research project
TRANSCRIPT
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
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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
47
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.
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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.
65
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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