The Indian retail sector is a noteworthy industry that continues to attract investments from the private sector. It currently comprises approximately 12 million players in the retail distribution, mainly consisting of small retailers operating from tiny shops and handcarts (below 50 square feet). These retail outlets can be found throughout over 5,000 cities and 600,000 villages in India. With its robust economy and prominent position among emerging markets, India presents vast opportunities for global retailers.
India is the world’s second fastest growing economy and ranks third in terms of GDP. It is also the fourth largest economy based on purchasing power parity (PPP), following USA, China, and Japan.
India is recognized as one of the top 10 destinations for foreign direct investment (FDI). Currently, only 2 to 4 percent of the overall market belongs to the organized sector. However, projections from the Economist Intelligence Unit suggest that this percentage will rise significantly to reach 20 to 25 percent by 2010 (Ramanathan V and Hari K, 2008).
The organized retail sector is experiencing significant growth, with a growing number of players entering the market with various attractive retail formats such as malls, supermarkets, and departmental stores. According to the India Retail Report (2007), food and grocery account for 62% of the Indian retail market, which is valued at $270 billion (Rs. 12,00,000 crore).
The question at hand is whether the organized retail sector can attract customers through various marketing activities such as sales promotion. The paper consists of three parts. The first part examines the historical analysis of the Indian retailing structure. The second part reviews relevant literature. Lastly, the third part presents the results of empirical studies conducted in an Indian metro area. According to Goldman Sachs (2005), it is estimated that the Indian economic growth may surpass that of China by 2015.
India’s culture relies heavily on retailing, with approximately 12 million dukandars (shop-keepers) playing a crucial role for both sellers and buyers. The Indian retail market is expected to grow significantly, reaching US $427 billion by 2010 and further rising to US $637 billion by 2015 from its current value of US $330 billion. Retail contributes around 10% to our GDP and stands as the second-largest employment sector, following agriculture.
The retail sector in India is experiencing tremendous growth with the development of mega malls. This expansion is not limited to metropolitan areas; even smaller cities are witnessing significant changes. Retailers, influenced by the success of wall-mart in America, are now targeting towns and villages in India. However, a detailed analysis of population, population growth, migration trends, and customer spending paints a challenging picture of the country.
The organized retail sector is growing in size and retailers are trying to attract more customers through sales promotion and various marketing activities. Many retail shops offer sales promotional schemes throughout the year to increase sales and attract customers. However, the exact impact of sales promotion on consumer behavior is unclear to retailers. This paper aims to examine the effect of retail sales promotion on consumer buying behavior.
Literature Review International Context: An existing research stream examines how promotional activities aimed at customers have varying costs and benefits, as stated by Blattberg, Robert, Richard, and Edward (1995). Kopalle, Praveen, Carl, and Lawrence (1999) discover that price promotions increase consumer price sensitivity. However, they acknowledge that under certain circumstances, these promotions can be advantageous for both retailers and manufacturers.
Research has demonstrated that temporary price reductions significantly boost brand sales in the short term (Blattberg, Robert, Richard, and Edward 1995). This could be why manufacturers and retailers frequently utilize such promotions. However, the short-term impact of price promotions tends to be weaker. From a strategic perspective, this suggests that promotions often do not provide long-term advantages for the brand doing the promoting; instead, they can generate sales and margin in the short term. During the period after the promotion ends, the promotional actions should be evaluated based on their overall positive outcome.
This accountability consists of two parts. The first is that a promotion cannot cause a lasting decrease in prices or profit margins. Once the promotion period is over, prices must go back to their normal levels to avoid permanent erosion of profit margins without compensating volume increases. The second part is that a promotion must generate a surplus of revenue and profit for the promoter compared to the baseline during a specific period. There is limited empirical evidence available on the profitability of a specific price promotion and how it is divided between manufacturers and retailers.
On the other hand, there is an opposing belief that retailers now have more power in the channel, leading to an increase in their share of promotion profits. This viewpoint has been discussed extensively by Kadiyali, Vrinda, Pradeep, and Naufel (2000) and Ailawadi, Kusum (2001).
Nijs (2001) argues that while many leading manufacturers want to reduce their reliance on price promotions, they are hesitant to do so because they fear losing retailer support. Retailers still recognize the market expanding effect of price promotions.
Interestingly, other sources (Urbany, Joel and Dickson) and recent research consistently find that short-term promotion effects die out in subsequent weeks or months — a period referred to as dust settling – leaving very few, if any, permanent gains to the promoting brand. This pattern has been shown to hold for the market shares of promoting brands (Srinivasan and Bass 2000), for category demand (Nijs, 2001), as well as for consumers’ purchase incidence, purchase quantity and brand choice (Pauwels, Hanssens, and Siddharth, 2001).
Kincade, Woodard, Ginger, and Haesun (2002) conducted a study on buyer-seller relationships in the apparel sector. The study aimed to examine the significance of promotional support for the success of manufacturers. It aimed to describe the promotional activities offered by manufacturers to apparel retailers and explore retailers’ perceptions of the frequency and importance of these offerings. Additionally, the study investigated the relationship between offering frequency and perceptions of importance.
According to a study conducted by Broadbridge and Calderwood (2002), monetary support was identified as the most crucial form of promotional support. The study emphasized the importance of local shops catering to the needs of the local community in order to survive and compete against larger grocery retailers. Knox and Walker (2003) found a weak yet significant correlation between involvement and brand loyalty in the grocery market.
According to a study conducted by Moschis, Curasi, and Bellenger (2004), older consumers are highly aware of prices and have a good memory for the prices of items they frequently purchase. This leads food stores to use frequent price reduction promotions. Additionally, older consumers value interactions and prefer to shop in stores that offer special assistance services, such as valet parking, delivery assistance, carry-out assistance, and liberal product return and refund policies.
Customers’ loyalty to a store is not greatly affected by their overall satisfaction with it. Instead, several other factors such as frequent buyer-reward schemes, travel distance, preference for an in-store delicatessen, average grocery bill size, store signage, and level of sale assistance have an influence on their intention to remain loyal to their “primary store” (Miranda, Konya, and Havrila, 2005).
A study conducted by Hyllegard, Eckman, Descals, and Borja (2005) analyzed the perceptions of Spanish consumers towards products and services offered by US apparel specialty retailers. The study emphasized the importance of specialty retailers understanding culturally-defined values, norms, and behavior that influence consumer decision making and the acceptance of their products and services in international markets.
Indian customers have varying views on product quality, product assortment, and customer service. They are price-sensitive, so retailers need to offer competitive prices to attract grocery shoppers. In India, food accounts for approximately 50% of consumer spending, and profit margins in the food retail industry typically fall between 12-15%. After taxes, the margin can be as low as 2% (Vijayraghavan, 2007).
The entry of Reliance’s huge grocery format and the proposed venture between Bharati-Wal-Mart are predicted to intensify competition in the industry and squeeze profit margins (Daftari, 2007). Pantaloon Retail, a Future Group with a turnover of 2000 crores, plans to expand its non-grocery business from 40 percent to 50-70 percent in response to heightened competition in the grocery sector. The group’s current grocery model may not be competitive enough in the future (Vijayraghavan, 2007).
Some experts believe that kirana stores have no overhead costs and are highly presentable. If Indian large retailers can compete with them, they can compete with anyone and should not worry about competition from international players (Sanjiv Goenka of RPG Enterprises as quoted by Tarun and Chopra, 2007). The Indian consumer is also known to be highly value-conscious, with 80% of their wallet consisting of essential and necessity-based purchases that they can get from the neighboring store. The big question is whether they would travel all the way to a big store (Karwal as quoted by Tarun and Chopra, 2007).
According to Arvind Singhal, Chairman of Technopak Advisors as quoted by Tarun and Chopra (2007), there may be the development of various retail business models and formats specifically designed for India due to the unique characteristics of Indian consumer behavior. One example is the suggested Argos retail format created by the collaboration between Shopper’s Stop-HyperCITY Retail-Home Retail venture. This format includes catalogue stores, home shopping, and online retail (Bureau, 2007).
In a study conducted by Sinha, Mathew, and Kansal (2005), the researchers examined the format choice of food and grocery retailers for one product and one customer segment. The study involved a sample of 26 respondents and focused on five existing store formats: kirana, upgraded kirana, supermarkets, hypermarkets, and wholesalers. The researchers found that the type of product influenced the purchasing patterns of customers. They also noted that shopping behavior is influenced by local culture and suggested that it would be interesting to analyze the utilities of each store format. Additionally, they proposed that a study on the format choice behavior of many customers would be valuable.
In a study conducted by Vyas (2005), it was discovered that individuals across all income categories, amounting to 72% of the respondents, have a propensity for deals. Furthermore, more than 60% of the sample displayed a penchant for deals, with an interesting finding being that in the higher income category, this figure rose to 75%. The survey inquired about participants’ preference regarding promotions in the FMCG category, specifically whether they preferred price reductions or value-added offers. The results revealed that 60% of the sample favored price reductions, whereas the highest preference was observed for value-added promotions.
According to another study (Goswami and Mishra, 2007) in the food and grocery retail sector in India, customer loyalty in grocery stores was found to be positively influenced by factors such as location, cleanliness, quality of offers, helpful and trustworthy salespeople, and home shopping. However, it was negatively affected by travel convenience. Kiranas excel in terms of location but struggle with cleanliness, offers, quality, and helpful and trustworthy salespeople. In contrast, organized retailers perform well in these areas.
According to a study by Vyas (2007) in the Indian apparel retail sector, it was found that seasonality greatly impacts the apparel industry. Therefore, it is crucial for retailers to sell their remaining stocks at the end of each season. Neglecting this could lead to high inventory carrying costs, limited shelf space, and worthless unsold out-of-fashion clothing. As a result, clearing stock is considered a highly important goal for apparel retailers. To achieve this, they hold biannual end of season sales with discounts of up to 50% off the Maximum Retail Price (MRP).
In his study, Vyas (2007) emphasized the widespread use of discount coupons in consumer sales promotions, while less common were lucky draws, contests, gifts, and “buy one get one free” promotions. The literature review indicates a lack of extensive research on sales promotion of convenience goods in India. Thus, the current study aims to examine how retail sales promotion impacts consumer buying behavior. To tackle this research issue, the researcher is searching for an appropriate methodology.
Research methodology is the systematic approach to problem-solving, encompassing multiple steps that require a deep understanding before implementation. The steps of research methodology should be customized based on the research objectives and underlying logic. Hence, it is crucial to consider both the methods employed and their rationale when discussing research methodology. Keeping this in mind, the study has been designed with the following research methodology. This chapter offers a comprehensive overview of the descriptive research design utilized in the study, which is commonly applied in product research and promotions research, among other fields.
This study will focus on the association between promotions and consumer behaviour, specifically examining the extent of this association. The Sampling Unit Socio Economic Criteria (SEC) will be used to classify households based on the highest level of education and occupation of the Chief Wage Earner (CWE). The NRS-V defines the CWE as the person during a specific time period.
Our study focused on the CWE (Chief Wage Earner) classification for determining the CWE over a one-month time period. According to the Socio Economic Criteria (SEC), households are categorized into eight groups based on the occupation level of the CWE, representing different income distribution levels. These groups include A1, A2, B1, B2, C, D, E1, and E2. Our study specifically included respondents from SEC A1 and A2 groups only because these groups are believed to be more representative of Big Bazaar customers as they roughly correspond to the middle to lower upper income range.
The respondents were selected based on their age group, specifically targeting individuals aged 15-55 years who are both male and female. These respondents fall under SEC A1 and A2 categories. The survey was conducted at two Big Bazaar retail outlets in West Bengal, namely Highland Park and VIP Road. Determining the sample size for the study is a complex process that requires considering various qualitative and quantitative factors.
Generally, more important decisions require more precise and extensive information. The sample size in research is also influenced by the nature of the study. This particular study collected 100 samples on the assumption that the characteristics of interest are present in 50% of the population. With a sample size of 100, there would be a margin of error of +/- 10% at a 5% significance level and +/- 13% at a 1% significance level. Data for this study was obtained from structured questionnaires and face-to-face interviews conducted at two different Big Bazaar retail stores in West Bengal.
From each retail store, we collected data from 50 respondents. We classified Repeat Buyers as males and females who have bought the specified convenience goods within the past 45 days. First Time Buyers, on the other hand, are males and females who have bought the specified convenience goods after the specified time period.
Sampling procedure: The study utilized random sampling, specifically systematic sampling. Data were collected using a structured questionnaire that was pretested among researchers and faculty members before the final version was sent out. The questionnaire was divided into eligibility and main parts. Researchers collected the data themselves at the checkout point of selected retail stores, intercepting every fifth customer to administer the eligibility questionnaire.
If the respondents meet the eligibility criteria, the main questionnaire will be administered. The study focuses on the impact of sales promotion on buyer behavior and conducts an empirical study of Indian retail customers. Questionnaire design is a crucial aspect of data collection, which is one of the most important methods for any research. Without data collection, the study cannot undergo data analysis, which may hinder the possibility of obtaining meaningful outcomes. Data can be categorized into two types: primary and secondary data. Numerous sources are available for collecting both primary and secondary data.
The study used a questionnaire as a method of collecting primary data. The questionnaire was developed after reviewing literature on promotions and consumer behavior in both international and national contexts. The structure of the questionnaire primarily consisted of closed-ended questions to ensure clear and unambiguous responses. It was designed to be administered in a face-to-face discussion with an interviewer, aiming for efficiency in time spent.
With the aim of saving time, a decision was made to divide the questionnaire into two parts. The first section, known as Section A: Eligibility Section, was designed to verify if the respondent fulfilled the necessary requirements to proceed to the next section. This part gathered information on the respondent’s gender, age (in complete years), status (CWE or other), income group, and a list of convenience goods. The criteria for inclusion were as follows: the age had to be between 15 and 55 years, the SEC had to be A1 or A2, and both the income group and the purchased convenience goods had to match the provided list.
If any of the criteria were not met, respondents were removed from the survey. Section B focuses on retailing promotion and consumer behavior. Data was gathered in this section regarding various aspects of retailing promotions and consumer behavior. Respondents were also asked to provide suggestions for improving the retail store. Some questions were specifically directed at repeat buyers or first-time buyers. The purpose of these questions was to gauge respondents’ opinions on different aspects of promotions.
Based on this section, the analysis was conducted to achieve the desired objectives. Analysis, Findings, and Implications for Managers entail the process of categorizing, breaking down data into individual components, and manipulating it to obtain responses to the research question(s) that underlie the research project. A comprehensive analysis of data obtained through research involves combining both art and science, intuition and informal understanding, judgment and statistical methods, along with a thorough understanding of the context of the problem being examined.
According to Green, Tull, and Albaum (2007), the overall process of analyzing sample data and making inferences can be seen as a series of distinct and sequential steps: Tabulation, Formulating additional hypotheses, and Making inferences. In line with this concept and the research question, our analysis was conducted in the following manner: exploring the factors influencing customers’ purchasing decisions. The objective of the study was to understand why customers choose to buy a particular product.
The analysis of the table above indicates that sales promotion is the primary motivator for purchasing goods, while product satisfaction remains constant. Therefore, retailers can learn that sales promotion plays a crucial role after product satisfaction in driving the purchase of convenience goods. To determine the impact of sales promotion on purchase decisions, customers were asked to describe the extent to which it influenced their decision during a promotional period.
The analysis in Table 6 shows the best purchase decision made due to promotions. Table 6 displays the number of customers who chose to purchase much more, somewhat more, the same amount, somewhat less, or much less. Additionally, it provides the total number of customers for each category in Highland Park and Road. A breakdown of the percentages is shown in Figure 1, which illustrates the best purchase decision due to promotions. According to the analysis, 38 percent of customers stated that they purchase the same amount during promotional periods, while 56 percent mentioned that they purchase somewhat more.
In summary, around 20% of customers tend to buy slightly more of their usual purchases because of promotions. The study also asked customers from two different centers if they would go to another store to purchase the same product under a similar promotional offer.
