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Changes in consumer shopping behavior

December 5, 2013

Amazon.com employees walk the miles of aisles at an Amazon.com Fulfillment Center on “Cyber Monday” the busiest online shopping day of the holiday season Monday, Dec. 2, 2013, in Phoenix. (AP)

By Jonathan Copulsky and Christine Cutten

What a difference 30, 20, or even 10 years makes when it comes to consumer behavior.

Go back 30 years to 1983 — 24×7 shopping means mail-order catalogs and telemarketing. Commercial access to the Internet will take another 12 years to arrive, and AOL’s online service, based on a proprietary dial-up network, has yet to launch.

Self-service means you go to a supermarket and fill your cart before going to a cashier who rings you up and bags your groceries.

You may belong to newly launched loyalty programs from an airline or a hotel, and carry a retailer-specific credit card in your wallet.

Call centers are starting to implement interactive voice response capabilities, but you shudder when you encounter them because they seem so unnatural.

Move forward 10 years to 1993. You have more and different shopping alternatives. Cable channels, such as Home Shopping Network, and “big box” stores are the rage.

AOL’s signature greeting, “You’ve got mail,” will be featured in a movie starring Tom Hanks. Amazon will soon ship its first product, and consumers will have widespread access to the Internet.

One more leap forward, this time to 2003. Although the iPhone and iPad have yet to appear, Apple has opened its first retail stores, which will soon generate the highest sales per square foot of any retailer in the country.

Self-service and 24×7 have gained new meaning with a broad array of Internet-based shopping alternatives and proliferating self-service options, ranging from automated ticketing machines in airports to self-checkout in supermarkets.

Mobile phone use is high, with the shift from 2G to 3G and smartphones.

While Mark Zuckerberg is still a Harvard student, the launch of MySpace signifies the arrival of social networks.

Now back to today. Your 2013 shopping choices include real-time price checking, daily deals, self-designed rewards programs, mobile phone-based payment systems, ubiquitous rating sites, and more than a billion people and companies you can “befriend” via social media.

What happened? Clearly, there has been an astonishing stream of innovations in retail, as well as in health care, financial services, and other consumer-oriented sectors.

But are changes in consumer shopping behavior simply the inevitable response to innovation? Or are there other factors that help explain the seismic shifts in consumer behavior that have taken place?

What’s driving this trend?

Through extensive research, Michael Merzenich and other neuroscientists have observed that the human brain is incredibly plastic, even in adulthood, constantly adapting to shifts in our circumstances and experiences.

Although the research originally described how brains adapt to trauma, scientists now believe that it has broader applications.

“We have learned that neuroplasticity is not only possible but that it is constantly in action,” writes Mark Hallett, head of the Medical Neurology Branch of the National Institutes of Health.

“That is the way we adapt to changing conditions, the way we earn new facts, and the way we develop skills.”

“Plasticity,” says Alvaro Pascual-Leone, a Harvard Medical School researcher, is “the normal ongoing state of the nervous system throughout the life span.

Our brains are constantly changing in response to our experiences and our behavior, reworking their circuitry with each sensory input, motor act, association, reward signal, action plan, or shift of awareness.”

If smartphones, tablets, and social media were not part of the discussion 10 years ago, how can we plan for what’s on the horizon in the next two or three years, let alone the next decade?

Are there factors other than technology that contribute to these radical shifts in behavior that we need to understand, as well? There are indeed.

Do it yourself

Over the past 30 years, American consumers have become consummate devotees of do it yourself (DIY) across wide-ranging elements of the shopping and consumption experience.

The Internet and smartphones have been critical enablers for the DIY consumer. From 1990 to 2010, the percentage of the U.S. population using the Internet grew from 1 percent to 68 percent, while the percentage of smartphone owners grew from 11 percent in 2007 — when the iPhone was introduced — to almost 50 percent today.

By 2016, smartphones used as part of the shopping experience could influence from 17 percent to 21 percent of retail sales, representing between $627 billion and $752 billion.

Initially, DIY in the retail environment meant allowing consumers to perform relatively simple tasks without having to become involved with sales associates. These tasks ranged from printing airline tickets to checking product availability to finding store locations.

Over time, the complexity of DIY tasks has increased to include activities such as checking product prices and availability across a number of retailers and geographies, allowing the DIY consumer to perform tasks far more efficiently than might be done by an associate.

One consequence of this shift toward DIY is that consumers who now contact associates are often the “Have-Nots” who have no Internet and/or smartphone access; the “Exasperated” who give up on self-service options; and the “Perplexed” who have incredibly complex challenges that don’t lend themselves to DIY.

As a result, expectations for associates are increasingly high: they now help the least competent, the most frustrated, and the most demanding consumers.

Deloitte’s 2012 Annual Holiday Survey found that 56 percent of respondents are more likely to complete an in-store purchase from a retailer that offers knowledgeable store associates.

This suggests that, even in a DIY world, selecting, training, and retaining highly skilled associates is increasingly important.

Anywhere-anytime

Consumers are sometimes referred to as multi-channel or omni-channel customers, but it may be more appropriate to think of them as anywhere-anytime consumers.

Today’s consumers can make purchases via laptops, tablets, or smartphones at any time of day from almost any location, thanks to increasingly ubiquitous Wi-Fi and expanding 4G networks that are now available to 75 percent of the U.S. population.

Sixty-eight percent of smartphone owners responding to Deloitte’s 2012 Annual Holiday Survey said that they will use their phones to assist with holiday shopping.

More than 90 percent of consumers who responded to Deloitte’s 2012 Hospitality and

Leisure loyalty survey book their travel via airline or travel sites.

Technology has even allowed online retailers in certain categories to best the immediacy offered by brick and mortar stores.

The collapse of bookstores, with their ample selections of CDs, is an example of what happens when the need to go to a physical location to take physical possession of a product disappears.

To some shoppers, however, physical location is still important. It provides immediacy for many aspects of the shopping experience — the opportunity to browse, examine, compare, select, purchase, and take physical possession of the purchase.

For other shoppers, a lower online price may be sufficient incentive to forego the gratification of taking home a purchase from a store, thus relegating stores to the de facto showrooms for online sites.

And with major retailers now offering same-day home delivery for online purchases in select markets, they’re discovering that a few hours’ delay is proving to be sufficiently “immediate” for eager buyers.

The challenge for retailers is to make the shopping experience relevant to the way consumers want to shop.

Whether it is exclusive products, an enhanced in-store experience, or site-to-store delivery capabilities, engaging anywhere-anytime consumers requires supporting the cross-channel experiences that consumers have come to expect.

Wisdom of my tribe

We consumers have long asked for the advice of our tribes — family, friends and colleagues — when it comes to making purchases. We also rely on third-parties that specialize in evaluating and rating products and services.

What’s different today is that we now operate with a much more expansive definition of who is a member of our tribe.

It’s hard to pinpoint exactly when this shift began.

In 1979, for example, Tim and Nina Zagat surveyed their friends regarding their dining experiences and published their first guide. Since then, ratings sites ranging from Angie’s List to Trip Advisor to Yelp have proliferated.

Amazon adopted “collaborative filtering” technology to make recommendations, which are now a common feature on many shopping sites.

In our 2012 surveys of consumers, 28 percent said they would “significantly increase” or “increase” reliance on online reviews prior to purchases this year compared to 2011.

Many shoppers routinely interrupt their in-store browsing to check ratings on their smartphones.

The 2011 Deloitte Shift Index found that younger consumers “generally rely less on brand names as an indicator of product reliability, turning instead to the Internet for product and service information, user reviews and feedback, as well as substitutes.

Older consumers have historically relied on “tried and true” brand names and consumer product assessment agencies in the absence of other forms of reliable published information.”

Social media has been a significant enabler of this expanding definition of tribe. The average number of daily visitors on social networking sites increased from 46 million per month in 2007 to 90 million per month in 2011, while the percentage of time spent using social media increased from 7.4 percent in 2007 to 14.4 percent in 2010.

Furthermore, executives have made it their top priority when it comes to customer engagement.

Our tribes and the wisdom they offer are likely here to stay. The challenge for retailers is to incorporate tribes into marketing and outreach efforts, without compromising their authenticity.

Jonathan Copulsky is principal of strategy and operations at Deloitte Consulting. Christine Cutten is principal of strategy and operations at Deloitte Consulting.