Topics

Changing consumer behaviour and new competitors

Changing consumer behaviour

Consumer behaviour is how, why, where and when people buy. When it changes, a business built around the old pattern can lose its market without doing anything wrong.
Changes the exam has used, and that matter in New Zealand:
- Online buying replacing in-store, including buying from overseas retailers
- Showrooming — inspecting a product in a store and then buying it online, often from a competitor
- Health, environmental and ethical preferences changing what people are willing to buy
- Spending habits tightening when interest rates and living costs rise, so discretionary purchases are deferred
- Experience over ownership — spending on services and experiences rather than goods
- Convenience — expectation of delivery, booking and payment without contact
- Social media influence on what is discovered and trusted

Why it becomes critical

The business's premises, stock, staff skills and supplier contracts are all configured for the old behaviour, and reconfiguring them takes money and time.
Decline is gradual, so it can be mistaken for a bad month until several years have passed.
The customers who leave first are usually the youngest, so the business's remaining customer base ages and shrinks.

Solutions

Research what customers are actually doing now, rather than assuming
Add the channel customers have moved to — online ordering, delivery, click and collect
Change the product or the range to match the new preference
Reposition on what the new behaviour cannot provide: expertise, fitting, immediacy, trust, service
Use the physical site differently — as a showroom, a service centre or an experience rather than a warehouse

Why competitors enter

The market is growing, or is expected to grow
Margins in the market look attractive
Entry has become easier — a technology, a supply route or a change in regulation has lowered the barriers
In the exam, a new entrant is evidence about the market: someone with capital believes there is money to be made, which is worth saying in an answer.

Effects on the existing business

Lost sales volume as customers try the alternative
Price pressure, even from customers who do not switch, because they now have a comparison
Higher costs to retain customers — advertising, discounts, loyalty schemes
Competition for staff and suppliers, not just for customers, which can be the sharper problem in a small labour market

Solutions

Differentiate — be clearly better at something the entrant cannot copy quickly: quality, service, provenance, expertise, local knowledge
Lock in customers with contracts, loyalty schemes or subscriptions before the competitor is established
Improve efficiency so the business can compete on price without losing margin
Target a segment the competitor is not serving well
Partner with the competitor where the market is growing enough for both
Compete on price — sometimes correct, but only if the business's cost base allows it; a premium producer matching a low-cost entrant's price is usually the beginning of the end

Consumer behaviour is how, why, where and when people buy. When it changes, a business built around the old pattern can lose its market without doing anything wrong.
Changes the exam has used, and that matter in New Zealand:
- Online buying replacing in-store, including buying from overseas retailers
- Showrooming — inspecting a product in a store and then buying it online, often from a competitor
- Health, environmental and ethical preferences changing what people are willing to buy
- Spending habits tightening when interest rates and living costs rise, so discretionary purchases are deferred
- Experience over ownership — spending on services and experiences rather than goods
- Convenience — expectation of delivery, booking and payment without contact
- Social media influence on what is discovered and trusted

Why it becomes critical

The business's premises, stock, staff skills and supplier contracts are all configured for the old behaviour, and reconfiguring them takes money and time.
Decline is gradual, so it can be mistaken for a bad month until several years have passed.
The customers who leave first are usually the youngest, so the business's remaining customer base ages and shrinks.

Solutions

Research what customers are actually doing now, rather than assuming
Add the channel customers have moved to — online ordering, delivery, click and collect
Change the product or the range to match the new preference
Reposition on what the new behaviour cannot provide: expertise, fitting, immediacy, trust, service
Use the physical site differently — as a showroom, a service centre or an experience rather than a warehouse

Why competitors enter

The market is growing, or is expected to grow
Margins in the market look attractive
Entry has become easier — a technology, a supply route or a change in regulation has lowered the barriers
In the exam, a new entrant is evidence about the market: someone with capital believes there is money to be made, which is worth saying in an answer.

Effects on the existing business

Lost sales volume as customers try the alternative
Price pressure, even from customers who do not switch, because they now have a comparison
Higher costs to retain customers — advertising, discounts, loyalty schemes
Competition for staff and suppliers, not just for customers, which can be the sharper problem in a small labour market

Solutions

Differentiate — be clearly better at something the entrant cannot copy quickly: quality, service, provenance, expertise, local knowledge
Lock in customers with contracts, loyalty schemes or subscriptions before the competitor is established
Improve efficiency so the business can compete on price without losing margin
Target a segment the competitor is not serving well
Partner with the competitor where the market is growing enough for both
Compete on price — sometimes correct, but only if the business's cost base allows it; a premium producer matching a low-cost entrant's price is usually the beginning of the end