How Store Location and Pricing Structure Affect Shopping Behavior (page 3 of 3)

Why? To make it easier and more enjoyable for the consumer to shop. Walgreen's also became more accessible by opening more than 900 stores and remodeling 500 existing locations, each time focusing on larger stores and improved assortments.

Promotions, Coupons and Private Labels

On the other hand, in order to reach more customers, HILO stores can do product-specific things like lowering prices through promotions and coupons and offering private labels. Safeway aggressively moved to expand its customer base through a carefully targeted Safeway Savings Program, which rewarded loyal customers through selective discounts. By doing this, Safeway not only brought in more customers, but it also increased their basket size by encouraging them to spend a larger fraction of their shopping budget at Safeway. As a result, the store increased its sales dramatically.

Although already known as an "Every Day Low Price" store, Costco further improved store performance by focusing only on a limited assortment of products with vastly reduced prices. The result: a 47% increase in net revenue in 1998. Continuing with the strategy, Costco has also begun offering private labels.

Ideally, a store could improve both fixed and variable factors simultaneously, but even increasing one of the components could directly improve the performance of the store.

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."


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