GROUP 3 MM 108 .docx

**GROUP 3** **CUSTOMER BUYING BEHAVIOR** **Course Number :** MM 108 Retail Management **Course Facilitator:** Prof. Cynthia Agupitan **Reporters:** Group 3 **Learning Objectives:** I. Describe the process that consumer go through when making retail patronage and buying decisions. II. Identify the different types of buying process. III. Summarize how the economy and social factors affect customer purchase decisions. IV. Determine why and how retailers' groups customer into market segments. **LEARNING OBJECTIVE 1** **THE BUYING PROCESS** The following scenario illustrates the steps consumers goal through when purchasing merchandise. Eva Mendoza, student at the University Washington, is beginning to interview for jobs. Eva planned to wear the blue suit her parents gave her several years ago to the interviews. But looking at her suit, she realizes that is not very stylish and that the jacket is beginning to show signs of wear. Wanting to make a good first impression during her interviews, she decides to buy a new suit. Eva surfs the internet for tips on dressing for interviews and looks through some catalogs to see the styles and prices being offered. Eva surfs fashion blogs such Nubry and checks what her friends are wearing on Facebook and then checks what they like and what they have pinned on Pinterest. She goes to retailers website to examine and compare all their suits. She then decide to go to a store so that she can try on a suit have it altered if necessary. She likes to shop at American Eagle outfitters and Banana Republic, but neither sells business suits. Before going to the Northgate Mall in Seattle, she issues a status update on her Facebook page, announcing her intension to go the mall and inviting friends to join her. Britt respond to her Facebook posting, and they decide to meet at the mall entrance. Betsy also responds, but she has a cold and wants to rest. Eva and Britt first go to Macy's and are approached by a salespersons in the career womens department. After asking Eva what type suit she wants and her size, the salespersons shows her three suits. Eva talks with Britt about the suits, and they decide to get Betsy's opinion. So Eva takes photos of the suits with her mobile phone and send them to Betsy at her apartment. Betsy likes all three, so Eva tries them on. When Eva comes out of the dressing room, she is unsure which suit to select, but after sending Betsy some more photos, she , Britt and the salesperson decide the second suit is the most attractive and appropriate for interviewing. Eva is happy with the color, fit , fabric and length of the suit, but she is concerned the it will required dry cleaning. It also cost more than she had planned to spend. Eva decide to buy the suit after another customer in the store, seeing wearing the suit, tells her she looks very professional. As Britt and Eva are walking toward the door, they pass the shoe department. Britt tells Eva, " You need buy shoe that go with your suit." Eva finds a pair of Steve Maden\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-- **Stages in the Buying Process** **EXIHIBIT 4-1** the right size. The Britt tells her that she thinks the shoes are overpriced. Eva scans the UPC code for the shoes using her mobile phone's shopping app and finds hat Zappos is selling the shoes for \$20less and with no sales tax. So she orders the shoes from Zappos for delivery to her apartment the next day. Consider Eva's shopping trip as we describe the customer buying process. The **buying process** -- the steps consumers go through when buying a product or service -- begins when customers recognize an unsatisfied need. Then they seek information about how to satisfy the need -- what retailers, channels, and products or services might satisfy the need. Customers then evaluate the alternatives and choose a store or Internet site to visit or a catalog to review. Their encounter with a retailer provides more information and may alert customers to additional needs. After evaluating the retailer's offering, customers may make a purchase or go to another retailer to collect more information. Eventually , customer purchase a product , use the product , and then decide whether the retailer, channel, and product satisfy their needs during the postpurchase evaluation stage of the customer buying process. Exhibit 4-1 outlines the buying process- the stages consumers go through to select a retailer and channel and to buy a specific item. The exhibit suggests the buying process is linear, as show by the solid lines. First, the channel and retailer are selected and then the specific items. For each of these decisions, customers go through five stages, beginning with need recognition and ending with loyalty. As we discuss the stages in the buying process, you should not recognize that customers might not go through all the stages and or/might not go through the stages in the order shown in Exhibit 4-1. For example, Eva might have decided on the brand of suit she wanted before selecting a store, or she might have collected information about suits sold at Macy's and, on the basis of this information, decided to go to another store or to use another channel, such as the Internet, to buy the suit. Retailers attempt to influence consumers as they go through the buying process to encourage consumers to buy merchandise and services from them. Each stage in the buying process is examined in the following sections. **NEED RECOGNITION** The buying process is triggered when consumers recognized they have an unsatisfied need. An **unsatisfied need** arises when customer's desired level of satisfaction differs from their present level of satisfaction. For example, Eva recognized that she had a need when she was faced with the prospect of interviewing for jobs in her blue suit. She needed a suit that would make a good impression and realized her worn, outdates blue suit would not satisfy this need. Need recognition can be as straightforward as realizing you need a haircut, feeling the need for an uplifting experience after a final exam, or receiving a message about something a friend bought. **TYPES OF NEEDS** The needs that motivate customers to go shopping can be classified as utilitarian of hedonic. When consumers go shopping to accomplish a specific task such as Eva buying a suit for job interviews, they are seeking to satisfy **utilitarian needs,** When consumers go shopping for pleasure, they are seeking to satisfy their **hedonic needs** - their needs for entertaining, emotional, and recreational experiences. Thus, from the consumer's perspective, utilitarian needs are associated with work, whereas hedonic needs are associated with pleasure. Successful retailers attempt to satisfy both the utilitarian and the hedonic needs of their customers. Consumers motivated by utilitarian and the hedonic needs of their customers. Consumers motivated by utilitarian needs typically shop in a more deliberate and efficient manner. Thus, retailers need to provide adequate information and an effortless shopping experience for utilitarian shoppers. On the other hand, shoppers with hedonic needs desire excitement, stimulation, status and power, recreation, and adventure. Examples of how retailers satisfy hedonic needs are listed next: 1. *Stimulation*. Retailers and mall managers use background music, visual displays, scents, and demonstrations in store and malls to create a carnival-like, stimulating experience for their customers. Such environment encourage consumers to take a break from their everyday lives and visit stores. Retailers also attempt to stimulate customers with exciting graphics and photocopy in their catalogs and on their websites. 2. *Status and power*. Some people choose retailers based on the attention and respect they receive. For example, Canyon Ranch offers upscale health resorts in Tucson, Arizona, and Lenox, Massachusetts, as well as spa clubs in Las Vegas, Nevada, and on cruises, such as Oceanic, Regent Seven SEAS, and the Queen Mary 2. All Canyon Ranch resorts and spas make the customer the center of attention, offering spa services, medical and nutritional consultations, workshops, spiritual pursuits, and healthy gourmet cuisine. 3. *Adventure*. Often , customers go shopping because they enjoy finding bargains, looking for sales, and finding discounts or low prices. They treat shopping as a game to be "won". Off-price retailers like Marshalls and Trader Joe's, warehouse clubs like Costco, and fast-fashion specialty retailers like Zara cater to this need by constantly changing their assortment so that customers never know what kind of treasure they will find. **CONFLICTING NEEDS** Most customers have multiple needs. Moreover, these need often conflict. For example, Eva Mendoza would like to wear a DKNY suit, which would enhance her self-image and earn her the admiration of her college friends. But satisfying these hedonic needs might conflict with her utilitarian needs -the need to stay within her budget and the need to get a job. Employers might feel that she's not responsible. If she wears a suit that is too expensive for an interview for an entry -- level position. Later in this chapter, we discuss a model of how customers make trade -- offs between conflicting needs. The needs and decision- making processes may differ depending on the specific situation. For example, a skier may purchase expensive Spyder goggles but wear an inexpensive snowsuit from Target. A grocery shopper might buy an inexpensive store brand of paper towels and a premium national brand of orange juice. This pattern of buying both premium and low- priced merchandise or patronizing both expensive, status- oriented retailers and price-oriented retailers is called **cross- shopping**. **STIMULATING NEED RECOGNITION** Customers must first recognize unsatisfied needs before they are motivated to visit a store or go online to buy merchandise. Sometimes these needs are stimulated by an event in a person's life, like Eva's impending interviews. But retailers use a variety of approaches to stimulate unmet needs. Advertising, e-mails, direct mail, publicity, and special events communicate the availability of new merchandise or special prices. Visits to SeenOn ([www.SeenOn.com](http://www.SeenOn.com)) can stimulate need recognition by showing products that celebrities or television characters have worn. In a social media campaign, Melrose Jewelers encouraged visitors to its Facebook page to consider a watch purchase by giving them a personality quiz that claimed to reveal which watch style best suited them. Within a store, visual merchandising and salespeople can stimulate need recognition. For example, the display of shoes stimulated Eva's need for shoes to complement her new suit. **INFORMATION SEARCH** One customers identify a need, they typically seek information about retailers, channels, or products to help them satisfy that need. Eva's search started on the Internet and then narrowed to the three suits shown to her friends. In other situations, Eva might have collected a lot of information by visiting several retailers and/ or spending more time on the Internet getting information from fashion blogs like College Fashion, Refinery29, and FabSugar. **SOURCE OF INFORMATION** Customers have two sources of information: internal and external. **Internal sources** are information in a customer's memory, such as name. images, and past experiences with different stores. The major sources of internal information is the customer's past shopping experience. Even if they remember only a small fraction of the information bank to draw on when deciding where to shop and what to buy. **External sources** consist of information provided by a host of sources. People search for products and information using search engines such as Googles, visit the websites maintained by manufacturers and retailers, acquire information from traditional media (e.g.,advertising ), read blogs, watch product demonstrations on YouTube, and ask friends, in person and through social media. When customers believe that they are not well enough informed or that their internal information is inadequate, they turn to external information sources. For example, Eva asked her friends, Betsy and Britt, to help her make the purchase decision. To find out if the price of the shoes she liked was reasonable, she turned to an online shoe seller. Such external sources of information play a major role in the acceptance of fashion, as discussed in the appendix to this chapter. **AMOUNT OF INFORMATION SEARCHED** In general, the amount of **information search** undertaken depends on the value customers believe they can gain from searching versus the cost searching. The value of the search stems from the degree to which the additional information improves the customer's purchase decision. Will the search help the customer find a lower-priced product or one that will give superior performance? The costs of the search include the customer's time and money. Traveling from store can cost money for gas and parking, but the major cost incurred is the customer's time. Technology has dramatically reduced the cost of information search. For example, vast information about merchandise sold across the world is just a smartphone search away. Retailing View 4.1 describe how readily available information on the Web affects the automobile buying process. The amount of information search is affected by ( 11 ) characteristics of the individual customer and (2) aspects of the market and buying situation in which the purchase is made. Some people search more than others. Shoppers seeking hedonic benefits typically spend more time collecting information and shopping because they enjoy the process. Customers who have prior experience purchasing and using the product or service tend to search less. Two marketplace and situational factors affecting information search are (1) the number of competing brands and retail outlets and (2) the time pressure under which the purchase must be made. When competition is greater and there are more alternatives to consider, the amount of information search increases. However, the amount decreases with greater time pressures. **REDUCING INFROMATION SEARCH** The retailer's objective for customers in the information search stage to limit the customers in the information search stage in to limit the customer's search to its store or website. One measure of a retailers performance on this objectives is the **conversion rate** -- the percentage of customers who enters a store or access a websites and then buy a product from the same store or website. Each element of the retailing mix can be used to increase a retailer's conversion rate. Category specialists such as Best Buy provide a very deep assortment of merchandise, everything a customer might want to consider, so that the customer can collect all the information and make the necessary comparisons between products in their stores or on their websites. At Old Navy, the remodeled layout features a racetrack format that reduces information search by giving customers a better sense of the vast options available. It also displays more items around the checkout areas. Services provided by retailers can also limit the search once at the retailer's location. By offering credit and having informed salespeople, a retailer can convince consumers that they don't need to collect additional information from other retailers. Lowe's has equipped its floor staff with iPhones to enable them to check inventory levels for customers on the spot. Similarly, Pacific Sunwear gives salespeople iPads that help create virtual outfits to show customers. Foot Locker is relying on old-fashioned training, such that employees have a better sense of how to engage customers and encourage them to buy in the store. Walmart utilizes an **everyday low pricing (EDLP) strategy** that stresses continuity of retail prices at a level somewhere between the regular non sale price and the deep-discount sale price of its competitors. This strategy helps assure customers that they won's find a lower price for these products at a different store the next time they go shopping. In addition, many stores with everyday low prices offer money-back guarantees if a competitor offers the same merchandise at a lower price. These pricing policies tend to limit the customer information search to the retailer's offering. **Internet, Mobile, Information Search, and Price Competition** The Internet and smartphones have had profound impact on consumers' ability to gather external information. In addition to placing their own information on their websites and smartphone apps, retailers encourage their customers to post information such as product reviews, ratings, and in some cases, photos and videos. Consumer reviews are emerging as a prime information source for shoppers as mobile apps that encourage showrooming -- a practice in which consumers visit stores to gather information about the product , then buy online -- enable consumers to find the best prices for any product quickly. Retailers and manufacturers are concerned that the ease of collecting price information through the Internet increases price competition. Traditionally, store-based retailers, offering the same merchandise, experienced limited price competition because of their geographical separation. The Internet means that consumers' ability to compare prices no longer is limited by physical distance. In addition, the ease of searching for price information is facilitated by shopping sites such as mysimon.com. Or consumers can use one of the many mobile phone apps to learn about prices and availability of products at stores near where they are located. The Internet not only helps online consumers collect price information, but also gives them information about the quality and performance of products, all at a low search cost. With more information about product quality, customers might be willing to pay more for high-quality products, which would migrate the importance of price. Finally, retailers that use an Internet channel can clearly differentiate their offering by providing better services and information. **EVALUATION OF ALTERNATIVES: THE MULTIATTRIBUTE MODEL** The multiattribrute attitude model provides a useful way to summarize how customers use the information they have collected to evaluate and select retailers, channels, and products. We discuss this model in detail because it offers a framework for developing a retailing strategy. The **multiattribute attitude model** is based on the notion that customers see a retailer, a product, or a channel as a collection of attributes or characteristics. The model is designed to predict a customer's evaluation of a product, retailers, or channel on the basis of (1) its performance on relevant attributes and (2) the importance of those attributes to the customer. **Beliefs about Performance** To illustrate this model, consider the store choice decision confronting a young, single, professional Milwaukee woman who needs groceries. She considers three alternatives: (1) a supercenter store in the next suburb, (2) her local supermarket store, or (3) a grocer that operates only an Internet channel, such as Fresh Direct. Her perception of the offerings provided by these retailers is shown in Exhibit 4-2. The customer mentally processes the "objective" information about each grocery retailer in part A of Exhibit 4-3 and forms an impression of the benefits each one provides. Part B of Exhibit 4-2 shows her beliefs about these benefits, Notice that some benefit combines several objective characteristics. For example, the convenience benefit combines travel time, checkout time, and ease of finding products. Grocery prices and delivery cost affect her beliefs about the economy of shopping at the various retail outlets. The degree to which each retailer provides each benefit is represented on a 10-point scale: 10 means the retailers performs very well in providing the benefit; 1means it performs very poorly. In this example, no retailer has superior performance on all benefits. The supercenter performs well on economy and assortment but is low on convenience. The Internet grocer offers the best convenience but is weak on economy and assortment. **Exhibit 4-2 Characteristic of Food Retailers** A. INFORMATION ABOUT STORES GROCERIES ----------------------------------------------------------- ------------------- ------------- ------------------- Store Characteristics Supercenter Supermarket Internet Grocer Grocery prices 20% below average Average 10% above average Delivery cost(\$) 0 0 10 Total travel time (minutes) 30 15 0 Typical checkout time (minutes) 10 5 2 Number of products, brands, and sizes 40,000 30,000 40,000 Fresh produce Yes Yes Yes Fresh fish Yes Yes No Ease of finding products Difficult Easy Easy Ease of collecting nutritional information about products Difficult Difficult Easy B. BELIEFS ABOUT STORES\' PERFORMANCE BENEFITS\* Perfomance Benefits Supercenter Supermarket Internet Grocer Economy 10 8 6 Convenience 3 5 10 Assortment 9 7 5 **Importance Weights** The young woman in the preceding example forms an overall evaluation of each alternative on the basis of the importance she places on each benefits the retailers provide. The importance she places on benefit can also be represented using a 10-point rating scale, with 10 indicating the benefit is very important to her and I indicating it's very unimportant. Using this rating scale, the importance of the retailers' benefit for the young woman and for a parent with four children is shown in Exhibit 4-3, along with the performance beliefs previously discussed. Notice that the single woman values convenience and the availability of product information much more than economy and assortment. But to the parent, economy is very important and assortment is moderately important, whereas convenience and product information aren't very important. The importance of a retailer's benefit differs for each customer and also may differ for each shopping trip. For example, the parent with four children may stress economy for major shopping trips but place more importance on convenience for a fill-in trip. In Exhibit 4-3, the single woman and parent have the same beliefs about each retailer's performance, but they differ in the importance they place on the benefits the retailers offer. In general, customers can differ in their beliefs about retailers' performance as well in their importance weights. **Evaluating Retailers** Research has shown that a customer's overall evaluation of an alternative ( in this situation, three retailers) is related to the sum of the performance beliefs multiplied by the importance weights. Thus, we calculate the young, single woman's overall evaluation or score for the supercenter as follows: 4 x 10 = 40 10 x 3 = 30 5 x 9 = 45 9 x 4 = [36 ] 151 Exhibit 4-3 shows the overall evaluations of the three retailers using the importance weights of the single woman and the parent. For the single woman, the Internet grocer has the highest score, 221 , and thus has the most favorable evaluation. She would probably select this retailer for most of her grocery shopping. On the other hand, the supercenter has the highest score, 192, for the parent, who'd probably buy the family's weekly groceries there. When customers are about to select a retailer, they don't actually go through the process of listing store characteristics, evaluating retailers' performances on these characteristics, determining each characteristics' importance, calculating each store's overall score, and then patronizing the retailer with the highest score. The multiattribute attitude model does not reflect customers' actual decision process, but it does predict their evaluation of alternatives and their choice. In addition, the model provides useful information for designing a retail offering. For example, if the supermarket could increase its performance rating on assortment form 7 to 10 ( perhaps by adding a bakery and a wide selection of prepared meals), customer like the parent might shop at the supermarket more often than at the supercenter. The application of the multiattribute attitude model in Exhibit 4-3 deals with a customers who is evaluating and selecting a retailer. The same model can also be used to describe how a customer evaluates and selects which channel to use ( store, Internet, or catalog) or what merchandise to buy from a retailer. For example, the model could be used to describe Eva Mendoza's choice among the three suits she was considering. **EXHIBIT 4-3 EVALUATION OF RETAILERS** **IMPORTANCE WEIGHTS\*** **PERFORMANCE BELEIFS** ------------------------------------- ------------------------- --------------------------- ------------- ------------- ----------------- Characteristic Young Single Woman Parent with Four Children Supercenter Supermarket Internet Grocer Economy 4 10 10 8 6 Convenience 10 4 3 5 10 Assortment 5 8 9 7 5 Availability of product Information 9 2 4 4 8 OVERALL EVALUATION Young single woman 151 153 221 Parent with four children 192 **164** **156** **Implications for Retailers** In this section, we describe how a retailer can use the multattribute attitude model to encourage customers to shop at the retailer more frequently. First, the model indicates what information customers use to decide which retailer to patronize or which channel to use. Second, it suggests tactics that retailers can undertake to influence customers' store, channel, and merchandise choices. To develop a program for attracting customers, retailers need to do market research to collect the following information: 1. Alternative retailers that customers consider. 2. Characteristics or benefits that customers consider when evaluating and choosing a retailer. 3. Customers' ratings of each retailers' performance on the characteristics. 4. The importance weights that customers attach to the characteristics. Armed with this information, the retailer can use several approaches to influence customers to patronize its store or Internet site. **Getting into the Consideration Set** Retailers need to be included in the customer's **consideration set,** or the set of alternatives the customer evaluates when making a choice of a retailer to patronize to increase the likelihood that customers will remember them when they're about to go shopping. Retailers can increase customer awareness through communication and location decisions. For example, retailers can buy placement at the top of the screen when consumers are using a search engine term for products they sell. They can develop communication programs that link categories they sell with their name. Starbucks locates several stores in the same areas so that customers are exposed more frequently to the store name as they drive through the area. After ensuring that it is in consumer's consideration set, a retailer can use three methods to increase the chances that customers will select it for a visit: 1. Increase beliefs about the store's performances. 2. Change customers' importance weights. 3. Add a new benefit. **Changing Performance Beliefs** The first approach involves altering customer's beliefs about the retailer's performance by increasing the retailer's performance rating on a characteristic. For example, the supermarket in Exhibit 4-3 would want to increase its overall rating by improving its rating on all four benefits. The supermarket could improve its rating on economy by lowering prices and its assortment rating by stocking more gourmet and ethnic foods. Retailing View 4.2 illustrates how Lowe's altered the performance beliefs of women about its store. Because it can get costly for a retailer to improve its performance on all benefits, retailers must focus on improving their performance on those benefits that are important to customers in their target market. For example. Best Buy knows that an important benefit for its customers is not to be without their computers for lengthy amounts of time when repairs are needed. So it maintains a 240,000-square-foot " Geek Squad City" warehouse, with more than 1,200 employees, dedicated to reducing the time it takes to repair and return a computer, Geek Squad " agents" fix more than 4,000 laptops per day. **Changing Importance Weights** Altering customer's importance weights is another approach to influencing store choice. A retailer wants to increase the importance customers place on benefits for which its performance is superior and decrease the importance of benefits for which it has inferior performance. For example, if the supermarket in Exhibit 4-3 tried to attract families who shop at supercenters, it could increase the importance of convenience for them. Typically, changing importance weights is harder than changing performance beliefs because importance weights reflects customer's personal values. **Adding a New Benefit** Finally, retailers might try to add a new benefit to the set of benefit customers consider when selecting a retailer. Senda ([www.sendaathletics.com](http://www.sendaathletics.com)) does not offer the typical assortment of athletic. **PURCHASING THE MERCHANDISE OR SERVICE** Customers don't always patronize a store or purchase a brand or items of merchandise with the highest overall evaluation. The product or service offering the greatest benefits (having the highest evaluation) may not be available from the retailer, or the customer may feel that its risk outweigh the potential benefits. Other consumers make purchase choices based on a single attribute, regardless of how well the offering performs on other characteristics. For example, Eva visited Macy's because the local store is convenient to her apartment, even though other department stores might have a wider selection of women's suit. One measures of retailers' success at converting positive evaluations to purchase is a reduction in the number of real or virtual abandoned carts in the retailer's store or website. Retailers use various tactics to increase the chances that customers will convert their positive evaluations into purchases. First, they attempt to make it easy to purchase merchandise. More and more retailers are ensuring that their websites merchandise by having more checkout lanes open and placing them conveniently in the store. In addition to reducing actual waiting time, they can reduce perceived wait times by installing digital displays to entertain customers waiting in line. Many Internet retailers send reminder e- mails to visitors about items in carts they have abandoned. Second, retailers' ability to turn a positive purchase intention into a sale can also be increased by providing sufficient information that reinforces the customer's positive evaluation. For example, Eva's friend Britt, the salesperson, and another potential customers also provided Eva with positive feedback to support her purchase decision. Third, retailers can increase the chances of making a sale by reducing the risk of making a purchase mistake. For instance, retailers can offer liberal returns policies, money-back guarantees, and refunds if customers find the same merchandise available at lower prices from another retailer. Finally, retailers often create a sense of urgency or scarcity to encourage customers to making a purchase mistake. Zappos.com and Ovestck.com alert customers if an item in their shopping carts is about to sell out. Flash-salle sites offer items for a specified time period; Neiman Marcus hosts two-hour online sales. The limited assortments offered by fast-fashion retailers like Zara and off-price retailers like TJX Corporation ( TJ Maxx and Marshalls) have conditioned customers to buy it when they see it. Otherwise, it may be gone the next time they visit the store. **POSTPURCHASE EVALUATION** The buying process doesn't end when a customers purchase a product. After making a purchase, the customers uses the product and then evaluates the experience to determine whether it was satisfactory or unsatisfactory. **Satisfaction** is a post consumption evaluation how well a store or product meets or exceeds customer expectations. This **postpurchase evaluation** then becomes part of the customer's internal information and affects store and product evaluations and purchase decisions. Unsatisfactory experiences can motivate customers to complain to the retailer, patronize other stores, and select different brands in the future. Consistently high levels of satisfaction build store and brand loyalty, important sources of competitive advantage for retailers. To improve postpurchase assessments and satisfaction, retailers can take several steps. First, they must make sure to build realistic customer expectations, so they never let those shoppers down with their performance. Second, they should provide information about proper use and care of the items purchased. Third, as mentioned previously, guarantees and warranties reduce a negative feeling of risk, both before and after the purchase. Fourth, the best retailers make contact periodically with their customers to make sure they are satisfied, correct any problems, and remind customer puts the retailer in his or her consideration set for the next purchase occasion. **LEARNING OBJECTIVE 2** **TYPE OF BUYING PROCESS** In some situations, customers like Eva Mendoza spend considerable time and effort selecting a retailer and evaluating alternative products -- going through all the steps in the buying process described in the preceding section. In other situations, buying process are made automatically with little thought. This section examines three types of customers decision-making processes extended problems solving, limited problems solving, and habitual decision making. **EXTENDED PROBLEM SOLVING** **Extended problem solving** is a purchase decision process in which customers devote considerable time and effort to analyze their alternatives. Customers typically engage in extended problem solving when the purchase decision involves a lot of risk and uncertainty. **Financial risks** arise when customers purchase an expensive product or service. **Physical risk** are important when customers feel that a product or service may affect their health or safety. **Social risks** arise when customers believes a product will affect how others view them. Lasik eye surgery. For instance, involves all three type of risks. It can be expensive, potentially damage the eyes, and change a person's appearance, Consumers engage in extended problem solving when they are making a buying decision to satisfy an important need or when they have little knowledge about the product or service, as we described with car buyers in Retailing View 4.1. due to the high risk in such situation, customers go beyond their internal knowledge to consult with friends, family members, or experts. They might also peruse online blog; examine online reviews, both retailer-sponsored and independent review sites; and read *Consumer Reports.* They may also visit several retailers before making a purchase decision. Retailers stimulate sales from customers engaged in extended problem solving by providing the necessary information in readily available and easily understood manner and by offering money-back guarantees. For example, retailers that sell merchandise involving extended problem solving provide information on their websites describing the merchandise and its specification, have informational displays in their stores( such as a sofa cut in half to show its construction), use salespeople to demonstrate features and answer questions. **LIMITED PROBLEM SOLVING** **Limited problem solving** is a purchase decision process involving a moderate amount of effort and time. Customers engage in this type of buying process when they have had some prior experience with the product or service and their risk is moderate. In such situations, customers tend to rely more on personal knowledge than on external information. They usually choose a retailer they have shopped at before and select merchandise they have bought in the past. The majority of customer purchase decisions involve limited problem solving. Retailers attempt to reinforce this buying pattern and make it habitual when customers are buying merchandise from them. If customers are shopping elsewhere, however, retailers need to break this buying pattern by introducing new information or offering different merchandise or services. A common way to adjust the pattern is through coupons. Companies such as CVS and Walgreens often offer deep coupon discounts on commonly purchased products to get customers into their stores. Retailers are willing to give such steep discounts for two reasons. First, it breaks the established habit a customer may have of shopping elsewhere, and second, they know customers often buy many other, undiscounted items once they are in the store. After customers make these purchases, the retailers analyze their spending patterns and offer targeted coupons to encourage repatronage. Eva Mendoza's buying process illustrates both limited and extended problem solving. Her store choice decision was based on her knowledge of the merchandise in various stores she had shopped in and her search on Nurby.com. considering this information, she felt the store choice decision was not very risky; thus, she engaged in limited problem solving when deciding to visit Macy's. But her buying process for the suit was extended. This decision was important to her; thus, she spent time acquiring information from a friend, the salesperson, and another shopper to evaluate and select a suit. One common type of limited problem solving is **impulse buying,** or **unplanned purchasing,** which is a buying made by customers on the spot after seeing the merchandise. Retailers encourage impulse-buying behavior by using prominent point-of -- purchase (POP) or point -of -- sale (POS) displays to attract customers' attention. Retailers have long recognized that the most valuable real estate in the store is at the point of purchase. An increasing number of non-food retailers ( such as Old Navy, as mentioned previously) are looking to increase impulse buys from customers by offering candy, gum, mints, and other fun, hedonic items at their cash registers. Electronic shoppers are also stimulated to purchase impulsively when Internet retailers put special merchandise on their home pages and suggest complementary merchandise just before checkout. **HABITUAL DECISION MAKING** **Habitual decision making** is a purchase decision process involving little or no conscious effort. Today's customers have many demands on their time. One way they cope with these time pressures is by simplifying their decision-making process. When a need arises, customers may automatically respond with, "I'll buy the same thing I bought last time from the same store". Typically, this habitual decision- making process occurs when decisions aren't very important to customers and involve familiar merchandise they have bought in the past. When customers are loyal to a brand or a store, they engage in habitual decision making. **Brand loyalty** means that customers like and consistently buy a specific brand in a product category. They are reluctant to switch to other brands if their favorite brand isn't available. For example, loyal Coca-Cola drinkers won't buy Pepsi, no matter what. Thus, retailers can satisfy these customers' need only if they offer the specific brand desired. Brand loyalty creates both opportunities and problem for retailers. Customers are attracted to stores that carry popular brands, but because retailers must carry these high-loyalty brands, they may not be able to negotiate favorable terms with the supplier of the popular national brands. If, however, the high-loyalty brands are private-label brands (i.e., brands owned bt he retailer), retailer loyalty is heightened. **Retailer loyalty** means that customers like and habitually visit the same retailer to purchase a type of merchandise. All retailers would like to increase their customers' loyalty, and they can do so by selecting a convenient location ( see Chapter 7 and 8), offering complete assortment of national and private-label brands (Chapter 13), reducing the number of stockouts (Chapter 13), rewarding customers for frequent purchase ( Chapter 11), or providing good customer service (Chapter 18). **LEARNING OBJECTIVE 3** **SOCIAL FACTORS INFLUENCES THE BUYING PROCESS** Exhibit 4-4 illustrate how customer buying decisions are influenced by four influential social factors the economy , family, reference groups, and culture. **Exhibit 4-4 Social Factors Affecting Buying Decisions** **The Economy** The state of the national and global economy has significant effects on the way people buy. In terms of the most recent global recession, the effects have lingered because consumers continue to feel a sense of uncertainty and risk. At the same time, many shoppers have discovered that shopping for bargains is fun. Even if their incomes have stabilized, they have been buying work just fine. The outcomes in terms of consumers' buying processes have been both expected and unexpected. Predictably, people have reduced their spending on luxury brands, leading retailers to revamp their offerings. For example, Neiman Marcus broadened its jewelry lines to include more funky, less expensive designs and fewer precious metals. In addition, consumers make fewer shopping trips and appreciate the convenience of one-stop shopping ( which also lowers gasoline expenditures) at hypermarkets or supercenters. More surprising are the trends that suggests some buyers actually are spending a little more on higher-quality products in an effort to gain more vale and make purchase last. When they do spend more lavishly, consumers tend to feel guilty. Thus, the Ritz-Carlton began avoiding its " silver tray" image in its advertising and instead encouraged visitors to consider their hotel stay a time to reconnect with family. Consumers want to splurge a little when they can; retailers have to find ways to enable them to do so without guilt. **Family** Many purchase decisions involve products that the entire family will consume or use. The previous discussion of the buying process focused on how one person make a decision. When families make purchase decisions, they often consider the needs of all family members. When Choosing a vacation site, for example, all family members may participate in the decision- making role. For example, the husband might buy the groceries, which the wife then uses to prepare their child's lunch, which the child consumes in school. In this situation, the store choice decision might be made by the husband, but the brand choice decision might be made by the wife, thought it likely is greatly influenced by the child. Children play an important role in family buying decisions. Resort hotels now realize they must satisfy children's needs as well as those of adults. The Hyatt hotel chain thus cooperates with a mail-order baby supply company. Babies Travel Lite. After parents book a room, they can order all the diapers, formula , and organic baby food they will reduces the amount of baggage and increase convenience. For older children, Hyatt offer toys, available to be checked out from the front desk. In addition, working with the famous chef Alice Waters, it has revamped the children's menus in its hotel restaurants to offer nutritious, but also fun meal options. Retailers also can attract consumers who shops with other family members by satisfying the need of all those family members. For example, Anthropologie has enlarged its dressing rooms so families ( and friends) can provide advice and try on clothes together. Macy's has added comfortable seating and televisions outside dressing rooms to keep other family members entertained. **Reference Groups** A **reference group** includes one or more people whom a person uses as a basis of comparison for beliefs, feelings and behaviors. A consumer might have a number of different reference groups, such as family, friends , celebrities, and opinion leaders. These reference groups affect buying decisions by (1) offering information, (2) providing rewards for specific purchasing behavior s, and (3) enhancing a consumer's self-image. Reference groups provide information to consumers directly through conversation, either face-to-face or electronically, or indirectly through observation. For example, Eva received valuable information from her friend about the suits she was considering. On other occasions, Eva might look to women like soccer player. Hope Solo and tennis player Caroline Wozniacki to guide her selection of athletic apparel or Demi Lovato and Katty Perry for casual fashion advice. The role of reference group in creating fashion in discussed in the appendix to this chapter. By identifying and affiliating with reference groups, consumers create, enhance, and maintain their self-image. Customers who want to be seen as members of an elite social class may shop at prestige retailers, whereas others, who want to create the image of an outdoor enthusiast might buy merchandise from the L..L.Bean website. Retailers are particularly interested in identifying and reaching out to those in a reference group who act as store advocates and actively influence others in the group who act as store advocates and actively influence others in the group. **Store advocates** are customers who like a store so much that they actively share their positive experiences with friends and family. Retailing View 4.3 details how social media sites such as Pinterest and Facebook make sharing ideas, reviews, and "likes" even easier. Consumers see so much advertising that they become suspicious of the claims being made. This, they are relying more on their own social networks for information about stores to patronize and merchandise to buy. **Culture** **Culture** is the meaning, beliefs, morals, and values shared by most members of a society. As the basis of the social factors that influence people's buying decisions, the culture or cultures in which each consumer participates often align with his or her reference groups. For example, Eva's cultural groups include her Latino heritage and the Pacific Northwest culture in which she lives. These cultural influences affect her consumer behavior. Because the culture at Eva's college is rather fashion conscious, she was immediately aware that her old suit was out of date and considered buying fashionable shoes a reasonable addition. Many retailers and shopping center managers have recognized the importance of appealing to different cultures and subcultures. For instances, the U.S. Hispanic population is growing faster than any other market segment , and Hispanics' purchasing power is rising faster than that of the general population. Many retailers, particularly supermarkets in areas with large Hispanic populations, have dedicated significant space to products that are indigenous to particular Spanish- speaking countries. The product mix will, however, differ depending on the region of the country. Merchandise should reflect that, for instance, Miami has a large Cuban and Latin American population, whereas Los Angels and Texas have more people from Mexico Bilingual employees are critical success factor for stores catering to the Hispanic population. Some retailers with a long history of serving Hispanic customers even found that they needed t start adding more English to their products and marketing materials to better target their customers' children. Thus, Pizza Patron, a Dallas-based pizza chain, has begun shifting its menu boards from purely Spanish to a combination of Spanish and English, and Curacao, a big box store in California serving Hispanics, has shifted from Spanish-only speaking employees and advertising to a similar mixed format. **LEARNING OBJECTIVE 4** **MARKET SEGMENTATION** The preceding discussion focused on (1) how individual customers evaluate and select stores, channels, and merchandise and (2) the factors affecting their decision making. To be cost-effective, retailers identify groups of these customers (market segments) and target their offerings to meet the needs of typical customers in a segment rather than the needs of a specific customers. At one time, Walmart used a " one-sizes-fits-all" strategy. The merchandise selection was very similar across the United States, without much regard to geographic or demographic variations. This approach worked well when most of its stores were located in rural areas in the Southeast. But as it opened stores in more diverse locations, it realized it had to develop different retail mixes for different market segments. For example, in urban locations, it has begun opening smaller Walmart Express and market Stores, in already-built storefronts, which features more grocery items and a small selection of lawn furniture. A **retail market segment** is a group of customers who are attracted to the same retail mix because they have similar needs. For example, young , hip 20-somethings have different needs than executives on business strips. Thus, Marriott offers hotel chains with different retail mixes for each of these segments- AC Hotels by Marriott for the young and hip and Marriott Hotels and Conference Centers for business executives and conferences. The Internet enables retailers to target individual customers efficiently and market products to them on a one-to-one basis. This one-to-one marketing concept is discussed in Chapter 11 as it pertains to customer relationship management. **Criteria for Evaluating Market Segments** Customers can be grouped into segments in many different ways. Exhibit 4-5 shows some different methods of segmenting retail markets. There's no simple way to determine which method is best, though four criteria useful for evaluating whether a retail segment is a viable target market are as follows: actionable, identifiable, substantial, and reachable. **Actionable** The fundamental criteria for evaluating a retail market segments are that (1) customers in the segments must have similar needs, seek similar benefits, and be satisfied by a similar retail offering and (2) those customers' needs must differ from the needs of customers in other segments. **Actionable** means that the retailer should know what to do to satisfy needs for the consumers in the segment. According to this criteria, it makes sense for Banana Republic to segment the apparel market on the basis of the demographic characteristics of physical size. Customers who wear petite sizes have different needs than those who wear regular or large sizes, so they are attracted to a store offering a unique merchandise mix. In the context of the multiattribute attitude model discussed previously, people who wear small sizes place more importance on fit and customer service because it is generally more difficult for them to get the appropriate fit and because they need knowledgeable sales associates who know and can to their specific needs. In contrast, it wouldn't make sense for a supermarket to segment its market on the basis of customer size. Large and small men and women probably have the same needs, seek the same benefits, and go through the same buying process for groceries. This segmentation approach wouldn't be actionable for a supermarket retailer because the retailer couldn't develop unique mixes for large and small customers. However, a segmentation scheme based on geography or demographics such as household income and ethnicity would be actionable. Segmentation Description Example of Categories --------------------------- --------------------------------------------------------------------------------------------------------------------------------------------------------------------- GEOGRAPHIC Region Pacific, Mountain, Central, South, Mid-Atlantic, Northeast Population Density Rural, suburban, urban Climate Cold, Warm DEMOGRAPHIC Age Under 5,6-12,13-19,20-29,30-49, 50-65, over 65 Gender Male, female Family life cycle Single, married with no children, married with youngest child under 6, married with youngest child over 6, married with children no longer living at home, widowed. Occupation Professional, clerical, sales, craftsperson, retired, student , homemaker Education Some high school, high school graduate, some college, college graduate, graduate degree Religion Catholic, Protestant, Jewish, Muslim Race Caucasian, African-American, Hispanic, Asian Nationality American, Japanese, British, French, German, Italian, Chinese PSYCHOSOCIAL Social class Lower, middle, negative Lifestyle Striver, driver, devoted, intimate, altruist, fun seeker, creative Personality Aggressive, shy, emotional FEELINGS AND BEHAVIORS Attitudes Positive, neutral, negative Benefit sought Convenience, economy, prestige Stage in decision process Unaware, aware, informed, interested, intend to buy, bought previously Perceived risk High, medium, low Innovativeness Innovator, early adopter, early majority, late majority, laggard Loyalty None, some, completely Usage rate None, light, medium, heavy Usage situation Home, work, vacation, leisure User status Nonuser, ex-user, potential user,........... **IDENTIFIABLE** **Identifiable** means that the retailer is able to determine which customers are in the market segment. When customers are identifiable, the retailer can determine (1) the segment's size and (2) the consumers to whom the retailer needs to target its communications and promotions. For example, supermarket retailers use customer demographics to identify where they should put their stores and the merchandise that they should carry. More prepared and gourmet foods, fancy produce, and expensive cuts of meat would go into stores in neighborhoods with higher average incomes. Snack foods likely predominate in stores located near a college campus. It is equally important to ensure that the segments are distinct from one another because to much overlap between segments means that distinct marketing strategies aren't needed. If , for example, a regional grocery store chain had stores located in neighborhoods containing people with similar demographics, there would be no need to vary its merchandise selection. **SUBSTANTIAL** If a market is too small or its buying power insignificant (i.e., not **substantial** ), it cannot generate sufficient profits to support the retailing mix activities. For example, the market for pet pharmaceuticals is probably not large enough in one local area to serve as a target market segment, but a national market could be served through the Internet channel. **REACHABLE** **Reachable** means that the retailer can target promotions and other elements of the retail mix to consumers in the segment. For example, AutoZone targets men who repair their automobiles themselves. Potential customers in this segment are reachable because they read car magazines, watch NASCAR on TV, and have distinct television viewing habits. **APPROACHES FOR SEGMENTING MARKETS** Exhibit 4-5 illustrate the wide variety of approaches for segmenting retail markets. No one approach is best for all retailers. Instead, they must explore various factors that affect customer buying behavior and determine which factors are most important for them. **Geographic Segmentation Geographic segmentation** groups customers according to where they live. A retail market can be segmented by countries (Japan, Mexico) or by areas within a country, such as states, cities, and neighbor hoods. Because customers typically shop convenient to where they live and work, individual retail outlets usually focus on the customer segment reasonable close to the outlet. Segments based on geography can be identifiable, substantial, and reachable. It's easy to determine who lives in a geographic segment, such as the Paris metropolitan area, and then determine how many potential customers are in that area. It is also relatively simple to target communications and locate retail outlets for customers in Paris and then determine if customers are being responsive to those communications. However, when customers in different geographic segments have similar needs, it is inefficient to develop unique retail offerings by geographic markets. For example, as fast-food customer in Detroit probably seeks the same benefits as fast-food customer in Los Angeles. Thus, it wouldn't be useful to segment the U.S fast-food market geographically. **Demographic Segmentation Demographic segmentation** groups consumers on the basis of easily measured. Objective characteristics such as age, gender, income, and education. Demographic variables are the most common means of defining segments, because consumers in these segments can be easily identified, their size can be determined, and the degree to which they can be reached by and are responsive to media can be easily assessed. However, demographics may not be useful for defining segments for some retailers because the motivations for purchasing transcend simple demographics. For example, demographics are poor predictors of users of active wear, such as jogging suits and running shoes. At one time, retailers assumed that activewear would be purchased exclusively by young athletic people, but the health and fitness trend has led people of all ages to buy this merchandise. Relatively inactive consumers also find activewear to be comfortable Several other long-held assumptions about who buys what also are being challenged in today's retail environment, as Retailing view 4.4 describes. **Geodemographic Segmentation Geodemographic segmentation** uses both geographic and demographic characteristics to classify consumers. This segmentation scheme is based on the principle that " birds of a feather flock together". Consumers in the same neighborhoods tend to buy the same types of cars, appliances, and apparel and shop at the same types of retailers. One widely used tool for geodemographic market segmentation is the Tapestry Segmentation system developed and marketed by Esri. Tapestry Segmentation classifies all U.S. residential neighborhood into 65 distinctive segments based on socioeconomic and demographic characteristics. The information in Exhibit 4-6 describes three Tapestry segments. These neighborhoods, with their similar demographics and buying behaviors, can be any place in the United States. Geodemographic segmentation is particularly appealing for managing the store channel because customers typically patronize stores close to their neighborhoods. Thus, retailers can use geodemographic segmentation to select locations for their stores and tailor the assortment in the stores to the preferences of the local community. In Chapter 8, we illustrate how geodemographic segmentation is used to make store location decisions. Segment 01- Top Rung Segment 18 -- Cozy and Comfortable Segment 52 -- Inner City Tenants ---------------------------- ---------------------------------------- ------------------------------------- ------------------------------------- Life Mode Summary Group L.1 High Society L.2 Upscale Avenues L.8 Global Roots Urbanization Summary Group U3 Metro Cities I U8 Suburban Periphery II U4 Metro Cities II Household Type Married-Couple Families Married-Couple Families Mixed Median Age 44.6 41.7 28.8 Income High Upper Middle Lower Middle Employment Pof / Mgmt Prof / Mgmt Srvc / Prof / Mgmt /Skilled Education Bach/ Grad Degree Some College No HS Diploma; HS: Some College Residential Single Family Single Family Multiunit Rentals Race/ Ethnicity White White White; Black; Hispanic Activity Participate in public/civic activities Dine out often at family restaurant Play football, basketball Financial Own stock worth \$75,00 + Have personal line of credit Have personal education loan Activity Vacation overseas Shop at Kohl's Go dancing Media Listen to classical. All-news radio Listen to sporting events non radio Read music, baby, fashion magazines Vehicle Own / Lease luxury car Own / Lease minivan Own / Lease Honda **Exhibit 4-6 Examples of Tapestry** **Lifestyle Segmentation** Of the various methods of segmenting. Lifestyle is the one that delves the most into how consumers describe themselves. **Lifestyle,** or **psychographics,** refers to how people live, how they spend their time and money, what activities they pursue, and their attitudes and opinions about the world in which they live. For example, a person may have a strong need for conversation. This need then motivates the person to buy products compatible with that lifestyle. Shoppers at the Austin, Texas- based, environmentally sustainable, zero-waste grocery chain ingredients bring their own containers and purchase the organic food products they need from bulk bins. Lifestyle segments can be identified through consumer surveys that ask respondents to indicate whether they agree or disagree with statements such as, " My idea of fun in a national park would be to stay in an expensive lodge and dress up for dinner," " I often crave excitement". Or " I could not stand to skin a dead animal". Retailers today are placing more emphasis on lifestyles than on demographics to define a target segment. One of the most widely used tools for **lifestyle segmentation is VALS,** by Strategic Business Insights. On the basis on the responses to the VALS survey( [www.strategicbusinessinsights.com/vals/presurveys.shunl](http://www.strategicbusinessinsights.com/vals/presurveys.shunl)), consumers are classified into the eight segments shown in Exhibit 4-7. On the horizontal segments reflect people's primary motivation for buying , which stem from their self-image. There are three primary motivation of U.S. consumers : ideals, achievement, and self-expression. People who are primarily motivated by ideals are guided by knowledge and principles. Those who are motivated by achievement look products and services that demonstrate success to their peers.Consumers who are primarily motivated by self-expression desire social or physical activity, variety, and risk. On the vertical dimension, the description refers instead to consumers' resources , including their income, education, health, and energy level, as well as their degree of innovativeness. The segments on top have more resources and are more innovative; those on the bottom have fewer resources and are less innovative. The demographics of each group are provided in the figure. **VALS Framework** ![](media/image2.png) **EXHIBIT 4-7 VALS AMERICAN LIFESTYLE** Firms are finding that lifestyle are often more useful for predicting consumer behavior than are demographics. In particular, VALS enables firms to identify target segments and their underlying motivations. It also reveals correlations between psychology and lifestyle choices. People who share demographics actually tend to have varying psychological traits. Two shoppers with similar demographic appearances still might have different levels of risk-taking propensity, social consciousness, or preferred benefits. College students and day laborers might earn similar incomes, but they spend that income quite differently because of their very different values and lifestyle. There are limitation to using lifestyle segmentation, however, Lifestyle are not as objective as demographics, and it is harder to identify potential customers. With demographics, a firm like Nike can easily identify its customers as men or women and direct is marketing strategies to each group differently. For these reasons, lifestyle segmentation is often used in conjunction with other segmentation methods. In addition, psychographics are more expensive as a means to identify potential customers. To identify VALS segments, companies use the VALS questionnaire in surveys or focus groups. Then VALS provides segment description linkages with consumer product and media data, communication styles, and zip code location. **Buying Situation Segmentation** The buying behavior of customer with the same demographics of lifestyle can differ depending on their buying situations. Thus, retailers may use **buying situations,** such as fill-in versus weekly shopping, to segment a market. For example, in Exhibit 4-3, the parent with four children evaluated the supercenter more positively than the Internet grocer or supermarket for weekly grocery purchases. But if the parent ran out of milk during the week, he or she would probably go to convenience store rather than the wholesale club for this fill-in shopping. In terms of Exhibit 4-3\'s multiattribute attitude model, convenience would be more important than assortment in the fill-in shopping situation. Similarly, an executive might stay at a convention hotel on a business trip and a resort during a family vacation. Buying situation segmentation rates high among the criteria for evaluating market segments. The segments are actionable because it is relatively easy to determine what a marketer should do to satisfy the need of a particular segment. They are identifiable and accessible because retailers or service providers can determine who the customers are on the basis of who has purchased the product or service and under what circumstances. Once they have identified the customer segment, they can assess its size. **Benefit Segmentation** Another approach for defining a target segment is to group customers seeking similar benefits; this method is called **benefit segmentation.** In the mutiattribute attitude model, customers in the same benefit segmentation would have a similar set of importance weights for the attributes on fashion and style and low importance on price might form a fashion segment, whereas customers adopted this approach to segmentation: To appeal to hand -- to -- mouth munchers, it offers packages of bite-size candy versions of its popular candy bars, such as Almond Joys, Reese's Peanut Butter Cups, and Hershey's Chocolate. It also tailors its packaging in international markets to offer the key benefits demanded by consumers. When its research showed that Chinese consumers prefer gold over silver, Hershey's changed the foil that wraps its Kisses candies in China. Benefit segments are very actionable. The benefits sought by customers in the target segment clearly indicate how retailers should design their offerings to appeal to those customers. But customers in benefit segments aren't easily identified or accessed; it's hard to look at a person and determine what benefits he or she is seeking. Typically, the audience for the media used by retailers is describe by demographics rather than by the benefits they seek. **COMPOSITE SEGMENTATION APPROACHES** No segmentation approach meets all the criteria. For example, segmentation by demographics and geography is ideal for identifying and accessing customers, but these characteristics often are unrelated to customer's needs. Thus, these approaches may not indicate the actions necessary to attract customers in these segments. In contrast, knowing what benefits customers are seeking is useful for designing an effective retail offering; the problem is identifying which customers are seeking these benefits. For these reasons, **composite segmentation** uses multiple variables to identify customers in the target segment according to their benefits sought, lifestyle, and demographics. CVS uses what it calls the " CVS personalities" to target three composite segments. Each of these segments, referred to buy a first name, is used to develop a retail strategy for the market segment. " Caroline", is a segment composed of 18- to 24 -- year -- old single or new moms who have a lower income but have the highest number of items purchased per trip. " Vanessa" targets a segment of 35- to- 54-year-old women with children, at the peak of their income and generating the highest spending ,frequency of purchases, and overall basket size. Finally , " Sophie" is a 55- plus empty nester woman with a median income and a health focus. These segments are useful in developing positioning messages that can be used in their ads, flyers, and displays. This information is also useful for manufacturers who sell their products through CVS. For example, for " Caroline", Dove could be positioned as convenient reenergizer. For " Vanessa", it could be positioned as an escape. Finally, for " Sophie", it could be touted as beneficial to health. **SUMMARY** **LO 1 DESCRIBE THE PROCESS THAT CONSUMERS GO THROUGH WHEN MAKING RETAIL PATRONAGE AND BUYING DECISIONS.** Consumers go through several stages when making a purchase decision: need recognition , information search, evaluation of alternatives, choices of alternatives, purchase, and post purchase evaluation, it is important for retailers to understand how they can nudge their customers closer to a buying decision at each step of their buying process. **THE BUYING PROCESS** The steps consumers go through when buying a product or service -- begins when customers recognize an unsatisfied need. Then they seek information about how to satisfy the need -- what retailers, channels, and products or services might satisfy the need. Customers then evaluate the alternatives and choose a store or Internet site to visit or a catalog to review. **STAGES IN THE BUYING PROCESS** - **NEED RECOGNITION** The buying process is triggered when consumers recognized they have an unsatisfied need. An unsatisfied need arises when customer's desired level of satisfaction differs from their present level of satisfaction. TYPES OF NEEDS 1. Utilitarian needs When consumers go shopping to accomplish a specific task. 2. Hedonic needs When consumers go shopping for pleasure. Examples of how retailers satisfy hedonic needsare listed next : - Stimulation. - Status and power. - Adventure. - **INFORMATION SEARCH** One customers identify a need, they typically seek information about retailers, channels, or products to help them satisfy that need. SOURCE OF INFORMATION 1. Internal Sources Information in a customer's memory, such as name. images, and past experiences with different stores. The major sources of internal information is the customer's past shopping experience. 2. External Sources Information provided by a host of sources. People search for products and information using search engines such as Googles, visit the websites maintained by manufacturers and retailers, acquire information from traditional media (e.g.,advertising ), read blogs, watch product demonstrations on YouTube, and ask friends, in person and through social media. - **EVALUATION OF ALTERNATIVES: THE MULTIATTRIBUTE MODEL** The multiattribrute attitude model provides a useful way to summarize how customers use the information they have collected to evaluate and select retailers, channels, and products. We discuss this model in detail because it offers a framework for developing a retailing strategy. The Multiattribute attitude model is based on the notion that customers see a retailer, a product, or a channel as a collection of attributes or characteristics. The model is designed to predict a customer's evaluation of a product, retailers, or channel on the basis of (1) Its performance on relevant attributes and (2)The importance of those attributes to the customer. - **PURCHASING THE MERCHANDISE OR SERVICE** Customers don't always patronize a store or purchase a brand or items of merchandise with the highest overall evaluation. The product or service offering the greatest benefits may not be available from the retailer, or the customer may feel that its risk outweigh the potential benefits. Other consumers make purchase choices based on a single attribute, regardless of how well the offering performs on other characteristics. Retailers use various tactics to increase the chances that customers will convert their positive evaluations into purchases. 1. They attempt to make it easy to purchase merchandise. 2. Retailers' ability to turn a positive purchase intention into a sale can also be increased by providing sufficient information that reinforces the customer's positive evaluation. 3. Retailers can increase the chances of making a sale by reducing the risk of making a purchase mistake. 4. Retailers often create a sense of urgency or scarcity to encourage customers to making a purchase mistake. - **POSTPURCHASE EVALUATION** The buying process doesn't end when a customers purchase a product. After making a purchase, the customers uses the product and then evaluates the experience to determine whether it was satisfactory or unsatisfactory. 1. Satisfaction - is a post consumption evaluation how well a store or product meets or exceeds customer expectations. 2. Unsatisfactory -experiences can motivate customers to complain to the retailer, patronize other stores, and select different brands in the future. **LO 2 IDENTIFYING THE DIFFERENT TYPES OF BUYING PROCESSES.** The importance of the stages depends on the nature of the customer's decision. When decisions are important and risky, the buying process is longer because customers spend more time and effort on the information search and evaluation of alternatives. When buying decisions are less important to customers, they spend little time in the buying process, and their buying behavior may become habitual. **TYPES OF BUYING PROCESS** This section examines three types of customers buying decision-making processes extended problems solving, limited problems solving, and habitual decision making. **1. EXTENDED PROBLEM SOLVING** Is a purchase decision process in which customers devote considerable time and effort to analyze their alternatives. Customers typically engage in extended problem solving when the purchase decision involves a lot of risk and uncertainty - Financial Risks Arise when customers purchase an expensive product or service. - Physical Risk Important when customers feel that a product or service may affect their health or safety. - Social Risk Arise when customers believes a product will affect how others view them. **2. LIMITED PROBLEM SOLVING** Is a purchase decision process involving a moderate amount of effort and time. Customers engage in this type of buying process when they have had some prior experience with the product or service and their risk is moderate. In such situations, customers tend to rely more on personal knowledge than on external information. - Impulse buying / Unplanned purchasing Which is a buying made by customers on the spot after seeing the merchandise. Retailers encourage impulse-buying behavior by using prominent point-of -- purchase (POP) or point -of -- sale (POS) displays to attract customers' attention. **3. HABITUAL DECISION MAKING** Is a purchase decision process involving little or no conscious effort. Today's customers have many demands on their time. One way they cope with these time pressures is by simplifying their decision-making process - Brand Loyalty Means that customers like and consistently buy a specific brand in a product category. They are reluctant to switch to other brands if their favorite brand isn't available. - Retailer Loyalty Means that customers like and habitually visit the same retailer to purchase a type of merchandise. All retailers would like to increase their customers' loyalty, and they can do so by selecting a convenient location, offering complete assortment of national and private-label brands, reducing the number of stockouts, rewarding customers for frequent purchase, or providing good customer service. **LO 3 SUMMARIZE HOW THE ECONOMY AND SOCIAL FACTORS AFFECT CUSTOMER PURCHASE DECISIONS.** The buying process of consumers is influenced by their personal beliefs, attitudes, and values, as well as by their social environment. The primary social influences are provided by the economy, consumers' families their reference groups, and culture. **SOCIAL FACTORS INFLUENCES THE BUYING PROCESS** 1. **Economy** The state of the national and global economy has significant effects on the way people buy. In terms of the most recent global recession, the effects have lingered because consumers continue to feel a sense of uncertainty and risk. At the same time, many shoppers have discovered that shopping for bargains is fun. Even if their incomes have stabilized, they have been buying work just fine. 2. **Family** Many purchase decisions involve products that the entire family will consume or use. The previous discussion of the buying process focused on how one person make a decision. When families make purchase decisions, they often consider the needs of all family members. When Choosing a vacation site, for example, all family members may participate in the decision- making role. 3. **Reference Groups** A reference group includes one or more people whom a person uses as a basis of comparison for beliefs, feelings and behaviors. A consumer might have a number of different reference groups, such as family, friends , celebrities, and opinion leaders. These reference groups affect buying decisions by \(1) offering information, \(2) providing rewards for specific purchasing behavior s, and \(3) enhancing a consumer's self-image. 4. **Culture** Culture is the meaning, beliefs, morals, and values shared by most members of a society. As the basis of the social factors that influence people's buying decisions, the culture or cultures in which each consumer participates often align with his or her reference groups. **LO 4 DETERMINE WHY AND HOW RETAILERS GROUP CUSTOMERS INTO MARKET SEGMENTS.** To develop cost-effective retail programs, retailers group customers into segments. Some approaches for segmenting markets are based on geography, demographics, geodemographics, lifestyle, usage situations, and benefits sought. Because each approach has its advantages and disadvantages, retailers typically define their target segment by several characteristics. **RETAIL MARKET SEGMENTATION** A retail market segment is a group of customers who are attracted to the same retail mix because they have similar needs. **CRITERIA FOR EVALUATING MARKET SEGMENTS** 1. **Actionable** Means that the retailer should know what to do to satisfy needs for the consumers in the segment. The fundamental criteria for evaluating a retail market segments are that - Customers in the segments must have similar needs, seek similar benefits, and be satisfied by a similar retail offering and - Those customers' needs must differ from the needs of customers in other segments. 2. **Identifiable** Means that the retailer is able to determine which customers are in the market segment. When customers are identifiable, the retailer can determine: - The segment's size and - The consumers to whom the retailer needs to target its communications and promotions. 3. **Substantial** If a market is too small or its buying power insignificant, it cannot generate sufficient profits to support the retailing mix activities. 4. **Reachable** Means that the retailer can target promotions and other elements of the retail mix to consumers in the segment. **APPROACHES FOR SEGMENTING MARKETS** - **Geographic Segmentation** Groups customers according to where they live. A retail market can be segmented by countries or by areas within a country, such as states, cities, and neighborhoods. - **Demographic Segmentation** Groups consumers on the basis of easily measured. Objective characteristics such as age, gender, income, and education. - **Geodemographic Segmentation** Uses both geographic and demographic characteristics to classify consumers. This segmentation scheme is based on the principle that " birds of a feather flock together". - **Lifestyle Segmentation** Lifestyle, or psychographics, refers to how people live, how they spend their time and money, what activities they pursue, and their attitudes and opinions about the world in which they live. - **Buying Situation Segmentation** The buying behavior of customer with the same demographics of lifestyle can differ depending on their buying situations. Thus, retailers may use buying situations, such as fill-in versus weekly shopping, to segment a marke - **Benefit Segmentation** Another approach for defining a target segment is to group customers seeking similar benefits; this method is called benefit segmentation. Benefit segments are very actionable. The benefits sought by customers in the target segment clearly indicate how retailers should design their offerings to appeal to those customers. - **Composite Segmentation** Uses multiple variables to identify customers in the target segment according to their benefits sought, lifestyle, and demographics.

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