Market/Technolgy Post #1 How Store Location and Pricing Structure Affect Shopping Behavior

In the “How Store Location and Pricing Structure Affect Shopping Behavior”, a article written on knowledge@wharton, the authors take a close look at the shopping behavior of consumers to determine what makes shoppers choose one place over another and how retail managers can drive traffic to their stores. While the authors offer a complex explanation of consumer behavior, their message is simple: In order to improve store performance, retailers must begin to think like shoppers.

Research on retailing typically attributes the success of a store to its location. At the same time, marketing experts have focused a great deal of attention on the role of pricing in store performance, but without considering location. In this recent study, Bell, Ho and Tang provide managers with a new shopping framework that takes both criteria into account. By weighing such factors as distance to the store, customer service, familiarity with layout, product assortment and pricing strategies, a store manager can begin to predict how and where people will shop.

As a result of studying the behavior of consumers, the researchers also discovered that a tremendous amount of inertia exists among shoppers—that is, people don't switch stores easily or often. Although Bell attributes this inertia mainly to psychological factors, the finding is especially significant for EDLP stores. Once consumers have settled into satisfying the major share of their needs at one store, it is very difficult to get them to switch. Because EDLP shoppers tend to buy most of their things at one main store, the EDLP managers can take steps to retain their customers and develop a loyal customer base. A HILO store, however, is more vulnerable because people shopping at those stores generally buy smaller amounts and end up filling their needs in multiple locations.

People also develop store loyalties for particular products, according to the study. Although a consumer may do half of his or her shopping at store A and half at store B, the purchase proportion of certain products is not necessarily 50/50. For example, a person may buy 90% of his soda from one store, even though he buys half of his shopping list at another store. Stores can use advertising, promotions and private labels to create a draw on a particular category of products that causes people to perceive the benefit of buying a product at one store to be higher than it is. And, if you are able to do this over enough categories, you will eventually tip the scale so those shoppers do all their shopping at your store.

"The lesson for everyone," says Bell, "is that it is always cheaper to keep customers than to try to attract new ones. Therefore, all stores should be creative about enhancing store-specific benefits in ways that keep customers coming back."