Understanding the Retail Consumer

Introduction
 Increasing value perception
 Huge differences in the social practices and food habits of
people in various regions.
 Liberalization and impact on Indian Retail Market
 Consumer behavior plays a crucial role in determining the
success and growth of retail stores.
 Relevance of the retail market,
 Structure of the buying population and
 How buying behavior affects the retail stores.
 Population, demographic and geographic factors

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 The Market
 A market can be defined as a group of consumers or
organizations that is
• Interested in a particular product,
• Has the resources to purchase the products,
• And is permitted by the law to acquire these products.

 A retail market is a place where all the retailers compete with

each other for recognition and acceptance.

 To understand the retail market, understanding the structure

of the buying population and their behavior is important.

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Need to study Consumer Behaviour

 How the need for a product or service determined?

 How the info sought by the consumer?

 The process of evaluation

 The payment process

 The post purchase behaviour

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 Defining a market
 To define a market a retailer should follow the
process given below:
 Total population
 Potential market
 Available market
 Qualified available market
 Target market
 Penetrated market

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 Total population: Determine the total number of
people residing in a particular area in which a retailer
operates.
 Potential market: Identify the individuals in the total
population who are interested in buying the
product/service.
 Available market: Identify the individuals in the
potential market who have enough money to buy the
product/service.

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 Qualified available market: The individuals in the
available market who are legally permitted to buy the
product/service.

 Target market: Identify the portion of the qualified

available market that the firm has decided to serve.

 Penetrated market: Identify the individuals in the

target market who have purchased the product
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 Structure of buying population and their behavior

 Should understand the structure of the population

and their buying behavior, to cater to the needs of
the buyer.
 Buying behavior deals with the process a consumer
undergoes while deciding whether to purchase a
product/service or not.
 Buying population can be divided into two
categories
 Consumer market
 Organizational market.

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Classification of Buying Population

Buying Population

Consumer Market Organizational Market

Corporates Resellers

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Consumer Market
 Consist of the individuals or the households, which
are the ultimate users of goods and services.
 To understand the consumer market, a retailer
should analyze the geographic and demographic
distribution of the population.
 Consumers' buying behavior is influenced by factors
like individual preferences, and social factors
 Geographic distribution helps to analyze the
classification of the population and understand the
purchasing power of the population.
 Demographic Distribution
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Organizational Market
 An organizational market is comprised of corporates
and resellers who represent intermediate consumers
of merchandise.
 The corporate buyers are those companies that
either buy the merchandise offered by the retailer for
corporate use, or promote sales for the retailer by
giving coupons to their employees.
 Resellers are those who buy merchandise in large
quantities at discounted prices from the retailers, and
sell them at normal prices in their shops.
 Organizational and economic factors
 Since retailing has more to do with the ultimate
customers, we limit our discussion to the consumer
market in this chapter.
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 Population Analysis
 The analysis of the total population allows the
retailer to calculate the total demand in the market.

 Total population is determined by the total

number of persons residing in an area at a given
time. The total population of an area is
determined by its birth and death rates, and
immigration and emigration rates.

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Population Analysis– Immigration and
Emigration
 Immigration is the way of shifting into a new place or
country. The population of a place increases when the
immigration rates are high.
 Emigration is the way of leaving one's own place or
country to settle in another place or country. High
emigration rates reduce the population of an area or
country.
 The people who leave their original place of birth either
for a better life or to escape the hard situations in their
place of birth, are called migrants, and the process is
called migration.
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Population Analysis – Race and
Ethnicity
 The race and ethnicity of the population also
play a role in the consumer's choice patterns
and buying behaviors.
 The purchase habits of the buying population
differs from place to place even within the
same country, based on the dominant races
in that particular area.
 Hence the retailer has to be aware of the
racial mix of the population in the area of its
operation.
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Demographic Analysis
 Demography is the study of statistics used to
describe a population like age, sex,
education, income, occupation, race,
nationality, family size and family structure.
 Individuals of similar character are grouped
together to form a consumer market segment.
 Retailer will serve each segment and cater to
varied group preferences.

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Demographic Analysis – Age
Distribution of Population
Year Kids Children Adolescents Young adults Mid aged Aged Total
0-4 5-14 15-19 20-34 35-54 55 and
more

1996 119.5 233.2 90.7 224 178.1 88.7 934.2

2001 108.5 239.1 109.0 246.8 207.3 101.7 1012.4

2006 113.5 221.2 122.4 279.1 239.2 118.7 1094.1

Source: National Council for Applied Economic Research

India is a “Young Nation”

Retailers have to change their approach on the basis of the growing
population.

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Demographic Analysis - Income
 NCAER classifies Consumer into 5
categories based on Annual Income)
 Rich (> Rs. 3,60,001)
 Consuming (Rs 80,001 to Rs 3,60,000)
 Climbers (Rs 40,001 to Rs 80,000)
 Aspirants (Rs 28,001 to Rs 40,000)
 Destitute (< Rs. 28,000)

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Demographic Analysis - Urbanization
 Urbanization can be defined as the growth in the
number of cities and the number of people living in
cities.
 Reasons for the growth of the urban population:
 migration of people from rural areas
 urban expansion and
 the natural increase in population
 Benefits of urbanization are better quality of life,
lower mortality rates, better education and literacy
rates and lower birth rates.

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Demographic Analysis – The
Shrinking Household
 The number and composition of households affect
the purchases made by consumers.
 Reasons for shrinking of size of the average
household
 increasing longevity
 lower birth rates
 trend of staying independently,
 The Indian family structure transforming from a joint
family set - up to single - member and nuclear
families with or without children.
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Demographic Analysis – The Working
Women
 Decision making by Women
 With the increasing number of women opting to work,
the influencing factors to make decisions have
changed.
 Women are looking for ‘Convenience.’
 ‘Convenience’, ‘Availability’ and ‘Quality service’ are
factors of importance for working women.
Different Roles of Women - working partner, the head
of the household, and a working person

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Measures for increasing Convenience
 hold sales and special events during
evenings and weekends.
 Playing rooms for children, well equipped with
games and entertainment channels,
 Giving gifts and chocolates to children to
make shopping a pleasure both for women
and children.
 Baby-sitting services.

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Changing roles of Women
 Different Roles of Women - working partner, the head
of the household, and a working person
 Collective Decision Making for traditional household
purchases
 Decisions for Non-traditional purchases like
investments and purchasing a home
 The buying needs and the decisive attributes for a
purchase have changed with women working.
Eg: Purchase of cosmetics or new dresses.

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Demographic Analysis – The
Diversified Minorities
 Hindus – 80%, Muslims – 14%, Sikhs – 2%,
Others (Christians, Buddhists, Jains, parsis,
Jews) – 4%
 Different Languages

For minorities who follow various religions /

languages the retailers have to provide
products that meet the varied tastes and
preferences.

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Geographic Analysis
 Density of population in a geographic location

 Prosperity of the people in a geographic

location.

 The market potential of the districts within the

states also varies.

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Region wise Top 5 Spends in India
East West North South

Grocery Grocery Grocery Grocery

Apparel Eating out Personal Eating out

care
Saving Books & Music Eating out Apparel

Personal care Personal care Books & Books &

Music Music
Eating out Saving Saving Saving
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Geographic Analysis
 Geographic analysis can be carried out by a
retailer by identifying the characteristic
features of various geographic constituents
like regional markets, metros and non -
metros.

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Geographic Analysis – Regional
Market
 Density of population is117 per sq. km. in
1951 and 324 persons per sq. km. in 2001.
 West Bengal (904 persons per sq. km.) is the
most thickly populated, followed by Bihar
(880), Kerala (819), Uttar Pradesh (689),
Punjab (482) and Tamil Nadu (478).
 The eastern region has the highest density
and the northeastern region, the lowest.

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Geographic Analysis – Metros
 As on 1st March 2001, 72.2% live in rural
areas and 27.8% live in urban areas.
 Increase in population over 1991was 113
million in rural areas and 68 million in urban
areas.
 growth of population in rural – 17.9% and
urban – 31.2%.

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Geographic Analysis – Non - Metros
 Non-metros primarily refer to the towns and villages
that are called semi-urban and rural areas.
 Rural areas are mainly villages with 70% of Indian
population and generates 1/3rd of the national
income.
 Though the potential of the rural market is huge, the
following are the deterrents:
 low literacy rates
 less purchasing power and
 poor infrastructural facilities

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Consumer Buying Behavior
 Refers to the response and reaction of the ultimate
consumer to various situations involved in purchasing
and using various goods and services.
 Consumer responses to various marketing strategies
would determine the retailer's success.
 A retailer should collect information relating to what a
customer likes to buy and in what quantity, who buys,
from where (location) he wants to buy, who are the
ones who influence a customer, etc.

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Consumer Buying Behavior – Buying
Considerations
 What consumers buy and their motives
behind buying them
 Consumers buy products, which are capable
of satisfying their needs
 Define the product from consumer
perspective based on
 tangibility
 durability
 availability

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Product Tangibility
 A product's tangibility is based on its physical
and material properties that enable the
customer to touch or feel it.
 Degree of product tangibility varies
 The tangibility of a good refers to its size,
shape and weight along with its chemical and
biological nature,
 Services are predominantly intangible in
nature
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Product Durability
 The durability of a product is the capability of
a product to endure or to last.
 Based on the useful life span of a product,
 Durables are products that are capable of
serving the customer for a long period of
time.
 Non-durables are products that last for a very
short time.

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Product Availability
 Depending on the level of availability
expected by the customers, products
can be put in three categories:
 Convenience products
 Shopping products
 Specialty products

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Convenience Products
 Convenience products are relatively
inexpensive, frequently purchased products.

 Consumer spends only minimum time to find

the product and purchase it.

 These products carry lower margins, but have

high turnover, hence preferred by Retailers.

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Shopping Products
 Items for which buyers are willing to make
more efforts to plan for and purchase.
 Consumers spend considerable time in
comparing the brands and sellers
 Compared to convenience products,
shopping products are more expensive and
consumers loyalty is less.

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Specialty Products
 Products from which the consumer is least
concerned about the time, effort or expense
involved.
 Consumers do not accept any substitute and
are willing to spend any amount of money to
obtain that particular item.
 These products are available in a limited
number of retail outlets.

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Consumer Buying Behavior – Buying
Situations
 The volume of goods and services that a
consumer buys depends on his requirements
and his willingness and ability to purchase.
 Factors influence the volume of a retailer's
business in a particular market:
 Consumer population
 Consumer requirements
 Consumer potential

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Consumer Population
 Consumption units
 The 'consumption units' will depend on the
type of product purchased and this is the
focus area for determining the market
potential.
 The total market potential can be calculated
by counting the number of consumption units.
 Thus, a market's total consumption capacity
is a function of the total number of
consumption units that make up that market.

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Consumer Requirements
 Percentage of consumption units requiring a
particular product.
 A person's requirement for a particular good
or service depends on his needs and wants.
 Needs can be defined as an internal desire to
satisfy a physiological or psychological urge.
 Wants are a person's desire for a specific
product or service that can satisfy his needs.

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Consumer Potential
 Ability to buy a particular product.

 A consumer's buying behavior mainly

depends on three factors –
 Abilityto buy
 Willingness to buy
 Authority to buy a product.

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Ability to Buy
 A consumer's ability to buy refers to purchasing
power
 The buying power of a consumer is determined by
factors such as the consumer's disposable income,
asset position and available credit.
 Income can be expressed as Total income,
Disposable income and Discretionary income. is that
portion of an individual's or a family's income that
remains after purchasing the basic necessities.
 Based on their discretionary income, the consumers
spend on entertainment, household recreation, etc.
 Credit and Assets increase the purchasing power of
the consumer.
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 Engel’s Law
 “As income increases, consumers'
percentage of income spent on food
decreases and that spent on clothing
remains roughly constant; expenditure
on housing and household operations
remains roughly constant; and
expenditure on luxury and other goods
increases.”

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Willingness to Buy
 Consumer may not buy the product because
he is not interested.
 The buying process is also dependent on
various other factors like psychological
factors and acceptance by the peer group
and family.
 Information requirements of the customer and
decision making style of the customer are
factors delaying the buying process.

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Authority to Buy
 Authority to buy a product can be formal or
informal.
 Formal authority requires that the consumer
must meet various eligibility requirements
 Informal authority for making purchases is an
expected courtesy when more than one
individual is involved and when the purchase
is of great importance.

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Consumer Buying Behavior – Buying
Centers
 Identifying the person who does the buying plays a
crucial role in understanding the nature of retail
buying.
 Buyer may purchase products for his personal use or
for household use. The buying decision for Personal
use is based on personal choice, where as for
household use is based on the collective decisions of
the family.
 Thus, identifying the buyer would enable the retailer
to study the various factors that may influence his
buying behavior.

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Consumer Buying Behavior – Buying
Influences
 The buying process depends on the personal
preference of the consumers.
 The buying decisions of a consumer are
influenced by a variety of factors
-psychological, personal and social factors.

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Psychological Factors
 Motivation, perception, learning, and
attitude
 Motivation: Maslow’s Need Hierarchy
Theory
 Eight basic needs of human being
identified by Melvin Hettwick

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Eight basic needs of human beings
- Melvin
Hattwick
1. Food and Drink
2. Personal Comfort
3. Freedom from fear and hunger
4. To be superior
5. Personal Attractiveness
6. Welfare of loved ones
7. Social Approval
8. To live longer

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Perception
 The process by which an individual selects,
organizes and interprets information inputs to
create a meaningful impression of the world.

 Customer's perceptions about a retailer or its

offering may vary due to various reasons like
selective attention, selective distortion or
selective retention.

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Psychological Factors -- 2
 Learning is a process of acquiring knowledge
through experience.
 A customer's learning is due to interplay of
drives, cues, responses and reinforcements.
 A retailer influence the learning through
promotional efforts.
 The attitude of a person is the positive, negative
or neutral opinion of a person or his feeling about
the people, activities, policies, and other things
around him.
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Patronage motives for choice of a
Store
 Patronage motives are the underlying forces
that influence the choice of a store. They are:

price/value  merchandise
location  assortments
convenience  varieties and
parking brand
accessibility  atmosphere
friendly and helpful  store image and
salespeople  service offered

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Personal Factors
 Some of the personal factors that
influence a customer's buying decisions
are his personality, self-concept,
lifestyle and stage in the life cycle.

 Personality
 Self concept
 Life-style

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Social Factors
 Consumer buying behavior is also influenced
by social factors like culture, social class,
reference groups and social performance.

 A consumer's culture is reflected in his

beliefs, customs and norms followed.

 Social class is a general, informal grouping of

persons on the basis of their income group or
caste or interests.
 Members of a social class share the same
values and philosophy.
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Social Factors – Reference Group
 People whose opinions play a role in an
individual's decision-making process
are called reference groups.

 Aspirational group

 Membership group

 Dissociative group
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Social Factors – Social Performance
 Social performance determines the
individual's tastes and buying decisions.
 Social performance is the way a person plays
his various roles - as an employee, son,
friend, husband, etc.
 Such performance often determines the
person's acceptance among his peers and
social circles, which is quite an important
factor for the individual's ego.

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Consumer Buying Behavior –
Consumer Buying Process
 Six Steps of Decision Making Process:
1. Stimulus
2. Problem awareness
3. Information search
4. Evaluation of alternatives
5. Purchase
6. Post purchase behavior

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 Stimulus
 A stimulus is a cue or a desire that motivates a person to
act. There are three types of cues:
 Social cue: cues received from friends or fellow
employees. Stimulus is from a non­commercial source.
 Commercial cue: Cues given by the seller. The main
objective is to create interest in a particular retailer,
good or service.
 Physical drive: Stimulus because one or more of a
person's senses are affected.
If Stimulus is strong enough only, customer will proceed
further.

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Problem Awareness
 In this stage the customer identifies that the good or
service under consideration will fulfill the stimuli or
shortage felt.
 Reasons for a customer arriving at a Problem
awareness stage can be many like replenish the
good, replace the good, fulfill an unfulfilled desire,
improve the life style, image status, looks, etc.
 Sometimes, a customer may want to buy a product to
test it. Thus, an urge is created in an individual and
he tries to fulfill the desire for the product by
purchasing it.

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Information Search
 A customer undertakes information search
to serve two purposes:
i. to determine the alternative goods or service
available to solve the problem.

ii. to ascertain the characteristics of each of the

alternatives.

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Evaluation of Alternatives
 Generate a list of alternatives
 Arrange them in an order of priority according
to his tastes and preferences.
 Based on his choice criteria, the customer
ranks all the alternatives from the most
preferred to the least preferred ones.
 The customer then chooses the product
based on his budget (affordability) and tastes
and preferences.
 The criteria for taking a decision also vary
from customer to customer.

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Purchase
 A purchase act is an exchange of money or promise
to pay for the ownership or use of goods or service.
 While a purchase takes place in a retail store, three
factors are deemed important:
 Place of purchase
 Purchase terms
 Availability and delivery of the product
 Once the customer is satisfied with all these three
issues of purchase, the actual purchase takes place.
 There is a chance of the customer dropping the
purchase decision if any of the above factors are not
agreeable to him.
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Post Purchase Behavior
 The consumer may contact the store again for two
purposes
 for future purchase and
 for revaluation of the already purchased product.
 If the customer is not satisfied with the retail store, it
may lead to the customer switching over to other
stores.
 Dissatisfaction may lead to cognitive dissonance.
 To avoid cognitive dissonance, the retailer can
provide after-sale care.
 The degree of dissatisfaction or cognitive dissonance
is more in case of the purchase of an expensive item.
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Consumer decision-making
 The decision-making process varies
 from individual to individual, and
 from age group to age group.
 The process varies from age group to age group
also.
 An educated customer analyzes a product more
carefully and collects more information about it.
 Another factor that plays a crucial role here is the
income.
 Someone from the higher income group may not take
all the steps in the decision-making process
compared to a customer from the lower income
group.
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Decision Making Process
 Mainly there are three types of decision-
making processes
 Extended decision making
 Limited decision making, and
 Routine decision making.

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Extended decision-making
 A consumer goes through all the steps of the
decision making process.
 Spends a lot of time on gathering information and
evaluating the alternatives.
 Cognitive dissonance and perceived risk is high.
 In extended decision - making, the age group,
education, family status and income play a crucial
role.
 Customers undertake extended decision-making
while purchasing expensive products
 The retailer can provide the customer with additional
information by emphasizing on personal selling,
brochures etc.

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Limited decision-making
 A consumer goes through all the steps of the
purchase process, but does not spend a great deal of
time on each of them.
 Here the consumer has purchasing experience and
hence the time spent in shopping is comparatively
less.
 The consumer has a fair idea about the product that
he has to buy and from where he has to buy it.
 Evaluates the buying process based on past
experience,
 Perceived risks are comparatively low.
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Routine Decision-Making
 Consumers buy products regularly and skip several
steps in the purchase process.
 Spend very little time in taking decisions
 Low perceived risk
 Consumer takes the purchase decision based on
experience.
 The main criterion for this purchase is that the
customer has to identify the need of the product
 Store location, the timing of the stores, clear in-store
displays and product availability may influence
consumer decision.
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Buying Scenes
 Customer's preferred places of purchase (Buying
Scenes) is the last step in understanding his buying
behavior.
 Types of Buying Scenes:
 Shops/Stores
 Buyer’s Home
 Buyer's workplace
 Parasite Points
 The buying scene is also dependent on the nature of
the purchase made.
 They select the place of shopping as per their
perception of the various buying scenes for a particular
product that they intend to buy.
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Summary of the Chapter
 The Market

 Population Analysis

 Demographic Analysis

 Geographic Analysis

 Consumer Buying Behavior

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