Consumer Behaviour of the Retail Industry - Case Study Example

nsumеr Bеhаviоur Рrоjесt Student Name Instructor Name Course Code and Name University Date of Submission The influences of the internal and external factors on consumer decision process concerning the online shopping behavior Introduction There has been a steady growth in online shopping behavior, in recent years. More and more consumers have started preferring online shopping as a great platform due to the flexibility and time saving aspect. This study of ‘Consumer Behavior’ helps to ascertain the consumer decision process, and the various influences made by the internal and external factors in the dynamic marketing environment. Essentially, a successful online retail store is not only a fine looking retailer’s website with interesting and dynamic features. Along with disseminating information, online retail store is also about creating a sustainable relationship with consumers and generating money. Retailers usually try to adopt online shopping methods without pondering of a sound business model. In this regard, they produce webstores that support the business’s brand name without taking into consideration consumer needs and expectations. A design that is user or consumer centered is very critical. In addition, understanding the consumer’s shopping behavior, as well as their needs and wants is essential. Meeting the firm’s promises offers consumers a reason to return in the future, and meeting their satisfaction levels offers them a reason for loyalty (Haubl & Trifts 2000, p. 7). Therefore, it is essential for the retailer’s website to communicate how much the store values its consumers. More importantly, consumers’ expectations and needs are not similar for all customers. This means that online retailers should take into consideration important factors like gender, age, culture and experience. In order to increase online shoppers, retailers should utilize significant time and financial resources to design, define, test, develop, maintain and implement an effective webstore. Essentially, the key drivers of online retail shopping among consumers include greater choice and variety of goods, consumers seeking greater value of money, rapidly increase usage of tablet and Smartphone devices, increasing levels of digital awareness and sophistication across all age groups, as well as increasing use of social media to drive product and brand awareness (Hou & Yu 2009, p. 2847). The industry overview The industry of focus in this report is the retail industry. The retail stores differ from other industrial firms in that they hardly produce tangible products. The industry players purchase merchandise from producers in bulk quantities for retailing to customers at a profit. Generally, the retail industry is increasingly getting mature and highly competitive. Most retailers have operated their businesses for the larger part of the century, and, therefore, they have had time of fully covering the targeted markets. In order to succeed, the retail stores must offer desirable products, while controlling costs and managing inventory. In most economies, consumer spending, on average, accounts for almost two thirds of the global domestic product (GDP) (Zhou 2007, p. 45). Thus, the trends of GPD normally indicate the health and growth of the retail sector. What is more, measures of consumer confidence assist in gauging consumer spending or saving rates, which consequently reflect the retailers’ performance. In hard economic times, consumers usually limit their outlays to required day-to-day items, which is mainly due to their lack of sufficient disposable income. In contrast, consumers are more ready to make more purchases during strong economic periods. There are various types of retailers. Customers are usually able to select where to shop from, and retailers normally differentiate their offerings through the marketing promotion activities. The aspects that set one retailer from another is the place, quality, price, quantity, as well as selection of products available. The major players in the retail industry include super-brands like Walmart, Amazon, Target, and Macy’s. The key determinant of success in the retail industry is a store’s brand strength. In this regard, a store’s brand strength is as a result of 10 different factors, including clarity, differentiation, presence, relevance, responsiveness, understanding, protection, authenticity, consistency, and commitment (Childers 2001, p. 518). Online shopping is a new trend that is on the increasing trend in the retail industry. Online shopping is a type of electronic commerce, which allows customers to make direct purchases of goods and services from a retailer via the internet by use of a web browser. The alternative names of this concept include e-shopping, internet shopping, web store, and virtual store. Online retail shops evoke the physical analogy of purchasing products and services in a retail store or shopping center. The largest online retail companies include Amazon, Alibaba, and eBay. This significantly indicates that the success of a retail store is no longer determined by the physical stores (Wang & Hsiao 2012, p. 384). This is mainly because of the fact that most customers today are experiencing a limited time for shopping in a physical store, and, thus, they increasingly demand to carry out shopping via the internet. In addition, the number of online retail stores is on the rise in the marketplace. With the increased growth of online shopping, there are increased sales opportunities in the industry. As opposed to the physical store, the emergence of online shopping means that customers can shop and make purchase orders via the internet, and the merchandise is consequently dropped on the client’s doorstep. Essentially, online customers should have efficient access to the internet, as well as a valid payment method so as to complete a transaction. In general, high levels of personal income and education correspond to more favorable perceptions of online shopping (Wang & Hsiao 2012, p. 386). What is more, increased spotlight to technology by consumers also enhances the likelihood to develop positive attitudes regarding new shopping channels. In terms of logistics, consumers usually find a product they need through visiting the retailer’s website directly or through searching among alternative retailers using the shopping search engine. After the needed product has been identified on the retailer’s website, most online retailers utilize shopping cart, which allows the consumers to accumulate many items that meet their needs. Some retail stores also allow consumers to open up an online account so as to enhance their shopping convenience. The consumers usually receive a confirmation email once a transaction is complete. The commonly used method of payment by online shoppers includes a PayPal account, credit card, debit card, wire transfer, cash on delivery, as well as various kinds of electronic money. Some of the benefits derived by consumers of online retail stores include convenience, easy access to information and reviews, as well as the ease to swiftly assess products and their prices among different retailers (Soopramanien & Robertson 2007, p. 80). Nevertheless, issues of security and fraud concerns, privacy, and lack of sufficient cost disclosures, are increasingly becoming major areas of concerns, which the industry should look for remedies accordingly. Factors affecting the consumer decision process The processes of decision making are very similar regardless of whether the consumer is online or offline. But some of the major differences include marketing communication and shopping environment. Essentially, the main approach, explaining the basics of consumer behavior has described the process of consumer buying as an activity of learning, processing information, and decision-making. These are segregated into various consequent steps, which include identification of the problem, searching for information, evaluation of alternatives, decision for purchasing, and post-purchase behavior. More importantly, a difference is often made between low and high involvement purchasing, which implies that, in reality, the actual activity of buying can be more or less consistent with this particular model, depending on the consumer’s perceived risks of purchasing (Cai & Xu 2006, p. 277). Low or high involvement degree, is also a question of consumer experience. In general, products bought for the first time, require higher involvement as compared to the frequently purchased products. When faced with a product selection, consumers are suggested to perform an internal search; for instance, relying on their prior knowledge of brands, and if necessary, an external search. The latter may comprise activities such as gathering more information about brands and seeking recommendations from relevant others. Thus, different consumers may use different decision-making strategies to make a consumption decision. Furthermore, consumers shopping online may modify or change the way they search for information to take advantage of certain unique characteristics of the Internet. For instance, the presence of new information sources such as recommender systems, intelligent-agent-based systems, and less easily accessible sources offline; for example, the opinions of a large group of consumers of a specific product, may modify the way in which consumers perform their external information search (Lee, Park & Han 2011, p. 193). When applied to the Internet, the effect of various decision-making processes on consumers’ shopping behavior leads to interesting questions. For instance, do consumers who consult and follow an online product recommendation have a less complex shopping behavior than consumers who do not consult or who do consult, but do not follow a recommendation? Answers to such questions have important managerial and theoretical implications. First, they would help retailers maximize the effectiveness and usability of their websites. For instance, if it were known that after they consult an online product recommendation, consumers usually revisit product detail pages, hyperlinks from the product recommendation page to these pages would facilitate consumers’ navigation and consequently, their decision-making process. Secondly, the Internet represents a sufficiently different retail environment where concepts such as consumer information search behavior should be revisited. In regard to online communications, when customers view online promotion or banner ads, such advertisements can attract customers’ attention and also inspire their interesting specific products. Prior to making the decision to purchase, they will require extra information to assist them out. In case they have insufficient information, they will go ahead to search via online channels, such as search engines, websites, or online catalogs. When customers acquire adequate information, then they require comparing different choices of products or services. During the information search stage, they may look for the customer comments or product reviews. In addition, they will find out the brand or company that offers them products that suits their expectations. During this stage, a well-organized structure of a web site structure, as well as attractive design are vital things to influence consumers to become interested in purchasing product and service. What is more, the nature of information sources might influence behavior of consumers. The most helpful internet characteristic is that it assists the stage of pre-purchase as it helps customers compare various options. In the stage of purchasing, sale services, information quality and product assortment appear to be the most essential point to assist consumers make decisions on what products they should choose, or what retailer they should purchase from. The behavior of post-purchase will become more essential after they carry out online purchase. Customers most times have a concern regarding the product, or they may need to return or change products they have bought (Park & Gretzel 2010, p. 351). Therefore, exchange and return services become more essential at this stage. All the five consumer behavior stages described are impacted by external factors of trust and risks. The process of search is an important component of the online shopping behavior among customers. The risk of source comes with the information search and evaluation stage, which is because the web site information may contain some mistakes. Also, some websites need customers to register prior to searching information from their website. In addition to risk of the product, consumers are also faced with the information security risk. Due to the nature of online buying, consumers take the risk since they are unable to assess the product prior to purchasing (Haugtvedt, Machleit & Yalch 2005, p. 86). Customers also take substantial risk in the process of payment, which is because they might need to give personal information, such as their credit card number, among other. Security problem hardly stop at the stage of purchase, but progresses to the stage of post-purchase since their personal information could be misused. Essentially, there are numerous reasons as to why customers shop online. For instances, consumers might purchase anything at anytime without having to go to the store; customers can get the same product or service at lower prices through comparing various websites; customers sometimes desire to keep away from pressure of having face-to-face interactions with the salespeople; and customers also desire to avoid the traffic jam within in stores, among others. These factors can easily be summarized into 4 categories, which include information, convenience, available products or services, as well as time and cost efficiency. Internal influencing factors i. Convenience Empirical research indicates that the internet convenient is among the impacts on willingness to purchase online by consumers. Online shopping is accessible by customers around the clock; as compared to the conventional stores since it is open day and night (Gao 2005, p. 153). In addition, customers not only seek products, but also the online services. Many companies offer services for online customer and make them available 24 hours. Thus, even past the official business hours, customers are allowed to ask questions; obtain necessary assistance and support, which really provide a convenience among customers. Some consumers utilize online channels in order to get away from face-to-face interactions with salespeople since they pressure or are uncomfortable while dealing with a salesperson and do not feel like being controlled or manipulated in the market. This is particularly true among those customers that might have had negative experiences with salespeople, or they only desire being free and make purchase decisions by themselves without the presence of salespersons. ii. Information The internet has really made it easier to access data. Given that customers infrequently have the opportunity of touching and feeling the product or service online prior to making a decision, online retailers usually offer more product information, which customers may utilize when making their purchases. Customers give weight mainly on the information that satisfy their needs for information (Haugtvedt, Machleit & Yalch 2005, p. 114). In addition, acquiring information from the website, customers can also gain from the reviews of products by other customers. Thus, customers can read those product reviews prior to making a decision. iii. Available products or services Electronic commerce has really made transactions easier than they have ever been, and online retails offer consumer benefits through offering a broader variety of products that they can select from. Customers can get all types of products and services which could only be available online anywhere across the world. Many companies have designed their own websites in order to offer their products online, regardless whether they have a physical store or not. Most traditional retailers sell various products and services only available online so as to reduce the retailing costs, as well as to offer consumers with wider varieties of sizes, features, or colors. For instance, Boccia Titanium has stores in a lot of states, but hardly in Connecticut. In addition, the company has a website designed to reach and fulfill the needs of the Connecticut consumers of ordering online. Likewise, Yves Rocher, which is a French company, hardly has a physical store in the United States. It has offered the website its American customers can simply add products they need into the online shopping basket and the products will then be shipped to their respective houses (Lee, Park & Han 2011, p. 203). What is more, online shopping sometimes provides plans and options for better payment for customers. In this regard, customers can decide the payment amount and date in their own convenience and preference. iv. Cost and time efficience Since online shopping consumers are usually provided with a better deal, this means that they can obtain the same products as they purchase at the physical store at a cheaper price. Given that online stores provide customers with a broad variety of products, it offers customers more opportunities of comparing prices from various websites and finding the products with cheaper prices as compared to buying from local retail stores. Various websites, for example, Ebay, offer consumer auction option or best offer options so that they can make good deals for their products. Online shopping also makes shopping practice an actual game of opportunity and treasure hunt, as well as making shopping entertainment and fun. Again, given that online shopping could be carried out anytime and anywhere, it makes the life consumers easier since they hardly have to get stuck in traffic jams, look for parking slot, wait in lines or be within a crowded store (Senecal, Kalczynski & Nantel 2005, p. 1603). In this context, customers frequently find a shop in the website that offers convenience, which can decrease their psychological cost. v. Intangibility of online products Some certain products can hardly be purchased online since online products are intangible in nature. For instance, customers are less probable to purchase clothes via online channels since they have no opportunity of trying or examining the actual product. Consumers viewing products on their computer screens can indicate a varying effect as compared to those actually viewing it in the retail store. Overall, customers cannot view, feel, hear, smell, touch, or try a product that they need when utilizing online channels. In most cases, consumers prefer examining a product first and consequently decide whether they will buy. In addition, some people tend to think that the product information offered in the websites is not sufficient to make a purchase decision (Nielsen 2010, p. 10). Online customers will be disappointed when the product information provided does not satisfy their expectations. vi. Online Service Customer service is as important as the quality of the website. Essentially, if customer services are not available, customers will consequently perceive that the company is attempting to hide something from them and that it is less committed to resolve their problems. More importantly, online stores should offer an added service value to customers, as well as have a customer channel of feedback on their website. In addition, there should be an effective interactivity customer service within the website. This can enhance customers contact with the retailers anywhere, anytime. Order status tracking, software downloading, e-form inquiry, customer comment, as well as feedback are the example that online retailers can utilize in order to accomplish their online service (Kohli, Devaraj & Mahmood 2004, p. 124) External influencing factors i. Consumer’s purchase intention Consumers purchase intention in the online shopping environment will determine the strength of a consumer’s intention to perform a specific purchasing behaviour by means of the internet. Moreover, the theory of reasoned action (TRA) suggested that consumers’ behaviour can be anticipated from the intentions that match up with the action, target and context to consumer behavior. Purchase intention means how a person intends to purchase a product or service. There are different variables like the expectations to purchase and the consideration in buying a good or service can be used to measure the purchase intention of a consumer. In addition, when a consumer intends to involve in an online transaction, that is the online purchase intention. When the process of information retrieval, information transfer and product purchase are taken place via internet, it is considered as online transactions (Wolfinbarger & Gilly 2000, p. 1364). The information retrieval and exchange steps are regarded as intentions to use a website. ii. Individual demands There were several demands for consumers to shop online. One of the demands is that online shopping can save time for consumers. In today’s modern cities that concern time efficiency, saving time is important to people in all aspects includes shopping, and thus more and more people in Hong Kong choose online shopping rather than traditional shopping. Besides, the time of online shopping is flexible, which allows consumers to carry out online shopping activities anytime at any place (Soopramanien & Robertson 2007, p. 77). Almost all the online stores operate 24hours basis, which provide much convenient to consumers. iii. Consumer’s attitude Consumers who are willing to try new things have a greater ability of risk bearing as compared to the conservative consumers. Given that the online shopping risk is thought to be higher than the traditional shopping model in physical stores, nearly all online customers have a personality of willing to endeavor new things (Yan & Dai 2009, p. 93). What is more, consumers are able to shop online more and more efficiently due to the rapid development of internet technology which provide a more and more advanced online shopping platform to consumers. There are three significant factors that affect an individual’s attitude and intention to use new technology; they are the ease of use, usefulness, as well as enjoyment. Studies have also found that online consumers shopped online were related to their need for excitement and uniqueness; positive sociality; online deal searching, and involvement with a product class (Kim, Fiore & Lee 2007, p. 104). Their motivation to shop online was associated with fun. iv. Dissatisfaction with online shopping The past online shopping experiences among customers normally impact their purchase decision in future. For example, in regard to online shopping, they might get undesired products or poor quality products, which mean that products do not match what is expected or described. In addition, the product could be fragile, not functioning, or wrong. Some online retailers might not consent to refund such products even after understanding that they did not meet the customer’s expectation. Delivery is also another important thing that often affects online buying decision (Häubl 1999, p. 479). For instance, delayed shipping often makes customers turn back on online shopping. v. Social contacts While some customers like being free from the pressure of salespeople, most online shopping feels difficult to make choices. Thus, they get frustrated when they lack experienced and professional assistance from a salesperson. Furthermore, some consumers are very connected socially and rely on opinions of other when making purchase decisions (Park & Gretzel 2010, p. 349). There are also consumers who sometimes shop at traditional stores because they want to fulfill their entertainment and social needs which are limited by online stores. vi. Security Given that the modes of payment in online shopping are very likely done with credit cards, consumers most times pay attention to retailer’s information so as to protect themselves. In addition, consumers tend to purchase products and services from the retailers they trust, or brands that they are already familiar with. Trust of online sites is among the most vital issues affecting success of online retailing. Security appears to be an immense concern preventing customers from online shopping. This is mostly because they worry that online stores can deceive them or even misuse their private information, particularly their credit cards. For example, studies indicate that 70% of the US web users are very worried regarding transaction security, as well as the misuse of personal consumer data (Yan & Dai 2009, p. 98). vii. Web Trust towards online shopping environment Buyers and sellers develop a degree of trust between each other. Sellers should trust in their customers in that they are able to choose goods and services, purchase them, and pay for them. On the other hand, customers should trust in sellers in that they can provide their needed goods and services and are able to distribute (or deliver) them if necessary. To maintain the business relationship and reach the goal between sellers and buyers, trust is a necessary factor. When people trust in each other, it means that they keep their promises they made during their business relationship. In the virtual market environment, buyers usually see pictures of their goods to be purchased, not the goods themselves. Many promises about the quality of goods and services are made. In the e-commerce environment, since it is very hard to take legal actions against sellers or customers in case of any fraud or dispute; therefore, trust is highly important in conducting e-business transactions. When the consumer placing an order on the internet which he or she needs to provide financial information and other personal data, enough trust is needed to exist for the transactions to carry on (Gao 2005, p. 153). Therefore, trust can be regarded as the foundation of trade, and it is crucial in many economic exchanges, especially in the online environment. The success of e-commerce needs consumers to trust the virtual environment. Essentially, there are four main factors that are components of web trust, which include transaction security, website property, navigation functionality, and personal variables. In order to increase consumers’ trust towards an online seller, managing the general image of the web site is more important than emphasizing the functionality of the site. In addition, refund policy and risk freeness of online transaction affect consumers trust, as well. The trust will also gain through positive experience between online buyers and sellers. Summary and conclusion Online shopping is an imperative model of business in e-commerce. For the online retailers to effectively attract and retain online buyers, then they require knowing the issues online purchasers utilize when deciding their online purchase. To better comprehend the shopping behavior of online customers, the retailer should improve and create effective marketing programs for their customer. There are a couple ways that retailers can do in order to persuade consumers that do not do online shopping to become interested, and, ultimately become potential customers. After looking at main motivations that enhance customers shop online, online retailers should significantly consider those issues and try to satisfy their customers whenever possible. What is more, the major reason impeding customers from preferring online shopping includes slow shipping, unsecured payment, unwanted product, bothersome emails, spam or virus, as well as technology problem. Retailers should make themselves aware of these major problems result to dissatisfaction among customers shopping online. Therefore, understanding what makes some consumers hesitate to online shopping, retailers should establish ways of reducing all negative aspects so as to attract and retain more customers through building securer and trustable website, useful and attractive website, offering online quality services, and offering additional shopping options. 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