2013

Group-5 Advance Methods for Marketing Research

Effect of store layout on sales of a product

Submitted by:
Debolin Dey Sudheer Guntupalli Shashank Shekhar Shuchi Garg Suraj Dash Mayank Bharti PGP/16/015 PGP/16/018 PGP/16/045 PGP/16/047 PGP/16/173 PGP/16/211

Project Report Subject: Advanced Methods for Marketing Research Term: IV Faculty: Atanu Adhikari

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Abstract
The objective of this project is to analyze the effect on sales of a product in a store for certain different store layout patterns. This includes advertising in store, shelf display and product placement in store. The formulated hypotheses are tested with the real time primary data collected in such a simulated store organized for project purpose. The analysis is done by marketing research software namely SPSS and result section encompasses the observed result of this project (the exhibits for analysis & results are attached under various section)

Introduction
In store display is a mechanism used by most companies to induce brand preference, mechanisms like purchasing shelf space, shelf displays, corner standees are used, the money spent on these efforts constitutes almost 1% of the total store sales and through our project we are trying to measure the effectiveness and value of these advertising efforts. Below are the images that show different techniques of in store display of product and Shelf advertisement.

These selling in store techniques are widely used today in modern retail outlets. The objective of the vendor is to promote certain products for sale by using these techniques. These impact the affective, selective and point of sale behaviour of a shopper. These results in influenced decision making by the customer and is directly aimed at profitability of the sale. The brands of different product category are employing these techniques in retail stores to increase the sales of their product. They often pay a fee to the retail shop owner in doing so.

3|Page For the purpose of this study, a store is simulated in the campus and these different techniques were employed and kept under observation for a week each to capture the change in buying behaviour and decision making process of a customer.

Literature Review
With the changing market scenario, the function of a retail outlet has changed from just being a place for buyers and sellers to meet to a product and brand showroom. The situation of the retailers has worsened due to the following reasons [1]

The situation is similar in the Indian Market. 1. Consumer spending is being squeezed due to the increase in the number of products available in the market and in the needs of the consumer.

4|Page 2. Business costs are escalating due to the real estate cost and transportation costs which are leading to lower margins for the retailers. 3. Technology is evolving and consumers have become more informed and selective about their choices. 4. Competition is getting tougher as there are a lot of brands in the market and there is a distinctive need for differentiation. Due to these reasons, brands have started paying attention to ways to increase sales. While discounts are a well known method to drive sales, it leads to reduction of margin for the brands and hence lower profits. There are some more ways which can affect the decision of the buyers without being too obvious. Two of them which we are studying in detail are the effect of discounts offered and effect of in store display. There are four types of consumers and their motivations are different.

The buying habit of the consumers in the present supermarket era show the following result

There are two very important aspects of retail markets, First, the prevalence of retail sales means that relative prices in most product categories vary substantially from week to week.

5|Page Second, quantities sold often respond at least as much to changes in relative locations (instore displays) as to changes in relative prices. Stigler (1961)s costly search paradigm provides a natural framework within which to analyze both effects: the week-to-week price churn induced by sales creates a natural economic motive for search, and the presence of search in turn helps to explain observed display effects. This work is most closely related to two existing studies in industrial organization. First, using panel data on laundry detergent purchases, Hendel and Nevo (2006) estimate a discrete-choice demand model incorporating dynamic responses to sales, finding that intertemporal substitution is an important avenue by which consumers respond to sales. Second, Goeree (2008) develops a model purchase under limited information in differentiated-product markets.

Price variation offered to consumers in the form of discounts is temporary and most products have a regular price around which sales take place. As the week-to-week changes dont change, discounts help in evaluating the price elasticity of the consumers. As can be seen in the graph below, there is a regular price around which most sales happen and discounts are temporary and dont last for too long. But analysis does state that discounts definitely increase the volume sale of the product and make consumers look for alternatives beyond their regular brands.

The analysis done previously have been recorded in Table 3. This analysis was done for the detergent powders market. Several key patterns in Table 3 suggest the presence of search effects. First, as expected, display and feature effects are large and significant in every regression where they appear. Second, the magnitude of the coefficient on discount falls consistently as promotional covariates are added: nearly two-thirds from Column (1) to Column (4). Finally, displays and features strongly increase the quantity effects of price

6|Page reductions. This can be seen most clearly from Column (4), which suggests that displayed and featured price reductions have quantity effects roughly three times larger than those not advertised. This last finding in particular strongly supports the idea that promotional activities convey price information.[2]

The function of displays is to highlight specific products by adding signals or marks (e.g., tags), changing the presentation layout (e.g., rack arrangement), or presenting the product in a different, often more isolated area of the shelf or store (e.g., end-of-aisle displays). According to the papers by Babin and Darden 1995; Donovan and Rossiter 1982, these changes in the store environment affect the psychology of the consumer by attracting attention and stimulating exploratory behavior. Inman, McAlister, and Hoyer 1990 say that many customers seem to interpret ISD as signals or cues of a good deal. As the kind of product stored and sold in a shop directly link to the image of the shop, consumers have some faith on the brands whose display has been put up in the store. In low involvement, repeat buying situations, such as grocery purchases, these cues tend to increase a displayed products purchase probability, because customers do not want to go through a complete search and evaluation procedure but instead prefer to settle for satisfying outcomes obtained with minimum effort (Hoyer and MacInnis 2010).[3] Due to time constraints and low involvement in the product (especially for FMCG market) consumers experience the need to simplify their decision process using choice heuristics or cues (Hoyer and MacInnis 2010). The extent to

7|Page which they rely on ISD as a choice tactic or react to them also depends on their sensitivity to store environment influences and their willingness to change purchase plans. Based on the regulation tendency and sensitivity to environmental stimuli of the consumers, previous research have distinguished two groups of consumers Action-oriented consumer and the State-oriented consumer. Action-oriented consumers plan their behavior in advance and do not change their plans based on external stimuli e.g. economic gain, displays etc. They are guided more by intrinsic goals and less prone to emotional and environmental influences. State-oriented consumers do not plan their behavior in advance and hence this group is most affected by external stimuli. They are guided by social and emotional aspects rather than intrinsic goals. They often decide on the spot, engage in exploratory behavior e.g try new brands and change their purchase plans in reaction to environmental incentives (Babin and Darden 1995). There are three kinds of displays (a) Entrance (b) aisle (c) shelf tags. The three locations represent different shopping zones and have distinct functions, such as zones used for traveling (store and aisle entrances) and zones used more for shopping (shelf area within the aisle) (East et al. 2003; Larson, Bradlow, and Fader 2005). The display location have different effects on the consumers in order of appearance: Entrance displays typically are encountered first and are larger and more exclusive, followed by aisle displays which are comparatively small and a little cluttered shelf tag displays are small and are presented simultaneously with similar displays of several other brands. Researching deep into the topic we have summarized a few more past researches that have happened on the topics related to ours. One of the researches explains the relationship between visual merchandising elements and consumer affective response. Design/methodology/approach followed for this research was that different perspective on visual merchandising is offered through the different types of intimate apparel retailers varying from fashion-oriented, mass market-oriented to fashion forward. Chosen sample were of ages of 25 and 35. Virtual merchandising (VM) refers to the design of a retail environment is related to the store atmosphere creation. It is important issue in order to get the desired affective response of consumers and aims to enhance purchase probability. In real practice the fastest moving SKUs and the ones that earn higher margins are under focus while designing the VM of a store. VM can affect the affective perception of consumers on the retail environment by selective attention. Customers have two points of view when evaluating VM in stores, which include utilitarian and hedonic aspects. Former relates to the actual needs of consumers and the later relates to the hedonic aspect. Display elements, such as

8|Page colour, lighting, music and props that emphasize feelings of attraction, tend to trigger positive affective responses in consumers which finally affect purchase intentions. Condition, if properly done as per customer segments interest. It enhances the attractiveness of a store and its perceived image from customers point of view. The hypothesis is that a pleasant store atmosphere is positively related to customer satisfaction that translates in to better sales. The findings of the research says that when drafting strategies for the store environment, the retailers should take this suggestion into account that unified retail store image is important, but perceived localness is also critical. For certain products that tied to aesthetic and social elements, the degree of perceived localness become even more important for acceptance of certain products therefore while designing the VM of retail store, attention should be given to the cultural and symbolic meanings of various stimuli. The hypothesis stands true that the stimuli have direct impacts on the emotion state of individuals and hence indulges them to buy. It stands true that if the VM of a store is centred about the theme of certain product then the sales of that product will increase. The in store displays/layout effect gets failed when it comes to high brand equity for certain products, no matter how much advertisement or put eye level & counter/shelf displays for other products, the brand will negate the effect all those selling techniques. The hypothesis tested under this topic in past researches is that brand eliminates in store advertisement, display and layout effects; sales corresponds to highly valued brand. Brands come with non metric variables like brand perceived value, relationship quality, and loyalty. These brand variables correlates with the sales and variables like in store ads, product placement etc for other products couldnt significantly impact the sales. The findings of the past study on this says that perceived quality of brand has a direct positive effect on brand value and trust-credibility that has direct positive impact on sales for that brand. So, as per the findings of research the hypothesis stands true. Research limitations/implications The research is limited to some product categories and to just stick to strong national brands which enjoy high levels of awareness and market share. Other than real physical store layout/display techniques that influence buying behaviour, the concept of virtual stores is a newly formulated methodology to test FMCG innovations, It is a one of a kind of computer store simulation where the responses of a customer regarding their decision to purchase is captured. The in store display and layout I digitally simulated and exposed to the customers. The literature on the topic talks about the practitioners who have to proceed to several tests, with different objectives, before a product launch. Its one of the

9|Page techniques to for identifying the decision-making processes involved in purchases. The research compares the buying behaviour results of a concept test conducted using a traditional methodology with those obtained using a virtual store. Below are the different schemes of virtual store and a real store.

The hypothesis is that a purchase is the result of an attitude toward a product and a behavioral process. It depends of (i) affect & (ii) attitude & emotion. The objective is to compare the results of buying behavior in virtual store with the physical stores response. Observe the buying pattern and as per the response replicate the virtual shopping model in physical store as per the behaviour for better sales. The research data was collected the same way in experimental real stores and in a virtual one in order to allow comparisons. Behavioural measures are observed in both the experimental real store and the virtual one. Time spent at shelf was recorded and the purchase rate determined by of the sample shoppers who bought at least one product. The buying behaviour at the presentation mode on virtual store is close as per to the reality level of the display, some attitudinal and behavioral indicators may vary as virtual one cant capture the behavioral essence regarding the feel of touching the product. Research result concludes that conclude that virtual stores can be used to test and capture innovative buying behavior concepts for a certain product. However, they should not be used as a basis for decisions for your store layout/display management. Limitation is that the real experimental store cant exactly be replicated as virtual store, the time spend to buy at virtual store is less than the time spend at real store. For future research adding a comparison of wall screen shelf and on line shelf could yield interesting results. Such studies could also be pursued in other distribution channels, such as specialized distribution.

Methodology

10 | P a g e The approach that we pursued is two pronged. The first phase was to put up the items at different levels in HO and ask people to rate the product preference. This way we can understand brand bias. Week 2: The next week we put up banners for the reputed brands and put them in the lower stands and checked the preference. Week 3: The next week we put up discounts for the lesser brands and tried to see the change of buyer perception after discounts. Week 4: We asked people to rate the similarity of various brands so that we could perform multi dimension scaling to find out to see how products fall on a map. We attempted to see if people were more influenced by the brand or discount when choosing between similar products.

Analysis & Results

Discriminant Analysis This tests helps us in finding out the linear combinations of the independent variables which will best best discriminate between the categories of the dependent variable (groups). We would also like to examine whether significant differences exist among the groups, in terms of the independent variables. Here we would also try and find out which variable leads to most of the inter group differences. We would classify cases to one of the groups based on the values of the independent variable and evaluate the accuracy of the classification. First of all, we would look at the effect of variables like brand, location and advertisement on the purchase intention without ads of discounts and which variable has the highest effect. Secondly, we would look at the effect on purchase intention of individuals having considered, discount ads as well along with the above variables and try and find out which variable has the highest effect on purchase intention after the discount ads have been floated.

Without Discount Ads

Test Results Box's M 13.114

11 | P a g e F Approx. 2.038 df1 df2 Sig. 6 7.537E3 .057

Tests null hypothesis of equal population

covariance matrices. The Boxs M test showing insignificant means that the null hypothesis that the intra group variances being equal is not rejected thus, our groups are homogenous within.

Eigenvalues Functi on 1 % Eigenvalue Variance 1.940a 100.0 of Cumulative % 100.0 Canonical Correlation .812

a. First 1 canonical discriminant functions were used in the analysis.

The eigenvalue is the ratio between Between group variance and within group variance. It should be greater than 1 and here it is 1.94 as then it means that the between group variance is higher than within group variance. Thus, our groups are heterogenous across and homogenous within.

Wilks' Lambda Test of Functi Wilks' on(s) Lambda 1 .340 Chi-square df 67.397 3 Sig. .000

12 | P a g e Wilks Lambda shows the ratio between within group variance and Total Variance. It should be lesser than 0.4 and we have it as 0.34. This shows that the groups of purchase and not purchase were highly homogenous within that is they had very less within group variance.

Standardized Canonical Discriminant Function Coefficients Function 1 Brand .955

Location .188 advert .123

The above table shows that Brand discriminates more in segregating the two groups than the other variables as it has the highest Standardized Discriminant Function Coefficient. Classification Resultsb,c Buyin Predicted g Prefer ence Original Count 0 1 % 0 1 Cross-validateda Count 0 1 % 0 1 0 17 5 89.5 10.6 17 6 89.5 12.8 1 2 42 10.5 89.4 2 41 10.5 87.2 Total 19 47 100.0 100.0 19 47 100.0 100.0 Membership Group

13 | P a g e a. Cross validation is done only for those cases in the analysis. In cross validation, each case is classified by the functions derived from all cases other than that case. b. 89.4% of original grouped cases correctly classified. C. C. 87.9% of cross-validated grouped cases correctly classified. The

discriminant function correctly classifies 89.4% of originally grouped cases in their specific group that is whether they are in the purchase or not purchase category. In case of one out cross validation, the discriminant function correctly measures 87.9% of Cross validated grouped cases which is high enough to be sure of the validity of the discriminant function as most of the cases it correctly predicts whether the respondents are in the purchase group or in the not purchase group.

With Discount Ads Here after having tested the respondents without discount ads, we now try to find their responses after having put up discount ads and check which Independent variable has the most discriminating power like the brand in the above case.

Eigenvalues Functi on 1 % Eigenvalue Variance 1.510a 100.0 of Cumulative % 100.0 Canonical Correlation .776

a. First 1 canonical discriminant functions were used in the analysis.

14 | P a g e Eigenvalues Functi on 1 % Eigenvalue Variance 1.510a 100.0 of Cumulative % 100.0 Canonical Correlation .776

An eigenvalue higher than 1(1.510) shows that the groups have been clearly discriminated and the groups are heterogeneous across.

Wilks' Lambda Test of Functi Wilks' on(s) Lambda 1 .398 Chi-square df 57.063 4 Sig. .000

Wilks Lambda <0.4 shows that within group variance is less as a percentage of total variance.

Standardized Discriminant Coefficients

Canonical Function

Function 1 Brand Location advert .773 -.162 -.243

discountadvert .629

15 | P a g e The above table shows discount advertising to be the second most effective independent variable in discriminating between the groups. Due to it, the preference towards brand has come down drastically from .955 to .773 and discount advertising also has a substantial value showing its effect to be highly effective in discriminating between the two groups. Classification Resultsb,c Buyin Predicted g Prefer ence Original Count 0 1 % 0 1 Cross-validateda Count 0 1 % 0 1 0 8 3 80.0 5.4 8 4 80.0 7.1 1 2 53 20.0 94.6 2 52 20.0 92.9 Total 10 56 100.0 100.0 10 56 100.0 100.0 Membership Group

a. Cross validation is done only for those cases in the analysis. In cross validation, each case is classified by the functions derived from all cases other than that case. b. 92.4% of original grouped cases correctly classified. c. 90.9% of cross-validated grouped cases correctly classified.

Here, in the original grouped cases 92.4% cases are correctly classified showing a high efficiency level of the discriminant function. Whereas in the cross validated case as well, the capability of correctly classifying the grouped cases is still very high at 90.9%.

16 | P a g e Multi-Dimensional Scaling: Dove, Park Avenue and Pears The experiment was conducted with the three brands Dove, Park Avenue and Pears. Before the experiment was conducted and after the experiment was over, Multi-Dimensional scaling was conducted to know the change in the position of these three brands in the minds of the consumer just because of the promotional offer on Dove. But, as we are dealing with only three brands, multi-dimensional scaling in SPSS is not possible to perform, since the minimum number of variables required for performing Multi-dimensional scaling in SPSS is 5. Hence, a couple of dummy brands vivel and lux were taken to make the variables under consideration as 5. Responses were taken from the respondent prior to the experiment and post the experiment. Twelve responses were taken using aggregate level analysis under the assumption that all respondents used the same dimensions to evaluate the brands, but the weights of the dimensions might be different. It is a direct approach multi-dimensional scaling in the sense that the set of attributes were not identified by the research team. Scale: Dissimilarity data is taken on a continuous scale there by allowing decimal ratings. A rating of zero means very similar and a rating of ten means very dissimilar. Perception post the experiment (Vivel and Lux being dummy brands)

17 | P a g e Results: Final stress value obtained after five iterations is 0.02298 which shows that the model fit is somewhere between perfect and excellent. A closer look at the scatter plots of the subjects reveal that almost all of them had similar perception about each of these brands after the experiment has taken place. Though Pears and Park Avenue appear to be closer to each other in the perceptions of the people after the experiment, both of them are in different quadrants on the perception map. Dove is located diagonally opposite to both of these brands after the experiment which shows that in the minds of the people the perception about Dove is very much different from the brands pears and Park Avenue. Stepwise Regression: We did stepwise regression to see the effect that each of our three factors location, advertisements and brand had on purchase intent. We did a similar research post discount to see the role that discount plays in purchase intent. Pre discount:

18 | P a g e Interestingly SPSS did not need the location factor to create the model implying that the additional r square that location provides to the regression model is minimal.

We see that regression model is significant and the collinearity diagnostics are appropriate. (VIF<5) Now we check for the model with discount provided.

Now we see that when the model is plotted discount advertisement and brand are the only two factors that contribute significantly to the model.

19 | P a g e

Here we see again that the statistics are significant and VIF is within limits. Hence the model is appropriate. So we see that when in the second model both advertisements and discounts exist people prefer going for the discounted product and the importance of the advertisement fades away as shown by the lack of need of the advertisement factor in the model. Logistic Regression From the MDS analysis it was found that Pears and Park avenue occupies the same space in the minds of the consumer and thus we decided that we could observe the effects of the brand preference over advertisement for theses two brands in the store. So firstly we put an ad of Park avenue describing product benefits over Pears and also how it was more helpful in fighting germs and maintaining clean For this we asked the consumer two questions If they wanted to buy Pears over Park Avenue The questioner made a tick against the question of whether the consumer read the advertisement if the customer spent an amount of time in observing the advertisement

20 | P a g e The experiment was conducted with 30 participants and a logit analysis was performed on the responses The output of the logit analysis is shown below

From the shown values we can see that the earlier the correct prediction of the percentage of people who were buying and not buying when the intercept was entered was 53.3% which increased to a 93.3% correct prediction when the variables regarding the advertisement and preference of one soap over other were included

21 | P a g e

This shows the coefficient of the equation for the determination of purchase behavior.

Discussion
Through the Logistic Regression, we saw whether the consumer was looking at the advertisement and whether he/she is preferring a particular brand or not. On doing the Logistic Regression, we found that advertisement had a higher impact on buying behaviour than brand preference. In case of Discriminant Analysis, we found that when ads were not put up then Brand was the biggest discriminating factor between purchase and not purchase groups. When we

introduced the discount ads, the brand preference came down drastically and discount ads proved to be a close second to brand preference (.773- brand vs .629- discount ads). Thus, showing that discount ad is a potent factor behind discriminating between the two dependent groups of buying and not buying a product.

Limitations & Future Research

The study we performed suffers from certain limitations like The study was performed with a sample of students and some staff from High Octane and the sample was collected with convenience and also had a very narrow range The number of products collected and studied were very small and few due to budget constraints, the preference of advertisements should thus be seen on a greater number

22 | P a g e No high end products were included which generally have a very loyal customer base The study could have also taken into account consumer behaviour in larger stores with different ambience and advertising techniques like reliance fresh but due to logistic difficulties in handling, we had to conduct the study in a simulated store

Bibliography
Testing FMCG innovations: Experimental real store versus virtual Journal of Product & Brand Management by Etienne Bressoud How does visual merchandising affect consumer affective response? by Derry Law, reach him atDerry.Law@inet.polyu.edu.hk Impacts of in-store manufacturer brand expression on perceived value, relationship quality and attitudinal loyalty by Philippe Aurier and Gilles Sere de Lanauze Montpellier 2 University MRM, Montpellier, France 2012 SHOPPER ENGAGEMENT STUDY a MEDIA TOPLINE REPORT Displays, Sales, and In-Store Search in Retail Market by Matthew Gentryy Effectiveness of in-store displays in a virtual store environment by Els Breugelmans and Katia Campo, DEPARTMENT OF MARKETING AND ORGANISATION STUDIES (MO)