Pure Demand and Customer Behavior: Influencing Factors and the Importance in Retail
For companies, especially in retail, customer demand is a crucial factor for long-term success and increasing sales. Companies with sufficient knowledge and data about consumer demand, can plan and implement the appropriate strategies and roll out products customized to the needs and preferences of the target group. Optimized product positioning therefore generally promises the desired efficiency in sales.
But what exactly is pure demand? Demand describes how consumers or customers are willing to purchase a certain quantity of goods at a set price and time. It plays a central role in marketing, as it forms the basis for the interplay between supply and demand and has a significant influence on companies' decisions. [1]
However, when implementing strategies to increase demand, companies should keep in mind that the demand for consumer goods can be influenced by a variety of factors, including product prices, consumer confidence, advertising spend or consumer income and expectations. Remember, the law of demand states: “Demand falls when prices rise and the other way.” [2]
In addition to the common influencing factors that come to mind when talking about influencing demand and consumer behavior, there are also two important factors that companies can be aware of when rolling out, changing prices or optimizing strategies; the salary-timing [3] and weather conditions. [4]
What influence does the salary day have on consumer behavior and demand in retail?
It is generally known that consumers always remain constant in terms of which products they want or prefer to buy. However, this motive can change quickly - due to pay day.
Consumers are influenced by more “advertising-oriented” products around pay day and so have a tendency to buy them around when they are paid. With the thought that the money has just arrived, consumers are more likely to purchase consumer goods that they would perhaps classify as “luxury goods” during the rest of the month. In contrast, on days far away from pay day, consumers tend to make “prevention-oriented” decisions, i.e. they are more inclined to buy standard or necessary products.
This phenomenon can be explained using a very simple example: a sun cream. A more prevention-oriented sun cream, for example, would be a classic cream that protects the skin from UV light. A sun cream would be promotion-oriented if, for an extra charge, it would give the skin shine, moisture and suppleness in addition to protection against UV light. For example, consumers are more inclined to use the special sun cream when they have just received their salary instead of on days when there is almost nothing left of their salary. [5]
Unless otherwise agreed in the respective employment contract, the employer must pay the employee's salary at the end of the working month in accordance with paragraph 614 BGB. So this is the last day of the current month or the first day of the new month.? However, other provisions in employment contracts, for example in the public sector, may stipulate that the salary should not be paid until the 15th of the month.
It is generally worthwhile for companies to align sales and advertising strategies, product rollouts or price promotions primarily to the end of the month. There are various ways in which marketers can make use of these findings. It is recommended to plan new product launches that are heavily advertised at the beginning of the month, as many consumers just receive their money at this time. [6] In addition, the advertising strategy should be adapted to the appeal of the product, also taking into account the different times of payment in the month. [7]
How can weather conditions influence consumer behavior in retail?
In addition to pay day, weather conditions as an external factor can have a major influence on consumer buying behavior and demand. Consumer goods in particular are strongly affected by this. To put it simply: we humans like to eat ice cream when it is warm and sunny outside - in winter, on cold days, we prefer tea.?
Weather conditions have a strong influence on human emotions, and in this context also on purchasing decisions and the willingness to spend money on various products. In practical terms, the weather has an influence on every consumer purchase decision. A study by Kyle B. Murry states that sunshine greatly increases consumers' consumption and willingness to spend. This is also the reason why many retail brands install bright halogen lights in their stores to imitate the effect of sunlight to increase consumers' willingness to spend more and at higher prices. The Christmas mood, for example, is a good example for understanding. If it were already snowing in October, consumers would already be in the Christmas mood in October and feel ready to make purchases in the run-up to Christmas. This again shows that the weather can have a drastic effect on consumer behavior.
The influence can manifest itself on various levels. For example, the weather often influences which platforms customers use to make purchases. Stationary stores, for example, identify more customers on sunny and warmer days, while customers prefer to use online channels for shopping on days with bad weather. [8] This is where online shopping habits come into play, because when the weather is bad, consumers are more likely to scroll independently on their mobile phones, tablets or laptops at home. [9]Naturally, these trends can vary depending on the sector, product, or season. Interestingly, an analysis conducted by Cheil Germany RPM on visitor numbers at a major electronics retailer revealed that average daily foot traffic increased by 7% on rainy or windy days compared to clear days. This suggests that Germans prefer to spend clear days outdoors, but when the weather is unfavorable—but not too severe—they opt to visit electronics retailers. Similarly, visits to furniture stores rise by 12% during the fall and winter months, likely due to the appeal of indoor environments.
Demand for many products also depend on the season. An illustration from wxtrends.com shows how a change in temperature of just one degree can affect sales of popular consumer goods.
In the UK, for example, supermarkets can estimate that when the weather is warmer than 18 degrees, demand for garden furniture increases by up to 90% and for juices or carbonated drinks by up to 20%. Apart from the grocery store, sectors with high-value items can also be strongly affected.
Retailers therefore also have a lot of leeway when it comes to the weather. By tracking weather conditions and meteorology, retailers can optimize and adapt advertising campaigns or price promotions to target consumers with the right product at the right time and in the right way.
According to the British Retail Consortium, weather conditions are the biggest factor influencing consumer behavior after the economy. [10] Heightened product demand driven by weather conditions impacts also the supply chain by reducing current inventory levels and posing challenges for retailers trying to fulfill consumer needs. [11]
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How can prices be set in line with pay day and weather conditions?
We are currently in the seasonal changeover from fall to winter. Towards the end of the month, many consumers will also receive their salaries. Therefore, at such a time when demand for certain products will rise sharply, it is important for companies to set prices and strategies accordingly.
The age old question comes up: what should the price of the product be? It is not only intuition that is required to effectively manage variable pricing, but also the right tools and data sets. FOBOT (Forecast and Optimization Robot), developed by Cheil RPM Intelligence, is a dynamic pricing model system that can recommend the best price levels to achieve specific sales targets.
By using advanced algorithms to simulate and predict sales in different marketing scenarios, companies can gain useful insights to adjust pricing strategies in real time. Influencing factors from pay days up to weather conditions can be captured and predicted by FOBOT to maximize sales and gain an advantage over the competition. In addition to pricing strategies and adjustments, FOBOT can perform a comprehensive analysis of market conditions and help companies anticipate and proactively respond to shifts in demand. Using AI-powered tools like FOBOT can significantly reduce pricing challenges during high-demand events while increasing overall operational efficiency and profitability.
About Retail Performance Management: A leading consumer intelligence consulting department delivering insights and strategic recommendations to optimize the retail experience. Composed of industry experts, intelligent data analytics, and innovative technologies, our comprehensive approach offers a holistic view of how we support our clients' retail initiatives and objectives.
About Cheil Germany GmbH: Cheil Germany belongs to Cheil Worldwide Inc., one of the world’s leading marketing solutions companies. Established in 1973 with headquarters in Seoul, South Korea, Cheil's thousands of global employees create ideas that move brands, products and people from its 44 offices and 7 affiliates in 37 countries. Cheil delivers innovative communications strategies that drive business results through full-service advertising capabilities and beyond, with specialties in shopper marketing, experiential retail design, PR, sports marketing, and special events. Cheil's creativity is world renowned, as the network is highly awarded by international festivals, including Cannes Lions, CLIO, Spikes Asia, Dubai Lynx, AdFest and Effie Awards. The network enjoyed a stellar performance at the latest 2013 Cannes Lions International Festival of Creativity, winning 21 Lions.
References:
[6] Arbeitgeberpflichten: Bis wann muss eigentlich das Gehalt gezahlt werden? | Die Techniker - Firmenkunden (tk.de)