Why Customers Would Rather Have a Smartphone than a Car

Relationship Retailing as an Opportunity

Cor Molenaar

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9780367833022
• eBook ISBN: 9781134765263
• Topic: Business
• Subtopic: Business General
• Index: Business

Why Customers Would Rather Have a Smartphone than a Car explores some of the fundamental changes in consumer behaviour: Why do we buy less in shops and more on the internet? Why do we spend more on gadgets, smartphones and apps and not more on food, holidays or clothing? Why do most business people only look at symptoms and not the causes of changing customer behaviour? The new generation buys differently from the baby boomers; they have different priorities and preferences. The internet has changed us in the way we think, act and communicate. Whilst many retailers now understand the need for change, few of them have established convincing or sustainable models for the future. Cor Molenaar argues that by understanding the drivers behind these new consumer behaviours, retailers can identify the opportunities this represents and adapt their offering accordingly. The kind of relationship retailing he advocates involves the way the retailer interacts with their customer; the new environment that they need to sustain along with their ability to relate customer data, technology and new services. The author interweaves examples from traditional and virtual retailing with his research on consumer psychology and buying behaviour to offer a sophisticated and at times challenging guide for all those involved in retailing, as well as those responsible for planning and designing social and retail space.

PART 1
The World We Want

An ideal world that fulfils our individual wishes

A world of low costs and a wealth of services

A world where each of us is at the centre

Chapter 1
Look Now … Buy Later¹

During the holidays you enjoy spending your evenings ambling past the stands and shops in the picturesque spot where you are spending a week or two: somewhere in the mountains, by the sea or just in your locality. You are relaxed, free of stress since this is, after all, a holiday, and you are ready for something nice and cosy. Lamp-lit shopping streets and market stalls, the romantic illumination of a church, harbour or other ‘must-see’ attraction. You sniff around, rummage through all the stuff you never thought you would want to buy, and yet you buy it. What do you want it for? What will you do with it? It doesn’t matter, you are happy with your purchase and when you get home you can always give it to someone as a gift.

After a delightful shopping spree, you look around for an outdoor café to have a drink or a bite to eat: Some local cuisine, of course, and maybe a refreshing drink. Life smiles upon you, and you are wonderfully relaxed. The shops and the cafés have clever ways of appealing to this happy tourist. Profit margins are ramped up by overcharging and through the game of haggling, though it must be said that we are not as good at it as the Chinese, for example. This kind of shopping is pure emotion, the Internet is far away, and the sense of satisfaction is here and now.

When we travel to distant lands, we have similar experiences. Shops in Asia or Africa are still of the old-fashioned type we heard about from our parents and grandparents; tiny little shops run by the owner or a real entrepreneur. They take an active approach to selling, and address customers directly if they can see from a mile away that they are tourists. Where are you from? Holland? Van Persie, Robben – good team! They will say anything just to be nice, for customers will buy things from nice people.

But shopkeepers are also happy to wait for their regular customers, people they know from their own street, neighbourhood or village. The shops make just enough profit to cover their owners’ basic necessities. To succeed, the shopkeeper has to work long days, but that’s just the way it is. Life unfolds on the street and in your shop: waiting for a customer is also a form of social cohesion with your neighbours, after all. A little chat, a game of cards or a board game, perhaps, a lot of time spent waiting and at the end of the day checking to see if enough money has come in to survive another day. The shops compete with each other for location, social cohesion, salesmanship and perhaps service as well. There is a large range of products on offer, often consisting of identical items, and the shops are in close proximity to each other, highly concentrated. Yet shopping is such fun for all the tourists. The shopkeepers know each other and are happy if business is good. Everyone wants to build up a little nest egg and social harmony between the various merchants is very important in those types of places.

Changes in Buying Behaviour

This kind of approach has in fact always been the rationale behind shops. The core values that determine the success of a shop were location, selection and entrepreneurship, along with customer loyalty. Shopping and getting one’s groceries was something everyone had to do, but it could also be a social and sometimes even an inspiring activity. It’s a nice way to spend some time with other people and chatting with neighbours. Thanks to growing prosperity in the past four decades, more and more shops have opened up, all with the same core values and the same structure. New shops appeared on shopping streets, which kept on getting longer. The shopping precincts expanded to include adjacent streets, making it possible for ever larger (core) shopping districts to emerge. Municipalities and project developers also fostered the establishment of new shopping precincts, based on calculations of capacity in a given place or region. Active branch policies (to manage the location of a variety of shops) led to the establishment of healthy city centres. The (local) government played more and more of a governing and regulating role and became ever more involved in planning policy, from issuing permits for shops and terraces in shopping streets to regulating opening hours. This increase in the activities of a municipality has been linked to ever higher burdens on shopkeepers and owners of commercial buildings. As long as people needed to go shopping, everything was fine, since customers were, after all ‘captives’ with no choice but to go to the shops. But now that this need is decreasing, with the rise of other options for making one’s purchases, will the shopping precincts survive in their present form? Do we still need all those shops, and are shopping districts attractive enough for shoppers today to still want to visit them? At first, changes in buying behaviour emerge quite slowly. In addition to all the social changes, it was mainly the technological changes that influenced consumer behaviour.

First of all, customers have become increasingly mobile, so they can choose to go shopping in many other places. As a result, shopping centres have to be easily accessible. New shopping malls have been built close to motorways and fitted with large car parks so that customers can get to them easily. Next, we have seen the rise of commuters, and with them a clearer separation of home and work. In fact, people increasingly tend to go shopping near their places of work or on their way home. Shopping centres have been opened near office buildings or at other venues that attract large numbers of potential buyers: a football stadium with adjacent shops is one such example.

Initially, this development did not present any threat to existing shopping precincts, as there was economic growth; consumer spending was increasing and there was demand for more non-food shops, preferably with a touch of luxury.

These developments were all based on the same structure: a collection of shops, a balanced branch policy, rigid opening hours and a strict set of rules compiled by the local authorities listing what shops can and cannot do. To this day this is still the case, only the circumstances have changed considerably.

Can shops be open when customers want to shop, or do customers have to shop when the shops are allowed to open?

Over the last decade, it is the Internet that has made its greatest mark on buying behaviour. The Internet is a source of orientation and information, certainly, but is also a tool for buying directly, because all sorts of new devices such as tablets and mobile phones can access it. This has proved to be a catalyst for the changes in buying behaviour. Falling turnovers, pressure on profit margins and a critical, well-informed customer all present problems for the current retail sector. But the falling amount of disposable income has also led to a more price-conscious consumer, and thus discount shops have been doing well.

Impact of Internet Sales on Shops

Developments in the existing, physical shop structure and where new shops and new shopping centres will be built no longer depend solely on the economic basis of a location or region. It is a fact that consumers have flocked en masse to the Internet to do their shopping, and also increasingly use the web to find information. So, it is no longer the case that one has to go to a shop in order to make a purchase, but one can do so if one wishes. The Internet has become a threat to existing shops, shopping precincts and the solidity of the existing structure. Natural growth and shrinkage are part of the life of human beings and of organisations. And so a decrease in turnover and a fall in the need for shops and for shopping surface area is a natural process. But what about if this shrinkage is further accompanied by a less functional structure, which we can see, for example, among the less successful shops, with fewer customers and more vacancies? If the offer no longer matches demand, as is clear from the constant discounting of products in shops by up to 70 per cent? Can one then simply conclude that there is less need for shops or is there perhaps a need for different sorts of shops or a different shopping experience? Isn’t the solution in such a situation to move from a supply-oriented policy to a customer-oriented one? To do so, one needs to understand customers’ motivations when making a purchase, and to research the underlying causes of the new buying behaviour, the new approach to shopping.² Customers must once again be motivated to go to a shop and to buy at prices that still make a decent profit margin for merchants possible, otherwise there is no future for physical shops. Existing shops are under increasing pressure and customers are turning more and more to buying online. It is also true that nowadays the reasons for opting to make a purchase in a shop differ from those of the past. No longer is the decision driven by reason (I have to go to the shop), but it is emotion and inspiration that have become the most important reasons for shopping. Falling turnovers, lower margins and excessive stock are the best evidence of this.

WHAT IS THE BASIS FOR THESE CHANGES?

The changes in buying behaviour and in the retail sector have an underlying cause. Of course the Internet and technology are important factors, but that cannot be the only reason. Technology has to be applied and used. There have been enough technological developments that were never accepted and therefore failed. To determine the basis for the current changes, three factors are of prime importance:

• Human factors. Why the Internet is now being used and people are prepared for change.

• Technical technological factors. Why are businesses using this technology in particular in order to stand out from the rest?

• Socio-demographic factors. Pressure on leisure time and other options for how to spend our free time. There are ever more single-person households and greater priority devoted to hobbies and social activities.

Underlying these three factors of change is the relationship between human activity and technology. What are the consequences of the reciprocal influence of human intelligence and the application of the technology (singularity)? Are our brains not being rewired by the Internet, giving rise to new forms of behaviour and different needs than, say, even five years ago? All these factors mean that it is not sufficient to simply defend the old ways of doing things, without considering the opportunities for change. This is as true for shops as it is for municipalities and interest groups.

1 Extensive research into customer behaviour and preferences in the Netherlands was conducted by Cap Gemini (2014) as part of an international study titled Digital Shopper Relevancy Research 2014.

2 See Molenaar (2010).

Chapter 2
Human Factors as an Accelerator of Change

Most of the issues that face shops stem from their customers, who have alternative shopping choices. A number of factors are at play here, including demographic, psychographic and personal motives. All of these factors are influenced by developments in technology, such as computer capacity, accessibility of information and the development and use of novel devices.

Demographic factors include the age profile of the population of a given area, its composition, the presence of ethnic minority groups and the proportion of males to females. Young people shop differently to old people. Young people adopt new technologies quickly, whereas old people maintain a traditional approach to shopping. These two groups clearly demonstrate different behaviours, but said behaviours can also be the result of education, profession, marital status, living situation and gender. Insight into the structure of the population is key to mapping out shopping facilities, but the related group behaviours and motivations behind them are equally important indicators of change.

Psychographic factors are more concerned with personal circumstance and the distinguishing behaviour of one individual or one target group. Personal preferences, lifestyle choices and general behaviour fall under this category, but can only be measured if they are recorded by the customer in one way or another. This is where Facebook accounts represent a rich source of information, revealing one’s preferences (Likes), behaviour and actions, which together help form an individual’s psychographic profile. Not surprisingly, Facebook gathers a vast amount of information regarding purchasing preferences and predicted buying behaviour. Such external information regarding behaviour and interests can be combined with buyer information held by the webshop or retailer to paint an evolving image of the customer. When socio-demographic factors are added into this mix, it becomes possible to get a far better steer on buying patterns of a particular target audience. The customer, the individual, has quite literally become King as far as the direction in which shops today will develop is concerned. This signals the end of a supply-driven economy and the beginning of a demand-driven one – a shift, which leads to the structural changes, or disruptions, I will discuss later on.

Socio-demographic factors are what help create a profile of a particular target audience group. For individuals, psychographic factors and (buying) behaviour are what make profiling possible. These details are used as ‘matching criteria’ for the specified target group. If someone demonstrates the same socio-economic profile as the individual about whom we know everything, that person can be approached in a very precise manner. Be it via traditional media such as direct mail or email, or via direct messaging on their own websites or different websites. In the future, however, online and offline communication will be far more immediate and take place closer to the moment of purchase itself. Facebook and Facebook information is of tremendous value to the buying process and to customer recognition.

On the web, this exercise takes place in the form of behavioural analysis, but its practice is very sporadic in physical shops. The combination of (big) data and a mobile phone with location services enables physical behaviour to be led in the way described above. The battle towards mobile hegemony becomes a battle between Google and Facebook based on big data and client recognition.

Technological Factors

Technological factors revolve around a person’s or a group’s capacity to adopt new technology. This is largely reliant on the opportunities available to apply the new technology (structural reasons). With an increase in opportunity (i.e. growth in the number of apps and websites out there), people’s acceptance of the Internet also increased. The uptake of the Internet could be clearly defined by age group, with the younger audience adopting the phenomenon first. But behavioural adjustments to accommodate new possibilities are also a considerable factor. Where previously there was talk of consumer pioneers, then ‘early adopters’, what counts nowadays is the ‘first mover’ principle: who accepts the new applications and who is prepared to modify their behaviour accordingly. This ‘early adopters’ group gives a good indication of what can and what will happen, hence the emphasis on young people’s reactions to the launch of new applications or devices, such as a smartphone or smartwatch. This group is effectively a pilot group that determines the potential success – or failure – of a device. The fact that young people as a group are volatile and quick to change their views is only a good quality for a test group to have. Behaviour at this stage also demonstrates the amount of resistance there is. Other, often age-related groups, will take the lead from the youngsters, but trail somewhat behind. What emerges is a nice curve of the acceptance behaviour, but also the chance to stimulate demand and usage. Knowledge of the ‘first mover’ is of utmost importance to manipulate the ‘slow movers’.

Technological factors also embody the ability to break through structural constraints. Structures are at play within society, our behaviours, within the spheres of home and at work, within the private sphere as well as in a trade environment. Structures provide security and guidance. They make it easy for us to predict what’s going to happen and what’s expected of us. The challenging of any structure almost inevitably leads to uncertainty and thus resistance. Examples from a private sphere would be a house move, divorce, the arrival of a new baby or redundancy. But the same principles apply in a commercial context, where most change takes place within a pre-existing structure. Resistance to change in a retail environment is based on this same uncertainty; developments are stalled because they act against the interests of a shop, shopping area or municipality. This attitude essentially smacks of disrespect towards the customer. To deny development and fail to react to customers’ changing bu...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Figures and Tables
• About the Author
• Introduction
• Part 1 The World We Want
• Part 2 The World We Get
• Part 3 Learning From Practice
• Bibliography
• Index