Economic Development and Selling Environment

Shopping Needs and Economic Development

The consumers preference for shopping changes with development

 Shopping Needs and Economic Development

Phase 1 - Satisfying Convenience Needs

As the needs for products increased, the direct seller-consumer model became
infeasible and markets started developing
The buyers and sellers started assembling in one place; weekly markets, where the
producer could sell their produce and buyers could purchase all their requirements
So the shops/markets aimed at providing convenience to the consumers
The presence of haats in the less developed parts in India supports this
Parallel to the haats some permanent shops also emerged which started selling most of
the consumers requirements under one roof
Since the requirements were small and the products were homogenized, the outlets
Could stock the required quantities of all the products
 Shopping Needs and Economic Development

These retailers started satisfying consumers and producers by providing benefits as

shown in figure below:
 Shopping Needs and Economic Development

Phase 2 : Change to Status Orientation and Shopping Experience

The second phase of market development is when market shifts from satisfying
convenience needs to status need of the consumers and shops shift to specialization and
providing a shopping experience
As economic development took place, production increased and the demand situation
started favoring the consumer
As supply exceeded demand, there was a need for producers to improve quality of the
produce
This saw the beginning of competition and producers started to market their products
by differentiating and claiming to be superior
The consumers, on the other hand, having greater choice, started looking for Value for
money
 Shopping Needs and Economic Development

Different consumers started acquiring different purchasing power, which made

different groups look for different levels of quality based on their purchasing capacity
Outlets on their part started differentiating based on their target segment
Emergence of different retail formats
Outlets selling better quality products started catering to higher income groups and
therefore, these outlets started satisfying the status needs of these consumers by
becoming more and more attractive ( ambience ) and providing premium brands
Increased competition within the product category, outlets started specializing in a
product
Increased specialization would lead to development of Verticals – Food Bazaar
Or outlets catering to niche markets – “ 24 lettered mantra ”, India's first organic food
store chain at Hyderabad
 Shopping Needs and Economic Development

Phase 3 : Shift Back To Convenience

Further economic development would necessitate consolidation of markets, as the
buyers would start having other avenues for satisfying status needs and would start
reducing their time for shopping
Buyers wanting to spend less time in shopping would therefore prefer the convenience
of Supermarkets, Malls and so on
 Goals of Channel Members And Market Development
During the process of development, the outlets shift their sourcing from one supplier
( Phase 1), to sourcing from many suppliers ( Phase 11 ) and then from select suppliers ( Phase 111 )
During this transition, the outlets also start aspiring for different benefits

Phase 1
The seller would procure from one source
The arrangement is more of give and take
Both work on mutual understanding and trust
Phase 111
Consumers move unto the diminishing return curve
After getting a certain level of quality in many
categories, consumers are unwilling to pay more for
incremental quality and are ready to make do with
“acceptable quality”
This is when the outlets start developing their own
image and the importance of the social dimension of
the company-outlet transaction
The outlet deals with the companies purely on
business front ( organized retail outlets )
Phase 11
The number of suppliers increase
Supply exceeds demand
The suppliers would prefer to have their products
available at different locations and outlets
Due to this bonding between producer and seller
weakens
Multiple sourcing and multiple seller structure
emerges
Both producer and seller try to maximize gains
Mutual gain takes a backstage to individual gains
The seller would procure from one source
The arrangement is more of give and take
Both work on mutual understanding and trust
This phase would see the emergence of some strong
suppliers with a greater demand
The brands with high demand start acquiring a
premium tag so as to make it exclusive
There is emergence of social hierarchy amongst
outlets
Retailer benefits on business self and social (
Motivational theories )
 Company-Outlet Transaction

Company

Monetary gain Social Image

Business self Social self

Outlet
 Bargaining Power
In a less developed market , the dependence between the suppliers and sellers is high
Each is dependent on the other and both work on mutual understanding
With the emergence of Specialty shops and the emergence of dominant suppliers ( brands ), the
bargaining power shifts to strong brands
On consolidation of shops and the emergence of one stop shops, which acquire their own image,
the bargaining power shifts to shops
 Channel Members

There are three different types of channel members who could be used to achieve the
reach
1.Distributors or stockists
2.Carrying and Forwarding agents ( C & F agents )
3.Wholesalers
 Channel Members

1.Distributors or stockists
Most of the companies use distributors or stockists as part of their distribution network
Points at which the title is transferred from company to the trade
• They are directly invoiced from the company
• They do not maintain competing lines. However keep non competing products
• Are given geographical exclusivity
• Investment consists investment in stocks and credit to retailers
• Earn margin and incur expense on coverage, delivery, establishment and so on
• Spread their overheads by being stockists of non competing products
• Business is evaluated on ROI
• Some companies assure a minimum ROI and subsidies are provided if the
minimum return is not earned
 Channel Members

2. C & F Agents
• Not only stocks the products but also performs other functions for company
• Does not carry competing brands
• Acts on behalf of company in negotiating sale
• Arranges delivery of the product
• Implements company promotional activities
• Helps company in collection dues
 Channel Members

3.Wholesalers
• While distributor/stockist is invoiced directly from the company, wholesaler buys
from the distributor/stockist
• No geographical exclusivity
• Likely to carry competing lines
• Provide reach by selling to outlets not covered by distributor/stockist infra
• They do not provide redistribution services. Sells from the counter
• Work on low and variable margins. Volume business