Exploring the impact of retail promotion strategy on customer behaviour - Essay Example

Full-Time Masters in Management Programme 2006-2007 Research Methods Proposal Form Proposed Topic Area Retail marketing and retail promotion theory Proposed Working Title Exploring the impact of retail promotion strategy on customer behaviour Proposed Aims of the Research The proposed aims of this research are to determine the impact retail promotion strategies have had on customer behaviour in the food retail market in the UK, and also to determine if customers perceive these strategies as being successful. Research Context The food retail industry is very competitive in the UK with retailers adopting strategies to optimise store performance and increase loyalty (Baydar 2003). This level of competition is likely to accelerate with recent headlines expressing concern over Tesco’s dominance of the food retail market. This is not a new concern as prior to these reports, the regulating standards body prevented Tesco from acquiring Safeways over fears that the industry would not be competitive. The food retail industry is also one which is characterised by tight profit margins as customers in this industry are constantly on the lookout for value for money in terms of prices offered. This has resulted in food retailers adopting various promotion strategies in a bid to control customer behaviour, and the bulk of the promotion strategies seem to have focussed on loyalty. Other promotion strategies that have been used include blanket couponing and one-to-one marketing (Peppers and Rogers 1997). These strategies have also relied on recording customer shopping behaviour, and the information collected is often used to ascertain what customers’ buy, the frequency with which they buy these products and when they buy it. This information is then used to give the customer coupons or vouchers that are specific to their frequent purchases. Some food retailers like Aldi’s and Lidl’s have not adopted any promotional strategies and instead they have gone for low pricing on the basis that it introduces stable pricing to customers. Ortmeyer, Quelch and Salmon (1991) have stated the benefits of stable pricing over promotional strategies like in the ability to differentiate customer service and product assortments as this will increase customer loyalty, and stable pricing will also improve inventory management, reduce labour and advertising expenses. This suggests that promotional strategies flood customers with unnecessary or even too much information, which could possibly contribute to the lack of loyalty to a food retailier. On the other hand, Blattberg, Briesch & Fox (1995), Kumar and Leone (1988) and Mulhern and Leone (1991) disagree with these claims and suggest that a stable pricing strategy may not be appropriate for all in the retail industry. This requires an in-depth understanding of both forms of strategies for influencing customer behaviour, as the industry standard is considered to be working well. For instance, food retailers engage heavily in advertising to attract customers, time-limited offers, buy one get one free offers, and high margin items (Voss and Seiders 2003). Therefore by understanding the reasons behind selecting promotional strategies over stable pricing strategies, the researcher will be able determine if promotional strategies have made an impact on customer behaviour in the UK. The data collected for this research would have to collected from either the management of the individual retail stores and/or customers. This will ultimately require a large sample size, however, data can also be collected from the general public as they will have a preferred food retail store that they frequent. Outline Literature Review Retail promotion strategies are said to be driven by the competitive position of the organisation, and this in turn affects the nature of the promotional strategies employed in the industry (Lal and Rao 1997). The main themes to be discussed in the literature review will therefore concentrated on the main components of promotion strategies which are price variation, price promotion and depth of discount (Kumar and Perira 1997, Shankar and Bolton 1999). Price variation will affect the price position of the food retailer and determines whether they adopt a stable pricing strategy or the traditional promotional strategy (Hoch et al 1994, Lal and Rao 1997, Shankar and Bolton 1999). Price promotion is concerned with advertising volume, whilst depth of discount is concerned with the magnitude of the discount offered (Shankar and Bolton 1999). The literature review will also look at some arguments and theories on promotional strategies, for instance literature on price promotional strategies by Lal, Little and Villas-Boas (1996) and Kim and Staelin (1999) focuses on the competition between the food retailers as being a driver for the use of promotional strategies. This could be true considering major price wars are not unheard of in the UK food retail industry. However, literature by Hoch et al (1995) and Shankar & Krishnamurthi (1996) also highlights the importance of price sensitivity, especially where there is no variation in the structure of the competition. This places the main drivers as those driven by the number and size of the retailers in the industry. The dissertation will also investigate whether customer behaviour is changing in this industry, especially in light of the lack of customer loyalty in terms of where customers source their products. This has also become even more of an issue with the advent of internet shopping, as customers can now go online and order goods from a variety of sources without leaving their homes. However the largest concern is that of the ability of customers to compare prices read customer feedback and compare services before making a purchase for anything. This will involve investigating theories such as the congruency theory (Osgood and Tannenbaum 1955) which looks at how customers may have a natural preference for consistent information. This suggests that customers may actually prefer retailers like Aldi’s, Netto’s and Lidl’s as opposed to Sainsbury’s, Morrisons and Tesco’s. The congruency theory has previously been applied to studies involving brands and advertising, and its application to promotional strategies would be appropriate as they are compatible with advertising, and seek to establish whether customers are receiving the intended benefits of a product. This theory has also been used by Roehm, Pullins and Roehm Jr (2002) to demonstrate the success of loyalty programmes when they are matched to the incentives. This was further supported by studies by Dowling and Uncles (1997) which suggested that loyalty programmes were only effective if the benefits supported the product value. This theory was also tested by Chandon, Wansink and Laurent (2000) who were able to prove that promotions involving money were more effective for utilitarian products, whilst non-monetary promotions were more effective for hedonic products. However, customer behaviour is still going to be influenced by the demographics, culture and purchase situations. Research Questions (s) This research intends to answer the following questions: Why do food retailers focus on promotional strategies as opposed to price stability strategies? What are customer perceptions of promotional strategies and do they think that they make an impact on their behaviour? Do promotional strategies encourage customer “disloyalty”? The responses to these questions will help the researcher to find out if food retailers are adopting the appropriate strategies to change customer behaviour, and if customer responses to the research will provide insight into what customers think will change their behaviour in the food retail market. The answers to these questions will also contribute to making as assessment of the impact of promotional strategies possible. Research Strategy/Methods The purpose of this dissertation is to determine the impact retail promotion strategies have on customer behaviour in the food retail market in the UK, and also to determine if customers perceive these strategies as being successful. This will be undertaken in the form of a qualitative study because the study will collect information that is based on customer perceptions, which cannot be generalised or open to empirical evaluation. Secondary research will also be used in the form of literature review and background information that will be used to develop the data collection tool. Qualitative research methods are planned for this research as the data collected will also be used to develop themes (Cooper and Schindler 2003, Saunders et al 2003) that will enable the researcher to assess the impact of promotional strategies in the food retail industry. Qualitative research was also considered to be appropriate by the researcher because the analysis of the research is likely to be descriptive and it will involve explaining a lot of concepts and theories. The researcher also intends to collect data from customers by using a survey based on the literature review which will be used to assess the customer’s perception of the success of promotional strategies. If resources are available the researcher also intends to send surveys to food retailers to understand their strategies and see how they measure the success of these strategies. Research Strategy This is the general plan of how the study will go about answering the research questions and contains clear objectives derived from the research questions, specifying the sources from which the data will be collected and also considers the constraints that are inevitable such as time, cost, ethics and money (Cooper and Schindler 2003). Questionnaires and/or surveys will be used as they will be more cost effective for the researcher, and they will also enable the researcher to understand the findings and detect any differences and similarities (Cooper and Schindler 2003) in customer and retailer responses. Sampling Sampling should allow the researcher to select some elements of the population to draw the study’s conclusions on, and sampling is usually employed on the basis of lower costs, greater accuracy of results, and greater speed of data collection and the availability of population selection (Cooper and Schindler 2003). The selection of the sampling method depends on a number of factors, such as the nature of the study, its objectives and the time and budget available. Judgement sampling has been used to select this dissertation’s sample element, as it is low cost and very convenient for the researcher (Hair et al 2003). Data Collection and Analysis It is the intention of the researcher to collect data on customer perceptions of promotional strategies as well as those of food retailers. By comparing these perceptions, the researcher will be able measure the gap between what customers actually perceive to be true and how far this is from the food retailer’s assessment of successful strategies. Validity This is concerned with whether the findings are really about what they appear to be about (Saunders et al 2003). Validity is defined as the extent to which data collection method or methods accurately measure what they were intended to measure (Saunders et al 2003). To ensure that this research maintains its validity, the researcher will develop and distribute a standard questionnaire and/or survey, and the researcher will also ensure that they calculate an adequate sample size, which should be possible as most individuals will have visited a food retailer. Reliability Saunders et al (2003) define responsibility as the degree to which data collection method or methods will yield consistent findings and that similar observation would be made or conclusions reached by other researchers or there is transparency in how sense was made from the raw data. To ensure reliability, the researcher will ensure that the questionnaire/survey will be based on the theories and models that will be described in the literature reviews. Limitations Every research study is subject to its own limitations and this study is no different. Questionnaires are often the best method to obtain a large number of respondents but this will leave room for questionnaires that are incomplete, or questionnaires that are not valid as a result of some customers not taking the research seriously. Therefore the sample size calculation will have to take this into consideration. This research could also benefit from case studies as the food retail industry is dominated by four main retailers and results would enable a comparison of the most effective promotion strategies but this would time consuming and would leave the researcher open to invalidating the research by not being able to complete it. However, this research could be used as a pilot study for future research on this topic area. Schedule What are the key stages and dates for activities that must be completed before others can start? What activities are necessary in their own right and which conditional on others? [Date] – Obtain proposal approval [Date] – Conduct literature review [Date] – Design questionnaire [Date] – Distribute questionnaire [Date] – Collect responses [Date] – Analyse and write up results [Date] – Complete dissertation References Baydar C. (2003). “One-to-One Modeling and Simulation: A New Approach in Customer Relationship Management in Grocery Retail”, SPIE Conference on Data Mining and Knowledge Discovery: Theory, Tools, and Technology IV, Orlando. Blattberg, Robert C., Briesch, Richard, & Fox, Edward J. (1995). “How promotions work”. Marketing Science, 14(3), G122–G132. Bolton, Ruth (1989) "The Relationship Between Market Characteristics and Promotional Price Elasticities," Marketing Science, 8, 2, 153-169. Cooper, D. R and Schindler, P. S (2003) “Business Research Methods” (8th edn), McGrawHill, Boston. Creswell, J W (2003) “Research Design, Qualitative, Quantitative and Mixed Methods Approach” (2th edn), Sage, London Hoch, Stephen J., Drèze, Xaxier, & Purk, Mary E. (1994). “EDLP, hi-lo, and margin arithmetic.” Journal of Marketing, 58(October), 16–27. Hoch, Stephen J., Byung-Do Kim, Alan L. Montgomery, and Peter E. Rossi (1995) "Determinants of Store-Level Price Elasticity," Journal of Marketing Research 32, 1 (Feb) 17-29. Kim, S.Y., and R. Staelin (1999) "Manufacturer Allowances and Retailer Pass-Through Rates in a Competitive Environment," Marketing Science 18, 1, 59-76. Krishna, Aradhna. (1994). “The impact of dealing patterns on purchase behavior.” Marketing Science, 13(Fall), 351–373. Kumar, V., & Leone, R. P. (1988). “Measuring the effect of retail store promotions on brand and store substitution.” Journal of Marketing Research, 25(May), 178–185. Kumar, V., & Pereira, Arun. (1995). “Explaining variation in short-term sales response to retail price promotions.” Journal of the Academy of Marketing Science, 23(3), 155–170. Kumar, V., & Pereira, Arun. (1997). “Assessing the competitive impact of type, timing, frequency, and magnitude of retail promotions.” Journal of Business Research, 40(1), 1–13. Kwok, S and Uncles, M. (2002). “Sales Promotion Effectiveness: The Impact of Culture at an Ethnic-Group Level” School of Marketing - University of New South Wales. School of Marketing Working Paper 02/4 Lal, Rajiv, & Rao, Ram. (1997). “Supermarket competition: The case of every day low pricing.” Marketing Science, 16(1), 60–80. Lal, Rajiv, John D.C. Little, and J. Miguel Villas-Boas (1996) “A Theory of Forward Buying, Merchandising, and Trade Deals,” Marketing Science, 15, 1, 21-37. Mulhern, Francis J., & Leone, Robert P. (1991). “Implicit price bundling of retail products: A multi-product approach to maximizing store profitability.” Journal of Marketing, 55(October), 63–76. Ortmeyer, Gwen, Quelch, John A., & Salmon, Walter. (1991). “Restoring credibility to retail pricing”. Sloan Management Review, 33, 55–66. Peppers D., Rogers M. (1997).“The One to One Future: Building Relationships One Customer at a Time”, Double Day Publications. Shankar, Venkatesh, & Krishnamurthi, Lakshman. (1996). “Relating price sensitivity to retailer promotional variables and pricing policy: An empirical analysis.” Journal of Retailing, 72, 249–272. Shankar, Venkatesh, & Bolton, RN. (1999). “Dimensions and determinants of retailer pricing strategy and tactics.” Cambridge, MA: Marketing Science Institute. Saunders, M., Lewis, P., Thornhill, A., (2003) “Research Methods for Business Students Second Edition” UK Financial Times, Prentice Hall. Varian, Hal R. (1980) "A Model of Sales," The American Economic Review 70, 4 (Sept.), 651-659. Voss, GB and Seiders, K. (2003) “Exploring the effect of retail sector and firm characteristics on retail price promotion strategy” Journal of Retailing 79 (2003) 37–52 Wittink, Dick R. (1977) "Exploring Territorial Differences in the Relationship Between Marketing Variables," Journal of Marketing Research 14, 2 (May) 145-55 Name: …………………………… Date:…………… …………… Signed (Hard copy only): …………………………… Read More