Research Proposal on "Marketing Strategy Assessment of the Retail Home"

Research Proposal 13 pages (4165 words) Sources: 4

[EXCERPT] . . . .

Marketing Strategy Assessment of the Retail Home Furnishings Industry

The retail home furnishings industry is being adversely impacted by the global recession, with demand for these products predicted to continually suffer as housing starts fall throughout the first and second calendar quarters of 2009. The intent of this paper is to evaluate the personal and social factors that determine the level of purchasing of retail home furnishings. Concentrating on a combination of demographic and psychographic analyses, this paper will present how consumers are choosing to visit retail home furnishings stores and make purchases. As of 2009 many consumers are delaying the replacement of home furnishings due to rising unemployment in many nations affected by the global recession, in addition to falling disposable incomes which are combining to erode consumers' confidence. As a result, the spending levels in the retail home furnishings industry are dropping as consumers are reluctant to take on additional debt. As a result of these economic factors, the retail home furnishings market is predicted to be flat, with a 4.1% growth rate most attributable to household textile and furniture replacement, with 2009 being flat to negative growth (Fleischer, Slaughter, 2008, 26-28) due to the factors mentioned. Industry segments include furniture with 63.6% of sales, household textiles and soft furnishings (23.7%) and carpets and floor coverings (12.8%) (Fleischer, Slaughter, 2008, 30).

Depending on the consumer lifecycle for each of these product categories, there is a corresponding shift in revenue generated in this industry. Personal and social factors are now analyzed to specifically from the standpoint of their influence on purchasing levels and cycles in the retail home furnishings industry.

Personal Factors Analysis

Beginning with an analysis of demographic segments, Table 1, Demographic Spending by Segment illustrates the percentage of retail home furnishings spending by each age group. Of these, the majority of home furnishings are purchased by those consumers 35 to 44 years of age, as many are within the purchasing lifecycle of starting families and furnishing their homes. While the 25 to 34-year-old segment only is 15% of the total percentage of spending on retail home furnishings, their growth from an average of $8,514 in 2005 to $10,170 in 2007 on a per capita basis is one of the growth areas of an otherwise flat industry as it enters 2009.

Table 1: Retail Home Furnishings Spending by Segment, 2008

Market Segment

Share

Consumers aged 35 to 44

Consumer aged 55 to 64

Consumers aged 45 to 54

Consumers aged 25 to 34

Consumers aged over 65

Consumers aged under 25

Source: (Home Furnishings Industry Profile: Global, 2007)

Those consumers under 25 years of age are expected to stay relatively constant at 9% of the total spending for retail home furnishings through the forecast period, to 2011. These consumers are typically have not entered into the purchasing lifecycle of purchasing a home and then beginning to furnish it. As a result, this segment often spends on soft furnishings for apartments and their dedicated living space to be alone in their homes, which is a key psychological need many of them report as needing (69%) (Reimer, Leslie, 2008, 144). The age segment of 25 to 34-year-olds accounted for 15% of total spending, yet has consistently shown flat growth over the last five years (Home Furnishings Industry Profile: Global, 2007) as this group of consumers are often just beginning their careers and as a result do not have a high level of disposable income. Contrasting the first two demographic segments, those retail home furnishings consumers in the 35 to 44 age group form the majority of consumers in this market. Their concentration on furnishing their homes, investing in durable goods for raising children, and in many cases refurbishing homes they have purchased makes this the single most critical demographic segment to the profitability of the retail home furnishings industry. Catalysts of growth that are included in this industry include their ability to obtain significant debt, income to support discretionary purchases of furniture, and the perception that their homes are a statement of their relative levels of success in life. The next age segment, those 45 to 54-year-olds, who perceive their home as the primary means of communicating who they are (59%) (Carpenter, 2008, et.al). This group has consistently spent 19% of the total spending in the retail home furnishings marketplace, and from a social standpoint, are the most focused consumers on the perception of what their homes say about them as people. For this segment, their homes are a statement of who they are. Ironically however their spending is not as high as the 35 to 44-year-olds who are the most profitable demographic segment of this industry and the most critical to its continued growth. The last two segments, those consumers who are between 55 and 64, and those over 65 are ironically quite different in their relative levels of spending in addition to their psychographics as well. Those consumers in the 55 to 64 age group have consistently represented between 20% to 22% of total spending in the retail home furnishings industry, while those consumers over 65 are spending on average 12 to 13% during any given year. This latter segment of consumers, those over 65, are retired and on fixed incomes. The former group however sees their home, as do the consumers aged 45 to 54 do, as a statement of who they are and what their values are, including being a statement of their personal interests and unique traits. The 45 to 54-year-old consumers are also replacing the first generation of home furnishings, the majority of which is furniture and carpets. This segment often actively purchases from the three main product categories of the retail home furnishings marketplace.

The income levels of consumers who purchase from retail home furnishings outlets vary significantly, from less than $25,000 per year being the majority of consumers (34.8%) followed by those earning between $25,000 to $50,000 (30.2%), $50,000 to $100,00 (26.2%) and over $100,000 (8.8%). With the majority of consumers earning between $25,000 to $50,000, the use of debt financing is crucial for the growth of the industry overall. With 65% of all customers earning less than $50,000 per year it is apparent how this personal demographic factor is significantly redefining the entire market. With the lack of credit available during the late 2008 and early 2009 timeframes, the retail home furnishings market is flat in terms of growth, with the uplift in sales potentially being achieved from the lifestyle-based buying occurring in the group factors analysis.

In terms of the demographics of martial status and education, there are significant insights to be gained in terms of analyzing these specific personal factors as well. Over half of retail home furnishings consumers are married (58.6%), 27.8% are separated, divorced or widowed and 13.6% are single. This fits with the life cycle stages analysis that IKEA has found in their market research activities as well (Reynolds, 1988, 32). It would be expected that the majority of consumers are married, as the focus on furnishing a home is critical for couples after they have a child.

In terms of education, 27% have a high school degree, 37% have had some college courses, 12% have a two-year associates' degree, 17% have a four-year degree, and 7% have a graduate degree (Home Furnishings Industry Profile: Global, 2007). From an analysis of income, age and education it is apparent that the majority of those consumers who earn the most have either a four-year degree (17%) or a graduate degree (7%) which equates to 24% of the most profitable demographic segments within the entire industry. Ethan Allen is one of the American-based retail home furnishings chains that concentrate on this specific demographic segment of buyers, orienting their marketing, advertising and promotions strategies to members of the 45 to 54-year-old demographic segments with graduate degrees. Ethan-Allen has specifically found that the buying dynamics in this segment are defined by the women in these households (Kimber, 1983, 23) many of which have grown children and also graduate degrees (Bennington, 2001, 145, 146). As a result, the higher the level of education in these critical demographic groups of those between 35 to 44 years of age and between 55 to 64, the higher the level of per capita spending on retail home furnishings. IKEA has also concentrated on education in addition to income as one of the determinants of their marketing and segmentation strategy, underscoring all these efforts with multi-channel retailing, a concept they pioneered (Johnson, Yoo, Rhee, Lennon, Jasper, Damhorst, 2006, 455, 456, 457-460). Income correlations to age groups is a critical aspect of this industry, and underscores how the life cycle stages fit into the buying cycles as well.

All of these personal factors combined provide insights into the purchasing segments of the retail home furnishings market. They are only part of the total picture however of how consumers make decisions of which home furnishings products to purchase when. In order to fully understand the dynamics of consumer behavior… READ MORE

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