Sales Promotion As Strategy and Tactic Among Small Independent Retailers
Sales Promotion As Strategy and Tactic Among Small Independent Retailers
Sales Promotion As Strategy and Tactic Among Small Independent Retailers
Keller Veronika
Economist
Gyır
March 2010
Sales promotion as strategy and tactic among
small independent retailers
1
Placing the theme in national and international researches
In the 21st century integrated marketing communication is dominant that means a
harmonized adoption of different promotional tools for convincing customers with the
most effective methods possible (Józsa et al. 2005, p. 286.). The general trend is that
companies spend more money on BTL (below the line communication) and sales
promotion (SP, promotion, deal) than on advertising (above the line communication).
The international literature concerning sales promotion is very rich since a lot of
books (Cummins and Mullin 2002, Blattberg and Neslin 1990, Schultz et al. 1998)
were published on how traders and manufacturers can design effective campaigns.
Most of the studies concentrating on fast moving consumer goods (FMCG) and
investigating the planning and implementing stages of sales promotion techniques
aimed at consumers and initiated by manufacturers or retailers. Another popular
direction of sales promotion literature is the investigation of customer behavior namely
how consumers respond to deals and what kind of factors influence their attitude in the
cognitive, affective and conative phases (Laroche et al. 2001 and 2003). Investigating
the demand side it can be said that GfK Hungarian Research Institute regularly
conducts representative researches focusing on the response to deals. Analyzing the
supply side there are Hungarian researches, mainly Józsa and his coauthors (2005,
2006, 2007), who investigated the sales promotion the integrated marketing
communication strategy of independent clothing and shoe retailers. Generally it can be
ascertained that only a few studies aimed at the analysis of SP techniques in a higher
involvement product category and there is not such a comprehensive study that would
analyze the problem from the demand and the supply side at the same time.
1
According to Smith and Sparks (2000) small independent retailers are retailers with between
one and five outlets and less than ten employees.
2
empirical research I wanted to point at such connections how the change of external
environment affects the promotional budget and the importance of sales promotion,
and how retailers following different strategies can be characterized based on their
sales promotion tactics and how successful and unsuccessful companies can be
characterized. As Schultz and his coauthors (1998) emphasize that a successful SP
plan does not exist without the knowledge of customers that is why I considered
investigating customers important. I analyzed what type of sales promotion methods
are preferred by customers in case of purchasing of over-clothes, the hedonic and
utilitarian benefits of incentives whether purchasing over-clothes is characteristic of
consumers and finally the demographic and psychographic traits of deal-prone
shoppers.
The timeliness of the research can be explained by the economic recession since
Sándor (2006) emphasizes that stagnant economies reinforce researches focusing on
sales promotion. At the same time investigating small independent retailers is also
important because of the economic and the competitive environment. 17% of all
retailers and 26% of all non-food retailers are clothing and shoe shops. Relying on the
data of the Central Statistical Office (CSO) and reports of marketing research institutes
the number of small independent shops are decreasing from year to year, but
multinational companies become popular because of their favorable prices and
constant deals. The process of concentration is the highest in this sector and smaller
clothing shops can maintain their position in villages or rural areas. Under such
circumstances the question arises how important the retailers consider sales promotion
techniques in their marketing program, whether they use incentives in order to
convince customers and how consumers respond to deals.
In the theoretical part first I summarized the definition of sales promotion and “push”
and “pull” strategies focusing on consumer SP methods concretely the types, the
3
objectives, the advantages and disadvantages and the possible classification of these
incentives. In the third chapter I analyzed the importance of strategic thinking. The
three main stages of “planning – implementation – controlling” are necessary for a
successful marketing and marketing communication strategy. When companies think
of sales promotion as a strategic tool in order to achieve long term aims they rely on
their strategy and organizational objectives. Since the marketing strategy of retailers is
specific I summarized those researches that aimed at revealing these peculiarities and
exploring the competitive advantages of “small retailers” comparing with “large ones”.
After this overview I summarized theories connected to SP strategy in chronological
order. I dealt with the process of planning a sales promotion strategy emphasizing such
tactical questions as the suggested forms and types of sales promotion techniques. I
used the data base of EBSCO and Science Direct to find empirical researches in
relationship with sales promotion strategies of retailers. Only a few former researches
focused on the analysis of sales promotion strategy of independent small retailers. In
the fourth chapter I highlighted the connection between sales promotion and consumer
behavior because it is important to understand the process till customers decide to buy
promoted products. Among the psychological factors influencing the purchasing
process learning and attitude is determining in the process of purchase. I introduced
such national and international researches that aimed at the classification of customers
based on their attitude towards sales and factors influencing the three elements
(cognitive, affective and conative) of attitude. Relying on the previously mentioned
scientific databases I gave an overview about the researches connected to deal
proneness, which aim at exploring the demographics and psychographics of customers
who can be influenced by various offers. At the end of this chapter I summarized
Hungarian researches connected to this topic. All in all it can be said that most of the
former studies investigated FMCG or packaged products and deal proneness in that
product category.
In the fifth chapter I detailed the steps of my empirical research separately to the
retailers and separately to the customers. I defined the research questions and
hypotheses related to the scientific problems. In the sixth chapter I introduced the
methodology of my empirical research. In case of customers the research started with a
4
qualitative investigation in the exploratory phase. In case of retailers I did not consider
qualitative research necessary since I partially repeated a former research of my
supervisor. In this part of my dissertation I concerned with measurements and
structures of the two types of questionnaires. I detailed the methods of sampling and
defining the size of the sample and the circumstances of field work and data collection.
In the seventh chapter I tested my hypotheses with the help of different univariate and
multivariate techniques. In case of customer research I conducted two post focus
groups in order to control the validity of the quantitative research. In the last chapter I
defined the main consequences and my theses. I referred to the novel and the practical
importance results of my research and suggested some ideas that managers should
follow in order to be competitive in the 21st century. Finally I wrote about the
limitation and the possible future extension of my research (figure 1).
5
Hypotheses
Considering the demand side I formulated five groups of hypotheses based on the
theoretical background (figure 2).
External environment
Retailing strategy
(economic recession)
H1 H2
H5 a, c, e
H3
Sales promotion H4
strategy and tactic
H5 b, d, f
Statistical profile
of retailers
According to Sándor (2006) and Fam and Yang (2006) when the external environment
becomes uncertain, small independent retailers prefer to spend more money on in-store
promotions and sales promotion rather than on outdoor promotions.
H1a: The economic uncertainty inclines independent small clothes shops to put more
emphasize on sales promotion in their marketing program and promotional budget.
H1b: Due to the economic uncertainty small clothes retailers experience a decline in
their sales and the number of customers and an increase in the price-sensitivity of
customers, which means that managers spend less on advertising and more on sales
promotion.
6
Hypotheses related to retailing strategy
Clothes shops can be distinguished into different groups based on the priorities of their
partial strategies namely considering their applied product-, brand-, price policy and
services and physical evidence (Levy and Weitz 2004). Thus the group of exclusive
shops offers internationally branded products (over-clothes) with high quality at
prestige price and puts more emphasize on the physical environment of the shop,
personal selling and individual requirements. On the other hand the group of discounts
offers private label or not branded over-clothes with average or below the average
quality at low price and does not consider the physical environment, personal selling
and individual requirements important. Relying on cluster-membership clothes
retailers use different sales promotion techniques.
H2a: Exclusive shops prefer value added sales promotion techniques such as gifts,
contests and sweepstakes and loyalty programs.
H2b: Discount stores mainly use sales promotion techniques offering financial
benefits like discounts, seasonal sales, coupons and BOGOF2 incentives.
According to Fam and his coauthors (2006) successful retailers prefer personal selling
and in-store promotions, so these communication techniques are the most popular
among them and they spend the highest amount of money on those solutions.
According to Józsa and Tárkányi (2005) successful and unsuccessful retailers consider
SP important to boost sales.
H2c: Retailers considering their marketing strategy successful place more emphasis on
sales promotion in their promotional expenditure than less successful shops.
H2d: Retailers are more successful if they apply SP for achieving strategic (long-term)
aims.
Many authors highlighted that small entrepreneurs are not aware of marketing science,
and they often identify marketing as a tactic of selling and advertising (Marcati 2008).
Small retailers are not aware of their possibilities. In Hungary Józsa (2004) came to
2
Buy one get one free incentives or indirect financial allowances.
7
the conclusion that short-term thinking is a typical behavior for small enterprises, and
these organizations miss the use of marketing as a strategy and define their aims based
on their former experiences.
H3: Retailers determine their budget for sales promotion arbitrary regardless the aims.
According to Józsa and Tárkányi (2005) small shoe and clothing shops apply seasonal
sales to boost sales and remove the stock.
H4a: Discounts (price-offs) and seasonal sales are the most popular sales promotion
techniques among retailers and they apply these methods most often.
H4b: Retailers use sales promotion techniques for achieving short-term aims, i.e.
prompt increase sales, which is possible through financial solutions.
Based on the retailing strategy and the statistical profile (date and place of operation,
number of employees, and the number of managed shops) there are significant
differences among the tactical elements of the sales promotion strategy of retailers.
H5a: Discount stores offer incentives in longer periods of time than exclusive shops.
H5b: Shops operating in towns that were established formerly with fewer employees
guarantee incentives in a shorter period of time than stores established in the 21st
century, employing more employees and operating in the capital city.
H5c: Discount stores offer incentives in a higher degree than exclusive shops.
H5d: Shops operating in towns that were established formerly with fewer employees
guarantee incentives in a lower degree than stores established in the 21st century,
employing more employees and operating in the capital city.
H5e: Discount stores do not consider ATL support and the outdoor information of
customers of sales promotion campaigns important.
8
H5f: Shops operating in towns that were established formerly with fewer employees
do not consider ATL support and the outdoor information of customers of sales
promotion campaigns important.
H6 Preference of
Shopping categories sales promotion
• Utilitarian shopping
• Hedonic shopping
techniques
Deal proneness
• General
• Based on the type of promotion
• Based on concrete deals
H7
H8 H8
There are different shopping categories based on the benefits of shopping namely
utilitarian and hedonic purchasing (Törıcsik 2007). In case of utilitarian shopping
customers are rational and they consider the activity as fulfilling an obligation. In case
of hedonic shopping emotional elements come in foreground and customers consider
shopping as a form of entertainment and relaxation when they can forget about their
problems (Babin et al. 1994). According to Chandon and his coauthors (2000) sales
promotion techniques offer different economic (saving money, access to a product of
higher quality and time of search) and hedonic benefits (pride, adventure of exploring,
entertainment) for customers.
H6: Utilitarian shoppers prefer financial promotions solely, while hedonic shoppers
prefer value added promotions, too.
9
Hypotheses related to deal proneness
Lichtenstein and his coauthors (1995) showed that deal proneness should be examined
at three different levels: (1) generally, (2) based on certain type of deals, (3) based on
concrete techniques.
H7a: Customers can be distinguished into three different groups based on deal-
proneness. One group of customers like using many different sales promotion methods
and one group of customers like only price promotions. However there are customers,
who only like certain deals.
Relying on the results of GfK Hungarian Research Institute Hungarian people like
price promotion techniques, especially direct and indirect financial allowances.
H7b: Customers are prone to price promotions namely to discounts and BOGOF
incentives in case of purchasing over-clothes.
H8a: Non brand loyal females are generally prone to sales promotion techniques.
H8b: Young and middle-aged price- and value-conscious women living in towns, who
consider purchasing clothes as an important decision and plan their shopping trip, are
prone to financial deals.
H8c: Coupons are preferred by higher educated young people living in financial
wellness and in towns, who are not brand or store loyal.
H8d: Loyalty programs are preferred by prestige sensitive, fashion follower store and
brand loyal customers.
Methodology
I chose the quantitative method of the primary research that aims at the statistical
generalization of mass marketing phenomena (Veres et al. 2006). In the exploratory
phase of my research I questioned 16 customers, 7 males and 9 females belonging to
different age groups and family life-cycle. I also conducted two paired interview with
10
a young couple and a middle aged couple since the personal interviews highlighted
that purchasing over-clothes is a family program and women have a decisive role in
the process of the purchase. I finalized my hypotheses related to customers and
specified the sampling and the questionnaire based on the results of depth
interviewing. In case of retailers I repeated the former research of Józsa with a minor
change since he focused on the integrated marketing communication activity of
retailers while I concentrated on sales promotion.
11
In case of retailers I chose quota sampling within non-probability sampling and I
determined regional quotas. I mainly focused on the Western Pannon region. In case of
customers I combined quota sampling with snowball sampling. I basically focused on
the young and middle-aged generation since the qualitative research and the literature
suggested that this group of people is considered to be the heavy users of over-clothes
(Goldsmith et al. 1999, Central Statistical Office). In order to collect primary data I
aggregated two short questionnaires and the survey was about 15 minutes long. The
surveys were conducted in the following counties Gyır-Moson-Sopron, Vas, Zala,
Komárom-Esztergom, Veszprém and Fejér and in the capital city in April and May
2009. The circumstances of quantitative research are summarized in the table 1.
Measurement
The standard questionnaires contained close-ended questions measured on metric and
non-metric scales. In the questionnaire aimed at retailers I used itemized rating scales
within non-comparative techniques. I applied five point Likert scales and nominal
scales measuring the statistical profile of shops. In the questionnaire aimed at
customers I used itemized rating scales within non-comparative techniques. I used
forced rating scales namely balanced scales3 to avoid neutral answers. I applied scales
developed and validated by former researches. I used scales developed by Babin et al.
(1994) to differentiate utilitarian and hedonic shoppers. I applied scales introduced by
Chandon and his coauthors to measure the utilitarian and hedonic benefits of sales
promotion techniques. I determined deal proneness with a graphic model (circle).
Respondents had to evaluate how many promoted over-clothes they bought in a year,
and the ratio of this quantity within all purchase. Proneness to concrete deals was
measured on graphic rating scales with the endpoints few and many. Among
psychographic traits I relied on multi-item scales developed by Sproles and Kendall
(1986), Sproles and Sproles, Lichtenstein et al. (1993) and by Feick and Price (1987). I
applied the following scales: fashion involvement, price perception scales measuring
sale proneness, price and value consciousness and prestige sensitivity, market maven,
quality consciousness, impulsivity, loyalty and confused by overchoice. Relying on the
3
Favorable and unfavorable aspects are used in the same ratio.
12
results of our qualitative research and the pilot study I decreased the items involved in
each psychographic trait to shorten the questionnaire.
Data analysis
The data analysis was accomplished with SPSS statistical software. In order to test my
hypothesis I used one-way analyses (frequency distribution) and multivariate
techniques, especially cross tabulation, ANOVA, factor analysis and clustering and
multiple regression. The reliability and validity of confirmatory factor analysis was
tested with Cronbach’s α method and with Amos 5.0 statistical software to reveal the
values of CFI and RMSEA. I visualized the relationships between variables
graphically. In case of multivariate techniques I took into consideration the conditions,
namely the relevance of each method and homoscedasticity and normality. In case of
factor analysis the multicollienarity between variables and the homogeneity of the
sample was considered. In case of cluster analysis I discarded outstanding values. In
case of cross tabulation I considered that the expected value is over 5 in 80% of the
cells. In case of analysis of variance I investigated normality, homogeneity of variance
and the results of Levene-tests. In case of linear regression I took into consideration
the linear connection between the dependent and the independent variables, and the
normal distribution and homoscedasticity of residuum. I considered the level of
significance 0.05 in case of every statistical method.
Results
Relying on the results of data analysis I defined the following theses.
T1a: The economic recession leads retailers to put more emphasis on sales promotion
in their marketing communication activity and their promotional budget.
T1b: Small independent retailers, the number of customers of whose decreased and
became price-sensitive due to the economic crisis, apply sales promotion techniques
more often.
T2a: Exclusive shops apply sale promotion techniques variably and they use the
traditional forms of SP together with value added sales promotion techniques such as
coupons, refunds, gifts, anniversary sales and loyalty programs.
13
T2b: Discount stores mainly use classic sales promotion techniques offering financial
benefits like discounts, seasonal sales, coupons and BOGOF incentives.
T2c: Retailers are more successful considering their marketing strategy and achieving
the aim of sales promotion campaigns if they apply SP for strategic and tactic (long-
term and short-term) aims.
T3: Discounts (price-offs) and winter and summer sales are the most popular sales
promotion techniques among retailers and they apply these methods most often.
T4a: Retailers use sales promotion techniques for achieving short-term aims, i.e.
prompt increase of sales, which is possible through financial solutions.
T4b: The modern types of sales promotion methods such as coupons and anniversary
sales are used for achieving long-term goals, e. g. image building or retaining loyal
customers.
T5a: Retailers guaranteeing anniversary sales for a longer time manage more shops.
T5b: Shops operating in the capital city guarantee spring sales in a longer period of
time, but guarantee autumn sales in a shorter period of time than stores operating in
towns.
T5c: Shops operating in towns and employing fewer employees guarantee incentives
at a lower degree than stores employing more employees and operating in the capital
city in case of contests and sweepstakes and BOGOF incentives.
T5d: Exclusive stores consider the ATL support (printed media, local TV and internet)
and the outdoor information (direct mails DM) of customers of sales promotion
campaigns important.
T5e: Shops operating in the capital city and employing more employees consider the
ATL support (local media) and the outdoor information (DM and flyers) of customers
of sales promotion campaigns important.
H5f: Shops operating in towns that were established formerly with fewer employees
guarantee incentives in lower degree than stores established in the 21st century,
employing more employees and operating in the capital city.
14
T6: Utilitarian shoppers prefer financial promotions solely, but hedonic shoppers
prefer value added promotions, too.
T7a: Customers can be distinguished into three different groups based on deal-
proneness. One group of customers like using many different sales promotion methods
and one group of customers like only price promotions. However there are customers,
who only like certain deals especially price-offs and seasonal sales.
T7b: Customers are prone to price promotions namely to discounts and BOGOF
incentives in case of purchasing over-clothes.
Conclusion
The dissertation resulted in more novel results due to the investigation of the supply
and the demand side and the application of qualitative and quantitative research
methods.
Relying on the supply side it can be said that the majority of independent small clothes
shops do not use sales promotion techniques variably. Exclusive shops apply a wide
range of SP methods because this type of stores offers coupons, refunds and gifts.
Exclusive shops consider deals as strategic tools but discount stores consider special
offers as tactical instruments. Retailers can achieve long term goals with the use of
modern types of price promotions that is not the classic discounts but with the use of
coupons or anniversary sales. Exclusive shops operating in the capital city offer more
valuable prizes in case of contests and sweepstakes and gifts than discount stores.
Relying on the demand side it can be said that Hungarian customers assign higher
hedonic benefits to price promotions (discounts, coupons, BOGOF incentives) than
customers living in more developed western countries where SP methods have been
used for a longer time. Hedonic shoppers prefer the different types of SP instruments
than utilitarian or purposive customers. Deal proneness should be investigated at three
levels (1) generally, (2) based on the type of promotion and (3) based on concrete
deals. Young females, who are hedonic shoppers, respond to many different deals in
case of purchasing over-clothes. If someone lives in a larger family and is market
maven that is well informed about seasonal sales and shares the information with
15
others respond to many different deals. Value added promotions are favored by
fashion followers who have primary school education. Poorly prone customers are
loyal and interested in fashion and trends. People highly prone to sales promotion
techniques offering economic benefits are involved in fashion and market maven.
Applying contests and sweepstakes are not really used among small independent
clothes shops. Prestige sensitive, quality conscious market maven people like this type
of SP and respond to it if they have the chance. Coupons are used by young and
hedonic shoppers who live in larger families and care about fashion and uniqueness
and have profound information about deals. BOGOF incentives are used by sale-
prone, price- and value-conscious shoppers who consider the opinion of others
important and think that their clothing reflects their social status. Influencing
customers by gifts is not popular among small independent shops however hedonic,
non loyal and impulsive customers would appreciate this way of convincing them to
purchase over-clothes.
16
The research focused on independent clothing shops and customers purchasing
promoted over-clothes. Underwear, sport clothes and shoes were not taken into
consideration in the consumer research.
The research aimed at customers did not take the attitude towards sales into
consideration in case of purchasing over-clothes as a gift.
I did not use diary panels in measuring deal proneness.
The possible future extension of my research:
Extending the survey and investigating less developed regions in Hungary or other
emerging countries belonging to Eastern Europe in order to see the differences and
similarities among retailers and customers.
Repeating the empirical research in 2010 to get a clearer picture abut the effects of
the economic recession / uncertainty.
Collecting data from other sectors and products categories such as shoes, drugs
electronic household goods or cars should be collected.
Extending the research to services since in the sectors of tourism and banking
special offers have come in the foreground to the economic downturn.
Analyzing customer behavior and the process of decision making. The theoretical
model of Blattberg and Neslin (1990) should be tested empirically.
Interpreting the response hierarchy models like Lariche et al. (2001 and 2003). It
would be useful to explore the stages of development of consumers till they decide
to purchase promotes over-clothes and factors influencing each stage.
In the future the research should be completed with diary panels to get more
reliable results considering deal proneness. A panel of people in different stages of
family life cycle should be formulated who make a note of the circumstances of
purchasing over-clothes (what, at what price, to whom and how) at a certain period
of time.
17
References
Babin, B. J. – Darden, W. R. – Griffin, M. (1994) Work and/or Fun: Measuring
Hedonic and Utilitarian Shopping Value, Journal of Consumer Research, Vol. 20, p.
644-656
GfK Hungária Piackutató Intézet, Ruházati piac: Továbbra is igény van mind az
olcsóbb, mind a drágább, márkás ruhanemők iránt
(http://www.gfk.com/imperia/md/content/gfk_hungaria/pdf/press_h/press_20090326_
h.pdf)
18
Józsa, L. – Fam, K. S. (2007) Sales promotion in retailing – comparative study
between New Zealand and Hungary In: Dr. habil Ferencz Árpád (szerk.) Erdei Ferenc
IV. Tudományos Konferencia, I. kötet, p. 307-311.
19
Lichtenstein, D. R. – Ridgway, N. M. – Netemeyer, R. G. (1993) Price Perceptions
and Consumer Shopping Behavior: A Field Study, Journal of Marketing Research,
Vol. 30, No. 2, p. 234-245.
Turner, H. M. (1959) Sales promotion that gets result, McGraw-Hill Book Company,
New York
20
The author's related publications and conferences
Publications
Journals
21
Keller, V.(2007) XXI. századi trendek a kiskereskedelemben In: Szentes Balázs
(szerk.) „Európai Integráció – Elvek és döntések. Gazdasági fejlıdés Európában. II.
Panon Gazdaságtudományi Konferencia – Tanulmánykötet I., Pannon Egyetem, p.
389-396. ISBN: 978-963-9696-29-7
22
Keller, V. (2009) Ruhavásárlás kapcsán kedvelt SP megoldások In: Dr. Svéhlik Csaba
Ph.D. (szerk.) Elıadáskötet „A tudomány felelıssége gazdasági válságban”, KHEOPS
Automobil-Kutató Intézet, p. 471-483. ISBN 978-963-87553-5-3
Józsa, L. – Keller, V. (2009) Are small grocery store chains successful in Hungary?
The results of an empirical study, In: H. J. P. Timmermans (ed.) Recent Advances in
Retailing and Services Science Conference Proceedings, Niagara Falls, Canada, p. 1-
11. ISBN 978-90-6814-175-7
Keller, V. (2007) Connection between sales promotion and brand equity In: Dr.
Svéhlik Csaba Ph.D. (szerk.) Elıadáskötet (Világ)gazdaságunk aktuális kérdései,
KHEOPS Automobil-Kutató Intézet, p. 530-537. ISBN 978-963-87553-0-8
Keller, V. (2008) The role of strategic thinking in a sales promotion campaign In: Dr.
Svéhlik Csaba Ph.D. (szerk.) Elıadáskötet „Útkeresés az üzleti és a közszférában,
KHEOPS Automobil-Kutató Intézet, p. 484-492. ISBN 978-963-87553-3-9
23
Recent Advances in Retailing and Services Science Conference Proceedings, Zagreb,
Croatia, p. 1-14. ISBN 978-90-6814-172-6
Conferences
Hungarian presentations
24
Az értékesítésösztönzési stratégia alkalmazása a magyar kiskereskedık körében –
Egy empirikus kutatás tervezetének kérdései, Marketing Oktatók Klubja – 14.
Országos Konferencia, Corvinus Egyetem, Budapest, 28-29 August 2008
English presentations
Some aspects of deal proneness, „4th Annual International Bata Conference for
Ph.D. Students and Young Researchers” Tomas Bata University, Zlin, 10 April 2008
25
Small business – collectivism and personal selling in the retailing of New Zealand
and Hungary, 15th International Conference on Retailing and Consumer Services
Science, The Regent Esplanade, Zágráb, Horvátország, 14-17 July 2008
26