Retailing Flashcards
Retailing
Activity of purchasing products from other organizations with the intent to resell those goods to the final customer, generally without transformation but by rendering services
Value-adding functions of retailing
- Logistic function
- Assortment function
- Information function
- Transaction/payment function
- Service function
Consumer behavior
Behavior that consumers display in searching for, purchasing, consuming, evaluating and disposing products and services that they expect will satisfy their needs
A decision
The selection of an option from two or more alternative choices
Levels of decision-making
Extended problem-solving
Limited problem-solving
Routinized response behavior
Extended problem-solving
Number of brands not narrowed down, criteria for brand evaluation not established, high effort
Limited problem-solving
Basically established criteria for brand evaluation, preferences still undefined, medium effort
Routinized response behavior
Experience with the product category, well-established set of criteria for brand evaluation, low effort
Factors influencing consumers behavior
- Cultural factors
- Social factors
- Personal factor
- Psychological processes 5. Customer profile
Stimulus-response model
The consumer decision making as a sequence of first, a stimulus that affects an organism to finally produce a response
Reference group
Any person/group that serves as a point of comparison or reference for an individual in forming either general or specific values and attitudes, or a specific guide for behavior.
Motivation
Driving force within individuals that pushes them to action. It is produced by a state of tension, which arises as the result of an unfulfilled need
Stages of decision-making
- Need recognition
- Pre-purchase search
- Evaluation of alternatives
Need recognition
First step in the consumer decision-making or problem identification stage, where a consumer discovers the existence of an unmet need that must be fulfilled gap between desired and actual state)
Pre-purchase search
Second step in the consumer decision-making, search is defined as the motivated activation of knowledge stored in memory (internal search) or the acquisition of information from the environment (external search)
Dimensions of external search
- Degree of search
- Direction of search
- Sequence of search
Determinants of search
- Situational determinants
- Product determinants
- Retail determinants
- Consumer determinants
Types of known brands
- Unacceptable brands (inept set)
- Indifferent brands (inert set)
- Overlooked brands
- Acceptable brands (not purchased brands/purchased brands)
Unacceptable brands
Inept set ; brands that are unacceptable because of poor qualities/attributes or inappropriate positioning in advertising or product characteristics
Indifferent brands
Inert set ; brands that may be perceived as not having any special benefit and are regarded indifferently to the consumer
Overlooked brands
Brands that may be overlooked because they have not been clearly positioned or sharply targeted.
Not purchased brands
Brands that may not be selected because they are perceived as unable to satisfy needs as fully as the brand that is chosen
Types of decision rules
- Multi-attribute decision rule (compensatory/brand)
- Conjunctive decision rule (non-compensatory/brand)
- Lexicographic decision rule (non-compensatory/attribute)
- Elimination by aspects decision rule (non-compensatory/attribute)
Multi-attribute decision rule
A relative importance is given to several attributes, all brands are rated along those attributes and then the score of each brand is computed (relative importance*score of the attribute). The highest is selected
Conjunctive decision rule
A minimum acceptable level is given to several attributes, all brands are rated along those attributes and then as long as one of the attributes is below the minimum level, the brand is eliminated. The brand that reaches the minimum levels for all attributes is selected.
Lexicographic decision rule
The attributes are ranked by importance, all the brands are rated along those attributes and then the brand with the highest score in the most important attribute is selected.
Elimination by aspects decision rule
The attributes are ranked by importance and a minimum acceptable level is given to each of them. All the brands are rated along those attributes and then brands that do not meet the minimum are eliminated in following the order of importance of the attributes. The brand that meets the minimum levels in the largest series of most important of attributes is selected.
Expectancy-disconfirmation paradigm
The customer compares the perceived performance to its expectations. If there is a confirmation of a positive expected performance or a positive disconfirmation of a negative expected performance, then the customer is satisfied. However, if he experiences a negative disconfirmation, then there is dissatisfaction
Reasons that make customer analytics beneficial
- Availability of customer data
- Existence of appropriate customer analytics-based methods
- Possibility of using those customer analytics-based methods to support repetitive decisions
Perception
The process by which an individual selects, organizes and interprets information input to create a meaningful picture of the world.
Decoy effect
The addition of a third option to the original choice set in order to skew the perception of the relative value and sway it in a certain direction
Wheel of retailing
- Entry phase - new concept
- Trading-up phase - mainstream concept
- Vulnerability phase - mature concept
Consumer trends
- Demographic changes
- Customer-empowered revolution driven by increasing technological savviness
- Rising importance of values
Retailing trends
- Increasing consolidation
- Growth of multi-format/multi-channel
- Increasing investment in in-store technologies
- Co-creation/customer integration
Retail format
Specific configuration of the retail mix (type and variety of merchandise, type and degree of customer service offerings, communication mix, pricing policy, location, store design and display) which is maintained consistently over time
Merchandise management
The process of selecting the right items for a store (strategic level) and ensuring that they are available when customers want to purchase them (operational level)
Category
A distinct manageable group of products that consumers perceive to be related and/or substitutable in meeting a consumer need
Store keeping unit (SKU)
The lowest level of detail identifying a product in the retailer’s assortment which allows to identify a particular unique item
Variety
Breadth of merchandise, so the number of merchandise categories
Assortment
Depth of merchandise, so the number of different items (SKUs) in a category
Service retailers
Firms that primarily sell services rather than merchandise
Differences between goods and services retailers
- Intangibility
- Simultaneous production and consumption
- Perishability
- Inconsistency
Marketing channel
Set of interdependent organizations involved in the process of making a product or service available for use or consumption
Types of channel formats
- Manufacturer-based channel formats (manufacturer direct, company store, manufacturer outlets)
- Retail-based channel formats (franchise, mail order, catalogue, department store, mass merchandise)
- Service provider-based channel formats (freight/logistics provider)
- Other channel formats (door-to-door, point-of-consumption merchandising formats, technology-aided formats)
Service output
Value created by the channel institutions and consumed by the end user
Types of service output
- Bulk breaking
- Spatial convenience
- Waiting time
- Variety and assortment
- Customer service
- Information provision
Steps of market segmentation
- Need-based segmentation
- Segment identification (profiling)
- Segment evaluation
- Segment selection (targeting)
- Segment positioning
- Strategy implementation
Research-shopper phenomenon
Tendency of customers to use one channel for search and another for purchase
Mechanisms behind research-shopping
- Attribute-driven decision-making
- Lack of channel lock-in
- Cross-channel synergy
Attribute-driven decision-making
Consumers perceive channels differently on search and purchase attributes that drive their behavior
Lack of channel lock-in
Search attributes in channel A do not translate in purchasing in that channel
Cross-channel synergy
Search attributes in channel A translate in purchasing in channel B
Showrooming
Growing trend among consumers who go to a physical store to browse the products in person, but then order the product online
Strategy
Long-term vision and plan for how a business tends to develop over time a profitable and sustainable competitive advantage in the market it has chosen to serve
Mass marketing
One general offering is provided to all customers
One-to-one marketing
Providing a specific, tailored-made offering to every customer
Segment-based marketing
Specific offerings are provided to different groups of customers who share some similarities
Characteristics of an effective segmentation
AMSAD model
- Actionable
- Measurable
- Substantial
- Accessible
- Differentiable
Positioning
The place a product/company occupies in customer’s minds relative to their needs and relative to competition
Retail strategy planning process
- Business mission, vision and retail objectives
- Situation audit
- Retail strategy development
- Market and location planning
- Retail mix development
- Performance evaluation
Factors driving growth of private labels
- Consumers
- Retailers
- Retail environment
- Manufacturers
Types of private labels
- Value PLs
- Standard PLs
- Premium PLs
Drivers for PL introduction in general
- Category’s potential: category size (+) , category growth (+), category penetration (+), pioneer signaling behavior (+)
- Competitive setting: NB concentration (-), NB proliferation (inverted U-shape-, NB advertising (-)
Drivers for premium PLs introduction
- PL competitive setting: industry PL share (+), standard PL share (-), standard PL proliferation (inverted U-shape)
- Price-related: NB price premium (+), NB price promotion intensity (-/+), interpurchase cycle (+), need for variety (+)
- Imagery-related: functional risk (+), social risk (-)
Merchandise mix
- Brand portfolio
- Durability of category (staple, fashion, seasonal, fad merchandise)
- Assortment
- Merchandise diversification
Staple merchandise
Products that are carried permanently by the retailer and that have relatively stable sales over time
Fashion merchandise
Products that have cyclical sales due to changing tastes and lifestyles
Seasonal merchandise
Products that do not sell equally well over consecutive time periods.
Fad merchandise
Products that generate very high sales for a short time period
Scrambling
Temporal or permanent diversification of assortment that does not belong to traditional merchandise, blurring retail positioning
Basic stock method
The retailer carries more items than it expects to sell so the beginning-of-month stock is equal to the sum of planned monthly sales and a basic stock
Inventory turnover
The number of times the average inventory is sold during a specific period
Category management
Joint process of retailers and suppliers to manage categories as strategic business units, in order to produce enhanced business results by focusing on delivering increased consumer value
Category management process
- Category definition
- Category role
- Category assessment
- Performance measurement
- Category strategies
- Category tactics
- Plan implementation
- Category review
Switching level
The highest level within each branch of the consumer decision-making process at which consumer is willing to switch to other products on the shelf
Category roles
- Destination
- Routine
- Occasional/seasonal
- Convenience
Destination role of category
To be the primary category and help define the retailer as the store of choice by delivering consistent, superior target consumer value
Routine role of category
To be one of the preferred category providers and help develop the retailer as a store of choice by delivering consistent, competitive target consumer value
Occasional/seasonal role of category
To be a major category provider, help reinforce the retailer as the store of choice by delivering frequent, competitive target consumer value
Convenience role of category
To be a category provider and help reinforce the retailer as the full-service store of choice by delivering good target consumer value
Category strategies
- Traffic building
- Transaction building
- Profit generating
- Image creating
Key areas of category tactics
- Assortment
- Pricing
- Promotion
- Shelf allocation/presentation
Category captaincy (CC)
Arrangement in which a single supplier in a category becomes a partner to the retailer and favoured resource that is relied on to provide input on both the marketplace and category decision
Consumers reaction to out-of-stocks
- Buying a substitute item
2. Switching store/postpone/- or cancel purchase
Factors influencing consumers reaction to out-of-stocks
- Consumer factors
- Situational factors
- Store-related factors
- Product-related factors
- Brand-related factors
Pricing process
- Selecting the price objective
- Determining demand
- Estimate costs
- Analyzing competitors’ costs, prices and offers
- Selecting a pricing method
- Selecting the final price
Pricing objectives
- Survival
- Maximum current profit
- Maximum market share
- Maximum market skimming
- Product-quality leadership
Methods to estimate demand curves
- Statistical analysis of purchase records
- Price experiment
- Pricing survey
Retail operating expenses
- Selling expenses
- General expenses
- Administrative expenses
Pricing methods
- Market pricing (cost + markup)
- Target-return pricing (TRP = unit cost + desired return*invested capital/unit sales)
- Perceived-value pricing
- Going-rate pricing (competitors’ prices)
First-degree price discrimination
Charging each individual customer a different price based on their willingness to pay
Self-selected variable pricing
Offer the same price schedule to all customers but require that the customers do something to get the lower price, something that discourages the ones with a high willingness to pay to take advantage of the lower price
Third-degree price discrimination
Charging different prices to different demographic market segments
Everyday-low-price (EDLP) policy
Offering consistently low prices on many brands and categories
HiLo policy
Steep temporary price discounts with higher “regular” prices for many brands and categories
Behavioral pricing
How consumers’ price perceptions and subsequent behavior can be explained by underlying psychological phenomena
Reference prices
Standards against which the purchase price of a product is judged
Trade area
Contiguous geographic area that accounts for the majority of a store’s sales and customers
Location factors
- Customers (potential/actual)
- Accessibility
- Competition
- Costs
Atmospherics
Physical design elements employed in the store environment
