Posts tagged consumer buying system

Watching the aspects of consumer behavior – why people do the things they do – is a fascinating business.

Particular if you are in the “behavior management” business (advertising & marketing) like I am.

The point here is that there are differences between consumer attitudes and shopper behavior. What I mean by this is that managing what a person thinks (that’s the consumer side of the equation) and what a person actually does in store (this is the shopping side of the equation) can be significantly different.

And in recognizing this as a marketer you become one step closer to understanding how to ultimately create satisfaction (and loyalty .. the holy grail).

Misalignment between the thinking and the actual doing is ultimately going to create friction.  And friction is not good.

Anyway. I will use budget grocery shoppers as a case in point.

As consumers the budget grocery shopper attitudes are focused on value and maximizing their budget (and maximizing their shop visit/experience).

But.

As shoppers their behavior shows they actually don’t save money in store.

The fact is budget shoppers try really hard to save money. In fact, in today’s economy, they try harder than ever. But the fact is they actually don’t save money and I many cases are doing worse during shopping.

I say this because grocery stores should pay attention and understand the budget shopper.

Because many budget shoppers get frustrated when they don’t save money (and wanted to).

And these frustrated shoppers translate into ‘less money spent’ as well as an underlying dissatisfaction with the store.  All this despite the fact the store may have done everything right – clean store, wide aisles, incredibly low prices, etc.

Who are these budget shoppers?

Well. Not all budget shoppers are truly low income but we should remember that one in seven American households lives in poverty. Another one in six can afford only basic necessities, such as housing, food, and health care. Because I will end up discussing the psychological aspects of this attitude/behavior scenario I will point out that this ‘housing/food/healthcare” is what Maslow calls “basic biological & psychological needs.  And that Maslow psychological profile is possibly even more important a distinction than the true functional “spending within budget” aspect.

Regardless. These economics facts suggest that, at minimum, nearly one in three U.S. households must carefully plan its budgets and spend accordingly.

Budget allocation and spending behavior models often implicitly assume that shoppers with budgets are knowledgeable about the total price of their shopping baskets as they shop. However, because in store shopping behavior actually reflects estimating of the prices of their shopping baskets it mitigates the relationship between budget allocation and actual in-store spending.  So lets try and understand whether and how they estimate this total basket price.

Because inaccurate estimating has implications on:

-       Real consumer welfare: the shopper is maximizing neither time nor budget (suggesting the consumer is not meeting basic Maslow hierarchy need).

-       Consumer perceptions: the consumer perception afterwards is twofold (1) somehow I wasn’t smart enough to maximize my budget <or> I wasn’t smart enough to implement the budget plan I had in place (therefore attacking self esteem/self actualization) and (2) the store made me look & feel stupid (consumer & shopper dissatisfaction)

-       Retail performance: the store didn’t maximize the transaction opportunity

A study was conducted by Georgia Institute of Technology to uncover understanding how shoppers on predetermined budgets might estimate the total price of their shopping baskets and whether, when, and how they keep track of in-store spending. The study had three objectives:

-             to determine whether and when budget shoppers keep track of how much they spend while shopping

-             to understand how they estimate the total price of their shopping baskets

-             to examine the implications of estimation biases for consumer welfare and retail performance.

Methodology: The research was conducted in the context of grocery shopping, for which people shop multiple times per month and often spend 15%–20% of their income on ten or more items per trip.

The research, a field study and two laboratory studies, concluded four key generalizations about budget shoppers in grocery stores:

1. They predominantly use mental computation strategies to track their in-store spending

2. They adapt their mental computation strategy to the dominant range of price endings of items in their shopping baskets

3. Those who try to calculate the exact total price of their basket are less accurate than those who estimate the approximate price

4. Motivated shoppers are less accurate than less motivated shoppers (because they tend to calculate instead of estimate the total basket price).

The key conclusion from the research, to a grocery retailer, is that shoppers who overestimate the total basket price most likely spend less than they budgeted for––that is, they do not maximize their own utility under the budget constraint.

Furthermore, they might reallocate the “saved” money to a different (mental) account, which could entail a financial loss for the retailer.

Beyond that conclusion the study uncovered the shoppers who underestimate estimated calculations.

Shoppers who underestimate the total basket price are more likely to spend more than their grocery budget. This means they unintentionally reallocate more money to the “grocery account.” This reallocation in turn may trigger a chain of budget and spending decisions that could cause shoppers significant financial distress.

Very importantly is that a second field study demonstrated that shoppers who underestimate the total price of their basket are more likely to overspend, leading to negative store satisfaction.

Where to go from here?

The easiest thought for Grocery Retailers is to begin educating shoppers about computational estimation strategies may enable them to become more informed shoppers. In other words turning wild guesses into more educated ones.  More difficult, but the path with the highest ultimate return, is to not just educate but actually facilitate an estimation strategy in store almost to the point of “calculation” rather than “estimation.”

The benefits of exploring a solution:

Consumer Welfare: Real consumer welfare should improve, because shoppers can maximize their utility given their budget while minimizing the likelihood of spending more than they can afford.  This is true functional value to a shopper.

Consumer Perception: This is where functional and psychological meet on several levels (and Maslow hierarchy plays a role in what is important):

1. A budget consumer attitudinally has had his or her behavior match expectations. Attitude and actual behavior is aligned.
2. With alignment the shopper feels smarter translating into a higher self esteem (because they have “self actualized” a perception)
3. Consumer self actualization is typically shared with the shopping environment (I find higher value in the experience because they were able to deliver upon what I desired attitudinally)

In the end. When perceptions match reality there is a heightened sense of satisfaction.

Retail Performance: Enabling budget shoppers to accurately track their in-store spending—for example, using shopping cart scanners—may represent a win–win solution, enhancing consumer welfare and retail performance. There is a secondary “loyalty” aspect in which shoppers whose behavior is indicative of self worth and maximized utility or significantly more likely to replicate the experience (Maslow basic need & self esteem satisfied at same time).

In conclusion.

Shopper behavior analysis is not anything new. We looked at it in the 80’s when I was at JWT.  We just called it ‘the consumer buying system’ and analyzed all aspects of perceptions, attitudes and shopping behavior. I have even seen an agency self-advertisement from the 1930’s that basically outlined managing consumer attitudes and matching them with in store shopping behavior. I say all of that not to suggest studying shopping behavior isn’t important.  In fact I say it to suggest it is.  People have been studying it for years and shouldn’t ignore it if they are in the marketing business.

The retail business is multi faceted.  It is about understanding what people think and what motivates them outside of the store as well as what they think and motivates them once they are inside the store.

Ignore an aspect at your own peril.

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Source: 3/2010 Koert van Ittersum, Joost M.E. Pennings, & Brian Wansink College of Management at Georgia Institute of Technology