Influence Of Credit And Low Price Guarantee

Published Date: 02 Nov 2017

Introduction

Unlike the developed world where "organised retail" is the dominant retail format selling more than 80 percent (Dun and Bradstreet, 2010) of the total retail purchase volume, in India, as of 2011, "organised" (or "modern") retail constitutes merely 10 percent (The Times of India, 2011) of retail sales with the small mom and pop stores (also called kirana stores) making up the rest. In other developing economies, the share of modern retail is high, such as 36 per cent in Brazil and 55 per cent in Malaysia (Joseph et al., 2008). While, studies (e.g., Alexander and de Lira e Silva, 2002; Alexander and Myers, 1999; Kearney, 2006; Maharajh and Heitmeyer, 2005) show that large modern retail stores will grow in emerging markets (in India it is expected to be in the range of 14-18 percent of total retail market by 2015 (McKinsey and Company, 2008)), the kirana format will continue to have a significant presence (Joseph et al., 2008; PWC-CII, 2008). Shoppers in emerging markets, therefore, have a choice of retail formats that are quite different; their patronage of a format will depend on different factors.

Given that (a) India is a highly price conscious market (Business Climate Report, 2009; LiveMint, 2009) where incomes are low, (b) urban spaces are densely packed with limited free space and (c) there is a disinclination to go long distances for buying everyday staples, commentators have suggested that kirana stores will continue to play an important role in the consumer purchase basket for the foreseeable future (Chari and Raghavan, 2012; PWC-CII, 2008). Numbering about 12 million, kirana stores in India (The Economic Times, 2011), mostly operated by small family businesses using household labour, have some advantages such as (1) low labour costs and rent expenses as owners own the land and infrastructure on which their store is located, (2) strong relationships with customers resulting in a better feel for the pulse of consumer behaviour in their catchment area. Kirana store operators have greater knowledge about local consumers such as which products they will buy and how frequently. The level of ‘knowledge intimacy’ between kirana stores and their customers is something that cannot be replaced, duplicated or eradicated (Chari and Raghavan, 2012, PWC-CII, 2008) making it unlikely that modern retail players will be able to duplicate this level of knowledge and awareness about customers in the near future. The kirana store vs. modern trade competition context does not, for the most part exist in developed economies like US, Western Europe and Japan.

The main objective of this study is to compare the modern retail and kirana store formats and examine the differential impact of the presence or absence of credit and of the level of the low price guarantee offered by these two types of retailers on consumer purchase intention. This is an important question from a retailer standpoint. Price guarantees are increasingly used by modern retail stores in both emerging and developed markets for a variety of reasons such as to signal price, store image, reduce search behaviour (Biswas et al., 2002; Kukar-Kinney, 2006; Srivastava and Luire, 2001), while the credit is offered by neighbourhood kirana stores or small stores informally by allowing consumers to pay later (Business Today, 2010; Lenartowicz and Balasubramanian, 2009; Sinha et al., 2005; Srivastava, 2008), and formally by modern retail store in the form of store cards or bank credit cards.

Theoretical background and literature review

LPG (low price guarantee) is a guarantee where a retailer offers the lowest price for a product or a set of products, and promises a monetary compensation (reimbursement of the price difference or more) if the consumer finds a lower price elsewhere (Biswas et al., 2002; Srivastava and Lurie, 2001, 2004). The term LPG is widely used and includes guarantees that both match and beat competitors’ prices (Arbatskaya et al., 2004).

The size of refund (i.e., refund depth) is one the key features of a LPG. The refund depth represents the amount refunded to the customer which could be either actual or more or less than the difference between the price paid by the customer and the lower price found elsewhere. In sum, depth represents the assurance which retailer provides to consumer that the retailer is offering the lowest price in the market (Dutta and Biswas, 2005).

A LPG influences the consumer’s judgments of stores’ price image, perceived values, search behaviour and store choice (Biswas et al., 2002; Kukar-Kinney, 2006; Srivastava and Luire, 2001). The refund depth has a positive effect on consumers’ purchase intentions and both are directly correlated (Kukar-Kinney and Walters, 2003). Similarly, a LPG with a higher refund depth generates a better price-image than a low refund (Desmet and Nagard, 2005). So a LPG with a higher refund depth may lead to stronger consumer intention to purchase.

Research in this stream of the literature has been done in the context of organised retail (e.g., Desmet et al., 2011; Dutta and Bhowmick, 2009; Kukar-Kinney, 2006) with a conspicuous lack of work that is based on non-organised retail formats. Some exceptions are work on non-organised/small retail stores in emerging markets such as small versus large retail stores in Mexico (Paswan et al., 2010), retail patronage in China (Uncles and Kwok, 2009), practices of small retail stores in developing economies (Lenartowicz and Balasubramanian, 2009), unsuccessful international retailers in Chile (Bianchi and Ostale, 2006) and consumers’ preferences relating to department/specialist stores in South Africa (Jacobs et al., 2010).

There are few studies (e.g., Goswami and Mishra, 2009; Sinha and Banerjee, 2004; Zameer and Mukherjee, 2011) on India which compare kirana stores with modern retail. Other studies examine the issues such as emergence of organised retail in India (Sengupta, 2008), changing retail scene in India (Srivastava, 2008) and effect of shopper attributes on retail format choice behaviour (Prasad and Aryasri, 2011). Sengupta (2008) provides an historical perspective of evolution of modern retail format in food and grocery sector in India. The study suggests that the consumer disposable income is increasing but disposable time is declining. Therefore, daily grocery shopping is no longer seems to be the practice in many parts of the country unlike in the earlier days. This reflects more emphasis on time and ease of shopping. Furthermore, grocery shopping is no longer just a necessity, but often entertainment also; and ambiance and convenience are also important for consumers while shopping. Such trends may contribute in the growth of organised retail. Srivastava (2008) suggests that time starved customers will find organised retail formats as great shopping experience. The study finds that on average 75 percent of customers spend about 1-3 hours in the shopping mall. Malls with facilities such as cinema theatres, food courts and play places for kids are becoming the centre for family entrainment. On the other hand, small retailers (i.e., kirana store owners) have improved their services and also offering credit sales and home delivery to retain their customers. Kaul et al. (2010) support the significance of trust-image in influencing shopper trust and patronage intentions of a new store. In contrasts to existing literature, they conclude that store dependability is not really significant for Indian apparel retail consumers at initial stages of store visits.

Goswami and Mishra (2009) suggest that consumer patronage to grocery store is positively related to location, helpful and trustworthy salespeople, home shopping, cleanliness and offers; and negatively related to travel convenience. Kirana stores perform better on location while poorly on cleanliness, quality and helpful trustworthy salespeople. The opposite is true for modern retail format. Zameer and Mukherjee (2011) find that kirana stores are preferred due to location convenience, customized services and easy exchange facilities while modern retail stores attract consumers due to product variety, efficient-store management and other value enhancing services. However, Sinha and Banerjee (2004) conclude that in-store service, trustworthiness, entertainment value and store design do not influence store choice. Prasad and Aryasri (2011) suggest that consumer age, gender, occupation, education, household income, family size and distance to store significantly influence the retail format choice decisions. Additionally, psychographic dimensions like values, lifestyle factors and shopping orientations may also exert influence on the store choice decisions.

Our study is different than above studies for two reasons: First, we attempt to capture the pure effect of credit while keeping other variables such as offers, location, purchase frequency etc. constant. Previous studies (e.g., Goswami and Mishra, 2009; Zameer and Mukherjee, 2011) undermine the importance of credit by considering it like any other variables however evidences (Chari and Raghavan, 2012; Business Today, 2010; Srivastava, 2008) show the credit is one of the strongest contributors to consumer purchase intention in Indian context. Moreover, Goswami and Mishra (2009) operationalise credit in the form of stores accepting credit cards and generalisation of findings on this variable can be questioned in a country like India where credit card penetration is very low. Second, we operationalise LPG instead of generic promotional offers as consumers are able to respond well to the specific promotional offers like LPG rather than generic offers.

The difference between kirana and organised retail is especially important as the kirana (or the mom and pop) store format is quite different from the latter in terms of location, operation, scale or activity and presence (Sinha and Bannerjee, 2004). Importantly, LPG is a widely used tactic by modern retail stores to attract customers. The lack of comparative research is surprising given that 70 percent of the world population lives in geographies where the kirana-type format has a larger market share than organised retail.

Similarly, the literature is silent on the impact of store format, or the level of credit and its interaction with LPG levels on patronage intentions. One recent study on the size of store formats in an emerging market context finds that consumer’s preference for small stores is positively motivated by functional benefits and familiarity with small stores, and negatively associated with the functional benefits offered by the large stores (Paswan et al., 2010). Major functional benefits are availability of merchandise, convenience, price, and need fulfilment; while familiarity included factors such as knowledge of store ownership, loyalty and family friendly relationship. However, the need to consider other factors influencing customer preferences, in other emerging market contexts has been emphasized (Paswan et al., 2010). Another study (Jacobs et al., 2010), with a focus on South Africa, finds store related factor such as location, appearance, service quality, convenience and product factors like quality, price, and assortment as the determinants of a store format preference.

Earlier studies that exist relating to credit in the retail (e.g., Etzel and Donnelly, 1972; Hirschman and Goldstucker, 1978) are in the context of type of credit preferred and credit card usage in the US in the 1960s and 1970s. In emerging market economies like India (or South Africa, Brazil, China, Indonesia, etc), anecdotal evidence suggests that many kirana stores offer credit to their regular buyers (Sinha et al., 2005; Srivastava, 2008); however even recent studies are limited to credit extended to the retailer (e.g., Lenartowicz and Balasubramanian, 2009).

The cost of the credit is often picked up by the store owner and/or the supplier who operates with minimal overheads. In the emerging market context, credit can play an important role in patronage intentions (Sinha, et al., 2005; Chari and Raghavan, 2012) because income levels are relatively low, budget constraints are high and the availability of credit (i.e., deferred payment to a grocery store for goods purchased) expands consumption possibilities considerably. The main purpose of this study to fill in the identified gap in the literature relating to consumer’s purchase responses to retail formats and impact of interaction of credit and LPG with different retail formats.

Hypothesis development

Impact of store format on purchase intention

In various developing countries including India, consumers are at the higher end of the income and social pyramid (i.e., SEC A and B categories [1] ). Many such customers buy from both the kirana store and from organised retail stores. Studies reveal that image and perception have significant impact on store choice behaviour of consumers; and perceptions about stores are driven by store format, distance of store from home, environment of the store (Blackwell et al., 2001; French et al., 1972; Kaul et al., 2010; Uusitalo, 2001). Proximity is one of main determinants of store selection (Baltas and Papastathopoulou, 2003; Prasad and Aryasri, 2011) while others are merchandise, ambience and kind of service offer by the store (Jacobs et al., 2010; Sinha and Banerjee, 2004).

Consumers are likely to visit a kirana store more frequently (proximity and less transportation costs are few of the reasons) than a modern retail store which leads to better relationship with former over time (Baltas and Papastathopoulou, 2003; Leszczyc and Timmermans, 2001). When consumers develop familiarity with a particular retail store (in this case kirana store), they will continue to visit the same store (Desmet et al., 2011; Pan and Zinkhan, 2006; Uusitalo, 2001) with less or no switching to other store as long as they are served well and not influenced by any high value offer. Pan and Zinkhan (2006) find that, in emerging markets, small retailers are preferred by the consumers as they feel that small store owners help the local community, and are familiar with the local store owners or workers. Such advantages are over and above the functional benefits (offered by the large/modern retail store) created by the small retail stores. Gupta et al. (2011) find that existing relationships between customers and small retailers is a strong deterrent to customers moving to organised retail store. Familiarity and/or knowledge significantly affects consumer responses, such as price perceptions, product evaluations, behavioural intentions and satisfaction (e.g., Berger et al., 1994; Park et al., 1989; Rao and Sieben, 1992; Sonderlund, 2002). Researchers have found that consumers may have more patronage for kirana or small store due to various reasons including ease of shopping, personalised services (Jacobs et al., 2010; Pan and Zinkhan, 2006; Paswan et al., 2010; Sengupta, 2008, p.694). While empirical evidence is lacking, researchers have suggested that credit availability may also be a significant factor (Chari and Raghavan, 2012; Sinha et al., 2005; Srivastava, 2008). In addition, perceived risk of a purchase going wrong is less at kirana store than at a modern retail store because kirana store is normally chosen based on confidence that the consumers has regarding the store. Sharma and Krishnan (2002) found that a simple and less educated salesman at a kirana store might prove to be more effective than a well trained salespeople at modern retail store format and therefore, in India, small grocery stores are able to generate a special relationship between the salespeople and their customers which may lead to increased preferences for kirana store.

Modern retail stores, on the other hand, tend to be situated farther away and are less personal. Store size (Lenartowicz and Balasubramanian, 2009; Treblanche, 1999) and location (Fotheringham, 1988; French et al., 1972; Kim and Jin, 2001; Meyer and Eagle, 1982; Prasad and Aryasri, 2011) are also considered to be important determinants of store choice and performance. Literature (Sirdeshmukh et al., 2002) emphasizes the value of interpersonal relationships in increasing customer trust, commitment, and retention; and kirana stores, due to their inherent characteristics such as close and frequent interaction with customer, are better equipped to develop that interpersonal relationship than modern retail stores where purchase process is relatively impersonal (Macintosh and Lockshin, 1997; Morgan and Hunt, 1994; Wong and Sohal, 2002). Anecdotal evidence suggests that consumers do not perceive any functional or convenience benefits beyond a certain size, and larger size leads to stress of walking and crowding; such stores are considered recreation destinations rather than shopping destination by many visitors. Therefore (modern) stores being larger than expected may not be liked by the consumers. On the other hand, anecdotal evidence suggests that many consumers visit large organised retail – especially those in malls for recreation purposes in India (Sinha and Bannerjee, 2004; Sengupta, 2008; Srivastava, 2008). The choice of a retail store is not only influenced by the functional benefits but also intangible dimensions like customer service, familiarity and comfort with store owner and sales people at store, etc. (Ganesh et al., 2007; Brennan and Lundsten, 2000; Burt and Carralero-Encinas, 2000). Thus, various attributes provide consumers several positives and negatives to evaluate their preference of store format. For instance, kirana stores offer the personalised services, credit, convenient location , whereas modern retail offer one-stop convenience, good ambiance, better choices and lower prices but with limited service levels and inconvenient store locations (Goswami and Mishra, 2009; Leszczyc and Timmermans, 2001; Srivastava, 2008; Zameer and Mukherjee; 2011). The literature, therefore, suggests that consumers will likely show no significant difference between patronising the kirana store and organised retail store.

H0: Other things equal, consumers would show no significant difference between preferring a kirana store and a modern retail store.

Impact of interaction of store format with credit on purchase intention

The Indian customer tends to be very price (Business Climate Report, 2009; LiveMint, 2009) and value conscious and relationship oriented (Joseph et al., 2008). Anecdotal evidence suggests that many kirana store owners accept delayed payment (i.e., credit) and provide home delivery to build and sustain relationships with customers (PWC-CII, 2008; Srivastava, 2008).

Credit card penetration in India is just 0.7 percent (Vccircle, 2011) and a large portion of consumers restricts credit card use to 5 percent of their total expenditure (Credit Suisse, 2011). In addition, customers may not necessarily expect credit from an organised retail store. Arguably, organised retail stores may not be able to offer credit within their cost structure. On the other hand, kirana store owners provide credit to their regular customers. The argument is that the offer of regular credit by the kirana store will tilt the balance in favour of the customer patronising the kirana store in preference to the modern retail store (Joseph et al., 2008; Saini, 2009) as customers in emerging markets, even in the middle class are more budget constrained (PWC-CII, 2008). In addition, to have a more stringent test, we propose that in the absence of credit, the consumer should prefer modern retail; in the presence of credit, given that Indians are more collectivist and, therefore, relationship oriented (Hofstede, 1980), and kirana store owners often develop relationships with their customers, customers should prefer the kirana store. Therefore:

H1: Other things equal, with credit (no credit), purchase intention in a kirana store will be higher (lower) than purchase intention in modern retail store.

Impact of interaction of store type with LPG level on purchase intention

Research suggests that, keeping other factors constant, an LPG results in higher value perceptions and shopping intentions (Biswas et al., 2002), builds store traffic (Walters and Mackenzie, 1988), reduces consumer search price at competitive stores (Srivastava and Lurie, 2001) and lessens perceptions of price risk (Jain and Srivastava, 2000). Moreover, the judgments of a product as expensive or inexpensive as well as search intentions were lower in the presence of a price-matching guarantee regardless of whether the price of a product at a store is high or low (Srivastava and Lurie, 2001). Therefore, the presence of LPG (either low or high) should result in increased purchase intention.

The positive relationship between the perceived value and buying intention is well established in the marketing literature (Zeithaml, 1988). The higher the value of the price policy, the higher will be the consumer purchase intention (Biswas et al., 2002; Desmet and Nagard, 2005; Jain and Srivastava, 2000; Kukar-Kinney and Walters, 2003; Srivastava and Lurie, 2001). So, purchase intention in a high LPG scenario should be higher as compared to a low LPG scenario. In a price guarantee scenario, a high refund increases the price policy credibility that produces higher value with a high refund versus a no (or lower) refund (Borges, 2009). Studies also reveal that presence of a refund increases the likelihood of discontinuing price search (Srivastava and Lurie, 2001) and benefits of search are lower when price dispersion is relatively low (Stigler, 1961).

LPG decreases price search at competing stores (in this case modern retail stores) when the cost of search is high (Srivastava and Lurie, 2001). Also stores offering price guarantee are perceived as less expensive stores (Luire and Srivastava, 2005) and research suggests that intention to search for a better price is lower when an LPG is offered by a low price image store (Biswas et al., 2002). Bell et al. (2000) find that consumers who are most sensitive to price overall (i.e., in total for both the store choice and expenditure decisions) are in fact the least sensitive to prices in their expenditure decisions in a particular store.

Moreover, the refund size has a positive effect on consumer’s belief and intentions in the light of an LPG (Kukar-Kinney and Walters, 2003) leading to higher purchase intention and an LPG with a higher refund results in a better price-image than a low refund (Desmet and Nagard, 2005). Higher refund size not only attracts customers to a retail outlet but also positively influences their repeat purchase behaviour (Desmet et al., 2011; Dutta and Biswas, 2005), which is higher than thin refund size. Dutta and Biswas (2005) also conclude that this effect is more present mostly for consumers who are more interested in increasing value from their purchase. In other words, value/price conscious consumers are highly likely to be influenced by the high LPG.

Research suggests that for high price image store (in this case modern retail store, particularly life style segment of modern retail store) an LPG results in higher value perceptions, shopping intentions and higher search intentions (Biswas et al., 2002). In sum, a high LPG should lead to a greater purchase intention for a retail outlet. The scope of the LPG (i.e., competitor’s eligible for price comparisons) also positively affects the store loyalty, with strongest effect for price conscious consumers (Kukar-Kinney, 2006). The preceding discussion suggests that low LPG in organised retail could likely lead to relatively lower purchase intention.

Existing research also suggests that buyers patronise kirana stores for reasons of convenience, closeness, less time spent, ability to sell loose items, credit sales, amenability to bargaining and, relationship built with the kirana store owner over time (Jacobs et al., 2010; Joseph et al., 2008; Uusitalo, 2001); these benefits from kirana store leads to increased purchase possibility as compared to modern retail store, and consequently we argue that a price guarantee with a low refund may not be sufficient to attract consumer to modern retail store. Consumers will search only when marginal benefits of search are more than to the perceived marginal cost of search (Stigler, 1961). Due to higher time, and possible, search cost (Baltas and Papastathopoulou, 2003), we expect that marginal benefits of low LPG are less than to the perceived marginal costs (including time cost) of search for modern retail store and therefore, a low LPG offer may not be able to make any difference in the choice of store formats and hence consumer would continue to buy from kirana store.

On the other hand, we argue that a higher LPG offer from modern retail store may be able to outweigh the extra benefits offered by kirana store under similar (high) price guarantee due to the contrast effect of a higher refund size having a greater impact. Consumer brains react more strongly to larger contrasts (Ramachandran, 2010, p.219) and a high LPG compared to low LPG provides such a contrast. A higher LPG from an organised retail store is likely to provide the contrast because customers are value and price conscious and organised retail also sometimes has a high price image (CII-AT Kearney Report, 2006).

H2: Other things equal, under conditions of low (high) LPG, a kirana store will have a higher (lower) purchase intention than a modern retail store.

Combined impact of credit and LPG

Consumers in India are known to be price and value conscious – even SEC A and B customers; this is often typified in advertisements. Recent advertisements from Maruti Suzuki, the largest car maker in India carry the tag line "kitna deti hai" (what is the fuel consumption?) in a variety of situations where customers are buying luxury / high end items like yachts and rockets. Thus, although high LPG leads to increased purchase intention at modern retail store compared to kirana store, a combined offer of credit and LPG (either high or low level) from former may be perceived less attractive by consumer due to relatively higher importance of credit (Sinha et al., 2005; Chari and Raghavan, 2012) flowing from a high price and value consciousness. Additionally, the amount of credit that is offered at any given point in time will likely be larger than the amount on an LPG offer. Thus, the credit offer should likely to have a stronger influence on purchase intention than LPG – regardless of the size of the LPG. Consistent with earlier hypotheses, we suggest that:

H3a: Other things equal, under conditions of high LPG and availability of credit, a kirana store will have higher purchase intention than a modern retail store.

H3b: Other things equal, under conditions of low LPG and availability of credit, a kirana store would have higher purchase intention than a modern retail store.

Building on H1, H2, and H3, we, therefore, also propose a three way interaction between store type (kirana store/modern retail store), presence/absence of credit and LPG level (high/low) and their influence on purchase intention.

H4: Other things equal, store type (kirana store/modern retail store), credit (presence/absence) and LPG level (high/low) interact to influence purchase intention.

Methodology

Study design

A 2 (store type) x 2 (high/low LPG) x 2 (credit / no credit) experimental design was used for this study (Table 1). Thus, a total of eight scenarios were constructed (see appendix B for detailed description) and purchase intention was measured in each of these scenarios. Respondents were asked about their purchase intention for a newly introduced hypothetical toothpaste brand - ‘White Toothpaste’.

Toothpaste was selected as a product category for the following reasons. First, toothpaste is available at both retail store formats; second, the category was bought and consumed by all respondents types (both male and female; various age and income groups); third, toothpaste was listed in the LPG advertisement brochure of modern retail formats making scenarios more realistic; fourth, being consumable item toothpaste is bought more regularly so respondents would always have familiarity with the product; fifth, toothpaste represents a product category that can be a planned purchase or an immediate purchase increasing the probability that the respondent from a category is likely to have purchased the product from both a kirana store and from organised retail, making the selected product more relevant across retail formats. It may be noted that, in order to achieve experimental realism, in all scenarios we consider credit for all purchases (see scenario descriptions in Appendix B) rather than just for toothpaste because availability of credit is extended on all grocery items not merely for a specific product (Chari and Raghavan, 2012).

Brand awareness and loyalty positively influence consumer purchase behaviour (Hoyer, 1984; Hoyer and Brown, 1990); so in order to eliminate any brand loyalty bias the respondents were exposed to a hypothetical brand rather than a well established brand in the selected product category. To this end, we conducted a survey within a random selection of respondents from the ultimate target respondent set asking them to rank four hypothetical toothpaste brands, that is, Kushaboo, White, Shakti, and Moti, for a toothpaste product. The questions used included (a) which brand is the most preferred for a toothpaste product according to you? Please rank, (b) What could be a new toothpaste brand name out of following would appeal to you at kirana store as well as organised retail store? Please rank (5 most preferred-1 least preferred). The ‘White’ brand name was selected based on the highest ranking in this survey.

Based on a pilot of 15 kirana stores in the vicinity of Navi Mumbai and Ahmedabad in Western India, we expect that almost all modern retailer gives a formal LPG (prominent examples in the selected cities were Easyday stores of Bharti Retail Ltd., More megastore of Aditya Birla Retail Ltd. and Reliance retail stores (i.e., Reliance Fresh, Reliance Super, Reliance Mart)) whereas only one kirana store offered LPG and that on an informal basis. Anecdotal evidences suggest that kirana stores are able to beat the prices offered by modern retail store, though they do not announce it formally. For instance, a two-litre Pepsi is sold for Rs. 60 at Easyday store but few kirana stores sale it for Rs. 55 (Business Today, 2010). We are interested in knowing consumer responses to situations where a kirana store offers the LPG (both high and low). We reasoned normatively that the use of LPG could be a tool used by kirana stores to better compete with organised retail. Thus, this study has a total eight scenarios with a 2X2X2 design (Table 1).

Table 1 here

Sample

Two hundred postgraduate students participated in the experiment. The student’s average age was 24 and 64.5 percent were male. All respondents had prior shopping experience at both kirana stores and modern retail stores. Each respondent took between 10 and 15 minutes to complete the questionnaire. Monthly income of 47.5 percent respondents was in the range of INR (Indian Rupees) 20 to 40 thousands and 24.5 percent respondents were earning between INR 40 to 60 thousands. In modern retail scenario, 41 percent respondents reported a distance of 3-5km from their residence to modern retail store, 34 percent 1-2km and 14 percent 6-10km. Overall, the respondent profile confirms that participants were largely typical SEC B person in a town who has a neighbouring kirana store and a modern retail store (e.g., Big Bazaar) not too far off (3-4km) (see Table 2 for respondent profile).

Table 2 here

Measures

Following the literature (Biswas et al., 2002; Borges, 2009; Luire and Srivastava, 2005; Srivastava and Luire, 2001), we measure consumer purchase intention using four seven-point items (Strongly Agree- Strongly Disagree) in each scenario. An expanded purchase probability scale has greater predictive accuracy than a five-point scale (Gruber, 1970; Juster, 1966). These items were: ‘It is very likely that you would shop from a (kirana or modern retail as applicable) store’; ‘You would happily go to such a (kirana or modern retail as applicable) store providing the offer’; ‘The probability that you would shop at a (kirana or modern retail as applicable) store is low’ (reversed coded); ‘You would find such a (kirana or modern retail as applicable) store quite attractive’. The average score of these four questions was used in the analysis. Purchase intention construct showed adequate reliability with Cronbach Alpha coefficient 0.892.

Manipulation checks

Questions were included in the questionnaire to check whether respondents perceived the LPG and credit as intended in a scenario. To establish high and low LPG, participants were asked whether "a (kirana or modern retail as applicable) store that is offering to refund (twice) the price difference can be considered a (high) low price guarantee if you can find the same product at a lower price elsewhere". To determine respondent’s opinion about credit they were asked whether "a month’s credit from a (kirana or modern retail as applicable) store for my purchases is a high level of credit". Participants in no credit scenarios were asked their opinion on whether "it is common to find kirana stores that offer credit to their regular customers".

All responses were recorded on a seven-point scale (Strongly Agree - Strongly Disagree). Respondents perceived actual price difference as low LPG with a mean score of 4.5 and double price difference as high LPG with a mean score of 5.7. This difference in LPG level was also confirmed by a statistical significant t-test (p value=0.000) which compared purchase intention of high and low LPG scenarios while keeping other two factors (i.e., store types and credit) constant. This means that consumers perceive high and low LPG offers differently. One month’s credit was perceived high level of credit (mean score 5.5).

In order to ascertain whether credit is important or not in consumer buying decisions five questions were asked to every respondent: "If a nearby (kirana) store from where you purchase items were to offer credit, you would likely be strongly influenced to buy from that store"; "You like it if a nearby (kirana) store extends credit to you for purchasing items"; "It is important to you that the (kirana) store where you shop gives you credit". "Without the facility of credit, you would be less likely to buy from a (kirana) store". "Availability of credit from a nearby (kirana) store does not influence whether or not you purchase from that store" (reversed coded). All measured on a seven-point scale (Strongly Agree - Strongly Disagree). The same questions were asked with "modern store" substituted for kirana store for respondents in the modern store condition. Average score of these scales was used in the analysis. Cronbach alpha for the importance of credit construct was 0.864.

The following questions were also included on importance of credit for control purposes, manipulation check and to reduce any bias due to repetition of similar questions: "How do you visit (kirana or modern retail) store for purchasing grocery items [Bus, Auto, Personal Car, Personal Two-Wheeler, Walking, Others (please specify)]; "Do you get promotional offers from the store (only applicable to kirana store) while buying grocery/consumable items?" (Yes/No); "You have bought White toothpaste in the past?" (Yes/No) (this was manipulation and data integrity check question – respondents who said ‘Yes’ to this question were dropped from the analysis as white toothpaste brand did not exist); "You have bargained with (only applicable to kirana store) store owner while purchasing" (Never, Sometimes, Frequently, Always); "How far is the retail store (only applicable to modern retail store) from your place of residence? (<1km, 1-3km, 3-5km, 5-10km, >10km). This question was intended to check how far people travelled to a modern store. In no case, any respondent travelled more than 10km.

Respondents were also asked about their purchase frequency: "Your (or your family’s) approximate frequency of purchase of groceries from a (kirana or modern retail) store is...(Daily-1, Twice in a Week-2, Once in a Week-3, Once in Two Weeks-4, Once in Three Weeks-5, Once a Month-6). Data obtained from two variables (importance of credit and purchase frequency) were used, as control variables in the analysis.

Results

We used univariate analysis of covariance (ANCOVA) to test various hypotheses and results are reported in Table 4-5 (we have also reported ANOVA results). Consumer purchase intention may vary due to the differences in purchase frequency and varying importance of credit; we use these two variables as control variables in ANCOVA. We report the means and the standard deviation of the dependent variable, purchase intention in Table 3.

Table 3 here

Hypotheses are tested by examining main effects and interaction effects. The main effect for store is insignificant suggesting that store format does not determine purchase intention – thus H0 is supported.

Both credit and LPG provide significant main effect (p=0.000 in both) with a 1 percent significance level; and interaction effect of credit and LPG with store type is also statistically significant (p=0.013) supporting H1. H2 is also supported (p=.002). There is no interaction effect between credit and LPG in both analyses; however, in ANOVA, three way interaction between store x credit x LPG is significant (p=0.093) at 10 percent level which provides marginal support to H4.

Univariate main and interaction effect is due to the effect of credit and LPG on consumer’s purchase intention at a particular store as shown by means plotted in Figure 1-2 and in Table 3. Buying intention is lower in the absence of credit (scenario 3 and 4) and with low LPG (scenario 2 and 4) as compared to the scenario with credit and high LPG (i.e., scenario 1). However, unavailability of credit affects the purchase intention more than the LPG level. This is evident by mean score which declines by 1.6 (6.2-4.6) and 0.7 (5.1-4.4) from scenario 1 and 2 to scenarios 3 and 4 respectively compared to 1.1 (6.2-5.1) and 0.2 (4.6-4.4) from scenario 1 and 3 to scenario 2 and 4.

The results also support H3b with p=0.06 but not H3a (Table 5). High LPG seems to counteract the effect of credit but not completely and this may be due to the sample profile. The means in Table 3 reveal that the credit with high LPG at a kirana store leads to greater purchase intention (mean 6.2) than credit with low LPG (mean 5), no credit and high LPG (mean 4.6) and no credit and low LPG (mean 4.4). In contrast, at modern retail store, credit is not an as important variable as LPG in influencing purchase intention because mean declines marginally (i.e., 6.1-5.8=0.3), (substantially) in the absence of credit (with lower LPG; 6.1-4.5=1.6). The changes in purchase intention is visible due the shift in LPG from higher to lower while keeping credit constant however, lower LPG combined with no credit leads to lower purchase intention (mean 4.1) than offered with credit (mean 4.5).

The above inferences remain valid even after controlling the variation caused due to the differences in credit importance and purchase frequency (see ANCOVA results in Table 4) except the fact that the three way interaction between store x credit x LPG becomes insignificant (p=0.124) due to significant variation in purchase frequency (p=0.060).

Table 4 here

The varying importance of credit and difference in purchase frequency across two store types is confirmed by the t-test results given in Table 5. Both variables are statistically significant with p=0.000 at 1 percent significance level. The greater importance of credit at kirana store is depicted by higher mean score of 5.3 as compared to a lower mean of 4.2 for modern retail store. This set of respondents visits kirana store more often than to the modern retail store (lower score indicates more frequently, see scale description in manipulation checks section).

Table 5 here

Table 6 provides a summary of the hypotheses tests.

Table 6 here

In sum, findings of the study show that credit and level of LPG determine consumer’s purchase intention across store formats. Presence of credit and higher LPG increase the purchase probability however, relatively importance of these two varies by type of store. The absence of credit at kirana store definitely reduces the probability of buying intention while the same is not true for modern retail store, where level of LPG is more important than the credit. Interestingly, buyer is likely to discount high LPG for a month’s credit at a kirana store, and the reverse is true for modern retail.

Discussion and implications

This study contributes to the literature as follows: first, we examine importance of credit and LPG on consumer purchase intention across types of retail store formats in an emerging market context. Insights are provided about the consumer behaviour towards credit (absent and present) and LPG (high and low); second, findings of this study can help practitioners and scholars in this field to understand consumer responses to the relative importance of credit and LPG in buying decisions at a particular retail store; third, particularly, this study has a particular significance for emerging countries like India, Indonesia, Mexico, Egypt, etc. where kirana stores still are a sizable proportion of the retail environment. Findings, that providing credit can beat even higher LPG may help in designing a better product offer at a particular store format; fourth, inspire of steady growth of modern retail format in emerging economies, analysts anticipate that kirana stores will continue to co-exist with modern retail in India (PWC-CII, 2008) as well as in other developing countries. The advent of online aggregator formats like aaramshop.com in the Indian context that are specifically targeted at bringing together kirana stores and FMCG firms augurs well for the kirana store.

A better understanding of various distribution formats can definitely help marketer in selecting an appropriate channel to market their products. Both retail stores (i.e., kirana store and modern retail) have merits in attracting and retaining the customer. However, in order to increase their presence modern retail stores need to understand the role of benefits offered by kirana stores in the consumer decision making process. On the other hand, kirana stores need to retain their decreasing share in the distribution channels by designing innovative strategy to compete with lucrative offers from modern retail. Marketers should attempt to strike a proper trade-off between these two distribution formats to extract maximum value from each of these two formats.

As a sidebar, this study also has policy implications. Kirana store and their equivalents across developing countries are a significant source of livelihood for a good proportion of the population. This study, on the one hand, points the way towards a possible path for kirana stores to compete with organised retail through a judicious mix of store credit and LPG – the two factors considered in this study. On the other hand, the implications for modern retail format is that, in addition to functional benefits (e.g., varieties of merchandise, economies of scale, competitive prices, time and search utility (Paswan et. al. 2010)), they need to devise strategy to compete with kirana retail stores in the areas like credit availability and levels of LPG.

Although type of store has a significant influence on purchase decision when consumers are offered either credit or LPG or both, however, we did not find any support for store format alone. A possible reason could be that, in absolute term, consumers may be indifferent toward a particular store as long as they perform the simple task of distributing goods. In other words, the store does not matter to a consumer if offers are identical with same price points but consumer reactions to stores change as they start offering credit or LPG. Both credit and LPG separately alter the consumer’s response towards an offer but, surprisingly, we find no interaction between these two. An implication is that credit and LPG exercise stronger power either alone or with store format, but not together.

Limitations and future research

The present study contributes to consumer behaviour literature in several ways; however, a few limitations should be noted. The experiments were not conducted in a true shopping environment but with a student sample in a large metropolitan area in Western India and, therefore, limiting the generalisation of study findings. Thus, future research in actual shopping conditions may be suggested.

We have been able to demonstrate the impact of credit and LPG in two store formats. However, several other factors such as convenience, home delivery, impact of relationship and proximity to store may also influence the consumer decision making across formats and should, therefore, be researched. Detailed studies may be conducted on each of these variables to know their specific contribution. In the urban Indian context, given faster lifestyles and high density of population, home delivery is probably a significant variable that can also be examined. Finally, in this study, we have studied a low involvement product category (toothpaste) but one may expect a different response from a consumer when buying a high involvement product such as home appliances and mobile phones. Studies examining diverse consumer behaviour with regard to various product categories may also be done in future.