1+1 5.9 comtemporary business issues
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Lecture8.RetailConsumerBehaviourDigitalisationExperienceEconomics1.pptx
Retail, Consumer Behaviour, Digitalisation, and Experience Economics
CORP3543 Contemporary Business Issues
Lecture 8
Plan of the session
Retail and recent trends
Consumer behaviour
Digitalisation of retail
Experience economy
Experience in retail
Designing memorable experiences
Understanding and shaping consumer behaviour in the next normal
RETAIL INDUSTRY AND RETAILERS
Retail Business and Retailers
Retail sales are an important economic indicator because consumer spending drives much of our economy.
Retail is the sale of manufactured goods to end users, not for resale, but for use and consumption by the buyer (Sorescu et al., 2011).
The point of purchase can be a retail store (e.g. brick-and-mortar), online shopping store, a catalogue or even a mobile phone.
Manufacturers sell a large number of products to retailers, which try to sell those to consumers (Schonberger, 2008; Sorescu et al., 2011).
Retail Business and Retailers cont.…
Retailers are the last link in the supply chain between producers and consumers.
Retail is vital because it allows manufacturers to focus on the production of goods, without being distracted by the colossal efforts needed to interact with end-users who want to purchase these goods (Oubiña et al., 2006; Schonberger, 2008)
Retailers act as manufacturer’s customers when they buy manufacturer’s brands.
Nevertheless, they are competitors when they sell their retail brands along with manufacturer’s brands in their stores (Oubiña et al., 2006).
Retail Business and Retailers cont.…
Thus, the manufacturer must carefully consider the production of retail brands, since the distributor plays the double agent role (customer and competitor).
The manufacturer’s dependence on the retailer and the power of the retailer in the channel are probably the two main elements of managing distributors of retail brands as value brands, and the price-quality ratio favours quality (Lennerts et al., 2016).
Retail Management
Is a process of promoting greater sales and customer satisfaction by gaining a better understanding of the consumers of goods and services produced by a company.
It includes all the steps required to bring the customers into the store and fulfil their buying needs
It is an art as it requires a number of management tools for a complete end user satisfaction.
Key Retail Sales Highlights for Britain – August 2023
Retail sales volumes are estimated to have risen by 0.4% in August 2023, partially recovering from a fall of 1.1% in July 2023 (revised from a fall of 1.2%).
Looking broader, sales volumes rose by 0.3% in the three months to August 2023 when compared with the previous three months.
Food stores sales volumes rose by 1.2% in August 2023, following a fall of 2.6% in July 2023 when supermarkets reported that the wet weather reduced clothing sales, and supermarket food sales also fell back.
Non-food stores sales volumes grew by 0.6% in August 2023, following a fall of 1.2% in July 2023 when poor weather reduced footfall.
Non-store retailing (predominantly online retailers) sales volumes fell by 1.3% in August 2023, following a rise of 1.9% in July 2023 when wet weather and a range of promotions boosted sales.
Automotive fuel sales volumes fell by 1.2% in August 2023, with retailers suggesting the fall was linked to a sharp increase in petrol and diesel prices.
The percentage of retail sales taking place online fell from 27.4% in July 2023 to 26.9% in August 2023.
Office for National Statistics (2023)
Food stores sales volume and value – August 2019 to August 2023
Source: Monthly Business Survey, Retail Sales Inquiry from the Office for National Statistics
Non-food stores sales volumes – August 2019 to August 2023
Source: Monthly Business Survey, Retail Sales Inquiry from the Office for National Statistics
Non-store retailing sales volume – August 2019 to August 2023
Source: Monthly Business Survey, Retail Sales Inquiry from the Office for National Statistics
Automotive fuel sales fell as prices rose – August 2019 to August 2023
Source: Monthly Business Survey, Retail Sales Inquiry from the Office for National Statistics
Scope of Retailing (I)
Merchandising: is the promotion of goods and/or services that are available for retail sale. It includes the determination of quantities, setting prices for goods and services, creating display designs, developing marketing strategies, and establishing discounts or coupons.
Marketing: involves advertising, sales promotion, public relations etc.
Store Operations: retail professionals in the store operations area have to monitor the overall store operations and processes, e.g. Head of Store Operations, Regional Manager and District Manager.
Sales: Areas in sales include responsibilities of a sales associate, cashier, store stock associate and stock receiver.
Human Resource Management: Human Resource in retail may range from recruiting and hiring employees to broader areas like training and motivating employees.
Scope of Retailing (II)
Accounting and Finance: This includes accounting for income, paying expenses, compiling and maintaining financial records, capital management and cash flow control, banking, credit policies etc.
Technology and E-commerce: Retail business incorporates major use of information technology.
Supply of Information: The retailer informs and educates customers about product features and benefits
Visual Merchandising: Visual merchandising is associated with creating the overall look of the store
Supply Chain Management and Logistics: essential element of providing goods and services to the store as well as to the final customer
Experience
CONSUMER BEHAVIOUR
Consumer Behaviour
Is the study of individuals and organisations and how they select and use products and services. It is mainly concerned with psychology, motivations, and behaviour.
The study of consumer behaviour includes:
How consumers think and feel about different brands, products, services, and retailers
How consumers reason and select between different alternatives
The behaviour of consumers while researching and shopping
How consumer behaviour is influenced by their environment: peers, culture, media, etc.
How marketing campaigns can be adapted and improved to more effectively influence the consumer
The factors that affect consumer behaviour:
Psychological/Personality: A customer’s buying behaviour has a lot to do with their personality. Consumers respond differently to marketing campaigns depending on their psychological makeup. This includes their general outlook on life, motivations, attitudes, and perceptions. These factors are highly variable, often changing from day to day, so they’re particularly challenging to predict.
Sales and Marketing: Marketing campaigns and sales messaging can also influence purchasing decisions. If done correctly, you can encourage consumers to buy higher quantities of your product or even a more expensive alternative.
Social/Societal: Social characteristics play an important role in consumer behaviour, and it can include family, communities and social interaction. These factors are difficult to assess while preparing marketing plans.
Demographics: Personal identifiers can play a large role in customer behaviour modelling because they may affect interests, preferences, behaviours, and values. Common demographic segments include: age, gender, race, profession, education, religion, etc.
Economic status: The economy always plays a large role in how and what people will purchase. When the economy is thriving, people are more confident about spending money on non-essentials. However, when job insecurity is high and inflation is higher, people are more likely to prioritize frugality over indulging.
RETAIL TRADE AND DIGITALISATION
Online retailing is defined “the use of the Internet to facilitate and enable all aspects of the commercial and social interactions between consumers, retailers, and intermediaries such as price comparison engines, online advertisers, search engines, and affiliate marketing companies (Holland and Mandry, 2015)
The relationship between the manufacturer, retailer and the customer has changed significantly due to the emergence of the Information and Communications Technologies (ICT), which also stimulated and facilitated the businesses go global.
Digitalisation of Retail (I)
Digital online platforms provide a variety of e-commerce formats, including business-to-business (B2B), business-to-consumer (B2C), and consumer-to-consumer (C2C).
These digital platforms enable firms to sell their products and services to a large number of customers not only at a lower price than standard retail channels, but worldwide (Jin & Hurd, 2018).
Digitalisation of Retail (II)
Internet statistics (Online Sales Selected Sectors GB): August 2023
Consumers and online shopping experience (I)
Benefits of online shopping:
Convenience: shop from home at any time, being busy at work and having no time for real shopping (saves time)
Variety, more choices, ability to compare the products
Prices: comparison and finding better deals, discounts
More control and less pressure (from sales managers)
No crowds and waiting
Have time to do research about the product/service
Consumers and online shopping experience (II)
Disadvantages:
Delays in delivery and shipping problems
Risk of fraud: card scams, hacking
Delivery issue: wrong product, damaged product
Absence of assistance and guidance from the sales manager
Absence of physical testing of try product before purchase commitment
Return policy complications
Lack of interactivity, community feeling, no shopping experience, etc.
EXPERIENCE ECONOMY / EXPERIENCE ECONOMICS
Experience Economy / Experience Economics
First mentioned in a 1998 article by B. Joseph Pine II and James H. Gilmore
The next stage following the agrarian, industrial, and the service economies
Businesses must organise memorable events for their customers, and these memories themselves become a product - experience
Natural progression in the value added by the business over and above its inputs
An essential element of sales and customer service
Due to technological progress, growing competition and rising consumer expectations, services have become commodities
Source: Pine II and Gilmore (2013)
Source: Pine II and Gilmore (2013)
Schulze, 1992
Where basic needs were covered and people were looking for "nice living ("schönes Leben") and experiencing life ("er-leben")
The Experience Society The Experience Market
Two Types of Experiences: Participation and Connection
Customer Participation.
Active participation - a consumer plays a key role in creating the event or interaction that generates the experience: e.g. dinner, workshop event.
Passive participation - ’show up’ at the event – concert attendees
Customer Connection.
Physical and mental connectivity determine experience levels.
The two ends of the connection spectrum are absorption and immersion.
Absorption: if you're taking notes in a lecture, you're more absorbed in the connection to the material than you would be if you were studying alone from a textbook.
Immersion: If you watch a sporting event standing on the immediate sideline, you're immersed in your connection to that experience
One type of connection to experience is not more telling of consumer behavior than the other although it is important to marketers.
Experience
Something memorable, something they can connect with, something that makes customers feel like less of a check book and more of a participant.
If you want to build brand affinity, give the people what they want.
What else do you have to offer your consumer?
Can you fulfil a need customers didn't ask you to, or maybe even one they didn't know they had, somewhere within their interaction with your brand?
Allows a brand have the loyalty of a mobile, social generation of consumers who can't wait to share their experience.
Millennials
The segment now comprising more than a third of today’s multigenerational workforce
Prioritizing to spend on experiences like motor-scooting through some of the world’s most intricate cities or jet-setting to the trendiest global music festival
Three Considerations for Motivating Millennials in Today’s Experience Economy
1) Younger generations are increasingly motivated by experiences rather than things.
Experiences help shape identity and create lifelong memories
Many suggest that some of their best memories were from an event or live experience they’d attended or participated in.
2) The majority of millennials would rather take a job that makes them happy over a higher salary. Some 25-35 year old may sacrifice a salary:
To gain a better work-life balance
Career development
“Nice place to work”
3) Have a need to escape.
Decompress from technology overload, have time for self-focus, and immerse themselves in new cultures.
Travelling is essential to avoid burnout and gain inspiration
Popular examples:
Some studies suggest that many festival attendees
do not come because of music but environment and people
Some restaurants focus less on the food quality and more on the experience: location, views, design, etc.
MNEs offering better work conditions to attract best talent: fancy offices, lounge rooms, gym memberships, etc.
Experiences in retail
Playing with the gadgets
Listen to miniaturised stereo equipment
Trying make-up in beauty saloon
Cars test—driving
Play music instruments, and then leave without paying for
what they valued - the experience.
Can these stores charge admission?
Depends on how they are managed
If they charge an admission fee, they will be forced to stage a much better experience to attract paying guests
The merchandise mix would need to change more often—daily or even hourly.
The stores would have to add demonstrations, showcases, contests, and other attractions to enhance the customer experience.
Charging Admission Fee
Requiring customers to pay for the experience—does not mean that companies have to stop selling goods and services.
Disney generates significant profits from parking, food, and other service fees at its theme parks as well as from the sale of memorabilia.
But without the staged experiences of the company’s theme parks, cartoons, movies, and TV shows, customers would have nothing to remember—and Disney would have no characters to exploit.
In the full-fledged experience economy, retail stores and even entire shopping malls will charge admission before they let a consumer even set foot in them.
Experiences, like goods and services, have to meet a customer need; they have to work; and they have to be deliverable.
Just as goods and services result from an iterative process of research, design, and development, experiences derive from an iterative process of exploration, scripting, and staging—capabilities that aspiring experience merchants will need to master.
Designing Memorable Experiences
(1) Theme the experience.
Home-appliance and electronics retailers in particular show little thematic imagination. Row upon row of washers and dryers and wall after wall of refrigerators accentuate the sameness of different companies’ stores.
Hard Rock Café
Ice Bar in London
Treetop Adventure
You instantly know what to expect when you enter the establishment.
An effective theme is concise and compelling.
The theme must drive all the design elements and staged events of the experience toward a unified story line that wholly captivates the customer.
(2) Harmonize impressions with positive cues.
While the theme forms the foundation, the experience must be rendered with indelible impressions.
Impressions are the “takeaways” of the experience; they fulfil the theme.
To create the desired impressions, companies must introduce cues that affirm the nature of the experience to the guest.
Even the smallest cue can aid the creation of a unique experience.
Example:
When a restaurant host says, “Your table is ready,” no particular cue is given.
But when a Rainforest Cafe host declares, “Your adventure is about to begin,” it sets the stage for something special.
It’s the cues that make the impressions that create the experience in the customer’s mind.
An experience can be unpleasant merely because some architectural feature has been overlooked, under-appreciated, or uncoordinated.
Unplanned or inconsistent visual and aural cues can leave a customer confused or lost.
Example: thematic navigation with music and associations – parking, hotel, shopping mall, etc.
(3) Eliminate negative cues.
Experience stagers also must eliminate anything that diminishes, contradicts, or distracts from the theme.
Most constructed spaces—malls, offices, buildings, or airplanes—are littered with meaningless or trivial messages. While customers sometimes do need instructions, too often service providers choose an inappropriate medium or message form.
Example: trash bins with “Thank You” signs with “No service here” a negative reminder.
Suggestion: turn the trash bin into a talking, garbage-eating character that announces its gratitude when the lid swings open.
Customers get the same message but without the negative cue, and self-busing becomes a positive part of the eating experience.
“Over-servicing” in the name of customer intimacy can also ruin an experience.
Examples:
At hotels, front-desk personnel interrupt face-to-face conversations with guests to field telephone calls
Intrusive sales managers in malls
In the guestrooms, service reminders clutter end tables, dressers, and desktops (hide them away and housekeeping will replace these annoyances the next morning)
Suggestion: by assigning off-stage personnel to answer phones, and by placing guest information on an interactive television channel—creates a more pleasurable customer experience.
(4) Mix in memorabilia
Certain good represent the memories and experience:
Touristic postcard – memoires about travelling
Soccer ball with the logo of the favourite club – attending the game
T-shirts – remembering the music concert
People purchase such memorabilia as a physical reminder of an experience
These goods generally sell at price points far above those commanded by similar items that don’t represent an experience.
That’s because the price points are a function less of the cost of goods than of the value the buyer attaches to remembering the experience.
If service businesses like airlines, banks, grocery stores, and insurance companies find no demand for memorabilia, it’s because they do not stage engaging experiences.
But if these businesses offered themed experiences layered with positive cues and devoid of negative cues, their guests would want and would pay for memorabilia to commemorate their experiences: if guests didn’t want to, it probably would mean the experience wasn’t great.)
(5) Engage all five senses
The sensory stimulants that accompany an experience should support and enhance its theme. The more senses an experience engages, the more effective and memorable it can be.
Smart shoeshine operators augment the smell of polish with crisp snaps of the cloth, scents and sounds that don’t make the shoes any shinier but do make the experience more engaging.
Savvy hair stylists shampoo and apply lotions not simply because the styling requires it but because they add more tactile sensations to the customer experience.
Similarly, grocery stores pipe bakery smells into the aisles, and some use light and sound to simulate thunderstorms when misting their produce.
Bookstore designers have discovered that the aroma and taste of coffee go well with a freshly cracked book.
Some cues heighten an experience through a single sense affected through striking simplicity.
Clifton Suspension Bridge – practical construction that attracts additional tourists
Not all sensations are good ones, and some combinations don’t work.
Duds’n’Suds went bust attempting to combine a bar and a coin-operated laundromat. The smells of phosphates and hops, apparently, aren’t mutually complementary.
Entering the Experience Economy
Using these five design principles, of course, is no guarantee of success; no one has repealed the laws of supply and demand.
Customers can find nothing different from one visit to the next.
Companies that fail to provide consistently engaging experiences, overprice their experiences relative to the value perceived, or overbuild their capacity to stage them will see pressure on demand, pricing, or both.
The growth of the industrial economy and the service economy came with the proliferation of offerings—goods and services that didn’t exist before imaginative designers and marketers invented and developed them.
That’s also how the experience economy will grow: through the “gales of creative destruction”.
Understanding and shaping consumer behaviour is the next normal
Reinforce positive new beliefs
Beliefs are psychological—so deeply rooted that they prevent consumers from logically evaluating alternatives and thus perpetuate existing habits and routines.
When consumers are surprised and delighted by new experiences, even long-held beliefs can change, making consumers more willing to repeat the behaviour, even when the trigger (in this case, the COVID-19 pandemic) is no longer present.
Examples:
15% of US consumers tried grocery delivery for the first time during the COVID-19 crisis. Among those, more than 80% were satisfied with the ease and safety of the experience; 70% found it enjoyable; 40% intend to continue getting their groceries delivered after the crisis
Changing beliefs involves at-home exercise: The US online fitness market has seen approximately 50% growth in its consumer base since February 2020; the market for digital home-exercise machines has grown by 20 percent.
Solutions:
An effective way to reinforce a new belief is to focus on peak moments—specific parts of the consumer decision journey that have disproportionate impact and that consumers tend to remember most. Peak moments often include first-time experiences with a product or service, touchpoints at the end of a consumer journey (such as the checkout process in a store), and other moments of intense consumer reaction.
2) Shape emerging habits with new products
Companies can nudge consumers toward new habits through product innovation.
For instance, the COVID-19 crisis has spurred consumers to become more health oriented and increase their intake of vitamins and minerals.
Similarly, packaged-food companies can encourage the habit of cooking at home
Plant-based-meat manufacturer Beyond Meat was already benefiting from delays in meat production in the early days of the COVID-19 crisis: its sales more than doubled between the first and second quarters of 2020.
In collaboration with local restaurants and catering companies, the company has been delivering free, professionally prepared food to hospitals and other community centres.
By giving away Beyond Burgers prepared by professional chefs, Beyond Meat is creating positive first experiences with its product at a time when consumers are more open to trial.
3) Sustain new habits, using contextual cues
Habits can form when a consumer begins to associate a certain behaviour with a particular context; eventually, that behaviour can become automatic.
To help turn behaviours into habits, companies should identify the contextual cues that drive the behaviours.
A contextual cue can be a particular task, time of day, or object placement: more consumers are keeping hand sanitiser and disinfecting wipes near entryways for easy access and as a reminder to keep hands and surfaces clean.
Product packaging and marketing that reinforces the put-it-by-the-door behaviour can help consumers sustain the habit.
Some companies may need to identify—and create—new contextual cues.
Example
Before the COVID-19 crisis, a contextual cue for chewing-gum consumption was anticipation of a social interaction—for instance, before going to a club, while commuting to work, and after smoking.
As social occasions have waned during the pandemic, a chewing-gum manufacturer must look for new contextual cues, focusing largely on solo or small-group activities, such as gaming and crafting.
Gum manufacturers could consider designing packaging, flavours, and communications that reinforce those new associations.
4) Align messages to consumer mindsets
People across the country have felt an intensified mix of anxiety, anger, and fear because of recent events, making marketing a tricky terrain to navigate.
The heightened emotions and increased polarisation of the past few months could drive lasting changes in consumers’ behaviour and shape their long-term preferences.
Companies should therefore ensure that all their brand communications are attuned to consumer sentiment.
The quality of a company’s communication and its ability to strike the right tone will increasingly become a competitive advantage.
Consumers are paying closer attention to how companies treat their employees during this crisis—and taking note of companies that demonstrate care and concern for people
Consumers will see through—and reject—messages and actions that are performative and that seek to commercialise social issues.
A brand’s communications must align with its purpose; otherwise, the messages won’t ring true.
Testing marketing messages among a diverse group of consumers, in the context in which those messages will appear, could help prevent costly missteps.
Summary
Recent trends in retail and consumer behaviour
The impact of digitalisation
Experience economy in general and retail
Designing memorable experiences
Understanding a experience economy in ‘a new normal’
Referencing
Holland, C., & Mandry, G. (2015). Online Retailing. In In The International Encyclopedia of Digital Communication and Society (eds P.H. Ang and R. Mansell) (pp. 1–13). American Cancer Society. doi:10.1002/9781118767771.wbiedcs058
Jin, H., & Hurd, F. (2018). Exploring the Impact of Digital Platforms on SME Internationalization: New Zealand SMEs Use of the Alibaba Platform for Chinese Market Entry. Journal of Asia-Pacific Business, 19(2), 72–95. https://doi.org/10.1080/10599231.2018.1453743
Lennerts, S., Eisend, M., Lieven, T., Molner, S., Brexendorf, T. O., & Tomczak, T. (2016). The Power of Innovativeness in Manufacturer–Retailer Relationships. Journal of Business-to-Business Marketing, 23(3), 235–251. https://doi.org/10.1080/1051712X.2016.1215745
Oubiña, J., Rubio, N., & Jesús Yagüe, M. (2006). Relationships of retail brand manufacturers with retailers. The International Review of Retail, Distribution and Consumer Research, 16(2), 257–275. https://doi.org/10.1080/09593960600572340
Pine, B. J., & Gilmore, J. H. (2011). The Experience Economy. Harvard Business Press.
Schonberger, R. (2008). World Class Manufacturing. The Free Press.
Sorescu, A., Frambach, R. T., Singh, J., Rangaswamy, A., & Bridges, C. (2011). Innovations in Retail Business Models. Innovations in Retailing, 87(Supplement 1), S3–S16. https://doi.org/10.1016/j.jretai.2011.04.005
Reading
Custom book created by Sosnovskikh (2020): Chapters 18 – 20
Pine, B. J., & Gilmore, J. H. (2011). The Experience Economy. Harvard Business Press.
Additional materials for optional reading (posted on the BB)
Thank you for your attention!
