoppers who love deals), and value-price
shoppers (who like low prices and cannot afford much more).4 Failure to spot changes in the
marketplace before the competition means the retailer will only be able to react and adapt to
what more sensitive retailers have already spotted.
Now, let’s begin our study of the changing consumer to see how an understanding of
population, social, and economic trends can help a retailer select a market segment to target.

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. This is
useful for two reasons. First, such data is often linked to marketplace needs. Second, the data
is readily available and can be easily applied in analyzing markets.
Population Growth
Retailers have long viewed an expanding population as synonymous with growth in
retail markets. Any increase in domestic population growth will mean an increased demand
for goods and services. Still, even minimal growth in the total population will mean
opportunities for retailers. As population growth slows, successful retailers must focus on
taking market share away from competitors, managing gross margin by controlling selling
price and cost and increasing the productivity of existing stores.
Age Distribution
The changes in the age distribution also affects majorly the activities of
retailing. Age distribution is the movement of age from adult to old age. Change in the
distribution of age also means a change in the goods and services required by the age
group. The most significant change today is the bulge of early baby boomers moving
into their sixties. This group of 78 million born between 1946 and 1964 accounts for
more than 25 percent of the population and spends an estimated 2.3 trillion on
consumer goods and services annually, However, many experts claim that, for retail
planning purposes, this group is much too large and diverse to share a single lifestyle,
life stage, or purchasing proclivity. For example, while the first wave of boomers may
have already retired and started collecting full Social Security benefits (after reaching
age 66), many others are 15 or so years away from retirement. Therefore, as these
older boomers retire, they may not be spending as they did in the past. Retailers must
remember that it is doubtful that today’s seniors will behave as their parents did a
generation before them. A 50-year-old in 2015 will not act like a 50-year-old in 1995.
Successful retailers will be prepared for this.

Ethnic trends
The ethnic makeup of a country or place contributes to the changes in the
behavior of retailing business. Ethnic makeup refers to the type of ethnicity does not
only pertain to the type of races that exist in a particular place or country but also
refers to the degree in terms of population that is e in one country. Ethnicity such as
Hispanic, Asian, Caucasian and among others directly affects the flow of goods and
services that retail managers must include in their planning process. Change in
Ethnicity means change in taste and preference according to their roots. But while
retailers will want to respond to ethically and culturally diverse customers, they also
need to think about being inclusive while meeting those special needs. History has
taught us that “separate but equal” thinking doesn’t work. But while retailers will
want to respond to ethically and culturally diverse customers, they also need to think
about being inclusive while meeting those special needs. History has taught us that
“separate but equal” thinking doesn’t work. Given the changing population in terms
of ethnicity, it is rightful to note that it is fundamental for retailers to understand
different ethnicity and their purchasing power.

Geographic trends
The location of consumers in relation to the retailer will often affect how they
buy. In this section of overall population trends, we take a closer look at how
geographic trends affect retail operations.

1. Shifting Geographic Centers Retailers should be concerned not only with the
number of people, their ages, and their ethnicity but also with where they reside.
Consumers, especially as they age, will not travel great distances to make retail
purchases. All consumers want convenience and will therefore tend to patronize
local retail outlets. So it is important for retail managers to be familiar with his or
her segment with respect their movement. As consumers continue to shift in
geographic location, it is only necessary that retailers must sway with them if they
want to keep such particular target. As this trend continues, retailers must
remember, for example, that when people in the North retire to the South, they
generally will change the type and style of clothing they purchase year-round
(both online and in stores). If the national chains don’t plan for this, it could send
shockwaves up the supply chain all the way back to the textile manufacturers. As
a result, it is important that retailers understand the purchasing behavior of
consumers in each region of the country
2. Mobility. In many countries, people are born, raised, married, widowed, and die
in the same city or immediate geographic vicinity. While this could be true, retail
managers must put into thinking that it is no longer the case especially in modern
times. The mobility of consumers has also changed over the year.
 Most residents’ changes residency four to five times at minimum. Major factor
contributing to such changes in residency is poverty and the need for greener pastures.
Retailers must remember that the farther one moves from a prior residence, the more one
needs to establish new retail shopping patterns. A study regarding mobility has found that in
almost half of large families, where the children don’t go to college, one child will live within
five miles of the parent(s) when the parent(s) reaches age 60, and in more than three-
quarters of the cases within 50 miles of the parent(s).28 Thus, with the recent trend toward
higher education, which results in more job variations; retailers can only expect consumer
mobility to increase.

SOCIAL TRENDS
Education
Educational attainment is the single most reliable indicator of a person’s income
potential, attitudes, and spending habits. Thus, college-educated consumers differ in their
buying behavior from other workers of the same age and income levels. They are more alert
to price, quality, and advertised claims. However, when retailers use education to segment
the marketplace, they often overlook the considerable number of populations that is over age
25 and have some college experience but who failed to earn a degree.
In many ways, people with some college best define the term ‘‘average’’. They have
more money than high school graduates but less than college graduates. They also fall
between these groups in their tendency to shop in department stores, spend on apparel, buy
new cars, travel, read books, watch TV, and invest in stocks and bonds. Since education levels
for the population, in aggregate, are expected to continue to rise, retailers can expect
consumers to become increasingly sophisticated, discriminating, and independent in their
search for consumer products. They will also demand a staff capable of intelligently dealing
with their needs and wants.

State of Marriage
This trend toward 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. This is especially true for the young adult market. As a result, retailers may
need to adjust their store hours to accommodate the needs of this market. In addition, with
more men living alone, supermarkets will have to direct promotions toward their needs and
habits, particularly since men tend to focus on getting specific items and then getting out of
the store as quickly as possible.

Changing Nature of Work

Because people are finding less meaning in their work, they are less loyal to their employers.
Nearly 25 percent of all workers have held their job for fewer than 12 months, and the median
length of service in a job is 4 years.46 For entry-level personnel in retailing, turnover
approaches 75 percent or more per year. Consequently, retailers need to find ways to enrich
job experiences and lower turnover. One study found that turnover in the supermarket
industry cost $5.8 billion annually. For instance, a cashier who departs costs the retailer
$4,212; a department manager, $9,354; and a store manager, $56,844. These costs of
employee turnover include paperwork errors, inventory shrinkage, and improper use of
equipment. All of these errors occur due to the lack of experience of new employees. These
errors lead to lower levels of customer service and satisfaction, which in turn leads to lost
sales and profits.47 One major opportunity for retailers is employing home-based and
disabled workers. Home-based workers can handle telephone inquiries and do clerical work
or bookkeeping. Likewise, disabled workers may represent a previously untapped pool of
talent for the retailer

ECONOMIC TRENDS
Income Growth
The imbalance in income growth across households has created an increased demand
for value-oriented retailers such as discounters and manufacturers’ outlets.
 Economists tend to view income from two different perspectives: disposable and
discretionary. Disposable income is simply all personal income minus personal taxes. For
most consumers, disposable income is their take-home pay. Discretionary income is
disposable income minus the money needed for necessities to sustain life, such as minimal
housing, minimal food, and minimal clothing. Retailers who sell necessities, such as
supermarkets, like to see incomes rise and taxes decrease. These retailers know that while
consumers won’t spend all their increased disposable income on the retailer’s merchandise,
they will nevertheless increase spending. Retailers who sell luxury goods want to see
discretionary income increase. It is important that retail managers must understand these
two types of income in order to include a strategy in their planning process.

Personal Savings
Retailers have enjoyed continued sales growth over the past decade; however, this
growth is not due to significant increases in household income. Instead, retailers have
benefited from the spending rather than saving mindset of the consumer. But retailers must
consider the probability of the population to plan for retirement or personal savings while
simultaneously reducing their spending. Some economists fear that in another decade some
population will begin to remove much of their money from the stock market. If this occurs in
great numbers, then another declining market will likely result in a reverse wealth effect.
Another fear is that because of good health, many people may postpone retirement, leading
to a surplus in labor supply. As the marketplace becomes saturated with available workers,
overall wages fall, which could negatively impact future retail sales.

Women in the Labor Force

Over the past five decades, women have become a dominant factor in the labor force. In 1970,
43 percent of all women over age 16 were in the labor force; today it is just under 60 percent.
This trend is true of all age groups, even women ages 25 to 34, who might be expected to be
raising families. Further, a numerous number of all female employees are able to make use of
flexible schedules at the workplace. As we discussed earlier, more women are obtaining
college degrees, and more than 83 percent of women with college degrees are in the
workforce. The rise in the number of working women has an effect in retail. First, 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. Thus, these individuals prefer that retailers hold sales and special events in the
evenings or on weekends. Time-pressed shoppers also find that price is sometimes less
important than convenience, availability, and service. Bricks-and-mortar retailers—in
addition to making the shopping experience pleasant, if not exciting—must develop
strategies that accommodate these customers’ needs. They must extend store hours (early
mornings, evenings, and weekends) and offer conveniences (express checkouts). Bricks-and-
mortar retailers should also 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.

Widespread Use of Credit

Retailers, especially department stores and those selling big-ticket items, have long offered
their own credit cards to customers. However, today the trend is away from the retailer’s
store-branded cards and toward third-party cards (Visa, MasterCard, Discover, American
Express, etc.). 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, since the growth in
credit has been bigger than the personal income, it is evident that households will face a
liquidity crisis as income growth slows or becomes negative because of unpaid credit
balances. After all, 24 percent of households rarely pay off their credit card balance. Such
massive debt loads must be paid off, thereby leaving little in their income for future retail
purchases.
CONSUMER BEHAVIOR MODEL
Now that we have examined the population, social, and economic trends of today, we
can develop a model that describes and, to some degree, predicts how these factors
come together to affect consumer buying patterns. We call this the consumer
shopping and purchasing model. Consumers are typically confronted with
fundamental decisions when it comes to meeting their needs and wants: What
products or brands can potentially fulfill their needs, and where should they purchase
these products or brands?
Exhibit 3.3. below is the Consumer Shopping and Purchasing Model. This model
suggests that consumer behavior is a process with a series of stages or steps. The six
stages in the model are stimulus, problem recognition, search, evaluation of
alternatives, purchase, and post-purchase evaluation. We will examine further these
steps.

Exhibit 3.3 Consumer Shopping and Purchasing Model

Stimulus
A stimulus involves a cue (external to the individual) or drive (internal to the
individual). With stimulus, the industry is trying to convince the consumer that they
need their product through stimulating their consciousness. This step is the very first
in understanding the behavior of your consumer. This is done in order to stimulate
their consciousness and eventually identify their problem. Sometimes consumers
experience problems without even realizing it. It is now the duty of the retail stores
to activate their problem recognition ability. There are two types of stimulus:
1. Drive - is a motivating force that directs behavior. Drives can be physiologically
based (hunger and the need to stay warm in the cold) or learned (the desire to
spend spring break in Cancun). When drives are strong, they are more likely to
prompt purchase behavior. The old adage ‘‘never go grocery shopping when you
are hungry’’ illustrates this point.
2. Cue - A cue is any object or phenomenon in the environment that is capable of
eliciting a response. Common examples of retail marketing stimuli are
advertisements, point-of-purchase displays, coupons, salespeople, and free
samples.
Individuals can be exposed to both types of stimuli. For instance, one may see
an advertisement (cue) for a restaurant at the same time that one is hungry (drive); a
person living in Minnesota may be coping with a long, cold winter and browsing the
Internet when she sees an advertisement for a vacation on the warm and sunny
beaches of Hawaii. As consumers move through their daily routines in an information
economy, they are constantly exposed to hundreds of messages regarding products,
services, and where to purchase them. Retailers must also understand that most
consumers are involve in passive information gathering, which is the task of
receiving and processing information regarding the existence and quality of
merchandise, services, stores, shopping convenience, and among others. Retail
managers must be able understand the passive information gathering of consumers
and tries to infuse information of their product for them to end up first in the
consideration of consumers as to where to buy products or services
Problem Recognition
As said earlier stimuli can often lead to problem recognition. Problem recognition
occurs when the consumer’s desired state of affairs departs sufficiently from the consumer’s
actual state of affairs. When this happens, the consumer is in a state of unrest until he or she
finds a way to resolve this difference. Consider a few examples: (1) While driving across town,
you notice that your car’s gas tank is almost empty; (2) you hear an advertisement for a new
Sony CD player and realize that your 10-year-old stereo needs replacing; (3) you will be
graduating from college shortly and do not own any suitable clothes for your new career; and
(4) you receive your tax refund and realize you now have money to go to Cancun for spring
break. In these examples, it is evident that not all problems will stimulate the same level of
problem-solving activity. 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,
and the importance of the problem.
Consider the example of the gas tank. If your tank were a quarter full, the problem
would be less urgent than if the gas gauge were on empty. Another is, compare your
recognition of the problem about replacing your old CD player with your recognition of the
problem of acquiring a new career wardrobe. In all probability, one of these problems is more
important to you, and thus you would be more motivated to solve it first.

Problem Solving
Once you have identified the problem, there is now the need to solve them. Individuals
solve problems by searching for information and then evaluating their options or
alternatives. The search for information and careful evaluation of alternatives occurs to
reduce risk. If consumers do not select the best product, they can incur financial loss
(financial risk), personal harm (safety risk), or the decline of respect from family and friends
(social risk). The amount of problem-solving activity consumers engage in varies
considerably, depending on their prior experience and the need to reduce financial, personal,
and social risk. Consumers learn quickly, and when they locate the product, brands, and
retailers that are good at satisfying their needs at a low or acceptable level of risk, then the
degree of problem-solving decreases.

Habitual Problem Solving - With habitual problem solving, the consumer relies on past
experience and learning to convert the problem into a situation requiring less thought. Here
the consumer has a strong preference for the brand to buy and the retailer from which to
purchase it. Some consumers are not only habitual users of products but also heavy users.

Limited Problem Solving - occurs when the consumer has a strong preference for either the
brand or the store but not both. The consumer may not have a store choice in mind but may
have a strong preference for the brand to purchase. In this instance, since the brand has
already been determined, the consumer has, in a sense, restricted the problem-solving
process to deciding which retailer to patronize among those that carry the brand. Because
the consumer may not be aware of all the retailers that carry the item, some searching may
be required.
Extended Problem Solving- occurs when the consumer recognizes that a problem exists yet
does not have a strong preference for either the brand or the store. Extended problem solving
typically involves infrequently purchased expensive products of high risk. Here, the
consumer desires a lot of new information, which implies a need for extended problem
solving.

Problem-Solving Stages
Once consumers recognize that a problem exists and believe a potential product
solution exists within the marketplace, they will engage in problem solving. As identified
earlier there are two process of problem solving: 1. active information gathering (or search)
and 2. evaluation of alternatives.
Active information gathering - is when consumers proactively gather information. Many
consumers begin their active information gathering with a search engine such as Google to
find out about the desired product or service, its price, and where it is available.
Evaluation of alternatives. The evaluation of alternatives typically involves three stages:
 1. Consumers develop a set of attributes on which the purchase decision will be based.
these set of attributes refers to the characteristics of the store and its products and
services. These can include such things as price, product quality, store hours,
knowledgeable sales help, convenient parking, after-sale service, and so on. These
attributes are often based on general information sources such as preexisting
knowledge, advertising, discussions with friends and relatives.
2. Consumers narrow their consideration set to a more manageable number of
attributes. Although consumers want to think that they have considered a wide range
of options so as not to miss a golden opportunity, they do not want to be confused by
various options. In this phase, consumers might visit stores or browse online to
gather more specific information, such as price ranges, to narrow their list
3. Finally, consumers directly compare the key attributes of the alternatives remaining
on their ‘‘short list.’’ Here, consumers are very active in their search for specific
information and often begin ascertaining actual prices through store visits, browsing
the store’s website, or preliminary negotiating when appropriate.
One of the most important variables of problem solving is the source of
information used by consumers. It is important for retailers to understand what
information resources their target market prefers to use and match their
communication programs to these resources.

Purchase
Based on information gathered and evaluated in the problem-solving stage, the consumer
decides whether to purchase and which product and retailer to choose. Of course, a possible
outcome of the problem-solving stage is a decision not to buy or to delay the purchase. A
consumer might conclude that an adequate product or service isn’t available or that the cost
(financial or otherwise) is greater than previously thought. Although a purchase is not made,
the information gathered is often mentally recorded and influences future shopping
processes.
The purchase stage is often seen by retailers as an opportunity to use suggestion selling
to sell add-on or related purchases such as extended service warranties, batteries for toys,
and impulse merchandise. Both online and bricks-and mortar retailers use this technique.
For instance, at Amazon.com once you select books to purchase, the company suggests other
titles you might have an interest in buying. If handled properly, consumers view this selling
practice as a customer service, as if the retailer were ‘‘looking out’’ for the customer’s long-
term satisfaction.

Post-Purchase Evaluation
The last step in the Consumer Shopping and Purchasing Model is the post-purchase post-purchase
evaluation. The consumer’s use and evaluation of a product is therefore a critical, although resentment. arises
sometimes overlooked, stage in the consumer behavior process. One of the most important after the purchase
moments in the use and evaluation stage occurs immediately after the transaction, in the first when the
hours and days in which the consumer uses the product or service. During this critical time, consumer
consumers form lasting impressions regarding the soundness of their purchase decision. becomes
dissatisfied with
These impressions will likely influence all future purchase decisions.
the product,
Retail managers must always remember that In the event of a problem, consumer service, or retailer
dissatisfaction can lead to post-purchase resentment, where the consumer’s dissatisfaction and thus begins to
results in resentment toward the retailer. If post-purchase resentment is not identified and regret that the
corrected quickly by the retailer, it can have a long-term negative effect on the retailer’s purchase was
bottom line. This is because a satisfied customer may tell a few friends, but a dissatisfied made.
customer usually will tell a dozen or more.
EXERCISES: TRY THIS
1. Discretionary income is:
a. all personal income after taxes and retirement savings.
b. all personal income after savings.
c. all personal income minus the money needed for necessities such as food, clothing, housing,
and so on.
d. all personal income after taxes minus the money needed for necessities.
e. all personal income after taxes.

2. Post-purchase resentment:
a. usually only has short-term negative consequences for the retailer.
b. cannot be fixed.
c. is easily detected.
d. is often transferred from the product to the retailer where it was purchased.
e. is not a problem if the retailer measures customer satisfaction at least every other year.

3. What strategies should retailers develop given the higher level of educational attainment today?
Explain your reasoning.

ASSESSMENT: DO THIS (Discussion should not exceed 100 words including comma, space and
period. A corresponding deduction will be implemented for any excess of words.)

Which recent trend—parents returning to live with their children or children returning to live
with their parents—is going to have the most significant impact on retailers? What can retailers
do to take advantage of these trends?
Why is it more difficult for retailers to manage their businesses when economic turbulence is
high?
How are retailers affected by the fact that today’s college students are graduating with a highest
amount of student debt ever? Give an example where if this will help or hurt a retailer.
Explain in your own words the consumer shopping and purchasing model and how retailers can
take advantage of this particular model.

HAENG-UN-EUL BIBNIDA

-daekeul -