B-Cognizance

IIITA's E-Magazine

Indian Institute of Information Technology - Allahabad

Insight - Article 2

 

By

Prof. S. Goswami

Jaipuria Institute of Management,

Noida.

 

A number of frameworks have been developed to explain the present structure of retailing and predict the future. No individual framework explains all the changes in a retailing environment. Yet, as a whole, these frameworks  mentioned below explain the past and give clues about the future.

 

The following exhibit 1.1 gives a detail theory of change in retail institutions. The first two, the wheel of retailing and accordion theory, are called cyclical theories. Their advocates argue that retail institutions change on the basis of cycles. The premise behind the wheel of retailing is that retail institutions “trade” from low price/service to high price/ service operations. The accordion theory, on the other hand, explains changes in retail institutions on the basis of depth versus breadth of assortment. It implies that retail institutions swing from being high-depth/ low breadth stores to being low-depth/high-breadth stores, and back again.

 

Exhibit 1.1

 

 

 

 

 

 

The last two theories, dialectic process and natural selection, are evolutionary theories. These are based on the notion that retail institutions evolve. Specifically, proponents of the dialectic process theory argue that new retail formats emerge by borrowing characteristics from other forms of retailers in much the same way that a child is the product of two parents. The theory of natural selection, on the other hand, argues that new forms of retailers evolve as a result of changes in customers’ needs.

 

One important framework for explaining changes in retailing institutions is the wheel of retailing. The wheel represents phases through which some types of retailers pass. Propoents of the wheel of retailing framework contend that retailers penetrate the market on the basis of low price. Over time, they trade up to more expensive merchandise, services, locations, and so forth. This trading-up process opens a niche for new low-price retailers to enter the market.

 

Those who look to the second cyclical theory (the accordion theory) argue that the retail institutions fluctuate from the strategy of offering many merchandise categories with a narrow assortment to that of offering a wide assortment with a limited number of categories. This expansion and contraction is akin to an accordion. During early development, relatively small general stores succeed by offering many categories of merchandise under one roof. Department stores develop during the next expansion of the accordion. Department stores, somewhat like giant general stores, again offer customers multiple merchandise categories. This time, however, the depth of the selection improves

as well. The next contraction of the retail accordion results from specialty stores’ tendency to have become even more specialized in the past decades.

 

The first of the two evolutionary theories of change in retail institutions is the dialectic process. This theory implies that new retail institutions result from stores borrowing characteristics from other very different competitors. Established retail institution, known for relatively high margins, low turnover, and plush facilities, is the department store – the thesis. Discount stores in their early form were the antithesis of department stores. That is, they were characteristically low-margin, high-turnover, Spartan operations.

 

Another view with strong intuitive appeal for explaining change in retailing institutions is natural selection. It follows Charles Darwin’s early thesis that organisms evolve and change on the basis of survival of the fittest. In retailing, those institutions best able to adapt to changes in customers, technology, competition, and legal environments have the greatest chance of success. Department stores have tried to battle specialty stores’ competitive inroads by creating small specialty stores or boutiques within their stores.

 

 BUYING IMPULSES

As to the buying behaviour, the buying process begins when customers recognize an unsatisfied need. Then they seek information about how to meet the need: what products might be useful and where they can be bought. It might be a mall retail shop or high sale street or for that matter high street sale. Customers evaluate the various malls and places where the desired products are available and then they choose a store to visit. This visit provides more information and may alert customers to additional needs. After evaluating a store’s merchandise alternatives, customers may go for a purchase or go to another store retailer to collect more information and more comfortably, compare the prices.

 

When a buying decision is more risky and uncertain, customers   spend more time and effort. Due to high risk, financial, physical or social, customers engage in extended problem solving. Customers go beyond their personal knowledge to consult with others, or experts. They visit both mall retail shops and high-sale shops. Unless there is compensatory or expectancy value received from the mall retailer, customers would use mental heuristics or mental shortcuts to choose a nearby store for buying which may be the traditional high-sale retailer.

 

Customers in extended problem solving situations often have limited information about the available alternatives and factors to consider in evaluating them; so mall retailers can influence such decisions by providing the necessary information in a manner that customers can understand and easily use. This will reduce cognitive dissonance or cognitive disequilibrium.

 

When customers have had some prior experience with the products or service and their risk is moderate, they engage in limited problem solving. These customers tend to rely more on personal knowledge than on external information. They do not go into extensive evaluation of alternatives. They usually select a mall store they have shopped at before and select merchandise they have bought in the past. Majority of customer decision-making involves limited problem solving. This is where mall retailers can have an edge because they provide the atmospherics and clean passage to shopping. High-sale streets are congested, traffic-prone and often generate ambivalent or negative feelings after a point of time.

 

VANTAGE GROUNDS

Mall retailers can attempt to gain compared to prosaic traditional outlets and reinforce the buying pattern when customers are making such purchases in their stores. If customers are shopping in high-sale streets shops, they need to break these buying patterns by giving new information or offering different merchandise or services like gift-wrapping etc. Advertising need not be through normal channels; it can be met by Below-the-line –advertising or point-of-sale displays or brochures to convey such information on a low budget—all the more so in a recessionary market.

 

One common type of limited problem solving is impulse buying. Customers do make impulse purchases when they buy merchandise even though they had no intention of buying it before they went to mall shop. The BEST BUY sign placed on the shelf or when an item is placed at eye level, or at a corner anchor point, it draws customers’ attention and stimulates a purchase decision based on little analysis. A new soup pouch (a la Maggi) or a new pickle or a food item is displayed at prime locations for profitability rather than flour or sugar, which are planned purchases.

 

Today’s customers have many demands on their time. One way they cope with these time pressures is by simplifying their decision-making process. Here, brand loyalty and store loyalty are pathways to habitual decision-making. Mall retailers can go for these customers’ needs if they offer specific brands desired. Other mall retailers can also offer these brands; but there must be a differentiator in terms of service, technology or promotion. Brand loyalty creates both opportunities   and problem s for mall retailers. Customers are attracted to retail store carrying popular brands. But, since retailers must carry the high-loyalty brands, they may not be able to negotiate favourable terms with the supplier or the brand manufacturer.

 

Store loyalty all mall retailers would like to inculcate which means customers should habitually visit the same store. So the first thing uppermost is location. Mall retailers must offer an approachable location coupled with complete assortments and reduce the number of stock-outs, reward customers for frequent purchases and provide excellent customer service. That is how they can play a smarter game than high-sale retailers. Any sort of cognitive dissonance or disequilibrium must be reduced.

 

(to be continued in next issue…)

REFLECTIONS ON LIFE CYCLE OF MODERN MALL RETAILING – IS IT A WIN OVER TRADITIONAL RETAILERS?

(Part-I)

Cyclical Theories

 

· Wheel of retailing (price/                 service)

· Accordion theory (assortment)

Evolutionary Theories

 

· Dialectic process (retailer)

· Natural selection (customer)