Changing Consumer

Behaviour in Multi-channel
Retail
Impact of Online Channel
Sumit Gupta
EPGP-05-155
Course Project on Consumer Behaviour

This term paper shows how the consumer behaviour is changing in retail Industry
globally and in Indian Context. With the emergence of more channels of
shopping like online shopping and the devices used to make purchase like
smartphones, tablets and PCs, marketers need to change the way they market
products to both on- and offline consumers. To attract customers, retailers are
sending personalised messages via SMS or emails. The Indian retail landscape is
evolving from the brick-and-mortar model to adopt technology for connecting
with consumers. The aim is to achieve a complete seamless customer experience.
This paper helps you to understand how consumer relationships with technology are changing
through space and time, and what this means for brands and advertisers. Gen Y, the next big cohort,
is technologically savvy, has higher expectations of retailers and more disposable income to spend.
Research studies have shown that purchase decisions made today are made before consumer enters
stores. Improved data connection and several smartphone apps to compare product features, price and
offers has empowered consumers to make informed decisions. The retails stores have now started
developing smartphone free apps to help customer to search for a particular product and the find the
aisle number where it is kept in the store to save time and money.
The paper also specifies the go-dos for the marketers and store owners to provide more value to the
customers and enhance their shopping experience. The Indian retail experience has gone beyond the
traditional brickand-mortar store and includes numerous touch points such as online stores, social
networks, call centres, etc. Changing economic dynamics, diverse choices in products and services,
numerous shopping formats and unparalleled access to information has empowered customers to
expect more from their retail experience. In todays rapidly changing and digitally connected world,
customers are more value-conscious while making purchase decisions.







Abstract


From Purchase funnel to Consumer decision journey
The retail revolution is well underway and consumers are leading the charge. Theyre researching
their purchases online via their computers, tablets, & mobile phones and theyre doing it both at
home and in-store. Consumers want their shopping experience to be easy, seamless, and tech-
enabled but theyre not getting it from current retail environments.
In the past, the retail industry thought of the purchasing as a sequential funnel, a traditional
marketer-centric purchase funnel, which separates brand from direct response activities


















Now, a trend is emerging in urban India retail industry which is shifting from a marketer centric
purchase funnel to a consumer centric decision journey, defined by needs and motivation of
consumers. Consumers go through a dynamic 5-stage decision making journey to buy goods and
services but its not always sequential. Some may move smoothly through the 5 stages if marketers
do a good job of meeting their needs but many will go back & forth between stages and some get
stuck if their needs arent met.



Figure 2 Consumer decision journey
Awareness
Consideration
Preference
Action
Loyalty
Figure 1 Traditional Purchase Funnel



























Digital channels have potential to guide customers smoothly through the decision journey by
meeting their needs from the very beginning of their journey through to the purchase point &
beyond.
Two major themes emerged from the Consumer Decision Journey
Blurring of the digital and physical While many retailers still separate brick and mortar
from online retail channels, consumers see the two as connected, and they expect to feel that
connection throughout their decision journey. Accessing circulars online and then bringing
deals and coupons into the store, reading consumer reviews while at the shelf, and
connecting back with a retailer through online channels if consumers have questions at
home are all commonplace activities. But theyre hardly seamless; consumers want
connected experiences and more sophisticated means of moving from online channels into
the store and back again.

A deeper need for personalization - Few years ago, consumers were able to go to their
local grocer, drug and department stores and were known: sales associates would call them
by name, inquire about their children, provide personalized assistance and even follow up
with thank-you notes after their customers had left the store. Today, only the most high-end
apparel shopping services offer anything close to a personalized experience, and even then,
any pre-shopping that occurs online isnt carried through to the retail environment.

As an industry, we need to move beyond basic targeting, tracking and demographic
segmentation to drive deeper, permissioned engagement with consumers, where we deliver
valuable and personal experiences in and out of the store.
Open to possibility
A sub-conscious stage
well before awareness
Decision to change/buy
Something prompts a
Conscious need or want
Evaluating
Elimination & compare stage,
even within seemingly simple categories

Shopping
Consumers take action
go into a store or online to shop

Experiencing
Drive loyalty & advocacy
or send consumers backwards











The blending of the digital & physical creates a need for brands & retailers to take consumers on
highly personalized & customized journey

According to ABC model of attitudes every attitude has three components: A for affective, B
for behavioral, and C for cognitive. Attitudes help determine what we do - what we eat, how
we vote, what we do with our free time, and so on. The retail managers decision should target at
least one of the above three components. E.g. visually appealing positioning of the products on
shelves could

Importance to business and marketing
Understanding what the consumer needs and motivations are at each stage of the journey
arms marketers with the knowledge they need to help move consumers smoothly through to
purchase.
Whats more, it helps marketers invest their marketing dollars where theyll have the most
impact, by identifying the main media influencers at each stage of the journey.

Refer section Indian Retail Market - below in the paper which talks about the potential market
size which indicates how understanding customer behavior can help businesses penetrate the
untapped market with the help of an example.


Two most prevalent purchase journeys identified in the new retail journey are
Habitual Journey and
Considered Journey
The two differ in Open to Possibility stage of the 5-stage decision making journey.
Habitual journeys are typically triggered by the need to replenish a specific product or set of
products. The Open to Possibility moment comes later in the journey, and can slide in prompted
by a coupon, an ad, word of mouth or inspiration at the shelf.
Considered is different from habitual because Open to possibility stage comes much earlier.
Open to Possibility is a consumers current state; it contains his or her awareness of products and
brands that are available, as well as all the past experiences and associations he or she may have
accumulated over time.

Considered (e.g. Auto, Electronics)
Open to possibility Decision to change Evaluating Shopping Experiencing
Habitual (e.g. CPG, Personal Care)
Open to possibility
Experiencing
Shopping Evaluating
Experiencing Decision to change






Replenishing product is typically trigger to buy. The main reason for purchase is running out 78%
However, nearly 20% are Open to Possibility. This is where desire needs to be built before entering the
store to spark the decision to buy or change.

Vs.
Retailers need to find a way to make the store more of a consideration



58%
17%
27%
22%
19%
9%
8%
Running Out Need Another Want Newer Saw an Ad Impulse Buy Recommendation Old/Underperform
Trigger to Buy or Change
Figure 3 Habitual Vs. Considered Journey
Getting
The Right
Product
The majority of consumers
are focused on getting the
right product at the right price
Overall
Shopping
Experience
Minority of consumers are
focused on the overall shopping
experience
Needs
50%
Of consumers making
Household purchases
are driven by needs

Wants
36%
Of consumers making
Household purchases
are driven by wants

Vs.
Lists help consumers feel in control - most use paper, mobile is growing. Opportunity to help
customers by linking list to avails, deals, seasonal produce


Online and Offline touch-points




36%
42%
15%
31%
Take
Inventory
List on
Paper
List on
Mobile
List in
Head
3%
4%
6%
8%
8%
11%
13%
13%
16%
17%
20%
Mobils apps
Online video
Portal/ Home pages
Forums/ blogs
Online Advertising &
Retailer sites
Search
Price comparison sites
Brand product websites
Deal/ coupon sites
Consumer opinion sites
5%
9%
13%
17%
19%
22%
32%
Newspaper
VOD
TV shows
Magazines
Circulars/ flyers
TV advertising
Product samples


Important store characteristics
When consumers are evaluating price is important but the range plus a relaxed & convenient shopping
experience is also important.

26%
26%
27%
28%
28%
29%
30%
31%
40%
43%
45%
56%
Familiar with Layout
Friendly/Helpful Staff
Trusted/Well-Known
Checkout Pleasant
Good Loyalty Program
Reputation for Quality
Clean/Tidy Store
Close to home
Everything in one place
Broad Range Products
Good Deals/Offers
Competitive Prices
Once in-store, consumers are prone to browse & purchase items outside their original list.
Opportunity to use Elaboration Likelihood model to persuade customers




Browse
whole
store
39%
Visit a
few other
areas
36%
Only visit
areas
needed
25%
Browsing
No list
44%
Other
items
32%
Only
items on
list
24%
List Making
In the store
75% browse
Although 81%
make some form
of list nearly half
dont bring it
75% buy things
regardless of
original list




The above observations and data indicates that consumer is more considerate about quality and
availability of product rather than the store. However, with the opening of multiple channels to
acquire products, the customer desires a seamless and consistent experience across channels.
Although the customer has options to buy products online but touch and feel of product is important
in buying decision for Indian customer. This indicates that customer will visit the store before
making the final decision to purchase the product. Before visiting store it is highly likely that the
customer had done the prior research on internet about the product and compared it with other
products. This gives an opportunity not only to retail store owners but also the smartphone/tablets
app developers and product manufacturers to influence the behavior of the customers before making
a purchase decision. To increase the footfall in a retail store and persuade the consumer to buy
products form their store the store owner should come up with innovative and personalized offers
which can influence their purchase decisions.
Few models that a store owner can use to understand the customer behavior is discussed below -

The ABC Model of Attitudes: Affect, Behavior & Cognition
Attitudes are generally positive or negative. They can also be uncertain at times. Every attitude has
three components that are represented in what is called the ABC model of attitudes: A for
affective, B for behavioral, and C for cognitive. Attitudes help determine what we do - what we eat,
how we vote, what we do with our free time, and so on.











Affect this refers to emotional component towards attitude object. For retail stores consider
store as attitude object. How the consumer feels about the store can be derived from their moral
belief and value system. E.g. consumer likes cleanliness inside the store esp. where food items are
kept. Keeping the area clean will help create a positive attitude towards your store in customers
mind.
Behavior this refers to the way consumer behaves when exposed to attitude object (store). Think
of it as what the first thought comes to the mind of your consumer whenever the name of your
retail store is mentioned. Is it positive or negative? Imagine a customer is does an online research
on a product to buy and finds online that it is available in store but then he actually goes to store
to buy it and finds that its out of stock. If repeated multiple times he may develop negative
attitude towards the availability of products in your store.
Cognitive - it refers to the thoughts and beliefs one has about an attitude object (store).An attitude

Affect
Behavior
Cognitive



that is constructed primarily through facts instead of emotions or observations of our behavior is a
cognitively-based attitude. E.g. attitude of a customer towards your sore is based on facts & figures
like customer friendliness, time per transaction, waiting time in queue, loyalty points awarded
availability of products, access to similar things at one location etc.

Elaboration Likelihood Model
The store owner can also persuade customer to purchase other products which he may want but
not need. As shown above in the survey results that only 36% of the purchase decisions are driven
by wants as compared to 50% of the decisions which are driven by need. Thus there is a scope to
persuade customer to buy a certain product. The store can use the below to methods to persuade
its customers
Central Route to Persuasion e.g. if a person has purchased a Microwave oven last time he visited
a store. You may offer him (personalized offer) microwave safe utensils at discounted price. If the
customer is satisfied with the Microwave oven, it is highly likely that he will avail the offer
otherwise it may even lead to boomerang effect (opposite effect)
Peripheral route to Persuasion e.g. if you have personal details of a customer like birthday
details or anniversary details, you may persuade customer to buy gifts from your store by offering
him discounts on most popular gift items like rings, necklaces, watches, perfumes etc.




Involvement Theory


Indian Retail Market
Indias retail market is expected to cross 1.3 trillion USD by 2020 from the current market
size of 500 billion USD. Modern retail with a penetration of only 5% is expected to grow about six
times from the current 27 billion USD to 220 billion USD, across all categories and segments. Its
a new world for both retailers and the customers where the latter is the king. Indians spend 25.2%
of their time on social networking websites. As we move from the world of skeptics to early
adopters to ultimately the tacticians, online retailing and mobile retailing are the new modes of
growth.
Indias large and aspiring middle class of 75 million households or 300 million individuals
want products that are value-driven. The countrys 500 million people under the age of 25 have
access to more money that has additionally resulted in independence, aspirations and a demand for
products.
The Indian retail sector accounts for over 20% of the countrys gross domestic product
(GDP) and contributes 8% to total employment. The cumulative foreign direct investment (FDI)
inflows in single-brand retail trading, during April 2000 to June 2011, stood at 69.26 million USD.
The countrys rural population of 700 million presents an opportunity for retail and consumer
companies that cannot be ignored.
Factors driving the organized retail sector include the following:
Higher incomes driving the purchase of essential and non- essential products
Evolving consumption patterns of Indian customers
New technology and lifestyle trends creating replacement demand
Increase in rural income as well as urbanization
Increase in easy access to credit and consumer awareness
Growth of modern trade format across urban, Tier I, Tier II and Tier III cities and
towns
Rapid urbanization and growing trend towards nuclear families

e-Commerce
We can always argue that the Indian e-Commerce industry is evolving. But on taking a
closer look at the industry, we realize that it will be worth US$ 70 billion by 2015 (according to
ASSOCHAM) with a steady growth of 35% CAGR. Both the retailers and the consumers have used
electronic media cautiously. Issues relating to the use of credit cards, debit cards and online banking
have kept some consumers at bay. The legacy of using the touch and feel of the product is a
critical attribute to the decision of buying. Internet or the electronic media is largely being used
by consumers for search, research, price comparison and finally the store locater to buy the
product.
A 2011 global online survey by Nielsen suggests that about 875 million consumers across the
world prefer to shop online. This represents a 40% rise from the 627 million online shoppers
recorded for 2009. The report confirms that 85% internet users in this period shopped online.
The majority of e-shoppers were from South Korea, where a staggering 99% internet users were also
e-shoppers. Japanese, German and UK consumers rank second while Indian shoppers rank third.
According to Google, India has more than 100 million internet users, half of whom make online
purchases, and the number is growing every year. With such a large market size, retailers as well as
consumer goods manufacturers are entering the web space to attract potential customers

PwCs thought leadership report Strong and Steady 2011 Outlook for the Retail and
Consumer Products Sector in Asia indicates that the Indian apparel market is relatively untapped
across all categories. Clothing sales have been rising steadily in recent years, supported by a large
market of young consumers and an increasing interest in Western fashion.
For many Indians, low prices are a key purchase driver. The following factors drive the growth of




value fashion retail:
Increasing incomes are enabling Indian consumers to spend more and experiment across
products, brands and categories.
Apparel is no longer a functional category but one that conveys appearance, prestige and
image. Consumers want to buy apparel that is both affordable and fashionable.
The growth of modern trade has helped increase the demand for both branded and value
apparel. This, coupled with the emergence of new sectors and professional job
opportunities, has also helped drive demand for office wear.
Over 50% of Indias population is under 25. Young Indians are aspirational, demanding and
focused on apparel that is both
Current penetration of apparel in the organized retail category is 10%. This is expected to
increase to 30 to 35% by 2015.

Customers today care more about the retailing experience than they did in the past. Their
expectations from retailers go beyond just shopping of goods and services. Today, consumers are
looking for a personalized, seamless and distinctive experience from the retailers.

Localized Experience - Given the amount of information retailers have about the customer
behaviour, buying habits, etc. the consumer expects the retailer to ensure that the goods and
services are available in the stores when the customer walks in to shop.
Seamless Experience - Consumers want to traverse multiple channels easily and enjoy a seamless
experience. This means the physical store, web, catalogue, call center and kiosks have to be
integrated to ensure a consistent customer experience across these channels.
Distinctive Experience - Apart from the competitive price, the customers seek a distinctive
shopping experience driven by best customer service. Retailers have developed customer friendly
return or exchange policies, loyalty programs, customer appreciation days, etc.


Figure 4 Evolution of Customer Experience

PwC Report - The Indian Kaleidoscope: Emerging trends in retail
Microsoft Internal Analysis Report on emerging trends in retail.
Class Notes
ABC Model
ELM
FCB
Persuasion