Customer satisfaction and loyalty in convenient stores

Customer satisfaction and loyalty in convenient stores Abstract: In this article we look at the customers expectation from the convenience stores and the factors which drive the customers in the selection of a convenience store. The article further looks into the types of products that drive customers into convenience stores in Sri Lanka and also analyses their billing patterns to identify the demographics of customers working into the outlet and the type of products purchased. Even though the study looks at customers who are regular at the convenience stores their basket value is relatively very low which means their purchases are carried out at various other stores also. The study further identifies that even customers who are satisfied with the levels of services delivered by the convenience stores, it does not drive loyalty as customers look at shopping at different stores as per their needs. Based on our findings, further research should focus on identifying how customer satisfaction should be used to convert satisfied customers int o loyal customers. INTRODUCTION Rhee and Bell (2002) states that even though shoppers often visit and purchase from many different stores, most of them have a primary association to a main store where most of the purchases are made. This main stores are where the shoppers visit often to purchase when a large shopping basket is necessary. It is important for a new chain of convenience stores to be the preferred main store as when shoppers are converted into loyal shoppers they tend to spend double the amount in their first choice store as per Knox and Denison (2000). This is because most shoppers perceive the primary store as a safe bet according to Roselius(1971) as the primary store is a trusted place with the lowest level of perceived risk of disappointment when shopping. Yet Taher et al. (1996) argues that being at ease with a store is not sufficient to ensure repeat patronage. They go on to state further that with more information being available to consumers about value/cost alternatives Taher et al. (1996) be lieves that the number of customers who are willing to take the perceived risks are growing. This is good news for a small chain of convenience stores, which is relatively new as it means that by providing more information it is possible to attract new customers but the challenge is raised in converting these customers into loyal customers. It is therefore important according to Taher et al. (1996) and Sirohi et al. (1998) that retailers continuously collect information of the consumers who frequent the stores in a structured manner in order to understand areas for development of augmented services to develop loyalty to the stores. The strength of loyalty of customers to a store is one of the most important indicators of the stores strength according to Rhee and Bell (2002). Reichheld and Sasser (1990) reassure that profitability can be increased by increasing the levels of loyalty. Knox and Denison (2000) in their study of the retail sector in UK goes on to state that it is important for a corporate retail strategy to maximize consumer loyalty and minimize consumers from opting for switching. According to Solgaard and Hansen (2003) assortment of products at the outlet is one of the most important factors that drive the choice between the different stores customers patronize in. MODERN RETAIL LANDSCAPE AND CONVENIENCE STORES Retail comprises of all activities which directly relate to the sale of goods and services to the consumer for personal, non business use. (Retail glossary, 2009) The retail sector in Sri Lanka can be categorized into two as modern trade retailers and traditional trade retailers (grocery shops). The modern retail trade in Sri Lanka is expected to grow rapidly with the post war economic development and increase in household income. The penetration levels are expected to increase from 15% currently to 30% over the next 5 years. Modern retail format can be categorized into five formats as BIRO (2001) defines; they are convenience store, mini market, super market, departmental store and hypermarket. Convenience store is small in nature, offer few products. Its concentrated in convenience goods with limited brands. Mini market is bigger than convenience store in size, but still limited in product brands. Same with convenience store, mini market product offers focus on convenience goods. Department store is bigger in nature than minimarket, with varied products. Departmental store is a large retail store offering a variety of merchandise and services and organized in separate departments. Consumer can find shopping goods along with convenience goods in a department store. Supermarket is a large self-service food store selling groceries, meats, household goods, and so on, usually on cash-and-carry basis. Hypermarket is a variation of a supermarket that offers a variety of non food items, such as appliances, clot hing, and services, along with food items, in a vast space much larger than a regular supermarket, sometimes in excess of 200,000 square feet; also called superstore. The grocery items are often priced below market to draw traffic into the store; however, the grocery selection is also more limited than in a regular supermarket. The Sri Lankan modern retail market is dominated by the Cargills chain of supermarkets which has over 50% of the market share. There is only one hyper market in Sri Lanka to fit into BIROs classification of hypermarkets, but it has relatively low floor size. The modern retail market consists of five large players who are subsidiary business units of large conglomerates in the country. With high focus on large volumes and low margins, the customers in the modern retail segment are benefited by having a wider range of products, including groceries and general merchandise under one roof at relatively low prices. Convenience stores are a relatively new concept to the Sri Lankan market, and many consumers are still associating the convenient shops with mini supermarkets. The understanding of the convenience concept with limited range of products is still not clear in the local market. In Sri Lanka one of the growing convenience stores is Go Getter which was launched two years ago and currently it has 25 outlets. For this dossier the customers who visit Go Getter are studied to have an understanding of what drives these customers to the Go Getter outlet and which of these factors can be used to drive loyalty amongst the customers. In most of the Asian region the convenience stores are plenty and available in almost all locations. The growth of the convenience stores is mainly attributed to increased car ownership, increase number of households with refrigerators and freezers, and the growth in the number of working wives. (Jeannet and Hennessey, 1988) In other words the increase in mobility, growing purchasing power and the time constrains bring customers from shopping at supermarkets to convenience stores as customers are on the run and need to purchase products on the go. The wider choice of products and more competition was expected to bring higher quality and safety as well as to counter balance to rising price levels (Lipman 2003). According to Calvin B. Lee (2002) higher customer service levels lead to greater revenue and net income. The above stated research finding elaborates the extent to which customer service can lead to the company development. In every business, the customer service is very important. Without the help of customer convenience stores will find it difficult to attract customers and retention for repeat purchase. LITERATURE RIVEW According to Magi, 1995 and Corstens and Corstens, 1995 most of the consumers shop at more than one outlet. Most consumers patronage two or more outlets regularly because they arrange their shopping trips from different geographical locations (Solgaard and Hansen 2003) (e.g.,on way home from work, or other non-domestic activities). Similarly different stores may be selected as the purchasing requirement may vary by the amount of goods required (e.g., monthly purchases, topping up when necessary) or it can vary by the range of goods required (e.g., vegetables, meat, frozen foods, discount, etc.). Some consumers may even be looking for the products they prefer most or different individuals of the household may have preferences for different outlets. Therefore, to create loyal consumers one needs to understand what driver the customers to the store, however Mitchell et al. (1998) in their number of studies on store image had not identified a link between store attributes and loyalty. Garton (1995) and Bloemer et al. (1998) states that the consumers experience of the stores quality and service had relatively low level of influence in converting the consumer into a loyal repeat customer. Available literature has recognized several factors which influence satisfaction of outlet whilst shopping: Store attributes such as location of store (Woodside and Trappey, 1992) Range and quality of assortment stocked (Claxton and Brent-Ritchie, 1979; Sirohi et al., 1998) The pricing strategy used (Williams et al., 1978) Promotions carried in-store (Urbany et al., 2000; Kumar and Leone, 1988) Assistance provided by floor staff (Macintosh and Lockshin, 1997; MÃ ¤gi, 2003) Atmospherics of store ( Crawley, 1993;Yalch and Spangenberg, 199; Babin and Darden, 1996) Volume of purchase (MÃ ¤gi 2003); Garton (1995) goes on to suggests that to gain store loyalty it is important that the consumers image of the store be in line with the consumers self image. Sivadas and Baker-Prewitt (2000) concluded that the attitudes of consumers which drive the similarity between self image and store image are linked to store satisfaction. Still there is no evidence to suggest that this satisfaction necessarily has a direct effect on store loyalty. According to (Solgaard and Hansen 2003) a consumers preferred store is based on the perceived utility that they derives from the store. Consumers perceive the utility according to what they get for what they give. What consumers get is the output from the store which include service, products, price and other attributes in the consumer experience (Bucklin, 1966; Bucklin et al., 1996). To receive this output from the store the consumer also has to spend his resources in terms of time and money (Blackwell et al., 2001). As resources are scarce, resource maximization will be the key concern of the consumer and he will opt for the store where he perceives he will get the best store output for the resources he spend according to his perception of the services he receive. The available literature has pointed down a few significant drivers which effect consumers perception of store output these include the range of products and its assortment, quality of products available, overall service levels, store assistance personnel, store lay-out, convenience, cleanliness and atmosphere (Blackwell et al., 2001; Levy and Weitz, 2001; Bucklin et al., 1996, Finn and Louviere, 1996). Whilst the cost to the customer goes beyond the monitory value associated with the product prices themselves, and include the resource values of the time and money spend on transportation to and from the outlet. Individual determinants such as shopping intension, attitude towards retail outlets and shopping habits plays an important role on consumer shopping decision. Attitude towards retail outlet and shopping habits tend to influence shopping intension. This implies that retailers should concentrate on strategies in building consumers positive attitude towards their retail so that consumers visit their retail in order to make their visits regular (Siringoringo 2009) DESIGNING OF THE RESEARCH The factors that drive customer satisfaction identified by literature review were used amongst convenience store customers to understand if these factors hold true in the Sri Lankan context. And if they hold true to what extend are the levels of satisfaction they get from the existing convenience stores and their level of loyalty with the existing convenience stores. Further regular customers of 15 convenience stores were identified and their purchase habits were recorded using specially designed software at the point of sale to understand the relationship between customer demographics and purchase patterns. The objective of the second phase was to identify the types of products purchased and the basket value as literature reveals that consumers spend more at the primary stores than at any other outlet. 4.1.1 Objectives Of The Potential Consumer Survey The first phase of the study is carried out amongst the potential/current customers of convenience stores to understand their if the satisfaction drivers of the consumers hold true as per literature review and to understand further if they are loyal to one outlet or if the customers regularly switch between outlets. 4.1.2 Convenience Store Customer Sample The convenience store users sample size depends on resources available as well as on methodological considerations. Based on these, the study objectives will initially entail a review of approximately 390 convenience store potential customers. For the selection of the sample, a number of options for selecting the sample will be considered, with identification of purposive sampling as the most appropriate approach of those considered. Purposive sampling will allow for information-rich cases to be selected, which will generate insights into key issues and into effectiveness of interventions, rather than generalization to a population (Patton 2002). Sampling would entail surveying convenience store consumers and well as potential consumers who will be future buyers of Go Getter. Of the total population of convenience store potential consumers are undefined therefore a sample size of 390 is identified in the following areas: Main City limits and suburban area where convenience stores are popular and consumers are more adaptable to the concept of convenience stores. These constitute 5 of the 10 main cities where the convenience stores are currently functioning will be selected as the survey centers. Data capturing will be based on a structured questionnaire. A purposive sampling procedure will be used and the respondents will be selected based on income, profession, family size, gender and place of dwelling. The questions cover information areas such as current purchasing power, goods and services requirement and assessment of assortments and opinion on the services provided by the convenience stores. The SPSS package with an adapted code-book was used to process and analyses the data. Mainly descriptive statistics mean, mode and percentages will be used. The reason is to select sample is number of population is bigger than the 1 million. According to the Anderson sample chart fewer than 5 % error rate 390 is the best sample size if population is bigger. Hence, they will be selected from the people who work for FMCG sector (suppliers of Go Getter, potential customers, who would like to purchase goods from convenience stores and who live in apartments, who are receiving a salary above 1000US$, who are earning less than 150 US$, which compel them not to stock up their basic needs as well as young executives in the age range of 20 to 40 years who are living mostly in rented apartments or boarding houses. 4.1.3 Information Captured In Phase 1 The questions will be formulated to reveal the information listed below to understand the level of satisfaction customers are currently getting from the outlets they currently shop at. Table 1: understanding the convenient store landscape Objectives Descriptions 1. Knowledge of convenience stores Since the concept of convenience stores is new for the Sri Lankan consumers, identifying the consumers knowledge levels is important if they are to comment on the satisfaction they get from the convenience stores. 2. Product categories In the CVS/retail industry products are categories into different groups such as groceries, personal care, tobacco, perishable, impulse purchase etc. Different retail formats such as supermarkets, CVS, meat shops carry only selected categories of products. The products are categories tested are as follows Snack and confectionary Bakery Colas Mobile Credit Tobacco Groceries Baby care products Dairy products Others 3. Convenience offered/Expected/needed Identifying factors that customers associate as factors that drive convenience at the outlets they currently shop at and the levels of satisfaction they are getting from these outlets. 4. Customer retention/loyalty How loyal are the customers to the outlets that they shop at the moment. Are they switching amongst the outlets or are they shopping only at one selected outlet. 5. Expected retail format What other factors do they look from the convenience stores. These include factors other than convenience such as price/quality/atmosphere/relationship as literature review suggest these factors also drive the customer satisfaction levels There is a dearth of literature on the use of an appropriate scale to specifically measure the level of store satisfaction and store loyalty. Knox and Walker (2001) in their study of measuring and managing (brand) loyalty, stated that there is limitations in practically measuring of customer satisfaction as well as customer loyalty. Since there is no assured measuring instrument, the Likert five-point itemized rating scale is used in this instance to measure the level of attributions which drive store attributes. 4.2.1 Objectives Of The Online Survey The main objective of the online survey is to identify if the products which are purchase by the customers who have been identified as regular customers to the convenience stores are similar to the products stated by the respondents in phase one. This will help understand gaps if any amongst the actual customers at the store and the respondents to the first phase of the survey. The second set of information concerns on the basket value to understand if these regular customers are actually loyal customers as the basket value of loyal customers should be higher than or in par with the basket value in phase one. 4.2.2 Online Sample This data collection is planned to be done from customers who visited the convenience stores using a Convenience card which was given to the shoppers who visited the outlet regularly. This study is planned to be done at 15 outlets of the Go Getter convenience stores. Computerised data is collected from January 2008. The sample comprise of 15 outlets in order of the highest number of customer visited from 1st January 2008. There are 200-300 convenience card holder who visit each outlet on a daily basis. Hence, an average of 250 customers per outlet for 15 outlets will result, 3750 customers per day for a month and the same could be taken as respondents. Therefore it can be considered as an adequate representation. Data will be collected monthly. A special modification was done to the point of sales software application where the specially trained cashiers enter profile data of customers prior to the billing process. 4.2.3 Information Captured In Phase 2 Data which will be collected at the time of checkout is age group, gender, and product availability (were the products that they wanted available or were they out of stock). This data will be automatically correlated with items that they have purchased which will result in the identification and analysis of patterns and trends. 5.0 DISCUSSION OF DATA ANALYSIS 5.1.1 Understanding The Product Range And Pricing Concern From the respondents selected for the data collection 77% of the respondents were in executive or managerial grades. Almost 63% of the respondents earn > $ 150 are in the executive grades whist 70.97 % of those who earn As expected more than half the population (57.63%) stated that they buy other products, followed by 35.59% stating CSD/colas whilst milk products were stated by 32.2%. This clearly reflects that customers visiting convenience stores look beyond the major product groups identified. Regarding the value for money received at competitors, 61.2% of those who earn >$ 150 agreed that that value for money is received whilst 48.4% of those Given what was discussed above regarding the range, it is important to assess whether consumers have any concerns about the range on offer. However, a more than two third of the sample >$150 and 5.1.2 Level of Satisfaction drivers Service is a key dimension that needs to evaluate in the retail industry is customer service, as the entire concept revolves around service delivery. Nearly half the sample 82.8% stated that the check out is quick whilst a majority (90.7%) stated that the sales staff can be identified most of the time. Furthermore, 92.6% of the overall sample stated that the outlets maintained cleanliness with 58.2% stated that outlets maintained cleanliness most of the time. Nearly equal number of persons surveyed commented on the price consistency with 164 persons stating that price consistency is maintained sometime while 181 persons out of 390 interviewees stating that price consistency is seen most of the time. The staff assistance was commented positively with near universally 93.1% stating that the staff provides assistance most of the time or sometimes. On receiving goods promptly, 55.9% of those earning above The respondents earning above $ 150 category felt that the service was good sometimes. Almost universally the respondents were satisfied with the overall level of service (92.6%). Furthermore, a cross analysis between those who shop at the outlets, the facilities they look for and the times of the day and the product range highlights the following findings: Given this levels of satisfaction, it is important to look deeper in to data and see what aspects are valued by the customers at convenience store outlets. In order, a cross analysis was carried out between those who shop at these outlets and what they value most. As the literature suggested almost half the population in both income levels stated that it is location followed by range and service at an overall level. These findings when analyzed by the respective income brackets come in the order of priority where 48.4% state location, 32.3% stating offering a range and fast service being stated by 25.8% of those below $ 150. The order of importance changes when looking at the data of those above $ 1000. To them it is the location that matters most, followed by fast service and the product range. 5.1.3 Tendency To Shop At Multiple Outlets (Low Loyalty) From the total base of 390 respondents, a little less than half the population (40.51%) visit competitor outlets at least once a week and the next frequency was irregular (21.79%) with a similar amount (21.54%) claiming to visit competitor outlets less than once a week. None of the respondents do their shopping at one selected outlet. 40% shift from outlet to outlet more often than not on a regular basis even though there is high level of satisfaction, whilst the balance on a irregular basis shops from different stores. This clearly shows that even though most of the customers are satisfied with the offerings of the convenience stores they still are not loyal to one outlet. Discussion On Data Collected At Selected Outlets The information which was captured through the POS data collection system was analysed to find similarities in the profile of customers visiting the outlets and the type of products mainly purchased. The literature review highlighted that it is important to identify the main products that are looked for by the consumers need to be merchandised properly to achieve customer satisfaction. When analyzing the Go Getter customer profile it is evident that customers of all ages have patronized the outlets. The regular repeat customers were divided into 4 main segments: teenagers, youth, the middle aged and the elderly. Table 1 illustrates the summary of the analysis of data collected from the survey of Go Getter customers for a period of two months. Table 4: Profile of customers at Go Getter outlets Profile information Response Average age segment Dependent upon each outlet. However, a notably high number of customers belong to the middle age seem to frequent. Gender More skewed towards the males, conforming the basic fact that top up is less frequent as a household level in Sri Lanka. Purchase tendency Except for a few variations that were dependent upon the outlet location, most demand was generated to beverages, snacks/confectionary and frozen food. Basket Value Purchases are very small in quantity, bought either on the go or for topping out at homes. Most people (25% 33%) of the customers spend less than Rs 50. Source: Author One of the most striking findings is the fact that seemingly lesser number of teens and youth has visited the outlets, especially teens. This is mainly owing to the fact that in Sri Lanka children are dependent on their parents till their secondary education is completed. Culturally, children leaving home takes place only after marriage and till such time parents and grown up children live under the same roof which is quite opposite to the Western countries. Within this backdrop, teens and youth often do not have an income for themselves and depend on their parents to give them cash for their education and other needs. A higher number of the visitors to the outlet were middle aged and elderly, dominated by the males. This coined with the main products purchased beverages/snacks and confectionary shows that most of the purchases were low value products bought on impulse rather than for household topping up. The outlets in residential areas were doing better than the outlets in commercial areas, still the product range commonly sold shows that beverages/snacks are bought more than household products, which shows that consumers still dont buy products for household topping up from Go Getter. What is very discouraging about the information gathered from the online research is the average basket value of the regular customers. From the data analysis is the basket value spent by the consumers per visit with almost a third of the customers spending less than Rs 50 (less than USD 0.5) on an average visit. This is in line with the first phase of the study that most customers prefer to buy from different outlets. Therefore the basket value of even the regular customers who visit the selected convenience stores remain low as they come into purchase products of low value as and when necessary. 5.3 Limitations of Results This study was done as a part of the doctorate thesis on understanding the consumers and the challenges in the retail trade for the entrance of a new chain of convenience stores in a market where the concept of convenience stores is limited. Therefore the data was collected on understanding the customer satisfaction drivers and to understand what need to be done to increase the revenue of the Go Getter outlets and not to understand how to grow loyalty as the business is currently at the beginning phase. Therefore further research needs to be done on the regular customers of the outlets to understand their levels of loyalty as the factors used in the research to identify the relationship between satisfaction and loyalty are limited. 6.0 CONCLUSION Previous studies carried out by Woodside and Trappeys (1992) states when specific attributes such as low overall prices or most convenient are suggested customers respond with a top of the mind association for each of the values. These associations are the strong drivers of satisfaction are what customers associate with the main store where they make most of their purchases. Bloemer et al. (1998) states the store satisfaction is the mediator of the perception of the store and store loyalty. Still even in reason studies though this connection is seen a solid link between store satisfaction and loyalty has not been established. In a recent study, it was identified that customers are loyal to outlets with an image which match their own self image. Through the levels of satisfaction customers get from the convenience stores, they look for a parallel with the self image and the store image, which according to Sivadas and Baker-Prewitt (2000) does not necessarily translate into store loyalty as there is no clear connection. This lack of clear connection between store satisfaction and loyalty, the relationship between these two attributes remain speculative according to Mitchell et al. (1998). When analyzing the information collected from the Sri Lankan chain of convenience stores and their potential stores it shows high level of customer satisfaction amongst customers who use convenience stores. The study further goes on to show that even though most customers are highly satisfied with the stores they patronize they still are not loyal to any of the outlets they shop at. The customers have a limited loyalty to outlets and prefer to shop at outlets as and when necessary to purchase products as and when necessary. The purchasing habits suggest that even the customers who visit the convenience stores regularly purchase products only for a small basket value suggesting that the main outlet of purchase is different to this outlet even though they regularly visit these selected outlets. This suggests that the customers who visit these outlets regularly are looking for top up products whenever the need occurs and the outlets need to work on cross selling to these customers and increase impulse purchases to increase basket value. The relationship between loyalty and satisfaction is still not clear but as customers are satisfied with selected attributes they continue to patronize the outlets. Therefore in creating loyalty satisfaction is a basic need. It is not clear how satisfaction can be converted into loyalty or if that transformation can be achieved. Therefore further studies need to be carried out to understand the drivers of loyalty in the local retail sphere to understand better on the development of loyalty amongst customers.