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CHAPTER 2
THEORITICAL FOUNDATION
2.1 Non-Store Retailing Formats
Innovations
in non-store
formats have
increased competitive pressures on store retailing
(Alba et al., 1997; Burke, 1997; May and Greyser, 1989). Electronic store retailing is the
newest concept of
non
store retail
format
in millennium ages
which become
threats
for
both traditional stores and traditional catalog selling like “door-to door” sales.
The research in the past, concerning the evolution of retail industry has focused primarily
on “brick and mortar” store which has been described and explained by various different
theories. McNair developed the theory in 1958, which known as the wheel of retailing
theory.
The
theory explain that
“new type of retailers
usually enter
the market as
low-
status, low-margin, low price operators”. However, the other researchers, such as
Hollander wondered low cost as a necessary requirement to begin a new retail format like
shopping malls and convenience stores, as the example of retail formats that was
introduced with higher prices rather than lower prices.
Regarding the evolution in the retail industry, there are shift from physical stores to non-
store formats which may be analyzed at two levels. The first stage level is the shift
between physical stores to catalog sales. It
indicates major shift in
retail
evolution
for
both consumers and retailers. Catalog shopping is particularly appealing to time-
compressed consumers and consumers with relatively high disposable incomes as well as
those with a high need for labor saving goods and services (Gehrt et al., 1996; May and
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Greyser,
1989). The
purchasing
method
for catalog
shopping
is
different with
in-store
shopping based on perspective of consumers. As for personality, consumers using non
store retailing are likely to be characterized by higher level of confidence in their ability
to make purchases without physical
inspection of the product (Dholakia and Uusitalo,
2002).
The second level stage, there are also shifts within various methods of in-home shopping.
The
behavior
of
consumer
in
shopping
is change
form catalog
shopping to
electronic
shopping using internet as the media. From the benefit points, both of electronic shopping
and
catalog
shopping
offer
the similar
benefits
which are time
saving
and
the
convenience of shopping without directly go to the stores and the location and the store
hours are not become the obstacles or problem. However, as the information technology
grow rapidly especially in today’s era (Digital Era), the continuous improvement may be
seen
in
electronic
shopping
and
brought
the
new
type of
in-home
shopping
methods
which is the innovation building on past changes of non-store retailing format like
catalog and direct mailing shopping method.
2.2 Future of Electronic Shopping
Since
the
1960s,
rosy
predictions
have
been
presented
regarding
electronic
shopping
(May and Greyser, 1989). However, it may become discontinuous improvement if it only
a
few
of
customers’
interests,
even though the
computer
skills
and
the
technological
resources
requirement
are
met.
Besides the
resources,
managers
and
the
organizations
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have to learn the new consumers’ behavior in electronic shopping. In every organization,
human resources is the most important to met
the customer satisfaction including the
electronic shopping stores. One of the electronic shopping companies gave brief
description about the positive results for the holiday shopping season in 1999:
“It
was the
result of
an
extraordinary
human effort within most
online
retail
organizations
rather
than
through
highly
automated and integrated processes” (The
Standard, 2000).
That is why not the entire electronic retail stores are successful or survive in the market.
Many of
the electronic retail store even failed and
maybe going bankrupt and we never
hear their names again such as Petstore.com, Toysmart.com, Boo.com, and
Craftshop.com (Motta, 2000). Reluctance by traditional
retailers to invest
more actively
in electronic store formats (Clemons and Bradley, 1998; Doherty et al., 1999) can be
partly attributed to the higher cost in selling goods electronically than selling through the
physical store (Burke 1997).
2.3 Cost of Electronic Shopping
Brown’s suggestion (1988), the cost of a retail format is based on the consumers’ costs.
The
cost
that
incur
from
the
consumers
costs
are
non-monetary
cost
which
are
time
effort, and psychological costs and monetary costs also included. The application of the
wheel
of
retailing
theory
can
be
broadened as
introductory
of
high
price
concepts. In
other words, there are compensations
for the customers
for saving
in time and labor by
charging higher prices at shopping mall and convenience stores. Shopping mall and other
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convenience store offer further additional benefits
such
as
comfortable
enjoyment, and
social interaction.
Non-store formats mush highlight consumer’s saving in non- monetary cost. The
attraction of the customers is the easiness and the convenience shopping which are not
limited
by
the
location
and
other
constraints. When the
catalog sales
introduces,
they
satisfy consumers who considered the travelling cost is high or unable to visit the stores
because
of
the
distances.
In,
particular,
rural
families
adopted
this
shopping
method
(May, 1989).
2.4 Consumer Behavior
The theory of consumers behavior can be describe as “the study of the processes involved
when individuals or groups select, purchase, use, or dispose of products, services, ideas,
or experiences to satisfy need and desires” (Solomon, 2007,p.7). Basically, it is the study
of how, when, what, and the frequencies of the consumer purchase the products.
According to Solomon (2007), consumer behavior theory is viewed as playing in a stage
from the perspective theory. Like in
a
play, people have
many different roles and each
customer has their own lines, props, and costumes which are necessary in order to put a
good performance.
Since,
many
different
people’s roles, sometimes they change their
consumption decision depending
the
situation
of
the
“play” at
the
time.
Their
criteria
when evaluating the products may be different from other ones.
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 The application of consumer’s behavior can be
seen in
the
marketing strategies. Many
organizations are focus on consumer’s orientation, which is based on their behavioral in
the organization.
Decisions are
based on
explicit assumptions
and
sound
theory and
research are more likely to be successful than are decisions based solely on hunches or
institutions (Hawkins et al., 2006, p.9). The company must provide the more value to the
customers than the other competitors in order to survive in the market. Customer value is
the difference between all the benefits derived
from a total product and all the costs of
acquiring those benefits (Hawkins et al., 2006, p.11). So, the successful key to survive in
the market is “providing superior customer value requires the organization to do a better
job of anticipating and reacting to customer needs than the competition does” (Hawkins
et al., 2006).
The essence concept of
marketing strategy can be described
in the
figure
below.
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Figure 1.1 Marketing Strategy and Consumer Behavior (Hawkins, Mothersbaugh, Best,
2006, p.12).
Market analysis is referring to analysis of the consumers which is the basic foundation of
marketing strategy. Consumer behavior must be fully
understood
in order
to anticipate
and react on their needs. According to Hawkins et al (2006), it is complex discovering the
needs of the consumers, however through the marketing research the consumer needs can
be often the accomplished. The company must fully measures and understands its ability
to meet the needs of customers which involve the evaluation of all aspect. All of firm’s
aspects
must
be
evaluated,
including
financial
condition, general
managerial
skills,
production
capabilities, technological
sophisticated,
reputation,
and
marketing
skills.
Competitors and the condition are also important for market analysis which involves the
other competitors’ capabilities and the strategies which possible do a better job of satisfy
consumers as well as the state of economy, physical environment, government laws and
regulations, and technology development that will affect the needs and expectation of the
customers.
A market segment is a portion of a larger market whose needs differ somewhat from the
larger
market
(Hawkins et
al.,
2006).
The
company
must
carefully
select
the
target
segment in order to develop a total product that meets the customers’ expectations in the
segment better
than
the
company who put all the products or services in all segments.
Market segments involves four steps, which are; identifying product-related need sets,
grouping
customers
with
similar
need
sets, describing
each group, selecting
attractive
segment(s)
to serve. The term need set
is
used to reflect the
fact
that
most products
in
developed economies satisfy
more than one
need (Hawkins et al., 2006). The need sets
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can be various not only limited to the features of a product, but also the type, sources of
information
about
the
products,
the
availability of
the 'products, price
of
the
products,
services regarding the products, the product’s brand, and even the originality place of the
product
was produced.
To
identify
the
various
set
needs
that
the product
will
met or
satisfy the consumers, consumer research, focus groups and depth interview are needed to
discover the similarities
and differences
in consumption preferences across the
groups.
Once the company sure it has a thorough understanding of each segment, the company
must select the target market – that
segment(s) of the larger
market on which
we will
focus our marketing effort (Hawkins et al, 2006). In order to generate revenue, the
company must make the decision that based on its ability to provide the segment(s) that
are selected with high value of customers.
Hawkins et
al
(2006) explain that
marketing strategy
basically
is
answer of
how
the
company
will provide
superior
customer
value to
its
target
market
which
requires
the
formulation of a consistent marketing mix.
The
marketing
mix
is the product, price,
communications, distribution, and services provided to the target market (Hawkins et al.,
2006, p.19).Price is the amount of money one must pay to obtain the right to use the
product (Hawkins et al., 2007, p.21). The customer must pay the amount of the money in
order to buy the ownership of the products and obtain the right of the products. Price
often related with the quality of the products. Economists often assume that lower prices
for the same product
will result in more sales than higher prices (Hawkins et al., 2006,
p.21). Sometimes, customer perceived value of the products can be reflected through the
prices. A product is anything a consumer acquires or might acquire to meet a perceived
need (Hawkins et al., 2006, p.19). So, if the price of the product is too low, the customer
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perceived value of the product is low quality. The cost of product to the consumer is
different with the price of the products. Consumer cost is everything the consumer must
surrender in order to receive the benefits of owning/using the products (Hawkins et al.,
2006, p.21). For example, the cost of having notebook or laptop include the products
warranty, maintenance, finance charges,
time, and efforts while shopping the
laptop or
notebook
to the
store
plus
the
purchase
price
of
the
product
for
additional
cost
of
consumers. In order to decrease the consumers cost, it is important
for the
company
to
reduce the non-monetary cost of owning the product or operational cost. By reducing the
total cost of consumer, it is possible that the revenue and the market share increase. The
concept of total consumer cost
is the key that explain why
the non-store retail
formats
grow rapidly, especially the electronic store retailing. The company can reduce the
monetary
cost by
increase
the distribution
and
the
services. Distribution
is
having
the
product available where target
customers can buy it (Hawkins et al., 2006,p.21).By
having many distribution points, it will reduce the consumer cost by the distance of going
shopping and also improve the efficiency of the supply chain of the products. Services
refer
to
auxiliary
or
peripheral
activities that
are
performed
to
enhance
the
primary
products or services (Hawkins et al., 2006, p.22). Distribution and services work
synergic.
For
example,
if
the
company
has
good
distribution
points that
near
at
the
customers’
area;
they are
possible
to
increase
the services by providing
good delivery
services to their home directly. The electronics retail stores which are good in distribution
and
services
area
will
have
the
competitive advantage
in the
retail
industry
and can
increase the customer value.
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The
outcome
is
based
on
the
consumer
decision
process
which
developed
from the
marketing mix strategy. According to Hawkins et al. (2006), the outcomes can be divided
into
four
categories
perspectives
which
are
firm outcomes,
society
outcomes,
and
individual outcomes. For the firm outcomes, product position is the most basic outcome
of
marketing
strategy.
Products
position
is an
image
of
the
product
or
brand
in
the
consumer’s mind relative to competing product and brands (Hawkins et al., 2006, p.22).
It
is
important that
the firm should has image positioning
which
is create set of belief,
representation and feelings about the product or brand. The image can be developed
through good communications through advertising, word-of-mouth (WOM), and maybe
sponsorship of the events. The company can generate the sales if the image or the brand
if the position match with the target
market
that desired. Many companies are customer
oriented since most of them know that the customer satisfaction is the major concern of
the firms.
Hawkins et al. (2006) describe about the how creating satisfied customers
in the
figure
below.
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 Figure 1.2 Creating Satisfied Customers (Hawkins, Mothersbaugh, Best, 2006, p.24).
The nature of consumer behavior can be described in the conceptual models. Hawkins et
al. (2006) gave the simple model of consumer behavior as follow.
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 Figure 1.3 Overall Model of Consumer Behavior (Hawkins, Mothersbaugh, Best, 2006,
p.26).
It might be not giving the sufficient detail about the specific behavior, but it provides the
general
picture
of
nature
consumer
behavior.
Individuals
develop self-concepts and
subsequent lifestyles based on a variety of internal
(mainly psychological and physical)
and external (mainly sociological and demographic) influences (Hawkins et al., 2006,
p.26). The consumer decision requirement is the satisfaction of needs and desires which
are produced by the self concept and lifestyle. The decision process is activated when the
individuals
encounter
the
situation
that
is
relevant.
The
experiences
and
acquisitions
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affect
the consumers’
lifestyles
and concept
and
it
is
the
major
influence
in
consumer
decision process.
2.5 Framework
In Indonesia, there were 88.4% of the correspondent (majority are private employees and
a quarter of students as the respondents and 63.5% have their own Personal Computer or
PC.)
acknowledge
that
they
are
able
to
do
Internet
transaction
from the
past
survey
research by Indonesian Internet Business Community (2002) based on age that divided in
three groups (14-25, 26-35, 36-45 years-old), income, educational background (39.3%
bachelor degree, 34.5% high school degree, 5.7% Graduate/master/doctorate degrees),
occupation and spending level (70.4% spends Rp 1 to 2 million for regular monthly
expense) that conducted in ten major cities in Indonesia with total 1500 respondent. More
than 16% have performed online transactions
for various reasons such as time-cost
efficiency, item availability (not available locally), and ease of access (use of credit card)
(Indonesia
Internet
Business
Community, 2002).
According
the
Indonesia
Internet
Business Community (2002), There big opportunity for electronic
retailer companies
in
Indonesia if the security issue are resolved. Once convinced that the issues are resolved,
83% of the respondents who did not like online transaction are willing to participate in
ecommerce
activities (Indonesia Internet Business Community, 2002). However in
Indonesia
the
culture
in
the
community
still
affect the
usage of Internet.
That
is
why
socio-demographic variables and the past experiences became the important variables to
determine the behavior in electronic shopping in Indonesia.
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Socio-demographic variables are associated with shopping behavior as well as consumer
innovativeness (Dholakia, Uusitalo, 2002, p. 461). There is evidence suggesting that the
higher consumers’ socio-economic status, measured by education, income, and
occupational
status, the
more
positive
the
consumers’
perceptions
of
mail
and
phone
order buying relative to in-store shopping (In Schiffman and Kanuk, 1997, p.385).
The finding of the right demographic variables can be indicated from some of the latest e-
retailers,
efforts
in
attracting
and
maintain their
customers.
Walace
(2000)
notes
the
emphasis
on
woman
“as
the
salvation
for
some
dot-companies”
(Dholakia,
Uusitalo,
2002, p. 461). The use of internet has increased by women. Their economic power and
their dominant
influence on
household shopping behaviors are positive
reasons
for this
emphasis:
“For
many e-retailers
in the
bloody
summer
of
’00, that’s
reason enough.”
(Wallace,
2000; Dholakia, Uusitalo, 2002, p. 461).
The orientation of
men and women are different
in shopping. Shopping behavior
is still
gendered activity especially in household marriage, even though today sex roles already
have blurred. Men, for example, most of them are shopping because they have particular
need purposes. On the other hand, women, most of the may considered shopping as the
recreational activity, which generate positive feelings.
The
age
also
the
consideration
of the
customers’
needs,
interests, and
resources.
Teenagers,
middle age
people
and, old age have
different
needs.
Older consumers
are
tending to use the shopping in traditional way, but most of them are not satisfied with the
non-format shopping such as electronic shopping. However, based on the Darian (1987),
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the
result
of
the
research
indicates the
mixed
evidence
regarding
the
role
of
age
on
consumers’
tendency
toward
non-store
shopping. The younger generations have high
curiosity in learning something new and they
are
more
adopted
the
technologies
like
computer and other electronic devices faster than the old generations. Meanwhile, the old
generations are enjoying the shopping that associated with malls or physical store, since
their familiarity about technology and computers are low.
Education is also the factors of the behavior of electronic shopping. It is influence the
consumers on how they react with the innovations of new type of shopping, in this case
electronic shopping. There are positive relationship between in-home shopping and
educations
from the previous study. Most of
the internets users are
have above-average
educational background.
Previous study supports the positive relationship between in-home shopping and
consumer income (Dholakia, Uusitalo, 2002, p. 462). Result from the previous study that
in
the
middle
income
groups
were
prefers
in-home
shopping to
traditional
shopping.
Income also determine the consumer whether Hedonic or Utilitarian consumers. Hedonic
consumers is the consumers who usually making the purchase decision of the product
based on their perception of the image of the product or product’s brand that match with
their own perceived value even the product has limited function. For example, a person
who buy and expensive Prada handbag may be feel stylish, frivolous, and/or indulgent at
the same time (Khan et al., 2004). On the opposite, the utilitarian customers are preferred
to see the product functionality over the image or brand as the priority. For example, the
consumer buy the notebook from ASUS because of the capabilities in running the
program and the
high specification that
met, even though the brand
image are
lower
in
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term of style and design such as VAIO and ACER. Although the hedonic and influence
is also influence by the customer’s perception, there are possibilities the customer shift
from utilitarian to hedonic goods because of the income.
The family composition also influences the consumptions that affect the behavior of the
consumers. The presence/absence of children as well as the age of the youngest child has
a significant influence on households’ needs, resources and expenditures (Solomon,
1999). Darian found housewives and part-time female workers with pre-school children
to be one group of potential in-home shopper (Dholakia, Uusitalo, 2002, p. 462).
Past experiences also the major variable which considered as the variable in determining
the future behavior. These sets of variables were considered: past in-shopping behaviors,
satisfaction with past store shopping and ownership of computers (Dholakia, Uusitalo,
2002, p. 462). The past experiences are affecting the behavior. It could generate the
behavior if the customers have positive past experience. Satisfaction of the consumers is
the
goal of the companies
in order to have
the profits and generate the revenue, if the
consumers’
satisfaction
increase,
the wiliness of consumers
switch
the other store
also
decrease. Computers are the resources of the consumers in order to do the electronic
shopping which require skills using the computers in order to access the electronic stores.
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