Consumer Choice; Variety in the Retail Setting.


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Presenting choice wisely is increasingly important in the retail sector because choice is expanding. Many choices are of little importance and are made in a matter of seconds when the customer is confronted with the assortment. Therefore, in store presentation can have great influence on the amount of mental energy people expend in deciding, whether or not they decide and what product is chosen. In the western world choice is perceived as desirable and there are various pressures for more choice. Preference for choice is however not only related strongly to culture, but also to personality, involvement and context among others. The amount of variety offered profoundly affects peoples purchasing behavior by fostering indecision especially when customers are unsure about their preferences. Assortment size also affects decision confidence and post-purchase satisfaction. Presenting choice can be most effectively done when products are organized according to the consumer’s decision tree, thereby forming the customer’s choice set and limiting the amount of choices consciously made.
This paper presents two empirical studies in addition to the extensive literature review. The first study explores similarities and differences in Dutch and American attitudes toward choice in retailers through an application of the tripartite attitude theory. It shows that Dutch more often than Americans find that there is too much choice and feel less benefitted by having choice. Furthermore, it provides support for the assumption that reactions to choice are based on largely the same perceptions and believes. The second research furthers the cross-cultural comparison by analyzing assortment evaluations, indecision and choice satisfaction in more detail. For the American sample many results from previous research were duplicated. The Dutch sample, however, gives reason to believe Dutch reactions to choice are fundamentally different and more negative. Further investigations of Dutch perceptions of and reactions to choice showed that Dutch experience many of the benefits and drawbacks of choice found by American research. Furthermore, it provides insight into presentation effects in retailers, stressing the importance of appropriate assortments and assortment organization.

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Consumer Choice; Variety in the Retail Setting.

  1. 1. CONSU MER CHOICEVariety in the Retail SettingAn EMBS master’s thesis, by R.T.I. van Hees.Submitted May 24, 2012, at the University of León, Spain,to professors I. Trevisan, S. Ganassali, R. Wagner and C. Rodriguez-Santos.
  2. 2. i Source cover figure: HSBC (2012). Expat 2011 rating of local stores andmarkets. Retrieved April 15, 2012, from master’s thesis was written as part of the European Master in Business Studies(EMBS) program in partial fulfillment of the requirements for the followingacademic degrees: − Università Degli Studi de Trento: “Laurea Magistrale - CLASSE LM77 Lauree Magistrali in Scienze Economico-Aziendali” − Université de Savoie: “Master en Droit Economie Gestion” − Universität Kassel: “Master of Arts” − Universidad de León: “Master Universitario Europeo en Dirección de Empresas”.All rights reserved. No part of this publication may be reproduced, stored in adatabase or retrieval system, or distributed in any form or by any means, electronic,mechanical, photocopying, recording or otherwise, without prior written permissionof the author.Correspondence concerning this paper can be sent by e-mail to Iris van Hees
  3. 3. ii Abstract Presenting choice wisely is increasingly important in the retail sector becausechoice is expanding. Many choices are of little importance and are made in a matterof seconds when the customer is confronted with the assortment. Therefore, in storepresentation can have great influence on the amount of mental energy people expendin deciding, whether or not they decide and what product is chosen. In the westernworld choice is perceived as desirable and there are various pressures for morechoice. Preference for choice is however not only related strongly to culture, but alsoto personality, involvement and context among others. The amount of varietyoffered profoundly affects peoples purchasing behavior by fostering indecisionespecially when customers are unsure about their preferences. Assortment size alsoaffects decision confidence and post-purchase satisfaction. Presenting choice can bemost effectively done when products are organized according to the consumer’sdecision tree, thereby forming the customer’s choice set and limiting the amount ofchoices consciously made. This paper presents two empirical studies in addition to the extensiveliterature review. The first study explores similarities and differences in Dutch andAmerican attitudes toward choice in retailers through an application of the tripartiteattitude theory. It shows that Dutch more often than Americans find that there is toomuch choice and feel less benefitted by having choice. Furthermore, it providessupport for the assumption that reactions to choice are based on largely the sameperceptions and believes. The second research furthers the cross-cultural comparisonby analyzing assortment evaluations, indecision and choice satisfaction in moredetail. For the American sample many results from previous research wereduplicated. The Dutch sample, however, gives reason to believe Dutch reactions tochoice are fundamentally different and more negative. Further investigations ofDutch perceptions of and reactions to choice showed that Dutch experience many ofthe benefits and drawbacks of choice found by American research. Furthermore, itprovides insight into presentation effects in retailers, stressing the importance ofappropriate assortments and assortment organization. Keywords: choice, retail, assortment planning, variety growth, consumerpsychology, purchasing decisions, excessive choice, retail marketing, shelfmanagement
  4. 4. iii List of TablesTable 1: Types of new products. ................................................................... 17Table 2: Choice exposure styles.................................................................... 30Table 3: Distribution for ‘liking’ of the amount of choice in stores. .............. 66Table 4: The believed benefits of having choice in stores.............................. 68Table 5: Amount of respondents that did, did not and did not but indicated reason to complain. ............................................................ 70Table 6: Benefits associated to choice........................................................... 89Table 7: Extent to which negative feelings were experienced........................ 91Table 8: Cross-tabulation of liking and given reason .................................... IVTable 9:Cross-tabulation of whether there was perceived benefit and reason given. ...................................................................................... VTable 10: Cross-tabulation of whether the respondent complained and given reason or mediator. .................................................................. VITable 11: Relationship between attitude components. .................................. VIITable 12: Relationship between attitude components for Dutch respondents. ................................................................................... VIIITable 13: Relationship between attitude components for American respondents. ...................................................................................... IXTable 14: Recalled product type by nationality. ........................................ XVIITable 15: Recalled product type by gender. .............................................. XVIITable 16: Age of the memory by product type. ......................................... XVIITable 17: Age of the memory and decision difficulty for Dutch. .............. XVIIITable 18: Importance to choose right by nationality................................. XVIIITable 19: Importance to choose right by product type. ............................. XVIIITable 20: Product knowledge and nationality ............................................ XIXTable 21: Product Knowledge and Importance. ......................................... XIXTable 22: Assortment Evaluation and Nationality ........................................XXTable 23: Assortment evaluation and satisfaction with choice......................XXTable 24: Assortment evaluation and satisfaction with choice by nationality. .......................................................................................XXTable 25: Assortment evaluation and knowledge ....................................... XXITable 26: Assortment evaluation and product knowledge by nationality. ... XXITable 27: Assortment evaluation and decision importance. ....................... XXIITable 28: Assortment evaluation and decision importance by nationality. . XXIITable 29: Decision ease and remembered assortment size........................ XXIIITable 30: Decision ease and Choice set size for Americans. ................... XXIVTable 31: Decision importance and decision ease. .................................. XXIVTable 32: Product knowledge and decision ease. ...................................... XXVTable 33: Decision ease by nationality. ..................................................... XXVTable 34: Satisfaction with the made choice and decision ease by nationality. .................................................................................. XXVI
  5. 5. ivTable 35: Satisfaction with the made choice and considering purchase deferral by nationality. ................................................................ XXVITable 36: Satisfaction with the made choice and considering postponing the decision by nationality.......................................................... XXVIITable 37: Satisfaction with choice and product knowledge. ................... XXVIITable 38: Satisfaction with choice and choice importance by nationality.XXVIIITable 39: Ability to express identity by acceptance little variety basic goods. ......................................................................................... XXIXTable 40: Choice identity and self-expression. ........................................ XXIXTable 41: Benefits associated to choice by gender. ................................... XXXTable 42: Assortment evaluation and appropriateness categorization. ..... XXXITable 43: Assortment evaluation and exceeding variety expectations...... XXXITable 44: Assortment evaluation and product availability. ..................... XXXIITable 45: Assortment evaluation and special offers. .............................. XXXIITable 46: Assortment evaluation and increased expectations. ............... XXXIIITable 47: Difficulties deciding and self-efficacy. .................................. XXXIIITable 48: Drawbacks to deciding factor loadings by gender.................. XXXIVTable 49: Decision difficulty and process satisfaction. .......................... XXXIVTable 50: Satisfaction made choice and positive surprise. ..................... XXXIVTable 51: Positive surprise and increased expectations. ......................... XXXV
  6. 6. v List of FiguresFigure 1: Value added as percentage of GDP in 2010 and share of total businesses enterprises in 2008 in the retail and wholesale sector for selected EU countries. ................................................................... 6Figure 2: Concentration ratios in the European retail sector in 2004/2005. .......................................................................................... 7Figure 3: Countries of operations of five major international retailers. .......... 11Figure 4: Number of countries with physical and online store presence for selected fashion retailers in 2010. ................................................ 13Figure 5: Online retail sales as share of total national sales in 2011. ............. 13Figure 6: Online purchases and the percentage of households that have Internet access in Europe and Turkey. ............................................... 14Figure 7: Per capita sales area (in m2) in 2010. ............................................. 21Figure 8: Number of products offered by the average grocer per category in 2004.............................................................................................. 24Figure 9: Assortment depth; number of items sold by Aldi by category by country. ........................................................................................ 25Figure 10: Relationship between perceived variety and likelihood of purchase............................................................................................ 41Figure 11: Variety and decisions; relationships identified in the literature review. .............................................................................................. 54Figure 12: Pareto chart of reasons for liking/disliking the amount of choice in stores. ................................................................................ 67Figure 13: Pareto chart of believed benefits of choice. .................................. 69Figure 14: Number of stores per 1,000 inhabitants in 2007 for selected countries .............................................................................................IIFigure 15: Share of grocery sales by format in Europe, 2000 vs 2004. .......... III
  7. 7. vi List of AbbreviationsEU – European UnionGDP – Gross Domestic ProductGfK – Growth for KnowledgeICT – Information and Communication Technologyp - ProbabilityPOPAI – Point-Of-Purchase Advertising InstitutePPP – Purchasing Power ParitySD – Standard DeviationSE – Standard ErrorSKU – Stock Keeping UnitUHT – Ultra High TemperatureUK – the United KingdomUS/USA – United States/United States of America
  8. 8. vii Table of ContentAbstract iiList of Tables iiiList of Figures vList of Abbreviations viTable of Content viiPreface xIntroduction 1 1. Research Question 1 2. Preliminary Definitions 2 3. Research Methodology 31. Industry Introduction 5 1. Sales, GDP and Industry Structure 5 2. National Industry Developments 8 3. Globalization 10 4. Online Ret@il 122. Sources of Variety and the Prevalence of Choice 17 1. Categorizing new products 17 2. Product and Brand Variety 18 3. Global Assortment Sizes 20 4. Store Formats and Assortments 22 5. Assortment Depth 243. Consumer Demand for Variety 26 1. Sides to Variety 26 2. Exposing Oneself to Choice 29 3. Maximizers and Satisficers 314. Making Purchasing Decisions 32 1. The Purchase Decision 32 2. Involvement, Information Search and Decision Novelty 33
  9. 9. viii 3. In-store Decisions 34 4. In-Store Decisions and Heuristics 365. Purchasing from Variety 38 1. Product Choice and Variety 38 2. Chance of Purchase and Variety 39 3. Chance of Purchase, Trade-offs and Preference Uncertainty 41 4. Memory and Time 43 5. Knowledge and Articulated Preferences 45 6. Customization and Personalization 476. Variety and Post-Purchase Satisfaction 50 1. Post-Purchase Satisfaction 50 2. Opportunity Costs and Escalation of Expectations 51 3. Regret and Responsibility 527. Choice Moderation by Retailers 55 1. The Retailers and Variety 55 2. Presentation Effects 57 3. Other Moderating Policies 598. Study 1: Attitude Towards Choice 62 1. Study Design 62 2. Analysis Procedure 62 3. Sampling Procedure and Sample 65 4. Results 65 5. Discussion of Results and Methodology 739. Study 2: Choice and Satisfaction 75 1. Study Design 75 2. The Instrument 76 3. Sampling Procedure and Sample 78 4. Analysis Procedure Cross-Cultural Study 78 5. Recalled Choices 79 6. Results Cross-Cultural Comparison 82 7. Discussion on Cross-Cultural Findings 86 8. Analysis Procedure Study of Dutch Respondents 87
  10. 10. ix 9. Specific Results for Dutch Respondents 88 10. Discussion of Dutch Results 93 11. Discussion of the Methodology 95Conclusion, Recommendations, Discussion and Future Outlook 97References 100Appendix A: Legend figure 6 IAppendix B: Additional Industry Data IIAppendix C: Study 1; Extra Information IVAppendix D: Study 2; Questionnaire American Respondents XAppendix E: Study 2; Questionnaire Dutch Respondents XIIAppendix F: Study 2; Extra Information Cross-Cultural ComparisonXVIIAppendix G: Study 2; Extra Information Analysis Dutch RespondentsXXIXPersonal Affirmation in Lieu of Oath 1
  11. 11. x Preface The classes on marketing and product innovation during the EMBS-programmade me wonder what free competition and the expansion of product alternativesmean for the everyday consumer. To some extent consumers and their experiencesseem to have been marginalized by an academic and corporate discourse focused onprofit and sales as the main criteria for market success. The underlying andwidespread assumption is that optimized profits in competitive markets imply needsbeing served in the best feasible manner. Thus, the consumers’ reaction to thiscompetitive approach and expansion of choice is reduced to the product they chooseto spend their money on and the amount of money that is spent. However, thoughthis reasoning makes sense within economic theory, in practice consumer reactionsare much more complex. Some of the problematic of the ongoing boom of choice were brought to myattention by the virtue of, a nonprofit initiative that I have to thank forproviding much inspiration over the years. From amongst their many contributorsI’d like to make a special note of two speakers, namely Barry Schwartz and SheenaIyengar from whom I borrowed some ideas with which I started this research. Moststriking was that though we need choice to be free, not all choice increases freedom,and the availability of many choices may in fact decrease happiness and overallwell-being. Fortunately, some retailers pick up on their clients’ confusion, and othernegative reactions to choice such as indecision, and attempt to reduce this byorganizing and limiting their assortments. A theoretical framework is still missingand much of the existing knowledge has been developed inside big retail chains andis therefore not available to their smaller competitors. This master thesis is mycontribution to both the development of a framework and increasing awareness ofthe costs of choice, including time, confusion and decreased satisfaction, as well asincreasing knowledge on when and how having much choice is beneficial.Moreover, this thesis investigates to what extent these negative effects are culturallybound. For this surveys were spread among both Americans and Dutch revealingsome interesting similarities but more strikingly revealing profound differences. Thistext should not only be helpful to retailers, but also for marketers, students and thegeneral public alike.
  12. 12. xi I would like to thank Melanie van der Lee for her explanation of theworkings of grocery store shelf management, a task she has carried outprofessionally for many years for one of the Netherlands largest grocery chains. Iwould like to thank everyone who took the time to help me with the pre-testing aswell as the respondents of my questionnaires and the two panel bureaus. Finally, Iwould like to thank my parents and friends who took the time to discuss my ideaswith me and my tutors Michael Gierczak and José Luis Vazquez. León, Spain, May 24th, 2012, Iris van Hees
  13. 13. Introduction 1 Introduction1. Research Question Whichever the form of the increase in variety, the amount of productalternatives is profoundly interlinked with the free market responding to consumers,as well as the globalization of demand and supply. Primarily, one may attribute thisincrease in variety as a logical, expected and desired effect of the market economywhich promotes innovation and caters to the buyer’s needs. Therefore, it follows thatwith this increase in choice people are able to find products that better fit their wantsand needs, will overall be getting more satisfied, and the market will, with time,reach an optimum. However, there are some indications that this increase in choiceis taking its toll, especially when it comes to the satisfaction with the purchasedgoods and services and the general consumer well-being. Therefore, consumerreactions to the increase of choice are important to investigate, especially now thatthe Internet vastly expands the amount of alternative products available toconsumers, and marketers are more and more introducing products for only limitedperiods of time. The main question of this paper is: ‘To what extent is the amount of choiceoffered by Western retailers to non-professional customers desirable?’ Thisquestion is sub-divided as follows: -How pervasive is choice in retailing to non-professional consumers? -How does the amount of choice affect customers? -What are industry best-practices when it comes to presenting choice? -To what extent are the responses to choice similar in the USA and theNetherlands? The first sub question, ‘How pervasive is choice in retailing to non-professional consumers?’ is answered in chapters one and two. Here the history ofretail over the past 200 years is discussed as well as the progression of the amount ofchoices offered by retailers. The second sub question, ‘How does the amount ofchoice affect customers?’ is discussed theoretically in chapter three to six. Thediscussion covers why consumers may or may not want choice, how retailpurchasing decisions are made and how choices and their outcomes are affected bythe amount and sort of alternatives available. Then chapter seven gives an overview
  14. 14. Introduction 2of known industry best-practices in an attempt to answer the third sub question,‘What are industry best-practices when it comes to presenting choice?’ Following this theoretical framework, own research is presented as ananswer to the fourth sub-question: ‘To what extent are the responses to choicesimilar in the USA and the Netherlands?’ First a look is taken at the general attitudetowards choice, followed by an investigation of assortment satisfaction, satisfactionwith made purchasing decisions and the occurrence of indecision. The final researchfocus is an investigation into Dutch perceptions of and reactions to choice, focusingon associated benefits and drawbacks as well as in-store assortment presentation.The paper concludes with recommendations for retailers and marketers as well assuggestions for future research and a general future outlook.2. Preliminary Definitions In the context of this thesis retailer refers to a company that is: “primarilyinvolved in the activity of purchasing products from other organizations with theintent to resell those goods to private households, generally without transformation,and rendering services incidental to the sale of merchandise” (Zentes, Morschett,Schramm-Klein, 2011, p.1). Retailing covers all consumer products such as food,apparel, consumer goods, financial services, leisure, etc. There are many differentretail formats, which can be split in store and non-store (IMAP, 2010). Here thefocus is on store formats and to lesser extent online stores. Non-store retailers suchas catalogues, door-to-door, telephone and direct response television are excluded.The recommendations of this paper are equally applicable to companies that selltheir own products directly to consumers, for example through factory outlets, aslong as their target group and store formats are similar. A non-professional customer is whoever has the possibility to choose fromthe product assortment of the store, for personal consumption, regardless of whetheror not a purchase is made. Choosing or making a decision in the context of this thesis, will be definedas a response to a situation in which alternative courses of action are underconsideration and “the decision maker can form expectations concerning future events and outcomes following from each course of action, expectations that can be
  15. 15. Introduction 3 described in terms of degrees of belief or probabilities. (…). The consequences associated with the possible outcomes can be assessed on an evaluative continuum determined by current goals and personal values.” (Hastie & Dawes, 2009, p.24). Finally, product alternatives are those products that by the customer areseen as substitutes and therefore fall in the same product category. More alternativesimplying more choice and fewer alternatives providing less choice. There arevarious ways to measure assortment variety within a product category. To measureassortment depth, one can look at the number of Stock Keeping Units (SKUs) itcontains. Alternatively, to measure variety one can look at the attribute variety (seevan Herpen & Pieters, 2002, for a detailed mathematical description) also referred toas assortment entropy (Fasolo, Hertwig, Huber & Ludwig, 2009). Attribute varietycalculations primarily rely on the amount of aspects on which products can vary andthe amount of different attributes they can take. For example, when three shirts areoffered there is more variety when they do not only differ in color but also in size.These shirts additionally present more variety if instead of there being two colorsthere are three. Here the perception of customers is crucial to determine whichproduct aspects do and do not create variety, for example if the stich size in theseshirts differ by .1mm very few customers, not to say none, will notice. As productsbecome less and less objectively different from each other some consumers maycease to count them as possible choices. Based on this reasoning, groups of twoproducts can be placed on a continuum of the amount of choice they present.Products that differ little on few attributes present little choice and products thatdiffer widely on many attributes present much choice. Research suggests thatattribute based variety calculations correspond better to perceived variety than SKUbased measures, however these calculations are more costly and rely more heavilyon the researcher’s judgment.3. Research Methodology This thesis is based on three distinct approaches to research. The first half isbased on literature research. This is followed by chapter seven which in part is basedon literature research, in part on an in depth interview and for the remainder on the
  16. 16. Introduction 4stories of various professionals in the retail field. The last part of this thesis is basedon the qualitative and quantitative analysis of two surveys. The literature research is primarily based on publications in research journalsand by specialized marketing research companies. If multiple researches were foundthat covered the topic preference was given to the most recent publication. Whenlooking at global data special emphasis was placed on both Europe, and specificallythe Netherlands, and the USA. Next to these sources also some books from theuniversity library, newspaper articles and conference talks were used. For some ofthe data presented primarily in the earlier chapters the Eurostat and UNDatadatabases were used. Next to the literature research chapter seven on the presentation of choice byretailers is additionally based on an in depth interview with a manager in charge offcategory presentation of a large Dutch grocery retailer who has worked togetherclosely with the research department there. The interview took place December 28,2011. The retailer wants to remain unnamed. For this chapter also the experiences ofsome other retail professionals were used, taken mainly from thematic forums. The final part of this thesis resents the results of two surveys which weredeveloped using the presented literature and tackle various questions. The combinedsample size is over 570, including both Dutch and Americans, recruited both throughthe author’s personal network as well as online panels. All quantitative analyseswere carried out using either Microsoft Excel 2010 or SPSS 17.0. For more detailedinformation regarding the methodology, please see the studies’ respectivemethodology sections. The recommendations and conclusions chapter that concludes this thesis isbased on all research presented, and as said before aims to provide practitioners witha more profound understanding of the problematic as well as concrete tools tocounteract possible downsides of choice.
  17. 17. Industry Introduction 5 1. Industry Introduction Before discussing how consumers are affected by the increasing amount ofchoice in Western countries, it is important to have established that consumers arefaced with increasing amounts of product alternatives, and before that we need tohave an image of the retail industry and its development. Therefore, this chapterprovides an introduction to the global retail industry, with a special focus on theUSA and Europe. As covered in the general introduction, the retail industry is comprised ofthose individuals and companies that sell finished products to the consumers, and thesector can be subdivided in food, soft (clothing) and hard goods (IMAP, 2010).Although in some cases the manufacturer is also the retailer, typically productdistribution is carried out by specialized companies. Products are either sold directlyfrom the manufacturer to the retailer, or through wholesalers. Often specializedservices such as storage, transportation and ICT are outsourced. The industry is laborintensive and has a moderate to use of capital (Michigan State University, 2012).Retail competition is mainly price based, but also location, assortment, store lay-outand reputation matter.1. Sales, GDP and Industry Structure In 2009 global retail sales were 13.9 trillion dollars, compared to 7 trillion in2000 (IMAP, 2010; Deloitte, 2002). However, total retail sales are closely related toGross Domestic Product (GDP), because personal incomes minus saving rate andplus lending, are spent in retail, insurance, services, rent, water, electricity, gas andinvestments. In Europe retail spending was between 27 to 40% of private spendingin 2009, in Russia as much as 60%, and in the US approximately 50 to 55% (GfK,GeoMarketing, 2010; the Office of Consumer Affairs, 2011). The amount of thiswhich was spent on food differs between countries, and to some extent reflectswelfare. According to Lasserre (2007) in Western European countries spending onfood was between 30 and 40% of total retail spending in 2003, in the US this sharewas lower (27%) and in Asian countries this was higher (46% in Japan and 59% inChina).
  18. 18. Industry Introduction 6 Due to the close relationship between retail sales and GDP the added value of the industry as a percentage of GDP is a better measure of its size. The value added by the retail industry (including wholesale, restaurants and hotels is on average 15.7% of GDP (own calculations based on 2010 data of 207 countries retrieved from UNData). The added value of wholesale, retail, restaurants and hotels over GDP has shown a constant drop since the 1970’s, being 16.2% in 1970, 16.1% in 1980, 15.8% in 1990, and 15.7% in 2000 (based on data from 183, 183, 214 and 209 countries respectively). In 2010, the lowest contributions of retail to GDP was in oil producing countries, such as Kuwait, Saudi Arabia and Qatar with 4 to 5%, and the highest in islands and city states such as Monaco and islands such as Barbados with 35 to 39%. Figure 1: Value added as percentage of GDP in 2010 and share of total businesses enterprises in 2008 in the retail and wholesale sector for selected EU countries. 20% 45% 18% 40% % of total enterprises 16% 35% 14% 30% 12% 25%% of GDP 10% 20% 8% 6% 15% 4% 10% 2% 5% 0% 0% Czech Republic Estonia Romania Slovenia Slovakia Belgium Portugal United Kingdom Germany Spain Italy Luxembourg Hungary Finland Sweden Norway Bulgaria Latvia Lithuania Austria Cyprus the Netherlands retail enterprises wholesale enterprises total value added Source: Calculated based on Eurostat and United Nations data (UNData). On average 14.5% of European GDP is added value from the wholesale and retail industry. This is 1.2% lower than the world average. The relative GDP importance of the wholesale and retail sectors in various European countries, as visualized in figure 1, is spread between 8.8% in Norway and 18.6% in Portugal. Also the amount of enterprises active in the retail or wholesale industry relative to the total amount of enterprises differed widely between the countries. In some, such
  19. 19. Industry Introduction 7as Slovakia, Germany and Finland there were relatively few, while in Bulgaria andRomania there were relatively many. On average 22.4% of European enterprises areretailers or wholesalers. Comparing the GDP contribution to the amount of companies in the sectorshows that especially in Bulgaria and Romania retail firms on average contributerelatively little, a finding supported by Wrigley and Lowe (2010) who analyzedconcentration of the European retail markets (see figure 2). Data from Nielsen(2010a) shows 5-firm concentration ratios of 97% in Australia, 95% in NewZeeland, 76% in Hong Kong, 57% in Taiwan, 32% in Korea and 9% in China.Globally the top 250 retailers had a market share of slightly more than 27% in 2009(Deloitte, 2009), showing that few decision makers have an influence over the dailyshopping experience and consumption habits of a large part of the global population,though their reach differs greatly from country to country.Figure 2: Concentration ratios in the European retail sector in 2004/2005.Source: Wrigly and Lowe (2010). In the retail industry there increasingly is a divide between very small andvery large companies, a trend that will be discussed in more detail later this chapter.While, as said before, the largest companies have large market shares the majority ofregistered retailers is very small. Data from Haskel, Jarmin, Motohashi and Sadun(2007) shows that the majority of enterprises in the retail sector had only oneestablishment in 2002 (95% of firms in Japan and the US and 94% of firms in theUK). The size of companies with more than one establishment varies more widely
  20. 20. Industry Introduction 8cross countries. In Japan firms with more than one establishment on average have 7,in the UK 8 and in the US 13. This indicates that the US retailers are much moreconsolidated than their Japanese and English counterparts. This difference in chainsize and concentration can largely be explained through recent sector developmentsthat have also driven the globalization of the sector, and will be elaborated uponshortly.2. National Industry Developments Over the last two centuries the manner in which people purchase their food,beverages and other supplies in the Western world has changed drastically (seeWrigley & Lowe, 2002 for an extensive discussion of the changing retail structures).Previously almost always separate retailers, such as vegetable stores, butchers,bakers, milkmen and grocers, merged into new store formats such as departmentstores, super- and hypermarkets under the influence of growing urban middleclasses, rising ownership of cars, fridges and freezers and mass production(Mooijman, 2004; Wraigley & Lowe, 2002; Seth & Randall, 2001; Tat Keh & Park,1997). For this format change the invention of the ‘self-service’ supermarket in the1937 was crucial (Wrigley & Lowe, 2002). Self-service is slowly spreading fromWestern markets such as the US, where approximately 85% of sales are self-service,to Asia (53%) and countries such as India (6%; Nielsen, 2010a). Furthermore, otheraspects of modern retailing have emerged after 1900, such as pre-packaged foods,window displays, advertising, and clear, fixed pricing (Alexander & Akehurst,1998). Also the automation of payments, both through the introduction of barcodesas well as checks and electronic payment methods, and the automation of stockkeeping and supply chain management have allowed for an increase in laborproductivity and the creation of economies of scale. This increase in store size is also known as the retail life cycle. The retail lifecycle relates store type to maturity of the economy, and to maturity of the retailsector in particular (Zentes, Morschett & Schramm-Klein, 2011). As time progressesthe store formats become larger and larger offering more and more alternatives, bothin depth and breadth, two assortment aspects that are explained in the next chapter.The point where stores become smaller again seems to not have been reached yet.
  21. 21. Industry Introduction 9 The increase in store size was paralleled by a dramatic decrease in theamount of grocers per citizen from the start of the 1900 to now, which is logical aslarger stores need a larger customer base to be sustainable. Data from Haskel,Jarmin, Motohashi and Sadun (2007) shows that in 1997 there were approximately11 stores per 1000 inhabitants in Japan, 5 stores per 1000 inhabitants in the UK and4 stores per 1000 inhabitants in the US. Comparing this to their data of 2002, anddata from Euromonitor (2009) of 2007 shows a negative trend (see Appendix A forstatistics for 2007 for a wide selection of countries). This trend is undoubtedlyinfluenced by the rise of modern store formats such as that of Walmart who’s storesare only viable with a minimum customer base of 150,000 (Lasserre, 2007). Data from the Netherlands shows that this is not just a recent trend. Where atthe start of the nineteenth century there was one grocer for each 200 people in 2001there was on average 1 grocer per 850 people, and by 2005 1 for each 1,000 (BetjeBoerhave, 2011). Although many of the smallest villages have found local storesdisappearing, and distances to stores increasing this decrease in stores perinhabitants did not lead to fewer stores being available to most people. Becausetowns and cities grew and the range that consumers could easily travel increased aswell. People were often faced with both more and larger stores, especially in citiesserving as regional retail centers (Mooijman, 2004). Thus, as the stores becamebigger, most consumers found that the amount of stores at which they could buy aproduct increased. The growth in store size was combined with the rise of chain stores.Modernized larger retailers gained a competitive advantage over less modernizedsmaller firms, and mainly in the 1980’s and 1990’s independent grocers starteddisappearing while chains gained market share (Wrigly and Lowe, 2010). In theNetherlands which in 1990 still had over 60,000 independent grocers in 2010 onlyaround 20,000 were left (Deloitte, 2011). And as 35.3% of independent grocers witha turn-over below 75,000 euros per week indicated in July that year to expect to goout of business within the next five years this trend is likely to continue. At the sametime large chains report no such fears and the largest three holdings (each owningmultiple retail firms) now have an 85.7% market share. Also the three maindiscounters do well, with a combined market share of 19%. Concentration led to a power shift from manufacturers to distributor chains(Wrigly and Lowe, 2010). In the same 1980’s to 1990’s period the ICT revolution
  22. 22. Industry Introduction 10allowed for more buyer-driven supply chains and retailers introduced lean methodsof supply chain management. These developments allowed retailers, such as Tesco,to reduce stock days from 45 in 1978 to around 15 from the 1990’s onward.3. Globalization Retail globalization has a long history; the first ‘modern’ retailers tointernationalize were luxury, specialty and department stores, which between 1880and 1945 opened stores in cosmopolitan cities (Alexander, 1997). Furthermore,between 1960 and 1974 many leading Western European retailers started to look toother countries for growth and invested both in neighboring countries as well as theUSA. In this period Carrefour expanded to Spain, and Ahold to the USA. Then, aftera period of downturn and economic shocks, not only did the Western Europeanretailers restart international investments between 1983 and 1989, but also theJapanese started investing in both markets. Real retail globalization started in the 1990’s, with those retailers that hadconcentrated, automated and introduced lean systems (consisting mainly of WesternEuropean and American firms) exporting their expertise to countries in whichretailers had not yet done so (Wrigly & Lowe, 2010; Alexander, 1997). They therebymainly focused on countries in their own region as a consequence of thedevelopment of regional trade blocks such as the NAFTA, the European SingleMarket and the opening up of Eastern European and Asian countries. For example,the number of retail establishments in Eastern Europe owned by Western Europeanfirms increased from 28 in 1991, to 1,800 in 2002 (Igan & Suzuki, 2011). Figure 3, shows how some leading retailers have expanded internationallyover the last decades. As their success relies mainly on their competitive advantagesoutlined before, this globalization has put a firm stamp on the retail industry, byconcentrating retailers and modernizing the business models to include ICT and newforms of supply chain management. Moreover, internationalization has enlarged andhomogenized store formats, presentation, management and product selections. Thiseffect is especially strong in those countries that do not have ‘modernized’ retailsector. Of course, this process of change takes time, and thus the largestWesternization and preference for larger store formats can be observed in countries
  23. 23. Industry Introduction 11such as Poland, the Czech Republic, Hungary and Slovakia, and to a lesser extent incountries such as Bulgaria, Romania, Ukraine and Russia (Igan & Suzuki, 2011).Figure 3: Countries of operations of five major international retailers.Source: IGD (2009). The top 250 largest global retailers are still actively internationalizing,though as shown in figure 3 Ahold has reduced the amount of countries drastically.The international share of sales of the largest retailers has steadily increased fromnear zero in the early 1990’s, to 22.2% in 2009 (Deloitte, 2011). However, theindustry remains less globalized than for example consumer products, hospitality,telecommunications and entertainment (Deloitte, 2009). Overall, American retailers, though leading in sales revenue, are lessglobalized then their European counterparts. In 1999 four of the USA’s ten largestretailers only operated in the domestic market, and the other six had foreign salesranging between 0.5 and 18.4% (Ashfaq, n.d.). The average was 11.1% of foreignsales for those of six top 10 US retailers that were internationally active. A numberthat, when taking the top 10 US retailers regardless of their foreign activity, drops to7.6% of foreign sales over total sales. In 2011 only two of the top 10 Americanretailers did not have foreign sales (Schulz, 2011). The average part of foreign saleswas 16.7% for the whole top 10, and 19.6% when only taking into account the 8internationally active ones. This increase was for a large part due to the increase ininternational activities of Walmart, the largest retailer in the world, which increasedforeign sales from 13.9% to 27.1% by 2011.
  24. 24. Industry Introduction 12 The top European retailers in 1999 had a larger share of international sales,for example the French Carrefour had 37.7% foreign sales, ITM Enterprises SA.36%, the German MetroAG 40% and the Dutch company Ahold 76.4% (Ashfaq,n.d.). Also in 2009 European retailers where more globalized than their Americancounterparts with more than one-third of sales revenue came from foreign operations(Deloitte, 2011). This difference likely originates from the fact that Europeancompanies have smaller home markets and can easily internationalize due to theEuropean Single Market.4. Online Ret@il The latest big development in the retail industry has been the rise of onlineselling. During the dot-com bubble in the late 1990’s many solely-online retailersappeared (Wrigley & Lowe, 2010). However, these online retailers did not initiallycause the market disruption that was expected by many. Instead, e-commercebecame dominated by the online channels of traditional retailers, referred to now asthe ‘bricks and clicks’ model (see figure 4 for some examples from the fashion retailsector). Also many online stores made alliances with mortar and brick stores as theyfound that having a physical store boosts their online sales. Though not growing as fast as originally expected, online retailing hasobtained a large market share. By 2009 global online sales were 348.6 billion USDollars, 2.5% of global retail sales (IMAP, 2010). Of these 22.6% were electronics,other often sold items include books, fashion, airline tickets and software. Theonline market is however not limited to these. For example in the UK online groceryshopping is rather developed with 19% of adults having used the service in 2009. The largest e-commerce market is the US with 37.2% of online sales. In theUS approximately 7% of sales revenue was earned through online channels. Secondlargest are UK e-commerce sales, constituting ⅓d of total e-commerce sales inEurope (Alisson, 2011). As can be seen in figure 5 the UK is also the country withthe highest relative share of online sales, followed by Germany and most ofNorthern Europe.
  25. 25. Industry Introduction 13Figure 4: Number of countries with physical and online store presence for selectedfashion retailers in 2010. Number of countries with online delivery Number of countries with physical store Source: Cushman and Wakefield (2011).Figure 5: Online retail sales as share of total national sales in 2011. 14% 12,0% 12% 10% 8,7% 9,0% 8,2% 8,0% 8% 6,9% 7,3% 6% 5,1% 4% 3,1% 3,5% 2% 1,3% 0% Source: Redrawn from the Center for Retail Research (n.d.) Not only has e-commerce grown rapidly over the last two decades, it also hasa large, 16.1%, predicted growth rate for 2012 (IMAP, 2010). Forrester (2012)predicts sales growth rates of 11 to 12% in mature e-commerce countries such as
  26. 26. Industry Introduction 14 Japan, South Korea and Australia, a 25% growth in China and 57% in India between 2011 and 2016. In 2008 an overwhelming majority of Internet users in South Korea (99%), UK (97%), Germany (97%), Japan (97%) and the US (94%) had experience with online retail (Achille, 2008). Within Europe, especially countries in the west and north, such as the Netherlands, the UK, and Sweden are predicted to have large shares, approximately 80%, of their population, including those without Internet access, shop online by 2015 (Alison, 2011). In southern European countries, such as Italy, Spain and Greece, this percentage will be substantially lower, around 50%. Logically, there is a strong relationship between Internet access and experience with online retail, which is demonstrated in figure 6. Figure 6: Online purchases and the percentage of households that have Internet access in Europe and Turkey.% of households making an online Purchase in the past 12 months % of households with Internet access Note: see Appendix A for a legend to the country abbreviations. Source: Cushman and Wakefield (2011). When comparing Europe as a whole to Internet shopping in other continents, Nielsen (2010b) found that Internet shopping is more or less equally popular in all countries. Approximately 84% of connected users have some experience with online
  27. 27. Industry Introduction 15retailers. The exception to this is the Middle East, Africa and the Pakistan whererelatively many (50%) Internet users have not yet bought items online. For consumers, retailers and manufacturers alike the rise of online retail hasmade decisions more complex. For retailers and manufacturers multi-channeling hasbecome increasingly important strategically, as a balance needs to be found betweenthe offer in physical stores and that in online channels (IBM, 2002). In 2008 61%researched products online but purchased it in a store, and 56% researched productsin the store and bought it online (Gaffney, 2009). With the rise of online retailing it has become impossible for consumers toinform themselves about all options available to them (IMAP, 2010). Theassortments of online stores are often more category specific and thus relatively deepand lesser known brands are more dominant. When a consumer decides to use theInternet as shopping channel almost instantly many more stores come available tohim or her. In 2010 close to one-third of European online shoppers made purchasesonline outside of their home country. Similarly, in the US, over 25% purchaseditems from retailers based outside of the US thorough online channels. This sharewas one-third Among US consumers aged 18–24. However, language barrierspersist and delivery is sometimes geographically limited. Consumers that do not purchase online are often influenced by informationon the Internet as they read customer reviews and look up customer ratings. In thefirst quarter of 2010 in Europe 19% of those with Internet access use these sourcesof information at least once a month and 46% of Internet users feel these ratings helpthem reach decisions (Western Europe Technographics Survey Q1 2010 as cited byIMAP, 2010). Reviews were consulted most frequently for consumer electronics,cars and software (Nielsen, 2010b). During the early stages of the Internetconsumers started generating content on rating and review sites and feedback portalshave been created. These were later followed by discussion forums, consumer blogs,Micro-community sites, audio and video blogs and what have become known as‘social media’ such as Facebook and Twitter. The latest development in this area isthe increased availability of these sources of information within the traditionalretailers as mobile phone Internet connections continue improving and special appsare designed. In conclusion, the retail industry is of great economic importance in almostall countries, and comprises many companies in each country. Though the majority
  28. 28. Industry Introduction 16of companies in the industry are small there are also many large players that havegained dominance over their supply chains. Over the past two centuries the industryhas seen many changes, such as the rise of self-service, the introduction of ICTsystems, the concentration and globalization of its companies and the rise of onlineretailing. The globalization of retailers has had as main drivers the retailers need forgrowth opportunities and the export of best practices, and the latter has had a greatinfluence on countries with less developed internal retail markets, such as EasternEurope. From the consumer’s perspective there has been an increase in store size, andthe effects of urbanization and more widespread personal means of transportationhave been that more stores have become available to most. This is especially truewith the rise of e-retailing, which provides everyone with an Internet connectionaccess to more retailers than are present in their village or region. Keeping this firstimage of the retail industry and its development in mind the following chapter willdiscuss what changes have increased product variety and how much choiceconsumers are faced with. The latter will be done through an examination of storesizes, formats and assortments sizes.
  29. 29. Sources of Variety and the Prevalence of Choice 17 2. Sources of Variety and the Prevalence of Choice1. Categorizing new products The previous chapter has described the changes in the retail industry,however also the products that are sold have fundamentally changed over the lastcentury. All increase in variety has originated from the introduction of ‘new’products. According to Tat Keh and Park (1997) new products can be categorized asshown in table 1. Based on this framework, for the purpose of this paper threesources of product variety are discussed in more depth, namely supplier variety,product variety and branding. Table 1: Types of new products.Source: Tat Keh & Park (1997). Firstly, product origin variety has expanded for products due toimprovements in transportation and increasing international trade. To illustrate this
  30. 30. Sources of Variety and the Prevalence of Choice 18consider that in 1989 the US imported many goods, such as agricultural products,from an average of 12 different supplying countries (Mostashari, 2010). In 2007these same products were imported from an average of 16 different countries. This isa measure for product variety as instead of offering only French red wine, alsoBrazilian, Spanish and South-African red wine are now available. Similar increase invariety was demonstrated by Broda and Weinstein (2004), who found that while in1972 products were imported into the US from an average of 31.4 differentsuppliers, by 1997 this had increased to 42.7 suppliers. A trend they also found forEuropean countries as well as Hong Kong, Mexico, the former Soviet Union,Singapore, Taiwan and Brazil. Data on Europe shows that the same trend continuedduring the 1995 to 2007 period as well (Jubiläumsfonds der ÖsterreichischenNationalbank, 2009, as cited in Foster, Poeschl, & Stehrer, 2008). A striking feature of this trend is that the goods that importers source fromthe fewest countries (petroleum and other fuel oils, coal, and wheat) are all genericgoods (Broda Weinstein, 2004). Similarly goods that are sourced from manycountries (e.g., medicines, specialized industrial machinery, and motor vehicle parts)are likely to be quite differentiated when it comes to producing countries. This ispossibly due to their lesser relationship to natural resources and increasingimportance of human capital and intellectual property rights. This trend of increasing supplier variety, paradoxically, was probablypossible only thanks to suppliers increasing their production levels throughconsolidation and economies of scale (Philpott, 2007; Howard, 2006). Thus, while tothe consumer more supplier variety became available, increasingly large and fewglobalized producers were supplying. The same goes for the retailers. Due tourbanization and increased consumer mobility, consumers are able to go to moredifferent stores. However, the same chains are present in many towns, and morerecently have an increasingly global presence, reducing the total variety of retailers(Wrigley & Lowe, 2002). Most recently, Internet retailing has made many morestores and products available to consumers all around the world.2. Product and Brand Variety Secondly, over the past years variety in (available) products has expanded.Broadly, these products can be split into three general groups: those that are
  31. 31. Sources of Variety and the Prevalence of Choice 19modified, those that are newly available and those that are newly invented. Milk is aproduct of which the diversity has increased over the past 100 years through productmodification, as it developed from a product that was sold from door-to-door to agrocery store item. Not only can one now buy (cow) ‘milk’, but one choosesbetween whole, semi skimmed, skimmed, a specific % of fat, organic, flavored,pasteurized, sterilized, ultra high temperature (UHT), evaporated, condensed,filtered, dried, homogenized and, if lucky, the original untreated (or ‘raw’) milk.Furthermore, the product has also been modified by changing the containers. Onecan buy milk in differently sized and shaped containers, containers that can be madeof a variety of materials, such as carton, plastic and glass, to be opened in a varietyof manners. Product innovation may well go beyond functional satiation and moveproducts from being necessity to luxury goods (Baudisch, 2006). Other sources of increasing product variety are new inventions, creating notonly variety in existing product categories, but at times add product categories aswell. All consumer electronics, including light bulbs and telephones have beendeveloped over the last 200 years (Acton, 1994; Boyer, 2001). Also manyconsumables are relatively new such as energy drinks as well as many cleaning andpersonal hygienic products (Rouse, 2010; Holmes, 2001; Romanowski, 1998). Newintroductions are often produced for little more than a year, creating an everchanging stream of new products (Swartz, 2004). Finally, there are newly available products. For example previously localizedproducts have spread across the globe. Food and other perishable products are agood example as they could spread only after the revolution in freight. Since thenthe markets have been flooded with foreign foods such as bananas and rice.Furthermore, this combined with evolving production methods has made it possiblefor various seasonal fruits and vegetables, such as grapes, strawberries, sweetpeppers and tomatoes to be in ready supply all throughout the year. Especiallyglobalized retailers benefit from this as they can use their local procurementnetworks to purchase local specialties cheaply. Branding has been another source of variety. Brands can introducedifferences that were not perceived before. Often this is achieved by associating thebrand with characteristics that objectively have little or no relationship to theproduct. How brands introduce the perception of variety is most easily shown whenlooking at how products from one manufacturer are rebranded and sold as
  32. 32. Sources of Variety and the Prevalence of Choice 20alternatives, such as for example the Albert Heijn and Etos1 private brand shampoo.Brands can also exaggerate the existing differences, as happens for example withflour, sugar or milk. At other times brands can mask variety, as products fromvarious producers or products that are adapted to local tastes are sold under the samename. A good example of this is coca cola which does not quite taste the sameeverywhere.3. Global Assortment Sizes The various mechanisms in which new products become available togetherresulted in 5,694 new grocery store items and 10,558 new varieties in 1988 (Borin,Farris & Freeland, 1994). In 1998 20,000 grocery store items were released of which11,000 food products (Nestle, 2002; Garg, Jones & Sheedy, 1999). Of theseintroductions 1,200 (6%) were new products or line as well as brand extensions, therest products had existed before but had yet not been locally available. With the introduction of 20,000 new products a year stores have almostlimitless possibilities for assortment growth (as most stores have assortments of lessthan 4,000 items). And to accommodate these new products retailers have grownassortments over the past decades. To get an impression of how much choice hasexpanded for the average consumer we consider the assortment size of a grocer.According to Garg, Jones and Sheedy (1999) and Nestle (2002) while the averageUS grocery store carried an average of 9,000 items in 1974, in 1980 this had risen to15,000 and by 1997 the average store sold as many as 30,000 items. According (2005) the average US grocery store carried 40,000 differentitems, in 2008 the average number of items had risen to almost 47,000 (MinesotaGrocers Association, 2011). Thus assortment sizes more than trebled over the courseof the past three decades. Not in all countries have such large levels of assortment been reached(Nielsen, 2010c). In fact, grocery stores in the US on average have the largestassortments. In China, Brazil, Mexico and Argentina the average store carries only alittle over one third of the items in their US counterparts (approximately 11,000),and European countries such as France and the UK are in the middle (with stores onaverage carrying 15,000 and 20,000 SKUs respectively).1 Both brands are owned by Ahold
  33. 33. Sources of Variety and the Prevalence of Choice 21 This does not mean that all stores have such large assortments. When lookingat retailers in the USA Bishop (2010) found that half of them had between 2,000 and3,500 items in their assortment in 2009. 20% had less than 2,000 items and only23% of the stores had more than 4,001 items. Unfortunately, the amount of countriesfor which data on the average amount of SKUs in stores is available is very limited.Therefore, to quantify the amount of choice offered to people in various countriessome researchers have used sales area as a proxy for the size of the assortments, asthe more products one sells the more space is needed (Hunneman, 2011; Arnold,Ruth & Tigert, 1981). Sales area per capita is however no more than a proxy aspresentation method and the size of items displayed impacts the sales area per capitagreatly.Figure 7: Per capita sales area (in m2) in 2010. 1,8 1,6 1,4 1,2 1 0,8 0,6 0,4 0,2 0Source: adapted from Jahn & Müller (2011). The US has the world’s largest sales area per capita, with an average of 3.86m2 of retail space per inhabitant in 2008 (Hill, 2009). India, on the other hand, with0.19 m2 per capita, may well have the lowest sales area per capita, whilesimultaneously many Indians work in retail (Khanna, 2008). Data for Europe can befound in figure 7, where ‘Northern EU’ includes Norway, Sweden, Finland andDenmark, and ‘Eastern EU’ Slovenia, Czech Republic, Croatia, Estonia, Poland,Slovakia, Hungary, Lithuania and Latvia. Austria and the Netherlands haverelatively many square meters per capita, while Russia, Turkey, Bulgaria andRomania have relatively few.
  34. 34. Sources of Variety and the Prevalence of Choice 22 Comparing this data on the retail area per capita in 2010 as reported by Jahnand Müller (2011) to the purchasing power per capita in thousands for 2010 asreported by the International Monetary Fund (2011), we find that the two aremoderately correlated (r(32) = .55, p < .001). People that can spend more also tendto have more store space, and thus most likely more choice. Furthermore, both retailsales area and purchasing power have increased over the last two decades, reflectingthe growth in the amount of available product alternatives. Eurostat provides more insight in the sales area by providing data on the totalsales area per store size category for 2007. This data shows that within Europe smallstores are especially frequent in Portugal, Austria, France, Spain and Greece, with70-90% of all sales area in stores less than 120 m2 and 90-95% under 399 m2 (owncalculations). In Denmark, Finland, Norway, Germany and the Netherlands storeswith a size up to 399 m2 own between 70-90% of all sales area and also largerformats are frequent. The UK has most large format sales area, with under 55% ofsales area in stores smaller than 399 m2, and 16% in stores of more than 10,000 m2.In Eastern Europe, Bulgaria, Czech Republic, Latvia, Lithuania, Hungary, Romania,Slovakia and Estonia, there is a dual preference with 45% of total sales areabelonging to stores less than 120 m2 and 46% in stores between 1,000 and 2,500 m2.This situation is much different from for example that of India, where 96% of its 12million small retailers are smaller than 47 m2 (Khanna, 2008).4. Store Formats and Assortments Assortment size can be split in breadth, the amount of categories, and depth,the amount of different items per category (Zentes, Mirschett &Schramm-Klein,2011). Stores with deep assortments are called specialty stores, while stores withbroad assortments are diversified. Stores such as book stores, audio visual stores, petstores, vegetable stores, butchers, bike stores, home improvement stores and clothingstores are specialty stores, while hypermarkets and department stores fall in thediversified category. This split between specialty and diversified stores should betreated as a continuum. Globally category mitigation is an increasing trend, withretailers’ positioning themselves as specialist in a few categories, while also havinga couple of other shallow categories to their assortment. Furthermore, for exampledepartment stores have both deep and broad assortments, while a small news stand
  35. 35. Sources of Variety and the Prevalence of Choice 23or a convenience store has relatively little breadth and little depth. In 2009 in Europe79% of retail companies using store formats were specialized (own calculationsbased on Eurostat data). This percentage was higher for continental Western Europe(between 84 and 94%) and much lower for Eastern Europe, where on average only55% was specialized. Assortment breadth and size together determine store format (detailedexplanations of each store format can be found in Zentes, Mirschett & Schramm-Klein, 2011). When looking at the US and Western Europe, department stores haveby large the broadest assortments, namely around 100,000 often subdivided in fiveor more broad product categories. The second largest assortments are found inhypermarkets which carry between 50 and 80,000 items (Levy & Weitz, 2009). Off-price and ‘do it yourself’ stores on average carry 50,000 items, and homeimprovement stores and category specialists carry between 20 to 40,000 items.Discount stores carry 30,000 items, and drug stores 10 to 20,000. Conventionalsupermarkets have around 10,000-15,000 items, and specialty stores which offer themost service have on average 5,000 items. Hard discounters are the smallest with onaverage 1,000 SKUs. Off-price and drug stores have the least space per item, whilehome improvement stores have the most. For grocery sales Lassere (2007) found that while in the USA hypermarketsare more than four times as popular as supermarkets and convenience stores andalmost twice as popular as discounters. This situation is much different in othercountries. Research by Igan and Suzuki (2011) shows that in most Europeancountries three grocery store formats dominate, namely hypermarkets, supermarketsand discounters (see Appendix B, figure 15). These formats widely differ on theirassortment sizes and in 2004 the most popular were supermarkets with an averagemarket share of 40%, and least popular discounters with a market share below 10%in many markets. Hypermarkets were popular in countries such as France, Germanyand the Czech Republic. Discounters were mainly popular in Germany and thecountries around it, such as Austria, Hungary, Belgium and Denmark. Alsoconvenience stores are popular in Germany.
  36. 36. Sources of Variety and the Prevalence of Choice 245. Assortment Depth However, all this tells us relatively little about how many productalternatives a customer is faced with when making a purchase. To answer thisquestion we turn to assortment depth. Fasolo, Hertwig, Huber and Ludwig (2009)examined differences in assortment sizes between one large and one smallsupermarket in Germany. For the twelve identified common categories they foundthat the large grocer always offered more choice than the smaller one. Where thelarge store on average offered 54 varieties the small one offered only 7. On averagethere were 8.6 times more options available in the large store. The difference wassmallest for toast, where the large grocer offered nine varieties and the small one six,and largest for butter, where the small one had one variety and the large one 20. Themost extensive assortments were found for yogurt (210 and 26 varietiesrespectively) and jam (138 and 13 varieties respectively). They found that largeassortments had more attribute levels (not more attributes) and were able to maintainproduct difference by offering larger attribute ranges. A cross -cultural analysis of assortment depth was made by Einarsson(2007), who analyzed the amount of products offered by grocers in variouscountries. Higher amounts of choice were found in France and Finland than in forexample Norway (see figure 8). These data however are highly unrepresentative, asall countries have many different store formats, which in turn differ on theassortments offered. Also the amount of variety within each category is influencedby the local popularity of the category. Furthermore, what one may count as variety,another observer may not, such as Rubens apples, six pre-packaged Rubens applesand 1 kilogram pre-packaged Rubens apples.Figure 8: Number of products offered by the average grocer per category in 2004. 300 200 100 0 Diary Meat Beverages Cold cuts Average Denmark Finland Iceland Norway Sweden FranceBased on: Einarsson (2007).
  37. 37. Sources of Variety and the Prevalence of Choice 25 There is some cross-cultural data available when it comes to the hard-discounter Aldi (Nielsen, 2007). Assortment depth in these stores is highest inAustria and in the south of Germany, while being lower in Denmark, France and theNetherlands (see figure 9).Figure 9: Assortment depth; number of items sold by Aldi by category by country. 10 8,3 8,7 8 6,7 6,7 6,6 5,2 5,3 5,3 6 4 2 0Source: redrawn from Nielsen (2007). It can be concluded that over the past decades the assortments offered toconsumers have expanded as many new products have and continue to enter themarkets. Approximations based on grocery stores show that the amount of productson offer has increased with more than 50% over the last decade, and the rise of thealmost unlimited online assortments only add to this. Choice is especially abundantin the US and Western Europe. The country with the largest stores in Europe is theUK and also in Eastern Europe large formats have been increasingly popular. WithinEurope the largest preference for small stores can be found in Southern Europe.Nowadays consumers are confronted with thousands of articles in most store formatsand in large grocers even tens of thousands. The amount of choice is however hardto quantify, and the importance of category definitions when assessing choice can beseen clearly when comparing the amount of products per category of the Aldi datadiscussed before with those of Einarsson (2007). For now this concludes the discussion of retailers as we lay our focus on thecustomers, and specifically how and where they make purchasing decisions.Furthermore, the effects of variety during and after the purchase are explored withthe objective to form a culturally sensitive model of the interactions between varietyand purchase satisfaction.
  38. 38. Consumer Demand for Variety 26 3. Consumer Demand for Variety1. Sides to Variety In chapter two it has been detailed how choice has extended over the last 200years. Furthermore, some data was provided on store size preference. This chapterwill explain why diversity is often wanted by consumers and thus provides reasonsfor why stores have different assortment sizes from country to country. When choices are repeated two opposite tendencies manifest themselves asconsumers ask themselves whether to stick with the favorite or to vary (Fishbach,Ratner & Zhang, 2011). Variety seeking is especially dominant in productsconsumed for hedonic reasons. Choosing variation is often internally motivated by(expected) satiation, the need for new stimuli and to avoid having a boring image infavor of an interesting and unique one. Furthermore, when consumers are new to aproduct category they may try to get more familiar and knowledgeable through trial.On the opposite side, however, consumers also seek stability and consistency and aremotivated to demonstrate loyalty. This is especially strong when during the initialchoice the consumer believes he has made some form of commitment. The extent towhich consumers pursue variety seeking or commitment strategies is dependent onamongst others their expected satiation and cues in the purchasing environment. A reason for variety is that even though people may have stable preferences,or even be brand dependent, different people prefer a different brand. Godin (2003)relates the existence of specific product preferences to product class diversity. Heasserts that product categories that have ‘otakus’, a Japanese term referring to peopleobsessed with a specific product comparable to connoisseurs, become more diverse.This is because otakus do not only try out as many different varieties as possible, butalso tell their friends about it effectively increasing product class involvement.Furthermore, they encourage people to express strong brand and productpreferences, and increase the importance of choice. Whether or not people try to establish uniqueness or stability choosing isrelated to identity. Chernev (2004) reports that an individual’s preference for productchoice is positively related to the extent to which this choice is perceived to affectidentity. Moreover, preference for choice is higher when self-image is centered onthe notions of autonomy and independence. The relationship between demand for
  39. 39. Consumer Demand for Variety 27choice and identity increases in importance when decisions are communicated toothers (Ratner and Kahn, 2002). In Western cultures having choice, of which the freedom to controlindividual purchasing is a core pillar, is highly valued (Schwartz, 2004). Research inhealthcare shows that 95.6% of the 823 respondents found having choices extremelyimportant and 30.3% thought that making choices was extremely important (Leotti,Iyengar & Ochsner, 2010). In agreement with this, another research shows that bothanimals and humans display a preference for choice over non-choice even whenoutcomes in both situations are the same, and making the second choice will requireextra effort. Also choosing between more alternatives is reported to be moreenjoyable and attractive than choosing between a more limited set (Iyengar &Lepper, 2000). Furthermore, neuroscience has shown that results that are obtainedthrough choice are more gratifying than rewards that did not involve choice. Research has demonstrated a direct link between freedom, or better said itsopposite namely confinement, and variety seeking. Levav and Zhu (2009)demonstrated that customers in aisles with less width seek more diversity thancustomers in broader aisles. Furthermore, they are more likely to choose lesserknown brands. This difference in variety seeking was associated to the extent towhich they felt physically confined. In fact, the aisle width does not need to bechanged to create this felt confinement. Primers, such as questions about the aislewidth, are sufficient to increase variety seeking. It is important to notice that aislewidth had no effect on peoples expressed mood. Preference for choice in part reflects the general belief that more choice leadspeople to do better. This belief primarily relies on the logic that as the amount ofalternatives increases, it is likely that some of the added alternatives are closer to theoptimal solution than the alternatives in the original set were (Chernev, 2004). Thereis some research suggesting that there are limits to the amount of choice people findattractive. Arunachalam, Henneberry, Lusk and Norwood (2009) found that whenAmerican students were asked whether they’d like to choose from a set of 24 typesof soda or a set of six containing a random selection of the larger set, 42% of the 45students indicated to prefer choosing from the smaller set. In addition whether or notpeople like and do better on tasks involving choice depends on culture and does notdirectly transfer to cultures in which group decision making, and decision making byauthorities are preferred (Iyengar, 2010). For example, Japanese children perform
  40. 40. Consumer Demand for Variety 28better when their mothers have chosen for them, while American children performbetter when choosing themselves. An additional cultural source for different perceptions of choice is exposureto communism (Iyengar, 2010). For example elderly Eastern Europeans oftenassociated choice with fear, as they had gotten used to not having any choice andhad to adapt relatively quickly to the amount of choice offered in modern marketeconomies. Although the development of most European countries, includingWestern Russia, was very similar for many centuries this changed when communismgained popularity. Communism, with its radically different production scheme reliedmuch less on consumer demand to pull the market. And though there was marketingunder these systems as well, they were much more product type rather than brandfocused. As all skills are learned through culture, people that come from cultures thatpromoted the availability of few or no brand alternatives may now experience moredifficulties discerning differences between various products and may therefore havemore problems determining their preference as well as experience more troubledeciding on what to purchase. For example Iyengar (2010) found that manyRussians did not perceive any difference between different types of soda when theywere offered Coca Cola, Coca Cola Diet, Sprite, Dr. Pepper, Pepsi, Pepsi Diet andMountain Dew. Rather they perceived this choice as ‘soda’ or ‘no soda’. Whenoffered the choice between these seven sodas, orange juice and water this wasperceived as three alternatives, namely juice, water or soda. Americans on the otherhand perceive each type of soda as a separate alternative. This is just one example ofhow the perception of variety varies and shows how “the value of choice depends onour ability to perceive differences between the options” (ibid. 11:47-11:55). A studyfrom Boyd and Bahn (2009) shows that ability to perceive variety indeed is relatedto assortment preference. Those who perceive little variety prefer assortments thatoffer less choice and those that perceive much variety prefer assortments offeringmore choice. When choosing right becomes more important this difference inpreference becomes more pronounced. Fisher (1984) suggests that consumer preferences may diverge as societiesbecome more affluent. As not having anything becomes less and less of a concern,people shift their attention to address satiation, thereby generating preference forchoice. This is supported by our earlier finding of the positive relationship between
  41. 41. Consumer Demand for Variety 29the amount of choice in retail stores and purchasing power. Moreover, people thatare faced with more choice have more chance to develop articulated preferences.And as more concrete preferences leads to increased preference for choice (in anexperiment by Chernev, 2004, that will be discussed in more detail later) in demanddriven economies a self-reinforcing cycle could drive choice to expand. Consumer demand for variety varies per country, consumer group, person,and product category. A study by Rozin, Fischler, Shields and Masson (2006) of theopinions of over 6,000 respondents shows that preference even within the westernworld differs substantially. In France, Germany and Switzerland approximately 30%of the population prefers choosing from 50 flavors of ice cream over choosing from10. In Italy and the UK this percentage is higher (39 and 44 respectively). In the USthe preference for the larger assortment is highest (56%). A similar pattern wasfound for restaurant menu size expectations, with around 20% of French, Germanand Swiss respondents expecting many, compared to 29% of Italians, 40% ofEnglish and 36% of Americans. A weak correlation was found between the two. Forall countries older respondents were less likely to prefer having much choice.2. Exposing Oneself to Choice Of course, consumers do not expose themselves to the same amount ofchoice for each decision. I fact most consumers actively choose either to exposethemselves to choice or to avoid it. Kahn and Isen (1993) found that people look formore variety when they are in a good mood. Consumers that consistently exposethemselves to as much choice as possible for the majority of choices they make arereferred to as maximizers. The differences between maximizers and satisficers willbe discussed shortly. First, however, a more comprehensive overview of choiceexposure strategies is given. Haynes, Pipkin, Black & Cloud (1994) define six types of exposure styleprofiles based on a research on maternity apparel store patronage of 100 pregnantwomen (see table 2). First of all, there are shoppers, people with this profile knowmany stores selling the item, considered visiting many of these and visit many aswell. These shoppers are highly involved, and show high interest in and enjoymentof the shopping process. Their attitude towards planning shopping trips is verypositive. They are motivated little by the functionality (the search for information,
  42. 42. Consumer Demand for Variety 30negotiation, purchase etc.) and more by the symbolic (the effects on self-image andexpectations related to social roles) and experiential (experiences resulting from theexperience) aspects of shopping. In line with this they are relatively little productand price oriented. Demographically, this group includes the relatively old, wealthyand well-educated.Table 2: Choice exposure styles.Source: Haynes, Pipkin, Black & Cloud (1994). Secondly, there are narrowers. These people also know a lot of stores, butconsidered substantially less and visited even fewer. They are unlikely to want toplan shopping trips and are hardly motivated by the symbolic value of shopping.Narrowers pay more attention to brand than the average consumer and focus less onvalue for price. This group has no particular demographic profile, except that theytend to be relatively more career oriented. Thirdly, apathetics have low awareness of which stores are available,consider few stores and visit few stores. They are young and the most careerfocused, however have little income and little education. They put little emphasis onthe experiential side of shopping, are highly product oriented, care relatively littleabout price, and want the store to have relatively much product knowledge. Fourth, loyals are highly involved with shopping which they value for itsfunctionality; shopping allows them to get good value for money. While they knowthe fewest stores, they visit a moderate amount, showing interest in those stores
  43. 43. Consumer Demand for Variety 31which allow them to get the most out of their limited income. The fifth group, latebloomers, are similar to loyals but know, consider and go to more stores. They arelikewise motivated by functionality, however instead of product involvement theyare concerned with reducing price and time taken. The final group is the avoiders. Customers in this group dislike shopping themost, have little involvement in the shopping process and get little satisfaction fromthe process nor its outcomes. Although they know a moderate amount of stores theyconsider and also visit the least. Their income levels are high, and they viewshopping as necessary and uninteresting.3. Maximizers and Satisficers The decision whether to stop searching once a product with desiredcharacteristics is found or to evaluate all available alternatives in an effort to makethe best possible decision effectively determines exposure to choice. Swartz (2004)defines maximizers as people that “seek and accept only the best” (p.77), thealternative to which is satisficing; settling for the alternative that meets the criteriawithout worrying that another option may be better. Though maximizing-satisfyingcan be constructed as a general personality trait, it is unlikely for a person’smaximizing tendency to be fixed across product categories. Furthermore, there is aninterrelation with the extent to which people know what they prefer, a characteristicwhich is further discussed in chapter 5. For maximizers every purchase has to be the best purchase that could bemade, and therefore maximizers attempt to evaluate as many alternatives as areavailable to them and consequently take longer to decide. In addition Schwartz,Ward, Monterosso, Lyubomirsky, White and Lehman (2002) found that maximizingwas correlated with the amount of social comparisons made and the frequency ofcounterfactual thinking during the purchase process. In conclusion, want for choice and reactions to choice are culturally,personality and circumstance dependent. The following chapters will investigatechoice more in depth, with a particular emphasis on choosing from variety.
  44. 44. Making Purchasing Decisions 32 4. Making Purchasing Decisions1. The Purchase Decision In the following chapters the focus will be on the customer’s purchasingdecisions and the effects of variety on their satisfaction with and after the purchase.The following chapter will take a look at both theory as well as findings onpurchasing decisions. Firstly, the rational decision process will be discussed,followed by differences between rebuys and new purchases. The frequency thatpeople make in store decisions, as well as what kind of decisions these are and howthey are made is covered in the last two sections. All purchasing decisions start with people recognizing that they want or needa product; followed by a search for information as well as an evaluation of thealternatives based on set criteria (see Christ, 2008 for a more elaborate discussion ofeach stage). This can be followed by the purchase of a product, which then isevaluated during use. The decision making process outlined above is a rational one,in which the consumer mentally evaluates the alternatives, maximizing the expectedutility (Hastie & Dawes, 2009). However, consumers are also influenced by otherfactors, including moods, emotions, the consumer’s habits, imitation of a role modeland perceived cultural mandates. For example, when working memory is occupied with as little asremembering seven digits 63% of participants chose chocolate cake, whileparticipants that only had two digits in their working memory chose chocolate cakeonly in 43% of cases (Shiv & Fedorikhin, 1999). This shows that when workingmemory is occupied, people more easily make choices in favor of physicallypleasing alternatives, because the rational mind is too occupied to control impulses. For reaching a decision especially the information search and evaluation ofalternatives stages are important. During these stages consumers make a (mental)ranked list of the relevant products available to them and their characteristics. Thesize of the evoked set (the mental list of alternatives) is not unlimited, as workingmemory cannot contain an infinite number of items, nor evaluate the items that itdoes contain on many aspects simultaneously, this is also known as boundedrationality (Hoyer, 1984). In a classic study by Miller (1956) he asserts that we canremember only a limited amount of information, more or less the size of seven digitsor ‘chunks’ (the smallest meaningful memory units, including letters, acronyms,
  45. 45. Making Purchasing Decisions 33numbers, colors, etc.) if we focus on one characteristic. If we focus on morecharacteristics the total amount of what we remember goes up, while the amount ofitems remembered per category goes down, and also the accuracy of our memorygoes down. There are some techniques people use to increase the sets they canhandle, such as making relative judgments, increase the amount of dimensions, orsplit the decision. People can also write the options down, as well as commitknowledge to their long term memory.2. Involvement, Information Search and Decision Novelty Consumers do not go through the full decision process for each purchase asextensively. A combination of two purchase characteristics seems to largelydetermine the extent to which people engage in the search for information andevaluate the various alternatives (Christ, 2008). These two characteristics areinvolvement and decision novelty. These two characteristics combined lead to fourdifferent types of purchasing decisions. Decisions that have been made repeatedlybefore and are considered uninvolving and are referred to as routine purchases orstraight rebuys. Purchases that are relatively uninvolving but novel are called minornew purchases, and purchases that are relatively involving and have not been madebefore are called major new purchases. Finally, there are relatively involvingrepeated purchases. When making routine purchases customers rely on a previous purchasingdecision for their current product choice, minimizing cognitive effort (Hoyer, 1984).They have found the product which satisfies them, may feel a certain loyalty to thisproduct, but most importantly give little thought to alternative products. Routinepurchases allow customers to completely ignore approximately 75% of the items onthe shelves (Swartz, 2004). Customers planning a routine purchase may still bepersuaded to evaluate other alternatives when there is a sales promotion. Also whenan item is out of stock, customers have to make either a minor new purchase, visitanother store or come back later. Under these conditions it may be found that whatwas thought to be an uninvolving product is involving after all. Routine purchasesare discussed in more detail in the following section. A second type of purchasing decision is customers making a minor newpurchase. As the product is neither expensive nor highly involving they make use of