IMPACT OF INCOME ON PURCHASE DECISION FROM ORGANIZED AND UNORGANIZED RETAIL IN INDIA

Transcription

1 INTERNATIONAL JOURNAL OF MANAGEMENT (IJM) International Journal of Management (IJM), ISSN (Print), ISSN (Online), ISSN (Print) ISSN (Online) Volume 5, Issue 11, November (2014), pp IAEME: Journal Impact Factor (2014): (Calculated by GISI) IJM 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 1 Research Scholar, Shri Venkateshwara University, Uttar Pradesh, India 2 Chief Proctor, Teerthanker Mahaveer University, Uttar Pradesh, India 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. 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. 76

2 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) 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. 77

3 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 VS Frequency of visit to the retail store. H2. Association found between VS Amount of money spent 6.0 RESULTS & DISCUSSION 6.1 Growth of Organized Retail Industry Series Source: 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 Impact of 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. 78

4 CHART.1 TYPE OF INCOME EFFECTS Table 2: Impact of Increase in income effecting the quantity of goods (X) 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 Positive 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. 79

5 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 P 1 L 1 in the Figure.1. The optimal consumption is located at the pointe 1 at which the consumer buys OX 1 units of good X and OY 1 units of good Y.Thus the consumer s total utility decreases as the optimal consumption combination is located on a lower indifference curve U 1. Similarly, when the consumer's income increases, the budget constraint moves towards outwards. This is shown by budget constraint P 2 L 2. The optimal consumption is now located at the pointe 2, at which the consumer purchases OX 2 units of good X and OY 2 units of good Y. The consumer s total utility increases as the optimal consumption combination is now located to a higher indifference curve U 2. Chart.2 presents a summary of Figure.1. CHART.2 Positive Effect: Sum Up Initial Condition Decrease in Increase in Price Line Indifference Curve Optimal Consumption Combination Good X Goods Y PL U e OX OY P 1 L 1 U 1 e 1 OX 1 OY 1 PL 2 U 2 e 2 OX 2 OY 2 The curve derived by joining the optimal consumption combinations such as e 1, e and e 2 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 Negative 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 (P X )and Y (P Y ) 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. 80

6 Figure.2: Negative 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 P 1 L 1. The optimal consumption is now located at the point e 1, at which the consumer now buys the OX 1 units of good X and OY 1 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 OX 1 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 OY 1 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 e 1, 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. CHART.3 Negative Effect: Sum Up Initial Condition Decrease in Increase in Price Line Indifference Curve Optimal Consumption Combination Good X Goods Y PL U e OX OY P 1 L 1 U 1 e 1 OX 1 OY 1 PL 2 U 2 e 2 OX 2 OY 2 81

7 6.3.3 Zero 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 (P X )and Y P Y ) 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 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 P 1 L 1. The optimal consumption is now located at the point e 1, at which the consumer now buys the same OX units of good X and OY 1 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 U 1. 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 e 1, 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. 82

8 CHART.4 Zero Effect: Sum Up Initial Condition Increase in Price Line Indifference Curve Optimal Consumption Combination Good X Good PL U e OX OY P 1 L 1 U 1 e 1 OX OY Hypothesis Testing: Table 1: Association between 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 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. Organized Retail Unorganized Retail Type of retail Store Table 4: Here in the research in the Chi-square is used. Less than Less than Frequency of visit to the retail store Everyday Twice a Twice a Once a Once a week week month month % 13.2% 2.0%.0% 40.0% 7.0% % 12.6% 35.6% 5.1%.0% 16.7% % 27.2% 57.4% 25.3% 40.0% 34.0% % 45.7% 2.0% 27.8%.0% 25.9% % 1.3% 3.0% 41.8% 20.0% 16.4% % 100.0% 100.0% 100.0% 100.0% 100.0% % 16.7%.0%.0% 15.4% 5.7% %.0% 42.9%.0%.0% 5.7% %.0% 57.1% 75.0% 69.2% 71.7% % 66.7%.0% 25.0% 15.4% 15.1% % 16.7%.0%.0%.0% 1.9% % 100.0% 100.0% 100.0% 100.0% 100.0% 83

9 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 0.00<0.01; 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 prefer frequency of visit to the retail store. From organized retail the observed Phi-value derived is 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 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 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. Organized Retail Unorganized Retail Type of retail store Less than Less than Amount of money spent 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 0.016>0.05; < More than % 9.1% 7.8%.0%.0% 7.0% % 6.1% 15.6%.0%.0% 16.7% % 72.7% 16.5% 87.5% 100.0% 34.0% % 12.1% 37.2% 4.2%.0% 25.9% %.0% 22.9% 8.3%.0% 16.4% % 100.0% 100.0% 100.0% 100.0% 100.0% % 20.0%.0%.0% 5.7% %.0% 8.3% 20.0% 5.7% % 40.0% 91.7% 40.0% 71.7% % 40.0%.0% 40.0% 15.1% %.0%.0%.0% 1.9% % 100.0% 100.0% 100.0% 100.0% 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 prefer amount of money spent. So we can say that in organized retail the observed Phi-value is 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 and p value is 0.00, so it is declared that there is no association found between the income and amount of money spent. 84

10 7.0 CONCLUSION Here in this research it has been observed that there are two things which has a greater impact on the purchase behaviour of the consumer and that include income of the buyer and price of the product. In the recent year income of the consumer has been increased resulting change in purchase behaviour of the consumer. During the last few years there is constant growth in retail sector been observed. Here we can see that there is direct relationship been observed in the income and the quantity demanded for the product except inferior goods and Geffen goods where relationship is negative. effect tends to be zero for all neutral goods. Two hypothesis were tested for organised and unorganised retail store which include testing of association between income VS frequency of visit to the retail store and association between income VS amount of money spent then we can find that in organised as well as unorganized retail store there is association found between income versus s frequency of visit. When we have tested another hypothesis which is association for the income VS amount of money spent then we can see that for organized retail there is association found between income versus money spent on the other hand there is no association between found between income versus money spent in case of unorganized retail store. 8.0 REFERENCES 1. Monika Talreja (2010, Changing Consumer Perceptions Towards Organized Retailing From Unorganized Retailing An Empirical Analysis, International Journal of Marketing, Financial Services & Management Research, Vol.2, No. 6, June (2013), ISSN Dr. Pankajakshi.R (2014) An Insight Into Indian Retailing Industry- A Holistic Approach, International Journal of Business and Administration Research Review, Vol.1, Isue.5, April- June, 2014, E-ISN No X ISN Medha Kanetkar (2013), A Study Of Impact And Effects On Consumers Of Organized Retailing In India, Proceeding of the International Conference on Social Science Research, ICSSR 2013 (e-isbn ) Syed Md Faisal Ali Khan (2012), An Empirical Study of Organised Retailing Strategies in developing customer loyalty, changing purchase decision and developing satisfaction in Consumer of Indian Sub-Continent, International Journal of Multidisciplinary and Current Research, ISSN: Mahmoud Abdel Hamid Saleh (2013), Impact of Gender, Age and on Consumers Purchasing Responsiveness to Free-Product Samples Online References %20A%20study%20of%20Impact%20and%20Effects%20on%20consumers%20of%20organiz ed.pdf on_ Consumers_Purchasing_Responsiveness_to_Free-Product_Samples 85