MKT320: Retailing - Identifying and Understanding Consumers

Consumer Behavior in Retailing

  • Successful retailing involves understanding consumers inside out.
  • Understanding consumer behavior is key to creating personalized and engaging shopping experiences that drive sales.
  • Knowing your customers and what drives their decisions enables retailers to tailor products, services, and marketing strategies effectively.
  • Consumer insights help retailers anticipate trends, adapt quickly, and stand out from competitors in a rapidly changing market.

Consumer Behavior

  • Consumer buyer behavior refers to the buying behavior of final consumers, including individuals and households, who buy goods and services for personal consumption.
  • It is the process through which consumers select, buy, use, and dispose of goods and services to satisfy their needs and wants.

Model of Consumer Behavior

  • The Environment:
    • Marketing Stimuli: Product, Price, Place, Promotion
    • Other Stimuli: Economic, Technological, Social, Cultural
  • Buyer's Black Box:
    • Buyer's characteristics
    • Buyer's decision process
  • Buyer Responses:
    • Buying attitudes and preferences
    • Purchase behavior: what the buyer buys, when, where, and how much
    • Brand and company relationship behavior

Factors Influencing Consumer Behavior

  • Consumer purchases are strongly influenced by cultural, social, personal, and psychological characteristics.
1. Cultural Factors
  • Culture is the most basic cause of a person’s wants and behavior.
  • Culture is the set of basic values, perceptions, wants, and behaviors learned by a member of society from family and other important institutions.
    • Example: The UAE’s strong cultural emphasis on hospitality influences the high demand for premium dining experiences and luxury gifting traditions.
  • A subculture is a group of people with shared value systems based on common life experiences and situations, including religions and nationalities.
    • Example: The UAE’s multicultural population includes various subcultures, such as the South Asian community, which influences product demand for traditional clothing, spices, and festivals like Diwali.
    • Example: The Filipino community in the UAE drives demand for Filipino restaurants, specialty grocery stores, and cultural events.
  • A social class is the relatively permanent and ordered divisions in a society whose members share similar values, interests, and behaviors. It is measured as a combination of occupation, income, education, wealth, and other variables (e.g., Upper class, middle class, lower class).
    • Example: The upper class frequently shops at high-end malls like The Dubai Mall, while the middle class prefers value-driven shopping at hypermarkets like Carrefour.
2. Social Factors
  • A consumer’s behavior is also influenced by social factors such as:
    • Groups
    • Word-of-mouth influence
    • Opinion leaders
    • Online social networks
    • Family
    • Roles and status
  • Consumers are influenced by the groups they belong to, such as friends, colleagues, or social clubs.
  • Groups that have a direct influence and to which a person belongs are called membership groups.
  • Reference groups serve as direct or indirect points of comparison or reference in forming a person’s attitudes or behavior.
    • Example: Expatriate communities like South Asians or Western professionals influence preferences for restaurants, entertainment, and leisure activities.
  • Word-of-mouth influence refers to the impact of personal words and recommendations of trusted friends, associates, and other consumers on buying behavior.
    • Marketers can help create positive conversations about their brands rather than leaving it to chance.
  • An opinion leader is a person within a reference group who, because of special skills, knowledge, personality, or other characteristics, exerts social influence on others.
    • Opinion leaders are also referred to as influentials or leading adopters.
    • Example: Influencers on platforms like Instagram and TikTok drive purchasing decisions in sectors like beauty, fashion, and technology.
    • Example: Social media influencers like Huda Kattan play a major role in shaping beauty and fashion trends among UAE consumers.
  • Online social networks are online communities where people socialize or exchange information and opinions.
    • These platforms shape consumer behavior through shared experiences and reviews.
  • Family members can strongly influence buyer behavior. Marketers are interested in the roles and influence of the husband, wife, and children on the purchase of different products and services.
  • Role and Status: A person’s position in each group can be defined in terms of both role and status. People usually choose products appropriate to their roles and status.
3. Personal Factors
  • A buyer’s decisions are also influenced by personal characteristics of the buyer:
    • Occupation
      • A person’s occupation affects the goods and services bought.
      • Example: Corporate professionals and bankers often invest in formal business attire, while construction workers prioritize durable and affordable clothing from brands like Caterpillar.
    • Age and family life-cycle
      • Tastes in food, clothes, furniture, and recreation are often age-related.
      • Buying is also shaped by the stage of the family life cycle.
      • Example: Parents in the UAE invest in international school education, kids' fashion from Babyshop, and family entertainment options such as KidZania and LEGOLAND.
      • Example: Young, single expatriates in Dubai prefer renting apartments in vibrant areas like Downtown or JBR, while married couples with children prioritize family-friendly neighborhoods like Mirdif or Arabian Ranches.
    • Economic situation
      • A person’s economic situation will affect his or her store and product choices.
      • Marketers watch trends in spending, personal income, savings, and interest rates.
    • Lifestyle
      • Lifestyle: is a person’s pattern of living as expressed in his or her activities, interests, and opinions.
      • The lifestyle concept can help marketers understand changing consumer values and how they affect buyer behavior.
      • Example: Fitness enthusiasts in Dubai spend on gym memberships at places like GymNation or Fitness First and buy organic food from stores like Kibsons or Spinneys.
      • Example: Busy professionals in Dubai rely on food delivery apps like Talabat and Deliveroo to save time on daily activities.
    • Personality
      • Personality: refers to the unique psychological characteristics that distinguish a person or group.
      • It can be useful in analyzing consumer behavior for certain product or brand choices.
      • Example: People who value sustainability may choose electric vehicles like Tesla and eco-friendly fashion brands like The Giving Movement, aligning with their environmentally conscious identity.
4. Psychological Factors
  • Motivation
    • The driving force that sufficiently presses a person to act so as to seek satisfaction.
    • Example: Professionals motivated by career success often enroll in executive education programs at institutions to enhance their skills and career prospects.
    • Class Consciousness: Awareness of social status.
    • Example: High-net-worth individuals in Dubai often choose exclusive private clubs like The Capital Club, shop at luxury malls and invest in high-end properties.
  • Perception
    • The process by which people select, organize, and interpret information to form a meaningful picture of the world.
    • Example: Health-conscious consumers perceive organic products as healthier and safer, driving demand for such brands.
    • Perceived Risk: Concerns about quality, safety, or financial risk influence purchasing behavior.
    • Example: Many consumers prefer purchasing gold and jewelry from well-established brands like Malabar Gold & Diamonds or Damas rather than smaller, lesser-known retailers, even at a higher price.
  • Learning
    • Describes changes in an individual’s behavior arising from experience.
    • Example: Customers who have had a positive experience with a particular airline, such as Emirates, are more likely to choose the same airline for future travel due to familiarity with its service quality and comfort.
  • Beliefs and attitudes
    • A descriptive thought or a pre-existing opinion that a person holds about something shapes consumer preferences.
    • Beliefs around halal consumption influence purchasing behavior, leading consumers to prefer halal-certified restaurants, skincare brands like Huda Beauty (which offers halal-friendly cosmetics), and Islamic banking services from institutions like Dubai Islamic Bank and Abu Dhabi Islamic Bank.

What Makes Retail Shoppers Tick

  • Demographics: Consumer characteristics such as age, gender, income, and education influence shopping preferences.
    • Example: The UAE has a diverse expatriate population, where luxury brands attract high-income professionals, while budget-conscious consumers prefer hypermarkets like Lulu and Carrefour.
  • Lifestyles: Shopping habits are shaped by consumers’ values, interests, and daily routines.
    • Example: People with high disposable income often shop for premium goods at The Dubai Mall or Mall of the Emirates, while younger digital-native consumers prefer e-commerce platforms like Noon.
  • Needs and Desires: Consumers make purchases based on their necessities and aspirations.
    • Example: The rise of health-conscious consumers has increased demand for organic and vegan products at retailers like Spinneys and Waitrose.
  • Shopping Attitudes and Behavior: Perceptions, preferences, and motivations affect buying decisions.
    • Example: Tourists visiting Dubai often seek duty-free shopping at Dubai Duty-Free, motivated by price advantages and luxury branding.
  • Retailer Actions: Strategies such as promotions, loyalty programs, and customer service shape consumer engagement.
    • Example: Retailers use AI-driven personalized discounts and loyalty rewards via apps to retain customers.
  • Environmental Factors: External elements like economic conditions, technology, and cultural influences affect shopping behavior.
    • Example: The UAE’s growing focus on sustainability has led retailers like Choithrams to introduce eco-friendly packaging and green initiatives.
    • Rapid advancements in technology and the rise of e-commerce have led to a surge in online shopping through platforms like Amazon.ae, Noon, and Talabat, influencing consumer convenience and purchasing habits.

Perceived Risk and Consumers

  • Perceived risk refers to the uncertainty consumers feel when making a purchase, which can impact their decision-making process.
  • These risks influence whether they proceed with a purchase, seek more information, or avoid the product altogether.
  • Types of perceived risk:
    • Functional Risk: Concern over whether a product will perform as expected.
      • Example: A consumer buying a smart home system (e.g., Amazon Alexa or Google Nest) may worry about compatibility with local internet services.
    • Physical Risk: Fear of harm or injury from a product.
      • Example: Parents may hesitate to buy certain toys or baby products unless they meet safety regulations.
    • Financial Risk: Worry about losing money or not getting value for the price paid.
      • Example: One of the reasons for slow sales of Chinese cars.
    • Social Risk: Fear that a purchase may affect social image or acceptance.
    • Psychological Risk: Concern that a purchase will cause regret or dissatisfaction.
      • Example: Someone investing in an expensive gym membership (e.g., Fitness First or GymNation) may fear not using it enough to justify the cost.
    • Time Risk: Worry that a product may require too much time to use, return, or maintain.
      • Example: Consumers may avoid purchasing furniture from brands that have long delivery times, preferring ready-to-assemble options from IKEA.
  • Factors affecting perceived risk:
    • Product/retailer newness
    • Consumer's budget
    • Level of consumer experience
    • Number of alternatives
    • Social visibility
    • Amount of information available
    • Time available to shop
    • Urgency of need
    • Price of product
    • Etc.
  • Consumer Outcome
    • Purchase new product
    • Stick with old brand
    • Talk to friends
    • Seek more information
    • Nonpurchase

Retailer Strategies to Reduce Perceived Risk

  • Retailers implement various strategies to minimize perceived risks for consumers, ensuring confidence in their purchasing decisions.
    • Functional: Ensuring product reliability and performance.
      • Example: Carrefour tests its private-label products before launching them and offers a refund or replacement for defective items.
    • Physical: Enhancing product safety and health standards.
      • Example: Spinneys and Waitrose ensure stringent food safety testing, including reduced salt and fat in their organic and healthy food lines.
    • Financial: Providing money-back guarantees and exchange/return policies.
      • Example: Retailers allow customers to return unused items for a refund, minimizing financial concerns.
    • Social: Enhancing brand credibility through co-branding and partnerships.
      • Example: A lesser-known skincare brand in the UAE, Herbal Essentials, reduces social risk by partnering with trusted retailers like Watsons and Boots, ensuring consumers associate the brand with well-established stores.
    • Psychological: Building trust through customer service, brand assurance, and showing empathy for the consumer.
    • Time: Offering hassle-free returns, quick service, and efficiency.

The Consumer Decision Process

  • A. The Decision Process
    • Stimulus
    • Problem awareness
    • Information search
    • Evaluation of alternatives
    • Purchase
    • Post-purchase behavior
  • B. Factors Affecting the Process
    • Demographics
    • Lifestyle

Types of Consumer Buying Situations

  • Habitual: Consumers buy products out of habit with low involvement and minimal brand comparison.
    • Example: Buying bread, milk, or toothpaste
  • Variety-Seeking: Consumers switch brands for novelty or experimentation, not due to dissatisfaction.
    • Example: Trying different snack brands.
  • Complex Buying: Involves high consumer involvement, extensive research, and evaluation before purchasing.
    • Example: Buying a car or a house—consumers compare features, reviews, and prices before making a decision.

Target Marketing

  • Target marketing concerns the decision about which segment(s) a business decides to prioritize for its sales and marketing efforts.
  • Concentrates on identifying similarities within and differences between groups.
  • The firm then develops a complete marketing program for each customer group.
  • Goal: Find natural markets.
  • The firm must evaluate various segments and decide how many and which segments it can serve best. While evaluating the various segments, a firm must look at 3 factors:
    • Segment size and growth
    • Segment structural attractiveness (e.g., competition, suppliers, etc.)
    • Company objectives and resources
  • After evaluating different segments, the company has to select its target market segments.

The Process of Market Segmentation & Target Marketing

  • The disaggregated market: The characteristics of individual customers are understood.
  • The segmented market: Customers are grouped into segments based on having similar characteristics.
  • The target market: Segment 3 is judged most attractive, and a marketing mix strategy is designed for that target market.

Levels of Target Marketing

  • Target marketing can be carried out at several different levels.
  • Companies can target very broadly (undifferentiated marketing), very narrowly (customized marketing), or somewhere in between (differentiated marketing or focused marketing).
    • Undifferentiated (mass) marketing - Targeting broadly
    • Differentiated (segmented) marketing
    • Concentrated (Focused) marketing
    • Micromarketing (customized or individual marketing) - Targeting narrowly

Undifferentiated Marketing

  • Undifferentiated marketing is a mass-market approach where a retailer offers the same product or service to all customers without segmentation.
    • Example: Retail chains like Carrefour and Lulu Hypermarket follow an undifferentiated strategy by offering everyday essentials like rice, bread, and household cleaning products to a broad customer base without segmenting by demographics or preferences.

Differentiated Marketing

  • Differentiated marketing is a segmentation strategy where a retailer targets multiple customer segments with different marketing mixes.
    • Example: Amazon Prime for frequent online shoppers; Amazon Business for corporate buyers; Amazon Fresh for grocery shoppers.

Differentiated Marketing: Example (INDITEX)

  • Zara: Trend-conscious, urbanite, male and female, under 40, mid-income shoppers
  • Stradivarius
  • Bershka: Low-cost brands, targeted at young male and female shoppers
  • Pull&Bear
  • Massimo Dutti: Classic, timeless styles, prices higher than Zara (male, female, and kids)
  • Oysho: Specializes in women's wear (lingerie, nightwear, swimwear, and athletics wear)
  • Uterqüe: High-priced, high-quality clothing and accessories for more mature female shoppers.

Focused Marketing (Concentrated Marketing)

  • Focused Marketing involves concentrating the marketing efforts on a specific segment of the market. This strategy allows businesses to tailor their products, services, and marketing messages to a well-defined and specialized group of customers.
    • LUSH
      • Target Segment: Eco-conscious consumers who prioritize natural, handmade cosmetics.
      • Marketing Focus: focuses on environmentally conscious consumers who prefer cruelty-free, ethically sourced, and eco-friendly cosmetics.
    • Airbnb
      • initially targeted budget-conscious travelers looking for unique and local accommodation experiences.

Customized Marketing (Micromarketing)

  • Marketing mix is tailored for individual customers.
  • Rolls Royce Bespoke
    • 95% of Rolls-Royce customers customize their cars in some way.
    • Customers can sit down with a Rolls-Royce Bespoke design team - color experts, leather-smiths, master woodworkers to design their own unique Rolls-Royces, from personalizing subtle features such as door handles and driver's dials, to having a paint color developed especially for them or the veneers crafted from a tree on their estate.
    • "Whatever you imagine your ideal motor car to be, bring your unique vision to life with Rolls-Royce Bespoke."