Retail management midterm ch. 1-4

Retailing

a set of business activities that add value to the products and services sold to consumers for their personal or family use

Retailer

a business that sells products and/or services to final consumers for

personal or family use

• retailers provide assortment and reduce number of transactions

Manufacturer → Wholesaler → Retailer → Consumer

Wholesale vs. retail

Wholesale- selling products in larger quantities to businesses at lower prices

Retail- selling products directly to consumers at higher retail prices

Retailer’s role

Attempt to satisfy consumer needs by having:

• the right merchandise

• at the right price

• at the right place

• at the right time

Retailer’s functions

• Providing an assortment of products and services

• Breaking bulk

- consumers purchase products in smaller quantities

• Holding inventory

- products are available when consumers want to purchase them

• Providing services

- repair services, getting help

Why is retailing a part of marketing?

It involves the management of distribution systems (place)

Breadth and depth of merchandise

Breadth (variety) - number of different product categories

Depth (assortment) - number of different items offered under a product category

Full-line discount stores

• provide a broad variety of merchandise with limited service

• low prices

• selling private brands (Walmart’s Great Value) and national brands

• Trends: omni-channels (order online, pick up at stores), expansion of product ranges such as organic and ethically sourced items

• ex) Target, Walmart, Kmart

Specialty stores

• provide narrow variety (limited merchandise) and high level of service (sales associate expertise)

• typically under 8000 sq ft (easy browsing)

• focus on specific market segments

• ex) Abercrombie, Pottery Barn, Apple

Category killer

category dominance, specialty superstore

• offers competitive prices due to category dominance and buying power

• ex) Home Depot, Staples, Ikea

3 tiers of department stores

1. Upscale and high fashion: Bloomingdale’s, Saks, Neiman Marcus

2. Moderately-priced: Macy’s, Dillards

3. Value-oriented: Kohl’s, JCPenney

Off-price retailers

• inconsistent assortment of brand-name, designer-label merchandise at discounted prices

• ex) TJ Maxx, Marshalls

Extreme-value retailers

provides broad variety with shallow assortment of household goods, health and beauty care, groceries

ex) Dollar General, Dollar Tree

Private-label brand vs. National brand

National brand- created and owned by manufacturer/producer

• ex) Song, Samsung, Kellogg

Private-label- created and owned by retailer and available only in its store

• ex) Walmart’s Great Value brands, Macy’s INC International Concepts

Pros and cons of private brands

Pros

• cheaper option for production

• more control over pricing than branded products

Cons

• lack of brand recognition

• harder to build product lines

Pros and cons of national brands

Pros

• higher customer loyalty

• are seen as more reliable and familiar to consumers

Cons

• no exclusive marketing rights

• prices may be too high for customers

Intangibility

• cannot be seen, tasted, felt or smelled before purchasing

• difficult to evaluate before purchasing service

Inseparability (simultaneous production and delivery)

• consumed when it is provided and can’t be separated from the provider

• importance of service provider

perishability

cannot be saved, stored or restored

Inconsistency of offering (variability)

quality depends on who provides

Services vs. Merchandise

Services don’t have inventory, they sell expertise or skills

Merchandise: supermarkets, wholesalers

Service: airlines, restaurants, banks

Omnichannel retailing

use of multiple channels that provides seamless and synchronized customer experience

• ex) store shopping and ordering unavailable items online in store

In-store retailing

• touch and smell of products (trying on clothes)

• personal service (suggestions from employees)

• risk reduction (resolution of defective products)

• immediate gratification

• entertainment and social experience (social interactions)

• cash payment

Internet retailing

• deeper and broader selections (no physical store limits, more sizes)

• more info available for evaluating merchandise

• personalization (live chats for questions, personalize offerings through consumer search behaviors)

• expanded market presence

• perceived risks (invasion of privacy, security breaches)

Mobile retailing

• customers can access retail sites from anywhere (smartphones)

• location sensitive (promotion ads of nearby stores)

• disadvantage: smaller viewing screen

Showrooming

examining merchandise in retail store and then buying it online at a lower price

• bad for retailers bc there is a chance of losing sales to online competitors

Consumer purchase decision process

1. Need recognition

2. Information search (internal and external)

3. Evaluation of alternatives

4. Purchase decision

5. Post-purchase evaluation

Purchase decision process: Need Recognition

• individual becomes aware of a difference between a desired state and an actual condition

• utilitarian vs. hedonic needs

Utilitarian vs. Hedonic needs

Utilitarian- needs for accomplishing a specific task based on logic (functional, practical benefits)

Hedonic- needs for entertaining and recreational experience (induce feelings of excitement and cheerfulness)

Triggers of need recognition

• inventory runs out

• changing reference groups

• dissatisfaction

• boredom, novelty seeking

• family life cycle changes

Purchase decision process: Information search

sources of information search about retailers, channels, and/or products to satisfy needs

Maximizer

individuals who always aim to make the best possible choice

Conversion rate

percentage of customers who enter a store or access a website and then buy a product from that same store or website

System 1 thinking

Hot cognition

• impulse

• intuition

• feelings

• automatic and rapid

rapid decisions for survival

System 2 thinking

Cold cognition

• careful calculation/critical analysis

• logical thinking

• costs and benefits analysis

Multi-attribute models

customers see a retailer, product, or service as a collection of attributes or characteristics (evaluating retailers’ performance)

• alternative retailers consumer is considering

• characteristic/benefits consumers use when evaluating and choosing a retailer (price, convenience, delivery service, quality)

Non-compensatory attribute processing models

Lexicographic Model

• consumers order attributes in terms of importance and compare the options one attribute at a time, starting with the most important

• if one alternative dominates that attribute, it is chosen; if there is a tie, then proceed to next most important attribute

• want to get brand that does best on attribute(s) most important to me

Cognitive Dissonance

based on the idea that your beliefs are inconsistent with one another or with your actions, which is experienced as unpleasant

• when consumers experience inconsistent cognitions, they often do things to reduce the feelings of unpleasantness, discomfort

Loss aversion

losses loom larger than gains

High-involvement purchase

• high value/price

• serious personal consequences or long-term commitment

• high impact on social image, deep emotional attachment

Greater involvement = greater opportunities to affect choice

Ex) cars, smartphones

Low involvement purchase

• low cost, frequently purchased products

• goal: to get people to buy habitually, without thinking

Familiarity, recognition, exposure are key to habitual purchasing E

Ex) toothpaste, bread

Convenience products

Low involvement

• frequent, immediate purchases (candy, fast food, magazines)

• low priced, little comparison shopping/effort

• locations/distributions are critical (make them readily available)

Shopping products

High involvement

• less frequent purchases

• involves more effort and comparison bc it costs more than convenience purchases (camera, laptops, furniture)

• location is important (fewer outlets, but provides more service and support)

Specialty products

High involvement

• unique characteristics that buyer values

• buyer makes a special effort to obtain (designer clothes, luxury cars, watches)

• can have high brand loyalty (strong brand identification)

Modes of consumer decision-making by involvement and experience

High involvement, Low experience: Extended problem solving

High involvement, High experience: Brand loyalty

Low involvement, Low experience: Limited problem solving

Low involvement, High experience: Habit or variety seeking

Segmentation variables

• Geographic- dividing market into groups based on location or environment

• Demographic- personal characteristics; easy to measure (gender, age)

• Psychographic- similar characteristics; shared attitudes and behaviors, personality, lifestyles

• Behavioral- how consumers use or respond to a product (past purchase behavior)

Customer profiles (personas)

a narrative that captures consumers’ lives (including attitudes and preferences)

• personas make segments easy to encode, recall and understand