Impact of income on purchase decision from organized and unorganized retail in india

INTERNATIONAL JOURNAL OF MANAGEMENT (IJM)
International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online),
Volume 5, Issue 11, November (2014), pp. 76-85© IAEME
ISSN 0976-6502 (Print)
ISSN 0976-6510 (Online)
Volume 5, Issue 11, November (2014), pp. 76-85
© IAEME: http://www.iaeme.com/IJM.asp
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© I A E M E
IMPACT OF INCOME ON PURCHASE DECISION FROM
ORGANIZED AND UNORGANIZED RETAIL IN INDIA

Syed Md. Faisal Ali Khan 1, Dr. Chanchal Chawla 2
1Research Scholar, Shri Venkateshwara University, Uttar Pradesh, India
2Chief Proctor, Teerthanker Mahaveer University, Uttar Pradesh, India
76
ABSTRACT
This paper is based on the retail sector in India and consumer purchase decision being
affected by the income. How the increase or decrease or zero effect in the income affect the purchase
decision of the individual. We can see that the changing purchase decision due to changing economy
brings growth in the retail sector. Further the questionnaire was being framed and handed to the
respondents. Out of 500 only 412 responded to the questionnaire. Two hypothesis was framed which
tests association between the income and frequency of store visit and association between the income
and money spent. The result shows that for organised as well as unorganized retail store there is
association found between incomes with frequency of visit. Again we can see that association exist
in case of organised retail with income and amount spent and no association found with income and
amount spent in the case of unorganised retail store.
Key Words: Consumer behaviour, retail strategy, decision making, constant.
1.0 INTRODUCTION
Selling of goods directly to the consumer. Retailing in India began several thousand of years
ago with peddlers hawking their products at the earliest marketplaces. Retailing is an extremely
competitive, and the rate of failure of the retail establishments is relatively very high. The price is the
most important factor of the competition, but other factors which includes convenience of store
location, attractiveness of the establishment, selection and display of merchandise, and reputation.
Similar to price, income is another factor which determines buyers quantity purchased. So the
changes in the level of income will lead the consumer to change her/his consumption pattern, in
order to maximize the utility of the spendable income. Income rises on account of situations such as
increase professional advancement, tax cuts, incentives, bonus, financial gains, windfall etc. or fall in
income caused by retrenchment, loss of job, imposition of new taxes, financial loss etc. Which
influence the consumer's consumption decisions.

During the recent years it has been seen that the buying pattern of the consumer has been
changed considerably. Brand oriented society is backed by strong factor influenced by the income.
After 80’s India was explored as a opportunity market for the investors. Cheap labour influenced the
capitalist to open the doors for the youth. These youth spend major part of their income on consumer
durables, FMCG etc. India has more than 50% of its total population below the age of 25 and more
than 65% below the age of 35 (Census Report 2011).
Recent researches have revealed the fact that differences in incomes across different
individuals also signify differences in the social status while social status might have its own
intrinsic value, it can also lead to the valuable social contacts (Becker, Murphy and Werning (2005)
77
2.0 LITERATURE OF REVIEW
Dickson and Sawyer, 1986 in their studies concluded that product- related factors such as
price, availability, convenience and time are important for buying behavior of in individual; because
these factors creates a first perception for decision- making; therefore consumers need to have true
information about the product (Grewal, Gotlieb Marmorstein, 2000). Pelsmacker Janssens,
2007 in their report made comparison between the brands for same products which have similar
attributes are be preferred by the consumers. Chang Wildt, 1994 in their study said product
attributes price are most important variables which effect marketers; this is because price provide
a quantities evaluation technique in between the consumer. Kwon and Kwon, 2007 in his studies
revealed that consumers will stimulated to sales promotion activity only when financial incentive of
doing so will exceeds the opportunity cost of its redemption.
Hunt and Lautzenheiser, 2011 in their studies revealed that consumers always wish to
maximize their utilities when buying product. Blattberg et al in their research reported that those
with higher household incomes appear to use promotional deals more often on the other hand
Dotson, 2001 said that proneness level is equal in all categories of the income groups
3.0 METHODOLOGY
3.1 Sample
The present descriptive cross sectional study design is to examine the impact of strategy on
the buying behaviour and to identify the influencing factors for purchase decision and in turn to
develop satisfaction and loyalty. Since, the focus is to examine the retail strategy and its impact on
consumer buying decision, explanatory study design was taken into consideration with quantitative
research strategy. The study is based on primary and secondary data.
3.2 Sampling
In order to identify the impact of strategy on buying behaviour of consumers, consumers with
age above 18 years were selected. Data were collected from the customers of five different cities of
India. Data were collected randomly from selected 535 respondents who were involved in shopping
at chosen retail store in Rudrapur, Kashipur, Haldwani, Dehradun, Roorkee by administering
structured closed ended questionnaire. Out of 500 respondents, only 412 respondents participated in
the study yielding a response rate of 82.4%. The data collected from the respondents were tested for
reliability applying cronbach’s alpha test.

78
3.3 Scope of the study
The scope is defined in India in selected cities which includes Rudrapur, Kashipur, Haldwani,
Dehradun, Roorkee
4.0 OBJECTIVE OF STUDY
The objective is to examine the impact of strategy on buying behaviour of the consumer and
to identify the factors involving in purchasing decision from organized retail sector. In addition, the
study also focus the relationship between those factors with customer loyalty and satisfaction
5.0 HYPOTHESIS
H1. There is association found between Income VS Frequency of visit to the retail store.
H2. Association found between Income VS Amount of money spent
6.0 RESULTS DISCUSSION
6.1 Growth of Organized Retail Industry

Source: http://ijmcr.com/category/ijmcr/vol-2-march-april-2014/
During the recent year has witnessed constant increase in the growth rate in the organized retailing in
India.
Table : 1 Return rate of the questionnaire
Description N (%)
Questionnaire handed over in person 500
Completely filled questionnaire and further taken for
412
the analysis
Response rate 82.4
6.2 Impact of Income Buying Decision
The income effect (IE) measures the changes in the consumer’s optimal consumption pattern
caused by changes in her/his income so changes are being observed in the quantity of goods
purchased where price is kept constant. The consumer is in better-off when the optimal consumption
combination is located on a higher indifference curve and vice versa.
Change in the price has also have significant effect on the buying decision.

79
CHART.1 TYPE OF INCOME EFFECTS
Table 2: Impact of Increase in income effecting the quantity of goods (X)
Income Effect Nature of Good X Demand of Good X
(+) ve Normal
(-) ve Inferior
(0) No effect Neutral No Change in the quantity of demand
Thus, as shown in the figure the income plays a positive effect in case of normal goods.
Therefore we can say that there is direct relationship found between income and quantity demanded.
IE is found negative in case of inferior goods (including Geffen goods) where we can see inverse
relationship between the income and the quantity demanded. And finally, IE is ‘0’ in case of all
neutral goods where consumer's quantity demanded is fixed. Here positive, negative and zero price
effects are discussed with the help of an indifference curves in the following subsections.
6.2.1 Positive Income Effect
The positive income effect measures the changes in the consumer's optimal consumption
combination caused by the changes in her/his income here prices of goods X and Y, are normal
goods, kept constant.
Assumptions:
a. Consumer's preference for the combinations of goods X and Y are given as represented by the
indifference map.
b. Goods X and Y are the normal goods.
c. Prices of the goods X (Px) and Y (Py) are given and constant.
d. Initial income is given.
Figure.1 starts with the initial optimal consumption combination attained at point e at
which OX units of good X and OY units of good Y are purchased.

Whenever change in income of the consumer is observed, the entire budget constraint will
shifts outwards or inwards. Or we can say that it will always shown an parallel shift. With decrease
in the income the entire budget constraint will shifts inwards and it is parallel to the initial price line.
Similarly, when income the increases then entire budget constraint will shifts outwards and it is
parallel to the initial price line.
When the consumer's income decreases, the budget constraint moves inwards. As shown by
the budget constraint P1L1 in the Figure.1. The optimal consumption is located at the pointe1 at
which the consumer buys OX1 units of good X and OY1 units of good Y .Thus the consumer’s total
utility decreases as the optimal consumption combination is located on a lower indifference
curve U1.
Similarly, when the consumer's income increases, the budget constraint moves towards
outwards. This is shown by budget constraint P2L2. The optimal consumption is now located at the
pointe2, at which the consumer purchases OX2 units of good X and OY2 units of good Y. The
consumer’s total utility increases as the optimal consumption combination is now located to a higher
indifference curve U2. Chart.2 presents a summary of Figure.1.
80
CHART.2 Positive Income Effect: Sum Up
Price Line
Indifference
Curve
Optimal
Consumption
Combination
Units of
Good X
Demanded
Units of
Goods Y
Demanded
Initial
Condition
PL U e OX OY
Decrease in
Income
P1L1 U1 e1 OX1 OY1
Increase in
Income
PL2 U2 e 2 OX2 OY2
The curve derived by joining the optimal consumption combinations such as e1, e and e2 is
called the income consumption curve (ICC). Here the ICC is a locus of a point that passes through
the optimal consumption combinations at various levels of income. Thus the ICC in Figure.1 is seen
rising upwards to the right. It represents that the consumer successively moves on to a higher
indifference curve and thus becomes better off, with increase in her/his income and she/he also
increases the consumption of goods X and Y. So we can find that income effect is found positive for
goods X as it is a normal good.
6.2.2 Negative Income Effect
The negative income effect measures the changes in consumer's optimal consumption
combination caused by the change in consumer income. Prices of goods X (PX)and Y (PY) keeping
constant, where good X is an inferior good (including Geffen goods) and good Y is a normal good.
Assumptions:
a. The consumer's preference for combinations of goods X Y are given and represented by the
indifference map.
b .Here goods X is an inferior (including Geffen Goods) good and good Y is a normal good.
c. Price of the goods X (Px) and Y (Py) are given and are constant.
d. The initial income is given.
Figure.2 starts with the initial optimal consumption combination which attains the point e at
which the OX units of good X and OY units of good Y are purchased.

Figure.2: Negative Income Effect
When the income of the consumer increases, then the entire budget constraint shifts towards
outwards and it is a parallel shift. This is shown by the budget constraint P1L1. The optimal
consumption is now located at the point e1, at which the consumer now buys the OX1 units of good
X and OY1 units of good Y.
To understand that consumer’s total utility has increased as the optimal consumption point is
now located on to a higher indifference curve. The consumer is now better-off in terms of total
utility. However, consumer reduces consumption of good X to OX1 units as good X is an inferior
good. As mentioned in the chart.1 we observe inverse relationship between income and quantity
demanded for good X. The consumer increases quantity demanded of good Y to OY1 as good Y is a
normal good. Here the income effect is negative for good X.
The ICC obtained by joining optimal consumption combinations such as e, and e1, in
Figure.2 raises upwards but bending backwards. It shows that the consumer successively moves on a
higher indifference curve and becomes better off, with increase in her/his income. however, she/he
also reduces purchase of good X as it is an inferior good. Chart.3 presents a summary of Figure.2.
81
CHART.3 Negative Income Effect: Sum Up
Price Line
Indifference
Curve
Optimal
Consumption
Combination
Units of
Good X
Demanded
Units of
Goods Y
Demanded
Initial
Condition
PL U e OX OY
Decrease in
Income
P1L1 U1 e1 OX1 OY1
Increase in
Income
PL2 U2 e2 OX2 OY2

82
6.3.3 Zero Income Effect
The zero income effect measures the changes in consumer's optimal consumption
combination which is caused by changes in her/his income. The prices of goods X (PX)and Y PY)
keeping constant, where good X is a neutral good and good Y is a normal good.
Assumptions:
a. Consumer's preference for the combinations of goods X and Y is given as represented by the
indifference map.
b. Goods X is a neutral good and good Y is a normal good.
c. The price of goods X (Px) and Y (Py) are given and are constant.
d. The initial income of consumer is given.
Figure.3 starts with the initial optimal consumption combination attained at point e at
which OX units of good X and OY units of good Y are purchased.
Figure.3: Zero Income Effect
When the consumer's income increases, then the entire budget constraint will shifts outwards
and it is a parallel shift as shown in the figure. This is shown by the budget constraint P1L1. The
optimal consumption is now located at the point e1, at which the consumer now buys the
same OX units of good X and OY1 units of good Y.
Understand that consumer’s total utility has been increased as the optimal consumption point
is now located on to the higher indifference curve U1. The consumer is now in a position of better-off
in terms of total utility. However, consumer keeps consumption of good X fixed at OX units as good
X is a neutral good. As it is mentioned in chart.1 we observe that no change in quantity demanded
for good X. Now the consumer increases quantity demanded for good Y as good Y is a normal good.
So we can see that income effect is zero for good X.
The ICC is obtained by joining the optimal consumption combinations such as e, and e1, as
in Figure.3 is a vertical straight line as shown. It shows that the consumer successively moves on to a
higher indifference curve and becomes better off, with the increase in consumer’s income. However
consumer is keeping the purchase of good X fixed as it is a neutral good. The consumer increases the
quantity demanded of good Y as it is a normal good.
Chart.4 presents a summary of Figure.3.

83
CHART.4 Zero Income Effect: Sum Up
Price Line
Indifference
Curve
Optimal
Consumption
Combination
Units of
Good X
Demanded
Units of
Good
Demanded
Initial
Condition
PL U e OX OY
Increase in
Income
P1L1 U1 e 1 OX OY 1
6.3 Hypothesis Testing:
Table 1: Association between Income VS Frequency of visit to the retail store
H0: There is no association found between the income and frequency of store visit.
H1: There is association found between the income and frequency of store visit.
6.3.1 Chi-square test
1. This is the basic techniques which is used to find out relationships among nominal
(categorical) variables.
2. Crosstabs which are also used in practically all areas of the research.
3. Cross tabulation is a powerful technique that helps you to describe the relationships between
categorical (nominal or ordinal) variables.
Chi-square is a statistical test which is commonly used to compare observed data with the data
we would expect to obtain in accordance to a specific hypothesis.
Table 4: Here in the research in the Chi-square is used.
Type of retail Store
Frequency of visit to the retail store
Total
Everyday
Twice a
week
Once a week
Twice a
month
Once a
month
Organized
Retail
Income
Less than 5000
1 20 2 0 2 25
4.3% 13.2% 2.0% .0% 40.0% 7.0%
5000-10000
1 19 36 4 0 60
4.3% 12.6% 35.6% 5.1% .0% 16.7%
10000-25000
1 41 58 20 2 122
4.3% 27.2% 57.4% 25.3% 40.0% 34.0%
25000-50000
0 69 2 22 0 93
.0% 45.7% 2.0% 27.8% .0% 25.9%
50000-100000
20 2 3 33 1 59
87.0% 1.3% 3.0% 41.8% 20.0% 16.4%
Total
23 151 101 79 5 359
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Unorganized
Retail
Income
Less than 5000
0 1 0 0 2 3
.0% 16.7% .0% .0% 15.4% 5.7%
5000-10000
0 0 3 0 0 3
.0% .0% 42.9% .0% .0% 5.7%
10000-25000
19 0 4 6 9 38
100.0% .0% 57.1% 75.0% 69.2% 71.7%
25000-50000
0 4 0 2 2 8
.0% 66.7% .0% 25.0% 15.4% 15.1%
50000-100000
0 1 0 0 0 1
.0% 16.7% .0% .0% .0% 1.9%
Total
19 6 7 8 13 53
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

In Organized retail Store: Phi value is 0.867, p value is 0.00 0.01;
In Unorganized retail Store: Phi value is 1.015, p-value is 0.000.01;
The above table compares the income and the frequency of visit to the retail store. From the
table it is observed that most of respondent in the income group 10000-25000 prefer frequency of
visit to the retail store. From organized retail the observed Phi-value derived is 0.867 and p value
obtained is 0.00, so we can say that there is association found between the income and the frequency
of visit to the retail store. If we take account of unorganized retail the derived Phi-value is 1.015 and
p value is 0.00, so we can say that there is association found between the income and the frequency
of visit to the retail store.
Table 5: Association between Income VS Amount of money spent
H0: There is no association found between income and amount of money spent.
H1: There is association found between income and amount of money spent.
84
Type of retail store
Amount of money spent
Total
500 500-1000 1000-2000 2000-5000
More than
5000
Organized
Retail
Income
Less than
5000
4 3 18 0 0 25
5.7% 9.1% 7.8% .0% .0% 7.0%
5000-10000
22 2 36 0 0 60
31.4% 6.1% 15.6% .0% .0% 16.7%
10000-25000
38 24 38 21 1 122
54.3% 72.7% 16.5% 87.5% 100.0% 34.0%
25000-50000
2 4 86 1 0 93
2.9% 12.1% 37.2% 4.2% .0% 25.9%
50000-100000
4 0 53 2 0 59
5.7% .0% 22.9% 8.3% .0% 16.4%
Total
70 33 231 24 1 359
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Unorganized
Retail
Income
Less than
5000
1 2 0 0 3
7.1% 20.0% .0% .0% 5.7%
5000-10000
0 0 2 1 3
.0% .0% 8.3% 20.0% 5.7%
10000-25000
10 4 22 2 38
71.4% 40.0% 91.7% 40.0% 71.7%
25000-50000
2 4 0 2 8
14.3% 40.0% .0% 40.0% 15.1%
50000-100000
1 0 0 0 1
7.1% .0% .0% .0% 1.9%
Total
14 10 24 5 53
100.0% 100.0% 100.0% 100.0% 100.0%
In organized retail: Phi value is 0.610, p-value is 0.00 0.01;
In unorganized retail: Phi value is 0.684, p-value is 0.0160.05;
From the above the table which compares the income and amount of money spent. Then it is
derived that most of the respondent lies in between the income 10000-25000 prefer amount of money
spent. So we can say that in organized retail the observed Phi-value is 0.610 and p value is 0.00, it is
declared that there is association found between the income and amount of money spent. When taken
the account of unorganized retail the observed Phi-value is 0.684 and p value is 0.00, so it is declared
that there is no association found between the income and amount of money spent.

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