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Wm Morrison Supermarkets (Morrison) is UK’s fourth largest supermarket chain and is primarily engaged in the operation and management of a chain of supermarkets across the UK. The company in early 2004 acquired one of its larger competitors, Safeways. The company operates primarily in the UK. It is headquartered in Bradford, UK and employs about 150,000 people.
However, this company faces a collapse in profits that will see it fall into the red for the first time in its 106 years history. Although, this company has many difficulties and continued problems relating to the integration Safeway, research shows that Morrison does not really understand consumer behaviour.
The purpose of this report is analyse the importance of consumer behaviour in marketing decision-making and recommend how Morrison can try to better understand its customers.
The importance of understanding consumer behaviour
“Consumer behaviour is the dynamic interaction of affect and cognition, behaviour and environmental events by which human beings conduct the exchange aspects of their lives.” (Olson & Peter, 1994, p.13) Companies are interested in consumer behaviour because they can develop marketing strategies to influence consumers to purchase their products based on consumer analysis. The success of a company’s marketing strategy will depend on how buyers react to it. To find out what satisfied customers, marketers must examine the main influences on what, where, when and how customers buy goods and services (Dibb, Simkin, Pride & Ferrell, 2001). By understanding these factors better, marketers are better able to predict how consumers will respond to marketing strategies. Ultimately, this information helps companies compete more effectively in the marketplace and leads to more satisfied customers.
Consumer decisions can be classified into three categories (1) routine response behaviour, (2) limited decision-making and (3) extensive decision-making. A consumer uses
routine response behaviour when buying frequently purchased, low cost, low risk items that require very little search and decision effort (Dibb at el, 2001). Customers for Morrisons and food retail industry are in this category.
Which elements of consumer behaviour do Morrison need to understand?
Morrison faces a collapse in profits of £74m into the red in the six months to 24th of July, compared with the £122 million profit last year (Finch, 2005). Morrison merged with Safeway and spent £3.3 million to complete this acquisition. However, the main issue for Morrisons is loss of customers and loss of their main investors. 4% of shares have been sold off. Therefore, shareholders are worrying about losing their main customer base the top socio-economic group AB1 because the Morrison strategy is not providing high quality ready meals which the AB1 socio group wants. Another criticism is that Morrisons after consolidation appears to have such a limited product and price range. A UK consumer body has criticized Morrisons over the healthiness of their products. Consumers have become more health conscious however, Morrisons own label brands contain more salt, fat and sugar than other retailer products (Field, 2005). The AB socio-economic group pays more attention to health issues and spends more money on healthier products. This may be another reason they are losing the AB1 socio group customers. ABs are forecast to increase in numbers by 36.8% of the population between 1998 to 2007, to 13.4 million adults (Mintel, 2004) therefore, losing the AB group is a major threat to the company’s future. All these issues indicate that Morrisons needs to be more customer-centric.
For the food retail industry, market segmentation is one of the most important factors in consumer behaviour analysis. Market segmentation is the process of dividing markets into groups of similar consumers and selecting the most appropriate groups and individuals for the firm to serve (Olson & Peter, 1994). Consumers vary in terms of product knowledge, involvement and purchasing behaviour. The Five-Stage Model of the Consumer Buying Process is described by Kotler as a model of the ‘typical buying process’ (2005) and is a way to explain how consumers make their purchases. The five-stage process includes problem recognition, information search, evaluation of alternatives, purchase and post-purchase evaluation. However, a consumer does not necessarily go through all the steps and can in some cases even reverse the order (Kotler, 2005). When a consumer buys a low-involvement product that is considered to have a low risk s/he usually has a preferred brand and will stick to this, even though there might be a broad selection of other brands. In that case the consumer goes straight from the problem recognition stage direct to make the purchase decision, skipping the information search and evaluation of alternatives (Kotler, 2005). There are also several other situations where this model does not fully apply, such as when consumers make spontaneous purchases, are under a time constraint or have a certain attitude towards the product. Companies find it difficult to control the consumer buying decision process, however, they can get hints from consumer segmentation analysis because marketers’ group consumers are similar in some dimensions therefore a particular product will appeal to and satisfy them better. Olson and Peter (1994) identified five major types of segmentation including geographic segmentation with bases including city size and population. Companies can research areas in order to find out the social make – up of the area then select suitable products to match the social make – up. For example, the majority of Japanese people living in London live in Golders Green, St John’s Wood and the Acton areas, therefore the company can offer Asian or Japanese products in nearest branch. If the company knows the number of people living in particular area, it will help it in considering whether to open a new branch or not as the case may be. Demographic factors such as age, sex, race, ethnic origin and family life cycle can also be considered. Socio-cultural segmentation can be categorized into four major areas (1) roles and family, (2)reference group, (3) social class and (4) culture and sub-culture. Psychographic segmentation includes motives, learning and attitudes. Behavioural segmentation looks at brand loyalty and usage rates. Morrisons have to link all these elements when considering their marketing strategies.
Consumer needs and wants change all the time in context with the issues raised above. The next stage for the company is to analyse the marketing mix based on consumer segmentation analysis. The marketing mix consists of product, price, promotion and channels of distribution. These are primary elements marketing managers can control to serve consumers. The aim is to develop a consistent mix where all the elements work together to serve the target market. Selecting target markets and developing marketing mixes are related various tasks.
These are the important elements that Morrison should be considering if it wants to improve
Ø How many variations, models and sizes of the product are needed to satisfy the various target customers.
Ø In order to launch new own label products, what types of packaging and labelling information would best serve consumers and attract them to purchase the product.
Ø How much are consumers in a target market willing to pay for a particular product?
Ø What kind of price range is needed for that particular area.
Ø In order to achieve a successful advertising campaign, the company need to know which would be the best media format for reaching the target market.
Ø What image should advertising try to create about the company.
Ø What types of distribution channels would the consumer prefer to purchase a product in? Stores or other channels?. Morrisons is not currently offering online shopping. However, competitors such as Tesco, Sainsbury and Waitrose all offer online shopping and their sales of ecommerce are rapidly increasing.
Ø What kind of atmosphere might influence consumer preferences? Store layout, signs and display formats all influence consumer cognition.
According to market researchers TNS, around 85% of UK households have at least one loyalty card (Shabi, 2003). Tesco launched first loyalty card in UK in 1995. Today, the Tesco Clubcard has 10 million active households (Mesure, 2003). There are two main reasons companies to issue loyalty cards. The first reason is consumers who have loyalty cards literally become more loyal and therefore become repeat customers. The research shows that when consumers were given a choice between two stores, they were more likely to shop at the one where they could earn rewards. The second reason is that companies can analyse consumer behaviour via the loyalty card database. Each time the card is swiped, companies get information about what customers bought, where and how customers paid. All this goes into a databank profile of individual purchase history. The data gained from each transaction can turn companies into “customer-centric” businesses. In addition, when the people signed up for the card, they gave personal information about their address, how many people live in the house, employment status, number of children and so on. Companies can analyse consumer segmentation based on this database.
In addition, retailers use loyalty card knowledge to find new markets, such as planning new range rollouts and managing fresh food. In the process they can save a fortune in costs. Another benefit is companied may save in advertising and outsourcing market research costs because now the company has its own database to analyse the individual customer.
UK food retail industry is one of the most competitive in the world and also oligopolistic in nature with the top four or five accounting for around 60% of the market (Shabi, 2003).
The focus of customer relationship management has evolved from customer satisfaction to the creation of values for the customer. It is important to look at customers from the customers’ point viewpoint and not from the product or multiple channels. Consumer behaviour is affected by many uncontrollable factors therefore issuing loyalty cards can help in understanding consumer behaviour.
Morrisons is now facing severe problems. It has to become more customer-centric in in future in order to survive. Morrisons is poised to make a U-turn on its decision to shun
loyalty schemes, and is in talks with suppliers about possible options. In the past, Sir Ken Morrison, has said that the company would never offer a loyalty card as customers are interested in ‘pounds not points’. However, it is now believed that the combination of added value for consumers and the useful data that can be gathered has persuaded the supermarket to introduce a loyalty scheme. Secondly, using this database to analyse consumer segmentation can help match consumer needs and wants. Thirdly, this database can be used to create a new marketing mix strategy in terms of the right product at the right price through the right channels and promoted in the right way.
Dibb, S., Simkin, L., Pride, W.M & Ferrell, O.C. (2001) Marketing Concept and Strategy, 4th Edition, Houghton Mifflin Company, Boston
Field, J (2005)
First Safeway became Morrison, is change driving shoppers away?, Sunday Herald, Glasgow, 3 April, p.5
Finch, J (2005)
First loss at Morrisons but Sir Ken intends to stay on for three years, The Gardian, London, 21 October
Mowen, J.C & Minor, M (1998)
Consumer Behaviour, 4th Edition, Prentice-Hall Inc, New Jersey
Olson, C. J & Peter, J.P (1994)
Understanding Consumer Behaviour,