Consumer Behavior and Marketing Strategies of Duty Free Markets

Contents

• Introduction
  • Retail Dynamics of Duty Free shops in Airport (2002-2012)
• Literature Review
  • The Strategy of the Duty Free market
  • Classification of Passengers by British Airport Authority (BAA)
  • Customer Service leading to Customer Satisfaction
  • The Atmosphere in a Transitory Place
  • The behavior of the consumers in Companies’ strategies
  • Model of customer Behavior
• Research Methodology
  • Research Approach
  • Secondary Data- collection of relevant figures of duty free market
• Analysis
  • The Offer
  • The Customer Service
  • The Atmosphere
• Conclusion
• References

Introduction

Consumer Behavior can be defined as the behavioral characteristics that are displayed by the consumers in case of purchasing, evaluating and disposing of some products or services that are expected to satisfy their needs. Consumer behavior mainly focuses on how an individual is making decisions about spending their time, money and effort on various products or services and it also includes what and why they are buying, place and time of buying, how often they buy the product and use how often use it and how they are evaluating it after purchasing the product or service and most important the effect of such evaluations on their future purchasing behavior. Studies of consumer behavior and retail marketing strategies in stores generally deal with two things- 1. Identification of potential consumer. 2. Understanding their needs and buying behavior.  To understand the consumer behavior is very important to take decisions regarding the correct retail marketing strategy. In this research study we will focus on consumer behavior and marketing strategies of the duty free market. This way we will be able to understand the consumer behavior and the retail marketing strategy of the duty free market.

The Duty Free market is generally known as the tax free market. It means that in this market the buyers need not to pay the sales tax which is imposed by the govt. Companies import various goods and sell the products to the customers who are leaving the country and they are not charged tax on these items. Duty free goods are found at ports, international airports, border towns, cruise ships, on-board international flights and in some other stores of downtown. These retail stores generally offer a wide range of products like alcohol and tobacco, fragrances, cosmetics, chocolates, sweets and luxury goods. It has been seen that the retail shops in the international airports started from a small shop of gifts for the tourists who are going back to home and now it has developed even into huge malls in some airports. From these duty free retailers, airports are earning higher profits. The following chart shows the sales growth from duty free retail shops by region-

According to Thompson (2007), there are many important reasons for organizations to invest in Duty free market like globalization, population growth and economic growth of the emerging market economy.  The main income of airports is from air travel which is expected to grow rapidly in future in the emerging market like India, Brazil, Russia and China and along with this income from the money spent in the airports will also grow in these markets as the medium and upper class population are growing over there who have started to travel by air.  Many organizations have started to invest in the duty free market as it is a good opportunity for successful expansion of their business and it is mainly seen in the fashion industry.

Retail Dynamics of Duty Free shops in Airport (2002-2012)

Source: (Euro monitor International, 2005).

The above chart shows sales of luxury and fashion products are growing during the period of 2002-2012.

It can be seen that sales of fragrances, fashion industry and fine food have grown by high percentage during this period.

Literature Review

This part of the project provides a critical review of the literature about the marketing strategies which are used in the Duty Free areas. The theoretical concept will be merged with critical review of some concepts on which the research study will be based. It will be followed by an elaboration of customer behavior. All the topics that are explained here are related t the concept of Duty Free market. Each concept can be discussed according to the perspective of consumer and customer.

The Strategy of the Duty Free market

Porter (1980) has stated that every company which is aiming to be competitive in the market should go through the strategic planning process. Michael Porter has defined the competitive strategy as the way of choosing different path to perform activities or choosing different activities to perform than the competitors in order to provide a product mix.  According to Kotler (1999), the importance of strategic activities for an organization is to sharpen the objectives, to well perform the activities and to organize the coordination between different departments and employees. A well structured plan does not stop anyone from being proactive according to changing situation but it helps to be prepared and more organized than previous.  Corvi & Bonera (2006) have stated that the satisfaction level of customers plays an important role and it can be identified with the managerial aim of the company which is known as value creation for customers. No strategy can succeed if the customer satisfaction is not the main aim of the organization. On the other side, companies need to balance between the resources of the company and the expectations of shareholders.  According to Freathy & O’Connel (1999), it has been seen that non-aviation and commercial activities have started in the airports just few decade ago in order to start another source of income and to provide various services to the passengers of the flights. Since they airport authorities are controlling the various businesses in the area of airport thus a coordination and collaborative approach is necessary between the airport operators and the duty free shops (Corvi & Bonera, 2006). They have also stated that companies those have entered into the duty free market areas have various competitive advantages in the airports like they get a huge number of people who are travelling through flights and have a high intention towards buying from the duty free shops. According to Crawford & Melewar (2003), it has been seen that the probability of purchasing from the duty free shops in the airports also depends on the time period to wait before the boarding process. In order to take the advantages of these favorable situations and potential buying behaviors, organizations need to restructure their marketing strategies to develop a specific segment of customers. Thus airports have decided to start some special offer in some specific hubs and terminals depending on the presence of passengers and their standard of living. Apart from this, Advertising and promoting strategies in terminal spaces of the airports represents some unique strategies taken by some companies. Freathy & O’Connel (1999), it is necessary to state that only after disclosing the business strategy of the airport it will possible to identify the demand segments for which the offer has been created. Thus implementation of an offer should be able to enhance the satisfaction level of customers along with fulfilling the company purposes. Every duty free shop need to coordinate with the airports before launching any marketing strategies in order to get a wider effect on the targeted segments of customers. According to Ambler (1992), as the international travelers share some important characteristics of many nationalities thus they form a specific target segment. Passengers in the airport generally come with different purposes and the travelling purpose of them are also different. Along with this, their motivations to buy are also different from one another. Thus it is also important to notice that duty free companies cannot define all customers as their targeted segment of customers because they have different buying patterns due to their arrivals from different countries and cultures. Thus duty free shops need to take this concept under consideration and should provide wider range of products that would satisfy the culture, customs and habits of different people in different countries. An article of Crawford and Melewar (2003), stated that consumers in the airport are known as “transumers” as they identify their different moving behaviors. The diversity of people transporting through airport is very high as compared to the downtown shopping malls. Therefore, profiles, need of potential consumers and the attitude of the diversified customers are not similar with each and it varies on the basis of demand of the customers.  In order to construct a potential business plan, it is important to understand the distinctive features and potentials of the diversified customer segments. Thus segmentation of demand is needed. According to Maiden (2000), British Airport authority (BAA) have classified all the passengers in British Airports by identifying four different clusters which is based on their behaviors as shown in the chart below-

Classification of Passengers by British Airport Authority (BAA)

Source: (Maiden, 2000)

Thus the above chart shows the four different classifications of passengers and the frequency of their travelling and their buying behavior. It can be seen that Mass market leisure flyers have low travelling frequency but have highest purchasing frequency from the duty free shops in the Airport. On the other side, frequent business flyers are the frequent travelers but have low tendency to purchase frequently from the duty free shops in the airport.  Apart from this it can also be seen that, young up market leisure flyers and older up market leisure flyers have medium travelling frequency along with medium frequency of buying from the duty free shops in the Airport.

Customer Service Leading to Customer Satisfaction

According to Turban (2002), customer service can be defined as a series of activities which is designed to improve the level of customer satisfaction which means its feelings that the product or service has met the expectation level of the customers. Transportation Research Board (2010) states that a good customer service can be defined as the way to differentiate the products that will give a competitive advantage over competitors and it should also represent the important variables of a company’s marketing strategies which is performing in duty free market. The role of customer service in the process of differentiation is important because nowadays many customers are having many variables of the strategy which is standardized and similar to the strategy of competitors. employing a superior customer service in the stores can be also be way to differentiate the shops with other on-line shops which are competing at the same price level. According to Amjad A. Abu-EL Samen (2011), the skills and knowledge of employees are necessary to catch the attention of the customers and to retain them. A successful service is that which includes the process of interaction and encounter through the workers of the organization. Shostock (1985) defines that the service which is encounter can be defined as a particular period of time when a customer is able to interact directly with the service. Eliglier & Linegeard (1987) have found some elements necessary to be included in the process service encounter and it includes the place or environment where the service is taking place, the customer who receives the service and analyzes the customer service and the person who is delivering the service to the customers.

The Atmosphere in a Transitory Place

According to Booms & Bitner (1987), components of  an organization’s environment can be used to reinforce or establish an image, rebuilding the customers’ perceptions about the organization and to influence the satisfaction or dissatisfaction of the service that are received by the customers. Rowley and Slack (1999) have defined that the consumers are the main elements of the company and for this reason the companies should look for the time which is convenient for the duty free market to approach the issue of the consumer.  The perception about the atmosphere of airports is the main factors that influence the customers’ motivation level. According to Bomberger (2009), before relaxing and enjoying the experience of Duty Free shopping, the tired passengers want to complete the process of boarding. Walkthrough can be considered as the path to guide the passengers from the entrance gate of the airport to the boarding and security checking among which passengers find the duty free shops. According to Rowley & Slack (1999), in order to get the full advantage from the airport shopping, it is important to increase the comfort level of the passengers by providing them the opportunity to relax and by giving them new space and time dimension to spend in the shopping areas.

Rowley & Slack (1999) have defined the concepts of “placelessness” and “timelineness” to describe the environment that passengers should find in the airports, the different time zones and the transitory place make them suffer and for this reason the behavior of the potential customers change. In order to grab the attention of the customers and to contrast the typical environment of airports shop owners need to thrill them by visual merchandising and positioning the products as method of storytelling. They also said there might be a greater willingness to buy in a low-stressed environment such as a space with transparent, easy, effective and limited data. This type of environment influences the mind of the people who are waiting for their flights. Collaboration between security staff, retail managers and airport authorities is very important in this situation.  Freathy & O’Connel (1999), have analyzed the terminals of Heathrow airport where they have found that in Terminal 1 there were mainly higher class business men who needs high concentration of quality retail shops, Terminal 2 should focus on the selling of English goods as the flow of European passengers are higher there, Terminal 3 & 4 should focus on selling of branded goods and apparels because the passengers over there have lots of disposable income to be spent on such items. Derval (2007) have said that ambient marketing is also very helpful for duty free shops to advertise themselves. It is a non conventional marketing and advertising approach which includes the elements of environment and atmosphere to express, communicate and meet the promotional campaign. The idea is mainly to attract the customers and to meet their satisfaction level.

The Behavior of the Consumers in Companies’ Strategies

According to Peter and Olson (2008), Consumer behavior includes the sentiments and thoughts of individual’s experience and the activities they perform in utilization forms. They have stated the significance of consumer behavior that blankets in the business sector and the consideration marketers ought to pay on its flow evolving continuously. By identifying the elements that have impact on the thought, activities and emotions, it will be useful to understand the consumers’ behavior. According to Kotler (1999), the main question for marketers is: the means by which do consumers react to different marketing boosts that the organization may use. The organization that truly sees how consumers will react to distinctive product characteristics, costs and promoting activities has an extraordinary advantage over its rivals. Accordingly, firms began to explore the relationship between marketing stimuli and the reaction of consumer. The model of stimuli responses has been developed to measure the behavior of customers.

Model of Customer Behavior

The model shows how marketing and other stimuli influence and get entry into the customers’ black box, which produces a few responses. The role of organizations is to identify the components of the black box so as to respond with the correct technique for its customers and potential customers. The marketing stimuli elements contain the segments of the conventional marketing blend and other stimuli form environment as they influence the customers in this way the parts of the black box and develop in reactions and buying choices of the consumers. The black box has two parts: the purchaser qualities influence his/her opinion and response to the stimuli coming from the external environment and from marketing methodologies of the organizations.  Secondly, the process of decision making influences his/her conduct. In any case, consumers’ choice is likewise influenced by an extraordinary number of variables which may be outer or inner, for example, society, social class, family, status, age, occupation, lifestyle, learning, personality, attitudes, motivational level, perception and attitudes.

Research Methodology

Methodology is an important part of a research. It is a process which is started when people need to find out about a certain topic in an organized way to increase knowledge about that matter. The collection of information and data alone is not sufficient to construct a proper research methodology but it should be collected in a systematic way with a clear vision. Along with this, only assemble of data from different sources is not enough to complete the research but the data should properly concluded with interpretation of the collected information for better understanding of the readers (Saunders, et al, 2009, 320).

The present research is considering the strategies and consumer behavior of Duty Free industry. After the analysis of relevant literature and the importance provided to certain concepts of Duty Free markets, the research will now focus on the methodology of collecting information. The study focuses on the customer service and atmosphere of Duty Free markets. It has been seen that the fashion industry have performed tremendously well in last few years in the Duty Free market.

Research Approach

In this investigative research study, qualitative approach and secondary data collection method have been utilized. The main aim of this research method is to gain deep understanding about a specific event or organization rather than a description of a large sample population. It provides a description about the order, structure and patterns which is found among the target population. It is also known as the field research. It gathers data about human behavior and choices in social structure.  It does not includes manipulate variables or closes ended with fixed options. It indicates that how the participants are deriving the answer of the questions from the surroundings and how does it influences the behavior of the behavior. Here we have secondary method of data collection to pursue the research.

Secondary Data- Collection of Relevant Figures of Duty Free Market

The method of data collection includes the secondary method of data collection. The collection of secondary data has been done through various books, journals and different internet sources.

According to Modina (2012), the duty free market should be introduced as a large pool of opportunities which are threatened by some risks. One thing is necessarily true that there are some clear reasons to participate in the Duty Free market and these are- marketing test, low risk and visibility. In case of Visibility, fashion apparels and accessories which are intended to be launched on the market which have massive popularity like airports around the world. As many people pass by the windows of the shops regularly thus from the point of view of the product and the marketing strategy it will be beneficial to position those products in airports. It will help to point out the “off production” or “best sellers” products.

Analysis

The data collected from different internet sources and journals draws some interesting points to discuss. After a deep analysis of the research studies that have conducted by previous researchers, some important concepts will be analyzed.

The Offer

According to Kotler (1999), offer is the main important thing which attracts the customers. Products and services should be categorized according to the type of passengers who flow by the flights and the placements of the products must be studied properly before implementing it. The role of customer in successful business is very much important and firms should focus on the strategies to catch their attention. According to Stefanel, some years earlier due to the huge population in Japan, airports were used to create customized and proper shops for products and services. Ambler (1992), has stated that owners of different brands need to deal with various kind of demands as per the destination market and they need to adapt a distribution channel to promote their offers like Duty Free shops. They need to manage the channel in order to attract passengers into the retail shops in the airports and convince them to buy the product in that atmosphere.

The Customer Service

According to Amjad A. Abu-EL Samen et al. (2011), the type of customer service is important to attract and retain the customers. Thus proper customer service is needed in the time of buying and also after the purchasing. As mentioned earlier, an excellent customer service leads to loyal relationship between the customer and the brand. Customers also get interest in sharing their choices and preferences with the sellers which helps the sellers to understand and fulfill the need of the customer. According to Turban et al. (2002), superior customer service helps to get aa competitive advantage over the others players in the same industry. They have also explained that customer service is capable enough to improve the purchasing experience of the customers, meet their expectation levels and thus through this way they create a positive perception in the mind of the customers about the shop and the brand. Customers get full satisfaction in shopping from the retail store which helps to build a loyal customer base for the shop.

The Atmosphere

The importance of the environment in drawing the attention of the customers in Duty Free stores has discussed in the literature review section. The perception about the environment and the layout design of the store has a greater impact in the feelings of the customers and it also influences them to take the purchasing decision. According to some researchers waiting time is the main important reason behind the shopping from Duty Free shops in the airports. Thus shops should be designed in that way in which it becomes the most favorable time to spend for the passengers. If the passengers want to relax before the travelling then pre boarding areas might be the right place for the shops. The layout of the shops is the most important factor that draws the attention of the customers. Boredom is also another reason for shopping. The more a product is easily envisaged as a gift, the easier it will be for the impulsive purchasing. Along with this, consumers also think that the reason behind their impulsive purchasing is the attitude of the trip. Thus airports should have perfect environment for different types of people like elder people, business men and tourists. This concept can be related to the concept of creation of low load atmosphere in which the passengers fell relaxed and they feel a sense of purchasing some products. Moreover, it should also be remembered that the segmentation of consumers is necessary to identify the target customer for each terminal in the airport.

Conclusion

The above research study provides a descriptive approach about the consumers’ behavior in the Duty Free market and the respective offers and customer service provided to the customers. The main aim of the study was to understand that how the variables are offered; atmosphere and customer services are recognized by the customers. The model of consumer behavior shows that responses of the customer according to the market stimuli. The data was collected from various books, journals and internet resources. From the above study it can be seen that there are three main concepts described in the research. In order to run a successful duty free store in airports and in other areas, companies should provide some lucrative offers to attract the customers. Apart from this, proper customer service should be provided to customers to make them feel relaxed. The atmosphere or the environment of the place is also important. As discussed earlier, environment of the shops should be comfortable which will provide a sense of comfort to the passengers when they are waiting for the flights. Duty Free shops are one of the most popular methods of business in the current market scenario. Especially in the emerging market in the developing countries where medium and high class population is increasing who are travelling through flights. Along with the increasing number of population travelling by flights, the numbers of customers in the Duty Free Shops are also increasing. Thus it can be concluded that with the rapid globalization and increasing passengers travelling by flight, the success rate of Duty Free shops will also increase those are having unique marketing strategies and offer superior customer service.

References

• Thompson, B. 2007. “Airport retailing in the UK”. Journal Of Retail & Leisure Property.
• Euromonitor International. 2005. “The Global Duty Free Market: Opportunities and Threats
• to 2010”. Euromonitor International: Strategy Briefing.
• Porter,  M. 1980. Competitive Strategy. New York: Free Press.
• Kotler, P. et al. 1999. Principles of Marketing. New Jersey : Prentice Hall.
• Corvi . E. and Bonera, M. 2006). “Le tendenze evolutive nelle politiche di marketing e
• comunicazione dell’impresa aeroportuale”. Università Ca’ Foscari Venezia .
• Freathy, P. & O’Connell, F. 1999. “A Typology of European Airport Retailing”. Service
• Industries Journal.
• Freathy, P. & O’Connell, F. 1999. “Planning for Profit: the Commercialization of European
• Airports”  Long Range Planning.
• Crawford, G. and Melewar, T. 2003. “The importance of impulse purchasing behaviour in the
• international airport atmosphere”. Journal Of Consumer Behaviour .
• Ambler, TJ. 1992. “The Role of Duty Free in Global Marketing”. Business Strategy Review.
• Maiden, S.2000. “Getting to know the market at airports. University of Westminster”.
• Marketing and Market Research Seminar.
• Turban, E. et al. 2002. Electronic Commerce: A Managerial Perspective. UK : Prentice Hall.
• Transportation Research Board. 2010. “Airport Passenger Terminal Planning and Design:
• Guidebook”. TRB’s Airport Cooperative Research Program (ACRP) Report 25.
• Amjad A. Abu-ELSamen. Et al. 2011. “Emerald Article: Towards an integrated model of customer service skills and customer loyalty: The mediating role of customer satisfaction”. International Journal of Commerce and Management.
• Shostock, L. 1985. Planning the service encounter, in Czepiel, J.A. and Solomon, M.R. New York: Lexington Books.
• Eiglier, P. and Langeard, E. 1987. Servuction: Le Marketing des Services. Paris: McGraw-Hill.
• Booms, H. and Bitner,J. 1982. “Marketing services by managing the environment”. Cornell
• Hotel and Restaurant Administration Quarterly.
• Rowley, J. & Slack, F. 1999. “The retail experience in airport departure lounges: Reaching for
• timelessness and placelessness”. International Marketing Review.
• Derval, D. 2007. “Wait Marketing. Communicate at the Right Moment at the Right Place”.
• Derval Research.
• Peter, P. et al. 2008. Consumer Behaviour and Marketing Strategy. Eighth Edition. Singapore : The McGraw-Hill Companies Inc.
• Modina, S.2012. “Il Negozio di Moda: Strategia, Valutazione e Gestione Economico Finanziaria”. Franco Angeli.
• Saunders, M. et al. 2009. “Research Methods for Business Students. Fifth Edition”. Financial Times.