Local Marketing as the Road to Retail Success?
Research in the
Restaurant Industry
Alexander Willemse Student number 1337319
University of Groningen
Master Thesis BA Marketing Management First Supervisor Dr J.A. Voerman
Second Supervisor Dr L.M. Sloot
August 2009
Local Marketing as the Road to Retail Success?
Research in the Restaurant Industry
Alexander P.L. Willemse
University of Groningen, Faculty of Economics and Business
Business Administration: Master Thesis of Marketing Management August 2009
Croeselaan 251 Bis/A 3521 BR Utrecht 06-24213203
aplwillemse@hotmail.com Student number:1337319
Faculty Supervisors: Dr J.A. Voerman & Dr L.M. Sloot
Management summary
The era of standardization is ending and in today’s more crowded marketplace success is more likely to be sough by developing smaller scale products and brand-variants for different market segments. For restaurant management efficiency and economies of scale are still important, although they might have to shift their marketing activities from macro- to micro marketing level as well. Local marketing is a form of micro-marketing and can be described as the customization of marketing-mix variables at local customer groups, stores or geographic regions, based on customer, competitor and store characteristics.
It is still unclear whether in the restaurant industry a local marketing approach is desirable and to what extent local marketing is currently applied. Therefore, in this thesis explorative research is conducted to provide insight in the desirability of a local marketing approach at chain organised firms in the restaurant industry.
In chapter two theoretical research explained local marketing can be incredibly effective, resulting in several beneficial performance-outcomes such as an increase of customer satisfaction, sales, profits, brand equity, employee satisfaction, employee retention and loyalty.
We also identified certain conditions of local marketing and the fact there are certain less beneficial performance-outcomes, such as a decrease of efficiency rates and an increase of managerial complexity. Furthermore, a “local marketing-mix” is constructed, in order to conduct empirical research in the restaurant industry.
Based on theoretical research, we created a conceptual model, which is used as starting point for our qualitative research. In addition, we conducted 12 depth-interviews at six chain organised firms in district Utrecht, in which we interviewed both marketing managers and location managers, at both full-service and limited service restaurants, at both restaurants controlled by chain management and restaurants managed as franchisee.
Qualitative research explained chain organised firms in the restaurant industry continuously customize local marketing-mix variables, although the implementation of local marketing can be characterized as heterogenic. Especially customer service and to a less degree prices, store design and display and the communication mix are influenced by local marketing. Research did not identified firms customizing assortments and processes.
Research acknowledged a significant difference between the perception of marketing managers
and location managers, since location managers judged their marketing activities as more
influenced by local marketing. According to our research. there is no significant difference
between the perception of interviewees at limited-service restaurants and full-service
restaurants, and between perceptions of interviewees at chain managed restaurants and franchisees.
Qualitative research has acknowledged; in the restaurant industry local marketing is criticized as desirable, since it would effectively increase customer satisfaction, traffic, sales, profits and loyalty. Qualitative research also identified less beneficial effects on costs and efficiency rates.
After conducting explorative research, we concluded in the restaurant industry local marketing can be exceptionally effective, even when a firm heavily focuses on efficiency. Furthermore, research will show restaurant managers are not totally informed about the meaning, conditions and effects of their local marketing approach, which will affect the effectiveness of local marketing and our research reliability as well. Since we conducted explorative research, our research reliability would be increased when additional quantitative research is conducted, which is able to identify statistical significance and would take away the uncertainty regarding our research results.
Preface
The master thesis is the conclusion of my master Marketing Management within the study Business Administration at the University of Groningen. The thesis contains explorative research concerning the desirability of local marketing in the restaurant industry.
I experienced this thesis project as a great learning experience and it was very interesting to research this subject-matter. Furthermore, I am satisfied restaurant management can benefit from the research results and hopefully additional research will be conducted in this interesting and versatile industry.
I would like to thank some people who supported me during the writing of this thesis. First, I would like to thank all interviewees who participated in this research. Their time and efforts made this research possible.
I specially want to thank my first supervisor Dr. Liane Voerman for all her help and advise during my earlier drafts of this thesis. She gave me useful feedback and helped me maintain an academic perspective, which resulted in this final version of my master thesis. In addition, I would like to thank Dr. L.M. Sloot for assessing this thesis.
In the end, I would also like to thank my family and friends for their interest and support during my study time in Groningen. I could not have done it without them!
Alexander Willemse
Utrecht, August 2009
Table of content
Management summary……….. 3
Preface………. 5
Table of content……… 6
Chapter 1: Introduction and problem statement……….. 7
1.1 Introduction……… 8
1.2 Background of the restaurant industry ……….………. 9
1.3 Theoretical background……… 11
1.4 Problem statement………. 12
1.4.1 Research objective……… 14
1.4.2 Research question……….. 14
1.5 Relevance of thesis………. 15
1.6 Research methodology………. 15
1.7 Research structure……….. 16
1.7.1 Thesis design………17
Chapter 2: The attractiveness of local marketing………..18
2.1 Introduction……… 18
2.2 Definition of local marketing………. 18
2.3 Conditions of local marketing………...……… 20
2.4 Composition of the marketing-mix………. 21
2.4.1 Latest developments……… 21
2.4.2 The local marketing-mix……… 23
2.5 Performance-outcomes of local marketing……….25
2.5.1 Merchandise Assortment……….. 25
2.5.2 Pricing………. 26
2.5.3 Customer service.………. 27
2.5.4 Store-design and display……….…. 29
2.5.5 Communication mix………. 31
2.5.6 Managing Process……….……….. 33
2.5.7 Performance-outcomes of local marketing………..35
2.5.8 Short-term performance-outcomes………. 35
2.5.9 Long-term performance-outcomes………..37
2.6 Summary and conceptual model………. 39
2.6.1 Theoretical research summary……….. 39
2.6.2 Conceptual model………. 40
Chapter 3: Empirical research design………….……… 41
3.1 Introduction……… 41
3.2 Research design……… 41
3.2.1 Type of research……… 41
3.2.2 Plan of analysis……….. 42
3.3 Data collection………..……… 42
3.3.1 Research in The Netherlands..………42
3.3.2 Research in district Utrecht………. 42
3.3.3 Research in seven restaurant organizations….………. 43
3.3.4 Chain managed restaurants versus franchisees …………. 44
3.3.5 Marketing managers versus location managers..………….44
3.3.6 Selection of marketing managers..………..44
3.3.7 Selection of location managers………..45
3.3.8 Interview-guideline..………..……….46
Chapter 4: Empirical research results……… 47
4.1 Introduction……… 47
4.2 Definition of local marketing ……… 47
4.3 Conditions of local marketing ………. 48
4.4 Current implementation of local marketing………48
4.4.1 Local marketing to restaurant management………. 49
4.4.2 Clarification concentric rings………..…….. 51
4.4.3 General analysis concentric rings……… 56
4.5 Planned performance-outcomes of local marketing………. 56
4.6 Desired implementation of local marketing………. 57
4.7 Research reliability………. 59
4.8 Empirical research summary.……… 60
Chapter 5: Conclusions and recommendations……….. 62
5.1 Introduction………. 62
5.2 Conclusions.………. 62
5.3 Recommendations……… 64
5.3.1 Recommendations for the restaurant industry…………. 64
5.3.2 Recommendations for further research……… 65
References………. 67
Appendices……….... 72
Chapter 1 Introduction and problem statement
1.1 Introduction
”Work is theatre and every business a stage”. This was stated by Joseph Pine and James Gilmore in their book; “The experience economy” (1999) . They described the experience economy as a next economy following the agrarian economy, the industrial economy and the most recent service economy. The authors explored how successful companies create experiences that engage customers in an inherently personal way. It's the value that the experience holds for the individual that determines the worth, which emphasizes the importance of customizing product and services features at individual customer preferences.
In the restaurant industry experience elements play an important role in creating value for customers, since most visitors, apart from their dinner, appreciate a sociable environment, hospitable customer service and a certain amount of amusement. Therefore, especially in the restaurant industry; work is theatre and every business a stage.
In theatre there are different kinds of genres ranging from drama to comedy. These genres are specified to different customer segments, which are differentiated by several determinants such as age, gender, level of education and geographical origin.
Because of increased attention to positioning and customer orientation, many retailers are increasingly shifting their marketing activities from mass- to micro marketing level (Van Dijk, 2004). Consequently, local marketing, which is a form of micro marketing and stands for the customization of products and services at local preferences, becomes an imperative theme (European Retail Marketing Report, 1995).
The era of standardization is ending (Rigby and Vishwanath, 2006) and in today’s more crowded marketplace success is more likely to be sough by developing smaller scale products and brand- variants for different market segments (Webber, 1995). Furthermore, due to adverse economic conditions, for restaurant marketers it is eminent to protect their current customer base and find ways to attract new customers in order to survive and realize strategic growth (Kwun and Oh, 2006). Therefore, restaurant management might have to customize their products and services as well in order to adjust dining experiences at customer preferences.
For restaurant management efficiency and economies of scale are still important, although they
restaurants are to a great extent dependable of their local trading area, a local marketing approach in particular could be recommendable.
Nevertheless, it is still unclear whether in the restaurant industry a local marketing approach is desirable and to what extent local marketing is currently applied. Therefore, in this thesis explorative research is conducted to provide insight in the desirability of a local marketing approach in the restaurant industry.
1.2 Background of the restaurant industry
Following the dictionary of van Dale (vandale.nl), the definition of a restaurant is; an enterprise where people can eat food prepared by a cook”. The first restaurant in the world started in Paris in 1782. It was the first place where customers were sitting down with individual portions at individual tables, selecting food from menus, during fixed opening hours (Whitney, 2001). Since then, thousands of restaurants started their businesses and multiple types of restaurants were introduced.
At first, the restaurant industry consisted of only privately owned single-store restaurants.
However, from the 1950’s the concentration of restaurants grew and multiple-store restaurant firms started to spread around America. In the restaurant industry efficiency and economies of scale were increasingly important and chain organized firms, whilst also introduced in Europe, started their successful expanding strategies all over the world. Standardised products and mass media advertisements made large corporations exceptionally successful. McDonalds became the world’s largest restaurant firm, accounting for 1.6% of the global restaurant sector, which in 2008 reached a value of €1.073 billion, touching nearly every household in on way or another.
In 2008 the American and European restaurant sectors were accountable for respectively values of €437 and €289 billion (Datamonitor Report, 2008). Furthermore, the global restaurant industry is supporting many other businesses-segments like food-ingredient providers, real estate companies, architects, management and training service-providers, agricultural businesses, marketing companies, design and furnishing companies, industry consultants and ICT manufacturers.
Full-service versus limited-service restaurants
The global restaurant sector consists of both full-service and limited service restaurants. Full- service restaurants provide extended food services to customers who order while seated and pay after eating. Limited-service restaurants are also known as fast food chains and comprise restaurants primarily engaged in providing food services where customers generally order and select items and pay before eating. Food and drinks may be consumed on the premises or taken out as well.
From product concept to marketing concept
In the 1950’s chain organized firms like McDonalds, started implementing “ the product concept ”, which centralizes methods and techniques for selling products and services in which marketing viewed the customer as a party to whom something is to be sold (Van Dijk, 2004).
Later on, “ the marketing concept” was introduced which is based on the idea that retailers benefit from understanding customer needs and preferences. The customer is viewed as a party for whom products and services are developed and market segmentation has become a key activity (Van Dijk, 2004). Restaurant firms first evaluated the market, identifying heterogeneity in customer preference. Subsequently, they used this knowledge to produce products which would improve the value proposition towards customers. For example, McDonalds introduced halal chicken-nuggets in Islamic countries, and in India they introduced curry-sauce in order to take into account customer preferences. According to many marketing specialists, delivering more customer value in the long term is a key element for ensuring company success (Khalifa, 2004; Van Dijk, 2004; Huber et al., 2001; Porter, 1996).
The customer concept
A recent development in marketing is the adoption of “ the customer concept” , which contains a management orientation initiating relationships with selected individual customers with whom superior customer values are designed, offered, refined and realized in close cooperation with other partners in the marketing system, in order to realize long-term profits through customer, partner and employee satisfaction (Odekerken-Schroder et al., 2001). Firms and customers are cooperating to increase sales, profits, as well as the experienced customer value. Examples of products and services currently generated according to the customer concept are; the customized ING-cash card, the Fiat500 (customized car), Nike-id (customized sport-shoes) and designyourheineken (customized beer-bottles).
From mass-marketing to micro-marketing
Four developments have made the shift from mass- to micro-marketing possible (European Retail Marketing Report, 1995). First, automation of processes made product-variation in small batches achievable in a profitable way.
Second, fragmentation of consumer preferences emerged by which lifestyle of individuals became increasingly important in the selection process of customers. Therefore, today’s customers claim products and services adjusted to their individual needs and preferences (Grewal et al., 1999).
Third, because of fragmentation of the media and extension of the media-channels, accurate targeting of market segments became achievable.
Fourth, developments in information technology made it possible to stock and manipulate customer information, which then was transformed into patterns of consumer behaviour helping companies to reach their target market more straightforward and accurate. Because of these developments, for many retailers micro marketing becomes increasingly appealing.
Chains versus single-store restaurants
For single-store retailers such as family restaurants adjusting products and services to local needs and preferences is relatively easy to accomplish. They are customizing their proposition at a regular basis for that reason single-store retailers are exceptionally dependant on their restricted trading area (Datamonitor Report, 2008).
Furthermore, in limited-size firms customization is more straightforward to manage. Chains on the other hand, emphasise on exploiting the same value-proposition concept on a large scale and face difficult challenges in customizing their proposition at local needs and preferences, such as reducing their economies of scale. Therefore, we decided to conduct our explorative research from the perspective of chain organized restaurant firms.
1.3 Theoretical background
The marketing mix
Local marketing is a form of market segmentation. Market segmentation contains the process of
splitting potential customers into different segments, within which customers share similar
needs, characteristics or behaviour (Kotler et al., 2005). These similar customer needs of a
market-segment are satisfied by the marketing-mix (Levy and Weitz, 2007). The marketing-mix
is most widely known as E. Jerome McCarty’s (1960) ”4P’s”: Place, Product, Price and
Promotion. The 4P’s were needed to break down and structure the decision making process into
a number of identifiable and actionable headings (Palmer 2004). Over the last years, some changes were made, in order to adjust the marketing-mix to new developments. Although, initially not based on any theory, the 4P’s concept has long found favour of marketers as well as lecturers and students. In this research we use marketing-mix theory to help explain the desirability of a local marketing approach.
Levels of market segmentation
There are four different levels of market segmentation, ranging from mass marketing towards individual marketing (Kotler and Armstrong, 2006). Undifferentiated marketing (mass marketing) offers the same marketing-mix to the entire market and ignores differences between market segments. This mass marketing strategy focuses on common needs of customers instead of differences.
Differentiated marketing does focus on different market segments and offers a different marketing-mix to every market segment. A substantial part of the market can be served and the company pays attention to different customer needs. Therefore, the company can outperform competitors applying a mass marketing strategy.
Concentrated marketing focuses on just one or a few market segments. The company focuses on a full-size part of one or a few small segments (niches) instead of a small part of a full-size segment. The company focusing on a niche has a strong position compared with competitors.
There is substantial knowledge of customer needs and behaviour. Furthermore, a company specialized in one or a few niches is able to develop a valuable reputation.
The fourth segment strategy is micromarketing , which contains marketing programs synchronized to specific individual customers or locations.
Market segmentation Characteristics
Undifferentiated marketing Same marketing mix for the entire market
Differentiated marketing Different marketing mix for different segments of the market Concentrated marketing Focus on only a few market segments
Micro marketing Focus on specific individual customers or locations
Local marketing
The central theme in this research is local marketing, which is a form of micro marketing.
Individual marketing is a form of micro marketing as well. Individual marketing contains a marketing strategy in which marketing programs and products are adjusted to individual customers. Individual marketing is also called ”one-to-one marketing”, ”mass-customization” or
”market-of-one marketing” (Neeraj et all, 2008). Individual marketing is the most differentiated type of marketing. Local marketing is a form of micro marketing as well, but this approach focuses on both individual customers and customers segments.
In some circumstances local marketing is called “geo-marketing”, which has large similarities with local marketing. “Geo-marketing” can be described is a discipline which uses geographic limitations in the process of planning and implementing marketing activities (Gijsbrechts et al.
2003). Therefore, “geo-marketing” exclusively focuses on geographic segmentation, while local marketing also includes segmentation techniques based on non-geographic characteristics.
This thesis studies local marketing from a broad perspective by executing explorative research.
Therefore, we will use the subject term “individual marketing” in favour of “one-to-one marketing”, “mass-customization” and “market-of-one marketing” In addition, we will use the term “local marketing” in favour of “geo-marketing”.
Local marketing can be studied from both a manufacturer as a retailer perspective. For the manufacturer local marketing implies optimizing the product marketing-mix at store level. For the retailer local marketing implies the optimization of the retailer’s marketing-mix (Van Dijk, 2004). In this thesis, we will explore the desirability of local marketing in restaurant chains.
Therefore, we will explore local marketing from a retailer’s perspective.
1.4 Problem statement
In the restaurant industry there is a theoretical lack of clarity about the effectiveness of a local marketing approach in chain organized firms. Furthermore, it is unclear how such an approach is influencing firms performances. The practical extent to which local marketing is currently applied by restaurant management is uncertain as well. Because of this ambiguity about the effectiveness and desirability of local marketing, it is plausible the restaurant industry is reserved at implementing local marketing strategies, which affects the performance and competitiveness of chain organized firm’s in the restaurant industry.
1.4.1 Research objective
The objective of this research is to provide insight in the desirability of a local marketing approach in the restaurant industry, and consequently make recommendations to restaurant management of chain organized firm’s whether to obtain a local marketing approach.
1.4.2 Research question
In order to accomplish this research objective, the next research question will be answered:
“Is it desirable for chain organized firms to implement a local marketing approach in the restaurant industry?”
We will answer this research question from both a theoretical- as a empirical point of view and the sub-research questions hereby will be:
Theoretical sub-research questions:
1. What is the definition of local marketing according to scientific literature?
2. Are there certain conditions before we can successfully implement local marketing?
3. Which marketing-mix variables can we customize when we implement local marketing?
4. How does local marketing influences a firm’s performance according to scientific literature?
5. What is the attractiveness of a local marketing approach in retailing according to scientific literature?
Empirical sub-research questions:
6. How does restaurant management describe a local marketing approach?
7. Does restaurant management assume there are certain conditions before we can successfully implement local marketing?
8. To what extent is local marketing currently implemented in chain organized firms in the restaurant industry?
9. How would restaurant management implement local marketing in their organisation if there were no limitations?
10. What is the desirability of a local marketing approach according to restaurant management of chain organized firms?
1.5 Relevance of thesis
Scientific relevance
The scientific relevance of our research is twofold. Our research provides a comprehensive overview of the effectiveness of local marketing in retailing, combining research of several respected scientific papers. Furthermore, our research provides an adjusted composition of the marketing mix, which consequently questions other theories concerning this subject matter.
These new insights could provoke a scientific discussion concerning the composition of a new
“local marketing-mix” for retailers. Therefore, exploring the scientific attractiveness of local marketing is significant and will support our empirical research as well.
Practical relevance
The practical relevance of our empirical research is versatile. Probably, various restaurant marketers already include local marketing approaches in their operations. However, it is plausible in many cases this is not founded on scientific research. Most local marketing affords are undertaken by operational management and can be described as individual behaviour based on gut feeling instead of strategic managerial decision making (McEwen, 2003). Research in this area can change these reservations and help increase the marketing performance of chain organized firms in the restaurant industry, as well as retailers in general. Therefore, it is relevant to investigate the desirability of local marketing in the restaurant industry.
1.6 Research methodology
For the reason that scientific research in the restaurant industry remained limited, our empirical research can be characterized as explorative. Explorative research is often used when a problem is unclear or the subject is relatively new to researchers. It is best suited for formulating research problems, hypothesis, clarify terms or to give a better insight and understanding of a given area (Malhotra, 2007).
This thesis consists of both a theoretical and an empirical component. We will use secondary data to answer the theoretical sub-research questions, in which we will explain the effectiveness of a local marketing approach according to scientific literature.
Based on theoretical research, we will create a conceptual model, which we use as starting point
for our empirical research. We will use qualitative data to answer the empirical sub-research
questions, in which we will provide insight in the desirability and current implementation of local
marketing in the restaurant industry. The qualitative data consist of 12 depth interviews.
1.7 Research structure
This thesis consists of five chapters. Chapter one includes the introduction, background information of the restaurant industry, theoretical background information about market segmentation and our problem statement. Our problem statement provides information about our research objective and contains both the theoretical and empirical research questions. In addition, chapter one provides information about the relevance of this thesis and the methodology we used in our research.
Chapter two contains the theoretical part of our research, which describes the attractiveness of a local marketing approach in retailing according to scientific literature. Chapter 2.2 provides the explanation of the subject term “local marketing”. Chapter 2.3 focuses on potential conditions before we can successfully implement local marketing. Chapter 2.4 explains which marketing- mix variables we can customize when implementing local marketing in retailing. Chapter 2.5 researches the effects of a local marketing approach in retailing according to several scientific articles. Chapter 2.6 summarises all theoretical research and answers all theoretical sub- research questions about the attractiveness of local marketing. Subsequently, this results in the conceptual model, which processes the theoretical research, in the end explaining the effectiveness of a local marketing approach in retailing.
Chapter three and four consist of the empirical part of our research, exploring the desirability of a local marketing approach in the restaurant industry. Chapter three explains how we conducted qualitative research in the restaurant industry. In chapter 3.2 we present the research design and in chapter 3.3 we explain how we collected primary data at several restaurant locations in The Netherlands.
Chapter four consists of the empirical research results. In chapter 4.2 we explain how local marketing is defined by restaurant management. In chapter 4.3 we examine whether there are conditions before restaurant management implemented local marketing. Chapter 4.4 examines the current implementation of local marketing. Chapter 4.5 presents the planned performance- outcomes to restaurant management. In chapter 4.6 the desired implementation of local marketing according to restaurant management is presented. Chapter 4.7 provides information concerning our research reliability and chapter 4.8 summarises all empirical research results.
Chapter five contains the conclusions and recommendations of this research. Chapter 5.2
includes the conclusions of our research and will answer the research question. Furthermore, in
chapter 5.3 we will make recommendations for the restaurant industry and suggestions for
further scientific research. In the end, the references of this thesis are summarised at page 67
and the appendices are presented at page 72.
1.7.1 Thesis design
The thesis design, illustrated in figure 1.1, provides insight in the connection between our research objective (Chapter 1), theoretical research (Chapter 2), empirical research (Chapter 3 and 4) and our conclusions and recommendations concerning the implementation of local marketing in the restaurant industry (Chapter 5).
Figure 1.1 Thesis design
Chapter 2: The attractiveness of local marketing
Thesis objective (Chapter 1)
Providing insight in the desirability of a local marketing approach in the restaurant industry, and consequently, making recommendations to restaurant chain management whether to obtain a local marketing approach.
Conclusions and recommendations (Chapter 5) Answers the research question concerning the desirability of local marketing in the restaurant industry, provides recommendations for the restaurant industry and provides suggestions for additional scientific research.
Empirical research (Chapter 3 & 4) Researches the desirability of a local marketing approach according to restaurant management of chain organized firms.
Theoretical research (Chapter 2) Researches the attractiveness of a local marketing approach in retailing according to scientific literature.
Conceptual model
2.1 Introduction
Chapter two consists of the theoretical research in which we investigate the attractiveness of local marketing in retailing according to scientific literature. Many marketing specialists emphasise that creation of superior customer value is a key element for ensuring companies success (Khalifa, 2004; Huber et al., 2001; Porter, 1996). Customer value leads to customer satisfaction, which results in customer loyalty, the real driver of financial performance (Reichheld, 2001). A local marketing approach obtains customizing marketing-mix elements and could facilitate the process of creating customer value (Khalifa, 2004).
However, it is unclear what local marketing really stands for and whether there are conditions before we can successfully implement a local marketing approach. Furthermore, it is undecided which marketing-mix variables are significant when we implement local marketing and how local marketing is influencing a firm’s performance. In this chapter we address these subjects and we will answer whether, according to scientific literature, local marketing is effective.
2.2 Definition of local marketing
In marketing literature there are different explanations of the term local marketing . Therefore, we first define local marketing in accordance with our research objective. In marketing literature the concepts local marketing and micro marketing are converted more than once. Hoch, Kim, Montgomery and Rossi (1995) describe micro-marketing as follows: ” Micro-marketing seeks to customize retailing policies to exploit differences across stores in consumer characteristics and the competitive environment.” Montgomery (1997) defines micro-marketing as: ”Micro- marketing refers to the customization of marketing-mix variables to the store level.” This definition is similar to the definition of Hoch, Kim, Montgomery and Rossi (1995) but less explicit.
Campo and Gijsbrechts (2004) consider micro-marketing as follows: ”Micro-marketing refers to
the strategy where the marketing-mix is adjusted to local market characteristics.” Kotler and
Armstrong (2006) consider local marketing and individual marketing as parts of micro
marketing. They give the next definitions for both concepts: ”Micro-marketing is the practice of
tailoring products and marketing programmes to suit the taste of specific individuals and
locations. Micro-marketing includes local marketing and individual marketing. Local marketing
involves tailoring brands and promotions to the needs and wants of local customer groups,
The definition used by Hoch, Kim, Montgomery and Rossi (1995), Montgomery (1997) and Campo and Gijsbrechts (2004) for explaining the concept of micro-marketing is used by Kotler and Armstrong (2006) to explain local marketing. Van Dijk (2004) explored what subject term is used by marketing practitioners and revealed that the expression ” local marketing” is generally accepted and refers to store-specific use of the marketing-mix.
Although, there are studies indicating that micro-marketing is a general expression for taking into account differences in consumer characteristics across stores (Campo and Gijsbrechts, 2004; Mulhern et al., 1998; Montgomery, 1997; Hoch et al., 1995), the term local marketing is generally more accepted (Van Dijk, 2004). Furthermore, the term micro-marketing lacks a geographic association, as where local marketing indicates a certain geographic region or location. Therefore, in this research the term local marketing is preferred.
In addition, it is preferable to make the level of customization explicit. Hoch, Kim, Montgomery and Rossi (1995) and Montgomery (1997) define their definition at store level, while the local marketing definition of Kotler, Wong, Saunders and Armstrong (2005) is much broader and includes strategies for clusters of stores.
In our research the level of customization of Kotler, Wong, Saunders and Armstrong (2005) will be obtained, because for certain retailers (particularly global operating chains) even an adjusted marketing approach per geographic region or country could be considered as local marketing.
Furthermore, definitions differ in what way they call “the customization basis”. Hoch, Kim, Montgomery and Rossi (1995) mention consumer characteristics and competitive environment.
The definition of Montgomery (1997) excludes the environment of the retailer at all, while Kotler and Armstrong (2006) mention local needs and wants.
According to Reinartz and Kumar (1999) store performance is influenced by store, market and consumer variables, which is also included in the definition of local marketing by Van Dijk (2004). In order to include all internal and external influences these three variables are taken into account. Accordingly, in our research we define local marketing as follows:
2.3 Conditions of local marketing
Local marketing is the customization of marketing-mix variables at local customer
groups, stores or geographic regions, based on customer, competitor and store
characteristics.
According to marketing literature firm’s have to meet the needs of several conditions before local marketing can successfully be implemented (Campo and Gijsbrechts, 2004; Cuthbertson and Laine, 2003). According to Krishna (2002) customers are a firm’s only strategic asset, because customers, instead of products or services, provide the revenue stream. Selling products and services is simply a means to an end. Customization of products and services at customer needs and preferences supports this notion.
Though, in order to customize a retailer’s proposition to reflect individual customer requirements, knowledge regarding local customer needs and preferences is required.
(Cuthbertson and Laine, 2003). More over, according to Jones, Clarke-Hill, Shears and Hillier (2001) acquiring customer knowledge is the most important condition before local marketing can effectively be implement. Accordingly, to customize marketing-mix variables at local customer groups, stores or geographic regions, firms have to acquire local customer knowledge and use this information in their process of customizing products and services (Cuthbertson and Laine, 2003).
According to Campo and Gijsbrechts (2004), in every retailing format there are two basic strategic options. One is to adopt a standardised approach of an already existing format.
Alternatively, the retailer can follow a differentiated (local) marketing approach. However, performance improvements of such a strategy will only be worthwhile if certain conditions are fulfilled (Campo and Gijsbrechts, 2004). Campo and Gijsbrechts (2004) formulated these conditions in their research concerning micro-marketing in retailing.
First, there has to be heterogeneity across trading zones. Obviously, adjusting resources to local market characteristics only makes sense if these market characteristics differ between locations.
If local characteristics between different retail locations do not fluctuate, the existing marketing- mix can be obtained.
Second, firm’s have to depend of their local trading zone to effectively follow a local marketing approach. Adjusting marketing-mix variables to local characteristics is only effective if the retailer’s performance is to a large extent dependable of local characteristics.
The third condition is referred to as “actionability”, the extent to which a retailer is able to
reallocate resources to improve the store performance. In other words, a retailer can only adjust
marketing elements to local characteristics, if a retailer is able to or allowed to do so. For
example, employees should be allowed to execute a local marketing approach, which refers to a
certain degree of management decentralization and employee initiative. In many organizations,
adjusting marketing-mix variables to local characteristics is thought to be too much work
(European Retail Marketing Report, 1995). In other cases, operational management does detect
opportunities to exploit local marketing successfully, but is not allowed to by general management (European Retail Marketing Report, 1995).
2.4 Composition of the marketing-mix
A firm’s value proposition is determined by the marketing-mix, which breaks down marketing decision-making into several controllable categories, such as merchandise offered, quality of the service, pricing strategy, store-format and related aspects that influence customer perceptions and buying behaviour. Together, these categories determine a firm’s performance (Barlon, 2006).
Local marketing is implemented by customizing marketing-mix variables, which then influence a firm’s performance-outcomes (Campo and Gijsbrechts, 2004; Hoch et al., 1995). Therefore, we will select a marketing-mix which is constructive for the implementation of a local marketing approach.
2.4.1 Latest developments
The marketing-mix was particularly useful in the 1950’s and 60’s when physical products represented a larger portion of the economy (van Dijk, 2004). Today, with the concept of marketing being more integrated into organizations and with a wider variety of products and markets, a number of researchers attempted to extent its usefulness by adding more P’s (Kotler and Keller, 2005). However, there has been a lot of debate in identifying the perfect composition of the marketing-mix.
Some suggested to add ” people ”, ” process ” and ” physical evidence ” decisions (Boom and Bitner, 1981; Fifield and Gilligan, 1996). Other suggested P’s are; ” personnel ”, ” physical assets ” and
” procedures ” (Lovelock, 1996; Goldsmith, 1999), ” publications ” (Melewar and Saunders, 2000),
” partnership ” (Reppel, 2003) and ” premium price preference of company or product ” and
” portion of overall customer budget ” (Arussy, 2005).
The introduction of the 7P’s of Booms and Bitner (1981) is appealing, because it tailors the marketing-mix to services specific. According to Bloom and Bitner (1981), products can be standardised, but to standardise services is far more difficult as there are more input factors.
Therefore, they added the categories ” people ”, ” physical evidence ” and ” process ” to manage.
” People” refers to all people directly and indirectly involved in the consumption of services.
Recruiting the right staff and train them appropriately in delivering their services is eminent for
retailing success. ” Physical evidence” refers to aspects which allow consumers to make
judgements on the organisation, and is related to the environment in which services are consumed. ” Process” refers to the mechanisms and flow of activities by which services are offered and consumed. High-services industries are often more complex because of inconsistency in the offering and simultaneous production and consumption (Levy and Weitz, 2007).
In 1994, Lauterborn introduced the 4C’s in order to imply more emphasis on consumer wants and concerns, distinguishing ” convenience for the customer ”, ” customer value and benefits ”,
” cost for the customer ” and ” communication” .
In 2005, Dennis, Fenech and Merrilees added 3 more aspects that may be key to retailer success. The additional C’s were ” computing and category management issues” , ” customer franchise” and ” customer care and service” . Inclusion of these three C’s does broaden the scope of the marketing-mix sufficiently, to provide main headings for the package of benefits that retailers provide to add value.
The marketing-mix according of Levy and Weitz (2007) contains decision variables which are influencing customer purchase decisions. The marketing-mix of Levy and Weitz consists of six variables and has to a large extent resemblance with the 7C’s described by Dennis, Fenech and Merrilees (2005). Both try to satisfy customer needs in order to increase profits and outperform competition and both are created in an up to date timeframe, representing a comprehensive image of marketing decision-making in retailing.
According to Dennis, Fenech and Merrilees (2005), the marketing-mix gives an extended description of marketing decision-making and can be described as customer centric. All seven marketing-mix variables of Dennis, Fenech and Merrilees (2005) are primarily focused on increasing customer satisfaction. Marketing-mix variable ” customer service” is considered as an important aspect and the influence of this aspects can be found in almost all seven marketing- mix variables. Furthermore, all variables are interwoven with each-other, which makes the marketing-mix realistic but exceptionally difficult to manage. They did specifically highlighted the influence of computing and category management issues in the complex environment of retailing.
The marketing-mix of Levy and Weitz (2007) is more practical for distinguishing different
variables. For example, marketing element ” customer service” is analysed as one distinctive
retail element. According to Levy and Weitz, customer satisfaction can be described as a tool,
retailing success is in fact key objective. The marketing-mix elements of Levy and Weitz (2007)
are more distinguished and marked out, which makes the marketing-mix more manageable.
However, a fall back of the marketing-mix of Levy and Weitz in a retailing environment is the missing influence of managing processes. For many retailers managing processes effectively and efficiently is eminent for retailing success. Dennis, Fenech and Merrilees (2005) distinguished retail element ” computing and category management issues” for taking into account process- management issues. The marketing-mix described by Lovelock and Wirtz (2007) defines the eight P’s of service marketing and distinguishes marketing-mix variable ” managing processes” as well. In their composition of the marketing-mix, “ managing processes” includes design and implementation of effective processes (Lovelock and Wirtz, 2007).
The marketing-mix of Lovelock and Wirtz (2007) can be described as realistic but particularly difficult to manage. Several marketing aspects are divided into different marketing-mix variables. For example, product aspects are presented in both ” product elements ” and
” productivity and quality ”, and location characteristics are represented in both ” place and time “ and ” physical environment ”. This makes the marketing-mix of Lovelock and Wirtz (2007) less practical and manageable than the marketing-mix of Levy and Weitz (2007).
2.4.2 The local marketing-mix
In our theoretical research we examine the performance-outcomes of local marketing per marketing-mix variable, in order to increase the clarification of the way these variables are influencing a firm’s performances. Consequently, our marketing-mix should exclusively include variables which are significant in a local marketing approach. Furthermore, the marketing-mix should be manageable, which means all variables should be distinguished from each other.
Therefore, we use the marketing-mix of Levy and Weitz (2007) as a starting point to compose a new "local marketing mix".
According to marketing literature the influence of marketing element ” managing processes ” is considered as an important element of the marketing-mix (Lovelock and Wirtz, 2007; Dennis et al. 2005) and can even function as a competitive advantage (European Retail Marketing, 1995).
Badly designed processes lead to slow, bureaucratic and ineffective service delivery, wasted
time and a disappointing experience. They also make it difficult for front-line staff to do their
jobs well, resulting in low productivity and increased likelihood of service failure (Lovelock and
Wirtz, 2007). Therefore, marketing-mix variable “ managing processes ”, based on the marketing-
mix theory of Lovelock and Wirtz (2007) and Dennis, Fenech and Merrilees (2005), is added to
the marketing-mix of Levy and Weitz (2007).
Marketing-mix variable “ location” explains decision-making about where to locate a store and is critical to any retailer’s success. Reinartz and Kumar (1999) stated store-location has a leading influence on overall store performance and, according to Ailawadi and Keller (2004), store- location influences customer store-choice and is an important driver of the general retailers image. Rogers (2005) accentuated the influence of location at a retailer’s image as well and adds that store-location also determines whether customers visit a store.
Despite the importance of “ location ” at a retailer’s performance, all variables of the marketing- mix we exercise in our research have to be adjustable. Because of their high-cost and long-term commitment, it is impractical changing this variable when implementing a local marketing approach. Therefore, in retailing marketing-mix variable “ location ” can not be considered as adjustable when implementing a local marketing approach and consequently, we exclude this marketing-mix variable from the local marketing-mix.
The composition of the local marketing-mix we will use in our research concerning the performance-outcomes of a local marketing approach in retailing is presented in Figure 2.1.
Figure 2.1 Composition of the local marketing-mix
(Based on theory of Levy and Weitz (2007), Lovelock and Wirtz (2007) and Dennis, Fenech and Merrilees (2005))
2. Pricing 1. Merchandise assortment
5. Communication mix 4. Store-design and display
6. Managing Processes
Local Marketing-mix
3. Customer service2.5 Performance-outcomes of local marketing
We explored the composition of the marketing-mix in order to construct a local marketing-mix suitable for our theoretical research regarding the performance-outcomes of local marketing in retailing (presented in Figure 2.1). In order to examine the attractiveness of local marketing, we will research in which way local marketing-mix variables are influencing a firm’s performance.
2.5.1 Merchandise assortment
According to marketing literature, all six marketing-mix variables are influencing a firm’s performance in a different manner. (Reinartz and Kumar, 1999). Marketing-mix variable
“merchandise assortment” focuses on management decisions about retailer’s variety and assortment. Variety represents the number of merchandise categories a retailer offers and refers to the breadth of the merchandise. Assortment is the number of different items in a merchandise category and refers to the depth of the assortment.
The breadth of products and services offered by a retailer, significantly influences store image (Ailawadi and Keller, 2004). Benefits of a wide assortment are positively related to consumer convenience perceptions. Furthermore, a wider assortment corresponds to an increased range of situations in which the retailer is considered and recalled by the consumer (Ailawadi and Keller, 2004). On the other hand, a wide assortment translates to higher costs for the retailer.
Perceptions of the depth of a retailer’s assortment within a product category are positively related to store image and is a key driver of store choice (Ailawadi and Keller, 2004). Variety seeking customers believe they have more flexibility in their choices and will perceive utility (Kahn and Wansink, 2004). Although extension of assortment does in several occasions increase customer satisfaction, increasing the choice set could lead to cognitive overload and uncertainty and can actually decrease the likelihood of purchase.
According to research of Sloot, Fok and Verhoef (2006), by delisting low selling items customer
satisfaction can raise, because of increased search efficiency, decreased search-time and an
improved consumer assortment evaluation. Although, this research was conducted in a
supermarket environment, this concept is applicable in other retailing environments as well. For
any retailer consumer search efficiency and assortment evaluation are influencing the
experienced customer value, which drives store performance. Therefore, a greater number of
SKU’s does not directly translate to improved store perceptions. Retailers can reduce the
number of SKU’s substantially without adversely affecting consumer perceptions, as long as they
pay attention to most preferred brands (Ailawadi and Keller, 2004).
A retailer’s assortment (breadth and depth) can be a driver of store image, store choice, store traffic, sales, satisfaction and utility, but wider assortment does not automatically relate positively to all these outcomes. Therefore, assortment should be analysed closely in order to increase store performance and decrease unnecessary costs simultaneously.
Figure 2.2 The performance-outcomes of local marketing-mix element ”assortment”:
2.5.2 Pricing
An accurate pricing strategy is eminent for retailing success, because marketing-mix variable
“pricing” is a critical component of perceived customers quality and perceived customer value.
Retailers maximize their profits by setting prices on the basis of “price sensitivity of customers”,
“cost of the merchandise” or “prices changes by competitors”.
According to Ailawadi and Keller (2004), a retailer’s price-format influences consumer store- choice and shopping behaviour. The retailers price-format is a continuum between ”Every day Low Pricing” (EDLP) and ”High-Low Promotional Pricing” (HILO). These two price formats were designed in a supermarket environment. However, in all retailing industries retailer’s price- strategies are influencing consumer price-level perceptions (Ailawadi and Keller, 2004).
A balanced low pricing strategy provides a different image as a fluctuating promotional pricing strategy. Frequency of price advantages influences consumer perceptions of store price level as well. Consumers are more likely to develop a favourable price-image when retailers offer frequent discounts on a large number of products, than when they offer less frequent but steeper discounts (Ailawadi and Keller, 2004).
Price promotions also influence customer store switching behaviour (Ailawadi and Keller, 2004).
Store image and quality perceptions are drivers of the overall perceived customer value. Quality perceptions are also positively influencing customer shopping behaviour (Baker et al., 2002).
Store choice, customer store switching behaviour and shopping behaviour are all influencing
Assortment
Convenience
Store image
Costs (-) Store choice
Store traffic
Sales Satisfaction
Perceived utility
sales (Ailawadi and Keller, 2004). Therefore, price setting is influencing both perceived customer value and sales, which are important components of a retailer’s success.
Figure 2.3 The performance-outcomes of local marketing-mix element ”pricing”:
2.5.3 Customer service
Marketing-mix element “customer service” refers to activities and programs undertaken by retailers in order to increase value for customers in order to meet their expectations. Customer service provides an opportunity to develop a strategic advantage and build stronger relationships with customers.
Customer service may be provided by a person, but can also be automated which is called self- service (Kiviat, 2008). Self service influences the level of convenience, can be classified as utility and is considered part of retailing processes (Kiviat, 2008). Therefore, in this research self- service will be classified as part of marketing-mix variable ” process ”.
Services offered by employees influence the level of customization and can be classified as component of customer value (Khalifa, 2004). When applying a local marketing approach, retailers should watch their middle management closely and train them if necessary. A changed management approach can be more challenging for operational managers, which can turn into resistance of operational management (Susskind, 2007). Managers operating locally have to adopt changed marketing policies in which they experience much more responsibility because they are the experts of local characteristics in their geographic area. Not all employees in middle-management are in favour of operational changes and an increase of their responsibilities. Therefore, training and accompaniment of staff could be more important and costly than expected (Susskind et all., 2007).
Pricing
Quality perceptions
Shopping behaviour
Store switching
Perceived value Store image
Sales
Store choice
Hung (2008) provided a study which clarifies the relationship between public relations, brand image and customer loyalty. According to Hung (2008), customer service is the series of activities designed to enhance the level of customer satisfaction and is an integrated part of a firm’s value proposition. Other components influencing the value proposition are corporate image, trust, relationship marketing and satisfaction (Hung, 2008).
Treacy and Wiersema (1995) see customer value as the sum of benefits received, minus the costs incurred by the customer in acquiring a product or service. Benefits build value to the extent that the product or service improves a customer’s performance or experience, while costs include both money spent on purchase and maintenance and time spent on delay, errors and efforts. As a result, components of customer value include low price, quick response, premium service and high quality. Today, a firm’s value proposition is considered the basis of all marketing activities and potentially is an effective competitive advantage (Maas and Graf, 2008).
Superior customer value compared to competitors, leads to favourable word-of-mouth promotion, which is still considered the best promotion-tool in marketing (Levy, 2009).
Marketing literature shows loyalty and profits are strongly linked to creating value for customers.
In 1990, Reichheld and Sasser showed that, on average, a five percentage points increase in customer retention leads to between 40-50 percent increases in net present value profits. A few years later, Reichheld (1994) showed that an increase in the retention rate of five percentage points can increase profits by 25 to 100 percent and that this result is consistent across a wide range of industries. Therefore, superior customer loyalty is a key driver of a firm’s financial performance (Reichheld and Schefter, 2000).
In their meta-analysis, Szymanski and Henard (2001) found a strong relationship between satisfaction and loyalty as well. According to Reichheld and Schefter (2000) loyal customers generate higher profits. Consequently, loyalty is the real driver of the financial performance.
According to Chaudhuri and Holbrook (2001), companies with superior customer loyalty reviews will have higher market shares and even have an ability to demand relatively higher prices, compared with competitors.
Khalifa (2004) provides an integrative configuration of customer value, separating utility value
and psychic value. This study investigates the mutual dependence of consumer value, customer
acquisition, satisfaction, loyalty and retention. According to Khalifa (2004), customers are loyal
to a company as long as it offers them superior value compared to competitors. When a
business is flourishing, customers are satisfied and retention rates are high. Employees will
experience greater satisfaction during their work, which will positively influence the perceived
customer service level, level of customization, employee retention rates and employee training
As a result, customer service can be seen as central marketing element in retailing, because it is positively related to customer value, customer satisfaction, word of mouth promotion, employee satisfaction, employee retention rates and training costs of employees. Furthermore, most aspects are positively influencing each other as well.
Figure 2.4 The performance-outcomes of local marketing-mix element ”Customer service”:
2.5.4 Store-design and display
Marketing-mix variable “store design and display” examines decisions about store lay-out, store- design, presentation of merchandise and store-atmosphere. According to Grewal, Baker and Voss (2003), store-atmosphere influences buying behaviour because, in pleasant settings there is greater likelihood of purchase. Therefore, store-atmosphere influences whether consumers visit a store, how much time they spend and how much money they spend. Especially in high- service orientated industries store-atmosphere is eminent, because a relatively small extension of customer stay’s could increase sales significantly (Susskind et al., 2007).
Baker, Parasuraman, Grewal and Voss (2002) investigated the impact of store-environment cues on store-choice decision criteria and patronage intentions. They created a conceptual model of the pre-purchase process of assessing a retail outlet on the basis of environmental perceptions They initiated, retailers have to give careful consideration to store-design features, because of the influence of design cues on variables such as shopping experience, costs, quality of merchandise and quality of the service-level of employees. These four variables influence consumer purchase decisions and customer store-choice, which are both drivers of sales.
Above all, store-design has significant effect on consumer perceptions concerning merchandise quality, price level and service level. These perceptions are also influenced by store-atmosphere,
Customer service
Image retailer Customer value
Loyalty Word-of-mouth promotion
Employee satisfaction Customer satisfaction
Perceived service level Profits
Employee retention
Management resistance (-)
Costs (-)
which can be customized by changing design, lighting, lay-out, ambient factors like music and smell, and social features like type of clientele, employee availability and friendliness (Baker et al, 2002).
According to Baker, Parasuraman, Grewal and Voss (2002), all three store environment factors (employees, design and ambient factors) correlate to each other. Store perceptions about employees design as well as ambient factors, positively influencing customer perceptions concerning service quality, merchandise quality and monetary price level, while negatively influencing time/effort and physical cost perceptions. The merchandise value perception is positively influenced by merchandise quality perceptions, while negatively influenced by price, time/effort and physical costs perceptions. Store patronage intentions are positively influenced by service quality and merchandise value perceptions, while negatively influenced by time/effort and physical costs perceptions.
Pleasant physical atmosphere and design increases merchandise quality perceptions and service quality perceptions. Although, consumers also associate these aspects with higher prices (Baker et al., 2002). An appealing store-atmosphere offers much potential in terms of crafting an unique store image, which can play a crucial role in building a retailer’s brand equity (Ailawadi and Keller, 2004). Retailer’s brand equity exhibits in consumers corresponding more favourably to its marketing actions than they do to competing retailers (Keller, 2003). The conceptual model of Baker, Parasuraman, Grewal and Voss (2002) shows, store environmental aspects are crucial in building retailers brand equity. Therefore, store-design and display can be seen as a prominent local marketing-mix element.
Figure 2.5 The performance-outcomes of local marketing-mix element ”Store design and display”:
2.5.5 Communication mix
Store design and display
