This chapter discusses the theoretical foundation that will function as the base of the theoretical framework of the study. This chapter shows the relationship among many factors that influence consumer behavior towards the characteristics of supermarket shoppers.
Retailing consist of the business activities involved in selling goods and service to consumers fro their personal, family, or household use. It includes every sale of goods and service to the final consumer. Retailing is the last stage in the distribution process, which comprises all of the businesses and people involved in the physical movement and transfer of ownership of goods and services from producer to consumer. (Berman and
Evans,2001)
Manufacturer
Wholesaler
Retailer
Final
Consumer
Figure 2.1 A typical distribution channel
Source (Barry Berman – Joel R.Evans, Retail Management- A Strategic Aapproach, 8 th
Edition, 2001, page 9).
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Figure 2.2 highlights 10 factors that consumers may consider in forming their perception of the caliber of relationship experiences offered by particular retailers.
1. Tangibles
2. Credibility
Physical facilities, appearance of personnel, tools, or equipment, physical representation pf service (such as a plastic credit card)
Trustworthiness, believability, and honesty
3. Competence
4. Access
5. Reliability
6. Responsibility
Possession of required skills, and knowledge
Approachability and ease of contact
Performing service at designated time, dependability of performance, accuracy in billing, and correct record keeping
Timeliness of service
7. Courtesy
8. Communication
Politeness, respect, consideration, and friendliness of cotact personnel
Keeping customers informed in language they can understand and listening to the customer comments
Making an effort to understand 9. Understanding the customer
10. Security Freedom from danger, risk, or doubt
Figure 2.2 Ten Factors Consumers to Determine Service Quality
(Source Barry Berman – Joel R.Evans, Retail Management- A Strategic Approach, 8 th
Edition, 2001,page 47)

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A retailer must price goods and services in a way that achieves profitability for the firm and satisfies customers, while adapting to various constraints. Pricing is a crucial strategic variable due to its direct relationship with a firm’s goals and its interaction with other retailing elements. A pricing strategy must be consistent with the retailer’s overall image (positioning), sales, profit, and return on investment goals. (Berman and Evans,
2001, 555) In market pricing, there is a lot of competition; and because people have a large choice as to the retailer to patronize, they often seek the lowest prices. Thus, firms price similarly to each other and have less control over price. Supermarkets use market pricing because they are in competitive industries and sell similar goods and services.
Most price-oriented strategies can be quickly copied. Thus, the reaction of competitors is predictable when the leading firm successful. This means a retailer should view price strategy from a long run, as well as a short run, perspective. Price wars are sometimes difficult to end and can lead to low profits, losses, or even bankruptcy for some competitors (Berman and Evans, 2001).
A price strategy can be demand, cost and/or competitive in orientation. In demand oriented pricing, a retailer sets prices based on consumer desires. It determines the range of prices acceptable to the target market. The top of this range is called demand ceiling the most people will pay for a good. With cost oriented pricing, a retailer sets a price floor, the minimum price acceptable to the firm so it can reach a specified profit goal. A retailer usually computes merchandise and retail operating cost and adds a profit margin to these figures. For competition oriented pricing, a retailer sets its prices in accordance with competitors’. Price levels of key competitors and how they influence the firm’s sales

13 are studied. As a rule, retailers should use a combination of these approaches in enacting a price strategy. (Berman and Evans, 2001)
Supermarket is a departmentalized self-service store offering a wide variety of food and household merchandise. It is larger in size and has a wider selection than a traditional grocery store.
The supermarket items typically comprises meat, dairy, produce, and baked goods departments along with shelf space reserved for canned and packaged goods as well as for various nonfood items such as household cleaners, pharmacy products, etc. Most supermarkets also sell a variety of other household products that are consumed regularly, such as alcohol (where permitted), household cleaning products, medicine, clothes, and some sell a much wider range of non- food products.
The traditional supermarket occupies a large floor space on a single level and is situated near a residential area in order to be convenient to consumers. Its basic appeal is the availability of a broad selection of goods under a single roof at relatively low prices.
Other advantages include ease of parking and, frequently, the convenience of shopping hours that extend far into the evening. Supermarkets usually make massive outlays for newspaper and other advertising and often present elaborate in-store displays of products.
Supermarkets are often part of a chain that owns or controls (sometimes by franchise) other supermarkets located in the same or other towns; this increases the opportunities for economies of scale.

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Supermarkets usually offer products at low prices by reducing margins. Certain products (typically staples such as bread, milk and sugar) are often sold as loss leaders, that is, with negative margins. To maintain a profit, supermarkets attempt to make up for the low margins with a high overall volume of sales, and with sales of higher-margin items. Customers usually shop by putting their products into shopping carts (trolleys) or baskets (self-service) and pay for the products at the check-out. At present, many supermarket chains are trying to reduce labor costs further by shifting to self-service check-out machines, where a group of four or five machines is supervised by a single assist
Kotler and Armstrong (2001) stated that types of retail stores can be classified in terms of several characteristics, such as:
1. Product line: a) Specialty store is a retail store that carries a narrow product line with a deep assortment within that line (apparel stores, sporting good stores, furniture stores, florist, etc) b) Department store is a retail organization that carries a wide variety of product lines-typically clothing, home furnishing, and household goods; each line is operated as separate departments manage by specialist buyers or merchandiser. c) Supermarket is a relatively large, low-cost, low- margin, high- volume, self-service operations designed to serve the consumers total needs for food, laundry, and household maintenance products. d) Convenience Stores is a relatively small stores that are located near residential areas, open long hours seven days a week, and carry a limited line of high

15 turnover convenience products. Their long hour and their use by consumers mainly for “fill- in” purchases make them relatively high-price operations. e) Superstore is a larger store that aims at meeting consumers’ total needs for routinely purchased food and nonfood items. A store almost twice the size of a regular supermarket that carries a large assortment of routinely purchased food and nonfood items and offers services such as dry cleaning, post office, photo finishing, check cashing, car care, and pet care.
2. Relative Price they charge: a) Discount Store is a retail institution that sells standard merchandise at lower margins and selling at higher volume. b) Off-price Retailer is retailer that buys at less than regular wholesale prices and sells at less than retail. c) Independent Off-Price Retailers is either owned and run by entrepreneurs or is division of larger retail corporation. d) Factory Outlet is an off price retailing operation that is owned and operated by a manufacturer and that normally carries the manufacturer’s surplus, discontinued, or irregular goods. e) Warehouse Club is an off price retailer that sells a limited selection of brand name grocery items, appliances, clothing, and a hodgepodge of other goods at deep discounts to members who pay annual membership fees.

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3. Retail Organizations: a) Corporate Chain Stores are two or more outlets that are commonly owned and controlled, employ central buying and merchandizing, and sell similar lines of merchandise. b) Voluntary Chains are wholesaler-sponsored groups of independent retailers engaged in bulk buying and common merchandising. c) Retailer cooperatives are groups pf independent retailers who set up a central buying organization and conduct joint promotions efforts. d) Franchise Organizations are contractual association between a franchiser (a manufacturer, wholesaler, or service organization) and franchisees (independent businesspeople who buy the right to own and operate one or more units in the franchise system). Franchise organizations are normally based on some unique product, service, or method of doing business, or on a trade name or patent, or on goodwill that the franchiser has developed. e) Merchandising Conglomerates is a free- form corporation that combines several diversified retailing lines and forms under central ownership, along with some integration of their distribution and management function
According to Schiffman and Kanuk (2004), consumer behavior can be defined as the behavior that consumer have when searching, purchasing, using, evaluating, and disposing of products and services that they expect in fulfilling their needs. The influence factors that have the impact of consumer behavior are marketing mix variables which is the four P’s (place, promotion, product, price), psychological influences such as perception and attitudes, situational influences such as the type of purchases and the

17 physical surroundings; and sociocultural influences such as reference groups and cultural.
(Nickels, Mchugh, and Mchugh, 2002).
The field of consumer behavior covers a lot of ground: It is the study of the process involved when individuals or groups select, purchase, use or dispose of products, services, ideas, or experiences to satisfy needs and desires. Needs and desires to be satisfied range from hunger and thirst to love, status, or even spiritual fulfillment.
(Solomon, 2004) Understanding consumer behavior is a good business. A basic marketing concept holds that firms exist to satisfy consumers’ needs. These needs can only be satisfied to the extent that marketers understand the people or organizations that will use the products and services they are trying to sell, and that they do so better than their competitor. Consumer response is the ultimate test of whether marketing strategies will succeed. Data about consumer help organizations define the market and identify threats and opportunities to a brand.
How consumers make buying decision? The buyer decision process consist of five stages: need recognition, information search, evaluation of alternatives, purchase decision, and post purchase behavior (Kotler, 2001).
Need recognition
Information search
Evaluation of alternatives
Purchase decision
Postpurchase decision
Figure. 2.3 Buyer Decision Process
(Source: Phillip Kotler and Gary Armstrong, Principle of Marketing, 9 th
Edition, 2001, page 193) a) Need recognition
The buying process starts with need recognition-the buyer recognizes a problem or need. The buyer senses a difference between his or her actual state and some

18 desire state. The need can be triggered by internal stimuli when one person’s normal needs-hunger, thirst, sex-rises to a level high enough to become a drive. A need can also be triggered by external stimuli. The marketers should identify the factors that most often trigger interest in the product and can develop marketing programs that involve these factors. b) Information search
The stage of the buyer decision process in which the consumer is aroused to search for more information; the consumer may simply have heightened attention or may go into active information search, in which he or she looks for reading material, phones friends and gathers information in other ways. The consumer can obtain information from any several sources. These include personal sources
(family, friends, neighbors, and acquaintances), commercial sources (advertising, salespeople, dealers, packaging, display, Web sites, public sources (mass media, consumer rating organizations), and experiential sources (handling, examining, using the product). As more information is obtained, the consumer’s awareness and knowledge of the available brands and features increases. A company must design its marketing mix to make prospects aware of and knowledgeable about its product or brands. c) Evaluation of alternatives
The stage of the buyer decision process in which the consumer uses information to evaluate alternatives brands in the choice set. The marketer needs to know about and study the buyers to find out how they actually evaluate brand

19 alternatives. If they know what evaluative processes go on, marketers can take steps to influence the buyer’s decisions to buy the product that they want to sell. d) Purchase decision
The purchase decision stage can be explained as the stage where the consumer already made a decision to buy the product. e) Post purchase behavior
The marketer’s job does not end when the product is already being purchased.
After purchasing the product, the consumer will be satisfied or dissatisfied and will engage in postpurchase behavior of interest to the marketers. What determines whether the buyer is satisfied or dissatisfied with a purchase? The answer lies in the relationship between the consumer’s expectations and the product’s perceived performance. If the product falls short of expectations, the consumer is disappointed; if it meets expectations, the consumer is satisfied; if it exceeds expectations, the consumer is delighted.
In retailing sector, product (merchandise which available on the market) holding very important position in reaching efficacy. Retailers have to provide required goods by consumer. Product variety and the number of choices represent important factors in the effort fulfilling requirement of the consumer. Retailers have to pay attention to the product mix to run the activity of its business.(Kotler,1997)
In evaluating satisfaction to a certain company, determinant factors can be used in the form of combination from satisfaction determinant to service and goods. Generally, this often used by consumer in evaluating the service aspect and goods quality bought.
According to Kotler (1997) consumer satisfaction is a function from relation between

20 performance and expectation that consumer felt from the bought product. It can be formulated by:
Satisfaction = Performance _
Expectation
If consumer accepts goods which exceed their expectation, they will then feel very satisfied. On the contrary, if it falls below or under expectation, then the consumer will be dissatisfied. When the formulated equal to expectation hence consumer feel satisfy.
While the Western consumers switch from in-town to out-of-town stores,
Indonesian consumers have only been introduced to supermarkets located in densely populated residential areas in the last two decades. Many studies strongly suggest that shopping plays a significant role in consumers’ lives and how they interact with the shopping environment influences their experiences and patronage decisions (Babin and
Darden, 1995; Sherry, 1990). Consumers’ shopping decisions are no longer only based on tangible value or price (Zeithaml, 1988). They make their decisions in a short time, and many do not check the price when they place the product into their shopping basket
(Dickson and Sawyer, 1990) because other elements, such as convenience, contribute significantly to the total value of their shopping experience. With respect to attitudes, some consumers feel that shopping is work; others fun (Arnold and Fischer, 1990; Arnold and Reynolds, 2003). Furthermore, regional and cultural differences affect the manner by which consumers evaluate the products acquisition process (Babin, Griffin , and
Madianos, 2000)

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The competition in Indonesia is increasingly keen from domestic manufacturers as their quality standards rise. For Western companies viewing the Indonesian market as an opportunity, they ought to prepare to understand the consumers first. Apart from the mode of investment, much literature has suggested the constraints for foreign investors in
Indonesia were associated with consumers’ attitudes and shopping behaviors. Although it has been identified that “income” is the key segmentation factor in relation to whether to purchase fresh food in a supermarket or traditional market (Goldman, Krider, and
Ramaswami, 1999), while Indonesian consumers have continued to purchase fresh foods from highly accessible traditional markets (Goldman et al ., 1999; Goldman, 2000), they have posed a continued threat to the supermarkets. There is an urgent need for research on Indonesian consumers although limited literature on branding suggested many global brands have been successful in promoting awareness and in penetrating the local markets.