Market Segmentation and Muslim Loyalty - Assignment Example

Literature Review: Market Segmentation and Muslim Loyalty YOUR FULL THE OF YOUR SCHOOL OR Literature Review: Tesco and Muslim Loyalty Given the trend toward globalization and international expansion of markets, modern retailers are faced with increasing competition as well as the need to expand their products and services to appeal to broader market segments. This process is requiring retail grocers to identify and target specific ethnic market segments, and find successful ways to meet the needs of those niche markets while maintaining their appeal to the broader markets. Beyond simple appeal, those international retailers that bridge many different cultures and nationalities also have to build loyalty within the market so that they can withstand the ever-increasing competitive pressure from both domestic and international suppliers. The purpose of this literature review is to investigate published literature on general market segmentation theory, the impact of that segmentation practice upon loyalty and customer satisfaction within various constituencies, the application of those principles specifically to the Muslim community, as well as frame a research inquiry to test the theory of the segmentation approach to the Muslim market within a specific retail setting. General Market Segmentation Theory Within any market, there are many different constituencies with commonalities in product need; and these varied customers can be divided or segmented into groups which may share a similar need for any particular product. As Claycamp and Massy point out, "markets and the customers who make up those markets are not homogeneous" (1968, p. 34), and any company utilizing a successful business model will need to group those customers according to their similarities so that products can be tailored to meet demand. As early as the middle of the 20th century, the idea of dividing a market into groups of customers who share a similar need or desire for a particular product, i.e., segmentation, was advanced (Smith, 1956, pp. 3-8). The principle of segmentation is relatively straightforward; by successfully targeting a specific consumer group with particular needs, the company can focus its product development and promotional strategies into meeting those needs and gain a competitive edge (Abell, 1980, p. 8). While there are those who see an overemphasis on segmentation as "ironic" and "lead[ing]...in a direction that is opposite of what is really needed to build brand loyalty" (Anshuetz, 1997, p. 65), the vast majority of scholars would concur with Swenson that market segmentation experts are carefully regarded in the corporate world and that the "continued segmentation" of markets can certainly be expected to propel business forward "well into the twenty-first century" (1990, p. xiii). It should be noted that product differentiation is an important aspect of gaining market share and, because market segmentation should be used to increase the market share of a product within those segments as well, "product differentiation and market segmentation should be used together" (Greco, et al., 2003, p. 210). While these principles are true within domestic markets, they are particularly applicable to those companies engaged in international retail business. As Craft notes, prior to the mid-1970s, "market segmentation was viewed primarily as a domestic strategy" (2004, p. 40) and there was little scholarship with regard to international marketing theory. In 1972, however, Wind and Douglas recognized the nature as well as direction of global business and argued that segmentation was not just for domestic sales, but might be even more important in international markets due to the fact that they are more diverse (1972, pp. 17-25). As will be demonstrated in subsequent sections, the segmentation of the Muslim market by international companies, particularly those in the retail grocery industry, is critical. In Craft's study, it was noted that the organizations under review had varied emphases in relating the country selection to the specific consumer targeted, but all used segmentation techniques to "drive international product development and marketing" (2004, p. 44). One specific respondent in that study stated that their organization had previously designed products for a market, but "now to make money...have to design products with a specific consumer segment in mind" (p. 44). The predictable result of this ongoing segmentation is that brand competition in any particular market is more complicated as a result of both domestic and international suppliers (Chung & Kim, 1997, p. 361). For a retail grocer with international distribution, product design has to be focused upon the specific wants and unique needs of any particular ethnic market and, the nature of the competition will vary within each specific country. Thus, marketing to Muslims in the UK will involve products that successfully compete with locally owned shops selling products of a similar nature while marketing to that same segment in other countries may include head-to-head competition with regional suppliers. In the case of UK competition, an international retail grocer can also gain a competitive edge by increasing the variety of products available. The key for any organization looking to segment an ethnic market like the Muslim community will be partially found in understanding how a successful segmentation strategy impacts customer loyalty and satisfaction. If these attributes are not instilled within the niche market, the segmentation efforts fail. Segmentation Impact on Loyalty and Customer Satisfaction Organizations succeed with niche segmentation strategies when they demonstrate the appropriate understanding of-and sensitivity to-the defined market segment. The idea of responding to a particular market based upon the activities and considerations of a total social system is known as social marketing (Kelley & Lazer, 1973, p. 4). The impact of a successful social marketing focus can be considerable in terms of loyalty and customer satisfaction, and such programs have been shown to be very effective on an international scale when the focus is an ethnic culture (Fishbein, Middlestadt, & Goldberg, 1997: 149). The reason for this is intuitive; when a company makes the effort to understand the cultural forces and needs within an ethnic market, it is rewarded for that sensitivity by an increase in market share. Thus social marketing, or basing a marketing segmentation strategy on clearly understanding the needs and desires of that market's constituents (Badaracoo, 2004: 48), is a high-impact strategy for cultivating loyalty within any particular ethnic group; and the Muslim culture is no different. It is axiomatic that consumers tend to exhibit a "great deal of brand loyalty (across categories), and much of their buying involves repurchases of their favorite brand" (Brock, et al., (1994), p. 61). One of the keys to that loyalty, however, has to do with the perceived relationship between the customer and the seller. As implied above, a seller that takes the time to understand the cultural or dietary needs of a particular ethnic group is in a "relationship" with that group. Studies show that individuals don't just seek to "maximize their personal outcomes" through a specific purchase, they seek a "reciprocal relationship" with a seller wherein they perceive equity and parity; thus "brand relationship" is that which "exists between the buyer and the seller through the exchange of value for products or services" (Bailey & Schultz, 2000, p. 49). In other words, any international retail grocer's segmentation has to include more than supplying a particular product that Muslims, Hispanics, or Asians will buy; that organization needs to establish itself as a trustworthy source of these goods as a result of cultural sensitivity in order to establish the necessary parameters for ongoing and sustainable customer loyalty. Accordingly, once a successful segmentation is implemented and a brand relationship established with ethnic consumers, it is reasonable to expect those customers to remain loyal absent an intervening competitive issue, e.g., significant price or differentiation event. In fact, understanding the ethnic identification and lifestyle preferences of the intended market segment is the best way to ensure positive product performance (Haugtvedt, Lee, & Williams, 2004: 9). Beyond social marketing, companies that successfully segment ethnic markets have to understand the impact of lifestyle upon the product choices of their customers. Lifestyle is more than just how an individual spends their time; it includes value judgments, opinions and outside interests (Michman, 1991, p. 1). Thus, the lifestyle of individuals within a targeted segment, particularly if it is of a homogenous nature as that found in an ethnic group with shared cultural values, presents new opportunities for any organization to meet consumer needs; and this is particularly relevant in the grocery industry since unique food demand is central to almost every ethnic culture. When those needs are met, customers are satisfied; and satisfied customers make loyal customers. When embracing a lifestyle choice, members of a particular market segment have points of commonality that run across a broad spectrum of interests. When a seller taps into those junctions with a successful product offering, they are engaging in "lifestyle marketing" that "identifies the points of commonality" and then "affiliates" with those points in some way (Swenson, 1990, p. 11). Large retail organizations have the resources to perform the necessary market research to determine these areas of customer need and, particularly in the case of major international retail grocers, will most certainly be rewarded with gains in market share as a result. As will be discussed in greater detail in the next section, the Muslim community has many points of unique commonality in terms of their dietary needs and desires; thus a lifestyle approach would be a valuable way for any retail grocer to establish loyalty and satisfaction. Muslims and Retail Grocery Segmentation In terms of purchasing decisions, the Muslim community is no different than any other ethnic group; it has its own unique cultural perspective and lifestyle traditions. In the same way that large US grocery retailers have successfully targeted Hispanic consumers by expanding their product offering to include ethno-centric product standards such as masa, tortillas, or chili peppers, international retail grocery companies would be wise to focus on diversifying their product line in an attempt to successfully market full product lines, as well as specific food items, to the Muslim community. When it comes to Muslims and retail grocery segmentation, there are two significant categorical considerations to be made. The first is the dietary guidelines to which devout Muslims adhere, and the second is the venue with which the culture is most familiar. For devout Muslims, food is about more than culture, comfort, or nourishment. It also must be prepared according to the religious dietary laws known as Halal. The doctrine of Halal, which means "acceptable," represents dietary requirements for the Muslim community in the same way Kosher laws regulate the Jewish community. It is a set of dietary laws which prescribe the manner in which foods are processed prior to being consumed, and there is increasing Muslim demand for the provision of these products (Haddad & Lummis, 1987: 20). In terms of grocery segmentation for ethnic markets, it would be hard to imagine a more distinctive niche. For an organization operating in those areas which have high concentrations of devout Muslims, be that a single segment of the UK market or the majority of the Indonesian one, this means offering a product line that comports with these strict dietary laws while promoting a lifestyle-sensitive philosophy. In terms of scope, the Muslim market segment has the ability to bring significant economic power to bear. For example, France has a statistically large Muslim residential population. So much so, that if the 60 million Muslims who reside there would consume and purchase only Halal meat, the product could account for 10% to 15% of the entire French national meat market (Kutschera, 1996: 40). From a retail grocer perspective, any international company operating in France should already be making every effort to supply that demand; and it should be noted that those figures are for the meat trade only. Considering the potential product sales of additional, non-meat grocery items makes the successful segmentation of, and promotion to, the Muslim ethnic segment an absolute necessity for success-and that is just in France. Factoring the principle across all possible locations of an international retail grocery operation simply makes the point more emphatically. This need is so obvious that it isn't only within the grocery business that accommodation of these dietary laws has become standard. In fact, making acceptable food available to devout Muslims is so important that many European countries are now including it as part of the food services available in public institutions such as schools and hospitals; and if they cannot find it elsewhere, many Muslims will purchase their meat from Jewish shops because of the similarity between Halal and Kosher process requirements (Haddad, 2002: 8). This represents the growing power of the Muslim market segment; even governmental entities are seeing the need to offer new "products" within their health and educational service sector. Further, there is an additional demographic dynamic at work within the Muslim segment; age. While much of the demand for these products is coming from first-generation Muslims, their children and grandchildren are demonstrating cross-cultural influences by desiring products like Halal pizza (James, 2004: 2). This represents a significant opportunity for international grocery retailers who appreciate the cultural dynamics and market power of this segment. Developing relationships with suppliers for traditional Muslim foods while engaging in new product development that has a broader appeal within that segment would allow any international grocer to meet current customer needs while building loyalty in the next generation of the Muslim market segment. For large international retailers, particularly chain grocers, there is a natural cultural entry barrier to most Muslim markets that will have to be overcome even after a diverse product line is developed and put in place. Currently, most Muslim shoppers patronize small, locally-owned and operated shops; usually those whose proprietors are members of that same ethnic community. In spite of the fact that many retail food companies are seeking to gain a competitive edge in the marketplace and are responding to Muslim consumers, research shows that most of those customers have not used large corporate grocery chains as their source for Halal foods (Chaudry & Riaz, 2004: 29). This could be due to the relative difficulty of large-scale retailers in procuring appropriate products-especially meats-that comport with the law, which is very specific in terms of the butchering and handling of the meat, or because there have been no community ties and brand "relationships" established by the large chains. Regardless of the reason, international retailers will have to simultaneously focus on building bridges into the community while developing their product offerings within that category if they are to succeed in their market segmentation strategies. Framing Specific Research for Muslim Customers Given the fact that many international grocery chains consistently seek to gain a competitive edge by producing local product offerings that appeal to the local customer, the idea of focusing on the needs of the Muslim community by providing Halal foods fits neatly within the already-established corporate strategy of companies like Tesco (Child, 2002: 137), which will be the outlet used to conduct the research proposed herein. As one of the world's leading international food retailers with over 2,500 stores worldwide and a commitment to long-term growth (Tesco: At a Glance, 2006: 1), Tesco has been called the "success story" of British supermarket retailing whose industry leadership has been widely accepted (Kacker & Sternquist, 1994: 202), in part due to its broad reach of locations. This industry leadership makes the company a suitable candidate to use as a platform for this research; but any international retail grocery chain that focuses a significant amount of resources on market development necessarily locates it's outlets in a variety of different markets with an extremely diverse customer base. Thus, this research has applicability across many organizations seeking to successfully segment ethnic markets for retail grocery products. Given the standard corporate responsibility policies employed by almost every international grocery chain, which note that particular organization's intent to appeal to customers across many social and economic ranges as well as use their resources as a force for good in playing an important role in local communities (see, for example, Tesco: Corporate Responsibility, 2005: 1), major international grocery chains have given themselves no choice but to develop products that will appeal to the Muslim constituency and become good corporate citizens by forming trust relationships within the ethnic community. Properly researched and targeted, effective product development can be combined with proactive community relations efforts to position any company as a Muslim-friendly source for grocery and food-related items. Obviously, one way to accomplish the product offering goal is to develop a product line which is comprised of both Halal and traditional Muslim foods. Organizations cannot successfully segment the market if they are unresponsive to consumer demand. The idea of developing products exclusively for the Muslim market is not new, and several companies have already brought such products to market, e.g., even though Muslims traditionally abstain from alcoholic beverages, there is a wine company which has developed a "high quality, [non-alcoholic] 'champagne style' beverage" specifically for the Muslim market segment (Business Asia, 1999, p. 11). Theoretically, retail grocery chains should be able to enhance their product offerings with these and other new items to increase the variety of products shoppers find on their shelves and thereby secure a competitive advantage; because even though Muslims have traditionally shopped at neighborhood markets, they are still retail consumers who will go where selection and price are most favorable. If an international grocery chain succeeds in its segmentation efforts and obtains the customer satisfaction and loyalty it needs, it should be able to pull market share from these smaller stores on the power of product diversity alone. Compounded with offering products that are traditionally utilized by the Muslim market segment, such a chain store company is in the position to gain substantial market share while demonstrating tangible corporate sensitivity to needs of those customers. Another option available to an appropriately large organization is the use of incentives such as coupons, rebates, affinity programs, etc. Small owner-operated markets rarely employ such tactics. Most large grocery chains, however, currently have well-established practices of offering a variety of incentives to their customers. These tactics could be easily applied to product offerings for the Muslim market segment (Bailey & Schultz, 2000: 41). Determining what specific incentives might most appeal to the Muslim segment can be accomplished with the research methodology employed herein, e.g., the customer questionnaire. Once this strategy was embraced by management, an international retail grocery chain would be in a position to effectively secure a significant presence within the Muslim market segment, and maintain customer loyalty by incorporating those strategies into other incentive programs. Conclusion The research reviewed herein is relevant to both the corporate practices of international retail grocers and the increasing economic power represented by the Muslim market. In seeking to determine what steps could be taken to gain and retain the loyalty of its Muslim customers, including offering a diverse line of products that comport with the Halal dietary laws as well as discovering what incentive approaches might work best, I will construct a questionnaire for both Muslim customers and retail grocery management using Tesco as my chosen company of inquiry. The focus of this primary research will be twofold. First, to determine the interest, consistency, and longevity of current customers who fit the market segmentation parameters, as well as an indication of what incentives they might find as most effective. This is expected to offer a well-rounded view of customer potential. Second, to obtain data from the management side of operations, I will seek to establish parameters relative to Muslim market segment sensitivity and market needs awareness of in-store managers. References Abell, D.F. (1980). Defining the Business: The Starting Point of Strategic Planning. Englewood Cliffs, NJ: Prentice-Hall. Anschuetz, N. (1997). Building Brand Popularity: The Myth of Segmenting to Brand Success. Journal of Advertising Research, 37, (1), 63-66. Badaracoo, C. (2004). Affinity Marketing and Religion in a Therapeutic Culture. Public Relations Quarterly 49, (4) 46-51. Bailey, S., & Schultz, D.E. (2000). Customer/Brand Loyalty in an Interactive Marketplace. Journal of Advertising Research, 40, (3), 41-58. Brock, T.C., Clark, E.M., Stewart, D.E. (Eds.) (1994). Attention, Attitude, and Affect in Response to Advertising. Hillsdale, NJ: Lawrence Erlbaum Associates. Business Asia, (1999, March 15). Southcorp Finds Right Formula. Business Asia, 7, (5), 11. Chaudry, M.M. & Riaz, M.N. (2004). Halal Food Production. Boca Raton, FL: CRC Press. Child, P.N. (2002). Taking Tesco Global: David Reid, Deputy Chairman of the United Kingdom's Largest Grocer, Explains the Company's International Strategy. The McKinsey Quarterly 135-145 Chung, J.Y., & Kim, C.K. (1997). Brand Popularity, country Image and Market Share: An Empirical Study. Journal of International Business Studies, 28, (2), 361-374. Claycamp, H.J., & Massey, W.F. (1968). A theory of market segmentation. Journal of Marketing Research, 5, 34-45. Craft, S.H. (2004). The International Consumer Market Segmentation Managerial Decision-Making Process. SAM Advanced Management Journal, 69, (3), 40-48. Fishbein, M., Middlestadt, S.E., & Goldberg, M.E. (Ed.) (1997). Social Marketing: Theoretical and Practical Perspectives. Mahwah, NJ: Lawrence Erlbaum Associates. Greco, A.J., Mazze, E.M., Michman, R.D. (2003). Lifestyle Marketing: Reaching the New American Consumer. Westport, CT: Praeger. Haddad, Y.Y. (2002). Muslims in the West: From Sojourners to Citizens. New York: Oxford University Press. Haddad, Y.Y. & Lummis, A.T. (1987). Islamic Values in the United States: A Comparative Study. New York: Oxford University Press. Haugtvedt, C.P., Lee, W., & Williams, J.D. (Eds.) Diversity in Advertising: Broadening the Scope of Research Directions. Mahwah, NJ: Lawrence Erlbaum Associates. James, R. (2004). Introduction Halal Pizza: Food and Culture in a Busy World. The Australian Journal of Anthropology 15, (1) 1-13. Kacker, M. & Sternquist, B. (1994). European Retailing's Vanishing Borders. Westport, CT: Quorum Books. Kelly, E.J., & Lazer, W. (1973). Social Marketing: Perspectives and Viewpoints. Homewood, IL: Richard D. Irwin. Kutschera, C. (1996). Murky Business Behind the "Halal" Label in France. The Middle East 258, 40-44. Michman, R.D. Lifestyle Market Segmentation. New York: Praeger. Smith, W.R. (1956). Product differentiation and market segmentation as alternative marketing strategies. Journal of Marketing, 21, 3-8. Swenson, C.A. (1990). Selling to a Segmented Market: The Lifestyle Approach. New York: Quorum Books. Tesco (2006). At a Glance. Retrieved December 5, 2006 from the World Wide Web: http://www.tescocorporate.com/page.aspx pointerid=A8E0E60508F94A8DBA909E2ABB5F2CC7. Wind, Y. & Douglas, S.P. (1972). International market segmentation. European Journal of Marketing, 6, 17-25. Questionnaire for Customers In an effort to understand the market needs and preferences of Tesco customers, this survey is part of a research study to determine certain aspects of customer product preference, satisfaction, and brand loyalty. Your answers will be held in strictest confidence, be used only for the purposes of obtaining relevant market data, and will assist our efforts to provide the highest quality products at the most reasonable price. Thank you for taking the time to complete this questionnaire. Demographic Data Gender: Male _____ Female _____ Residency: UK _____ Non-UK European Union _____ Other _____ Ethnicity: Muslim _____ Non-Muslim _____ Age Range: 18-24 _____ 25-40 _____ 40-55 _____ 55+ _____ Consistency/Longevity: How many times per month, on average, do you shop at a Tesco store 1-2 _____ 3-5 _____ 6-10 _____ 10+ _____ What other retail grocery markets do you patronize on a consistent basis If a full selection range of products were equally available, what one consideration would be most influential on your decision of where to purchase grocery-related products Price _____ Proximity to your residence _____ Store Type: Local market _____ Ethnic Market _____ Chain _____ Product Purchase Incentives (coupons, rebates, etc.) _____ Other (please explain): If a full selection range of products were equally available, how likely would you be to patronize one, and only one, retail outlet Very likely _____ Somewhat likely _____ Not likely _____ Incentives: How important are incentives such as coupons, rebates, or customer loyalty clubs to you Very important _____ Somewhat important _____ Not important _____ Which one incentive technique would be most attractive to you Coupons _____ Rebates _____ In-store loyalty club _____ Other (please explain): Products: How would you rate this Tesco store in providing products which meet your dietary needs Highly _____ Moderately _____ Poorly _____ What products (if any) would you like to see offered at this store which are not currently available Please provide any additional comments regarding this Tesco store's product offerings: Questionnaire for Management In an effort to understand the market needs and preferences of Tesco customers, this survey is part of a research study to determine certain aspects of customer product preference, satisfaction, and brand loyalty. To facilitate that research, management is being asked to answer specific questions regarding the Muslim market segment. Your answers will be held in strictest confidence, be used only for the purposes of obtaining relevant market data, and will assist in providing the highest quality products at the most reasonable price. Thank you for taking the time to complete this questionnaire. Manager Data: What is your level of management at this facility Do you have the authority to make product purchasing decisions or recommendations If so, at what level do you participate in the product selection process Muslim Market Segment: What percentage of your customers are ethnic Muslims Less than 5% _____ 5%-10% _____ 10%+ _____ How would you rate your store's product selection of Muslim ethno-centric products Very good _____ Adequate _____ Poor _____ Does your store include a product selection of Halal-certified products Yes _____ No _____ Don't know _____ Does your store, either singularly or in conjunction with broader Tesco efforts, participate in Muslim community outreach projects Yes _____ No _____ If yes, what are those activities Incentives: Does your store provide incentives such as coupons, rebates, or customer loyalty clubs to its patrons Yes _____ No _____ If yes, what are those incentives Does your store target the Muslim community specifically for participation in any incentive programs If so, what are those particular incentives Please provide any additional comments regarding your store's efforts and increasing Muslim customer loyalty and satisfaction: Read More