by
Vinod Jetley , Assistant General Manager , State Bank of India
Significance
Buying something already bought. Repurchasing is the second purchase as well as the further times the consumer keep buying. It's a key decision of consumer, in which experience, satisfaction, memory and self-given inner orders all play important roles.
From repeated purchases, firms expect large sales sustained over time, confirmation of the quality of their goods, brand loyalty.
In new markets, a large share of sales is represented by consumer buying for the first time. Over time, however, they become to repurchase, so that at the end, on mature markets, repurchases dominate sales.
In stock markets, repurchase means that a firm buys its own shares.
Determinants
Repurchase can occur out of eight reasons. A consumer having experienced satisfactory outcomes with a good, having memorised this fact, can give to itself the inner order of repurchasing and, when contingencies will be adequate, will repeat the act of buying so to have the possibility of fulfilling its needs again.
If the experience is negative, a disgusted consumer will think "Never again!" and will avoid, if not compelled, the repurchase.
In the first case, the repurchasing was favoured by all-round satisfaction thus representing a sign that the consumption experience with the good was judged positively. This case can have a slightly different orientation, with the good fulfilling the same expectations that the consumer had before the purchase.
Repurchase however can have different roots. The firm can be a monopolist, compelling people to repurchase because of a lack of alternative (the "narrow choice" case).
Even if it has not one unique seller, the good might be not satisficing according to several requirements, but still remain the best along one or more axes, to the effect that is re-purchased without "happiness" (the "optimal but non-fully-satisfactory" case). The choice bundle is so limited that what is the best there is yet not good enough and it is bought out of necessity.
Fourthly, in presence of large risks of disappointment from experience, to repeat the purchase of the same is more frequent than a change of provider. More in general, positive and negative switching barriers can lead to repurchase, as explored in this paper.
In a fifth case, repurchasing is simply rooted in a routine dictating - with low emotional involvement - that a certain good "cannot miss" at home. Repurchase is then enacted when home inventories are falling down and what remains is near a certain threshold (e.g. the quantity expected to be consumed before the next visit to a "point of sale"). In this case, a sharp reaction will rather be due to the lack of the good, whereas the presence of the good will be considered "trivial".
In a sixth case, repurchasing of a durable goods can be due to the partial wear and tear or total breaking down. Seventh, it can be due to the obsolescence of the good with respect to fashion and technology state-of-art.
As a crucial eighth case, repurchasing is linked to the desire of having a better product. For instance, in the furniture industry, it is customary to distinguish
* the "first installment" made by a young couple that goes living together, who needs many pieces of furniture at the same time, usually disposing of just a limited total budget
from
* "repurchase" as the later careful purchase of one single piece of furniture to improve the existing stock with a better one.
In this case, the repurchased good is better along a vertical axis of product differentiation. In a slightly different case, repurchase is better because tastes and needs have changed: now a new version of the good is preferred in a horizontal axis (with wallet large enough to prompt to substitute the older version).
In all these cases, one should distinguish the repurchasing of a product category (e.g. toothpaste) from the repurchasing of a precise branded item (e.g. Colgate classic of a certain size).
Impact on other variables
Large repeat purchasing leads to high sales in each period, which in normal business conditions means a high rate of utilisation of plants and current level of employment, thus to large profits.
Repurchasing, especially if due to high satisfaction, converts in brand loyalty, which reduces the scope for competition, makes demand more inelastic, allowing in many cases for a premium price over competitors, which again is conducive to high profit margins. Loyal client are less costly to acquire and nurture, possibly implying a lower level of costly advertising.
Conversely, competing firms entering into the market will have harder life and disappointing results if they cannot break repurchasing routines. This invites them to strong advertising, whose contents is sometimes aimed to shock and attract the smaller niche of consumers prone to change.
The weaknesses of neoclassical approach to repurchasing
In the neoclassical theory, if prices, income and taste do not change, every period the consumer buys exactly the same quantity of everything.
Even if prices and income change, repurchase is systematic because, with convex preferences all goods are always bought (in different proportions), as you can see in this free software.
Repurchase is then common but not relevant, because experience does not provide any new piece of information: the hyper-rational consumer knows in advance the utility that the good brings to him. The experience of using the good adds no information beyond that was "given" to him for free "at the beginning" of times, nobody knows how. The consumer cannot change his preferences, the less so endogenously because of experience.
With all its abstract beauty, the neoclassical approach is at odds with reality and of no use to real firms.
The firms' interest in front of repurchase
Repurchasing clients constitute a highly profitable loyal customer base. A simple but still effective way to induce a first probe is to offer a free demonstration as a major promotion device (e.g. new shampoos offered with women's magazines) as well as price discounts on first purchase, which can also mean a penetration price level in new markets to be increased afterwards.
Reducing the time between any two acts of repurchasing can boost sales, thus there is some incentive to reduce the useful life of the product, e.g. by increasing its component of fashion. This is easier if all producers understand this trend, because in the opposite case, a producer selling a short-lived product would be judged as providing low quality.
Improving the experience after purchase is key to satisfaction. In many cases, in fact, the consumer was attracted by an extremely simplified promise expressed by advertising and product label. Once he has bought and he's going to try it, fuller instruction of use might be precious. In particularly complex cases, a free-toll line for assistance or an Internet site with videos to download might transform a frustrating experience in an appreciated learning session (imagine IKEA distributing free videos on how to assemble its pieces of furniture).
In less complex cases, an attractive discount bonus packed with the product might induce a further purchase. More in general, repurchasing can be promoted by including in the product package something unexpected but useful.
Repurchasers tend to be more skilled than first-time buyers, thus products with higher performance but more difficult to use tend to be directed in prevalence to this segment of clients. More in general, repurchasers of the "eighth reason" tend to be older in age than the rest, which is a clue for producers of high price / high quality goods to focus on more aged consumers with all their habits.
Advertising is different if directed to first-time buyers (to be powerfully attracted and even scandalised with astonishing claims) or to repurchasers (who knows about the real experience of the good).
The macroeconomic conditions for repurchasing
Demographic, economic and cultural conditions influence the spread of repurchasing. Developing countries whose economies are booming will have a particularly high shares of people purchasing for the first time certain durables.
Well-established developed economies with large share of older people will be mainly dominated by repurchasing.
Traditional products enjoy large recognition and are usually repurchased over cycles. Innovative products have a larger share of new customers, but the firms that introduce them may have already gained a good brand awareness.
