Marketing Strategy of the Supermarkets, Study notes of Marketing

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MARKETING STRATEGY OF

THE SUPERMARKETS

[ICA MAXI, FORUM COOP, NETTO, LIDL]

Rafael Lucena Matamalas

Miguel Santandreu Ramos

May 2009

INDEX

I. Introduction

Supermarkets and Hypermarkets, since they appeared, have played an important role in food distribution. This distribution model was widely accepted by both companies and consumers. The evolution of these stores in recent years has been quite dynamic on the basis of their good combination of supply, proximity and service. Supermarkets and hypermarkets are increasingly valued by consumers, compared to other commercial formats, which triggers the gradual disappearance of traditional markets.

All the persons have different needs, and they want to satisfy these needs. Maslow (1943)^1 formulates a hierarchy of human needs and he defends that when the person satisfies their basics needs, they develop higher needs and wishes. Among these needs, it founds a food needs, and it is here where the importance of the supermarkets and hypermarkets is important.

These stores satisfy the food need of human beings, so their target audience ranges all the population. It is a highly competitive market. In these modern times the different chains use all kind of strategies to increase their sales, becoming the sales process almost a science. That is because in the process of merchandising are involved studies of psychology, science and business, which seek to know the tastes, habits, needs and way of thinking of consumers (Mártinez, 1997)^2. For this reason and in these times of ruthless competition is an excellent idea to have tools like “merchandising”, to try to gain advantage against the other competitors.

A whole theory has been developing about this topic. The base of the theory is “promotion” (tool of “marketing mix”) and is focused in the POS (point- of-sale) merchandising. It has several tools to carry out its aim, but in this research will analyse tools that the consumers can find in the supermarkets. These are, advertising on the point of sales, through posters and displays; how the shelves are distributions on the establishment and also the product on them;

(^1) Abraham Maslow (1943), A theory of human Motivation, Chapter 8 [accessed 21.05.09] (^2) Matías Martinez Ferreira (1997), Merchandising, from website http://www.monografias.com/trabajos16/merchandising/merchandising.shtml [accessed 02.02.09]

the different use of music, lighting and colours on the establishment. These are which the report starts, but perhaps during the collected data, it can find more strategies that the report does not bear in mind. In this case, these will also be analyse and later commented.

The purpose of the thesis is getting a better comprehension of the strategies that super and hypermarkets use to attract attention of consumers and to increase their sales. To achieve that goal, different techniques implemented by stores are analysed. Other objective of this research is to discover if supermarkets and hypermarkets apply these strategies in the same ways, which are their differences and similarities. The research question of this thesis is: How are marketing strategies applied by Supermarkets and Hypermarkets inside their establishments?

Definitions

Supermarket is a self-service store offering a wide variety of food and household merchandise, organized into departments. It is larger in size and has a wider selection than a traditional grocery store and it is smaller than a hypermarket or superstore^3.

Hypermarket is a superstore which combines a supermarket and a department store (where usually are sold products like apparel, furniture, appliances, electronics, and additionally select other lines of products such as paint, hardware, toiletries, cosmetics, photographic equipment, jewellery, toys, and sporting goods), being the result a very large retail facility which carries an enormous range of products under one roof, including full lines of groceries and general merchandise^4.

(^3) Definition of Supermarket, from website http://en.wikipedia.org/wiki/Supermarket#cite_note- [accessed 02.02.09] 4 Definition of Hypermarket, from website http://en.wikipedia.org/wiki/Hypermarket [accessed 02.02.09]

A. Product

According to Jobber (2001) 9 , the product decision involves what goods or services should be offered to different groups of customers. As Fifield (1998)^10 states, the product policy is undoubtedly the most important element of the marketing mix. The product is the vehicle used by companies to satisfy consumers’ needs and it should be always to orientated to consumer.

B. Price

As Jobber (2001)^11 says, the price is a key element of marketing mix because it represents on a unit basis what the company receives for the product or service which is being marketed. In other words, price represents revenue while the other elements are cost.

Often an organization is willing to spend a hundred thousand dollars on researching its new product concepts, but it is loathed to spend one per cent of that on researching the different customer perceptions to various price levels (Fifield, 1998)^12.

C. Place (or Distribution)

In accordance with Jobber (2001)^13 , “place” involves decisions concerning the distribution channels to be used and their management, the location of outlets, methods of transportation and inventory levels to be held.

Manufactures are concerned with how to distribute and deliver product to customers, and service providers are concerned with the location of service points and customer accessibility (Fifield, 1998)^14. To sum up: “Distribution and

(^9) David Jobber (2001) Principles & Practice of Marketing , Chapter 1, p.13 [accessed 21.02.09] (^10) Paul Fifield (1998) Marketing Strategy , Chapter 9, p.222 [accessed 22.02.09] (^11) David Jobber (2001) Marketing& Practice of Marketing , Chapter 1, p.15 [accessed 21.02.09] (^12) Paul Fifield (1998) Marketing Strategy, Chapter 10, p.234 [accessed 22.02.09] (^13) David Jobber (2001) Marketing& Practice of Marketing , Chapter 1, p.15 [accessed 21.02.09] (^14) Paul Fifield (1998) Marketing Strategy , Chapter 10, p.254 [accessed 21.02.09]

place” answers the question: “Where would our customers expect to find our products or services?”

D. Promotion

With reference to Paul Fifield (1998)^15 , “promotion” is defined as the whole array of methods and procedures by which the organization communicates with its target market. Promotion is the element of marketing mix used to inform, persuade and remind to the target audience the capability of the company to satisfy their needs, and they use it willing to influence audience’s feelings, beliefs and behaviour.

“Promotion” uses different tools to achieve its purpose. The next figure (figure2)^16 shows these tools, which are Advertising, Publicity Direct marketing Sponsorship, Exhibitions, Packaging, POS (point-of-sale) merchandising, Sales Promotion and Personal Selling.

Figure2. The promotional mix. Source: Keith Crosier (2003) The Marketing Book, Chapter 17, p.

(^15) Paul Fifield (1998) Marketing Strategy , Chapter 10, p.245 [accessed 22.02.09] (^16) Keith Crosier (2003) The Marketing Book , Chapter 17, p 419-420 [accessed 22.02.09]

shopping (Diorio, 2007)^22. Hence the sales outlet becomes very important, because it may change the consumers’ behaviour and their habits of purchasing.

The supermarkets use different tools to lead consumers in their purchasing^23. These tools can act individual or with each other, and every store chooses the most suitable tools to achieve its purpose.

A. Advertisings (displays and posters)

In this research, “advertising” is defined as the use of posters and displays inside super and hypermarkets, excluding advertising made outside the store, like advertising on TV, magazines and newspapers. According to Zorita (2008)^24 the best method to rise sales is using advertising and promotion tools. Is in the sales outlet where the battle can be won of the decision-making final consumer_._ He talks of the importance of the promotions supported by displays and posters.

Displays are defined as those features or promotional activities at point of sale that show the product and make aware customers of their existence, such as cards, exhibitions and other instruments to induce the purchase^25. As Newlands and Hooper (2009)^26 explain, merchandising display factor tends to focus on in-stores location and the shopping route to positively affect consumers’ propensity to browse. In addition, attitudes towards visual product presentation influence purchasing behaviour in the store. A positive attitude

(^22) Gabriel Diorio (management of In-Store Media),(2007), article about La comunicación en el punto de venta: un medio directo, rentable y novedoso. From http://doc.esic.es/doc/intranet/comunicacion/noticias/ENRIQUE%20ZORITA%20OPINA%20SOBRE%20L AS%20PROMOCIONES%20PARA%20TENTAR%20EN%20PUNTOS%20DE%20VENTA.PDF [accessed 19.02.09] 23 Finanzas.com (2003) article: ¿Qué técnicas se utilizan para hacernos comprar algo que no necesitamos? 24 from http://www.finanzas.com/noticias/finanzas.php?id=3372429 [accessed 19.02.09] Enrique Zorita (2008) Las promociones en el punto de ventas , from http://doc.esic.es/doc/intranet/comunicacion/noticias/ENRIQUE%20ZORITA%20OPINA%20SOBRE%20L AS%20PROMOCIONES%20PARA%20TENTAR%20EN%20PUNTOS%20DE%20VENTA.PDF [accessed 20.02.09] 25 Terminología publicitaria from http://pdf.rincondelvago.com/terminologia-publicitaria.html [accessed 20.02.09] 26 David Newlands and Mark Hooper (2009), the global business handbook: The eight dimensions of international management. Chapter 18, p.300 [accessed 10.05.09]

leads to more browsing and purchasing, whereas a negative attitude towards the visual product presentation results in an immediate exit from the store (Kerfoot, 2003)^27.

Effective merchandise display guide and coordinate shoppers’ merchandise selection (Khakimdjanovaa & Park, 2005)^28. POS (point-of-sale) displays can be either gondolas, straight and circular racks, or cut cases which are useful for showing the merchandise properly (Newlands & Hooper, 2009)^29.

Posters are those paper sheets, sketches or other items that can be placed in malls, stores or on the streets and which purpose is to inform or announce some matters, some particular products or services.

Regarding to malls, stores or super/hypermarkets, posters can have two different functions. On the one hand they can promote the sale of products offered there, for instance “sales” or discounted products. On the other hand they guide customers through the establishment using indicating posters of different sections, or in the case of super/hypermarkets, the different zones where the different kinds of products are placed (Florencia, 2009)^30.

B. Shelves

“Shelves" strategy is focused on the collocation of products on the shelves (how supermarkets put or organize them). In relation to Hita (1997)^31 , shelves of supermarkets have three levels where products are placed; eyes, hands and feet.

(^27) Kerfoot, Davies & Ward (2003), Visual merchandising and the creation of discernible retail brands’. International journal of retail and distribution management. 28 [accessed 10.05.09] Khakimdjanovaa & Park (2005), O nline visual merchandising practise of apparel e-Merchants’. Journal of retailing and consumer services 12 29 [accessed 10.05.09] David Newlands and Mark Hooper (2009), the global business handbook: The eight dimensions of international management. 30 Chapter 18, p.300 [accessed 10.05.09] Florencia (2009), Definición de cartel. Downloaded March, 30, 2009, from webpage http://www.definicionabc.com/comunicacion/cartel.php [accessed 10.05.09] (^31) Elena Hita (1997 ), Trucos para “picar” en el supermercado , from http://www.elmundo.es/sudinero/noticias/act-95-06.html [accessed 19 .02.09]

C. Product placement

This strategy consists of organization of products using “cold-zones” and “hot-zones”.

“Hot-zones” are those places where the flow of consumers is heavier; for example, a cross between two hallways or near the entrance^35. In these zones, products are easier sold because they are more visible for customers.

In “cold-zones” sales are lower. These are generally transitional spaces, poorly illuminated or hidden^36. In such areas are often placed essential products as sugar or salt. These products are placed there because do not need to be boosted and customers will buy them anyway.

D. Using music, lighting and visual effects

These tools are always related with other tools supporting them. Baker (1992)^37 and Morin (2007)^38 state that music has been shown to affect consumers’ responses to retail environments, typically in a positive manner. According to Fulberg (2003)^39 , music communicates to people’s heart and mind and serves as a powerful influence on emotions. In others words, music helps supermarkets making customers’ visit more comfortable and pleasant.

Sometimes music is imperceptible for consumers. They are not aware of its “presence” while they are shopping. In that case music is working on a subconscious level.

(^35) Finanzas.com (2003) article: ¿Qué técnicas se utilizan para hacernos comprar algo que no necesitamos? 36 from http://www.finanzas.com/noticias/finanzas.php?id= [accessed 20.02.09] 37 Finanzas.com (2003), ibid. [accessed 20.02.09] Baker, J., Grewall, D. and Levy, M.(1992), “An Experimental Approach to Making Recall Store Environmental Approach to Making Recall Store Environmental Decisions” , Journal of Retailing 68(Winter), pp. 445-60 [accessed 22.02.09] 38 Morin, Dubé & Chebat (2007), “The Role of Pleasant Music in the Dual Model of Environmental Perception” 39 , Journal of Terailing 83(1), pp. 115-30 [accessed 22.02.09] Fullberg, P (2003 ), “Using Sonic branding in the Retail Environment –An Easy and Effective way to Create Consumer Brand Loyalty while Enhancing the In-Store Experience”, Inform Design, http://www.informedesign.umn.edu/Rs_detail.aspx?rsId=1694. [accessed 19.02.09]

The main aim of this strategy is to control human flow^40 , through different kinds of music. Depending of the kind of music, flow can become slower or faster. When the store is overcrowded the ideal is to use fast-paced music which compels consumers to make purchases quickly and rashly. When the establishment is less crowded the best option is slow music, encouraging customer to spend more time inside the store which rises the impulse buying.

Regarding to the lighting, Quintana (2003)^41 says that it is a very important factor. It is used, for example, in the section of perishable foods to enhance the feeling of freshness. Supermarkets use the lighting to improve the presentation of the products. As Newland and Hopper (2009)^42 state, using suitable lighting to merchandise increases visibility and can make stores seem more inviting. The use of fluorescent can improve sales of a specific zone, for example, using fluorescent in the vegetables zone makes vegetables seem more “fresh”.

Markets use “visual effects” to attract attention of consumers to specific products. “Colour” is one of the visual effects. The language of colours has a significant influence on the buying habits. As Newland and Hopper (2009)^43 say, the colour affects moods and tends to manifest itself in the choices made. For each person, each colour means or represents something, but there are some colours that have a similar meaning for everyone. White is a neutral colour; red and orange encourage to eat, being mostly used in the meat section; blue suggests freshness and coldness and is used in the seafood zone; and the green reminds “nature” and it is generally used in the section of vegetable and fruits^44.

(^40) Finanzas.com (2003) article: ¿Qué técnicas se utilizan para hacernos comprar algo que no necesitamos? 41 from http://www.finanzas.com/noticias/finanzas.php?id=3372429 [accessed 19.02.09] Yolanda Quintana (2003), she is from Spanish Confederation of Organizations of housewives, consumers and users. From http://www.finanzas.com/noticias/finanzas.php?id=3372429 [accessed 21.02.09] 42 David Newlands and Mark Hooper (2009), the global business handbook: The eight dimensions of international management. 43 Chapter 18, p.299 [accessed 06.05.09] David Newlands and Mark Hooper (2009), the global business handbook: The eight dimensions of international management. 44 Chapter 18, p.299 [accessed 06.05.09] Finanzas.com (2003) article: ¿Qué técnicas se utilizan para hacernos comprar algo que no necesitamos? from http://www.finanzas.com/noticias/finanzas.php?id=3372429 [accessed 19.02.09]

2. Research type The research design is a framework for conducting marketing research (Malhotra, 1996)^49. The type of research guides the theory collected in the frame of reference, the data collection and the analysis.

The thesis’ frame of reference consists of an explorative research where its main theory, “merchandising” is explained. An explorative research is an initial research that clarifies and defines the nature of a problem (Zikmund 1999, p.50)^50. An exploration of the material written on the subject was necessary to understand where the thesis had to be focused, “The objective of exploratory research is to gather preliminary information that will help define problems and suggest hypotheses” (Kotler, 2008)^51. According to Mattson & Örtenblad (2008)^52 from the previous knowledge of other authors the researcher can gain inspiration and suggestions for proceeding. The exploration of previous published text about the studied topic is the first step which conducts all the study.

A Descriptive kind of research is used to develop the empirical data section. As Zikmund(1999)^53 states a descriptive research aims at describing characteristics of a population or a phenomenon, and this kind of research has been used to collect the empirical data which consists of an investigation about the application of the strategies mentioned in the “frame of reference” inside the supermarkets of the sample. As Mattson & Örtenblad (2008)^54 said, a descriptive research describes how something is and thus not how it should be, so the presentation of the empirical data has focused on showing how

(^49) Malhotra, N.K. (1996) Marketing research: On applied orientation. Prentice Hall Inc. 2nd edition [accessed 03.05.09] 50 Zikmun, W.G.(1999) Business Research Methods. Orlando, 6th^ edition, The Dryden press. [accessed 06.05.09] 51 52 Kotler, P (2008),^ Principles of Marketing,^ Prentice Hall. [accessed 28.04.09] Mattsson & Örtenblad (2008) Scientific Reports and References Techniques, Högskolan i Halmstad, kompendium nr 235, sektion SET [accessed 04.04.09] 53 Zikmun (1999). Business Research Methods. Orlando, 6th^ edition, The Dryden press. [accessed 06.05.09] 54 Mattsson & Örtenblad (2008) Scientific Reports and References Techniques, Högskolan i Halmstad, kompendium nr 235, sektion SET [accessed 04.04.09]

supermarkets are really applying the strategies. This type of research has been chosen because it was desired a realistic and objective view of the strategies in reality. This description is analyzed and explained through the theory collected in the “frame of references” section.

3. Population and sample

As Brymand and Bell (2007)^55 state, a population is the universe of units from which the sample is to be selected, and the sample is the segment of the population that is selected for investigation.

The population of this research are all the supermarkets and hypermarkets, and as sample have been chosen two supermarkets, Lidl and Netto, and two hypermarkets, Maxi and Coop Forum. Through examples of supermarkets and hypermarkets is possible to discover if there are differences between hypermarket and supermarket strategies. These samples were selected using the method of Judgemental sampling, which consist of using judgement to identify representative samples, and is very useful when the sample size is small, approximately under 10 (Aaker et al., 2007)^56

The choice of this sample was made because these super and hypermarkets chains are international chains (with the exception of “Coop forum” but which features do not differ from the others) and theirs characteristics are on the average, so the conclusions of this thesis can be generalised to the majority of the actual supermarkets and hypermarkets. For the empirical data research were studied the supermarkets and hypermarkets placed in Halmstad (Sweden).

Choosing two of each type was enough to identify the most common similarities and the differences among applied strategies. The two supermarkets analysed belong to these chains:

(^55) Bryman & Bell (2207) Business research method. Oxford,2nd edition [accessed 02.05.09] (^56) Aaker, Kumar & Day (2007) Marketing Research, Wiley 9th edition [accessed 02.05.09]

C. ICA AB

It is a Swedish retailing corporate group. The company was started in 1938, based on a business model which was introduced by Hakonbolagen in

1917. Most of its operations are based in Scandinavia, and the company is the largest retail company in the Nordic countries.

The stores have different profiles, depending on location, range of products and size but in concrete the sample that is studied is Maxi(Ica) which is described as a Hypermarkets with a full range of groceries as well as fashions, home wares, entertainment and electrical. Smaller stores do not offer the fashion and electrical ranges while the largest stores also have a DIY and gardening department (source: ICA)^60. They sell a big number of well-known brands products and a small quantity of “private label” products. The customer target of Maxi is broad, and covers people who want a big variety of products and people that are more price-sensitive and are focused on “private label” products.

D. Coop Forum

It is a Swedish hypermarket chain. The concept is owned by the Swedish arm of Coop Norden who also runs most of the stores. Some stores are run by the regional co-operative societies through an agreement with Coop.

The chain was created through the conversion of many B&W, Robin Hood, Prix and Obs! Stores into the Coop Forum format in addition to new openings.

The largest Coop Forum stores carry a full hypermarket range including groceries, clothes, home wares and electrical. The smaller stores are more compact selling only a full range of groceries and a selection of home wares.

(^60) ICA from www.Ica.se [accessed 15.04.09]

Many Coop Forum stores also have a branch of Coop Bygg attached to the store. Coop Bygg is a small DIY store.

4. Instrument of collecting data

For this research, a Multiple-Case design has been chosen, so this study contains more than a single case. According to Herriot & Firestone (1983)^61 the evidence from multiple cases often considered more compelling, and the overall study is therefore regarded as being more robust. As Yin(2003)^62 said “each case must be carefully selected so that it either (a) predicts similar results(a literal replication) or (b) predicts contrasting results but for predictable reasons (a theoretical replication)”. In this research were predicted similar results in the study of the different super and hypermarkets. About the number of literal replications Yin (2003)^63 said that it depends on the certainty that the researchers want to have about their multiple-case results. In this research have been studied 4 literal replications which were mentioned in the sample and are enough for getting a robust conclusion.

During this study Primary and Secondary Data have been used. Secondary data is information collected and recorded by someone other than the researcher. This secondary data provided a better understanding of the problem and helped to make the Methodology chapter (Aaker, Kumar & Day, 2007)^64. It was collected through several books and articles of marketing found in internet and in libraries. Primary data is the data that is specifically gathered for the research project at hand (Zikmund, 2000)^65 , this data has been collected by the researcher, how is explained below, and it’s exposed in the presentation of the empirical data.

(^61) Herriot & Firestone (1983) Multisite qualitative policy research: Optimizing description and generalizability. 62 [accessed 02.04.09] 63 Yin, Robert (2003),^ Case Study research,^ p.47. [accessed 25.03.09] 64 Yin, Robert (2003),^ Case Study research,^ p.47. [accessed 25.03.09] 65 Aaker, Kumar & Day (2007)^ Marketing Research,^ Wiley 9th edition [accessed 02.05.09] Zikmund, W.G. (2000), Business Research Methods. Harcourt College Publishers [accessed 06.05.09]