Consumer Behavior

        Chapter 1

        Perspectives on Retailing

Overview:        

In this chapter, we acquaint you with the nature and scope of retailing. We present retailing as a major economic force in the United States and as a significant area for career opportunities. Finally, we introduce the approach to be used throughout this text as you study and learn about the operation of retail firms.

Learning Objectives:

After reading this chapter, you should be able to:

1.        Explain what retailing is and why it is undergoing so much change today.

2.        Describe five methods used to categorize retailers.

3.        Understand what is involved in a retail career and be able to list the prerequisites necessary for success in retailing.

4.        Explain the different methods for the study and practice of retailing.

Outline:

I.        What Is Retailing, and Why Is It Undergoing So Much Change Today?

        A.        Retailing - consists of the final activities and steps needed either to place a product in the hands of the consumer or to provide a service to the consumer.

        B.        The last step in a supply chain.

        C.        Can be performed by any firm that sells a product or provides a service to the final consumer.

        D.        The Nature of Change in Retailing - Retailing accounts for 20 percent of the worldwide labor force and includes every living individual as a customer, is the largest single industry in most nations and is currently undergoing many exciting changes.

                1.        E-tailing - One of the most important trends for retailing.

                        a.        The Internet hasn’t destroyed bricks-and-mortar retailers - retailers that operate out of a physical building. These retailers have to adapt to changing customers.

                        b.        The Internet has changed consumer behavior. Customers are used to speed, convenience, vast amounts of information on the product, group discounts, etc. This has important implications for retailers.

                        c.        A dramatic change created by e-tailing is a shift in power between retailers and consumers. The information dissemination capabilities of the Internet are making consumers better informed and thus increasing their power when transacting and negotiating with retailers.

                2.        Price Competition - Americans are price conscious, whether shopping at bricks & mortar stores or on-line, and retailers that are able to cut costs in order to provide lower prices will be the winners.

                3.        Demographic Shifts - Other significant changes in retailing over the past decade have resulted from changing demographic factors, such as: the fluctuating birth rate, the increasing number of immigrants, the growing importance of the 70 million Generation Y consumers, and the fact that Generation Xers are now middle-aged and baby boomers are now reaching retirement.

                        a.        Profit growth must come by either increasing same store sales at the expense of the competition’s market share (Same store sales is a retailing term that compares an individual store’s sales to its sales for the same month in the previous year. Market share refers to a retailer’s sales as a percentage of total market sales for the product line or service category under consideration) or by reducing expenses without reducing services to the point of losing customers.

                        b.        As a result, today’s retail firms are run by professionals who can look at the changing environment and see opportunities, exert enormous buying power over manufacturers, and anticipate future changes before they impact the market, rather than just react to these changes after they occur.

                4.        Store Size – Prior to recession, emphasis was on increasing store size – more merchandise a customer sees, the more they buy.

                        a.        The phenomenon of scrambled merchandising, whereby stores handle many different unrelated items, is the result of the pressure being placed on many retailers to increase profits by carrying additional merchandise or services (with higher profit margins) that will also increase store traffic. Consumers save money by traveling to just one center selling everything they need. Probably the best example of scrambled merchandising is the supercenter, which is a combination of the more traditional general merchandise store with a supermarket and an automotive service center.

                        b.        The recent economic downturn and slowdown in consumer purchasing have resulted in downsizing of stores as retailers are realizing the additional costs involved in having super-sized stores and that consumers prefer smaller stores with the convenience of being able to get in and out more quickly.

                        c.        Two retail formats that have recently seen not only a significant decrease in average store size but also a decrease in number of stores are department stores and category killers. Category killer stores got their name from their marketing strategy: carry such a large amount of merchandise in a single category at such good prices that it makes it impossible for the customer to walk-out without purchasing what they needed; thus “killing” the competition.

                        d.        Because of the economic, social and cultural differences what happens in retail in America might not be applicable to other regions of the world.

                        e.        The external environmental forces confronting retail firms are - the behavior of consumers, the behavior of competition, and the behavior of supply-chain members (the manufacturers and wholesalers that the retailer buys from), the legal system, the state of technology, and the socioeconomic nature of society.