Impulse buying: Modeling its precursors

Executive Summaries

This section provides a concise, nontechnical summary of each article in the current issue of JR focusing on its strategic implications for management.

Impulse Buying: Modeling Its Precursors SHARON E. BEATTY AND M. ELIZABETH FERRELL

Impulse buying is a pervasive aspect of consumers' behaviors and a highly important concept to understand from a retailer perspective. This topic has been examined for more than 30 years, but is still fraught with difficulties and inconsistencies in definitions and data collection approaches. The primary objective of this study is to articulate and evaluate a set of important antecedent variables that affect the impulse buying process. We identified a set of exogenous variables that influences the process, including situational variables (time availability and money availability) and individual difference variables (shopping enjoyment and impulse buying tendency). Further, we identified a number of endogenous variables involved in the process, including positive and negative affect, in- store browsing, felt urge to buy impulsively, and finally, actual impulse purchasing. We measured these variables in a mall setting at two points in time--prior to and following the respondent's shopping trip.

Based on the collection of data from respondents, our final sample size was 533. One- hundred and one of these respondents had made a purchase that met our definition of an impulse purchase, while 52 made what we classified as an unplanned (but not impulsive purchase) and 380 did not make an impulsive purchase. We assessed our model and hypotheses with LISREL analysis. The model fit within established parameters and twelve of our fourteen hypotheses were supported.

One important set of findings revolves around in-store browsing. That is, one's available time and one's impulse buying tendency positively influence in-store browsing, which in turn positively influences one's felt urge to buy, which influences the actual level of impulse purchasing. The concept of in-store browsing is and should be important to retailers because the more a shopper looks around and is exposed to items the more purchasing that is likely to occur. Retailers could influence time thought to be available to the consumer perhaps by making the shopping trip more efficient, i.e., by

Jounal of Retailing, Volume 74(2), pp. 161-167, ISSN: 0022-4359 Copyright © 1998 by New York University. All rights of reproduction in any form reserved.

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aiding the consumer in finding his or her planned items more quickly, thus leaving more time for browsing.

Further, retailers could encourage high impulsive shoppers to stay longer in their store. They must first be located, however. In another study we conducted, we learned that impulsive tendencies derive at least partially from product involvement. Thus, retailers could locate involved consumers and encourage them to shop more often or longer. Involved consumers are most likely those customers who already frequent the store, belong to customer clubs, attend fashion shows, etc. These individuals could be targeted for special promotions, sales contacts, and events. The ending results will be higher impulse purchasing and higher overall sales.

Consumers' perception of the money available to them is also influential in the process. Perceptions of greater availability tend to reduce the potential for negative feelings about the environment (due to frustration with not being able to afford the items encountered) and to produce more positive feelings while shopping. The positive feelings, in turn, produce more urges to buy impulsively and feelings of greater financial resources also directly influence whether these urges are fulfilled. Perceived money available in some consumers would be influenced by the recency of their paycheck or other financial windfalls--thus, retailers should tie their sales events to paydays or tax return periods. Retailers can also make money more available through easy credit lines or discounts tied to opening a charge or buying something on that particular shopping trip. Obviously, retailers work hard at pro- ducing positive feelings in the store, but their importance can not be underestimated. Also, positive feelings in the store seem to just naturally accrue to customers who like to shop. People browsing longer feel better in the store and should be encouraged to browse by interesting displays and helpful salespeople. Music, beautiful settings and other atmospher- ics may also increase one's desire to browse and increase the positive feelings felt in the store.

From the retailer' s point of view, one of the concerns with the forces that affect impulse buying is that many of them are not directly controllable. Nevertheless, many variables under the retailer's control may directly influence the primary forces at work. For example, urges to buy are experienced when consumers are in the store for a period of time, see wide selections of merchandise at a great price, and/or exposed to helpful suggestions by friendly salespeople. These are variables the retailer can control. Retailers need to make the overall shopping experience positive, because impulse purchases occur by happy shoppers much more frequently than by shoppers seeking to bolster a bad mood.

Happy shoppers are both born and made. The challenge is to find the ones who are made and get them in the store more often and then, to make all shoppers happy once in the store. These are basic challenges retailers can meet but sometimes don't. For example, if merchandise is laid out poorly and the consumer must search for his or her planned items then there will be less time to browse for potential impulse items and more frustration experienced in the entire process. Finally, the lack of adequately trained and rewarded sales people may be the most significant problem retailers face. Motivated sales people can aid the shopper in finding his/her needed items more quickly, giving them more time to browse for other items, which will, in turn, to produce more sales for the firm.

Executive Summaries 163

A Discrete Optimization Model for Seasonal Merchandise Planning STEPHEN A. SMITH, NARENDRA AGRAWAL AND SHELBY I-I. MCINTYRE

A key responsibility for buyers in retail chains is developing and updating seasonal plans for the merchandise they manage. Since seasonal planning is centralized for most chains, the impact of these decisions is measured in millions of dollars. The plan consists of a promotional schedule that specifies the advertising and promotional markdowns for each merchandise program (or "product") within a particular class for each week of the season. Since time of the season, holidays and the spacing of promotions affect sales, the timing of ads and markdowns is important in addition to their magnitude. Largely due to the com- plexity of forecasting sales and evaluating alternative plans, buyers generally copy a previous year's plan with minor modifications, as opposed to experimenting with novel and potentially more profitable plans.

This paper develops a methodology for optimizing the promotional calendar for a class of products that have common promotional constraints. It assumes that advertising features and markdowns are each chosen from known sets of alternatives. Base sales rates, seasonal variations and promotion responses, which can be estimated from historical sales data, are combined to predict the weekly sales that would result from any combination of markdown and advertising at any time of the season. Uncertainty is included by specifying demand scenarios, which subsequently become known after some weeks of sales have been observed. An optimization model is then used to determine the seasonal plan that maxi- mizes the total expected gross margin, subject to the budgetary constraints on advertising and promotional markdowns.

To illustrate the use of the model, it was applied to men's casual slacks products at a promotional department store chain. Historical sales data from previous years for these products were used to calibrate the model. Discussions with buyers were used to specify limits on promotional resources and to formulate constraints on the ability to modify the promotional plan. Comparisons indicate that greater flexibility to revise the plan results in higher initial inventory levels and higher expected profits for the chain. Profit was generally more sensitive to changes in ad resources than markdown resources because each unit sold on markdown has a reduced profit margin. Greater ability to hedge tended to delay markdowns, but sufficiently high seasonal factors can make markdowns attractive early in the season.

The optimization model can contribute to the retail seasonal planning process in four general ways. (1) It provides an upper bound for the gross margin that can be achieved by any seasonal plan. (2) It tests the feasibility of achieving prespecified unit sales and reve- nue targets for given promotional constraints. (3) It estimates the incremental impact of changing promotional resources. (4) It provides insights regarding the general features of optimal plans. Imbedding the seasonal planning model into a computer based decision support system facilitates the identification and evaluation of seasonal plans that differ greatly from previously used plans, a task that buyers find particularly difficult. Consequently, the model can also help the buyers generate new plans if promotional resources change signif-


icantly. Thus, whether or not a buyer implements the actual plan developed by the model, it provides useflil information and insights. This paper demonstrates the feasibility of seasonal plan optimization and, it is hoped, will stimulate flirther research on this topic.

A Model of Consumer Perceptions and Intentions for a Supermarket Retailer NIREN SIROHI, EDWARD W. MCLAUGHLIN, AND DICK R. WlTTINK

Retailers recognize the need to understand customer motivations, perceptions and intentions. They also experience an increasing need to use strategies that are focused on retaining and attracting the right customers. But it is unlikely that a strategy designed to attract customers is also the most effective for retaining current customers. Since there are important cost and demand advantages associated with having loyal customers, we study the store loyalty intentions of current customers of a supermarket retailer. Using Partial Least Squares we estimate the relationships among constructs, such as the retailer' s service quality, merchandise quality, price, and perceived value, as well as the perceived value of the best competitor, and these constructs' impact on current customers' store loyalty intentions. Practically speaking, we try to identify what keeps grocery shoppers loyal to their primary store.

Based on data averaged over at least 100 customers for each of about 160 stores of one grocery retailer, we find that service quality has by far the largest effect on perceptions of merchandise quality. Perceived value for money depends especially on perceived relative price and sales promotion perceptions, and to a lesser extent on merchandise quality and service quality. Contrary to expectations, perceived value of the competitor does not affect perceived value of the focal retailer. All constructs have a statistically significant effect on store loyalty intentions, the latter construct being measured by intention to continue shopping, intention to increase purchases, and intention to recommend the store. But merchandise quality and especially service quality figure most prominently in the explana- tion of store loyalty intentions.

Our results highlight the importance of service quality as an extrinsic cue in the forma- tion of perceptions of overall merchandise quality for a supermarket retailer. Past research on service quality has been limited to service industries and has not studied this relationship in the grocery retailing sector. The large and significant impact of service quality indicates that a good facility design and service provision by customer-contact employees leads to enhanced perceptions of overall merchandise quality. Our results also indicate that price does not play an important role in customers' perceptions of merchandise quality, especially when other cues are readily available to consumers. The magnitude of the effect of perceived relative price is the smallest of all effects on merchandise quality perception. Since extrinsic cues are the only variables over which the retailer has direct control, once product selection has been made, these results suggest several courses of action that are available to retail managers wishing to improve consumers' perceptions of overall mer-


chandise quality. Such improvement is critical to retailers because we find that perceptions of overall merchandise quality have significant direct impacts on overall, customer store loyalty intentions.

Previous research results about the determinants of consumer intention to purchase or willingness to buy suggest that one of the most effective ways of improving purchase intention is to enhance the perception of value. Our study may be the first one to focus on the determinants of customers' store loyalty intentions beyond the "intent to buy" decision (since respondents were selected based on the criterion of the store being their most preferred store). A somewhat unexpected finding is that perceptions of value do not appear to be important in determining store loyalty intentions if the intensity of local retail competition is low. Thus, for consumers shopping at their preferred store, the improvement of value perceptions may not be needed to increase their intentions to continue purchasing, to purchase more often, or to recommend the store to others, if alternative competitors are not attractive. Of course, this result must be interpreted with caution. For example, if value perceptions for the focal retailer are low, the opportunity for a new competitor to enter the market is high. And if entry occurs, the retailer may discover there is a lack of customer goodwill and insufficient competency to compete.

Is Dependent What We Want to Be? Effects of Incongruency JULE B. GASSENHEIMER r J. CHARLENE DAVIS, AND ROBERT DAHLSTROM

While most researchers agree that attitudes and dependence influence behavior, previous research has yet to consider the impact of adverse attitudes toward dependence upon the effectiveness of relationships. Rather, as the issue of relational exchange has become increasingly important in business-to-business retailing, managers have assumed that relationships can be enhanced and greater efficiency obtained by reducing the number of suppliers, thus increasing dependency. Many organizations, however, feel threatened by their dependence, and hold adverse attitudes toward partners that seek to influence their decisions. Using a business-to-business retail setting, this study allows us to address the question "Is dependent what organizations want to be?" by investigating whether adverse attitudes toward dependence affect the ability of a channel member to work effectively.

The office systems and furniture industry served as the study's setting. Using asset specific investments and the loss of control as indicators of retailer dependency, the results of the study partially support the contention that adverse attitudes toward dependence, when dependence exists, reduces the effect dependence has on relational and economic out- comes. We found support for congruency theory when asymmetric specific assets defined dependence and dealers assessed their satisfaction with the relationship.

Several of the findings, while unexpected, offer managers insight into the contribution of dependence, although dependence is unwanted. In business-to-business relationships may be driven by economic needs to rely on others even at the expense of their independence.


While previous studies suggest that organizations view this loss of autonomy as a devalu- ation of the company's worth, our results suggest that adverse attitudes toward dependence should not always be dreaded and, at times, may even be valued. The form of dependence and the type of outcome may make a difference. Our findings suggest that adversity toward dependence, when dependence exists, positively impacts (1) the effect bilateral specific assets has on overall satisfaction and (2) the effect asymmetric specific assets has on reve- nue generated from the relationship.

We also note the significance of this research to suppliers. Suppliers should not reject retailers just because retailers feel strongly about their desire and ability to make the right decision. From a pragmatic perspective, these retailers may possess the drive to make their economic goals a reality. Such drive may benefit not only the retailer but also the supplier as revenues increase for both parties.

While our results remain to be confirmed, they do suggest that dependence need not be viewed as negative. Without dependence, regardless of attitude, relationships would not be needed. Without adversity, relationships might grow complacent. By better understanding adversity toward dependence and types of dependence, managers can better gauge their partner's tolerance for and reaction to their dependent position.

Looking ahead, we foresee continued research interest aimed at the identification of previously ignored aspects of exchange relationships that influence the the effectiveness of business exchange. While we were unable to capture all ptoential effects, future research may find other forces that may allow organizations to better understand their exchange partners' and their own motivations.

Grocery Market Pricing and the New Competetive Environment JAMES K. BINKLEY AND JOHN M. CONNOR

Over the past twenty years the competitive environment facing the retail food market industry has been completely restructured. New types of food retailers have entered, price variability has become more dominant, and fastfood restaurants have taken an increasing share of the consumers' food dollar. These new conditions have created challenges and opportunities for food store management and forced new considerations upon pricing practices. To evaluate the impact of these changes, this research re-examines the pricing practices of food retailers in this evolving era. Using a sample of city data from a wide range of US metropolitan areas, we estimated the sensitivity of retail food prices to traditional measures and new, competitive environment facing the retail food industry.

To look more closely at pricing practices, we divide our data by product in order to take a finer look at whether food store pricing varies by product grouping. The data comprise a set of prices for 26 different grocery items in each metropolitan area. Simple correlation analysis indicated that prices among these items varied enormously. In other words, many food types appeared to respond differently to market forces. Principal components analysis revealed the presence of two quite different groups of prices among these items. One was


a set of packaged, branded grocery products in the dry-grocery and health and beauty aids departments. The second was a group of non-branded, perishable products consisting pri- marily of fresh red meats, milk, and produce items. We employed the principal component loadings to form two price indices and used both as dependent variables in two separate pricing models. Our predictor variables included both the traditional measures of grocery store concentration, but new variables representing the role of warehouse stores, fastfood stores, and price variations over time.

Results for the dry-grocery component had similarity to those in previous studies seeking to explain variation in a general price index. Results for the perishable group were quite different, suggesting little if any effects from cost factors and presenting some unexpected rivalry effects. Contrary to implications from previous studies, the evidence is that food store prices respond to quite different stimuli and competitive factors are more complex than those found in previous industrial organization studies.

We believe that some of the observed differences reflect the use of discriminatory pricing. Discriminatory pricing requires market segments with different demand elasticities. It also requires that the markets can be separated. Separation is facilitated when retail food markets have non-identical competitors serving specialized segments, such as warehouse stores and fastfood restaurants. Furthermore, segmentation is likely to enhance the use of price signaling, the use of prices for selected products to generate a store image to reflect a strength in goods of interest to targeted consumer segments.

Overall, the results depict a changing market where the degree of rivalry among major food store retailers plays a vastly diminished role in determining consumer prices. Serious competition now arises not only from new formats of grocery retailing--warehouse stores, for example--but also from the restaurant industry. We further find that the extent of price variations also plays a major role. In markets where the variation in prices across time periods is high, the average price paid by consumers is lower. Price variation, in other words, reflect a greater competitive interaction among food stores and lower prices for consumers. These results suggest that price changes, possibly in response to increased inter-type competition from warehouse stores, has important benefits for consumers.

Some of the price responses we identified cannot be explained with current theory and represent interesting opportunities for future research. More broadly, the results indicate that a variety of new, non-traditional sources of competition are now shaping how food store managers must respond to the market and the prices for food that consumers pay.

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Impulse buying: Modeling its precursors