E-MARKETING AS A CUSTOMER LOYALTY PROGRAM IN THE PROFESSIONAL HAIR PRODUCT INDUSTRY

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E-MARKETING AS A CUSTOMER LOYALTY PROGRAM IN THE

PROFESSIONAL HAIR PRODUCT INDUSTRY

University supervisor: prof. dr. ir. F.P.J. Kuijpers Company supervisor: T.de Vos (senior product manager Matrix)

Syamak Nazary (s1905570)

Student of the Faculty of Economics and Business University of Groningen

Business Development

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Preface

This thesis is the final part of my master program and is conducted at L’OREAL Nederland B.V. An internship of six months provided the opportunity to conduct an interesting research on a topic that is familiar to me as a part-time web-designer and simultaneously gain experience in customer relations and marketing practices in the professional hair industry. L’OREAL is also a great supporter and sponsor of this particular research by enabling me as a student to utilize company resources in order to conduct this research. Another advantage of conducting this research at L’OREAL is the generosity and freedom of using resources and interacting with customers. For this reason, I would like to thank L’OREAL Nederland B.V. for supporting me as a student in this research. Furthermore, I would like to thank Tom de Vos for his support and contributions to this research as I have pleasantly worked together with him to make all this possible.

Next to the organization, I would like to thank prof. dr. ir. F.P.J. Kuijpers for his feedback, time and guidance towards the right directions in conducting this research. With great advice on literature and research, prof. dr. ir. F.P.J. Kuijpers enabled the foundations of this research. I also would like to thank all teachers of the Business Development team for providing me with useful knowledge on Business Development and management in general.

This thesis and internships did not only contribute to my educational development but also to my personal development. For that, I would like to thank all participants.

Anyone who stops learning is old, whether at twenty or eighty. Anyone who keeps learning stays young. The greatest thing in life is to keep your mind young.

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Executive Summary

L’OREAL’s professional hair product brand ‘Matrix’, aims to expand their services by implementing an e-marketing customer loyalty program. A previous attempt to increase customer loyalty has failed and was recently cancelled. A more demanding hairdresser (customer) and a mature market with more competition forced Matrix to reconsider its customer retention strategy. The aim of this study is twofold, one is to find out the underlying reasons for the previous failure and thereafter develop a (re) design that supports the development of an e-marketing concept for Matrix in terms of functional design elements. The first step was to investigate the failure of the previous loyalty program. Results from ten qualitative interviews suggest the main causes of the program failure to be: a lack of communication; lack of financial support; lack of awareness amongst customers; and a mismatch of customer needs. In order to prevent the occurrence of these pitfalls in a new attempt, a systematic approach towards the development of a new program is required, considering the views of customers and employees. The first step was to address the strategic choices by means of interviews with top management. The strategic choices as specified in the interviews were: customer intelligence; customer loyalty; accessibility; improve services; and improve processes. The next step was to involve customers and employees in the development of the functional design elements. Based on literature and the business process of Matrix, six functional design elements were chosen to be evaluated by customers and employees. The functional design elements presented in this paper include: personalization; customization; enhanced customer service; ordering systems; user ratings; and reviews and community. Results from the questionnaire suggest that customers prioritize customization, personalization and enhanced customer service as the most important functional design elements of e-marketing. Employees also rate customization, personalization and enhanced customer service as their most important functional design elements. The results of the questionnaire and literature on service quality, specifically electronic service quality, enabled the design of an e-service quality model considering SERVQUAL-gaps and their most important determinants. The model divides the e-service quality for Matrix into three parts: incubative dimensions; active dimensions; and functional design elements. The model describes the most important determinants in the e-service quality and prioritizes these in accordance to their importance. The resulting recommendation should guide Matrix in the implementation of the e-marketing concept.

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1.0 Introduction

This thesis is initiated by Matrix, a professional hair product brand of L’OREAL. Matrix is a lower segment professional hair product brand with relatively accessible prices for hairdressers. Professional hair products are highly concentrated products such as hair dye, shampoos, conditioners and more. Due to their high concentration, the products are mainly used by professionals (hair dressers) as it requires education and knowledge to apply on human hair. The Matrix team in the Netherlands is responsible for the marketing, education and sales activities in the Netherlands. The Dutch professional hair market is at a mature stage with more and more brands entering the market, competing on price, service and quality. Due to the high competition, Matrix faces the challenge to keep customers satisfied and loyal. In order to face these events and respond, management implemented a loyalty program under the name club matrix to support business customers with their daily activities. However the program failed to perform as intended and was eventually cancelled. Now, the management team decided to revive the service digitally, in the form of an e-marketing concept. Success stories of e-marketing implemented on other brands within L’OREAL such as BIOTHERM, Matrix USA and the demand for more digital content convinced management to implement e-marketing as their new loyalty program. Given these circumstances and thoughts, management created an opening for a graduation project to support them with the development of a new loyalty program and to find the reasons behind the failure of club matrix. This research can therefore be divided into two parts, 1) a problem analysis of a failed loyalty program project and 2) recommendations on the development of e-marketing with participation of customers and employees. The first section introduces L’OREAL and Matrix as a sub-brand in combination with the business problem and opportunities of Matrix concerning e-marketing. Furthermore an introduction of the research questions is provided to clarify the scope of this paper. The second section elaborates on e-marketing theory in order to gain knowledge of the concept, its characteristics and functional design elements as described in scientific literature. The third section provides the research design and methodology of this paper per sub-question. Section four is the presentation of the research results where the problem analysis of the failed loyalty program is discussed together with the evaluation of functional design elements of e-marketing. Section five is the recommendation for Matrix in accordance to the results of this paper with support of the e-service quality model. Finally the limitations of this research are addressed together with suggestions for further research.

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1.1 Company Description

Let us have a brief look at L’Oreal as a corporation and Matrix in particular before diving into details of the research. First L’OREAL as a company is described, followed by a brief explanation on the professional hair industry and finally Matrix as a brand.

1.1.1 L’OREAL

L’Oreal is an international company specialized in cosmetics and fashion. All their consumer products are premium priced and sold around the world in 130 countries. L’OREAL has 66.600 employees and 22 global brands with consolidated sales of € 19,6 billion in 2010. In the Netherlands, L’Oreal operates in 4 divisions; professional hair products, consumer cosmetics, active cosmetics, fashion and luxury products.

1.1.2 The professional hair product industry

The professional hair industry consists of many players competing worldwide in order to gain market shares of the existing hairdresser market. In the Netherlands, there are approximately 19.000 hairdressers (http://www.anko.nl/view.cfm?page_id=5695) of which 4130 hairdressers using a L’OREAL brand for their business meaning that 21,7 % of the entire Dutch market is conquered by L’OREAL. The rest of the market is shared with some large players such a Schwarzkopf, Keune and Wella (P&G). There are also several smaller brands that concentrate on the niche markets.

Figure 2 illustrates all the brands within the L’OREAL professional products together with their segmentation to give an indication of how the different brands are segmented in the Dutch hairdresser market.

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8 1.1.3 Matrix Brand

Matrix was founded in 1980 by the American husband and wife hairdressing team, Arnie and Sydell Miller. The Millers wanted to provide hairdressers with a comprehensive range of products that would help them grow their businesses and provide the means to take full advantage of their talent and creativity. Now, over three decades later, their original ideas still stand strong and Matrix is committed to the development of the salon professional and offers a wide range of hair care, hair color and hair texturizing products including brands such as Biolage, Amplify, Sleek.look, Vavoom,

Curl.life, Color.smart, Opti.smooth, SOCOLOR and Color Sync (www.matrix.com). In the 90’s Matrix

became the number 1 hairdresser product in the United States of America. An Acquisition took place

in the year 2000 by L’OREAL.

Fig.2: Segmentation of Brands

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9 In the Netherlands, Matrix segmented itself as the “budget” brand of L’OREAL meant for the lower segment of the market. ANKO (the largest Dutch hairdresser association) distinguishes the hairdresser market into four segments:

 Sole Proprietorship (no employees)

 Sole Proprietorship with employees and annual turnover of <€ 175.000

 Sole Proprietorship with employees and annual turnover of >€ 175.000

 Chains of hairdressers.

Matrix concentrates on the lower segment of the market with a minimum purchase amount of € 80, which is quite accessible for the smaller hairdressers with no employees and relatively minor turnovers. However, Matrix also focuses on chains that fit into their image and business strategy, core values (see figure-3) and mission. Given the core-values, Matrix strives for more connectivity and support towards their client base. Therefore Matrix Netherlands introduced “Club Matrix”, a loyalty program that was established to increase loyalty and support customers to improve their business. However this program failed and therefore this research paper will investigate the underlying reasons for this particular failure to draw lessons for future implementation of loyalty programs.

1.2 The business problem

Matrix introduced several programs under the name of Club Matrix. Customers were able to receive interior design for their hair salons, hairdresser products for their employees and marketing support to increase sales. The goal was to increase customer loyalty by means of trade-marketing support. The concept of trade-marketing and material support was launched in 2008; customers were able to receive points for each purchase they made (in Euros) and create an imaginary budget, similar to air miles, to spend later on the various services. Overall a supportive concept for customers of Matrix with high expectations of success as it should have stimulated product sales. However the reality proved to be different as only less than 1 % of the entire client base really used the program to support their business. The small amount of customers using Club Matrix was not the only problem that Matrix was facing. Some customers even thought that their so called budget savings expressed real money since their budget was symbolized in Euros. The consequences were that some customers wanted to retrieve their budget as money and invest the particular budget on other materials and services or even as discount for buying Matrix hair products. When told that they were wrong and that the savings were only symbolized as Euros to spend, customers got disappointed and threatened to leave Matrix as their main hair product supplier. Such problems increased

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10 disappointing situations for customers as well as sales employees whom maintain the relationships with customers. Club Matrix started to create problems for sales managers as the program did not increase loyalty and even in some cases did the exact opposite. Slowly but surely management decided to cancel the program in order to prevent more harm to the image of Matrix and due to the few responses and usage of the loyalty program. Now, Matrix would like to revive the loyalty program by changing the processes and adding more valuable features through the implementation of an e-marketing concept. The underlying reasons for the “failure” of the program are discussed in section four. A newsletter of Club Matrix is to be found in Appendix 3 to give a better insight on the program. First, let’s have a look at why matrix is eager to invest in customer equity and why e-marketing in particular.

1.3 Customer equity and opportunities

Communication between companies and customers have significantly changed with the advent of interactive and information technologies. Companies realize that they need to force new technologies, not only to serve customers but also provide customers an opportunity to communicate with the firm (Rust et al. 2004).These measures are required to manage the shift of brand equity to customer equity where the focus lies on the customer instead of the product (Rust et.al, 2001). As part of finding the right balance in customer equity, companies should find ways to invest in their customer retention to keep their customers and make relationships stronger, this component of customer equity is also called retention equity (Rust et.al, 2001). Investing in loyalty programs is one the driving forces behind retention equity. Research on customer relation management also shows that the key drivers of relationship equity are loyalty programs and a set of comparable programs, all implemented for two main reasons; one is to increase revenue and or sales by raising purchases, and the other is to build a closer bonds with customers and efficiencies within the relationship (Uncles et.al, 2003; Rust et al. 2004). Companies should not seek their goal in the first reason as prior research on customer loyalty programs and profitability already have shown that there is barely an effect on profitability through implementation of customer loyalty programs (Sharp & Sharp, 1997; Rust et al. 2004). This does not mean that loyalty programs should be avoided; rather it should be used wisely. Companies can still increase margins by such programs by means of cost reduction and efficiency in customer relations (Rust et al. 2004).

1.4 Why e-marketing?

Why did Matrix management choose to implement e-marketing after the failure of Club Matrix? An informal interview at the initiation of this project lead to several reasons of why the Matrix

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11 management require an electronic marketing channel specifically instead of other possible solutions. The thoughts and forces that made management to come to such a decision are discussed below: Customer loyalty: As already mentioned, the previous customer loyalty program failed and this thesis will investigate the reasons behind the failure. However, the loyalty program itself was a supporting activity of Matrix towards its customers. So the intensions and the content of the loyalty program were very positive, however the progress did not show any success. Management believes that the loyalty program should be revived with a different process and more customer involvement. Given the amount of customers that Matrix is responsible for, management decided to automate the majority of the process of a certain loyalty program to be able to cope with the scale of requests. Customer reach: As to be seen in the business process illustration on page 15, the exchange of information is quite standardized in terms of new product launches and marketing support. Since a business cycle is renewed every five weeks, the regional managers face a shortage of time to visit all the customers within their portfolio. Of course the regional managers can call or mail customers that are not approached yet, however it becomes a time-consuming process to respond to all enquiries as every regional manager covers approximately 110 customers. This results in a lower reach of customers and therefore some business cycles are missed by some customers. In order to enlarge their customer reach on new products or marketing products, Matrix decided to have a central location of communication between the firm and the customer.

Customer intelligence: the e-marketing concept is a way for management to increase customer loyalty by easier access to information and communication. The ability for customers to communicate directly with the firm enables more communication and knowledge sharing. Not only customers, but also Matrix is able to communicate directly to all its customers.

Efficiency: The need for more digital input in retail marketing is increasing. More and more retailers are aware of the importance of marketing within their hairdresser salons, shops and web-shops. These developments have made the business customers demand more and more digital content such as product information, education and visuals. The increasing demand is forcing Matrix to be more efficient in exchanging such contents with their customers. Besides this, customers would also like to have these kind of services customized in accordance to their business.

Automation of such services with basic self-service technologies provides customers with the freedom of customizing their own marketing and efficiently gaining product information and education such as e-learning.

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12 Online Purchase: Matrix management has decided to view the opportunity of adding a sales channel to their current way of sales. The current situation is that customers either call the distribution center for purchases or contact and meet their regional manager. Matrix’s management would like to be more efficient in sales activities and provide customers the opportunity to purchase online. This would also give the regional managers more time to concentrate on their core responsibility which is building a strong relationship with customers. Therefore, e-marketing is an enabler for management to pursue these thoughts and perhaps adding the online purchase channel to their daily business. Given the different circumstances and opportunities, e-marketing seems to provide the solution needed to react on the needs. The above mentioned reasons are summarized in fig. 4

Furthermore, Matrix invested in a new brand-website with the purpose of improved communication with customers and end-users. With the launch of this particular website, the customer loyalty program and the additional needs can be rebooted into a digital self-service encounter for business customers and serve as the new customer loyalty program with extra services. The concept is to be included into the new website of Matrix that simultaneously automates several activities of Matrix in trade-marketing.

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13 The combination of opportunities and services should eventually add more value for the customers and for Matrix, therefore the e-marketing concept and its technology should serve as the enabler of this opportunity.

Before addressing the goals of this research and the questions arising, the business process is shown to clarify the views of Matrix management and to show how the e-marketing concept adds value for Matrix.

1.5 The business process

Matrix operates in 10 cycles of five weeks per year, whereby new marketing materials are produced and promoted to increase overall product sales. The team consists out of a:

 Brand Manager, responsible for the entire brand and the performance of all managers involved with Matrix.

 Senior Product Manager, responsible for marketing strategy and product launches and processes.

 Sales Manager, responsible for the performance of the 10 regional Managers and the overall sales of Matrix throughout the Netherlands.

 Commercial Technical Advisor, responsible for technical information of hairdressing products and hair design. The manager’s main responsibilities are to educate customers of hair salons to apply the products on consumers.

 10 Regional Managers, responsible for managing important customers and their aim is to create a long-term business relationship with the customers. Their role is crucial as the representative face of Matrix. The managers literally drive around their own areas in the Netherlands to build relationships and increase the client base.

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14 On the next page, a business process map illustrates the way in which Matrix and their management team work. The processes are numbered and explained in the table below. This information is quite important to map as it forms the basis of why Matrix needs this particular loyalty program in combination with an e-marketing concept.

The senior product manager in combination with the project manager are together responsible for the marketing activities within Matrix. The project manager ensures press releases and the implementation of marketing strategies. Meanwhile, the senior product manager creates marketing strategies and develops trade marketing materials in order to increase sales. All these elements are shared with the Regional managers that eventually present these to their clients.

The sales manager together with the product manager set targets on their strategies. Targets are managed by the sales manager through communication and support to 10 regional managers.

Each business year consists of 10 cycles where new products are introduced and new marketing strategies are implemented. This means that information and marketing products are continuously changing and renewed, a decipherable attribute of a fast consumer goods industry.

The commercial technical advisors (CTA) are very crucial in this industry. The CTA´s have in depth knowledge on the products and how these should be applied on human hair. Furthermore, they have strong knowledge on every kind of hair and therefore their expertise is used to educate business customers. This service is necessary and lucrative as business clients pay for these educations.

The red arrow shows the opportunity and need of implementing the e-marketing concept. The initial idea of having “cub matrix” failed to succeed, now the opportunity lies within the e-marketing concept on which management likes to assess the functional design elements of the concept and incorporate customer’s and employee’s views .

1

2

3

4

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15 Marketing strategies

Marketing products Marketing implementation

Market information Trade marketing materials

Press publications

Managing Sales Targets of 10 Regional Managers Relationship with clients

Hairdressers (+/- 1050 Business Clients)

Education on product use Technical expertise

10 times +/- 5 weeks of business. Every 5 weeks, new strategies and marketing materials are developed to

increase sales and support trade marketing.

The business process

1 2 3 4 5 10 Regional managers

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1.6 Goal of research

Before specifying the research questions, it is useful to address the scope of this research by clarifying the three goals to be met before developing an e-marketing concept. The goals of this research are:

 Find causes of the “club matrix” failure to in order to draw lessons from previous challenges and to prevent the same causes for a new loyalty program in an e-marketing setting.

 Specify the strategic choices of implementing e-marketing as the new loyalty program

 Incorporate customer’s and employee’s needs concerning the functional design elements of the e-marketing concept by involving them in this research.

1.7 Research questions

Combining the business phenomenon of Matrix and literature on this topic enables the set-up of a research question. With knowledge gained on the high customization level of e-marketing and different purposes of e-marketing implementation, the following research question needs to be answered:

“How to develop e-marketing as a customer loyalty program in the professional hair industry, considering the requirements of customers and employees?”

However, a clear research question consists out of relevant sub questions that eventually shape the final research question. In case of this particular research, the following research questions need to be answered in order to find the overall answer:

1. What lessons are there to be learned from the previous “club matrix” program? 2. What is the strategic goal of implementing e-marketing?

3. What are the business client’s requirements and preferences on e-marketing? 4. What are the requirements and preferences of Matrix employees on e-marketing?

Each sub question requires its own methodology of data collection and analysis. The findings on these questions will answer the main research question and it enables the researcher to design a model that includes all the relevant findings to implement an e-marketing concept. The following paragraphs elaborate on the sub-questions.

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17 1.7.1 What lessons are there to be learned from the previous “club matrix” concept?

The purpose of this sub questions to find the reasons behind the failure of the current program. Finding the causes and effects of this failure illustrates the elements that require consideration in the new design. For example, elements of the current program that contributed to the failure of the program should be excluded in the new design to prevent repetition.

1.7.2 What is the strategic goal of implementing e-marketing?

The purpose of this research question is to find out what top management wants to achieve strategically with implementing e-marketing. Coviello et al. (2003) suggests that the implementation of e-marketing requires a clear understanding of the strategic role in the firm. A common strategic goal is therefore required before initiating any design and implementation.

1.7.3 What are the business client’s requirements and preferences on e-marketing?

Out of all stakeholders, the most important category is the business customer, as only they are able to judge the success of this concept. User involvement has been researched by various authors in business development literature (Enkel et. al, 2005, Alam , 2002) providing different angles of science into this matter. According to Alam (2002), there are lots of benefits in user involvement when new services are developed. Given the nature of this particular e-marketing concept, the involvement of users and requesting their preferences also educates the customer on the new service development. This is possible due to that customers are familiar with the technology (internet) and therefore the risk of having false data is limited. Moreover, this data provides insight on the customer’s perspective on the e-marketing concept and thus stimulating the overall knowledge of customer’s view on Matrix’s operations.

1.7.4 What are the requirements and preferences of Matrix employees on e-marketing?

Similarly to the previous research question, the purpose of this question is to see what design elements are required and preferred according to the employees. The approach will be the same as for the business clients however this time the employees are able to point out their specific needs and thoughts on the e-marketing concept. The goal is also to match the internal views on functional design elements with the external views on functional design elements.

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2.0 Theory on E-marketing

In order to have a sophisticated research, a thorough literature study is required for a strong foundation of the concept. The main topic of this research is e-marketing, a topic with lots of challenges when it comes to finding the right literature. For this research a selection of literature is made which is inline within the scope and goal of this research. At first a definition of e-marketing is provided to create a common understanding of what is meant by e-marketing in this particular setting. Secondly the focus is set on e-marketing in the business-to-business context to relate the concept with Matrix. Next to the business-to-business context, the literature is narrowed to e-marketing and business performance followed by functional design elements of e-e-marketing in order to understand how e-marketing is created and applied. Finally the importance and need of this research is addressed by discussing the academic interest.

2.1 Definition of e-marketing

Marketing managers use information technology mainly to cope with the continuous search for gaining marketing resources and concurrently delight their customers for better relationships (Trainor et al, 2011). Recent research suggests that using IT into marketing practices enable organizations to improve customer retention (Brodie et al. 2007, Coviello, et . al, 2001). The concept of having e-marketing as part of improving operations has been studied in different contexts (Granitz, 2003, Shaltoni, 2010, Brady & Fellenz, 2008).

Before diving into more literature on this topic, it is useful to create a common understanding towards the definition of e-marketing. According to Coviello (2003) e-marketing “refers to and is defined as using the internet and other interactive technologies to create and mediate dialogue between the firm and identified customer”. Another suitable definition in the light of this research is described by Gilmore et al. (2007) where the authors define e-marketing as“a logical extension to fulfill the traditional market practices of creating, communicating and delivering value to customers”. It is important to recap this since the definitions are totally different in comparison to terms such as commerce or business. However, marketing requires the same technologies as used by e-commerce and e-business, of course with a different purpose as explained further in this section. E-marketing uses the internet as the platform allowing companies to adapt the needs of their customers, reduce transaction costs, enable customers to move from time and location based behaviors towards non-temporal and non-locational behaviors (Watson et. al., 2002).

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19 The following table illustrates characteristics of e-marketing as described by Coviello et.al (2001) in order to better understand e-marketing:

E-marketing Characteristics

Purpose of exchange Information-generating dialogue between a seller and many identified buyers

Nature of communication Firm using technology to communicate “with” and “among” many individuals (who may form groups)

Type of Contact Interactive

Duration of exchange Continuous (but interactivity occurs in real time)

Formality of exchange Formal (yet customized and/or personalized via interactive technology)

Managerial intent Creation of IT-enabled dialogue

Managerial focus Managing IT-enabled relationships between the firm and many

customers

Managerial investment Internal operational assets (IT, website, logistics) Functional systems integration

Managerial Level Marketing specialists

2.2 E-marketing in business-to-business

Internet technologies have certain immediate impacts on business-to-business marketing as such technologies promote efficient coordination of business activities within and amongst firms (Iyer, 2004) and it supports the tremendous reductions in coordination costs (Hof, 2000). Business-to-business linkages can be identified in accordance to their primary Business-to-business model as it is mainly based on access. Iyer (2004) studied the business-to-business linkages into three classifications, namely; public access, virtual private networks and industry consortia. These classifications are made in terms of their characteristics and goal of implementation. Considering Matrix in the classifications of Iyer (2004), the “virtual private network” is the best option for Matrix to implement since it is in accordance to Matrix’s business situation and relationship focus. Tabe-2 summarizes the characteristics of a virtual private network as described by Iyer (2004)in a buyer and seller setting.

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20 Virtual Private Network Characteristics

Ownership Single Firm

Access By invitation

Technology Custom

Key Purpose Enabling Extended Enterprise

Buyer Benefits Efficiency and strategic gains from supply chain and coordination with suppliers at the level of business process

Seller Benefits Inventory matching enables better planning and distribution scheduling.

2.3 E-marketing and company performance

Current literature also refers to the success of e-marketing and its influence on a firm’s profitability positively (Krishnamurthy 2006, Brodie et al., 2007; Wu, Mahajan & Balasubramanian 2003,Trainor et. al, 2011). The interest in business to business electronic interaction has grown since the beginning of this century as it proved to be operational efficient (Lancioni et. al, 2000). The success of implementing information technology is also shared at the market level (Porter, 2001). Furthermore, studies have shown that electronic marketing can provide support for business development through stepwise refinement as well as repositioning (Aldin et. al, 2004). Developing an internet channel into a company’s existing distribution channel provides several benefits such as constant availability, ease of communicating, relevant information and the ability to provide personal offers (Wolk & Skiera, 2008). Authors such as Kumar & Venkatesan (2005) also have shown that multichannel shoppers (through internet, personal contact or any other means of shopping or information) lower a customer’s perceived risks in its transactions that could motivate a customer to spend more. Furthermore, the authors describe that “the depth of a relationship and trust seem to increase as the customers start increasing the number of channels through which they transact with a supplier specifically in a business to business setting.” In the light of this knowledge, one can say the there are opportunities to grab for companies and Matrix in particular, to become more competitive and increase customer retention with the support of e-marketing.

2.4 Functional design elements of e-marketing

Literature on elements for developing e-marketing are quite difficult to find since e-marketing is used for many purposes, from relationship marketing in the financial services (Kapoulas et. al 2002) to brand loyalty (Holland & Baker, 2001) and of course much more applications (Granitz, 2003, Shaltoni, 2010, Brady & Fellenz, 2008).

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21 However the challenge is to find those elements that really matter and fit with the business purpose of Matrix. Further investigation on e-marketing conducted by Coviello et al. (2003) suggests that the implementation of e-marketing requires a clear understanding of the strategic role in the firm and the firm’s capabilities to implement and support electronic operations. The authors suggest that implementation of an e-marketing concept should reflect the customers’ preferences and also consider the extent of complexity processed in the design. When reading through literature on e-marketing, a common line of e-marketing tools are found in research of Granitz & Greene (2011) , Kalyanam& Mclntyre (2002) and Holland & Baker (2001). For this research, a selection of relevant elements, also called e-marketing tools, used in the previously mentioned literature is made in order to test the elements on customer’s and employee’s preferences and therefore are treated as the functional design elements of the e-marketing concept and form the basis for sub-question 3 and 4. The following table summarizes the elements with a description of what the elements entail in e-marketing implementation.

E-marketing strategies and tools

Personalization

A site’s ability to tailor information for each unique user and it denotes any aspect of e-marketing that is modified to an individual customer.

Customization

The ability of a user to tailor site information. Modification of what is presented based on preferences that are set by the customer.

Community

Community is when a particular site becomes a place of interest, where participants interact extensively with one and other.

Enhanced Customer Service

Creating direct link with the customer. Updating customers on new products, providing marketing information and streamline business process for easy customer transaction. Providing strong and relevant opportunities for self-service

Ordering system

A system that enables purchase of products without the intervention of a Regional manager or customer service.

User ratings and reviews

The ability for customers to comment on products and services. In combination with a wish list drop box for customers to interact with the company.

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22 These elements are also chosen due to their characteristic in creating value for Matrix and creating value for the customers. Implementing e-marketing should be highly customized in accordance to a firm’s situation (Coviello et.al, 2001, Day 1998, Brodie et.al, 1997). Different industries therefore will have different approaches towards e-marketing and therefore their functional design elements require research on stakeholder’s needs and preferences.

2.5 Academic interest

Although research guides companies in implementing e-marketing in terms of orientation (Shaltoni & West, 2010) and the role of e-marketing on contemporary marketing practice (Brady et. al, 2008), no research of e-marketing has focused on basic guidelines to implement e-marketing with important functional design elements that need to be considered in the design. There is no model to be found that guides decisions to be made for design and implementation of e-marketing concepts in organizations. Authors such as Coviello et.al, (2001) have identified e-marketing as one of the five marketing approaches (Transaction, Database, Network, and e-marketing) and examined its role on marketing practices, however this identification barely serves as guidance to initiating and implementing e-marketing. Reading literature on e-marketing clearly shows a lack of knowledge about implementation of e-marketing with specific functional design criteria. Furthermore, various authors emphasized that there is no “one size fits all” organizational template for implementing e-marketing (Coviello et.al, 2001, Day 1998, Brodie et.al, 1997) and this paper project will focus on two main research gaps:

 The first research gap is the lack of knowledge of a model to be used for implementing e-marketing in a business-to business context. A model that should eventually enable basis for implementing e-marketing in a business-to business firm considering for example customer needs, organizational adaptation and more guidelines. Current literature lacks on the knowledge of specific design criteria. This research also focuses on a more general question of how firm’s resources are related to marketing practices (Trainor et. al, 2011).

 The second gap is a study of how e-marketing is initiated and implemented in the case of a professional hair product industry since the research will be conducted for this specific industry. For research such as this, it is important to treat every industry individually and therefore increase the overall knowledge of e-marketing implementation due to the high customization level.

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3.0 Research Methodology

This chapter fully focuses on the research methodology and design. First the research process is explained followed by the research design that together form the basis of the methodology. Subsequently , the data collection methods are discussed followed by the data analysis and finally the quality criteria for this research is addressed.

3.1 Research Process

Generally, the objective of a research project is to develop knowledge, whether it is general knowledge in the academic context or specific knowledge in a business context (Van Aken et al. 2007). The purpose of a business problem solving project is to solve a business process problem in the material world of action. The context of this research provided several ways to conduct this research; for example an exploratory study with case studies and analysis or a reflective study that includes a business problem. Considering the scope of this research, the business problem, the opportunity that comes along, the characteristics of this research and its quality criteria, the reflective cycle is applied. According to Van Aken et al. (2007), this research is:

 Performance-focused; Meaning that the actual performance improvement is the primary objective of the project.

 Theory-based; means that one uses valid, state-of-the-art knowledge for the analysis and design activities and that one is aware of the quality of the knowledge to be used.

 Client-centered; meaning that the researcher needs to cope with the client system as a whole consisting out of the principal, the problem owner and the user of the proposed system

 Business Problem-oriented; This research not only focuses on the object design of an e-marketing concept but also investigates a previous approach towards customer loyalty that failed to succeed.

The above mentioned characteristics and criteria fulfills the requirements for conducting a reflective cycle whereby an analysis of the problem is made with a (re) design solution to guide a new system considering a theory-based and client centered approach. A combination of a business problem solving project and a business opportunity are also characteristics of a regulative cycle which is the main part of a reflective cycle. Considering these arguments, as well as the researcher’s limitations in temporal aspects, the reflective cycle is the best approach to this research. The reflective cycle includes several steps to be conducted and is discussed next in the setting of this research.

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24 The problem described in this research is the failure of a previous program that requires investigation before starting a new program. The opportunity of this particular research is to design a model that incorporates customer and employee’s views on a particular e-marketing system. In the reflective cycle as described by Van Aken et al. (2007), the next step would be to provide various solutions. However for this research the solution already exists, which is an e-marketing concept. Therefore the (re) design stage of this research starts by specifying the solution, outline the functional design elements that should be included, evaluating the functional design elements involving users and eventually adding an object design. An object design is the model of the system or process to be realized in order to achieve the intended goal. For this research, the object design would be the specifications of functional design elements of e-marketing prioritized in accordance to customer preferences and needs.

3.2 Research Design

This research consists out of qualitative and quantitative methods. The first two sub-questions are researched by means of interviews of management, employees and customers. The final two sub-questions are quantitatively tested on a 5 level Likert scale. The sub-questions are based on the six functional design elements of e-marketing and mainmarketing support activities of matrix towards its clients. This approach is used to see to what extend a design element, as described by literature, is favored and valued by the customers and employees. Figure 6 clarifies the research design with an illustration.

Sub-questions:

1. What lessons are there to be learned from the previous “club matrix” program?

2. What is the strategic goal of implementing e-marketing? 3. What are the business client’s requirements and preferences

on e-marketing?

4. What are the requirements and preferences of Matrix employees on e-marketing?

Research Question

“How to develop e-marketing as a customer loyalty program in the professional hair industry, considering the requirements of customers

and employees?”

Methodology

Qualitative interviews with middle and higher

management

Quantitative customer and employee surveys

Problem Analysis

(re) Design

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25 3.2.1 Data Collection sub-question-1

In order to thoroughly understand the causes of the failure, it is highly important to dig into the problem and understand the underlying reason of the failure. The findings will finally be illustrated in a cause and effect diagram where the main reasons are visible in one glance. To achieve this, a systematic qualitative research is required based on interviews with the creators, maintainers, users and non-users of the current program. Crossing the interview results provides the input of a cause and effect illustration. The following participants are involved in the interview:

 3 Regional Managers ( Stephan Taminau, Richard Blaauwendraad, Albert-Jan Tummers)

 Sales Manager (Frank Bogers)

 Project Manager (Melanie Vonk)

 Two customer that used the program ( classified )

 Two customer that did not use the program ( classified )

 Senior Product Manager (Tom de Vos)

The sample questionnaire is to be seen in Appendix-1. All the participants will be interviewed individually. To validate the failure of the previous program, 10 persons with various backgrounds as stakeholders are interviewed. The question types used in the interviews are explanatory as the purpose is to learn the respondent’s viewpoint regarding the situation relevant to the broader research question (Blumberg et. al, 2005).

3.2.2 Data Collection sub-question-2

In order to answer this question, interviews with top-management are required. Only they can decide on the strategic goals of e-marketing. A qualitative interview based on top management’s view will be held individually in order to cross the results and conclude on management’s strategic goals. The questions will be based on five e-markplan components introduced by Krishnamurthy (2006). The components are:



Goals: What do we wish to achieve through e-marketing?



Actors: Who are the marketing actors in the e-marketing?



Spaces: where will our e-marketing take place online?



Actions: What specific e-marketing actions should we take?



Outcomes: What outcomes should we expect from our e-marketing activities?

The answer to these questions will bundle the strategic goals of e-marketing implementation and provides room for the next step which is testing the user’s requirements on e-marketing.

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26 3.2.3 Data Collection sub-question-3 & 4

In order to achieve detailed data on this matter, a well-structured questionnaire is required. Due to time limitations, a questionnaire is the most appropriate way to find out the wishes of Matrix’s business customers. For the questionnaire, 50 lead users of Matrix will be asked to participate in this research. These 50 lead users are business clients that frequently use the marketing services of Matrix and know how a particular e-marketing concept can support their business. An online questionnaire was sent to 54 clients in case some will not respond. Finally the data will be analyzed to find the significant values addressed by customers and employees. The questionnaire template is to be seen in Appendix 10.

The questionnaire will test the customer’s view on e-marketing strategies and elements presented by Granitz & Greene (2011) and Kalyanam& Mclntyre (2002). Kalyanam& Mclntyre (2002) introduce e-marketing tools which can be categorized in the e-e-marketing strategies of Granitz & Greene (2011) . However not all tools are relevant to the professional hair industry, therefore 6 tools are selected to be tested. The e-marketing tools are then placed in the context of marketing service of Matrix and general characteristics of the elements as described by Kalyanam& Mclntyre (2002). The combination of these creates the base of the questionnaire.

Personalization Customization Community Enhanced Customer Service Ordering system

User Ratings & Reviews

E-Marketing Concept

Employee’s view Customer’s view Fig. 7: Testing design elements on Employees & Customers

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27 The customer’s view on these elements supports the research with an outline of customer preferences. Matching these views with those of employees enables the design of an e-marketing concept according to internal and external business processes. The questions of in the survey on design elements are all weighted equally due to that all questions form the characteristics of the particular functional design element. Case studies from the research of Krishnamurthy (2006) show what these elements include in different setting. The author shows examples such as Amazon.com to specify the elements. Furthermore, the questions are created together with the support of the Senior Product Manager in order to ensure that customers and employees create a common understanding on the questions. For example, customization, a functional design element to be tested, refers to; the ability of a user to tailor site information. Modification of what is presented based on preferences that are set by the customer. This description can be interpreted differently by different respondents and therefore a question is created that supports the definition and the service required by customers. So for customization, an example would then be, what is your opinion on downloading hair models from our website in order to create your own advertisement? This way the design element customization is rated, the service to be designed for the element also is rated and the customer or employee recognizes the service since it is already used manually.

Next to these elements, three additional questions are asked in order to test the computer knowledge of customers and to see how often internet is used by customer. The answer of these additional questions support managerial implications on e-marketing as it describes the knowledge of their customers concerning the technology (internet).

3.3 Methods of qualitative data analysis

For the interviews of sub-question 1 and 2 on club matrix and strategic choices the grounded theory approach is used in order to analyze the data. An open coding system is used to analyze the entire text provided by the interviewee. Open coding enables identification and categorization of phenomena found in text (Myers, 2009). The data gathered for sub question-1 is analyzed in three stages:

Stage-1: Open coding, raw text analysis for categorizing Stage-2: Selective coding, the interpretation of categories Stage-3: Theoretical coding, the formulation of a theory

The data of the strategic goals will be crossed with each other as the questions are structured with only one focus, which are the strategic choices of higher management on e-marketing implementation.

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3.4 Methods of quantitative data analysis

For the questionnaire used to point out the views of employees and customers, a 5-point Likert scale is used. The data is analyzed in two different ways, first the data is regularly analyzed in terms of their ratings provided by the respondents. Secondly the data is analyzed statistically with support of SPSS using descriptive methods to analyze the frequencies of a given answer. The functional design elements are then prioritized in accordance to the wishes of customers and employees .The data provided by customers and employees are eventually compared to analyze the differences. Based on the results, a suggestion is made regarding the design of the e-marketing concept in accordance to findings.

3.5 Quality criteria for research

In order to ensure the quality of this research several aspects concerning the process and methods of this research need to be addressed. Research should be evaluated on certain quality criteria. The most important criteria for research are controllability, validity and reliability (Yin, 2003). These criteria are quite important due to that they provide the basis for inter-subjective agreement on research results (Van Aken et al. 2007). The three aforementioned criteria for this research are discussed next.

3.5.1 Controllability

Controllability is a precondition for the evaluation of validity and reliability as described by Van Aken et al. (2007) and it refers to a detailed description of how the research was executed to ensure that replication of the research is possible. This research is conducted at L’Oreal Nederland B. V. headquarters in Hoofddorp, The Netherlands. The interviews of this research have taken place in the headquarters Hoofddorp in room 3.21 where each participant is interviewed personally without anyone else present. The interviews were spread over several weeks. The respondents form the majority of employees working for Matrix. The results of the interviews are to be seen in appendix 4 and 5 and the researcher is in possession of the interviews of which all are signed by the participants to ensure that they agree with what is written down by the researcher. The questionnaires used for this research were created together with support of scientific literature, the senior product manager of Matrix, participation of the researcher in the marketing activities and a business visit of the researcher to 30 out of 54 selected lead users of Matrix products throughout the Netherlands. A template of the questionnaire is to be seen in appendix 10.

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29 3.5.2 Reliability

Reliability, a difficult concept to define according to Van Aken et al. (2007). The goal of reliability is to minimize the errors and biases in a study (Yin, 2003). According to Van Aken et al. (2007) methodological literature recognizes four potential sources of bias; the researcher, the instrument, the respondents and the situation. Several measures have been taken in order to ensure the reliability of this research. At first, all interviewees were given the opportunity to read back their own answers and sign the interviews as they approved and agreed on the results. Furthermore, for the reliability of the researcher, a standardization strategy is used by creating semi-structured interviews and questionnaires. Next to the standardization strategy, reliability is served by using multiple research instruments. What’s more, high quality journals were used to form the basis of this research. Journals such as industrial marketing management, journal of consumer marketing, journal of business-to-business marketing and more quality journals were used to tackle bias by studying the topic from different angles.

3.5.3 Validity

Finally the third important criterion for quality is the validity of the research. According to Van Aken et al. (2007), validity refers to the relationship between a research result or conclusion and the way it has been generated. The authors distinguish three types of validity; construct validity, internal validity and external validity. Construct validity is the extent to which a measuring instrument measures what it is intended to measure and refers to the quality of the operationalization of a concept (Van Aken et al. 2007). In order to ensure the construct validity of this research, the methods of research and measurement were evaluated by the supervisor of the university, senior product manager at Matrix and the researcher. As mentioned earlier, the use of high quality-peer reviewed- scientific literature also contributes to the construct validity of this research. Internal validity, referring to conclusions about the relationship between phenomena, is secured in this research by using triangulation and viewing the concept from different angles. Finally the external validity is discussed which refers to the generalizability of research results. It is quite difficult to generalize the result of this study to other organizations or countries since the focus here only lies on the professional hair industry. However, one may use the outline of this research for the professional hair industry in other countries or industries.

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4.0 Results

This part presents the results of the interviews and of the questionnaires. Every sub chapter copes with the sub-question and their results. At first, the underlying reasons of club matrix failure are addressed with support of a cause and effect diagram. Secondly the strategic options regarding the implementation of e-marketing are presented and finally the results of the e-marketing functional design elements are presented.

4.1 Underlying reasons of Club Matrix failure and views on e-marketing

Ten interviews concerning club matrix provided lots of information on the reasons, the views and stances on club matrix and the e-marketing as a new program to implement. The interview can be divided into two parts. The first part was to find out the underlying reasons for the failure and the second part was to get a glimpse on different perspective regarding e-marketing.

4.1.1 Cause and effect of Club Matrix Failure

To start with, every interviewee with the exception of two customers, were aware of the fact that the program was developed to support customers in their business with marketing materials, hairdresser products and more. Internally, all the employees and managers were aware of the fact that this program was meant to increase customer loyalty. It can be concluded that the goal was clear and that there was a common line of thought towards the implementation. Moving towards the next category which is the perspective of the interviewees on Club Matrix, the results show that 8 out of 10 interviewees believed that the program was very useful, especially customers that already used the program. Customers were enthusiastic about it as they really believed that it would help their business. Furthermore, the regional managers and higher management were positive about the concept and launched it with full confidence. When asked why only a few of customers made use of the program, two conclusions can be drawn from the given answers. The first conclusion to be drawn is the lack of communication abilities towards clients. One of the problems of communication was that customers were informed by (physical) mail, however salon owners are quite busy and therefore neglected the mails from time-to-time meaning that they (the customers) missed important information and support activities due to lack of information. Another effect of this problem was awareness. Due to this fact, lots of information was missed by the customers and resulted in a lack of awareness. The lack of awareness led to frustration amongst customers and regional managers whereby time-consuming activities took place in order to solve certain issues. Overall, the process of communication caused a lack of awareness which led to a lack of communication and eventually the consequence were enormous misunderstandings and therefore the entire process became time-consuming.

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31 The regional managers had to focus on lots of detail in order to see what kind of services is meant for which customer. There were times that the management team and regional managers were performing the same task to satisfy the customer. Another cause of the failure was the offer of marketing materials and support. Interview results suggest that eventually there was not enough invested to really make the program work. According to interviewees, there was an overlap of the offers with what was already been offered during sales activities, meaning that the offers were not exactly matched to what customers really wanted next to sales activities. Figure 8 provides a diagram of the cause and effects.

4.1.2 Views on e-marketing

The second part of the interview tested the interviewee’s perspective on e-marketing and the revival of club matrix within the new concept. The views on reviving the concept with additional services is quite positive, 9 out of 10 interviewees clearly pointed out that it would be a great idea to automate the processes by creating an e-marketing channel. However all interviewees address the importance of interface and ease of use. According to customers and employees, the new program should not be time-consuming and easy accessible. Under these conditions, they all believe that the new program supports their business and are highly interested in having such a concept.

Nine out of ten participants believe that customers would accept the new program more easily as the majority is familiar with internet.

Finally all interviewees, including customers, pointed out that customer satisfaction will increase if the e-marketing concept is installed with the required functions.

The interviews were conducted face-to-face and after each interview, the interviewee was able to read the answers written down in order to check and agree on their answers.

Overlap of services/offers

Club Matrix Failure Mismatch of customer needs

Lack of communication

Lack of awareness

Lack of financial investment

Time-Consuming Process

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32 After checking the answers, all participants signed the answers sheet as proof of agreement. All interview results on this topic are to be read in appendix 4.

4.2 Strategic choices of e-marketing

The Strategic choices on e-marketing are provided by qualitative interviews with top management at the professional products division of L’OREAL. The participants consisted out of three managers: Tom de Vos, senior product manager of Matrix, responsible for all marketing and sales activities of Matrix, Marlene van den Berge, brand manager of Matrix, responsible for all strategic decisions concerning Matrix and finally Ciro Rago, director of the entire professional product division within L’OREAL Netherlands. The results of the interview consist out of two parts. The first part focuses on the strategic choices made by top-management and the second part is their view on e-marketing and its effect on customer loyalty.

4.2.1 Matrix’s e-marketing strategies

According to Krishnamurthy (2006), implementation of e-marketing starts with strategic choices for implementing such a concept. For this reason, only top management is interviewed in order to gain their perspectives and motivations on strategic choices to implement e-marketing. The results of the interviews are summarized in the following table:

Strategic e-marketing components

Strategic choices of top-management

Goal Customer intelligence, Customer Loyalty, Accessibility, Improve services,

Improve processes.

Actors Regional management, Marketing management, Logistics, customer service,

Customers (hairdresser salons)

Spaces On the Matrix website (Brand identity output)

Actions Information management, Ordering system, E-learning, Knowledge base, Buzz

creations, Trade marketing

Output Satisfied clients, Accessible trade marketing, Consistency in information, Improved service quality

These strategic choices stand for short-term and long-term strategic orientation. The outcomes should be measured on a regular basis and evaluated in relationship to the goals (Krishnamurthy 2006). The output must be tested on a measurable scale and on periodically basis in order to review the strategic choices

E-MARKETING AS A CUSTOMER LOYALTY PROGRAM IN THE PROFESSIONAL HAIR PRODUCT INDUSTRY