MBA Dissertation

Research Topic:

Relationship between Store Patronage and Price sensitivity

Submitted by:

London School Of Commerce

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Acknowledgment

I would like to thank my Dissertation Supervisor ………………without whose able

guidance and continuous support this research work would not have been possible. I

would also like to thank my Course Leader …………..and my other Professors who

have helped me in completion of my course work.

In the end I would also like to thank my family and friends for there continuous help

and support during this demanding time.

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Table of Contents

S No. Topic Page No.

1 Abstract 4

2. Chapter 1 – Introduction 5

3 Customer Value and satisfaction 6

4 Aims and Objectives 14

5 Chapter 2 – Literature Review 18

6 Retail Industry 18

7 Customer Buying Behaviour 19

8 Price Sensitivity 26

9 Price Promotion Techniques 30

10 Store Patronage & loyalty 34

11. Theories of Retail Change 41

12 Chapter 3 – Research Methodology 45

13 Qualitative Research 46

14 Quantitative Research 46

15 Questionnaire 47

16 Chapter 4 – Research & Findings 56

17 Chapter 5 - Conclusion 64

18 References 67

Appendix – I Questionnaire

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Abstract

To investigate the relationship between Price and Store patronage. The objective is to

find that how changing price affects store patronage. The nature of the

relationship will help answer the question: How important is price for a customer

when he is loyal to a particular store. The idea is to find out the relationship between

price and store patronage? Our results show that price is not the most important factor

which can lead to a customer change its loyalty. It basically depends on for what

reason has the consumer selected the store which he patronises.

Key Words: store brands; store patronage; store loyalty; retail competition;

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Chapter 1

Introduction

Where are you going mate?

I, am going ‘Tesco’ for shopping, you wanna come?………

Why do you always go to Tesco? Why not anywhere else?.....

Introduction

This chapter is the introduction to the dissertation where the reader gets to understand

the topic of dissertation, the reason why the particular topic was chosen. This chapter

also describes what areas have been covered in this dissertation along with the way in

which this dissertation has progressed. It also gives the reader an insight of the overall

dissertation by providing a brief overview on each chapter in the dissertation.

Since marketing is more focused on affecting the ultimate consumers, the dissertation

chosen is focused on the retail and consumer market. One of the most important

factors that drives the retail industry today is the “price”. So the aim was to study the

pricing strategies of these companies and finding out rationale behind them. Since

price factor is an integral part in success or failure of any company in today’s

dynamic business environment, there is both qualitative and quantitative data

available on the issue to be researched as a lot of researchers have been attracted by

this area of research.

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Marketing is so basic that it cannot be considered a separate function. It is the whole

business seen from the point of view of its final result i.e., from the customer point of

view. Business Success is not determined by the producer but by the customer. This

is as defined by Peter F. Drucker. There are other scholars who define marketing as

the criteria & delivery of a standard of living. Therefore Marketing is a social &

managerial process by which individuals & groups obtain what they need & want

through creating, offering & exchanging products of value cost & satisfaction

exchange, transaction & relationships, markets & marketing & marketers.

A human need is a state felt deprivation of some basic satisfaction. Needs are not

created by their society or by marketers, they exist in the very texture of human

biology & the human condition. Wants & desire for specific satisfiers of these deeper

needs. Human needs are continually shaped by social forces, people’s needs are few

their wants are many. There are different needs and wants of people at different stages

of their life. This has been discussed in details in further literature review.

The concept of value, cost & satisfaction are crucial in the final product choice, the

several alternatives of the customer constitute his product choice set, the additional

needs associated with the product is called the need set. Customer rank the products

from need – satisfying to the last need satisfying value is the consumers estimate of

the products overall capacity to satisfy his or her needs. The value of each actual

product would depend on how close it comes to the ideal product. It is through these

concepts that an organisation tries to gain customer loyalty.

Defining Customer Value & Satisfaction

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Peter Drucker insightfully observed that a company’s first task is “to create

customers”. But today’s customers face a vast array of product and brand choices,

prices and supplies. This is the question how the customers make their choices.

It is believed that customers estimate which offer will deliver the most value

customers are value maxi misers within the bounds of search costs and limited

knowledge, mobility and income. They form an expectation and this affects their

satisfaction and their repurchase probability.

Customer Value

Gardial and Woodruff (1996) define customer value as customers’ perception of what

they want to happen in a specific use situation, with help of a product and service

offering, in order to accomplish a desired purpose or goal. Customer delivered value

can be explained in terms of an example. The buyer for a large construction company

wants to buy a tractor. He will buy it from either Caterpillar or Komatsu. The

competing salespeople carefully describe their respective offers to the buyer.

The Customer-Value Perspective on Business Success

CVI’s services help clients develop strategies for enhancing the value of their

products to their customers. Customers look for value, a combination of quality,

features, service, and price that makes products from some vendors more attractive

than others. Powerful techniques are available that help companies deliver high value.

These include techniques for:

measuring customers’ needs and wants,

understanding how customers perceive the products of various competitors

targeting high-profit customers

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formulating strategies that enable the company to deliver high value to

targeted customers.

identifying who has to do what in order to implement a value-improvement

strategy

Collectively, these techniques fall under the heading Customer Value Management.

Most managers support customer value as a goal. Those who have actually made a

commitment to value are the ones who have realized superior growth and

profitability. CVI’s goal is to move customer value from a slogan to a science.

Customer Satisfaction

Customer satisfaction is a customer’s positive or negative feeling about the value that

was received as a result of using a particular organisation’s offering in specific use

situations. This feeling can be a reaction to an immediate use situation or an “overall”

reaction to a series of use situation experiences. (Gardial and Woodruff, 1996)

Satisfaction is the level of a person’s felt state resulting from comparing a product’s

perceived performance in relation to a person’s expectations. The satisfaction level is

a function of the difference between perceived performance and expectations. A

customer could experience one of three broad levels of satisfaction. If the

performance falls short of expectations, the customer is dissatisfied. If the

performance matches the expectations, the customer is satisfied. If the performance

exceeds expectations, the customer is highly satisfied pleased of delighted.

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The companies that lead customer where they want to go (but don't know it yet) create

the future and do more than satisfy customers; they constantly amaze them. Meeting

customers' needs start with a customer satisfaction survey, and Tool Base sources can

get you started. Because if you can satisfy your customer then only he will think of

becoming loyal to the brand or store. In order to do that more and more customer

value needs to be created. The organisation or the product has to live upto customers’

expectation or more than that.

Customer Expectations

Expectations are formed on the basis of the buyers past buying experience, statements

made by friends and associates and marketers and competitor information and

promises. If marketers raise expectations too high, the buyer is likely to be

disappointed. For example, Holiday Inn, ran a campaign a few years ago called “No

Surprises”. But hotel guests still encountered a host of problems and Holiday Inn had

to withdraw this campaign. On the other hand if the company sets expectations too

low, it won’t attract enough buyers although it will satisfy those who buy. Some of

today’s most successful companies are raising expectations and delivering

performances to match. These companies are aiming for TCS – Total Customer

Satisfaction. One of the long-standing cornerstones of marketing philosophy has been

the principle of identifying and satisfying customer needs and wants. While this

sounds simple, the reality is that organizations have found it to be increasingly

difficult. The challenge lies in trying to match, and in ideal circumstances, surpass

customer expectations. Why is this so important? Because expectations directly relate

to the consumer's perception of value. Meet expectations and the customer will most

likely deem the transaction as satisfactory and worthwhile.

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In today's hyper-competitive marketplace, the endeavour should focus not just on

meeting expectations but surpassing them. The marketer must exceed expectations. In

doing so, the marketer can expect the return to come in the form of customer delight,

and perhaps even a “WOW,” which will likely extend into customer loyalty and over

time strengthen the most desirable point on the continuum: the marketer/customer

relationship. The market reality is that few organizations understand this

phenomenon. Customers now face baffling times—all the choices, the deals, the

promises and claims. On the surface, companies seem keener than ever to promise

almost anything in order to sell their products. So why do you so rarely feel like

you're getting a special deal? The answer lies in the mismatch between what is

promised and what is delivered. While lofty claims raise customer expectations and

enhance the probability of purchase in the early stages of the consumer decision cycle,

this short-sighted approach leads customers to quickly discover that the product does

not live up to its billing. On the other hand, being overly conservative in an initial

claim may make a marketer non-competitive from the start.

The successful marketer realizes that the smart strategy is to accurately portray the

product and service attributes with the expectation that, at minimum, the product will

satisfy, and with a little effort, even delight, thus moving the customer further into the

relationship.

This strategy of under promising and over delivering is being adopted by some

organizations that have come to recognize the value of taking a long-term perspective

in the sustained effort of keeping the customer satisfied. An article in Fortune

magazine (March 22, 2004) credits WIU alumni Mr. Robert Nardelli, the current head

at Home Depot, of adopting such a strategy. Mr. Nardelli is credited with being

conservative in projecting earnings for Wall Street analysts and then over delivering

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earnings by a large margin. This has been met with the “WOW” that marketers strive

for. Overall, the securities market reaction has been overwhelmingly positive.

Business owners and company executives are often myopic in their belief that they

define customer expectations. The reality is that customer expectations are regularly

defined by their interactions with the direct competition, the indirect competition, and

often by organizations in non-affiliated industries. Further, these expectations are

dynamic and constantly evolving.

In the end, sustained customer relationships are a result of superior value, prompt

service, relentless attention to detail and an organizational culture that has been able

to imbibe into its employees the importance of sending its customers away smiling.

This represents a difficult challenge. No wonder firms with such a value system are

amazingly successful. It's also no surprise that they're amazingly rare.

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Source: Gilbert A. Churchill, Jr. and J. Paul Peter, Marketing: Creating value for

consumers (Burr Ridge, III.: Austen Press, 1995), p-17.

Marketing research is a much broader activity than most people realise. There is much

more to it than simply asking ultimate customers what they think or feel about some

product or ad. To be sure, consumer survey and focus groups are very important

marketing research tools. However in an effort to learn about the consumer and

complete effectively in the market place, an organization may need to employ other

methods.

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Product

Communication.

Channels

of

Distribution.

Price.

Target Market

The scope of marketing research activities goes beyond simply asking individual

consumers for their likes and dislikes. Observation, either personal observation or

mechanical observation, is also a legitimate marketing research activity. At the same

time, some very productive research involves no more than the study of readily

available data; some involves the systematic testing of an ad, a new package, or a

product. The fundamental point is that marketing research is a pervasive activity that

can take many forms, because its basic purpose is to help marketing managers make

better decisions in any of their areas of responsibility.

For every marketing research it is very important to keep these factors into

consideration.

Marketing research is the function which links the consumer and the customer to the

organization through information – information used to identify and define marketing

problems; generate, refine and evaluate marketing action; monitor marketing

performance; and improve our understanding of marketing as a process. (Gilbert A.

Churchill, Jr, (1995).

Marketing research is divided into some basic stages. The specific stages are:

1) Formulate Problem.

2) Determine research design.

3) Determine data collection method.

4) Design data collection forms.

5) Design sample and collect data.

6) Analyse and interpret the data.

7) Prepare the research report.

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The sustained financial growth of UK has raised the standard of living of the masses.

Consequently, Individuals are willing to shell out extra money for the oomph factor.

Thus it's expected that the operation of the retail sector is greatly impacted by the

consumer tastes and purchasing trends.

UK retail market has developed at the rate of 4% annually over the past 5 years. This

type of growing market presents a huge dare for its participants, particularly the

numerous large supermarket chains that function on slender profits. It is obvious from

the situation in UK retail market that significant participants like TESCO have been

capable of yielding a satisfactory operation in the past years.

Tesco is a frontrunner in the UK food retailing market with above 30% contribution to

the market in 2005. Armed with income of more than 2 billion and an output of

34billion in 2005, it amassed a market share twice that of its closest competitor and

double the number of retail stores compared to its closest rival.

RNCOS' market research report named, "UK Food Retailing Market Forecast (2005-

2010)" observes that the UK food retailing market touched 120.3 billion GBP in the

year 2005. Convenience Stores comprised about 21% of market segment or 24.5

billion GBP. Expert also concluded that the gross retail sales of grocery, food and

beverage represented 67% and the percentage stake of non-food grocery extended to

15% of the gross retail sales in 2005.

Aims and Objectives/ Hypothesis:

Stores these days are cutting down the prices to attract more and more number of

customers towards themselves. Analysis is done to know whether this strategy works

in changing the customer preferences or not.

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The aim of this dissertation is to find out:

Whether a change in price can make a consumer change or shift his/her brand or store

loyalty?

The objectives, which will help in attaining the aim of the dissertation, are formulated

as follows:

To study the retail industry and understanding its emphasis on lowering the

prices of products.

Knowing how important is price for today’s consumer?

To understand the concept of store patronage.

To know how customer relationship management helps in attaining consumer

loyalty.

Does a consumer actually become loyal to a brand or a store, even after the

high level of competition these days?

Chapter two is the literature review. There is a lot of literature that has been written

on retail industry. To achieve the aim to this research work the literature has been

studied in a particular manner. It starts with study of the retail industry to understand

what exactly does “retail” means, along with the latest developments and scope in

future in the industry. Then the focus shifts to consumer buying behaviour. To

understand the concept of brand or store patronage it is very important to study what

factors influence the buying decision of a consumer. Understanding the need of a

consumer is an integral part marketing activity of retail organizations. Especially

FMCG companies and firms who sell consumer goods have to focus on customer

needs keeping in mind the changing fashions. Customer Relationship Management or

CRM is a field which has been in limelight in the past few years. This stream of

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business focuses on maintaining good business relations with existing customers.

CRM helps a company in achieving customer loyalty along with word of mouth

publicity.

Price sensitivity influences a consumer’s shopping preferences and ultimately his final

buying decision to a great extent. That the reason that “price” is one of the most

important factors that guides a companies marketing strategy these days. Customers

belonging to different income groups react differently to change in prices. Some

customers look for a cheap product, some want value for money and a few consumers

choose the product for its snob value or status value. The study also focuses on

different pricing techniques that stores and companies use these days to attract

consumers. Focus is also on understanding different reactions from consumers to

these pricing strategies, basically knowing how these strategies affect consumer’s

psyche. The literature review then talks about store patronage and loyalty. How is

loyalty created, increased and the benefits that both consumers and organisations get

out of creating and increasing store/brand loyalty. The concept of loyalty cards and

discount coupons are also studied and discussed. Another area on which literature has

been studied in this research work is the concept of retail change. Retail change talks

about different stages in retail life cycle, changes that are caused due to changes in

fashion and consumer preferences.

Chapter three is about the research methodology used. It talks about different

approaches that can be used to conduct the research. Both quantitative and qualitative

research is discussed in brief, and the reason why quantitative research was selected

as the main mode of research. Selection of primary and secondary data, source and

methods of collection are also discussed. Other details related to research

methodology are discussed in details in the chapter.

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Chapter four is research and findings where all the information collected through

means of questionnaire is processed and final results are studied. The software used to

process the data is SPSS, which is widely used for marketing researches worldwide

and is believed to be reliable. Graphical and tabulated data has been presented in this

chapter. Cross tabulation charts, frequency table etc. have been used to analyse the

data. It’s in this chapter that the research question is answered.

Chapter five is conclusion of the dissertation. This chapter talks about how the

objectives and aims of the dissertation were achieved. The limitations and problems

that were faced while doing this research work. The results and findings are also

mentioned in the conclusion along with the recommendations made.

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Chapter 2

Literature Review

Retail Industry

According to the Oxford English Dictionary, retail is "the sale of goods to the public

for use or consumption rather than for resale." For example, when www.upi.com, in an

article published, speaks of sharply falling crude oil prices dramatically cutting the

retail price of gasoline, the beneficiaries are the end consumers in the US. It would be

impractical to expect such fall in retail price of petrol or diesel in other countries or

other economies especially developing economies. Merriam-Webster Online

Dictionary says that retail is "to sell in small quantities directly to the ultimate

consumer.” Since small quantities can add up to big numbers, businesses try out

"special promotions, new year discounts, and other ‘fantastic’ offers," and so on.

Retail is `not wholesale,' says Encarta.

"Retailing consists of the sale of goods/merchandise for personal or household

consumption either from a fixed location such as a department store or kiosk, or away

from a fixed location and related subordinated services," states Wikipedia.

An obsolete meaning is "to sell at second hand". Retail at/for is used when talking

about what is sold at a particular price, as in the example, "This model of computer is

retailing at £650," that Cambridge Advanced Learner's Dictionary gives.

Over the past decade, retail markets in the U.S. and Europe have experienced

significant growth of store brands (also commonly referred to as private label brands),

which are owned and marketed by retailers themselves. Due to growing demand and

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the increasing per capita income has also helped the boom in retail industry. The

trends in US and UK retail markets are quite similar to each other. The consumers’

preferences and buying behaviour is very similar in these two markets. Between 1996

and 2000, the dollar sales of store brands in the U.S. market grew at twice the rate of

national brands to reach a 15% dollar sales share by the end of 2000 (Sethuraman,

2003). The current unit volume share of store brands in the U.S. is about 20% and it is

even higher in several European countries including the United Kingdom (Private

Label Manufacturers Association’s website: www.plma.org). Reports and surveys

show that store brands are consistently a top priority for grocery retailers (Alaimo

2003; Wellman 1997).

Factors affecting customers buying decisions:

Model of Consumer Buyer Behaviour

Philip Kotler (2003) gives a model of consumer buyer behaviour. It is known that

consumer is someone who consumes the finished product produced or sold by an

organization or a company. It is also known that there are a lot of organizations and

companies in the market today who offer a particular product to these consumers. The

study of reason behind the decision of a consumer to buy a particular product or to use

a particular service is known as studying Consumer Behaviour. “It is a study of the

processes involved when individuals or groups select, purchase, use or dispose of

products, services, ideas or experiences to satisfy needs and desires.”(Michael R.

Solomon, 2004). The field of consumer behaviour covers a lot of ground. It is the

study of the processes involved when individual’s or groups select, purchase, use, or

dispose of products, services, ideas, or experiences to satisfy needs and desires.

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Consumer plays a leading role in the market. The success of a company depends on

many factors in which consumer behaviour plays a vital role.

Because people act differently at different times they sometimes alter their

consumption decisions depending on the particular stage they are in at the time. The

criteria they use to evaluate products and services in one of their moods or stages may

be quite different from those used in another mood or stage. A company cannot serve

all customers in a broad market. The customers are too numerous and diverse in their

buying requirements. A company needs to identify market segments it can serve

effectively.

It is not only price or brand loyalty (store patronage in our research) that influences an

individuals or groups buying decisions. The chart below shows the buyer behaviour

model, it reflects the different factors that influences buying decisions of consumers.

Source: Adapted from Philip Kotler, “Analyzing Consumer Markets and Buyer Behaviour”, Marketing Management, Pearson (11th edn.), 2003, 184

During early stages of development, the field was often referred to as buyer

behaviour. This use to reflect an emphasis on the interaction between consumers and

producers at the time of purchase. Marketers now recognize that it is an ongoing

process. The entire consumption process is taken into consideration now which

includes the issues that influence the consumers before, during and after purchase.

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Product

Price

Place

Promotion

Economic

Technological

Political

Cultural

Problem RecognitionInformation SearchEvaluation of alternativesPurchase decisionPost purchase behavior

Product choice

Brand choice

Dealer choice

Purchase timing

Purchase amount

Cultural

Social

Personal

Psychological

Other Stimuli Buyer’s Decision

process

Marketing Stimuli

Buyer’s Characteristics

Buyer’s Decision

Buyer Behaviour Model

(Solomon, 2004). A consumer’s buying behaviour is mainly influenced by cultural,

social, personal and psychological factors.

Cultural Factors:

Culture is the fundamental determinant of an individual’s wants and behaviour. The

set of values, preferences, perceptions and behaviour that an individual acquires from

his families and friends or basically the environment in which he has been brought up

influences all his decisions to a great extent. Culture is something which an individual

imbibes and inculcates in him/her from his surroundings.

Each culture consists of smaller subcultures that provide more specific identification

and socialization for their members. They include religions, geographic regions, racial

groups and nationalities. When these sub cultures reach a substantial level to

influence the buying decisions, companies often alter their marketing strategies to

target these groups. When individuals of a particular culture are combined together,

they go on to form social classes. These social classes reflect income, occupation, area

of residence, education etc. In a nutshell it segregates different groups according to

their standard and style of living.

Social classes show distinct product and brand preferences in many areas. These areas

include automobiles, home furnishings, clothing, food items etc.

Social Factors:

Social factors which include a person’s reference groups and family etc also

determine consumer buying behaviour. “A person’s reference group consists of all the

groups that have a direct or indirect influence on a person’s attitude or behaviour”

(Philip Kotler, 2003). Groups which have a direct influence on a person are called

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Membership groups. This includes family, friend’s neighbours and co-workers.

Membership group also includes religious, professional and trade union groups.

Reference groups introduce an individual to new behaviour and lifestyle. These

groups are known as secondary groups.

Reference groups expose an individual to new behaviours and lifestyle. According to

Kotler (2003) influence of these groups creates pressure for conformity that may

affect actual product and brand choices. Other than these groups “aspirational

groups”, group which a person wants to be a part of and “dissociative groups”, a

group to which an individual does not want to be related, also determine the selection

of a brand or store for any individual.

(Rosann L. Spiro, 1983)But family is still the most important consumer-buying

organization in society, and family members constitute the most influential primary

reference groups. George Moschis (1985) says that the family orientation consist of

parents and siblings. From parents a person acquires an orientation towards religion,

politics and economics along with sense of ambition, self-worth and love.”

Personal Factors:

Buying decisions are dependent on personal characteristics as well. They include

buyer’s age and stage in the life cycle, occupation, economic circumstances, lifestyle

and personality and self-concept.

Different stages of life-cycle also influence the buying decision of a person. People

eat baby food when they are infants, all kind of foods when they are growing up,

while in the mature years of their life people stick to a special and healthy diet. Life-

cycle groups are quite often chosen as target markets by different marketers.

Lawrence Lepisto’s (1985), research has identified different psychological life stages.

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He is of the view that adults experience certain “passages” or transformations during

their life span.

Occupation also affects the consumption patterns. An operational or middle level

executive will buy work clothes, work shoes etc, while on the other hand a top-end

executive would prefer spending his money in buying an expensive suit, business

class travel or having lunch at a fancy up-market restaurant. Similarly people

belonging to different income groups or with a different mindset would make their

retail purchases from different stores. It can be Asda, Tesco, Waitrose or a Marks &

Spencer. Product gets greatly affected by economic circumstances, disposable

income, savings, debts etc. these factors also lead or contribute in the decision a

person takes to select his/her store to shop at.

Personality of a person influences his or her buying behaviour as well. Personality

means a set of psychological traits that lead to relatively consistent and enduring

responses to environment stimuli. (Harold H. Kassarjian and Mary J. Sheffet, 1981)

being self-confidence, dominance, autonomy, deference, sociability, defensiveness

and adaptability. Marketers attempt to develop brand personalities that will attract

consumers with same self-concept. These factors contribute a lot towards buying

behaviour or preferences of an individual.

Psychological Factors:

Philip Kotler (2003) is of the view that a person’s buying choices are mainly

influenced due to four major psychological factors: Motivation which means a need

that is sufficiently pressing or forcing a person to drive the person to act.

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A. H. Maslow (1970), people are driven by particular needs at particular times. He is

of the view that human needs can be arranged in a hierarchy, from the most pressing

to the least pressing. He categorizes human needs in 5 different groups or segments.

1. Physiological Needs ( Food, water, shelter)

2. Safety Needs (Security and protection)

3. Social needs (sense of belongingness, love)

4. Esteem Needs (self-esteem, recognition, status)

5. Self-Actualization (self-development realization)

This theory basically says that people have different kind of needs at different times

or stages. For any individual the priority is that of satisfying basic needs in the first

stage defined in the theory, the second stage says that the focus shifts from basic

needs to his security and health. A person then wants clean air to breath, becomes

health and hygiene conscious. The third and the fourth stage focus on how a person is

perceived by others and his social status. Someone who earns more than £10000 per

month would probably prefer to shop at Marks and Spencer rather than a Tesco or

Asda, because Marks & Spencer has that brand image of being an up market high-

street retail outlet while on the other hand stores like Tesco and Asda promote

themselves as EDLP (Everyday Low Price) stores. Frederic Herzberg (1984) also

developed a two factor theory that distinguishes between satisfiers and dissatisfiers.

The theory has two implications. First, sellers should do their best to avoid

dissatisfiers for example, a training manual will not help the product to sell but a bad

manual might reduce its sales. Second, the manufacturers should identify the major

satisfiers or motivators of purchase in the market and then supply them to the

customers. This brings advantage to both the customers and the organization.

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Buyer behavior may be viewed as an orderly process whereby the individual interacts

with his or her environment for the purpose of making market place decisions on

products and services. Every consumer goes through the same decisions process,

which consists of their following stages; Problem recognition, search for information,

evaluation of information, purchase decision and post purchase evaluation. The

individual a specific behavior in the market places is affected by internal factors such

as needs, motives, perception and attitudes, as well as by external or environmental

influences such as the family, social groups, culture, economics and business

influences.

Stages in Buying Decision Process:

Buying decision process can be broadly classified in to five sections namely:

1. Problem Definition: The buying decision process starts when the buyer

recognizes a problem or need. The need can be triggered by internal or

external stimuli.

2. Information Search: Based on the problem or need the consumer is inclined to

search for more information and hence he may collect the information from

any of the following sources namely public sources, commercial sources,

personal sources and experimental sources.

3. Evaluation of Alternatives: Based on the information collected through

various sources, the consumer evaluates them on conscious and rational basis.

4. Purchase Decision: After evaluating the alternatives available the customer

will be able to purchase the product with less deliberation.

5. Post Purchase Behavior: After purchasing the product, Marketers must

monitor post purchase satisfaction, post purchase actions and post purchase

product uses.

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Buyer behaviour is what influences or makes an individual decide about his buying

preferences and choices. But it’s very important for stores to understand the buying

behaviour and pattern of customers in order to do accurate forecasting.

Today price is considered as the most important factor which influences or makes a

person change his mind about a particular product, brand or a store. Especially in the

retail industry where there are a number to competitive products and stores which

may be offering product at a cheaper price or with a few add-on’s.

Price sensitivity:

Pricing is being used as a strategic and marketing tool to gain competitive advantage.

Lowering down the prices due to competition has resulted in low-profit margins,

which in turn has made the industry less attractive for new entrants. The report also

states that this decrease in profit margins has made these market players realize that

they will have to look for other avenues to gain competitive edge over their rivals.

Supermarkets have already started focusing on ‘Product’ and ‘Process’ innovation.

They have realized the fact that to retain its loyal customer base, they will need to

give them something extra. If the products are identical and the prices the same, why

would a customer patronise a particular brand or store.

Of all the tools available to marketers, price is supposed to be the most influential

factor or tool. Pricing of a product influences both consumers buying behaviour and

consequently firm’s sales and profit. So it does not come as a surprise when price

promotions suck up majority of the marketing budget and an almost ubiquitous aspect

of consumer choice. This has influenced the customer’s expectation so much that they

expect deals when they enter any store. According to a study conducted by (S. Han, S.

Gupta and Donald R. Lehman for Journal of Retailing, results indicate that by

discounting by competing brands does not have a significant effect on the threshold

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for gain, but it significantly decreases the threshold for loss. In other words, while

consumers feel a significant loss or disappointment toward a target brand if competing

brands offer substantial discounts, they do not perceive any gain toward a target brand

if competing brands are not discounting.

Price sensitivity however is not just about charging high prices to maximize revenue.

It might also make sense to cut prices - sometimes dramatically - to encourage people

who may otherwise not be part of the market to use the services or goods being

provided. Identifying the extent to which individuals in the market are price sensitive

is an important part of the marketing mix. Most of the times this price cut are based

on the assumption that the number of customers would increase because of price-cuts

and this increase in the overall turnover will compensate for the loss in margin. It is

also assumed that existing customers would start consuming more because of the

price-cuts. According to Byung-Do Kim, Robert C. Blattberg, Peter E. Rossi(1995)

Marketing researchers have long recognized that differences among consumers play

an important role in the development of pricing policy and the positioning of

consumer products. Consumers have a pre-conceived notion about quality of different

brands within a product category.

Sanjay K. Dhar and Peter E. Rossi (2004) claim that retailers have relied on three

types of retail promotional tools to sell their products: temporary price cuts, feature

advertisements, and in-store displays. This study was conducted with all US markets

and all major retailing chains taken as a sample to investigate the role of retail

competition, retail strategies and demographics in determining consumer response to

these three different types of promotion. The findings of the study revealed that retail

strategies and consumers characteristics influence the response from customer. They

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suggested that retail competition is still important but has less impact on the way

consumers respond.

According to Dhar “Retailers make long-term decisions when setting up their store,

such as determining the size of the store, its price positioning, geographical location

etc. These strategies are undertaken with the assumption that they will help the retailer

sell more and differentiate themselves in the marketplace.

Two major retail strategies affect consumer response: price format and store format.

Retailers typically use the Everyday low Pricing (EDLP) or Hi-Lo pricing strategy.

Since the EDLP stores reduce the prices regularly, they do not offer as many

promotions. The discounts offered at these EDLP stores is also comparatively lesser

to other stores, because their products are already heavily discounted. While Hi-Lo

stores normally have high regular prices, and then reduce those processes by

substantial amount, discounting mire frequently than EDLP stores. The study also

indicates that EDLP customers are less sensitive to short-term price cuts than

customers at Hi-Lo stores. The study says that the greater is the competition in retail

market, the greater would be the price sensitivity, making the consumers more

responsive to price cuts. Higher level of competition in the sector makes it easier to

compare prices across national brands.

Other things that affects the prices in the quality of the product and he general belief.

Consumers often form assumptions about companies, products and stores. These

market beliefs then become the short-cut

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Source: Adapted from Calvin P. Duncan, “Consumer Market Beliefs: A Review of the Literature and Agenda for Future Research,” Advances in Consumer Research 17, Provo, UT: Association for Consumer Research, (1990), 729-35.

Peter & Alan (1990) studied model of grocery shopper response to price and other

point-of-purchase information was developed and hypotheses were tested by using

interviews and observations. The results showed that shoppers wanted to spend only a

short time making their selection and many did not check the price of the item they

selected. More than fifty percent of these customers did not remember the price of the

product they had just bought and more than half of the shoppers who purchased a

product which was offered at a discounted price were unaware that the price was

reduced.

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Brand All brands are basically the same.Generic products are just name brands sold under a different label at a lower price.These brands are the ones that are purchased the most.When in doubt, a national brand is always a safe bet.

Store Specialty stores are great places to familiarize yourself with the best brands; but once you figure out what you want, it’s cheaper to buy it at a discount outlet.A stores character is reflected in its window displays.Salespeople in specialty stores are more knowledgeable than other sales personnel.Larger store offers better prices than small stores.Locally owned stores give the best service.A store that offers a good value on one of its products probably offers good values on all of it items.Credit and return policies are most lenient at large department stores.

Stores that have just opened usually charge attractive prices.

Prices/Discounts/Sales Sales are typically run to get rid of slow-moving merchandise. Stores that are constantly having sales don’t really save you money. Within a given store, higher prices generally indicate higher quality.

Advertising & Sales “Hard-sell” advertising is associated with low-quality products.Promotion Items tied to “giveaways” are not a good value.

Coupons represent real saving for customers because they are not offered by the store. When you buy heavily advertised products, you are paying for the label, not for higher quality.

Product/Packaging Largest-sized containers are almost always cheaper per unit than smaller sizes.New products are more expensive when they’re first introduced; prices tend to settle down as time goes by. When you are not sure what you need in a product, it’s a good idea to invest tin the extra features, because you will probably wish you had them later.In general, synthetic goods are lower in a quality than goods made of natural materials.It’s advisable to stay away from products when they are new to the market; it usually takes the manufacturer a little time to work the bugs out.

Common Market Beliefs

Russell S. Winer (1986) did considerable amount of research econometric and

conjoint-based, focusing on how marketing mix variables affect household demand

for frequently purchased products. The purpose of the research was to develop and

test a simplified model of consumer behaviour emphasizing (1) the multidimensional

nature of price when examining it from consumer’s perspective-in particular, the

importance of reference pricing.

The studies highlighted on the fact that retail price or promotion-adjusted price

explains more change or variance in consumer demand than any other marketing-mix

variable does. They found considerable evidence from both marketing and economics

supporting the notion that, from the consumer’s prespective, price is a complex factor

and has more than one dimensions and not composed of only retail prices. Apart from

being complex, prices from consumer’s perspective are dynamic for many product

categories. Observed retail prices either after or before adjusting for promotions can

fluctuate to a great extent over a period of time. These changes in observed prices

could influence manufacturers to change their strategies, retailers to sun short-term

pricing deals etc. Knowing that pricing is one of the most important strategies that

retailers focus at, there is also a need to understand different ways in which retailers

implement these pricing strategies. Since the ultimate aim of these strategies is to

attract more and more number of customers towards themselves.

Common Price Promotion Techniques

According to an article published in the Harvard Business Review by Dickson and

Sawyer (2003) there are three broad categories in which retailers attract the

consumers on the basis of pricing:

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1. Sale

2. Prices that end in 9; and

3. Signpost items

Sale’s

For most of the items they buy, consumers don’t have an accurate sense of what the

price should be. To a great extent they rely on the retailers to tell them if they are

getting a good price. Retailers send signals to customers in different ways telling them

whether a given price is relatively high or low. If used appropriately, they can be

effective tools for building trust with customers and convincing them to buy your

products and services. But if these tools are not used properly, the same pricing cues

may breach customers trust, reduce brand equity and give rise to law-suits.

Consultant and a former Harvard Business School Professor Gwen Ortmeyer, in a

review of promotional pricing policies refers to, a 1990 San Francisco Chronicle

article, in which a reporter priced the same sofa at several bay area furniture stores.

The sofa was on sale for $2170 at one store, the regular price was $2320 and it cost

$2600 – “35% off” the original price of $4000 at other stores. Interview with store

managers and the researchers own observation of actual prices at department and

specialty stores confirmed that when an item is discounted, it almost invariably has a

sale sign posted nearby.

The cases where sale signs are placed on non-discounted items are infrequent enough

that the use of such signs is still valid. Customer learned to recognize that even stores

which offer sale’s through out the year are actually compromising on the quality of

product offered.

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There was a study conducted by Dickson and Sawyer (2003) and the analysis of sales

data revealed that the more sale sign used, the less effective were those signs were at

increasing demands in certain section. Specifically, putting signs on more than 30% of

the items diminished the effectiveness o the pricing cue. Misuse of sale signs can also

result in prosecution indeed; several department stores have been targeted by

attorneys. The cases often involve jewelry department, where consumer are

particularly in the dark about relative quality, but have also come to include a wide

range of other retail categories, including furniture and men’s and women’s clothing.

Prices that End in 9

According to the same article prices that end in 9 (for example – Buy two pair of

‘XYZ’ for £19.99 only) are also a very common and widely used price based

marketing strategy. In fact, this pricing tactic is so common; its believed that

customers would ignore it. But on the contrary researchers have found out that

response to this pricing technique is remarkable. Generally it is expected that demand

for an item will go down as the prices would go up. The end of the price acts the same

way as the sale sign does, helping customers evaluate whether they are getting a good

deal. Buyers are often more sensitive to price endings than they are to actual price

changes. The sale sign informs customers that the item is discounted, so little

information is added by the price ending.

Signposts Items

For most items, customers do not have accurate price points they can recall at a

moment’s notice. But all the consumers are probably aware of some benchmark

prices, typically on items bought frequently. Many customers, for instance, know the

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price of common products like coke or movie tickets so they can easily distinguish

between expensive and inexpensive price levels for such “signposts” items without

the help of pricing cues.

Research suggests that customers use the prices of signposts items to form an overall

impression of a store’s prices. That impression then guides their purchase of other

items for which they have less price knowledge. The signpost item strategy is

intended to be used on products for which price knowledge is accurate. Selecting

popular items to serve as pricing signposts increases the likelihood that consumers’

price knowledge will be accurate – and may also allow a retailer to obtain volume

discounts from suppliers and preserve some margin on sales.

Another way of using pricing techniques is ‘pricing guarantees’. It is also known as

price matching. It is a widely used tactic in the retail market where store that sell, for

example, electronics, hardware and groceries promise to match or beat the

competitor’s price.

An article in Harvard Business Review (September, 2003) analyses whether

customers find these price-matching policies re-assuring. It sites a study conducted by

University of Maryland marketing professors Sanjay Jain and Joydeep Srivastava,

where customers were presented with description, customers were more confident that

the store prices were lower than its competitors.

Closely related to price-matching policies are the most-favoured-nation policies used

in business-to-business relationships, under which suppliers promise customers that

they will not sell to any other customers at a lower price. These policies are attractive

to business customers as they can be rest assured as they know that they are getting

the best prices. So they can focus their attention on increasing the volume of sales.

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To maximise the effectiveness of price cues, retailer should implement them

systematically. Ongoing measurement should be an essential part of any retailers’ use

of pricing cues, infact, and measurement should begin even before a pricing cue

strategy is implemented to help determine which items should receive the cues and

how many should be used.

Store Patronage and Loyalty.

Customer Relationship is very important for creating loyal customers.

Customer Relationship Marketing is a practice that encompasses all marketing

activities directed toward establishing, developing, and maintaining successful

customer relationships. The focus of relationship marketing is on developing long-

term relationships and improving corporate performance through customer loyalty

and customer retention.

How much should a company invest in relationship marketing, given the extra cost

and effort that it involves? To answer this, there is a need to distinguish five different

levels of relating to customers.

Basic: The salesperson sells the product but does not contact the customer

again.

Reactive: The salesperson sells the product and encourages the customer to

call if he or she has any questions or complaints.

Accountable: The salesperson phones the customer a short time after the sale

to check whether the product is meeting the customer's expectations. The salesperson

also solicits from the customer any product improvement suggestions and any specific

disappointments. This information helps the company continuously improve its

offering.

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Proactive: The company salesperson phones the customer from time to time

with suggestions about improve product use of helpful new products.

Partnership: The Company works continuously with the customer to discover

ways to effect customer savings or help the customer perform better.

Importance of Quality

Quality is an equally important element in order to ensure customer satisfaction.

(Hassan and Kaynak, 1994) are of the view that “Promotional strategies should

emphasize intrinsic cues, such as quality, styling, prestige and value in consumer

products. Price, an extrinsic cue, does not outweigh the importance of quality and

styling in product selection.”

A company’s marketing will not be effective if it is only entrusted to the marketing

department. The greatest marketing department in the world cannot compensate for

deficient products or service. Today’s top executives view the task of improving

product and service quality to be their top priority. Many global successes of

Japanese companies are due to their building exceptional quality into their product.

Most customers will no longer accept or tolerate average quality performance.

Companies today have no choice but to adopt total quality management (TQM) if

they want to stay in the race, let alone be profitable. There is an intimate connection

between product and service quality, customer's satisfaction and company

profitability. Higher levels of quality result in higher level of satisfaction, while at the

same time supporting higher prices and often lower costs. Therefore quality

improvement programs (QIP) normally increase profitability. Customers have a set of

needs, requirement and expectations. It can be said that the seller has delivered quality

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when ever the seller product & service meets or exceeds the customer's expectations.

The company that manages to satisfy most of its customers needs most of the time is a

quality company.

Relationship between Marketing and Trust

An article published in www.ifama.org talks about the relationship between marketing

and trust. It says that researchers have emphasized on the fact that trust is fundamental

in developing customer loyalty. They have always believed that winning the

consumers confidence and trust is the foundation stone to gain customer loyalty.

Doney and Cannon (1997) studied trust in the buyer-seller relationship. Their model

of trust in the buyer-seller relationship consisted of six variables: trust in the

salesperson, trust in the company, attitude toward the product, communication

openness, loyalty intention, and loyalty behaviour. They defined trust as perceived

credibility and goodwill. They related trust in the firm to trust in the sales personnel.

Chow and Holden (1997) adopted a similar approach to studying trust in the buyer-

seller relationship. They defined trust as the expectancy held by an individual that the

words, promises, verbal or written statements of an individual or groups can be relied

upon. They concluded that trust is a significant predecessor to not only attitude toward

the product, but also to buyer loyalty.

Schurr and Ozanne (1985) suggested that higher trust levels eventually lead to a more

favourable attitude toward loyalty. In their study, they defined trust as the belief that a

person’s or an organization’s word or promise is reliable and that a person or

organisation will fulfil his/her obligations in an exchange relationship., Schurr and

Ozanne conducted an experiment to examine the interaction of trust and bargaining

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stance on cooperative behaviour in buyer-seller negotiations. They manipulated the

levels of trust and bargaining stance. The results suggested that trust not only

moderates buyer reactions to seller’s bargaining toughness, but it also facilitates

favourable attitude towards the seller.

Similarly, Morgan and Hunt (1994) used commitment-trust theory to develop a model

of relationship marketing that includes precursors and outcomes of relationship

commitment and trust. They defined trust as existing when a party is confident of

exchange partner’s reliability and integrity. They found that shared communication,

opportunistic behaviours, and values effects trust directly. They also identified a

positive relationship between trust and commitment and identified commitment and

trust as key intermediaries contributing to relationship marketing success.

The same article published in www.ifama.org cites that Swan, Bowers, and

Richardson (1999) analysed the background and consequences of trust in a sales

context. They figured out several unsolved issues in the trust literature including the

relationship between trust and suspicion. Two important categories or background of

trust emerged from the meta-analysis, including determinants associated with the

salesperson and with the salesperson’s firm. They also found that trust positively

effects purchase behaviours, customer satisfaction, favourable customer attitudes, and

purchase intentions.

It also says that Geyskens, Steenkamp, and Kumar (1998) developed a casual model

of past history and consequences of trust based on a review of the concept of trust

within marketing channels. They found strong support for trust as an intermediary in

marketing relationships. Laurent and Uncles (1997) conceptualise loyalty as an

attitudinal measure (including commitment, brand preference, intention-to-buy and

liking) and a behavioural measure (including exclusive purchase and repeat purchase

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probability). Sirohi, McLaughlin, and Wittink (1998) examined store loyalty

intentions for current customers of a multi-store grocery retailer. They used three

measures of store loyalty intentions: 1) customer’s intention to continue purchasing,

2) intention to increase future purchases, and 3) intention to recommend the store to

others. They found that service quality perceptions and merchandise quality

perceptions are strongly related to store loyalty intentions.

Researchers such as Macintosh and Lockshin (1997) emphasize the role of

interpersonal relationships when examining store loyalty. They presented a model of

store loyalty consisting of customer-to-salesperson and customer-to-store

relationships. Conceptualising loyalty as including both positive attitudes and repeat

purchase behaviour was another determinant. The findings indicated trust and

commitment to salespersons have positive impacts on both attitudes toward the store

and purchase intentions. Furthermore, these consumers tended to be more loyal to the

store. It is generally accepted that satisfaction may be related to loyalty but is not

synonymous with loyalty (Jones & Sasser, 1995)

Jones and Sasser (1995) argue that the link between satisfaction and loyalty is not

linear. They measured loyalty as the customer’s stated intent of repurchase and found

that moving customers to a higher level of satisfaction helps to develop long-term

loyalty. Dube & Maute (1998) conducted an experiment in which value-added

strategies and value-recovery strategies were manipulated under various competitive

environments to study the impact on customer satisfaction and loyalty. The

researchers adopted two types of loyalty measures: situational loyalty and enduring

loyalty. Their findings revealed that both types of strategies had positive impacts on

customer satisfaction and loyalty with differing sensitivities to the competitive

environment.

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It is also important to understand why retail stores are focusing on increasing their

‘loyal customer’ base. When the previous Mintel reports were researched in 2002,

there were signs that loyalty card schemes may be about to fall out of fashion.

Safeway had dropped its scheme and Sainsbury’s decision to join a coalition scheme

rather than run its own scheme implied that the days of standalone schemes may be

over. According to Mintel report, (2004) two years on the three biggest schemes –

Tesco Clubcards, Boots Advantage Card and Nectar Card – each claim over 11

million regular users. Tesco clubcard is held by 10 million households but has 13

million active collectors due to second-card holders in the same household. Both

nectar and boots have 11 million active collectors.

The report also says that a new generation of loyalty club schemes, not based on

points, are being developed. These schemes collect personal information and spend

data about regular shoppers and offer incentives, bonuses and prize draws in return.

Use of database to provide additional incentives indicates that these schemes help the

retailers develop Customer Relationship Management commonly know as CRM

programmes and provide a stream to grow sales with known, regular shoppers. Many

more store cards now offer loyalty point features than was the case in 2002. However,

the underlying use of store cards by retailers and finance companies is to make money

out of credit balances and, while loyalty points may make these schemes more

attractive, they remain an expensive way of borrowing money. There are few reasons

for supposing that retailers that have so far shunned loyalty card schemes will alter

their view. Retailers that have their focus firmly set on price and value will continue

to emphasise these attributes because it is what motivates their targets shoppers,

mainly value conscious, less affluent consumers. The cost of operating loyalty card

schemes is rising too fast for there to be much interest in spending on technological

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features of these schemes. Tesco is keeping things very simple and investing in

improving its targeting through more accurate data mining. Its direct mail costs are

vast and so improving accuracy of reach and refining quality of offers made to each

recipient group have considerable benefit, resulting in most of its investment being

out of sight of shoppers.

Not surprisingly, the impressive growth and penetration of store brands in retail

markets have attracted attention and discussion. The discussion at the practitioner

level in the business press has predominantly focused on sales or market share

(Sethuraman 2003). An online subject search reveals scores of practitioner articles,

mostly discussing how well store brands are doing or what retailers can do to increase

sales of their store brands (e.g., Alaimo 2003; Karolefski 2003). On the academic

research front, the predominant focus of initial studies was on “profiling” the

characteristics of store brand consumers (e.g., Dick et al. 1995). The focus of recent

studies in this area – consistent with that in the business press – has shifted to

estimating the effect of marketing actions on national brand and store brand sales or

market share, and specifying “optimal” store brand marketing strategies for retailers

(Mills 1995; Raju, Sethuraman and Dhar 1995; Sethuraman 2003).

"Price wars," write Akshay R. Rao, Mark E. Bergen and Scott Davis, "are a fact of

life—whether we're talking about the fast-paced world of 'knowledge products,' the

marketing of Internet appliances, or the staid, traditional business of aluminum

sidings. If you're not in a battle currently, you probably will be fairly soon."

It's not only necessary to understand why price wars have become a global

phenomenon in the retail industry, but it's also critical to recognize where to look for

resources in battle. It's important to carefully analyze your customers, company,

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competitors, and other players within and outside the industry that may have an

interest in how the price war plays out. Retail industry is a highly competitive

industry in United Kingdom or rather most of the developed economies around the

world, where the market share has been captured by Retailing giants like Wal-Mart,

Tesco etc. These retail outlets have based their marketing basically on offering low-

prices.

Therefore, the idea is to figure out the reason for “pricing strategy” being the most

important strategy and to understand what can be the other factors that can affect the

change of retail strategies, the reasons which can make a consumer change his/her

mind or buying preferences.

Theories of Retail Change

It’s important to understand the different Theories of retail change to understand what

leads to change in customer buying behaviour. Because changing buying preferences

may very well lead to discontinuation with a particular brand or store. If retailers fail

to determine or forecast the change they might end up loosing store loyalty they

enjoy. Johan Hagberg (2005) published on internet a research work on retail change

theories.

“It has often been said that the only constant in retailing is change, and retail change,

if never a burning issue, has been a constant feature of marketing thought” (Brown,

1987, p.5)

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Brown (1987) made distinction of the theories to retail change into three broad

categories:

Cyclical theory

Environmental theory

Conflict theory

Cyclical theories:

Johan Hagberg (2005) in his research work published on the internet

(www.asb.dk/upload/ accessed on 27/7/2006) internet says the cyclical theories mean

that change occurs in a cyclical manner, with repetition of earlier trends. The cyclical

theories consist of different contributions; the wheel of retailing (McNair, 1957), the

retail accordion (Hall, Knapp & Winsten, 1961; Hollander, 1966), the retail life cycle

(Davidson, Bates & Bass, 1976) and the polarisation principle (Dreesman, 1968).

Mc Nair (1957) the wheel of retailing theory says, retail institutions start as a low

price, low cost and narrow margin actor, which afterwards deals with the changes in

offering, driving up prices, expenses and overall margins eventually. The institution

then moves on to become to a high cost, operator based on high quality and services

rather than low prices in the long term. This change opens up for the next low cost

innovator and the wheel revolves.

The retail life cycle is based on the same ideas as the Product Life Cycle and

maintains that just like a product retail institutions also evolve through the stages of

birth, growth, maturity and decline. When a retail outlet or institution gains

competitive advantages over its competitors, it enjoys rapid sales increase. The

success initiates the competitors to follow, which means that this institution increase

significantly in terms of sales, profitability and market share. This stage ends with

42

increasing costs and the institution reaches the maturity stage, followed by the decline

stage with loss of market share and reduced profitability.

Environmental theories

The environmental view of institutional evolution holds that changes in the

environment (economic, demographic, social, cultural, legal and technological) are

reflected in the structure of the retail system (Dreesman, 1968; Markin & Duncan,

1981). Institutions emerge, develop, mature and decline as an effect of environmental

circumstances. The institutions have the ability to adapt to the changes in the

environment are the only ones likely to survive.

Conflict Theories

This theory states that innovations in the retailing system force the established players

to respond or adapt to the innovation. Responses could be of two major types, by

copying the characteristics or by differentiating the threatened institute from the

threat.

According to McGoldrick (2002) these theories has attracted heavy criticism, and one

of the responses to this criticism is the suggestion to focus more upon the evolution of

individual retailing institutions in order to increase understanding of internal and

external causes of retail change.

After studying the trends in retail industry and analysing consumers buying

behaviour, price sensitivity, what is store loyalty and why do customers get loyal to a

store the focus of analysis shifts to the different ways in which these pricing tactics

are implemented by the stores and what are the better ways to do it. The retail change

theories included the study of above literature shows that wowing a customer and

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making him loyal to a particular brand or store is a tedious task to perform. There are

so many factors that contribute to a customer getting loyal to a store.

The attempt is to find out that how many customers are actually loyal to a particular

store and if yes are they ready to change there ready to give up there patronage if

there is a change in price.

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CHAPTER 3

Research Methodology

To get the correct answer to the research question drafted after the literature review is

to research on it scientifically. Research has become a science and has its own share

of do’s and don’t. In order to get correct, reliable and accurate results the need is to

understand and follow the methods.

Research philosophy precedes research methodology. Saunders M., Lewis P.,

Thornhill A., (2007), suggest that research philosophy relates to the development of

knowledge and the nature of knowledge. The research philosophy adopted should

contain important assumptions. These assumptions will underpin research strategy

and methods to be chosen as a part of that strategy. The philosophy adopted should be

influenced by practical considerations. The main influence is always likely to have a

particular view of the relationship between knowledge and process by which it is

developed.

The basic assumption in the research question framed here is that the quality of the

product will be unchanged, when there will be an appreciation or depreciation in price

values. To find out whether the consumer will shift or switch over to another store, it

has to be assumed that the product quality at all the stores is the same as it was before

change in price. R. Wilson (1996) says that the success of any marketing project,

whether it is conducted in an academic or practitioner environment, depends to a large

extent on decisions made by the researcher at an early stage in the research process.

Critical issues like overall purpose of research, identification of research questions to

be addressed, use of theoretical framework, development of hypotheses, and choice of

quantitative or qualitative approach should be resolved as soon as possible.

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Qualitative Research

www.ipsos.com defines qualitative research as an exploratory study (to explore an

unknown sector, identify the main dimensions of a problem, draw assumptions,

understand motivations) or operational study based on in-depth analysis of

interviewee responses (in a group or individually), typically in what's known as "focus

groups." It most often deals with a restricted sample of individuals that does not

necessarily need to be representative. It may be the preliminary phase of a quantitative

study or stand alone research.

And it is advised to select a qualitative method when most of these conditions apply:

You have no existing research data on this topic.

The most appropriate unit of measurement is not certain (Individuals?

Households? Organizations?)

The concept is assessed on a nominal scale, with no clear demarcation points.

You are exploring the reasons why people do or believe something.

Quantitative Research

Quantitative research is the systematic scientific investigation of quantitative

properties and phenomenon and their relationships. Quantitative research is

widely used in both the natural and social sciences, including physics, biology,

psychology, sociology, geology, education, and journalism. The objective of

quantitative research is to develop and employ mathematical models, theories and

hypotheses pertaining to natural phenomena. The process of measurement is

central to quantitative research because it provides the fundamental connection

46

between empirical observation and mathematical expression of quantitative

relationships.

Quantitative method of research has been chosen because of the presence of the

following features in the research and the research question.

The research is more of a confirmatory rather than exploratory research. It is a

frequently researched topic, and (numerical) data from earlier research is

available.

Since a trend is being measured to find out the switch over cost and the reason

for selection of a particular store (almost impossible with qualitative research).

The concept is being measured on an ordinal scale.

Comparison between Qualitative and Quantitative Research:

With the growing acceptance of qualitative methods in education (Shulman, 1981),

the debate has shifted to what their relationship to quantitative methods should be. At

the extremes are two groups the purist and the pragmatists (Rossman & Wilson,

1985). They believe that the two method types are incompatible because they are

based on paradigms that make different assumptions about the world and what

constitutes valid research.

Questionnaire:

Mc Daniel C. & Gates R. (2001) define questionnaire as every form of survey

research relies on the use of questionnaire. The questionnaire is the common thread

for almost all data collection methods. It is a set of questions designed to generate the

data necessary for accomplishing the objectives of the research project. It is a

formalized schedule for collecting information from respondents. It provides

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standardization and uniformity in data gathering process. Questionnaire gives a

customized opinion from the sample selected.

When to use a questionnaire?

There is no all-encompassing rule for when to use a questionnaire. The choice will be

made based on a variety of factors including the type of information to be gathered

and the available resources for the experiment. A questionnaire should be considered

in the following circumstances.

a. When resources and money are limited. A Questionnaire can be quite

inexpensive to administer. Although preparation may be costly, any data

collection scheme will have similar preparation expenses. The administration

cost per person of a questionnaire can be as low as postage and a few

photocopies. Time is also an important resource that questionnaires can

maximize. If a questionnaire is self-administering, such as a e-mail

questionnaire, potentially several thousand people could respond in a few

days. It would be impossible to get a similar number of usability tests

completed in the same short time.

b. When it is necessary to protect the privacy of the participants.

Questionnaires are easy to administer confidentially. Often confidentiality is

the necessary to ensure participants will respond honestly if at all. Examples

of such cases would include studies that need to ask embarrassing questions

about private or personal behaviour.

c. When corroborating other findings. In studies that have resources to pursue

other data collection strategies, questionnaires can be a useful confirmation

tools. More costly schemes may turn up interesting trends, but occasionally

48

there will not be resources to run these other tests on large enough participant

groups to make the results statistically significant. A follow-up large scale

questionnaire may be necessary to corroborate these earlier results. There are

other methods of secondary data collection as well like observation and

interviews both structured and semi-structured. Questionnaires are usually not

believed to be good for exploratory or other research that requires a large

number of open-ended questions. Questionnaires can be therefore be used for

descriptive or exploratory research. Descriptive research, such as that

undertaken using attitude and opinion questionnaires and questionnaires of

organisational practices, will enable to identify and describe the variability in

different phenomena. In contrast explanatory or analytical research will enable

to examine and explain relationship between variables, in particular cause-

and-effect relationships. These two purposes have different research design

requirements (Gill and Johnson, 2002).

Questionnaire was the chosen method of survey to find out the answer for the

research question. According to the hypotheses going to individual customers was the

best option to figure out whether they will change their brand preference or give

away the brand loyalty due to change in price.

The design of a questionnaire differs according to how it is administered. Self-

administered questionnaires are usually completed by the respondents. Responses to

interviewer- administered questionnaires are recorded by the interviewer on the basis

of each respondent’s answers. The choice of questionnaires is dependent by a variety

of factors related to research question and research objectives. But to a great extent it

is also dependent on:

49

Characteristics of the respondents from whom data is to be collected, also

known as the data sample.

Importance of reaching a particular person as respondent.

Importance of respondents answer not being contaminated or distorted

Size of sample required for analysis, taking into account the likely response

rate, which was 100% in the research as interviews were conducted

personally. Each respondent was approached and was requested to participate

in the survey.

Types of question to be asked to get the desired information.

Number of questions to be asked to get the desired data and answers.

Selection of interviewer- administered questionnaire ensured that respondent was

whoever was wanted to be. This improved reliability of data. These interviews were

conducted in city of London at Piccadilly Circus where the desired sample was

available. People who are funny, who visit at these museums, theatres and cinema

halls. 20 people were interviewed as a sample and included people from different age

groups, different income levels and different sex. Each question was asked to them

individually. Non-respondents were not recorded due to constraint to time and

resources. Due to financial implications assistance was not taken from any

organisation or individual for getting the responses and gathering the primary data

through these questionnaires. The sample needs to be as representative and accurate

as possible where it will be used to generalise about the total population. Interviewer

Questionnaires are quite flexible in what they can measure, however they are not

equally suited to measuring all types of data. Data can be classified in two ways,

Subjective vs. Objective and Quantitative vs. Qualitative. The importance of well-

defined objectives can not be over emphasized. A questionnaire that is written without

50

a clear goal and purpose is inevitably going to overlook important issues and waste

participants' time by asking useless questions. The questionnaire may lack a logical

flow and thereby cause the participant to lose interest. Consequential, what useful data

you may have collected could be further compromised. The problems of a poorly

defined questionnaire do not end here, but continue on to the analysis stage. It is

difficult to imagine identifying a problem and its cause, let alone its solution, from

responses to broad and generalizing questions. In other words, how would it be

possible to reach insightful conclusions if one didn't actually know what they had

been looking for or planning to observe.

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Source: Mc Daniel C. & Gates R. “Questionnaire Design”, Marketing Research Essentials, (2001), 290

According to (www-static.cc.gatech.edu), when a questionnaire is administered, the

researchers control over the environment will be somewhat limited. This is why

questionnaires are inexpensive to administer. This loss of control means the validity

of the result is more reliant on the honesty of the respondent. Consequently, it is more

difficult to claim complete objectivity with questionnaire data then with results of a

tightly controlled lab test. For example, if a group of participants are asked on a

questionnaire how long it took them to learn a particular function on a piece of

software, it is likely that they will be biased towards themselves and answer, on

average, with a lower than actual time. A more objective usability test of the same

function with a similar group of participants may return a significantly higher learning

time. More elaborate questionnaire design or administration may provide slightly

better objective data, but the cost of such a questionnaire can be much higher and

offset their economic advantage. In general, questionnaires are better suited to

gathering reliable subjective measures, such as user satisfaction, of the system or

interface in question.

Questions may be designed to gather either qualitative or quantitative data. By their

very nature, quantitative questions are more exact then qualitative. For example, the

word "easy" and "difficult" can mean radically different things to different people.

Any question must be carefully crafted, but in particular questions that assess a

qualitative measure must be phrased to avoid ambiguity. Qualitative questions may

also require more thought on the part of the participant and may cause them to

become bored with the questionnaire sooner. In general, it can be said that

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questionnaires can measure both qualitative and quantitative data well, but that

qualitative questions require more care in design, administration, and interpretation.

The basic process of survey research can be outlined as follows:

1. Defining research aims.

2. Identifying the population and sample

3. Deciding how to collect replies

4. Designing the questionnaire

5. Carrying out the survey

6. Analyse the data

To design the questionnaire an important task was to define the population and sample to

be interviewed or surveyed. The population is simply all the members of the group

that you are interested in. A sample is a sub-set of the population that is usually

chosen because to access all members of the population is prohibitive in time, money

and other resources.

An important issue in choosing the sample relates to whether the members chosen are

representative of the population. The sample chosen in the survey was based on the

fact that representative sample needs to be taken from different stores. People going to

a particular store can not be interviewed for the entire research. Sample population for

this research consisted of people or consumers of different stores like Asda, Marks &

Spencer, Sainsbury’s, Tesco and other stores. The target age-group were people who

shop on regular basis, so people less than the age of 16 years were ruled out of the

survey, since there buying decisions are based on their parents decision in most

number of cases. Since our focus is on people who may or may not change there

loyalty to a particular store due to price fluctuations, age group of less than 16 did not

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seem to hold that importance. Another question that was put in the questionnaire to

determine the sample was income group. People belonging to different income groups

have different choice and preferences. Selecting people from one income group would

not have given the survey a realistic overview. People with different income levels

have different mindset and needs. As he income level increases the needs and wants

of a human being change. They have different preferences at different stages of their

life. Satisfaction of one want leads to desire of something more superior and

luxurious.

Dillman (2000) distinguishes between three types of data variable that can be collected

through questionnaires:

1. opinion

2. behaviour

3. attribute

These distinctions are important, as they will influence the way your questions are

worded. Opinion variables record how respondents feel about something or what they

think or believe is true or false. In contrast, data on behaviours and attributes record

what respondents do and are. When recording what respondents do, that’s called

recording their behaviour. This differs from respondent’s opinion. Behavioural

variables contain data on what people did in past, do now or will do.

Attribute variables contain data about the respondents characteristics. Attributes are

best thought of as things a respondent possesses. They are used to explore how

opinions and behaviour differ between respondents. Attributes include characteristics

such as age, gender, marital status, education occupation and income. The

questionnaire designed for this particular research has two questions to determine the

attributes of the respondents their age groups and their income group.

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The design of each question was based on the data which was to be collected. When

designing individual questions researchers do one of the three things (Bourque and

Clark, 1994). Clear wording of questions using validity of the questionnaire. Most

types of questionnaire included a combination of open and close ended questions.

Open questions (Dillman, 2000), allow the respondents to give answers in their own

way (Fink, 2003). Closed questions, provide a number of alternative answers from

which the respondent is instructed to choose. If these responses cannot be easily

interpreted then these benefits are marginal (Foddy, 1994).

The questions asked were all close ended questions because of a few reasons. Close

ended questions are faster or quicker to answer, the respondents feel at ease because

they don’t have to think and write too much as they have options available. This

comfort level of respondents with the questionnaire increases the response rate as

people do not refrain from answering the questionnaire which is not the similar case

in case of open ended questions. The options given were carefully chosen to make

sure that all the possible answers to a particular question were present.

55

CHAPTER 4

Research and Findings

After collecting the data through the means of questionnaire, it is very important to

analyse that data other wise raw data is of no use if it can not be interpreted.

There were a total of 100 questionnaires which were completed. The data was then

entered in SPSS software which is renowned software of marketing research.

Here are the findings of the research.

Analyse of the data is done firstly as per their frequency.

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For the sample there were 86% of the people surveyed were the ones who belonged to

income group of less than £2500 a month. The people chosen for survey were young

people infact 89% of them were less than the age of 40 years, out of which 53% were

less than 25 years old. Consumers who will go on to become loyal to stores or they

already are which might be mainly because of their family and friends.

73% of these people go for monthly shopping, what is interesting here is the fact that

27% of them don’t have any specific buying time or period they shop whenever they

need.

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People from different stores became a part of the survey. No store seems to have a

dominating majority as far as number of its regular customers is concerned. Others

stores included stores like Iceland, Morrison’s, Waitrose etc. This gives reliable

information, as there are representative samples from different stores.

A cross tabulation between which income group prefers which store, shows that

people who earn less than 1000 pounds a month, majority of them shop at Tesco.

On the other hand people above 4000 income level prefer Marks and Spencer or

Waitrose, while the middle-income group prefers Sainsbury’s.

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Let’s analyse the fact that how many participants had were loyal to a particular store,

but the limitation here is that people have loyalty cards of more than one store

sometimes.

It can be seen that only 45% of the people surveyed had store loyalty cards.

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Analysis was also done to know which stores have what rate of loyalty as far as

loyalty cards are concerned. Majority of customers of Sainsbury’s and Marks &

Spencer had loyalty cards followed by Tesco. The companies should take advantage

of this and they should think more towards retaining them.

When analysing the reason for store preference, for majority of them important factor

was the geographical location of the store. This was surprising as price or quality

were supposed to be the most important determinants when selecting a store. There

were only 10% people who chose or selected their store because of its brand name;

probably these were the representative sample that cares for ‘snob value’.

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After finding out this information the next step was to get the answer for our research

question. For that there were two direct questions put in the questionnaire. These

questions asked the participants directly whether they will change there store

preferences if there is a price hike in the store where they shop or if the competitor is

offering products for cheaper rates. The assumption is that quality of the product is

unaffected and there is only price change.

73% of people who participated were of the view that price is not the only thing that

will make them change their shopping preferences at a particular store. For 36%

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people price is still a very important factor when it comes to changing their store

patronage.

When asked how much price change or fluctuation would make them give away their

store patronage. 37% of the people accepted that a change of 10 to 30 pounds per

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per head per month, will most probably make them change their preferences. But 30%

of people were still unsure about changing there store preferences.

To answer the main question of the research analysis was done to figure out the

reasons due to which people selected their stores and compared it to whether they will

change their stores if there was a price change. People who said that there preference

of store was due to price factor and geographical location, they were the ones who

were more willing to change there store because of a price change.

This validates the collected data as well, since people who selected there store

because of price, are most likely to change their store preference if there is a change

in the prices, quality and service being the same.

Investigations were made further to find out what kind of price change would lead to

a shift in customer store preference.

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People who said that they are ready to change the store if there is a price change,

majority of them were the ones who will change there shopping preferences if there is

a change between £10 to 30 per person per month. On the other hand people who said,

that they will not be changing there store preferences because of price also agreed that

at a certain price level they will not patronise to the same store. There were also a lot

of people who were unsure about both changing their store preferences and the price

levels at which they will be changing there selected store.

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CHAPTER - 5

Conclusion

Since marketing is more focused on ultimate consumers, the dissertation topic was

also chosen keeping the retail and consumer market in focus. Price is the most

discussed and researched topic today in retail industry. Most of the retailers

worldwide are trying to reduce their cost of production and the better part is that they

are not shying away from passing on this benefit to the customers. Since the world has

become a global village today, it has become easier for these stores to contact

suppliers from throughout the world and use the absolute cost advantage by

outsourcing the product manufacturing and processing elsewhere.

The revolutionary change and improvements in the supply chain management system

through out the world has also helped the retailers in reducing costs. By passing on

these benefits to ultimate consumers the stores are trying to lure more and more

customers towards them. They want to make sure that the competitors customer

switches over to them and there own customers remain loyal to them. Loyalty cards

are just a way probably to acknowledge the customer for shopping regularly at the

same store. But it can also be considered as a marketing gimmick, as these loyalty

cards are given from the first day you shop at a store, card holders are given coupons

and are offered special discounts.

It is important to understand that it is not easy to make a customer loyal towards a

product or a store. There are a lot of reasons which contribute in making a consumer

select a product or service or a store in this case. The literature review already

mentions the different factors which effects a consumer’s ultimate buying decision.

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It’s because at different stages of life, year, day people have different needs, wants

and desires. If you become loyal to a product or a store it basically implies that the

product caters to all that you need pertaining to the same area, in the remaining stages

of your life. This is very difficult but not impossible. Another important question is

how to make customers loyal and more importantly how to make sure that they don’t

switch over to a rival. The concept of value, cost & satisfaction are crucial in the final

product choice, the several alternatives of the customer constitute his product choice

set, the additional needs associated with the product is called the need set. Customer

rank the products from need – satisfying to the last need satisfying value is the

consumers estimate of the products overall capacity to satisfy his or her needs.

The company probably needs to forecast the retail change well and accurately in

advance, because the changing patterns if known or anticipated can reap rich

dividends for the organisation in terms of customer loyalty, revenues, profits,

goodwill etc.

The crux of marketing strategies of these companies is low and affordable prices.

That’s what they have been targeting on even when they know that there are other

factors as well which influence the buying decision of a consumer. Rather than just

focusing on winning the price war with the competitor, the company should try and

focus on areas that are also important for an individual to make his or her buying

preferences. Because the way prices are being slashed, they will reach a stage when

they can not be brought down any further. All the retailers will have to make sure that

they are not suffering from marketing-myopia (short sightedness). Otherwise rather

than making new customers they might loose out on the existing customers.

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The objectives of this dissertation were achieved through means of the research

conducted. The research shows that price is an important factor for a customer to

make his or her buying decision but there are other factors also which comes into

play. It also talks about store loyalty, even though a lot of customers have loyalty

cards of different stores they do not necessarily patronise to a particular store. Given a

change in a few factors customers would change there loyalty, however it seems that

consumers who become loyal to a store because of snob value are more likely to stay

back for a longer period of time.

This research has brings out the point that price is not the most important factor which

determines the reason for store preference; there are other factors which mean more to

a particular person sometimes. But the high rate of people, who were not certain about

them changing the store due to price change and how much price change, shows that

there are lot of people who probably decide as per the situation which store is better

for them. They want good-quality sometimes, sometimes are looking for a brand

name, sometimes for a cheap and affordable product.

But lack of time and financial resources could not make this research work very

detailed. A bigger sample at different retail stores themselves could have given a more

accurate idea about store patronage of customers and there inclination towards

changing the store due to change in price or any other factor for that matter.

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http://www.upi.com

I am student at University of Wales Cardiff, doing my MBA dissertation on Relationship between Store Patronage and price sensitivity. This questionnaire has been formulated to investigate the same. If you could please answer the following questions.

1) Your age is: a) Between 16 to 25 years b) Between 25 to 40 years c) More than 40 years

2) Your monthly income is: a) Less than £1000 b) Between £1000 to £2500 c) Between £2500 to £4000 d) More than £4000

3) How often do you shop? a) Weekly b) Fortnightly c) Monthly d) as needed

4) Number of people you shop for? a) One b) 2 to 4 c) More than 4______

5) Which store do you shop at? a) Asda b) Marks & Spencer c) Sainsbury’s d) Tesco e) Others (Please specify _______________)

6) For how long have you been shopping at the store specified above?

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a) Less than 1 year b) 1 to 3 years c) 3 to 5 years d) 5 years and above.

7) Do you have a loyalty card for the store you shop at? a) Yes b) No

8) Your monthly expenses for the shopping basket? a) Less than 50 b) 50 - 100 c) 100 – 150 d) 150 and above.

9) Why do you prefer the store you shop at? a) Price b) Geographical Location c) Quality and Service d) Brand Name e) Others_____

10) Would a change “in price” affect your store preference? a) Yes b) No c) Can’t say

11) How much as a sample value in £ would affect your store preference? a) Less than £10/person/month b) £10-£30/person/month c) £30-£50/person/month d) Don’t know

Thanks for your time.

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