UNDERSTANDING THE
RETAIL CUSTOMER
Peter Drucker, ‘business
exists to satisfy customers’
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Intro
It is the consumer who determines the growth, prosperity, and even
existence of a Retailer.
The ability to understand the customers is the key to developing a
successful retail strategy.
The behavior of retail shoppers varies across markets.
An integral part of understanding customers is identifying the
customers----- target segment
----demographics of this segment
----their needs and buying behavior
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In short span of little 10 years, the change that
occurred in the Indian consumer is phenomenal.
Liberalization and a steady economic growth have
been the main factors that have driven this stage.
Retail strategy is largely information based. The
gathering and analysis of data relevant to the retailer
is done by market research.
In a world of increasing competition, research can aid
the retailer in satisfying the customer and thereby,
building loyalty.
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Need For Understanding
Consumer Behavior
Accurate understanding of the consumer
needs helps the retailer to create the
products that are likely to be successful
in the market.
Understanding of the consumer behavior is
the starting point of strategy creation.
Helps the firm to assess how well it has
achieved its product positioning goals.
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Understanding how the need for a
product/service was determined
Understanding how information was
sought by the customer
The process of evaluation of various
products and stores
The payment process
The post purchase
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Paco Underhill in his famous book” why
we buy, The science of shopping” bring
out some key facts about how
consumers buy and the various
influences on them. The book brings out
the key fact that most purchasing
decisions are influenced and made on
the shop floor itself.
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Factors Influencing The Retail
Shopper
Range of Merchandise:
If merchandise is similar to that of
another store or what is commonly
available, the customer may not see any
reason why he should not switch stores.
The range of merchandise offered plays
an important role in the case of
categories like durables, book, music and
other lifestyle products.
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Convenience of shopping at a
particular outlet:
Example: while buying medicines, most
parties would prefer to buy from the
chemist near the doctor’s clinic or near
the hospital.
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Time 2 Travel
The time taken to reach a particular
retail location in fast is becoming critical.
Take the case of metros like Mumbai,
where the travel time is high.
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Socio Economic Background & Culture
The Socio Economic Background & Culture of the
consumer largely determines his life style.
This influences the kind of store that he may be
comfortable shopping in.
Consumer buying behavior varies from market
to market and is largely influenced by the
culture of the region.
Example: Asian culture is very different from
Western culture.
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The need hierarchy is different for each
market
It would be important to the retailer to
consider socio economic changes in a
geographic region over a period of time
as it would be an indicator of the
facilities available at various levels and
the quality of life of the population,
which would indirectly be related to the
spread of organized retail.
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SOCIO ECONOMIC INDICATORS OF CHANGES IN INDIA
1991 - 92, 1996 - 97, 2006 – 07
INDICATORS 1991- 92 1996 - 97 2006 - 07
LIFE EXPECTANCY (IN TERMS OF YEARS) Male 57.7 60.1 66.1
Female 58.7 61.1 67.1
Infant mortality rate (per thousand births) 78 (a) 68 (b) 48
Death rate (per thousand) 10 8.7 7.4
Birth rate (per thousand) 28.9 28.72 21.7
Fertility (per thousand) 130.3 113 91.4
Literacy rate (%) 15 – 35 years 56 90 100
7 years & above 52 75 90
Per capita consumption of food grains (Kg) 182 193.6 225
(a) Village without drinking water (thousands) 3.0(D) 0 0
(b) Village partially covered 150 NEG 0
Electricity as a source of lighting Rural 27 ( c) 50 80
Urban 75 ( c) 80 95
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The Stage of Family Life Cycle
The stage of FLC that the customer
belongs to, largely influences his needs.
Example: The needs of a young bachelor
will be different from the needs of family
with children and it is again different
from an elderly one.
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Customer Decision Making
Process
The need for a product or service starts at
the time when the need for that particular
product or service is recognized. A need
may be psychological or functional.
Psychological needs are associated with
personal gratification that the customer
may get from purchasing or owning the
product.
A functional need is directly related to the
function of the product.
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Steps Involved In Consumer
Decision Making Process:
Search Evaluation
Need for Store Purcha
Visits of Option se
Recognitio Inform
n ation Decisio
n
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Steps Involved In Consumer
Decision Making Process:
Identification of a need for the product
or service
Search for information
Evaluating alternatives
The purchase decision
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Identification of a need for the
product or service:
Typically, a consumer may realize
that he needs a product when the
current product he is using does not
meet his expectations or when he
sees a product or an advertisement
for the same and feels the need to
purchase it.
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Search for information:
This step involves how the gathering
of information on how to solve the
problem. This search may be
Internal – from memory
External – friends, family, published
sources, sales person, internet etc.
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Evaluating alternatives:
This evaluative criteria are used by
consumers to consider different options.
These could vary from person to person
and may be influenced by situation.
It also depends on product, occasion for
purchase and the buying environment.
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The purchase decision:
Here the decision is made about first,
whether to buy or not.
Numerous displays in a store may cause
a person to change his/her mind while in
the store perhaps , a sales clerk may
convince him to change brands or even
the amount he planned to spend.
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Key factors influencing consumer
behavior:
Psychological Factors
Consumer Needs and Motivation
Perception
Learning
Believes and Attitudes
Cultural Factors
Culture
Subculture (
Social class (occupation ,education, income)
Social Factors
Reference Group
Family
Family life cycle
Role and Status
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Personal Factors
Age and life cycle
Personality
Self Image
Occupation
Life – style (way in which people live and spends money)
Economic Factors
Personal income
Family income
Income expectations
Savings
Liquidity position
Consumer credit
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Previous Beliefs and
Shopping attitude
experience
Recognize
Evaluate options Store
Desire to decision outcome
shop And select store visits
How customers develop loyalty towards a store
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Market research
Retail strategy is highly information based.
Timely and relevant information is essential
to provide an adequate basis for day to day
decision making.
A market activity deals with following
logical steps
Collection of Data
Analysis of the data collected &
Deriving conclusions on the basis of data
collected.
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The data collected may be
Primary data
Retailer collects this for a specific purpose
Secondary data
This may be Internal Sources like sales figure,
company reports, consumer complaints etc., &
External Sources like government statistics,
research done by commercial research agencies
and financial agencies.
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From the retailers’ perspective
market research is done:
Prior to setting up a Retail Store
&
After setting up a Retail Store
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Prior to setting up a Retail
Store:
Whether he should go ahead with the
store in the region/state/country.
The primary information that he
would need to look at would be:
Demographic Data
Customer Data
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Demographic Data
A study of the overall population, the age,
the literacy rate, social and economic
trends are termed as Demographic
Trends.
They help the retailer understand the
diversity of retailing in a particular
region/nation.
Many times this serves as the starting point
for understanding consumer profile.
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Issues that a retailer would look
into:
The population: second in the world after china and
worlds largest democracy
GDP and purchasing power parity: india is considered
to be fourth largest economy in terms of PPP.
Age profile of population: cause of needs varies.
Information on customers: National council of Applied
Economic Research ( NCEAR), Market information
survey of Indian households (MISH)-primary data,
National Readership survey- trends in both urban and
rural-conducted by 3 agencies ( IMRB, TNS Model ,
AC Nielson)
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After setting up a Retail Store
Now Retailer would be concerned primarily
with the level of satisfaction of the target
customer.
Here the research can help the retailer in
the areas:
Evaluating Customer Satisfaction with the range
of Products and Services.
Generating Ideas for and Developing Products.
Evaluating the Acceptability Of The Products and
Pricing of New Products.
Understanding Customer Profile.
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As the retailer expands to multiple
locations, research becomes
essential. The methods commonly
used by retailers are:
Focus group discussions
Accompanied observation
Profiling customers as they enter/ leave
the store to understand what they have
purchased etc.
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