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Chapter 4. Service Delivery System and R... > Platform for Service Delivery System...

Platform for Service Delivery System and Influence of Buyer Behavior

Purchasing behavior is the aspect of the PTA research that drives the real estate sourcing process. Specifically, buyer behavior varies according to the product being sold. Retail purchasing behavior is often categorized in three general ways: spontaneous, semi-planned, and planned. The building is in essence the physical platform through which the franchise delivers its value to the customer. The phrases “location, location, location” and “a B location guarantees you a failure in profitability” are not to be ignored. However, the premise that location is key to success holds to varying degrees according to the type of customer that is being targeted by the franchise. We address some of the customer behaviors that guide the type of real estate that should be acquired.

  • Spontaneous Purchase Behavior: A spontaneous purchase is a purchase in which the time between deciding to make the purchase and the actual purchase are nearly simultaneous. Essentially, no planning is involved in such purchases. The items purchased are often low-commitment items. The convenience of the purchase is a paramount factor in deciding where to make this purchase. Examples of spontaneous purchases include one’s morning coffee, gasoline, or a daily newspaper from a newsstand. Because convenience is critical for purchase, prime real estate is also critical for success of these retail businesses. Even a well-known brand such as Dunkin’ Donuts located in a class B site can fail.

  • Semi-Planned Purchase Behavior: A semi-planned purchase consists of two stages. First, there’s a triggering event that initiates the actual decision to make a purchase. For example, when three months have passed, or 3,000 miles have been driven in your car, you recognize it is time to have an oil change. Second, there’s a time gap between the times at which the “problem” is identified, the decision to make a purchase has been made, and the purchase transaction occurs. The Moto Photo franchise exists on the premise that customers want to shorten the time from taking a picture to having a high-quality print. The nature of the purchase allows for a period of delay because the need is not perceived as immediate. The time period can be extended for two reasons: The actual execution of the purchase will take some time and therefore must be fit into the customer’s schedule, and/or the purchase itself requires some consideration and more planning time is required.

    Another example of a semi-planned purchase is the dry cleaning services of Zoots, a fairly new entrant in the laundry and dry cleaning landscape. The franchisor observed people and determined frequency with which customers need regular dry cleaning services. Also in question are larger ticket cleaning items, such as formal wear and even fur garments. Because individuals may be able to forgo dry cleaning for a few days at any given time, the need for this service is not as acute as for other products. But timing of the dry cleaning need is generally calculable.

    The real estate associated with a semi-planned business purchase is often the most difficult behavior to preselect because it is not clear exactly how “prime” the real estate needs to be for success. Prime real estate is that which will most likely produce retail revenue and which market forces will naturally price at the highest levels. But when a retailer is assessing where to locate her business, real estate should be selected relative to what is optimal regarding cost and benefit. Remember, the retailer’s goal is to minimize real estate cost while optimizing the location benefits required by the customer. This is usually an iterative process that a franchisor and franchisee deal with every day. Collecting the appropriate data and experience allows the franchisor to pass on the key elements of location that best deliver value to the customer. If you purchase prime real estate and business is not profitable enough to support the high expense, then unit economics will not be robust enough to merit operation. Prime real estate is, by definition, the most expensive and therefore imposes high fixed overhead. However, the richness of the unit economics is paramount in defining the occupancy cost of the property as a percentage of the revenue generated at the site. Conversely, attempts to cut corners with a poor site will also prove fruitless because the losses from the operation’s lower revenues will absorb any real estate cost savings. The nature of consumer buying behavior affects the real estate decision. In the semi-planned purchase discussed in the previous example, the consumer takes some time to contemplate the purchase. This “thought time” relaxes the requirement to have a location convenient to the immediacy of the spontaneous purchase decision. TIP 4-2 illustrates the significance that location choice has on the profitability of a franchised unit.

  • Planned Purchase Behavior: A planned purchase is one in which the time between deciding to make the purchase and actually making it is relatively long. There is a great deal of consideration involved in this purchase behavior, which might necessitate visiting several stores regarding a possible single purchase. These items tend to be more costly and can often be classified as either capital necessities or luxuries. Examples include the purchase of an automobile, furniture, home appliances, electronics, or a personal computer. Luxury items might include a diamond engagement ring. By definition, convenience is not a primary factor in the purchase, and therefore prime retail real estate may not be critical for the success of the business. However, alternative variables such as price, quality, and overall brand perception may have significant impact.



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