RELATING PORTER’S GENERIC STRATEGIES TO THE
DUTCH MUSIC FESTIVAL INDUSTRY
JULIËTTE A.G. PICKKERS
University of Groningen
Faculty of Business and Economics
MSc Business Administration – Strategic Innovation Management
June 2014
First supervisor: Dr. R. (Rene) van der Eijk
Second supervisor: Dr. K.J. (Killian) McCarthy
Nieuwe Boteringestraat 100-A2
9712 PS Groningen
06 11 10 75 84
j.a.g.pickkers@student.rug.nl
1775480
Word count: 18.728
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ABSTRACT
This study investigates whether there is a relation between Porter’s generic strategies (differentiation, cost leadership and focus) and festival performance, moderated by resource scarcity. The study contributes to literature because these strategies have not been tested in the Dutch music festival industry before. An empirical analysis has been done based on a self-made questionnaire among 104 Dutch music festivals. The results show that pursuing a differentiation strategy will have a positive influence on festival performance and pursuing a cost leadership strategy will have a negative influence on festival performance. Resource scarcity has been tested as an interaction effect and has a direct effect on festival performance. There can be concluded that when a festivals’ financial situation is alarming, this will have a negative influence on festival performance. The study concludes with theoretical and managerial implications for festival organizations.
Keywords: Strategic Festival Management, Events, Porter’s Generic Strategies, Firm Performance, and Resource Scarcity
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EXECUTIVE SUMMARY
The aim of this study is to investigate whether there is a relation between Porter’s generic strategies (differentiation, cost leadership and focus) and festival performance, moderated by resource scarcity. These generic strategies have been tested in several different industries but have not been tested in the Dutch music festival industry. An empirical analysis has been done based on a self-made questionnaire among 104 Dutch music festivals. The three strategies have been tested by using existing constructs, and festival performance has been tested by dividing the actual number of visitors by the maximum amount of visitors and the mission fulfilment. The results show that pursuing a differentiation strategy will have a positive influence on festival performance and pursuing a cost leadership strategy will have a negative influence on festival performance. Resource scarcity has been tested as an interaction effect and has a direct effect on festival performance. There can be concluded that when a festivals’ financial situation is good, this will a positive influence on festival performance. Besides, a combination of pursuing a differentiation and cost leadership strategy was tested but no significant relation has been found for this variable. This contradicts earlier research which found that pursuing this combination would lead to a competitive advantage. There was a positive relation between budget and receiving subsidies and festival performance. This states that a higher festival budgetary will give the festival organizations opportunities to organize a memorable event and create customer loyalty by signing the best artists.
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INTRODUCTION
A strategy delineates a territory in which a company seeks to be unique – M.E. Porter
It is spring, the weather is getting better, people are cheerful and it is the time of the year that the first outdoor music festivals will be organized. There can be stated that the festival season has been opened and will last until the end of September. Festivals are being organized for many years. Music festivals like PinkPop in the Netherlands, the Reading and Glastonbury festivals in the UK, and Roskilde in Denmark, belong to the oldest in the world (Leenders, 2010). PinkPop started a one-day free edition in 1970 in the Netherlands and since the Netherland became one of the leading festival industries in Europe. More and more cities are organizing festivals and even small municipalities can attract internationally known artists and gain much media attention (Karlsen & Nordström, 2009).
Music festivals are relevant events for many reasons. Festivals deal with social meaning (Hesmondhalgh, 2002) and are important for cities; they fill a large part of the cultural calendar. Festivals also have an impact on the economic, so-cultural and political aspect of a government/municipality (Leenders, 2010). Another advantage of live concerts and festivals is that this way money can still be made through ticket sales and other revenue streams. An important issue since the CD sales are declining and illegal music downloading is becoming more and more popular (Champ, 2003).
Despite these important factors, there is a lot of change going on in the music festival industry both from the demand and the supply side. Saturation and competition are two of the main enemies the festival industry is facing. Dutch festivals such as PinkPop and Lowlands for example, were left with thousands of unsold tickets in 2004 (van Driel, 2003).
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(Centraal Bureau voor de Statistiek, 2013). And the ticket prices are increasing due to the rising costs such as artist fees, fuel and logistical expenses. Besides these effects, potential sponsors are also facing the consequences of the economic crisis, which has effect on their sponsoring budget.Another important factor because of the crisis is that the government decided to cut on cultural expenses; in 2013 the government decreased the cultural expenses with € 200 million (van Leeuwen, 2012). They believe the institutions should be able to earn and gather their own money, be independent oriented and not lean on governmental money. A recent study of the Minister of Culture (OCW) states that fewer institutions disappeared than they had expected since the cut on subsidies (Abels, 2014). 24% of the institutions actually stopped and 76% continued on their own (Beekman, 2014). When the cut was announced, it was expected that more institutions would disappear. The transition from receiving subsidies to receiving less or none is a huge transition for cultural institutions. Leenders et al. (2005) highlighted in their research that there is need for strategic action by festival organizers to pursue their festival. The question is what kind of strategy do the music festivals conduct in order to survive and organize an event yearly while having less subsidies?
Problem definition & research question
There can be stated that there is a lack of literature on how and if the festival industry makes use of a specific strategy to perform well (and/or outperform their competition). This research will look at the possibility of benchmarking Porter’s generic strategies to the Dutch music festival industry and the festival performance. The main research question of this study is:
“Which generic strategy of Porter creates the strongest performance in the Dutch music festival industry?”
The following sub-questions are developed to help answer the main research question: 1. How can music festivals be defined?
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4. How can Porter’s Generic strategies be defined and how to measure the strategies?
5. How can performance be defined and how to measure performance? 6. What is resource scarcity in the festival industry and how to measure?
7. Which of the three generic strategies is common in the Dutch festival industry? 8. Which of the three generic strategies shows the strongest performance in the
Dutch festival industry?
These sub-questions are established to help create a clear overview of the music festival industry and the two most important variables; Porter’s generic strategies and the performance of the festival industry. The aim of this research is three-sided: 1. The Dutch music festival industry will be discussed in general; 2. Theory on Porter’s generic strategies will be elaborated and; 3. This theory will be linked to performance of the festival industry and will be moderated by resource scarcity. By giving answer to these specific questions, the purpose of the research is to contribute to the literature on festival management by providing insights into the strategic choices of festivals and how they perform applying a specific generic strategy. Next to that, a distinction can be made on which strategy is the best option for a festival to outperform their competitors. Since the government substantially cut the subsidies on cultural events and the enormous amount of festivals in this industry, the results on the relation between Porter’s generic strategies and performance are relevant for the festival management to help them surviving these tough times.
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relation between Porter’s typology and performance. This way, a clarification can be made on what kind of influence a typical strategy has on festival performance. During the statistical analysis several measurements will be done to determine the relation between Porter’s typology and performance.Scope of the research
This study only looks at the generic business strategies of Porter, namely the differentiation strategy, the cost leadership strategy and the focus strategy (Porter, 1980). Other business strategies will not be included. The independent variable will be performance. There are multiple ways of measuring the performance rate of festivals, but due to the great amount of differentiation between the music festivals, this study will be restricted by looking at two types of performance measurements; the number of visitors divided by the maximum number of visitors and the mission fulfilment. The music festivals are tested for the relation between using a Porter strategy and how they perform using a generic strategy, moderated by resource scarcity. It is not within the scope of this research to identify why a specific festival makes use of a particular strategy.
The Netherlands will be focal country of the research. Only music festivals are included in the research as a study group, no art or sport events. Most of the festivals do include side activities next to the music, but their main core business should be music.
Overview of the research
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THEORETICAL FRAMEWORK
As discussed in the introduction part, the festival industry is facing a lot of challenges. Festivals can no longer lean on governmental subsidies and because of the economic crisis sponsoring earnings are harder to acquire. The theoretical framework offers insights in different aspects such as the characteristics of the Dutch music festival industry, several definitions will be explained and most important, Porter’s generic strategies will be discussed and benchmarked to the festival industry.
Defining music festivals
During this study, the focus will be on Dutch music festivals only. These festivals are receiving government subsidies or have received government subsidies in the past. Several definitions are given in the literature on music festivals. For example Smith (1990) defines a festival as ‘a celebration of a theme or a special event for a limited
period of time, held annually or less frequently (including one-time only events) to which public is invited’. Getz (2005) explains a festival as a ‘public themed celebration’. A more
recent, extensive definition of Jaeger and Mykletun (2009) will be used during this study. They state that a festival is ‘a public themed celebration with a formal program. It has a
core activity and additional activities. The festival has a timescale, in which it accomplishes both the core activity and the additional activities’. As will be discussed in
the next paragraph, this definition entails the most important elements a festival contains and what a Dutch music festival looks like.
When the terms festival and music festival are being used throughout the research, the Dutch music festival is meant.
Characteristics of the festival industry
In the research of Getz (2005) there are several festival features described that make festivals special and not the same as permanent cultural events. The most important features are the flexibility and affordability and also the festive spirit and uniqueness of a festival.
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grown up to more than 700 (Haterd, 2012), it is important for a festival to be unique and differentiate themselves to outperform their competitors. As already was stated in 1998 by Pine and Gilmore, a festival organization should try to involve the audience in their festival experience and offer them an event to remember. In a study by Van der Wurff and Van Cuilenburg (2001) it was also noted that organizations should try to implement a differentiation strategy to avoid having a harmful price war. Festival organizers should keep looking for new, original ways to distinguish yourself from the competition and attract visitors every year.Thirdly, a festival can be seen as an experiential product. Being an experiential product it is difficult to capture what attracts an audience to come to your festival (Cooper-Martin, 1991). Several studies did research on the motivations of customers to attend a festival. Pegg and Patterson (2010) found that the diversity of side activities and the atmosphere were important for customers to visit. In addition on the atmosphere, the event should be friendly, casual and relaxed.
Other reasons are enjoying the festival program, socialize and party and experience novelty and excitement (Faulkner et al., 1999). Side activities could be seen as other activities than just the artists who perform. Visitors like to enjoy some other events like for example the possibility of making pictures, having some drinks and beverages or just relax in comfortable couches and enjoy the sun and their company.
At last, there can be said that the experience customers have at a festival, fulfills a certain need in the daily economy. There is market for Dutch music festivals, especially when you look at the numbers Respons released in their report in 2012; yearly more than 20 million visitors enjoy a great day at a (music) festival. But because of the huge amount of different music festivals, there is a lot of competition and organizing a yearly festival is challenging. Making use of a (business) strategy could play an enormous role in performing well and being able to organize the festival every year. In the next section, a specific business typology, namely Porter’s generic strategies, will be discussed.
Porter’s Generic Strategies
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en Friesen, 1986, Miller, 1988). There are also research fields which focused on the presence of comparable firms within an industry following similar strategies in different fields, for example in the home appliance (Hunt, 1972), the chemical process (Newman, 1973), the consumer goods (Porter, 1973), and the brewing industry (Patton, 1976).
It is assumed that the generic strategies of Porter and the competitive dimensions are a respected research tool for classifying the competitors’ strategies within a typical industry (Dess and David, 1984). Stated by Kim et al (2004), Porter’s generic strategies are also fundamentally tied to firm performance. Another reason to use Porter is the overlap with other typologies. For example the differentiation strategy can be benchmarked with the prospector strategy of Miles and Snow’s (1978), and the same accounts for the cost leadership strategy and the Miles and Snow’s defender. The focus strategy can be linked to Miller and Friesen’s (1986) niche innovator strategy. A final reason is that Porter’s generic strategies have received more empirical support than any other constructs have (Kim and Lim, 1988). A summary of the generic strategies and the discussed authors can be found in table 1.
Table 1 | Porter’s Generic Strategies
Porter’s Generic Strategy Authors
Differentiation strategy Porter (1980); Miles and Snow (1978)
Cost leadership strategy Porter (1980); Miles and Snow (1978)
Focus strategy Porter (1980); Miller and Friesen (1986)
No research has been done on whether Porter’s generic strategies or any other typology can be applied to the festival industry. In this study, the festival industry will be the research field. A classification will be made whether this industry makes use of the generic strategies, and which strategy has the strongest performance.
The generic strategies and the Dutch music festival industry
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Figure 1 | Porter’s Generic StrategiesDifferentiation strategy
The differentiation strategy wants to create a product or service that is unique in some way. This can be done through design or brand image, customer service or other attractive characteristics (Porter, 1980: 37). Firms also differentiate themselves by offering high quality and innovative products. Firms want to create brand loyalty with their (potential) customers. A differentiation strategy is combined with costly activities like extensive research, product design and marketing expenditures. Porter (1980) believes that this will usually prevent differentiator’s from being cost leadership producers.
As discussed in the paragraph about the characteristics of the festival industry, it was already stated that a festival should try to implement a differentiation strategy (Van der Wurff and Van Cuilenburg, 2001). Festivals should engage the audience in the experience and offer an unforgettable event (Pine & Gilmore, 1998). Also Leenders et al. (2005) mentioned that a focus on unique experience and development of new formulas to address new tastes in the market is doable and with relatively low investments will increase the performance of success. By creating arousal or happy emotions, customers will be attracted to the festival and stay loyal.
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innovativeness. These are all items that have been tested in earlier studies on different industries and now will be tested in the festival industry (Dess and Davis, 1984; Kim and Lim, 1988; Nayyar, 1993).
Cost leadership strategy
The second strategy is the overall cost leadership. In this industry firms try to be the lowest cost-producers. Tight cost and overhead control, avoidance of marginal customer accounts, minimization in areas like R&D, service, advertising and so on (Porter, 1980: 35). This strategy can provide above average returns because its adherents may lower prices to match those of their most efficient competitor and still earn superior profits. Cost leadership often entails large-scale facilities and economies that constitute barriers to entry.
For the festival industry this strategy can be looked at in two different ways. Pursuing a cost leadership strategy could be a logical choice for the festival industry. Especially since the national government cut the subsidies budget with 200 million euro in 2013 (Kunst en Cultuur - Rijksoverheid, 2013). To achieve a cost leadership strategy an organization must be willing to discontinue any activities in which they do not have a cost advantage and should consider outsourcing activities to other organizations with a cost advantage (Malburg, 2000). This can be seen as cost management. A festival organization could do this by outsourcing activities such as the food and drink facilities, ticket sales, or building up the stages. Another way is lowering the prices which lead to higher demand and therefore to a larger market share (Helms et al., 1997). This way, an organization can present barriers against new market entrants who would need large amounts of capital to enter the market (Hyatt, 2001). A festival can do this by setting the price lower than its competitors to attract more customers or they can pursue a trade/sales strategy; convincing customers to buy their product (ticket for the festival) by offering them lower prices when they buy the ticket early or sampling at the festivals with free samples.
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ticket price, using a trade/sales strategy and managing the costs, to see if these items will lead to a higher festival performance or not.Focus strategy
The last generic strategy is the focus strategy. This provides a specialized segment of the market, a certain kind of customer, a small geographic market or a narrow range of products for example. According to Porter (1980: 38) the focus strategy ‘rests on the
premise that the firm is … able to serve its narrow strategic target market more effectively or efficiently than competitors who are competing more broadly’. It involves a
trade-off between profitability and sales volume. Music festivals may choose to pursue a focus strategy when they focus on a specific target group (audience scope) or for example a specific music genre. A music festival often has a particular audience scope that will visit the festival because of the music genre, the line-up or the atmosphere (Oakes, 2003). This can be seen as a kind of differentiation and it will help the festival to outperform their competitors. A disadvantage could be that because of the small focus, the festival will not be able to attract the average visitor and may lose revenues (McIntyre, 2003). In this present study the focus will be on whether the festival focuses on one specific target group, if they customize the festival for the customer and if they can be seen as pioneers. These aspects will provide answers to the question whether pursuing a focus strategy will have effect on festival performance or not.
These three generic strategies embody three broad types of strategic groups, and thus the choice of strategy can be viewed as the choice of which strategic group to compete in (Porter, 1980: 149).
When a firm fails to develop its strategy in at least one of the three directions, the firm will be ‘stuck in the middle’, it is in an extremely poor strategic situation (Porter, 1980: 41). Once stuck in the middle, it usually takes time and sustained effort to remove the firm from this undesirable position. The firm cannot profit from the advantages of one certain strategy, but will have multiple disadvantages from the three strategies.
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Combination of strategies
As an extra dimension to this study, there will be looked at the possibility of combining the generic strategies. Some researchers state that a combination of differentiation and cost leadership may be necessary for firms to establish a sustainable competitive advantage (Gupta, 1995; Slocum et al, 1994). Porter (1980) contradicts this; he states that this could occur only in three different circumstances; when competitors are stuck in the middle, if the firm is enjoying economies of scale or when a firm pioneers a major innovation. These circumstances are temporary and afterwards firms should make a decision on which generic strategy they want to pursue is the opinion of Porter. When a firm does not choose, Porter believes the firm will not be able to possess a competitive advantage. The strategy literature reveals contradictory results on the link between singular generic strategy and performance. Wright and Parsinia (1988) identified successful firms using combined generic strategies in fragment industries including banking, retailing, distributing and creative business. As a result of these studies and other work, Hill (1988) proposed the generic business-level strategies of differentiation and cost leadership are not incompatible but may be combined in some firms to achieve competitive advantage. He concluded in his study that there should be several circumstances in order to benefit from this combination. These circumstances are that it should be possible to differentiate the product, switching costs for customers must be reasonable and there must be the potential for cost reduction from some source, whether it is from learning effect, economies of scale or economies of scope (Hill, 1988). The best specific industry environment within which the strategy is more likely to succeed is an emerging industry. Hill (1988) does not exclude opportunities for combinations in the mature industry, but he states then that there should be a technological change that leads to new processes, which can make learning effect significant again and thus a competitive advantage.
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characteristics. The industry is not an emerging industry, there is less market growth; the industry is becoming saturated and there is increased competition (Leenders et al., 2005) and economies of scope or scale are hard to acquire in such a service industry.In this study there will be researched whether a combination of these two strategies will exists and if it will have influence on festival performance.
Defining performance
As was already stated before, Kim et al (2004) acknowledged the fact that Porter’s generic strategies are fundamentally tied to firm performance. Measuring the generic strategies in the festival industry will give an overview on which generic strategies performs best.
Business performance is being defined as the total economic results of the activities undertaken by an innovation (Lusch and Luczniak, 1989). Another way of looking at business performance is grouping it into three categories of effectiveness, efficiency and adaptability (Walker and Ruekert, 1987). There are contrary results on which measurement is best. It is often difficult in research to use the right measurement of organizational performance. What is considered excellent performance in one industry can be considered poor or middling performance in another industry. Researchers have not yet determined which specific strategic practices within the generic strategy framework achieve the best organizational performance goals (Allen, 2006).
Measuring performance in the festival industry
Researches that measured Porter’s generic strategies in relation with organizational performance have done this in different ways. Some researchers looked at the return on assets, return on equity and sales growth rate, measured over several years (Kim and Lim, 1988; Calingo, 1989). Other studies have done this by asking respondents to compare the profitability of their firms to that of their major competitors for the last five years (Miller, 1988; Allen, 2006).
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performance by comparing it to their main competitors is also difficult since it is hard to define who the festivals’ main competitors are. Are those who are organizing a festival in the same province? Or competitors who target the same audience or the same type of music? It can be stated that these two types of measurement are not appropriate for the festival industry.
Because there are music festivals that aim at making profit and those that do not, two types of performance measurements will be used. The first performance measurement will look at the maximum capacity of visitors of the festival and the actual number of visitors who came to the last edition. Like is stated by Biaett (2007) and Rolfe (1992), customer attendance at a festival will give an indication on how well the festival performs and if it can be seen as a success or failure. This measurement is therefore a good alternative for instead of using return on assets or the questions on how festivals think they perform comparing to competitors. The second performance measurement suits the non-profit festivals. There will be asked about the fulfillment of their organizational mission. Nonprofit organizations are built around their mission (Speckbacher, 2003). The organizational mission entails the fundamental definition of the organization, and its role in society (Lovelock and Weinberg, 1984). It will be measured by the degree of fulfillment of the organizational mission. As was concluded in the article of Vázquez et al. (2001), there can be made a link between non-profit organizations’ success and the accomplishment of their mission and that is why this measurement will be used for performance.
These two types of measurements will be used to measure the performance in the Dutch music festival industry.
Resource scarcity in the Dutch Music Festival Industry
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(Leenders et al., 2005). Lee and Goldblatt (2012) indicated that the primary factors which led to a decrease in budget were decreased sponsorship, general effect of economic recession on all revenue sources, and increased product/service costs. In their study they showed that the US festival industry is seeking for ways how to deal with the impact of the economic crisis. They concluded that festival organizations should strive for a strategy that would increase marketing efforts, work to reduce expenses overall and increase the use of technology. Devine and Devine (2012) researched the UK event industry and stated that managing the challenges that are created by the economic crisis could also be seen as opportunities but that the organizations should be creative and strategic in their planning. Their findings suggest that event organizations should make use of merchandising, sponsorship and marketing.Linking resource scarcity to pursuing a strategy, Pretorius (2008) argued in his study that declining resources could be a determinant of firm death. When nothing is done on the resource decline, it will affect the firm’s capacity to implement strategic change. The cause of decline can be two-sided; strategic or operational (Robbins and Pearce, 1992:287). It is suggested that operational problems (inefficiencies, cost relationship pressures or managerial deficiencies) are easier to respond to as a firm. Strategic problems concerns for example weak positioning in the market, loss of competitive advantage, and change of legislation. These are external influences which are harder to attack. It is required to react more rapid to these types of problems than to operational issues (Pretorius, 2008). Based on the problems the festival industry is facing at the moment, there can be stated that the industry is challenged by strategic problems. The researches of Lee and Goldblatt (2012) and Devine and Devine (2012) are based on the US and UK market. Therefore in this study, there will investigated whether the Dutch festival industry is also faced with resource scarcity and how this relates to performance.
Conclusion theoretical framework
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Furthermore, there will be tested whether the festival industry is facing resource scarcity and if this influences the relation between a generic strategy and performance.
Table 2 will provide an overview on the used definitions to conclude this chapter.
Table 2 | Relevant definitions
Concept Definitions Author
Music festival industry
A public themed celebration with a formal program. It has a core activity and additional activities. The festival has a timescale, in which it accomplishes both the core activity and the additional activities.
Jaeger and Mykletun (2009)
Porter’s Generic Strategies
Using the three generic strategies of Porter, a firm can create a defensible position and outperform the competitors in a given industry.
Porter (1980: 34)
Differentiation strategy
The differentiation strategy wants to create a product or service that is unique in some way. This can be done through design or brand image, customer service or other attractive characteristics.
Porter (1980: 37)
Cost leadership In this industry firms try to be the lowest cost-producers in an industry. Tight cost and overhead control, avoidance of marginal customer accounts, minimization in areas like R&D, service, advertising and so on
Porter (1980: 35)
Focus strategy The focus strategy ‘rests on the premise that the firm is … able to serve its narrow strategic target market more effectively or efficiently than competitors who are competing more broadly’
Porter (1980: 38)
Stuck in the middle
When a firm fails to develop its strategy in at least one of the three directions, the firm being ‘stuck in the middle’, it is in an extremely poor strategic situation.
Porter (1980: 41)
Performance The performance will be measured by dividing the actual amount of visitors by the maximum amount of visitors.
Performance will also be measured by asking the festivals’ own opinion on if they think their mission has been fulfilled last festival edition.
Biaett (2007); Rolfe (1992) Vázquez et al. (2001) Resource scarcity
Resource scarcity will be measured by asking the festival organizations how they perceive their own financial situation.
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CONCEPTUAL MODEL
The variables discussed in the previous section will make it able to conceptualize the research. The goal of the research is to investigate the relation between Porter’s generic strategies to firm performance and moderate it by resource scarcity. The conceptual model in figure 2 clarifies the independent, dependent, and control variables used in this research. Based on the conceptual model in figure 2, hypotheses can be made.
Figure 2 | Conceptual Model
The Independent variable – Porter’s generic strategies
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strategies can be divided into four hypotheses, which will be measured through a self-made questionnaire.
Following a differentiation strategy, an organization aims at creating a product or service that is somehow unique. There are multiple ways of doing so; there can be thought of design or brand image, technology, customer service or other attractive features (Miller and Friesen, 1986a). There should be elements in the strategy that are difficult for competitors to imitate. In the competitive festival industry, it should be encouraged to pursue a differentiation strategy. As mentioned before, Respons remarked in their report in 2012 that this industry is getting saturated and festival organizations should try to create for example customer loyalty. As Van der Wurff and van Cuilenburg (2001) mentioned, to avoid a price war a differentiation strategy can be adopted. In order to stand out, a festival should look for innovative ways to make sure they will be attractive to visitors. Options for a music festival are for example creating customer loyalty; Amit and Zott (2001) concluded that loyalty can be created by trust and security. Another method could be the use of marketing. Reddy et al. (1998) did research on the theatre industry, which can be benchmarked somehow with the festival industry, and they found that advertising and genre of the show significantly influence the success. Another important factor when considering a differentiation strategy is that this type of strategy works best in an unstable, uncertain environment (Hambrick, 1983; Miller, 1988). This is a factor the festival industry experiences; the number of visitors who buy a ticket or show up at the festival is unreliable until the festival actually starts (Rolfe, 1992). Another issue is the weather, especially when the festival is outdoor, this will influence the number of visitors and how the visitors experience the festival.
Due to the fact that a differentiation strategy performs best in an uncertain environment and that there are multiple ways for festival organizations to create uniqueness and be different than their competitors, the following hypothesis is being made:
H1. Following a differentiation strategy in the festival industry will have a positive influence on festival performance
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As was stated in the theoretical chapter, pursuing the cost leadership strategy could have a positive or a negative impact on festival performance. Having in mind the severe competition among festivals (Leenders et al., 2005) and the substantial budget cut by the Dutch government (Kunst en Cultuur - Rijksoverheid, 2013) following this strategy of cost management would be a rational choice. This can be done by lowering the ticket prices to enter a lower product segment or by outsourcing activities to focus on cost control. But whether this leads to a higher performance is doubtful since there is a chance of losing revenues and a decrease in customer loyalty (Cross, 1999). Like was stated in previous research by Hambrick (1983) and Miller (1988), cost leadership performs best in a relatively stable environment, when market forecast can be done and when your sales are constant. It was mentioned before that the festival industry could be seen as an unstable environment because of the poor forecasts on for example ticket sales. An organization should be able to cope with external challenges to lead to efficiency and better performance (Miller, 1988).As by referring to the unstable environment and the possible lack of customer loyalty, there can be indicated that pursuing a cost leadership strategy in the festival industry will have a negative impact on performance. The following hypothesis has been made:
H2. Following a cost leadership strategy in the festival industry will have a negative influence on festival performance
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H3: Following a focus strategy in the festival industry will have a positive influence on festival performance
A lot of studies on Porter’s typology (Nayyar, 1993; Miller, 19988) found additional results regarding the possibility of combining the generic strategies. This entails combining the differentiation and the cost leadership strategy. They state that the combination is necessary to establish a competitive advantage in an industry. Porter disagrees on this statement, he believes that in the end a firm will become stuck in the middle when the firm does not decide which strategy he wants to pursue.
Since the characteristics of such an industry are for example an emerging industry, easily differentiate the product and the possibility of cost reduction, it seems it will not fit the festival industry. The industry is becoming saturated (Respons, 2012), there are over 700 music festivals in the Netherlands which makes it hard for festivals to attract customers and the competition is severe (Leenders et al., 2005). And since it is an experiential product, it is even harder to know what the customers want (Cooper-Martin, 1991). Since one of the main ideas of following a cost leadership strategy is cost reduction, this contradicts the fact that a festival wants to create loyalty (Leenders, 2012). Cross (1999) indicated that lowering the ticket prices, would lead to less customer loyalty. Although some researchers have stated that a combination would generate the best competitive advantage, there are still some contradictory results on these outcomes. But since the festival industry does not fit the characteristics, which are given for the combination of differentiation and cost leadership, pursuing this type of strategy would lead to a negative influence on festival performance. The following hypothesis has been made:
H4: Following a combination strategy of differentiation and cost leadership will have a negative influence on festival performance
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become even more important. Lee and Goldblatt (2012) and Devine and Devine (2008) concluded both in their researches that the festival industry is facing less budgetary because of the economic crisis. They both proposed managerial implications for the strategic business of the festival organizations how to prevent a firm’s death. They advised for instance to focus more on marketing, think of new innovative technologies to implement and think out-of-the-box to attack the challenges. These implications can be benchmarked to the differentiation strategy of Porter. They also pointed out that an overall reduction of costs would lead to better performance. This can be linked to the cost leadership strategy.All in all, this leads to the following hypothesis which is stating that when resource scarcity is present in the industry, it will make having a strategy even more important for a firm to create the strongest performance.
H5: The relationship between the generic strategies singular and festival performance will be strengthened by resource scarcity.
Based on these hypotheses, the next section will discuss the methodology and explain how these hypotheses will be tested.
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METHODOLOY
Research strategyThis study is based on quantitative data entirely. The data is collected via a self-made questionnaire based on previous research. The medium of a questionnaire was chosen to reach a large group of respondents (Blumberg et al., 2008). By using a quantitative questionnaire instead of a qualitative research method, it allows this study to be specific on which strategic group of Porter seems to perform best. Besides, this type of study is appropriate since it can define the relationship between Porter’s typology (the independent variable) and the performance of a festival (the dependent variable), moderated by resource scarcity and controlled by several control variables.
Data collection
The data was collected to measure the questionnaire on a business level. The festivals were asked to fill in the questionnaire by someone who is the organizer of the festival with the most general knowledge.
The sample of festivals was obtained in the following manner. The search was mainly based on an internet-search. Festivals were selected using websites like Yellowtipi (2014) and Festivalinfo (2014) based on geographic segmentation to make sure there was a wide variation across the Netherlands. Next to the internet-search, Festivalinfo provided a list with the Dutch music festival in 2013 so it was possible to expand the list with this new information. In total the sample included 605 Dutch music festivals, which were all contacted via e-mail, social media or contact forms to fill in the questionnaire via the online survey platform Qualtrics (Rijksuniversiteit Groningen). After one week a reminder was sent, followed by a telephone call when a telephone number was available. The final sample included 104 surveys.
Development of the questionnaire
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The second part asked questions to measure the control variables and their performance rate. And the final part included questions regarding the specific generic strategies of Porter; the respondents were asked to reflect on eighteen statements considering their own festival based on previous literature (Dess and Davis 1984; Kim and Lim, 1988; Nayyar, 1993).Sample / Database
Several criteria were used in order to make a selection of firms within the festival industry. The festival must exist at least two years to ensure the variables could be measured. Next, there should be music, performed by artists and deejays on one or more stages and additional activities should take place. The festival should last at least one day. As many different festivals as possible were contacted, expressing different music genres, different audience scope, in or outdoors and so forth.
Pilot study
In order to pre-test the research instrument in a field setting, four different festival organizations (respectively Flinke Pinke, Paradigm, Noorderzon and Welcome to the Village), not included in the final sample, were interviewed to ascertain the comprehensiveness and phrasing of the questionnaire items. These interviews provided some good inside in how to rephrase some questions since the variables that are tested are business definitions. Some of the definitions were not understandable by people from the festival industry, which makes sense since they are not familiar with these business terms. These unclear statements or definitions have been rephrased.
Table 3 gives a short summary of the pilot interviews and the most important findings and impacts.
Table 3 | Pilot interviews Festival Result
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with a lot of terms and questions which made it hard to interview him. Some rephrasing has been done after the interview, but most of the questions were tested again with another interviewee.
Paradigm The interview with Piter Tromp, director of the organization, took place at the festival location itself. He was able to fill in the questions easily. He was not familiar with some of the definitions so we made notes to explain these definitions more clearly. There was no problem with filling in the budget numbers. He told us some more general information, for example that they bought a club a few months ago in the city centre of Groningen to organize weekly techno parties. Until now it was a huge success and they were able to transform the club every week in a new theme to attract (new) visitors. He told having different side activities attracts a lot of customers. As an example; Paradigm provided yoga lessons on their latest festival edition as an extra activity.
Noorderzon There was a telephonic interview with Mark Hospes, general coordinator of the Noorderzon festival. The survey was sent before the phone call. During the phone call we went through all the questions. Sometimes we needed to explain the question a bit more; we reported this to clarify the question later on. He found it difficult to answer to questions in general because it was different every year. Some questions were too general formulated and he would advise us to do personal interviews instead of using surveys.
Welcome to the Village
The survey was made in Qualtrics before we contacted Welcome to the Village. This way the survey could also be tested using the actual survey program. Bianca Pander of Welcome to the Village gave us some useful advice which we could easily adapt. These were regarding the possibility to make the question mandatory or not and extra business forms to fill in. It appeared that not all business types were included.
Variables and measures
Independent variables
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(1993) in this research. These variables appeared frequently in the literature and that seemed to be theoretically appropriate.Only the variables that could be measured in this (service) industry are being used. In the research of Dess and Davis (1984), Kim and Lim, (1988), Nayyar, (1993) some variables were used that could not be linked to the festival industry, these are; Influence over distribution channels – Managing raw material cost and availability – Manufacturing process improvements and innovation – Maintaining high point-of-sale inventory. Variables were selected that would give a complete picture of the strategic posture of the firm as well as its major competitive challenges. Respondents were asked to fill in the questionnaire with the following question: “Please indicate on a 5-point Likert scale the degree to which each of the following competitive dimensions has been emphasized for your product (in this case the product was the festival). Please circle the one number that is most appropriate for each of the competitive dimension listed below (1= not considered, 5= major, constant emphasis)”. A total of eighteen variables were selected and formed into statements– these can be seen in table 4.
Table 4 | Porter’s generic strategies measures
Differentiation Cost leadership Focus
Every year we develop new products/services
Cost control was a very important focus for us last year
We focus on one specific target group
We offer an extensive customer service
We place our product under the product of our competitor
Our product is very customized
We focus on
building/maintaining a strong brand value
With the use of rewards we tried to convince our customer to buy our product
We ask our customer to his/her wishes for the product/service Every year we innovate on
marketing exposure
We can be seen as pioneers on this market
We place our product in a high segment
We make use of offline advertisement
We make use of online advertisement
We make use of bartering We build/maintain our business reputation
The product that we offer has multiple features
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Dependent variables
In this research the relation between Porter’s generic strategies and performance is leading. Measures of performance for firms comprising each strategic group are assessed to detect whether significant differences exist between strategic groups within an industry (Dess & David, 1984). There will be explained how performance is measured in the questionnaire. This measurement is objective, including the actual number of visitors during the last edition of the festival compared to the maximum number of visitors of the festival. This ratio can be explained by the fact that when more visitors go to the festival, more income could be generated through ticket sales (not for all festivals since some of the festivals do not have a ticket price) and because of the visitors spending at the festival itself (food, drinks, other activities), which results in increased profits. This is in line with the research of Biaett (2007), who states that customer attendance at a festival can be seen as an important measurement of a festival’s success or failure. The second measurement for festival performance is regarding the festival mission fulfilment. Since 45% of the pop festivals in 2012 were free for entry (VNPF, 2013), there can be concluded that there are a lot of non-profit festivals. Since they do not aim for profit, there can made a link between their organizations’ success and the accomplishment of the mission (Vázquez, 2001).
Two open-end questions were asked to measure the festival performance rate on visitors. One question was asked to measure the mission fulfilment; a 7-point Likert scale was used to indicate the festival mission accomplishment. These questions can be found in table 5.
Table 5 | Performance measures
Performance
1. What is the maximum number of visitors?
2. How many visitors attracted the most recent festival?
3. In what way do you think the festival mission has been fulfilled last edition?
Moderators
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(2012) and Devine and Devine (2012), already stated that the festival industry is facing challenges in regard with their financial situation. This study will test the scarcity by measuring how the Dutch festivals think of their own financial situation and if having fewer resources will strengthen the relation between Porter’s typology and festival performance.Resource scarcity will be tested based on research of Wicker and Breuer (2011) by asking the festival organizations to fill in a statement on how they perceive their own financial situation based on a 5-point Likert scale.
Table 6 | Moderator measure
Moderator
1 How do you perceive your financial situation?
Control variables
To do the research probable, several factors that could influence the results should be taken into account. A control variable strongly influences values; it is held constant to test the relative impact of independent variables. Multiple variables were used, based on previous studies. These were the following: age of the festival (number of editions), size of the festival (budget in numbers) and receiving subsidies (yes or no). Age is measured by looking at the number of editions of the festival from the time it was organized for the first time. When the festival longer exists, it could be able that they have a well-established strategy because they have been around for some decades and have experience in organizing the festivals. This could influence the performance rate since there are other festivals that have been organizing festivals only for a few years. And by referring to the findings of Respons (2012), there have been a lot of new festivals in the last ten years. This factor will be controlled for.
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and should be taken into account. The older the company (in this case the festival), the more strategy is embedded and structured.
The last control variable is based on being subsidised or not. Being more dependent on for example stakeholders who divide the subsidies (like municipalities) could influence the way an organization does business (Gwin, 1990). A nonprofit organization should then take into account their organizational mission but besides this also the customer satisfaction (Vázquez, 2001). The organization’s orientation towards stakeholders must play a role in the management of the organization (Brannen, 1996). Since the national government has cut the subsidies on cultural expenditures (Kunst en Cultuur - Rijksoverheid, 2013), not every festival is able to get the same amount of subsidies for the festival anymore. To let this not influence the relation between Porter’s typology and performance of a festival, this variable will be controlled for.
Table 7 represents the open-ended questions which were asked for the control variables.
Table 7 | Control variables measures
Control variables
How many editions were held of your festival? What is the budget of your festival?
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Overview of the variablesAfter having discussed the three different variables (independent, dependent and the control variables), these are summarized and presented in the table below.
Table 8 | Overview of variables
Variable Operationalization Reference Type Scale
Porter’s typology - Differentiation - Cost Leadership - Focus Statement questions based on previous research Nayyar, 1993; Kim and Lim, 1988; Dess and Davis 1984
Independent Ordinal
Performance Number of visitors divided by the maximum number of visitors Organizations’ mission fulfilment Biaett (2007); Rolfe (1992) Vázques et al. (2001) Dependent Depedent Ratio Ordinal
Age Number of festival
editions
Rolfe (1992) Control Interval
Size Annual budget of the
festival & the number of employees (fulltime and part time)
Jaeger and Mykletun (2009)
Control Interval
Resource scarcity Resource scarcity will be measured by asking the festival organizations how they perceive their own financial situation.
Wicker and Breuer (2011)
Moderator Ordinal
Data analysis (statistics)
The next step after the required data is gathered, is analyzing the results. The statistical program SPSS 22 will be used to do this analysis.
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Bartlett’s Test was completed to ensure the factor analysis is suitable and above 0.50. Doing the analysis separately for the three different strategies completes the factor analysis. Two of them were indeed above 0.50 (Differentiation strategy; KMO = 0,655, Sig. = 0,000 | Focus; KMO =0,634, Sig. = 0,000), one of them scored almost above 0.50 (Cost leadership; KMO = 0,499, Sig. 0,146).
While analyzing the results of the factor analysis, it was decided to remove items that had factor loadings lower than 0,500. For the differentiation strategy six items were left (five were removed) and for the focus strategy three were left (one was removed). None of the cost leadership strategy items were removed. A total of twelve items will be used to measure Porter’s typology in the regression analysis. Appendix 1 presents the results of the factor analysis and shows which items are eliminated.
After the factor analysis, the Cronbach Alpha test was completed to ensure the reliability (α = 0,652). A Cronbach Alpha test should be above .7 but since this is almost the case, the test will be accepted.
Quality criteria (controllability, reliability and validity)
In an academic study, certain criteria must be met to make plausible statements. The three criteria controllability, reliability and validity (van Aken et al., 2012) will be discussed in this section.
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of manipulating results. Furthermore, the basic structure of theory testing is used, to increase standardization. The classification of the variables has been determined in previous researches (Dess and Davis 1984; Kim and Lim, 1988; Nayyar, 1993).The last variable is validity; this refers to whether the study is able to scientifically answer the questions it intends to answer. Does the research really measure what it is supposed to measure? The statements in the questionnaire are established in order to make sure it measures the generic strategies and in such a way it will be understandable for the festival organizations.
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RESULTS AND ANALYSIS
RespondentsTo do this research in the festival industry, Dutch music festival in the Netherlands were asked to fill in the questionnaire. A total of 605 music festivals were approached and 104 of these festivals filled in the questionnaire. This is a response rate of 17%. After one week there were around 30 respondents, so by sending out a reminder and in the end by making phone calls to the festivals (whenever possible), the response rate increased. Some of the respondents answered by e-mail or on the phone giving different reasons for their lack of participation. The reasons for non-participation included: did not define themselves as a festival (even though the term festival was part of the name), did not feel that the questionnaire was relevant, thought that the questionnaire was too long, no time to answer since the festival peak is coming.
Since the response rate is low, it is hard to say whether this sample can be seen as a representation of the Dutch music festival industry. By analysing the data, there can be concluded that a wide variation of different festivals have filled in the questionnaire. The descriptive statistics represented in table 8 give an indication on which festivals filled in the questionnaire.
Upfront it was thought that the question regarding the festival budget would not be filled in by a lot of festivals, but remarkably to see was that most festivals (89%) did fill in their festival budget. This way the variable could be used as a control variable.
Descriptive statistics of the events
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Table 9 | Respondents’ main characteristicsItem Outcomes
Respondents 104
Number of editions 1 - 150
Ticket price €0 - €165,-
Number of visitors (latest edition) 100 – 150.000
Number of fulltime employees 0 – 25
Number of part-time employees 0 – 200
Number of employees at peak 0 – 600
Budget €0 – €1.500.000
Receive subsidies Yes / No 48% - 52%
Profit oriented Yes / No 22% - 78%
Mission accomplished last year The average says it is accomplished (90%)
Financial situation Small to medium problem (52%)
14% states it have been a serious problem last year
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Table 10 | Correlation Matrix
**. Correlation is significant at the 0.01 level (2-tailed)
*. Correlation is significant at the 0.05 level (2-tailed)
Mean Std. Deviation Min. Max. 1 2 3 4 5 6 7 8 9 10 11 1. Number of editions 12.21 `11.026 1 150 1 3. Budget 114818.8 239080.4 0 1.500.000 ,128 1 4. Receive subsidies 1.52 .502 1 2 -,187 ,135 1
5. Aim for profit .2019 .403 1 2 -,112 ,193 ,196* 1
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Regression analysisFollowing prior research (Dess and Davis, 1984; Kim and Lim, 1988; Nayyar, 1993), the hypotheses are tested with regression analyses. The independent variable is divided into the three generic strategies of Porter (differentiation, cost leadership, focus), which are being measured by twelve items based on statement questions. The dependent variable (festival performance) is measured by dividing the actual number of visitors on the latest edition of the festival by the maximum amount of visitors and the second type of performance measurement is based on the mission fulfilment of the festival. Since the mission fulfilment item was not nominally divided, it was chosen to transform this variable into Log10. The outcomes are reversed. There is controlled for several items, which will make the relation between the independent and the dependent constant.
The model that is used to do the regression analysis is as followed:
Perf = β0 + β1 * Diff + β2 * Cost + β3 * Focus + β4 * Age + β5 * Size + β6 * Sub + β7 * (Diff |
Cost | Focus) * Scarcity
Where
Perf = Performance of the festival Diff = Differentiation strategy Cost = Cost leadership strategy Focus = Focus strategy
Age = Number of editions of the festival Size = Budgetary
Sub = Receiving subsidies
Scarcity = Moderating effect of Resource scarcity
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(model 3 & 7 | table 11) and in the final step the interaction term was added to test for moderation (model 4 & 8 | resource scarcity)
Regarding the control variables, for the performance measurement on visitors there were other results than for the performance measurement on mission fulfilment observing the significance. For both measurements, age was not significant related to performance. This is not in line with previous research. Age and ticket price have been measured in the same way Leenders et al. (2005) did in his research, by asking how many festival editions were held since the first time. He found that age could be seen as a predictor of success and that ticket prices are indication of size.
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Table 11 | Results of Regression Analyses for Festival Performance as Dependent VariablePerformance (Visitors)
Performance (Mission)
Variables Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8
Age Size Receive subsidies .109 .218* .249** .088 .226* .255** .073 .207* .211* .210 .210* .209* .045 -.065 .174 .011 -.047 .169* .020 -.035 .211 .011 -.032 .194* Diff + Cost Differentiation Cost Leadership Focus Resource scarcity Diff x Scarcity Cost x Scarcity Foc x Scarcity R2 Adjusted R2 F n .362 .131 4.712** 104 -.075 .136 .099 3.655** 104 -.058 -.164* .069 .327** .279 .223 4.966** 104 -.062 -.162 .076 .320** -.036 -.020 -.013 .281 .198 3.394** 104 .171 .029 .949 104 .054 .375 .141 2.488** 104 -.207* .166* .020 -.254** .199 .136 3.187** 104 -.216* .157 .022 -.262** -.093 -.010 .039 .206 .115 2.259** 104 a
Standardized regression coefficient are re-ported **p < 0,01
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Based on the regression analyses in table 11, the hypotheses can be accepted or rejected.
Hypothesis 1 stated that differentiation would be positively associated with festival performance. As shown in table 11, there is a significant, positive relationship between differentiation strategy and festival performance regarding the mission fulfilment. Therefore, Hypothesis 1 is supported. Hypothesis 2 stated that the cost leadership strategy would be negatively associated with festival performance. As presented in table 11, there is a significant, negative relationship between cost leadership strategy and both festival performance measurements. Therefore, Hypothesis 2 is supported.
Hypothesis 3 stated that the focus strategy would be positively associated with festival performance. The relation between these two variables is not significant and therefore Hypothesis 3 is not supported. Hypothesis 4 stated that the combination of differentiation and cost leadership strategy would be negatively associated with festival performance. Table 11 presents that the relation is not significant and therefore Hypothesis 4 cannot be supported.
After these main effects, the possible moderating effect of resource scarcity was tested. Table 11 shows that the interaction effect of the resource scarcity x the three different strategies singular is not significant, so Hypothesis 5 is not accepted. But the moderating variable does have a direct, positive effect on both the performance measurements.
The two control variables that are significantly related to festival performance regarding the visitors are size (concerning the festival budget) and receiving subsidies is related to both performance measurements. Age is for both performance measurements not significantly related.
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DISCUSSION
This research aims at describing the relation between Porter’s typology and festival performance. Porter’s typology consists of three generic strategies, namely differentiation, cost leadership and focus strategy. Festival performance is based on the actual amount of visitors and the visitor capacity of the festival and the mission fulfilment. After an extensive literature review, the research has been done using a self-made questionnaire and by sending this questionnaire to 605 Dutch music festivals.
After analyzing the results of the questionnaire by using statistical tests, these results will be interpreted. Before the relation between Porter’s generic strategies and the festival performance will be discussed, the control variables will be interpreted.
Control variables
The control variables that were used in this study were age of the event (number of editions held), the size of the festival (based on the festival budget) and if the festival receives subsidies. It was found that for size, the budget variables were significantly related and receiving the subsidies. Age was not significantly related to festival performance, and cannot be seen as a predictor of success.
Size of a festival – budget
There can be stated that a festival budget is an indicator of the festival size (Jaeger and Mykletun, 2009). The more budget a festival has to spend, the more chances festival organizations have on making the event never to be forgotten. This has a positive impact on the festival performance. Leenders et al. (2005) also concluded in his study ‘the
higher the budget, the higher the price of a ticket and the more stars perform at the festival’. The bigger the budget of the festival, the more opportunities the festival has on
contracting big stars and well known bands.
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increase the budget amount but maybe those festivals get fewer subsidies. By all means, like was stated by Leenders (2012), proper budgeting is essential for the survival of most music festivals.
From this study, the assumption can be made that a higher festival budget will have a positive effect on festival performance.
Receiving Subsidies
The second control variable that is positively related to the festival performance is the fact that a festival receives subsidies or not. This is an indicator of the aim for profit a festival organization has. Leenders (2012) also indicated this as a survival mechanism for festivals.
This result is in line with the budget variable. It could be concluded that receiving more subsidies will increase the budgetary of the festival and thus the festival success. These way festivals are able to invest in for example brand and reputation building, which are two important indicators to create customer loyalty and festival success according to Leenders (2012)..
Porter’s generic strategies in relation with performance
The most important aim of this research is to explain the relation between Porter’s generic strategies and festival performance. By completing regression analyses, significant relations were found between Porter’s typology and festival performance. Table 13 represents the acceptance or rejection of the hypotheses.
Table 13 | Acceptance or rejection of hypotheses
Hypothesis Type of analysis Performance (Visitors)
Performance (Mission)
Differentiation strategy Regression model 3 & 6 Rejected Accepted Cost leadership strategy Regression model 3 & 6 Accepted Accepted
Focus strategy Regression model 3 & 6 Rejected Rejected
Differentiation & Cost leadership
Regression model 2 & 5 Rejected Rejected
