The Selection Of Small Retail Outlet Marketing Essay
Abstract: In this article we look at the customers' expectation from the convenience stores and the factors which drive the customers in the selection of a convenience store. The article further looks into the types of products that drive customers into convenience stores in Sri Lanka and also analyses their billing patterns to identify the demographics of customers working into the outlet and the type of products purchased. The article looks at identify these drivers that will entice the consumers to shop at a newly launched chain of convenience stores in Sri Lanka and help the development of strategies to increase the loyal customer base in at the outlets. By increasing the loyal customer base the convenience stores can enhance the consumers basket value as customers who are loyal to the stores prefer to spend more with the store due to lower levels of perceived risk. Based on our findings, further research should focus on the understanding the extent to which these decisions drivers apply to the traditional outlets (mom and pop shops) which in 2003 had over 90% of the market in Sri Lanka.
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Rhee and Bell (2002) states that even though shoppers often visit and purchase from many different stores, most of them have a primary association to a "main store" where most of the purchases are made. This "main stores" are where the shoppers visit often to purchase when a large shopping basket is necessary. It is important for a new chain of convenience stores to be the preferred "main store" as loyal shoppers spend double the amount in their "first choice" store as per Knox and Denison (2000). This is because most shoppers perceive the primary store as a "safe bet" according to Roselius(1971) as the primary store is a trusted place with the lowest level of perceived risk of disappointment when shopping. Yet Taher et al. (1996) argues that being at ease with a store is not sufficient to ensure repeat patronage. They go on to state further that with more information being available to consumers about value/cost alternatives Taher et al. (1996) believes that the number of customers who are willing to take the perceived risks are growing. This is good news for a small chain of convenience stores that is relatively new as it means by providing more information it is possible to attract new customers but the challenge is raised in converting these customers into loyal customers.
It is therefore important according to Taher et al. (1996) and Sirohi et al. (1998) that retailers continuously seek out information of the consumers who patronage the stores in a structured manner in order to understand areas for development of augmented services to develop loyalty to the stores. The strength of loyalty of customers to a store is one of the most important indicator of the stores strength according to Rhee and Bell (2002) Reichheld and Sasser (1990) reassure that profitability can be increased by increasing the levels of profitability. Knox and Denison (2000) in their study of the retail sector in UK go on to state that it is important for a corporate retail strategy to maximize consumer loyalty and minimize consumers from opting for switching.
According to Solgaard and Hansen (2003) assortment of products at the outlet is one of the most important single driver for the choice between the stores.
MODERN RETAIL LANDSCAPE AND CONVENIENCE STORES
Retail comprises of all activities which directly relate to the sale of goods and services to the consumer for personal, non business use. (Retail glossary, 2009) The retail sector in Sri Lanka can be categorized into two as modern trade retailers and traditional trade retailers (grocery shops). The modern retail trade in Sri Lanka is expected to grow rapidly with the post war economic development and increase in household income. The penetration levels are expected to increase from 15% currently to 30% over the next 5 years.
Modern retail format can be categorized into five formats as BIRO (2001) defines; they are convenience store, mini market, super market, departmental store and hypermarket. Convenience store is small in nature, offer few products. It's concentrated in convenience goods with limited brands. Mini market is bigger than convenience store in size, but still limited in product brands. Same with convenience store, mini market product offers focus on convenience goods. Department store is bigger in nature than minimarket, with varied products. Departmental store is a large retail store offering a variety of merchandise and services and organized in separate departments. Consumer can find shopping goods along with convenience goods in a department store. Supermarket is a large self-service food store selling groceries, meats, household goods, and so on, usually on cash-and-carry basis. Hypermarket is a variation of a supermarket that offers a variety of non food items, such as appliances, clothing, and services, along with food items, in a vast space much larger than a regular supermarket, sometimes in excess of 200,000 square feet; also called superstore. The grocery items are often priced below market to draw traffic into the store; however, the grocery selection is also more limited than in a regular supermarket.
The Sri Lankan modern retail market is dominated by the Cargill's chain of supermarkets which has over 50% of the market share. There are no hyper markets in Sri Lanka to fit into BIRO's classification of hypermarkets. The modern retail market consists of five large players who are subsidiary business units of large conglermates in the country. With high focus on large volumes and low margins, the customers in the modern retail segment are benefited by having a wider range of products, including groceries and general merchandise under one roof at relatively low prices.
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Convenience stores are a relatively new concept to the Sri Lankan market, and many consumers are still associating the convenient shops with mini supermarkets. The understanding of the convenience concept with limited range of products is still not clear in the local market.
In most of the Asian region the convenience stores are plenty and available in almost all locations. The growth of the convenience stores are mainly attributed to increased car ownership, increase number of households with refrigerators and freezers, and the growth in the number of working wives. (Jeannet and Hennessey, 1988) In other words the increase in mobility growing purchasing power and the time constrains bring customers from shopping at supermarkets to convenience stores as customers are on the run and need to purchase products on the go. The wider choice of products and more competition was expected to bring higher quality and safety as well as to counter balance to rising price levels (Lipman 2003).
According to Calvin B. Lee (2002) higher customer service levels lead to greater revenue and net income. The above stated research finding elaborates the extent to which customer service can lead to the company development. In every business, the customer service is very important. Without the help of customer convenience stores will find it difficult to attract customers and retention for repeat purchase.
According to Magi, 1995 and Corstens and Corstens, 1995 most of the consumers shop at more than one outlet . Most consumers patronage two or more outlets regularly because they arrange their shopping trips from different geographical locations (Solgaard and Hansen 2003) (e.g.,on way home from work, or other non-domestic activities). Similarly different stores may be selected to serve different roles, either
by shopping occasion (e.g., monthly purchases, topping up when necessary) or by specialty (e.g., vegetables, meat, frozen foods, discount, etc.). Some consumers may even be looking for the products they prefer most or different individuals of the household may have preferences for different outlets.
Therefore to create loyal consumers one needs to understand what driver the customers to the store, however Mitchell et al. (1998) in their number of studies on store image had not identified a link between store attributes and loyalty. Garton (1995) and Bloemer et al. (1998) states that the consumers experience of the stores quality and service had relatively low level of influence in converting the consumer into a loyal repeat customer.
Garton (1995) suggests that to gain store loyalty it is important that the consumers image of the store be in line with the consumer's self image. Sivadas and Baker-Prewitt (2000) concluded that the attitudes of consumers which drive the similarity between self image and store image are linked to store satisfaction, but it does not necessarily have a direct effect on store loyalty.
According to (Solgaard and Hansen 2003) a consumer's preferred store is based on the perceived utility that they derives from the store. Consumers perceive the utility according to what they get for what they give. In retailing terminology what the consumer receives is the store's service output (Bucklin, 1966; Bucklin et al., 1996). To receive this service output the consumer will, however, incur some costs, i.e., spend a certain amount of her/his own resources in the form of time and money (Blackwell et al., 2001). As all resources are scarce the consumer will consume his resources towards the stores which they belive will maxiomise the perceived utility. i.e., offering the greatest service output per spend resource unit in the eye of the consumer. The literature identifies a number of different store values as being potentially significant for the consumer's evaluation of stores, suchas merchandise assortment, merchandise quality, service in general, personnel, store lay-out, convenience, cleanliness and atmosphere (Blackwell et al., 2001; Levy and Weitz, 2001; Bucklin et al., 1996, Finn and Louviere, 1996). The costs that the consumer might incur are determined by the price level and use of time and money resources for transportation to and from the physical store, i.e., a function of the store's location or distance from most often used starting point, (e.g., home or work).
Individual determinants such as shopping intension, attitude towards retail outlet, and shopping habits plays an important role on consumer shopping decision. Attitude towards retail outlet and shopping habits influence shopping intension. This implies that retailers should concentrate on strategies in building consumers positive attitude towards their retail so that consumers visit their retail in order to make their visits regular. Siringoringo (2009)
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PATTERNS IN CONSUMER SHOPPING AT GO GETTER
This information which was captured through the POS data collection system was analysed to find similarities in the profile of customers visiting the outlets and the type of products mainly purchased. The literature review highlighted its important to identify the main products that are looked for by the consumers need to be merchandised properly to achieve the best sales.
When analyzing the Go Getter customer profile it is evident that customers of all ages have patronized the outlets. The regular repeat customers were divided into 4 main segments: teenagers, youth, the middle aged and the elderly. Table 1 illustrates the summary of the analysis of data collected from the survey of Go Getter customers for a period of two months.
Average age segment
Dependent upon each outlet. However, a notably high number of customers belong to the middle age seem to frequent.
More skewed towards the males, conforming the basic fact that top up is less frequent as a household level in Sri Lanka.
Except for a few variations that were dependent upon the outlet location, most demand was generated to beverages, snacks/confectionary and frozen food.
Purchases are very small in quantity, bought either on the go or for topping out at homes. Most people (25% - 33%) of the customers spend less than Rs 50.
Table 2: Profile information of Go Getter customers
One of the most striking findings is the fact that seemingly lesser number of teens and youth has visited the outlets, especially teens. This is mainly owing to the fact that in Sri Lanka children are dependent on their parents till their secondary education is completed. Culturally, children leaving home takes place only after marriage and till such time parents and grown up children live under the same roof which is quite opposite to the Western countries. Within this backdrop, teens and youth often do not have an income for themselves and depend on their parents to give them cash for their education and other needs.
A higher number of the visitors to the outlet were middle aged and elderly, dominated by the males. This coined with the main products purchased beverages/snacks and confectionary shows that most of the purchases were low value products bought on impulse rather than for household topping up.
The outlets in residential areas were doing better than the outlets in commercial areas, still the product range commonly sold shows that beverages/snacks are bought more than household products, which shows that consumers still don't buy products for household topping up from Go Getter. What is very discouraging from the data analysis is the basket value spent by the consumers per visit with almost a third of the customers spending less than Rs 50 (less than USD 0.5) on an average visit.
The above findings fit into a study carried out in profiling the Sri Lankan Consumers' in 1998 by NBL revealed that one of the most noticeable differences between male and female shoppers in the country is the frequency of their purchase and the basket of goods. The findings reveal that the average female shopper tends to buy bulk, family pack sizes and tend to carry out purchasing at regular intervals. Therefore the small basket value and lack of purchase for household topping up seems to be due to lack of female consumers shopping at Go Getter.
LACK OF IT INFRASTRUCTURE
As stated by Accenture (2008), the future of retailing is going to be dependent on the factors which were not important in the past. Similarly for a chain of stores like Go Getter it was extremely important to have a IT managed inventory system. Unfortunately the Sri Lankan market provided very few support services for Go Getter, and the business had to develop all process and support structures on its own as the market did not provide. This meant that Go getter had to develop their own IT systems,
The IT system was used to deliver values to customers by helping the outlet staff to maintain proper stock of the products at the outlet to prevent a stock out situation and avoiding overstocking situations where cash flow is tied up. The Internet has brought about a revolution in retailing environment. Levy and Weitz (2001) found, purchasing via the Internet is one of the most rapidly growing forms of shopping, with sales growth rates that outpace buying through traditional retailing. But most suppliers in Sri Lanka has not moved into ecommerce which prevented Go Getter from relying completely on the IT system for product purchasing and inventory control.
The case studies of Go Getter further revel that the IT department supporting the Go getter operation was not geared to supply IT solutions to third parties as they were only focusing on developing and catering to in house solutions. There fore Go getter had to manually control the ordering process of products which depended on human accuracy to ensure outlets are stocked to a balanced required level.
In conclusion it can be stated that the development of the SME sector needs to become a national mandate. In most developed countries the SME sector is the backbone of the local economy (A. Gamage, 2003). For the SME sector to flourish in Sri Lanka, a national policy is required along with due recognition from the National Government. Until and unless the government of Sri Lanka takes on an active role for the development of the SME sector, the future remains bleak for small and medium scale start-up enterprises, who are battling out the many challenges faced in the market place.
A SME like Go Getter need to invest heavily on infrastructure development due to the lack of government support to develop the support services, specially for a new industry. Therefore a SME entering a new industry which is relatively new will face daunting challenges in a developing country like Sri Lanka due to lack of support services. Therefore to be able to face these challenges and grow SMEs will need to invest heavily on support services like IT support as well as non core activities like distribution and inventory management. The challenges are further heightened for a new industry as consumers need to be educated the concept on offer.
By being innovative and breaking away from the accepted practises the SMEs can and need to find solutions to keep the business and grow it from the inetial stages. This also means that the SME needs to keep track of the consumers and understand the consumption habits and patterns of consumers and provide incremental yet sustainable customer service levels to keep the consumers coming back to the outlet to increase repeat business. The attraction of a female clientele is key for retail outlets as they are the main person shopping in larger quantities for household requirements.
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