Peter Schnedlitz, Dirk Morschett, Thomas Rudolph, Hanna Schramm-Klein, Bernhard Swoboda (Eds.)
European Retail Research GABLER RESEARCH
Editors Dirk Morschett, University of Fribourg, Switzerland, [email protected] Thomas Rudolph, University of St. Gallen, Switzerland, [email protected] Peter Schnedlitz, Vienna University of Economics and Business, Austria, [email protected] Hanna Schramm-Klein, Siegen University, Germany, [email protected] Bernhard Swoboda, University of Trier, Germany, [email protected]
EDITORIAL ADVISORY BOARD In the editorial advisory board, a number of distinguished experts in retail research from different countries support the editors:
– Steve Burt, University of Stirling, UK – Michael Cant, University of South Africa, South Africa – Gérard Cliquet, University of Rennes I, France – Enrico Colla, Negocia, France – Ulf Elg, Lund University, Sweden – Martin Fassnacht, WHU - Otto Beisheim School of Management, Germany – Marc Filser, University of Dijon, France – Thomas Foscht, University of Graz, Austria – Juan Carlos Gázquez Abad, University of Almeria, Spain – Arieh Goldman, Hebrew University, Israel (†) – David Grant, University of Hull, UK – Andrea Gröppel-Klein, Saarland University, Germany – Herbert Kotzab, Copenhagen Business School, Denmark – Michael Levy, Babson College, USA – Cesar M. Maloles III, California State University, USA – Peter J. McGoldrick, Manchester Business School, Manchester University, UK – Richard Michon, Ryerson University, Canada – Dirk Möhlenbruch, University Halle-Wittenberg, Germany – Heli Paavola, University of Tampere, Finland – Luca Pellegrini, IULM University Milan, Italy – Barry Quinn, University of Ulster, Northern Ireland – Will Reijnders, Tilburg University, The Netherlands – Thomas Reutterer, Vienna University of Economics and Business, Austria – Jonathan Reynolds, Oxford, UK – Sharyn Rundle-Thiele, University of Southern Queensland, Australia – Brenda Sternquist, Michigan State University, USA – Gilbert Swinnen, Universiteit Hasselt, Belgium – Ikuo Takahashi, Keio University, Japan – Waldemar Toporowski, University of Goettingen, Germany – Volker Trommsdorff, Technical University Berlin, Germany – Gianfranco Walsh, Koblenz-Landau University, Germany – Barton Weitz, University of Florida, USA – Joachim Zentes, Saarland University, Germany Peter Schnedlitz, Dirk Morschett, Thomas Rudolph, Hanna Schramm-Klein, Bernhard Swoboda (Eds.) European Retail Research 2010 | Volume 24 Issue I
RESEARCH Bibliographic information published by the Deutsche Nationalbibliothek The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografi e; detailed bibliographic data are available in the Internet at http://dnb.d-nb.de.
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ISBN 978-3-8349-2254-0 V Preface of the Editors
EUROPEAN RETAIL RESEARCH is a new bi-annual that is in the tradition of the reputable and distinguished book series „Handelsforschung“ (Retail Research) which has been published by Prof. Dr. Volker Trommsdorff in Germany for more than two decades. With Volume 22 appearing in 2008, Prof. Trommsdorff handed over this publication to a team currently consist- ing of retail researchers from Austria, Germany and Switzerland. The aim of the publication is to publish interesting manuscripts of high quality with a focus on retail researchers and lectur- ers, retail students and retail executives. As it has always been, retail executives are part of the target group and the knowledge transfer between retail research and retail management remains a part of the publication’s concept. Following the international development in the field of retail research and publication, the new team has decided to introduce some changes and extensions to the concept: - Language - articles will appear in English - Content - manuscripts will be double-blind reviewed and the book will invite manuscripts from a wider regional context but with a focus on Europe - Institutional - a permanent team of editors will be supported by an Editorial Advisory Board
Frequency - EUROPEAN RETAIL RESEARCH will be published in two parts per year, Issue I in spring and Issue II in fall. The review process will support the authors in enhancing the qual- ity of their work and will offer the authors a reviewed book as a publication outlet. Part of the concept is an only short delay between manuscript submission and final publication, so the book is intended to become a quick publication platform. Therefore the deadlines are always fixed. Issue I (publication in April): submission deadline: End of August, notification of accept- ance: End of October, re-submission of revised manuscript: End of January. Issue II (publica- tion in October): submission deadline: End of February, notification of acceptance: End of April, re-submission of revised manuscript: End of June. An electronic database with all pub- lished articles will be prepared and will be available with an adequate delay after the printed edition.
EUROPEAN RETAIL RESEARCH welcomes manuscripts on original theoretical or conceptu- al contributions as well as empirical research – based either on large-scale empirical data or on the casestudy method. Following the state of the art in retail research, articles on any major issues that concern the general field of retailing and distribution are welcome, e.g. - different institutions in the value chain, e.g. customers, retailers, wholesalers, traders, service companies such as logistics service providers, but also manufacturers’ distribution activities, - different value chain processes, esp. marketing-orientated processes (e.g. innovation, customer relationship management, category management), supply chain processes (e.g. purchasing, logistics), organisational processes, informational or financial management processes, VI Preface of the Editors
- different aspects of retail management and retail marketing, e.g. retail corporate and compet- itive strategies, incl. internationalisation, retail formats, e-commerce, customer behaviour, branding and store image, retail location, assortment, pricing, service, communication, in- store marketing, human resource management, - different aspects of distribution systems, e.g. sales management, key account management, ver- tical integration, alliances and networks, channel power, conflicts and multi channel strategies.
However, EUROPEAN RETAIL RESEARCH is also interested in manuscripts that focus on wholesaling, distribution concepts, specific strategies or country markets and we accept that non-English literature is used to. Basically, we are considering different types of papers. Arti- cles can be based on large-scale empirical data, on the case-study method or on conceptual issues: - Research articles should provide a relevant and significant contribution to theory and prac- tice; they are theoretically well grounded and methodologically on a high level. - Manuscripts submitted as more practice- or conceptual-based articles show new questions, issues, solutions and contributions from practice or conceptual issues. These papers are selected based on relevance and continuing importance to the future retail research communi- ty as well as on originality. Manuscripts are reviewed with the understanding that they are substantially new, have not been previously published in English and in whole, have not been previously accepted for publica- tion, are not under consideration by any other publisher, and will not be submitted elsewhere until a decision is reached regarding their publication in EUROPEAN RETAIL RESEARCH. The only exceptions are papers in conference proceedings that we treat as work-in-progress. Furthermore, the editors invite articles from specific authors, which address the retailing situa- tion in a specific European country. Those articles will also be double blind reviewed.
Contributions should be submitted in English language in Microsoft Word format by e-mail to the current EUROPEAN RETAIL RESEARCH managing editor or to info@european-retail- research.org. Questions or comments regarding this publication are very welcome. They may be sent to one of the editors or to the above mentioned e-mail-address.
Full information for prospective contributors is available at: http://www.european-retail- research.org. For ordering an issue please contact the German publisher “Gabler Research” (www.gabler.de). We are extremely grateful for editorial assistance provided by Eva Lienbacher, Robert Zniva and Ruth Angerer. Fribourg, St. Gallen, Siegen, Trier and Vienna, Summer 2010
Dirk Morschett; Thomas Rudolph; Hanna Schramm-Klein; Bernhard Swoboda Peter Schnedlitz (managing editor for Volume 24 Issue I) Contents
Interactive Web 2.0 Applications in the Multi-Channel Marketing for Retailers...... 1 Dirk Möhlenbruch, David Elias Blunck and Falk Ritschel
How to Maintain a Process Perspective on Retail Internationalization: The IKEA Case ..... 27 Anna Jonsson
Trade Credit Periods in Retail Commerce for Products of Mass Consumption: An Application to Spanish Legislation...... 51 Javier Oubiña, Jaime Romero and María Jesús Yagüe
Customer Satisfaction with Loyalty Card Programs in the Austrian Clothing Retail Sector - an Empirical Study of Performance Attributes Using Kano’s Theory ...... 71 Eva Walter, Claudia Steyrer and Stefan Wiesel
Clustering Customer Contact Sequences - Results of a Customer Survey in Retailing...... 97 Sascha Steinmann and Günter Silberer
The In-Store Antecedents and Consequences of Perceived Shopping Value for Regularly Purchased Products ...... 121 Wolfgang Weitzl and Robert Zniva
Strategic Differentiation in the Japanese Convenience Store Business. The Example of Lawson’s Format Variation...... 149 Ari Huuhka, Nobutoshi Shimizu and Martti Laaksonen
Country Reports
Retailing in the United Kingdom - a Synopsis...... 173 Steve Burt, Leigh Sparks and Christoph Teller
The Danish Retail Market: Overview and Highlights...... 195 Jesper Aastrup, Mogens Bjerre, Niels Kornum and Herbert Kotzab
EUROPEAN RETAIL RESEARCH Vol. 24, Issue I, 2010, pp. 1-222
Interactive Web 2.0 Applications in the Multi-Channel Marketing for Retailers
Dirk Möhlenbruch, David Elias Blunck and Falk Ritschel
Abstract This literature review recapitulates the state of the art knowledge about the characteristics of Web 2.0 instruments and deduces application options for multi-channel marketing by retailers. The different instruments of Web 2.0 and the theoretical foundations of multi-channel market- ing are introduced. The authors assign the specific Web 2.0 applications through the instrumen- tal areas of retailing by confronting their particular features and functions with the specific chances, risks, goals and the operational and strategic demands (needs) of multi-channel man- agement. This systematization gives retailers the chance to choose their instrumental assign- ments strategically, based on their specific goals in multi-channel marketing.
Keywords Retailing, Multi-Channel Marketing, Web 2.0, Cross-Channel
Dirk Möhlenbruch (corresponding author) Department of Business Administration, Martin-Luther-University Halle-Wittenberg, Halle, Germany (Tel: ++49 345 5523391; E-mail: [email protected]).
David Elias Blunck Institute for Innovation and Entrepreneurship, Martin-Luther-University Halle-Wittenberg, Halle, Germany.
Falk Ritschel Department of Business Administration, Martin-Luther-University Halle-Wittenberg, Halle, Germany.
EUROPEAN RETAIL Received: September 3, 2009 Revised: February 23, 2010 RESEARCH Accepted: February 25, 2010 Vol. 24, Issue I, 2010, pp. 1-26 2 European Retail Research, Vol. 24, Issue I, pp. 1-26 1. Introduction
The discussion about Multi-Channel-Systems in retail business might not be new - but it has gained momentum against the background of consolidations and mergers, the develop- ment of information and communication technologies (ICT) and experiences of disillusion- ment with pure e-commerce players (Dohmann et al. 2002; Barth et al. 2007). This is additionally evidenced by the increasing number of academic publications and the gain in importance of multi-channel distribution in retail-practice - where many pure e-players have augmented their structure of distribution with alternative channels (Tang/Xing 2001; Schögel et al. 2004).
Despite the lively discussions on the part of academic researchers and the growth of experience in practice, there is still an unsatisfactorily low level of knowledge - which might be the reason why companies often fail in the realization or achieve only suboptimal levels of channel inte- gration - even though the domination of multi-channel companies in the B2C e-commerce sec- tor (with the exception of a few companies, e.g. eBay or Amazon) implies a great potential for success (Hudetz/Baal 2005; Emrich 2008). For this reason most authors seem to agree upon the potential as well as the relevance of multi-channel distributors. Hudetz/Baal identify multi- channel companies “a good starting base to get even more dominant in the future” (Hudetz/Baal 2005, p. 136). Emrich agrees that multi-channel strategies might become “crucial to survive” (Emrich 2008, p. 1), and Ahlert/Hesse (2003) substantiate with empirical studies the preference that customers have for multi-channel distributors.
The ability to establish, integrate and uplink different distribution and communication channels becomes one of the main challenges in retail management. This applies especially against the background of the enormous intensity of competition in this field. Even though there is an undisputedly high impact of the internet on the buying decisions of consumers, many retail companies use this important medium not as a strategically integrated interactive communica- tion and customer-retention tool, but more like an encrypted business card (Silberer 2002). In this context, Web 2.0 and its applications gain importance but are often disputed as controver- sial. Neither Web 2.0 nor its applications can be limited to a single technology - in fact it should be understood as new perceptions and uses of the internet, with a strong leaning towards inter- action (Thackeray/Neiger 2009). While roles on the internet have been separated in the past between the active content producers and passive content consumers, today the use of inter- active instruments - like wikis, blogs, virtual communities and RSS feeds for example - allows not only new business models in e-commerce but enables a close and interactive dialog between companies and their relevant stakeholders (Kollmann/Häsel 2007).
Despite the already-mentioned range of scientific and practical-oriented specific literature about the topics of Web 2.0 and multi-channel marketing and against the background of the Möhlenbruch, D.; Blunck, D.E.; Ritschel, F. 3 importance of the online-channel, surprisingly little attention has been paid to the specific potentials of Web 2.0 applications in multi-channel marketing in the retail business, and Web 2.0 is still in an experimental stage in practice (Marfleet 2008; Ailawadi et al. 2009). This arti- cle therefore describes the necessary theoretical backgrounds of multi-channel marketing and Web 2.0, displays the characteristics of the specific instruments, and confronts their particular features and functions with the explicit chances, risks, goals and operational- as well as strate- gic demands of multi-channel management to deduce a systemization of application fields of Web 2.0 applications through the different instrumental areas of retailing. This gives retailers the chance to choose their instrumental assignments strategically based on their specific goals in multi-channel marketing.
2. Theoretical Background of Multi-Channel Retailing
The complexity and heterogeneity of retailing, combined with inconsistent market structures (Zentes/Morschett 2005) are important reasons that a comprehensive characterization of the market environment cannot be carried out in adequate dimensions. We will therefore limit the description to the spurring factors with the highest influence on the general development in retail business (Barth et al. 2007) and on Multi-Channel-Business in particular (Ahlert/Hesse 2003; Bachem 2004). Increasing mobility and the development of ICT (which, among other things, leads to new marketing channels and increasing capacities in the back end) expand the competitive situation in retail business to an additional geographical level (Purper 2007). The intensity of competition increases the need for a consistent orientation toward customer require- ments, market demarcation, and boosts accelerated tendencies towards consolidation processes in reseller markets (Zboralski/Gemünden 2004; Weinberg/Purper 2006). Accordingly, the changes in society’s values - which precede the changes in buying behavior - have a higher impact on developments in the retail business. There has been a lively scientific discussion about changes in consumer behavior for quite some time, but the dynamics as well as the dimensions of those developments present themselves in a new quality (Foscht/Swoboda 2007). While the debates about brand- and price-related behavior have been supplemented since the early 1990s by terms like “hybrid customer”, “smart shopper”, “bargain shopper”, “variety seeking” and “convenience orientation” is the phenomenon of “multi-optional consumers” increasingly mentioned in modern marketing literature (Hurth 2002; Foscht/Swoboda 2007). Those types of consumers follow different acting principles at once and change their behaviors and group memberships as well, which results in multi-optional buying behavior and shifts between different distribution channels during a single buying process (Wegener 2008; Ahlert/ Hesse 2003). Their differentiated needs are not limited to the actual transaction but range over the whole buying process including pre- and post-buying phases (Möhlenbruch/Schmieder 2002). These developments have a great impact on multi-channel distribution and lead to the 4 European Retail Research, Vol. 24, Issue I, pp. 1-26 necessity of meeting the differentiated needs of consumers during the various phases of a buy- ing process through the implementation of an integrated multi-channel system (Hurth 2002; Kilcourse 2008; Kwon/Lennon 2009).
Even though multi-channel marketing is not a new phenomenon (Möhlenbruch/Schmieder 2002; Barth et al. 2007.) the scientific literature does not offer a standardized definition (Schramm-Klein 2003; Hudetz/Baal 2005; Wirtz 2008). In fact there are a multitude of terms and definitions dealing with sales and communications via several channels which appear sim- ilar at a first glance, but often differ in meaning (Wirtz 2008). Multi-channel marketing of retailers is defined in this paper as “market oriented management of retailers using a multitude of parallel and integrated information, communication, and distribution channels” (Möhlen- bruch/Schmieder 2004, p. 104). This includes the strategic planning and operational application of the whole marketing-mix of retailers with the objective to develop new distribution channels or to strengthen existing ones, respectively. While strategic retail management establishes new potentials for success, operational retail management is geared to tap the full potential of exist- ing chances for success and defines the operational instruments to serve as strategic pillars (Ahlert 2002).
The integration of different channels with an otherwise homogeneous system allows retailers to meet the multi-optional behavior of consumers and their differentiated needs during the respec- tive phases of a buying process (Schramm-Klein 2003; Möhlenbruch/Schmieder 2004). There are potentials for integrated multi-channel systems, especially during the initiation phase, for upscale products and distance selling (Baal/Hudetz 2007). Additional customer acquisition, retention and win-back potentials open up through the integration of distance channels, the expansion of market areas and the chance to meet the channel-specific preferences of cus- tomers (Schröder 2005). Furthermore, empirical studies prove a higher loyalty of consumers to integrated Multi-Channel-Systems (compared to mono- or multiple-channel retailers) and high- er turnover per customer and therefore invalidating the fear of channel cannibalization (Ahlert/Hesse 2003; Baal/Hudetz 2004; Wegener 2008). According to these findings, multi- channel retailing allows for increasing market share at the expense of competitors’ (Schramm- Klein 2003; Schröder 2005). The combination of different channels can also build trust and enlarge the perceived service competence. Additionally, the integration of innovative channels can help to vitalize the brand image and demarcate markets (Wegener 2008). Last, but not least, the potential to decrease costs in communication and market research through direct- and indi- vidual customer approaches and an active navigation of interaction to the most efficient chan- nel should be mentioned (Schröder 2005). On the other hand, channel conflicts and a lack of channel flexibility are potential risks of multi-channel strategies (Kilcourse 2008). If synergetic effects and goodwill transfer are seen as important goals of an integrative branding of market- ing channels it is obvious that negative experiences can also have unwanted effects on the whole Möhlenbruch, D.; Blunck, D.E.; Ritschel, F. 5 system (Hurth 2002). Imperfect channel integration can complicate communication with cus- tomers and can lead to confusion in cases of incoherent goods and services, image positions, levels of prices, and service quality in the respective channels (Möhlenbruch/Schmieder 2002; Ahlert/Hesse 2003; Kreutzer 2008).
Integrative planning, monitoring and controlling of different channels and their differentiated sale- and handling processes, combined with the necessary rearrangement of cross-channel customer contacts, implies a high coordination effort and often leads to the limiting of integra- tion efforts to standardized purchase transactions (Ahlert/Hesse 2003; Wegener 2008). Realiz- ing the already mentioned potentials for success, however, requires increased effectiveness of market cultivation as well as using efficiency- and synergy effects (Bachem 2004). While the first is dependent on a consistent perception of the retail brand in all channels, integrated mer- chandise planning, control systems and customer relationship management system are basic prerequisites for the second (Hurth 2002; Böing et al. 2003). This requires a corresponding infrastructure, cross-channel coordination of the marketing-mix, and a relocation of channel- specific marketing budgets (Hansen/Madlberger 2007). The knowledge of customer needs and their basic trends gains importance in the specific market environment of retailing (Möhlen- bruch et al. 2007; Promondo 2007). Multi-channel retailers have to use all contact points with their customers to gather relevant information concerning buying behavior and have to combine this with a comprehensive and differentiated picture of consumers (Schröder 2005). In chapter 3 we will analyze the specific contributions of Web 2.0 applications to the already mentioned requirements, tasks and goals of multi-channel marketing.
3. Foundations of Web 2.0
The internet and associated technologies are developing rapidly. Consequently, the portfolio of technical resources for the effective and efficient ascertainment, archiving, processing, and transmission of data, information and knowledge is continuously growing. Accordingly, the electronic realization of business processes through electronic media has obtained more and more economic relevance for an increasing number of vendors in the last years (Lihotzky 2003). Many of the technological changes are summarized under the term “Web 2.0”, which is not yet precisely defined. Most of the attempts to define Web 2.0 go back to a definition of O’Reilly, who understands the term more as an approach than a technology (O’Reilly 2005). Even though there is no precise definition, most publications seem to agree in the characteriza- tion of the central idea of Web 2.0: Internet users transform from passive consumers of mostly static content to active, content producing and distributing participants (Kreutzer/Merkle 2008). According to O’Reilly (2005), there are a number of other characteristic requirements for appli- cations belonging to the term Web 2.0: 6 European Retail Research, Vol. 24, Issue I, pp. 1-26
- The application is net based; only a web browser is essential. - The content is not static but is going to be dynamically generated. It will change depending on the input of the user. - There are possibilities for users to generate content by themselves. - Role and authorization models enable the differentiation of who is enabled to view which content and who is allowed to edit the information. - Users own their data and are able to edit it by themselves. There are possibilities for personal- ized content and layout. - Users are able to comment on articles by other people and communicate among each other. - A strong community feeling is going to develop between users.
Since economic and technical principles are as important for Web 2.0 applications as socio- economic, psychological and legal aspects, it’s safe to say that the limitation of the phenomenon Web 2.0 to specific instruments or technologies is not valid. In fact it is rather based on a modi- fied attitude towards electronic media on the whole and the internet in particular (Kollmann/ Häsel 2007; Möhlenbruch et al. 2007). To discuss the specific potentials of Web 2.0 applications for multi-channel marketing for retailers later on, it first seems necessary to take a closer look at the paradigms and underlying motivational structures of internet users. Due to the dynamic changes in electronic media the following explanations can make no claim to be complete.
Efficient search-engines, open interfaces and usability of web-based software gain in impor- tance by enabling user self-service and orientation (Alby 2008; Kreutzer/Merkle 2008; Töpfer et al. 2008). This technological development combined with growing user participation enable new possibilities for personalization and individualization and therefore a consequent orienta- tion on the differentiated consumer needs (Schenk 2007). Moreover, internet applications are increasingly based on user-generated content and have to open themselves for participation (O’Reilly 2005; Schenk 2007). At the same time Web 2.0 is changing the proportions between individuality and collectivity, culminating in a virtual collective intelligence which is learning with every new participator (Richard 2008). Additional benefits in terms of knowledge quality improvement are generated through collaborative inspection, systematization and validation of information on the internet (Kollmann/Häsel 2007). Those benefits increase, according to Met- calfe’s Law, with the number of active internet users (network effects) which develop a sense of community over the time (Möhlenbruch et al. 2008). Nevertheless, Web 2.0 applications have to be understood as a part of a continuous development process which is not an expression of defective planning but of inherent adaption flexibility (Kollmann/Häsel 2007). Simplicity and lightweight user interfaces of net-based software applications have relatively low hardware requirements for end-user devices and boost an increasing convergence of the internet, tele- vision and mobile telephony (Kollmann/Häsel 2007). Open interfaces and technologies like AJAX enable the combination of separated (knowledge) resources as well as the cross-linking of interactive information and collaboration (O’Reilly 2005; Souders 2007). Möhlenbruch, D.; Blunck, D.E.; Ritschel, F. 7
It has to be mentioned that user generated content and the joint development of open source software create specific problems concerning copyrights. On the one hand it is essential to pro- vide open licenses to benefit from the collective cooperation in communities but on the other hand there are growing concerns of users about the (commercial) use of personalized data, con- tent and applications (O’Reilly 2005). But it’s not enough to limit the view on new technologi- cal options of participating users, in fact it’s necessary to take a closer look at the motivation of users to participate and provide information and content (Schenk 2007). Self-expression and image cultivation by publishing, for example, one’s own interests, opinions or achievements are the driving factors for providing user generated content (Mühlenbeck/Skibicki 2008). This is closely connected to a general talkativeness of some individual users and their desires for (vir- tual) contacts. Needs can be satisfied through Web 2.0 in manifold ways (Sassenberg 2008). Furthermore there are a lot of platforms like Second Life or Weblin which allow users a tem- porarily escape from reality (escapism) and enable them to present themselves in a way they are prevented from doing in real life (Kreutzer/Merkle 2008). Since the number of active partici- pants in Web 2.0 is much lower in proportion to passive content consumers, and the quality of additional benefits and network effects depends on the amount and quality of user-generated content, provider and other business models should try to satisfy the commercial motives of users in order to reward their content supply (Drüner et al. 2007). While searching for relevant information during buying decisions reduces transaction costs, consumer-generated content helps the social orientation and reduces the social risks of buying decisions. Moreover, there is a strong bonding phenomenon inside social communities, even for passive users who often pro- vide each other additional technical assistance for the use of products or services (Hennig-Thu- rau 2005). The paradigms described above lead to a number of applications often linked to the term Web 2.0 (see Figure 1).
Figure 1: Description of Web 2.0 Applications
Application Definition Authors
Customer Reviews Virtual opinion platforms are special forms of virtual Richter et al. 2007; and Virtual Opinion communities and offer users features to evaluate revue Baumgarth 2008; Platforms and/or comment the service-performance or product Enderle/Wirtz 2008; quality. Customer reviews are able to influence the Töpfer et al. 2008. buying decision process and enable companies to communicate a high level of transparency. Mashups Mashups are (re-)combinations of different, technically Alpar et al. 2007; independent internet applications (or their content, Alby 2008; respectively) to a new service. The individual services Emrich 2008; are linked on the basis of open interfaces and generate Möhlenbruch et al. added value by connecting different bits of content 2008; (like store locations or transparent price comparison e.g.). Hudson-Smith et al. 2009.
(Continued at p. 8) 8 European Retail Research, Vol. 24, Issue I, pp. 1-26
Figure 1: (Continued)
Application Definition Authors
Podcasts/ Podcasts/Vodcasts are digital audio-/video files which Bienert 2007; Vodcasts can be downloaded to a computer or any other Haygood 2007; compatible device (e.g. a mobile phone) and consumed Klee 2007. independently of time and place. So called “podcatchers” allow users to subscribe to podcasts and download them automatically.
RSS-Feeds RSS is a file format for the XML-based exchange of Klee 2007; information of all kinds and it allows users to subscribe to Alby 2008; regularly-updated content automatically. The information is Bienert 2007; archived and provided to feedreaders which are integrated Koller/Alpar 2008. into almost all modern e-mail software and web browsers. If the information on a website changes, the feed will be updated and a notification (either an abstract or the complete file) will be sent to the feedreader.
Social Social bookmarking can be described as the storage, Bienert 2007; Bookmarking exchange and indication of personal bookmarks with Möhlenbruch et al. and Tagging content describing catchwords via Social Bookmarking 2008; Services like mister-wong.de, del.icio.us, yigg.de or Warr 2008; furl.net. Panke/Gaiser 2009.
Social Shopping The term social shopping describes the adoption of the Purper 2007; interaction potentials of virtual communities, regarding the Richter et al. 2007; product purchased or their combination with online-shops Mühlenbeck/Skibicki (combined with it being possible to exchange, for example, 2008; personal experiences or concrete recommendations). This Schäfers 2008; implies that socialization processes, human expertise and Töpfer et al. 2008. an additional level of cooperation and communication in e-commerce are taking center stage.
Virtual Social Social networks are definable, (sometimes loosely-) linked Baeumle-Courth et Networks nodes of actors/groups of actors (individuals, families, al. 2004; organizations, political parties, etc.) tied together by one Kunz/Mangold 2004; or more types of interdependence based on power, rituals, Cyganski/Hass vivid exchange of information, emotional bonds etc. 2008. Modern information and communication technologies facilitate the dissolution of spatial determinations so that virtual social networks can emerge in intangible environments such as the Internet.
Virtual Worlds Internet based virtual worlds are artificially created, Thomas/Stammer- three-dimensional simulations in which users move via mann 2007. animated alter-egos (so called avatars) in real time and within the scope of specially defined physical laws.
Weblogs A Weblog (short: blog) is a regularly updated chronological Reitler 2007. listing of articles (similar to a diary) published on the internet.
Wikis Wikis are content management systems which do not Algesheimer/Leitl differentiate between read and write access and which 2007; allow the editing of content directly and without any special Pleil/Zerfaß 2007; programming-knowledge via the web browser, and to Cronin 2009. influence the whole structure of the system as well by linking to internal or external content. Möhlenbruch, D.; Blunck, D.E.; Ritschel, F. 9 4. Web 2.0 in Multi-Channel Retailing
Assuming a sustainable influence of Web 2.0 on consumer behavior, suppliers will have to meet those developments (Graßmann 2004). The differentiation between strategic and operational fields of Web 2.0 applications in multi-channel retailing, used to systemize the following state- ments cannot always be mutually exclusive and exhaustive - a problem of demarcation that Ahlert (2002), using the example of information in retail-management, illustrates that which “do not per se have a strategic or an operational character”.
4.1. Strategic Potentials
As mentioned before, retailers find themselves in an increasingly dynamic and discontinuous environment, a situation that requires and complicates long-term strategies at the same time. A key responsibility of strategic planning is to secure existing potentials and to develop new ones for success in the already mentioned areas of retail management (Ahlert/Kenning 2007).
4.1.1. Market Research
Marketing decisions require an adequate information background, especially in view of actual and prospective buying behavior, its principles and variability (Bänsch 2002). A comprehensive understanding of customer needs and preferences can lead to significant advantages in competi- tion (Zboralski/Gemünden 2004). Accordingly, the collection of information about customers and their behavior via interactive media gains importance for retailers (Möhlenbruch/Schmieder 2004). This applies especially for multi-channel retailers which, in the ideal case, manage to col- lect information about their customers at every contact point (Schröder 2005; Emrich 2008). Hence Web 2.0 instruments can be used as subjects of research (e.g. the exploration of virtual communities in view of consumer behavior) and as platforms for research (e.g. investigation of market acceptance of innovative products) (Kunz/Mangold 2004). User-generated content, espe- cially, allows deep insights into customer requirements and gives access to information about (potential) consumers (Drüner et al. 2007; Stampfl 2007). Systematic monitoring of blogs, forums, tagging platforms or virtual communities delivers information about company-, product- or brand-image, for example, and allows the researcher to detect social trends, changing lifestyle concepts or hints about the general change in values (Drüner et al. 2007; Ammann/Bentele 2008).
In addition there are new approaches for the categorization of consumers in the context of cus- tomer value analyses created through the monitoring of user-generated content in communities, blogs or forums (Stampfl 2007). The collected data can be used to develop user-, consumption- and preference-profiles or to identify lead users (Drüner et al. 2007). While the transfer of industry driven lead-user concepts to consumer goods marketing is considered to be difficult due to the multitude of potential customers and the wide range of goods and services, the mon- 10 European Retail Research, Vol. 24, Issue I, pp. 1-26 itoring of Web 2.0 creates new approaches to lead-user identification in the retail business (Ernst et al. 2004). Once identified, relevant content of specific users has to be analyzed in view of use- and object-knowledge, trend leadership and innovativeness. Similar potentials open up for customer lifetime value analyses. Taking the social position of users in virtual communities and their influence potentials on other members into account can lead to completely deviant customer categorizations (compared to a limitation of the examination on the values of, for example, sales taken place) (Stampfl 2007). Additionally Web 2.0 allows one to contact relevant (groups of) customers directly after their identification because, unlike traditional market research and futurology methods, it connects the information directly to its author (Drüner et al. 2007; Herstatt/Sander 2004). Further dialog can be used to gather additional information regarding innovation processes, for example, or the (de)listing of products and services, how- ever, the utilization of Web 2.0 instruments for market research creates specific difficulties as well. First of all it has to be decided whether to choose a (passive) observation of blogs, commu- nities etc., or an (active) dialog-oriented exploration (Herstatt/Sander 2004). An active approach would be pointless without the previous identification of suitable interaction partners, their approval, and the resources required for individual communication. Similar difficulties result from the complex task of filtering the relevant information from the enormous multitude of data. This is shown by Koller/Alpar (2008) in an analysis of selected blogs, where less than 0.5% of private posts dealt with companies, but those usually contained valuable information. While manual filtering requires a lot of time and resources, automatic scanning methods are not yet able to assure adequate data quality. Once identified, interesting blogs can be monitored rel- atively resource-friendly via RSS feeds (Koller/Alpar 2008).
Problems in data quality are one of the major points of critique in online market research and have to be taken into account in results evaluation (Emrich 2008). It has to be questioned whether or not users of Web 2.0 applications can build representative samples for general analyses of con- sumer behavior (Kunz/Mangold 2004). This gets even more important when explorations are lim- ited to company-owned or topic-specific applications to ensure the exclusivity of the results or the efficiency of the survey (Ernst et al. 2004). The sheer number of more than 60 million weblogs with more than 1.2 million daily posts in 2007 (Drüner et al. 2007) demonstrates the potentials for information as well as the difficulty in identifying relevant data. The results have to be critically examined in view of representativeness as well. Therefore it does not seem to be advisable to substitute traditional market research methods through the analysis of Web 2.0 appli- cations. Rather, it is suggested to use their specific potential to get insights on trends or to include consumers into innovation processes (Herstatt/Sander 2004; Drüner et al. 2007).
4.1.2. Communication
The integration of new media into consistent communication strategies comprehensive to all channels is one of the main challenges of multi-channel marketing (Möhlenbruch/Schmieder Möhlenbruch, D.; Blunck, D.E.; Ritschel, F. 11
2004). In this regard, the potentials of Web 2.0 range from the direct one-to-one dialog between companies and their relevant stakeholders as well as internal knowledge transfer, up to the com- munication between customers amongst each other (Bughin/Manyika 2007; Kreutzer 2008). There are application fields for RSS feeds in communication policy which, for example, allow one to build an innovative, customized push channel as well as for communities, whose mem- bers can be provided with additional information (Möhlenbruch et al. 2008). The user-initiated subscription of feeds and thereby indicated preferences can be used to customize the communi- cation with an individual customer across all channels. Blogs and their functions for comment- ing on posts and linking to other blogs provide a fast and wide platform for communication and can be an adequate basis for viral marketing campaigns (Langner 2007; Emrich 2008). Such an advertising message can be placed in forums, blogs or communities and spreads out without any additional costs to the initiator (Mühlenbeck/Skibicki 2008). Humans in social relation- ships show, according to the sociological concept of “homophily”, similarities regarding their level of education, social status and their buying preferences, and spread information mainly to interested people in their environment (Mangleburg et al. 2004; Stampfl 2007). User-initiated downloads and RSS subscriptoins of pod- and videocasts reduce waste coverage and allow for the efficient measuring of diffusion rates simply by counting the numbers of accesses and downloads (Mühlenbeck/Skibicki 2008). Because the message is delivered by one’s own circle of acquaintances, viral marketing reduces the defensive demeanor of consumers against classi- cal advertising messages and is able to increase the probability of cognition (Emrich 2008; Mühlenbeck/Skibicki 2008). Although viral marketing is not bound to specific media in princi- ple, Web 2.0 enlarges the possibilities for spreading information with enormous speed and improved efficiency and allows one to influence personal opinions in the buying process (Hein 2007; Schelske 2007). Additionally, the chance increases that topics from the blogosphere or virtual communities are adopted into the classic media, because Web 2.0 applications are more and more included into the research done by the classic media (Töpfer et al. 2008). Neverthe- less, sufficient added value for multipliers, additional incentives and an appealing presentation of the content remain substantial conditions for viral marketing (Langner 2007). Besides, a con- tinuous monitoring is necessary to observe the spreading and to influence the discussion by active participation in case of need (Schönefeld 2006) and it has to be mentioned that there are varying channel- and product-specific effects (for example, online purchases are nearly twice as often influenced by viral marketing as offline purchases) of viral marketing (Riegner 2007).
4.1.3. Harmonization and Integration of Marketing Channels
The integration of different marketing channels into a consistent system is an important area of responsibility for multi-channel marketing. Extensive knowledge about customers and markets are fundamental for avoiding channel conflicts (Emrich 2008). The specific potentials of differ- ent Web 2.0 applications to generate information have been stated already, but blogs and cus- 12 European Retail Research, Vol. 24, Issue I, pp. 1-26 tomer diaries, especially, can help to identify critical incidents in view of channel integration and should be mentioned again.
Against the background of the intangible elements of the retail business, the reliance of cus- tomers towards a retail brand can be considered a key factor in retail-management (Zentes/Morschett 2005). Because positive experiences in one marketing channel have effects on the whole system of channels it can be assumed that the usage of Web 2.0 applications has cross-channel positives. Those positives are especially based on a high credibility level of user- generated content (Enderle/Wirtz 2008). In this regard, wikis, blogs and reviews, especially, seem to be able to convey authenticity, reliability and transparency (Richter et al. 2007). To meet the consumer’s expectations, particular care must be taken in regard to the safety of user- specific information and to the non-restrictive publication of even negative opinions (Möhlen- bruch et al. 2008; Schnieders 2008). At the same time, Web 2.0 applications can be used to sup- port cross-channel marketing campaigns. Virtual worlds, for instance, could support real events or product presentations in an interactive, 3-D environment (Thomas/Stammermann 2007).
4.1.4. Internal Communication and Knowledge Management
Web 2.0 applications also show great promise for internal communication in complex organiza- tions facing dynamic environments (Warta 2007). As described before, this characterization applies especially to multi-channel-retailers. Wikis and blogs for example are able to accelerate communication and collaboration processes and can be cost-saving alternatives to commercial knowledge management systems (Algesheimer/Leitl 2007; Drüner et al. 2007). Those instru- ments are especially able to build location-independent communities of practice, to contribute to organizational learning and to globalize company-specific knowledge in a decentralized structure (Zboralski/Gemünden 2004; Schütt 2007).
Internal blogs can be used to announce product decisions and to discuss them with branch man- agers or suppliers in order to include their field-specific knowledge into decision making. Staff blogs on internal platforms allow employees to document their work, search problem-specific information and contact persons or to identify best-practice alternatives inside the organization (Algesheimer/Leitl 2007). In addition, the amount of internal waste coverage by unspecific e- mail can be reduced through RSS feeds. Wikis could, too, by the construction of a company- specific knowledge and information platform or they could serve as a continuous basis for exchange and collaboration, training or further education (Oeltjen 2005; Bienert 2007; Warta 2007). Their main advantage is the objectification of subjective knowledge resources through collective validation and improvement of existing information (Müller 2008). Since the neces- sary software is usually open source, free of charge and easy to use, Web 2.0 instruments are often more cost-effective than commercial applications (Algesheimer/Leitl 2007). Neverthe- less, the lower number of potential users of internal wikis limits their growth speed and requires Möhlenbruch, D.; Blunck, D.E.; Ritschel, F. 13 active promotion by the executives to secure a successful implementation. The necessary com- mitment on the part of the management, however, can be limited because this approach towards self organized communication and knowledge management defies direct control, makes expert knowledge available corporation wide and flattens hierarchies (Warta 2007; Müller 2008). To avoid the misuse of sensitive data, specific access rights for different staff levels and rigid user administration have to be assured - which erects barriers and reduces the growth speed of inter- nal wikis even more (Oeltjen 2005).
4.1.5. Acquisition of New Target Groups and Customer Retention Management
Against the background of the dynamic market environment of retail business, retail manage- ment attaches high importance to the “acquisition of new target groups” and “customer reten- tion management” objectives (Möhlenbruch/Schmieder 2004). The potential contributions of Web 2.0 to meet those objectives are mainly based on the ability to enable interactive commu- nication between retailers and (potential) customers as well as among customers themselves (Drüner et al. 2007; Ammann/Bentele 2008; Kreutzer/Merkle 2008). This can be illustrated with the example of a telecommunication company which was able to raise the speed of the acquisition of new customers up by a factor of five by addressing community members having contact with steady customers (Stampfl 2007). Web 2.0 is especially able to increase the level of awareness of retail brands in young target groups with a high affinity for the internet (Wegener 2008; Thomas/Stammermann 2007). Based on the assumption that perceived interactivity of a website goes along with a more positive brand- and company image and an increasing involve- ment of users into the communicated content (Gerpott 2004; Lueg et al. 2006), it can be assumed that there are positive effects of Web 2.0 on customer retention management. Besides the use of communities (esp. company-owned communities) which are able to increase the den- sity of communication, design of an interactive brand environment and expanding the customer relationship on an emotional level; pod- and videocasts, RSS feeds or wikis can affect customer retention in a positive way (Wirtz 2001; Kunz/Mangold 2004; Möhlenbruch et al. 2008). While communities enable retailers to provide customers with additional and emotionally charged information during the post-purchase phase (Klee 2007), wikis and their user generated content can be used to replace FAQs and act as a first source consulted by customers in case of prob- lems (Pleil/Zerfaß 2007). Furthermore, the cooperative buying processes in social shopping enhance the tendency for cross- and re-buying, the recommendations of other community mem- bers affect trust and customer loyalty, and the emerging social bonds create switching costs (Hsieh et al. 2005; Möhlenbruch et al. 2008; Verhoef et al. 2009). Additionally, there are inter- esting perspectives to identify constraining factors for successful customer retention manage- ment via customer diaries or blogs, respectively. The chronological listing and the detailed description of customer contacts allow for the identification of crucial experiences and to dis- play them as whole chains of events. The systematic comparison of different customer diaries 14 European Retail Research, Vol. 24, Issue I, pp. 1-26 can provide an overall picture of the customer experience and become the basis for uncovering drivers of enthusiasm and frustration (Bauer et al. 2008). Those findings can then be transferred into strategic recommendations to optimize customer experiences. This field of application gains importance against the background of the heretofore mentioned problems regarding the integration of different marketing channels into an integrated multi-channel-system and multi- channel-behavior.
Those positive effects of Web 2.0 instruments for customer retention management and the acquisition of new target groups come along with the risk of negative expressions of opinions and spill-over effects on other customers (Herstatt/Sander 2004). Furthermore, attempts at manipulation of communities can be perceived as annoying by their members (Möhlenbruch et al. 2008). Multi-channel retailers should also try moderate dosages of the interaction potentials of Web 2.0 and to regard it as situational to avoid additional negative attitudes caused by cogni- tive overload (Gerpott 2004). It is also disputable that retailers will always succeed with build- ing their own virtual communities because their wide product ranges and heterogeneous target groups reduce the chance to reach a critical mass of community members with equal interests. To avoid this, thematic networks could be a solution.
4.2. Operational Potentials
Multi-channel marketing includes the operational planning, implementation and evaluation of all demand-orientated instruments: those that contain merchandise, price and communication (Barth et al. 2007).
4.2.1. Merchandise
The orientation by retailers on customer value gains importance because of the competitive environment and high failure rates of market launches for consumer products (Ernst et al. 2004; Zboralski/Gemünden 2004). There are interesting fields of application for Web 2.0 instruments in view of the differentiation potentials of merchandise accruing from the analysis of user-gen- erated content. On the one hand, Web 2.0 enables retailers to detect wishes, needs and trends (for example, through passive monitoring of communities, blogs, social bookmarking plat- forms), while on the other hand it allows them to directly integrate customers into product (range) development processes (Schönefeld 2006; Schnieders 2008). A representative survey about the buying behavior of Germans regarding distance selling verifies that consumers want their needs to be taken into account and that they are willing to participate in innovation processes (Promondo 2007). This would secure the consequent orientation towards customer value and could contribute to cost efficiency, reduced development times and accelerated mar- ket launches (Bartl et al. 2004; Algesheimer/Leitl 2007). It additionally communicates close- Möhlenbruch, D.; Blunck, D.E.; Ritschel, F. 15 ness to customers and can therefore have a positive effect on company image and customer acquisition (Herstatt/Sander 2004).
RSS feeds enable a customized information supply about product availability and additional services and the information displayed about preferences can be used to optimize the product line (Möhlenbruch et al. 2008). Accordingly, this can help to optimize goods in stock and gen- erate cross-selling effects. The German multi-channel retailer “Tchibo” follows an interesting approach to customer integration into its internal processes with the “Tchibo-Ideas” communi- ty, www.tchibo-ideas.de, a platform where users can post interesting innovations and participate in idea competitions. It is intended to check innovative ideas in view of technical feasibility and to realize them in collaboration with the inventor. Even though Tchibo ideas has engendered no successful product launch yet, the potentials in principle and the willingness to participate are proven by the number of 4,500 registered members. But this approach requires the uncondition- al clarification of patent and copyright issues and it seems to be necessary to offer added value in monetary form or at least in form of detailed feedback to secure the long lasting participation of users (Zboralski/Gemünden 2004). The level of openness in a community is a tightrope walk. Free access opens a community to a wide range of target groups and enlarges the potential for innovation but this allows access for competitors as well (Ernst et al. 2004). Additionally, the inclusion of customers into innovation processes can encounter internal opposition which can manifest itself in specific defense mechanisms of the organization against outside ideas (Bartl et al. 2004). Furthermore, examples from industry areas hint that there is often not enough innovation potential inside open communities to actually lead to new products (Herstatt/Sander 2004).
4.2.2. Pricing
The rising importance of electronic business has already had a high impact on price manage- ment (Wirtz 2001). There are not only new options to orientate pricing more exactly according to the individual’s willingness to pay, but new ways to realize differentiated prices for cus- tomized goods and services as well (Weiber/Weber 2002). Insufficient knowledge about the willingness to pay made such pricing strategies difficult to implement. Monitoring of blogs, forums and virtual communities can enlarge the basis of information and can simplify such pricing decisions (Möhlenbruch et al. 2008). Customer oriented pricing can affect the perceived price-performance risk and helps (along with price transparency and price consultation) to transfer it to price satisfaction, which strengthens customer loyalty and can result in competitive advantages (Diller 2005). Following this line of argumentation, customer reviews and rating functions can increase the perceived price transparency and lower price-performance risks. This also applies to social shopping, where user-initiated price discussions and collective buying activities opens up interesting application fields in price policy (Möhlenbruch et al. 2008). 16 European Retail Research, Vol. 24, Issue I, pp. 1-26
Nevertheless, passive monitoring in view of pricing can quickly become unprofitable because companies and their pricing policies are seldom subjects of private blogs, forums or communi- ties. Because value-added-services increase the perceived quality of buying experiences and decrease price sensitivity, wikis and mashups can have positive effects in price policy, too, and raise the probability of transfering website visitors into loyal customers (Panten 2005). Theoret- ically, it is also possible to receive information about the willingness to pay via RSS feeds and to inform customers about special offers and prices, but this contains the risk of directly inform- ing competitors about one’s own actions as well. Research also shows that online-consumers are less price sensitive provided there is non-price information available on brand, quality and prod- uct features (Ailawadi et al. 2009).
4.2.3. Communication
The individual need of customers for guidance and advice depends on the breadth and depth of the product mix and its complexity as well as on the necessity for explanations of the products themselves (Madlberger 2004). This is the determining factor of the necessity for retailers to have a counseling service. Research shows that the absence of social interaction is one of the main reasons why many customers still avoid online shopping (Doolin et al. 2006; van Dolen et al. 2007; Weathers et al. 2007). The quality of electronic counseling depends on the information content and its didactic preparation, and therefore concerns web-design aspects and editorial content creation as well. The ability of some Web 2.0 instruments to let users create content or to embed third-party content proffers interesting fields of application for mashups, wikis, com- munities and forums to shift retail functions (in this case counseling) over to the customers themselves and therefore decreases costs. At the same time, retailers are able to reduce the per- ceived high buying risks in online purchasing through the high levels of reliability and authen- ticity shown by consumers to user-generated content (Laroche et al. 2005; Enderle/Wirtz 2008). It must be mentioned though, that this comes with a loss of control for the retailer, especially regarding statements made on third-party platforms (Hennig-Thurau 2005). Therefore, it seems useful for companies to provide those functions on their own platforms in order to retain reac- tivity and at least a limited amount of control in view of dissatisfied customers who expect transparency, honesty and a satisfactory problem-solving orientation in cases of criticism (Schnieders 2008). Those heretofore named fields of application for Web 2.0 in sales promotion and advertising policy can be demonstrated with two examples: The German DIY-store “Horn- bach” upgraded its website with discussion forums and podcasts and an extensive virtual helpdesk where users could help each other (Michael/Rose 2008). Ikeafans.com is also an example of an independent virtual community where members post decoration suggestions or examples of use, describe their experiences with the furniture manufacturer or discuss the com- pany and its policy in different forums. The presence of user generated content shows that com- munities enable companies to get direct access to the wishes and needs of their potential cus- Möhlenbruch, D.; Blunck, D.E.; Ritschel, F. 17 tomers and even get suggestions for example for visual merchandising or additional fields of application. The “user-generated help” in cases of product-specific problems generates addi- tional value for customers and therefore gains relevance in post-purchase marketing (Dellaro- cas 2006; Enderle/Wirtz 2008; Schnieders 2008).
5. Conclusion and Implications
The previous chapters introduced several Web 2.0 instruments and analyzed their fields of application in multi-channel marketing. The prevailing growth rates in the sector of Web 2.0 suggest that this is not just short-term hype, but rather a sustainable and strident evolution of the information society, trending towards increasing levels of participation, information, and inte- gration of internet users and an increasing influence of consumers on goods and services (Rieg- ner 2007; Rölver/Alpar 2008). The version number in the term Web 2.0 already implies that this is just an intermediate step in an ongoing development (Schnieders 2008). Even though some instruments are currently only used by small user groups, it can be assumed that in the course of the proceeding development of the internet and end-user devices there will be an ongoing diffu- sion into all classes of population and age groups (Klee 2007). Even though this opens up inno- vative perspectives for marketing, there is hardly any systematic utilization of potentials. This might be the result of the dynamic and complex nature of the topic which contributes to the fact that the innovation potentials of some instruments are widely accepted, but their whole range of application fields is not yet identified. The following Figure 2 (see p. 18) shows the results of this paper and categorizes the range of application fields for Web 2.0 instruments.
The potentials of Web 2.0 instruments accrue from the online channel and allow a manifold strategic and operational cross-channel usage of their effects based on the interaction between the different channels in integrated systems. It is therefore possible for multi-channel retailers to create advantages in competition and increase the potentials for success with the addition of this approach.
A general rating of the performance potentials of single instruments seems impossible against the background of inhomogeneous target groups and the range of goods and services of multi- channel retailers and will therefore be avoided. In fact it is advisable to give specific instru- ments a thorough context sensitive check regarding the product range and the focused target group. Although some instruments can be used as substitutes, a coordinated and differentiated implementation of different Web 2.0 applications, in line with the market, can be considered meaningful (Alpar et al. 2007; Enderle/Wirtz 2008). Their integration into aligned cross-media communication strategies can even increase their potentials. Additionally, it seems to be appro- priate to increase the positive effects of virtual communities for example by exclusive (live) events for members. 18 European Retail Research, Vol. 24, Issue I, pp. 1-26
Figure 2: Range of Applications for Web 2.0 in Multi-Channel Marketing
Cross Channel Fields of Application StrategicalStrategie Operational Market Communi- Customer Channel Communi- Merchandise Pricing research cation retention integration cation Virtual x Virtual x Subject/Object x Marketing x Switiching Commu- x Substitution of Research Targeted barriers Monitoring nities x of retail- x Custumer view of functions to x Monitoring Approach willingness x (passive) Customers x Trend x Internal x Customer diaries Monitoring to pay Weblogs x Decreasing Analysis Communi- x Critical incidents x (active) buying risks x Lead User cation Integration x Presentation x Emotional/ Information x Appealing of examples Pod/ x assistance about information of use oriented Videocasts preferences design information Book- x Search x Monitoring x Monitoring marking/ engine x Trend x Trend analysis Tagging Marketing analysis x 3-D Environ- x Information x Rejuvenation x Young x Assistance Virtual ment for about market of brand target of real product Words acceptance image groups Events presentation x Substitution of retail- functions through x Internal user-gener- x Decreasing x Increasing Wikis knowledge ated-content price service management x Decreasing sensitivity buying risks x Presentation .0 Instruments of examples of use x Information x Information Web 2 Social about x Cross-buyingCrossbuying about Shopping willingness to x Re-buyingRe-buying willingness pay to pay x Integration of x Value- x Collective Mashups third party added price content services negotiation x Substitution of retail- functions through user- x Trust and credibility generated Revisions x Monitoring x Perceived competence content x Decreasing buying risks x Presentation of Examples of use x Information x Information x Preferences x Additional Cross- x x Preferences about about RSS-Feeds x Monitoring of push- channel x Cross-selling product willingness channel information blogs availability to pay
In summary it has to be stated that there is still need for further research. For example, compre- hensive approaches for the systemization of Web 2.0 instruments are still missing. Those found in the scientific literature are mostly too rough and often not well-founded. Accordingly, there is need for further (especially empirical) research to explore the motivational structures and main focuses in use of Web 2.0 instruments as a potential basis for stable approaches to Möhlenbruch, D.; Blunck, D.E.; Ritschel, F. 19 a systemization of Web 2.0. While some instruments like blogs are used quite frequently and have already become an important part of corporate communications, other instruments (e.g. virtual worlds and internal wikis) are still in the stage of development and their fields of application in multi-channel marketing should be seen as a learning arena. In this regard, there is a lack of empiric research, e.g. regarding the interrelationship between real and virtu- al buying behaviors. This applies to market research with Web 2.0 applications and the trans- fer of lead-user-concepts from the field of industrial goods to consumer goods as well. There is also a special need for systems for the automatic filtering of relevant posts in forums or communities (Ernst et al. 2004; Herstatt/Sander 2004). Further difficulties in the practical use of the described Web 2.0 instruments result from the limited controllability and measurability of their profit contribution. This applies especially because positive effects will most likely only appear over time and can hardly be resolved into isolated activities. Because the general- ly necessary critical mass of participants is often hard to attain and in view of the dynamic of consumer behavior, the question arises that some instruments like Second Life or other specific communities might not have enough lasting potential to legitimate long term invest- ments.
Strategic manipulation by third parties is another risk resulting from handling user-generated content, reviews and the anonymity of the internet. Dellarocas even models a user-anticipated manipulation through the retailer in a theoretical game analysis (Dellarocas 2006). Following these thoughts, companies would actually be forced to manipulate ratings and reviews to match their anticipated level of manipulation. But this would imply the additional risk of a substantial loss of image and trust in case of exposure (Enderle/Wirtz 2008). It should also be noted that, besides of the effects of Web 2.0 on consumer behavior and especially on click behavior, “traditional” factors like the perceived cost/performance ratio, the urgency of the fulfillment of demands, the financial situation or buying comfort will not lose their importance (Gerpott 2004).
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How to Maintain a Process Perspective on Retail Internationalization: The IKEA Case
Anna Jonsson
Abstract The retail industry has witnessed fast international growth during the last couple of decades and various models and theories have been proposed for how to best explain the process and why some firms succeed while others fail. Recently researchers have argued that not only do we need more in-depth longitudinal case studies, and case studies from different sectors, but we also need to understand the core activity of internationalization, namely the learning processes of how to manage the complex process of entering and operating in different markets. While much research has focused on market and marketing aspects of internationalization, organiza- tional aspects have received less attention. This article aims to fill that gap by focusing on the international home furnishings retail firm, IKEA, and their organizational routines for ensuring and managing a process perspective on their so-far-successful international expansion.
Keywords Retail, Knowledge, IKEA, Internationalization, Organizational Routines
Acknowledgements: The author would like to thank the following: Handelsbanken’s research foundations, SSAAPS, SI, and HUR for funding this study; the staff of IKEA for their help and contributions; Professor Steve Burt, Professor John Dawson, and her former supervisors Pro- fessor Ulf Elg, Associate Professor Kristina Eneroth and Professor Pervez Ghauri for interest- ing and valuable discussions in relation to retail internationalization and knowledge sharing.
Anna Jonsson (corresponding author) Lund University, School of Economics and Management, Department of Business Administration, P.O. Box 7080, Lund SE-220 07, Sweden (Tel: ++46 (0)46 222 36 48, E-mail: [email protected]).
EUROPEAN RETAIL Received: September 28, 2009 Revised: March 4, 2010 RESEARCH Accepted: March 15, 2010 Vol. 24, Issue I, 2010, pp. 27-50 28 European Retail Research, Vol. 24, Issue I, pp. 27-50 1. Introduction
The retailing industry has witnessed fast international expansion and many researchers have sought explanations and new models for explaining the internationalization process and why some firms succeed while others fail. Recently, Burt et al. (2008) presented a review of existing models and theories for retail internationalization. It was stressed that when trying to simplify and categorise, i.e. when trying to present yet another model for retail internationalization, there is a risk of leaving out important variations in behaviour and outcomes. In their conclu- sion they state that “retail internationalization is a process in which management learning is a core activity” (Burt et al. 2008, p. 91). It is further argued that strategies cannot be linear and static as the internationalization process is very complicated. In general, external market and marketing aspects of internationalization are often stressed, while internal aspects focusing on why organizations fail often receive less attention. In order to deepen our understanding of the retail internationalization process it is crucial to comprehend how firms learn (if they do) from their experiences of entering international markets. In order to be able to do so there is also a need for an in-depth study of how an international retail firm learns from its experiences. This is further supported by Burt et al. (2008, p. 91) who claim that in order to make sense of strategic business practices and the outcomes which we tend to interpret, we need more longitudinal and in-depth case histories and studies of many more retailers from different sectors, countries and with different histories.
Retailing is more complex than and different from manufacturing in several aspects. For exam- ple, in terms of its strategic objectives, its responsiveness to local culture, the dispersed nature of operations and the large extent of network activities with many consumers and suppliers (e.g. Dawson 2000, 2007; Elg 2003; Helfferich et al. 1997; McGoldrick 2002). Retailers offer an intricate mix of products and services and in order to meet the consumers’ varying and chang- ing needs and wants requires effective research procedures in order to understand cultural dif- ferences that will influence buying behavior. Consequently, an international retailer needs to operate on three organizational levels: a global corporate level; a national market level respon- sible for stores in the specific market; and at a third level, each individual store (Elg 2005). Moreover, retailing is interesting, as the industry has witnessed fast international expansion and the retailer’s role has shifted from being a sales agent to a production agent for the consumer (Dawson 2007); and some of the world’s largest firms are retail firms (Kumar 2005). This sup- ports the argument that we need more and better in-depth studies of the process rather than stat- ic, market and marketing related, explanations. Many retailers, such as IKEA, have evolved from small domestic and local stores to large retail chains providing them with a basis upon which they then later chose to develop abroad (Helfferich et al. 1997). The retailers’ power has increased dramatically as they have grown into international, global, multinational and transna- tional retailers. It is argued that various IT solutions have provided the opportunity to acquire and share information and knowledge across borders. Still, publications on the impact and im- Jonsson, A. 29 portance of how knowledge is created and shared in the retail internationalization context are rather scarce (e.g. Palmer/Quinn 2005). The subsequent aim of this article is to develop our understanding of organizational routines on how to manage the internationalization process by focusing on an in-depth case study of how knowledge is shared within an international retail firm.
In the following section recent research on retail internationalization as well as theories of knowledge sharing will be discussed. The empirical case study of IKEA is then presented with a focus on their internationalization process and the IKEA organizational structure. A discus- sion of organizational routines about how IKEA manages its internationalization process is then presented. Some general conclusions and implications for future research and management are also presented.
2. Retail Internationalization
During the last two decades, research on international retailing has developed from empirical observations toward more conceptually grounded models and frameworks (Alexander/Myers 2000). While some of these conceptual frameworks have sought integration with or inspiration from the more general international business or marketing literature, others have sought to develop these without drawing from general theories. Picot-Coupey (2006, p. 218) notes that most research focusing on factors for entry mode choice are not grounded on theoretical frame- works but rather on empirical findings. Burt et al. (2008) further notes that many of the pro- posed models are too simplified and do not offer reasonable explanations for the complex process that retail internationalization is characterised for. Research on retail internationaliza- tion may be classified into three themes (Evans et al. 2000; Jackson/Sparks 2005). One theme concerns the geographical spread of international activity. The second concerns motives for internationalization. The third theme regards the selection of entry modes. Other themes have been on retail internationalization and corporate culture, and management style and its implica- tions for organizational learning. These other themes are argued to be examples of research searching for a wider and deeper understanding of the internationalization process. However, as it will be discussed further, researchers on retail internationalization have not fully explored the research on, for example, organizational learning and knowledge management, but rather have developed their own concepts derived from empirical studies (Palmer/Quinn 2005).
Picot-Coupey (2006) stresses, as does Evans et al. (2000), that research on retail international- ization should benefit from more theoretically grounded approaches and that researchers have so far neglected coherent theoretical frameworks. Doherty (1999), too, criticizes research on retail internationalization for focusing on descriptive and empirical studies. It is further noted that few others have focused on market entry strategy. By drawing on internalization theory, 30 European Retail Research, Vol. 24, Issue I, pp. 27-50 agency theory and information asymmetry, she develops a framework for explaining this process. Doherty represents those researchers who argue that there are many deficiencies in the existing research on retail internationalization, due mainly to the ignorance of other research streams and for being mainly derived by models from empirical studies. This is partly in con- flict with Burt et al.’s (2008) argument that there is a need for more detailed, in-depth studies trying to explain the process rather than trying to simplify and codify it. Alexander and Myers (2000, p. 349) argue that too much attention has been paid to the process and too little to “the consideration of such developments within the broader framework of conceptual thought on international business”. Still and what might be contradictory is that Alexander and Myers (2000) are among those researchers reluctant to draw on general internationalization research. Although Dawson (e.g. 2007) is reluctant and hesitates to adopt general research models to retail internationalization, it is stressed that research on organizational learning should be able to contribute to the retail literature. It has also been stressed by, for example, Doherty (1999), Dawson (2000, 2003) and Palmer and Quinn (2005). This research acknowledges both strands by offering both an in-depth case study and by drawing on existing research focusing on knowl- edge sharing within the MNC as will be further outlined below.
Another type of criticism, i.e. separate from the criticism of loosely theoretically grounded studies, relates to the discussion of the importance of taking a process perspective on interna- tionalization. Dawson (2003) argues that questions about why, where and how retailers enter new markets have been in focus but that there is still much to develop. There is a need for more process-oriented research about retail internationalization. Most research on retail internation- alization has focused on episodes of internationalization rather than on the processes of market entry and internationalization (e.g. Jackson/Sparks 2005). As also noted by Picot-Coupey (2006, 2007) researchers have focused on the entry mode choices but not on the choice of fur- ther expansion and what might influence those choices. The argument put forward in this article is that market entries should be viewed as part of the internationalization process. Jackson and Sparks (2005) argue that research about retail internationalization needs to focus much more on the implications and impact of “how” and “why” questions regarding retail internationaliza- tion. The “how” is very much linked to the question of how knowledge is shared within the retail organization when expanding and entering new markets. But before reviewing literature on organizational routines as to how knowledge is shared across borders a few words need to be said, in order to contribute to a better understanding of retail internationalization, about the con- text of international retailing.
2.1. Retail Internationalization – a Different Context?
Retail internationalization is viewed by retail researchers as a field of research separate from general research on internationalization and international business. Why do researchers on Jonsson, A. 31 retail internationalization claim that retail is different from general internationalization research and therefore should be viewed in a special context? This is an important question, sometimes neglected in the academic debate, to pose in order to underline the argument that we need more in-depth studies on the process of retail internationalization. Some of the arguments provided are that retailing is more complex and different from manufacturing in several aspects; for example, in terms of strategic objectives, its responsiveness to local culture, the dispersed nature of operations, the large number of products and services offered, and the large extent of network activities with many consumers and suppliers (e.g. Dawson 2000, 2007; Elg 2003; Helfferich et al. 1997; McGoldrick 2002). Furthermore, it is argued that retailers offer a com- plex mix of products and services in order to meet the consumers’ varying and changing needs and wants. Another difference is the high cost and risk of setting up operations abroad com- pared to straightforward goods exports. Many of these explanations relate to market and mar- keting aspects of internationalization. However, it is possible that because of the peculiarities with retailing; i.e., its close contact with the end-consumer and local suppliers, researchers have tended to focus on these aspects. It is also possible that although there are differences from a marketing perspective there may be similarities from an organization perspective, so that although there are different marketing challenges between retail and manufacturing firms, there may be organizational similarities for handling these challenges, i.e., in terms of how to share knowledge. As noted by (Birkinshaw 2005) the service sector is characterized for competing not on manufacturing assets but on the collective capabilities of their employees. It is therefore surprising that there is a dearth of research focusing on the organizational aspects of retail inter- nationalization. Because of the lack of research on intra-organizational processes in the litera- ture on retail internationalization there is a need for investigating this issue further (e.g. Burt et al. 2003). It is possible that a process lens focusing on routines regarding how to share knowl- edge illustrates that there are more similarities between industries than the episodic perspective has suggested so far.
Within the international retailing literature there are a number of different views as to whether or not it is possible to adopt general theories about internationalization to retailing. When some researchers argue that it is not possible or that it should be avoided, (e.g. Alexander/Meyers 2000; Dawson 2007) some argue that it is possible (Sternquist 1997), and some argue that it is possible as long as they are adapted to better fit a retail context (Vida/Fairhurst 1998; Vida et al. 2000) [1]. Dawson (1994) argues that it may be possible to borrow some concepts from interna- tionalization theory but that it is unlikely to apply them directly to the retail industry because their structure, process and behavior are different from those of manufacturing firms. These conflicting views stress the need for additional research. Dawson (2007) underscores that, at the very least, researchers should be aware of these differences. Still, and despite these views, gen- eral research should be able to learn from a study in a retail context because of the complexity that stems from retail operations in different markets. 32 European Retail Research, Vol. 24, Issue I, pp. 27-50
It is interesting to note that researchers of general internationalization make no claims of differ- ences between general research on internationalization and retail internationalization, whereas retail researchers do. Researchers focusing on internationalization in general have not paid much attention to retail firms (Dawson 2007). As pointed out by Doherty (1999, p. 396), it is surpris- ing that the general internationalization literature virtually ignores international retailing. Researchers should look beyond the traditional international marketing studies for new and interesting perspectives.
The complexity that international retailers face should be interesting to study. The lack of re- search within the general internationalization and international business field that focuses on retail internationalization opens up many research opportunities. In relation to this study which focuses particularly on the retail industry, the following argument by Walczak (2005, p. 330) stresses the importance of studying knowledge sharing across borders within a retail firm. The worldwide economy has shifted from industrial manufacturing, product oriented econ- omy to one based on knowledge and service, where the principle commodity is information or knowledge.
Furthermore, as noted by Foss (2002, p. 11), tasks and activities in the knowledge economy need to be coordinated in a manner that is very different from the management of traditional manufacturing activities, with profound implications for the authority relation and the international organization and boundaries of firms.
2.2. Knowledge and Learning in the Retail Internationalization Process Literature
Researchers focusing on retail internationalization have expressed the possible contribution of theories on knowledge and learning to a better understanding of the process perspective on retail internationalization (e.g. Doherty 1999; Dawson 2003, 2007; Palmer/Quinn 2005; Palmer 2005). Palmer and Quinn (2005) note that researchers have implicitly discussed issues of knowledge and learning but not in relation to research. A few examples of research studies, implicitly discussing issues related to knowledge sharing in international retailing, are briefly discussed in the following paragraph. The ambition is to underscore the importance of putting knowledge sharing in retail internationalization into a theoretical context, i.e. in relation to existing research focusing explicitly on knowledge sharing. Palmer (2005) notes that focusing more explicitly on knowledge and learning may increase the understanding of retailers’ interna- tionalization processes and at the same time provide an opportunity to reinterpret and re-evalu- ate existing research. However, as argued in this article it is also important to understand that knowledge and learning have been discussed by researchers within different fields and to go beyond knowledge management. Jonsson, A. 33
There are many examples of research that could be linked to the topic of knowledge sharing in retail internationalization. Burt and Mavrommatis (2006) focus for example on the internation- al transfer of store image. Here, the term “standardization”, although not explained, is some- times used interchangeably with replication a concept within research on knowledge sharing of organizational routines (Winter/Szulanski 2001). However, the focus is not on how this image is transferred but rather on what and whether or not the store image is standardized. Another example is the study by Currah and Wrigley (2004) on transnational retailers. Drawing on find- ings by Dawson (1994) that it is extremely difficult for retailers to protect knowledge (because of its open nature) or store and retail offerings, Wrigley and Currah (2006) note that transna- tional retailers need to pay attention to trying to achieve embeddedness. The authors analyze and contextualize the geographies of organizational learning and adaptation among those transnational retail corporations. The competitive advantage of transnational retail corporations lies in the ability to adapt retail formats to different and changing consumer landscapes. How- ever, much of their discussions relate to contextualizing international retailers as transnational corporations rather than on how knowledge is shared within the organization, and on how that influences the internationalization process. Another study which more explicitly focuses on knowledge sharing, although not in relation to existing research on the retail internationaliza- tion process, is the study by Hurt and Hurt (2005). They discuss the transfer of managerial prac- tices and work routines by food retailers from France to Poland. From empirical studies, it was found that the French management had problems in transferring or reproducing their business model with the behavioural model of the Polish recruits. This is an interesting case, focusing the problems of transferring French managerial practices and work routines to Polish store manage- ment and floor personnel. However, as noted by Burt et al. (2008) there is a need for research on retail internationalization in different sectors. Focusing on IKEA, a member of the home fur- nishing retailing sector, should therefore contribute to a better understanding of the retail inter- nationalization process.
Recently, Palmer and Quinn (2005) presented a framework for international retail learning. Drawing on research on organizational learning and on retail internationalization that implicit- ly focus on learning aspects, Palmer and Quinn (2005) present 16 research propositions for an increased understanding of retail internationalization learning. When outlining the propositions related to the first group, i.e. dimensions of international retail experiences, Palmer and Quinn (2005) stress the importance of incorporating both internal and external circumstances when focusing on what retailers can learn from their international experiences. In a subsequent arti- cle, Palmer (2005) analyzes Tesco’s experiences from international retailing, focusing on the dimensions of international retail experiences. The focus is on explaining what retailers can learn from their international experiences, derived from interviews with retail managers. From the discussion, it is clear that the lessons learned emphasize both internal and external circum- stances although these do not necessarily have to be distinguished. Furthermore, Palmer and 34 European Retail Research, Vol. 24, Issue I, pp. 27-50
Quinn (2005) propose that researchers need to investigate the “degree of learning” and the “locus of learning diffusion”. The degree of learning relates to how knowledge is absorbed by the organization; that is, the ability to adopt and adhere to acquired knowledge. The locus of learning diffusion relates to how knowledge is coordinated, diffused and embedded within the organization. Furthermore, it is suggested that the ability to diffuse knowledge is related to the level of international experience. In a subsequent article, Palmer (2005) focuses on what mangers at Tesco learned from their international experiences. However, it is not shown how knowledge is developed nor how it is shared and it is questionable whether Palmer (2005) focuses on knowledge or just information. Still, the work by both Palmer (2005) and Palmer and Quinn (2005) illustrates the importance of investigating knowledge sharing in retail inter- nationalization by adopting research on, in this case, organizational learning. It is noted that because knowledge is such a complicated concept there are many wins with looking into research explicitly focused on knowledge sharing.
3. Knowledge Sharing Across National Borders
Although research on retail internationalization has only recently recognized the importance of knowledge, general research on internationalization has for a long time acknowledged the importance of transferring knowledge from HQ to subsidiaries. Foss (2006, p. 6) argues that the theory of MNC has some lead-time with respect to understanding how knowledge and organizations connect, particularly relative to the economics of organization.
However, as Foss and Pedersen (2002, p. 50) argue, focus on knowledge has traditionally been a (static) matter of explaining the existence of the MNC by focusing on failures in markets for knowledge rather than on (dynamically) stress- ing the MNCs distinct capabilities of realizing competitive advantages through managing knowledge flows.
As pointed out by Ambos et al. (2006) the role of HQ as the source for knowledge is changing and subsidiaries have grown to become important providers of knowledge necessary to stay competitive in the increasingly global and competitive environment. As noted by Holm and Sharma (2006), knowledge is no longer created in only one market, rather simultaneously in a number of markets. The traditional hierarchically structured HQ-subsidiary relation has been replaced by a more responsive structure; for example, “heterarchical” (Hedlund 1986), “multi- focal” (Prahald/Doz 1987) or “transnational” (Bartlett/Ghoshal 1989) that can meet different “demands of innovation and knowledge creation in a dynamic global economy” (Nohira/ Ghoshal 1997, p. 3). The differentiated MNC literature has become increasingly mainstream and challenges the traditional transaction cost theories to focus more on issues related to knowl- edge sharing (e.g. Nohira/Ghoshal 1997; Frost/Zhou 2005). As pointed out by Ambos et al. Jonsson, A. 35
(2006, p. 295) the transnational solution adheres to the view of the firm as a “knowledge inte- grating institution” (Kogut/Zander 1993), where the MNC is a result of the ability to integrate, combine and create new knowledge within it. When adopting the view of the MNC as a transna- tional corporation, subsidiaries become “strategic partners” (Bartlett/Ghoshal 1989, p. 102) and it is important to recognize that within the MNC knowledge may originate from subsidiaries as well and thus take different flows. Ambos et al. (2006, p. 294) address the question as to what drives the benefits that headquarters can gain from learning from subsidiaries. It is argued that changes in both the subsidiary’s context and its capabilities to process knowledge drive the effi- ciency of the knowledge integrating MNC. Ambos et al. (2006, p. 296) further discuss forward, reverse and lateral knowledge flows within MNCs. Forward knowledge flows refer to knowl- edge from HQ to subsidiaries, reverse knowledge flows refer to knowledge from subsidiaries to HQ and lateral knowledge flows refer to knowledge flows between subsidiaries. There is also an expressed need within the general internationalization and MNC literature to develop our understanding for how an organization manages knowledge flows and the micro perspective of how the individual co-worker is motivated to contribute to share and benefit from knowledge flows within the organization (e.g. Felin/Foss 2005).
3.1. Organizational Routines for Knowledge Sharing
Research on knowledge sharing stems from different fields such as technology and innovation, strategic management, organizational learning and knowledge management, stressing different factors for what might make or break knowledge sharing (e.g. Dierkes et al. 2001; Easterby- Smith/Lyles 2003). The manifold suggestions may be categorized into different groups. One suggestion is to focus on knowledge or cognitive issues (e.g. tacitness, absorptive capacity, causal ambiguity and cognitive variety), organizational context (e.g. structure, intra-organiza- tional integration and training) and institutional forces (e.g. individual and group motivation, and norms and values) for knowledge sharing (Ciabuschi 2005; Kalling/Styhre 2003). Most of the empirical work on knowledge sharing, and especially research focusing on IT systems as a means of knowledge sharing, strongly emphasizes knowledge issues as explanatory factors whereas organizational context and, in particular, institutional forces are more rarely addressed. However, in order to fully understand the impact of knowledge sharing it is necessary not only to investigate the role of IT systems but also routines and work methods in order to capture more tacit pieces of knowledge. It therefore becomes even more important to understand the organizational context and institutional forces. Recently, researchers have stressed the need for more research on organizational context and institutional forces to reach a better understanding of what enables or hinders knowledge sharing (e.g. Ciabuschi 2005; Gertler 2003, Gupta/ Govindarajan 2000; Kalling/Styhre 2003; Kane et al. 2005; Tsai 2000; Walczak 2005). This is especially important when considering how organizational routines for managing a process like retail internationalization develop. Organizational context and institutional forces seem to be 36 European Retail Research, Vol. 24, Issue I, pp. 27-50 especially evident in research focusing on knowledge sharing within MNCs (i.e. in the general internationalization and international business literature). It is likely that knowledge factors alone are unable to explain the complexity of knowledge sharing within MNCs. The need for more research on organizational routines is stressed by Heimeriks and Duysters (2007, pp. 26-27) who argue that […] few studies have been able to explain how experience can be translated into a capability [and that] little empirical evidence exists with respect to how firms can best distribute and institutionalize organizational knowledge. More precisely the mechanisms that allow for knowledge transfer which can enhance adoption of new practices have hardly been analyzed.
4. Method
This research is based on a case study. In order to develop an understanding of the process per- spective on retail internationalization process it is important to delve deeply in order to gain an understanding of this phenomenon (Tsoukas 1989; Yin 2003). The main reason for choosing a case study is when the aim is to search for new insights, findings and interpretations rather than to test certain hypotheses (Merriam 1998). This research adheres to Dyer and Wilkins (1991, p. 617) notion of case studies, namely that the researcher’s ambition should be to tell good sto- ries rather than striving to create good constructs the classic case study approach has been extremely powerful because these authors have described general phenomenon so well that others have little difficulty seeing the same phe- nomenon in their own experience and research. We turn to the classics because they are good stories, not because they are merely clear statements of a construct.
It is important to offer rich descriptions in order to be able to offer alternative aspects on how to develop our understanding of the retail internationalization process. This was also further sup- ported recently by the argument in Burt et al. (2008).
IKEA is an interesting case to study. It is the biggest global retail furniture company with an- nual sales of almost 20 bn EUR in 2008. So far most in-depth case studies, as well as other studies, have focused on international food retailers. IKEA was founded by Ingvar Kamprad in 1943 and is today owned by a foundation, the Stitching INGKA Foundation. During the last 40 years IKEA has grown from being a small Swedish family-owned company to the world’s largest home furniture retailer with 283 stores in 36 countries, of which the IKEA Group owns 262 stores in 24 countries, employing 127,800 people. In 2009 the IKEA Group plans to open 26 new stores in 13 different countries. IKEA has witnessed a fast international expansion dur- ing the last five to six years, the fastest expansion in IKEA history [2]. IKEA’s strategy is to expand, both organically [3] and through franchising, with a standardized business model and concept offering one standardized product range. IKEA was to look and be perceived as exact- ly the same, no matter whether you visit a store in Älmhult in Sweden or Tokyo in Japan. Jonsson, A. 37
The empirical data was mainly gathered through in-depth semi-structured interviews about the international expansion of IKEA and knowledge sharing. In total, 70 interviews were carried out with IKEA between 2003 and the present. Interviews were conducted at market level in Russia (23), China (11) and Japan (17). Although not all of them were used for this specific article they all provide an interesting and necessary background to understand IKEA’s replica- tion strategy for internationalization and how knowledge is shared across national borders. In addition to the interviews at market level, 19 were conducted at the global Service office in Sweden as well as with IKEA of Sweden and Trading & Distribution and IKEA Inter Services AB. These interviews focused on IKEA’s internationalization approach, strategic orientation, culture and values as well as strategies for knowledge sharing. In each country, interviews were carried out with employees from different parts of the organization, encompassing managers at the national service office and store managers as well as a number of employees responsible for certain product categories in the store. The interviews started with open and inductive questions about IKEA’s international expansion. As the interviews progressed, the questions gradually became more structured, inquiring more about routines for knowledge sharing within IKEA. All the interviews lasted between 90 and 180 minutes. Participant observation looking for ways in which knowledge is shared in the day-to-day work was also carried out. The observation in an IKEA store in Tokyo, Funabashi, Japan [4], took place over a period of five days in December 2006. And for three days participant observation was used when a Business Area (BA) Manag- er (and part of the time) her co-workers were followed and observed in their daily work. In addi- tion, secondary sources such as corporate material, documents and manuals, as well as books and magazines about IKEA’s history and business ideas were collected (Merriam 1998). The empirical findings were compared with the theoretical framework, according to Yin’s (2003) pattern-matching method of analysis.
5. IKEA’s International Expansion
In order to understand IKEA and its internationalization process it is important to establish a starting point as to how the business idea and the IKEA concept have evolved over time and even more so regarding how IKEA has learned from experience. The exploration of the busi- ness model is expressed by IKEA in the following manner [5]: The IKEA concept has evolved over more than 50 years as a result of serious opportunities and experiences, both large and small in many different areas. The result today is a strong, tried and tested concept, which has proved that it is possible to combine global business ideas with local business opportunities.
The IKEA business idea is to offer “a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them” [6], and in order to do so it is expressed that it is important to find solutions that are both innovative and 38 European Retail Research, Vol. 24, Issue I, pp. 27-50 cost-efficient. Thus as will be discussed further, organizational routines on how to work for IKEA are actually embedded in the business idea.
In the following section the reader is introduced to the “IKEA-world” by discussing how IKEA has evolved into a global home furnishing retailer and how IKEA is structured. More specifi- cally the discussion will underline arguments as to how IKEA manages to maintain a process perspective on their internationalization process, i.e. using standardised solutions while at the same time constantly searching for new opportunities and better solutions through successful knowledge sharing by focusing on their organizational routines. In the subsequent section links to the theoretical discussion about retail internationalization and knowledge sharing will be made.
5.1. The International Expansion of IKEA
In the following paragraphs the international expansion of IKEA is summarized, structured according to a time-line where critical events are discussed and serve as explanations for how experiences and lessons learned have influenced the ongoing internationalization process.
IKEA started its international journey in 1965 by entering the Norwegian market. Six years lat- er IKEA entered the Danish market. In 1973 Ingvar Kamprad decided that it was time to go even further away from Älmhult. The first store outside Scandinavia opened in 1973 outside Zurich, Switzerland. The international expansion was a direct consequence of saturated growth and an ambitious idea that larger volumes could enable IKEA to lower prices and therefore become more competitive. The process and that decision is described by one manager (Salzer 1994, pp. 59-60) who said, have you heard about how we started abroad? By then we had entered Norway, but that was by mistake, you know… a kind of consultant who had duped us to buy some building lot. And then they pondered, which market is the most conservative when it comes to furniture? Well, it’s Switzerland. So they took the train to Switzerland. Well it was Janne [Jan Aulin] and Kamprad. And they stood outside the shops that sold modern furniture in Switzerland, you know, and they stood there and they asked the people who stopped and looked in the windows. […] And when they had been standing there for half a day they were assured that there were enough people who liked that kind of furniture but that it was too expensive, so there must be a market, they thought, and then they went back to Sweden. And so we bought a building and started the first store in Switzerland. … And it’s continued like that.
The initial process of entering new markets can be described as a trial and error process. It was during the 1960s and 1970s that IKEA learned the “basic techniques” for entering foreign mar- kets. IKEA acquired the necessary learning in order to enter new markets more rapidly during the 1980s–1990s (Torekull 2003, p. 175). During this period IKEA opened so-called “test stores” in city centers. However, this decision was later changed to open up bigger stores on city outskirts with good infrastructure instead, and to make all IKEA stores similar; that is, to paint Jonsson, A. 39 them blue and yellow. Over time it has become even more important to standardize the store format and there is nowadays a minimum size for new stores, thus securing the possibility for bigger volume. Standardized marketing solutions enable IKEA to focus more on the organiza- tional aspects, i.e. the organizational routines on how to support the internationalization process.
During the initial phase of IKEA’s internationalization process there was a special team respon- sible for entering new markets. The expansion team normally moved into a new market, set up the first store, and then left for another market. This phase can be described as the exploration phase, as IKEA explored the techniques for setting up new IKEA stores in new markets. The expansion team had a great entrepreneurial spirit and was very enthusiastic. However, their role was not always appreciated as they left once the store had opened and the store manager was left behind with problems. During this period there was a saying about “the action group fool Hum- lan [the bee]” meaning that the signals sent from HQ (by that time Humlebaeck in Denmark) would not always be followed (Torekull 2003).
In 1979 a project called “Kraft 80” was initiated. There was an increasing concern that IKEA had grown too fast and the project was a reaction to the risk of “losing the heart” (Salzer 1994, p. 66). A few drawbacks made IKEA realize that conceptualization was important and that IKEA could benefit from a more conceptualized business, i.e. from replicating their business when entering new markets. The “IKEA Way”, an internal document, is one result of those efforts where guidelines for replicating IKEA are clearly stated. Inter IKEA Sytems B.V describe the IKEA Way as consisting of: the IKEA culture (the common platform); the IKEA concept (the framework for turning the business idea into reality); and the organization, processes methods, policies, guidelines and supporting systems that are all necessary to achieve the business idea. However, many of these ideas had existed since the beginning of the 1970s but had not been documented. A manager at Inter IKEA Systems B.V stressed that the ideas and the concept were already clear but there was a greater need, as a consequence of the growing company, to conceptualize and document them.
The second phase of IKEA’s internationalization can be characterized as exploiting a business mode. IKEA sent out the “expansion group” to set up new stores in new countries before mov- ing on to the next country. Standardized marketing solutions were in focus for reasons of cost- savings. Format stores were developed and the blue and yellow stores were “planted” in new cities and new markets. The reason why IKEA stores are standardized; that is, painted in blue and yellow and having a standardized layout, is to save costs on building the IKEA stores. How- ever, IKEA later realized that by standardizing certain solutions they could spend more time on finding the right organizational routines for running and managing IKEA according to the IKEA way. This is a rather new insight and characterizes what can be described as a third phase, or the current phase, of IKEA’s internationalization process. 40 European Retail Research, Vol. 24, Issue I, pp. 27-50
During the last five to seven years there have been almost 100 store openings in 19 different markets, of which three are new markets. During these years IKEA has witnessed the fastest international expansion ever in its history. This phase can be described as a phase of both explo- ration and exploitation, i.e. where small adjustments and improvements are made to the concept. In order to survive a competitive environment it is important to be innovative, and this can only be achieved through both exploration and exploitation. In an internal document, “The future is filled with opportunities” (Salzer 1994, p. 61), it is clearly stated that IKEA will continue to grow and furnish the world and in order to do so it is important to be able to both explore and exploit. Today you will find IKEA all over the world and IKEA’s size will give rise to new problems, problems that will be solved in the same unconventional way that IKEA has always solved its problems. IKEA will never be completely finished. Life will feed IKEA with new problems. Problems that create new ideas and new solutions. Solutions that will change IKEA.
5.2. The IKEA Organization
IKEA is not just IKEA. IKEA consists of many different organizations with different responsi- bilities but with the common goal of satisfying the IKEA customer. The background to the cur- rent organization structure stems from the many challenges with the international expansion of the 1970s and 1980s and the efforts of conceptualizing IKEA. The present ownership structure was developed during the exploration phase and IKEA was given away to the INGKA Stitching foundation. In the beginning of the 1970s Ingvar Kamprad had already started to think about the time after his death and what would then happen to IKEA. There was a need to conceptualize in order to protect the organization from external interests and hostile takeovers as well as a way of solving the problem of high taxes in Sweden. In 1976 the “Furniture Dealer’s Testament” was written, an internal document explaining the IKEA concept, norms and values that are and have been important for the internationalization process. This document has become a key document for IKEA. For Ingvar Kamprad [7] himself “maintaining a strong IKEA culture is one of the most crucial factors behind the continued success of the IKEA concept”. In 1996, 20 years after “A furniture Dealer’s Testament”, Ingvar Kamprad wrote what is known as the “IKEA values”. It is stressed that the IKEA values are part of the work environment at IKEA and from the perspec- tive of knowledge sharing across borders it is interesting that through the IKEA work environ- ment “you’ll be able to contribute to the development of others”. This clearly emphasizes that knowledge sharing between “co-workers”, as they are called, is important. The IKEA values are part of the Human Resource Idea and through these values new IKEA co-workers are recruited. From the perspective of knowledge sharing these values represent an important factor for knowl- edge sharing, i.e. focusing on institutional forces or what motivates people to share knowledge (e.g. Kalling/Styhre 2003). IKEA describes the recruitment process [8] by saying, Jonsson, A. 41
Our goal is to employ co-workers who understand and embrace our core values and who will reflect and reinforce those. We want to recruit the candidates most suited for work life at IKEA, based on value set and attitude, in addition to skills and experience. We can support the recruitment process by working through the words of our core values using effective questioning techniques.
In the middle of the 1980s IKEA was restructured and the “three legs”, the IKEA Group (“the blue group”), Inter IKEA Systems (“the red group”) and IKANO (“the green group”) were cre- ated. It is claimed that the major reason for this organizational structure is that Ingvar Kamprad wanted IKEA to be structured in such a way that the IKEA concept would not get lost and that IKEA would be able to continue to grow. In Torekull’s (2003) book about IKEA the organiza- tion is described as being controlled by both the “hand” and the “spirit” and that Ingvar Kam- prad personifies this idea. The “hand” controls the physical ownership such as in the stores, whereas the “spirit” controls the IKEA concept. In the middle of this there is Älmhult in Små- land, where it all started. Ingvar Kamprad notes (Torekull 2003, p. 199) [9], the IKEA spirit emanates from those lessons we learnt during the first pioneer years in this countryside. Both as a smålänning and as a rational thinker I defend the idea that Älmhult is our heart, our spiritual home.
In order to understand the IKEA concept it is important to comprehend the whole pipeline; i.e. Retail, Distribution and Range. To be able to offer IKEA to the customers, the IKEA stores; i.e. IKEA Retailing, needs to be supported by Distribution; Purchasing; Industry group (Swed- wood); IKEA of Sweden (IoS), responsible for developing the range; and various expert and supporting functions including, e.g. IKEA IT and IKEA Communications. Inter IKEA Systems gives IoS the assignment of developing the IKEA range so that the IKEA concept is main- tained. All other parts of IKEA operate on the local level. Concerning the relationship between IKEA Retail, IoS and IKEA Inter Systems, one manager describes the relationship between the organizations thus: We do our job but we are totally dependent on each other. We kind of live in a symbiosis.
The organizational structure of the IKEA Group is a matrix. It is important to understand the matrix especially in order to understand how knowledge is shared within IKEA. Each country has a Service Office (SO). The SO will support the stores in that market. In each store there is a store manager and department managers for HR, Sales, Restaurant, etc. Under the Sales depart- ment there are managers responsible for different product areas. Then in the Service office there is an overall Sales manager, overall HR etc. In relation to factors for knowledge sharing, organ- ization structure is important (e.g. Kalling/Styhre 2003) in order to understand how knowledge flows within the firm. The matrix organization and ideas about a shared vision reminds one of the ideas about the transnational solution (Bartlett/Ghoshal 1989), where knowledge takes mul- tiple paths as it flows between levels and markets. 42 European Retail Research, Vol. 24, Issue I, pp. 27-50
The people of IKEA are vital for its growth including its expansion into international markets. As one manager at IoS expressed it, I can see that IKEA as a company is very much driven by development. We talk about growth. And I used to say that, we need growth, we need to grow as a company. But then we need growing people. In some sense it starts with recruitment, to have people that really see the challenge in this not to be stable and secure but willing to take risks, willing to expose themselves. […] And in that sense it is motivation and maybe it is hard to relate to that, because we can see that people, at least the people that we want to stay with us, they take the challenge and they want to grow as the best reward. And I think that is why we don’t need to give a lot of salary, and a lot of other compensation benefits because we don’t promise that. We promise that we will grow and expand with you.
It is significant for one group of IKEA employees that they stay with the company for many years. In an internal brochure [10] it is expressed as “Masses of jobs for masses of people in masses of places”. The average employee or “co-worker” (the title IKEA uses for their employ- ees) at IKEA has worked for many years and has tried many different positions at both the strategic and the operational levels in the IKEA-world. “Many years” normally means 15-30 years. One IKEA co-worker described it as “part of the natural development of the organiza- tion”. The typical career path within IKEA is to try new positions within IKEA (i.e. the differ- ent organizations forming IKEA) in order to get broad knowledge about IKEA and to under- stand the whole pipeline. CEO Anders Dahlvig (Kling/Goteman 2003, p. 37) argues, what is fundamentally important for us is for people to work well together across functions because they have to understand our pipeline. We have always been good at knowing certain parts, but now more of a pipeline-oriented understanding is required.
However, it is not just that people move around from one position and country to another. On IKEA’s Intranet [11] rules for expatriates are to be found, where it is stressed that knowledge sharing is important. People who move across borders and learn different parts of IKEA gain an insight into dif- ferent cultures and expand their network. People who move across functions learn new and different skills. This gives them an opportunity to contribute more to both the daily work and development of the company.
There are of course also a number of co-workers who remain for only a few years. These are people who usually work only part-time in the stores. The employee turnover is a huge chal- lenge which can vary considerably between different countries. In some stores in the US, the turnover can be up to 70% whereas in Italy, for example, it can be no more than 3%. In terms of knowledge sharing, it is the group of part-time co-workers that is a real challenge for IKEA; how to motivate these people to learn and also to share their experiences. Therefore, IKEA puts a lot of emphasis on IKEA values when recruiting new co-workers. A “climate check” is made every year when an internal survey called the “Voice” is sent to IKEA co-workers where the IKEA culture is mirrored in the questions. Many of these questions are related to motivational or institutional factors for knowledge sharing within the organization. Jonsson, A. 43 5.3. Routines for Knowledge Sharing within IKEA
In order to be able to replicate IKEA the IKEA way in new markets and to prevent IKEA from turning into a German or a Russian IKEA there are different methods for sharing knowledge across national and intra-organizational borders. The organization responsible for the IKEA concept and for securing its replication all over the world is Inter IKEA Systems B.V. The “commercial review” is an internal tool used for measuring how the IKEA concept is followed in other countries and in various functions. The purpose with the commercial review is both to control adherence to the concept and to acquire new business opportunities and new “best prac- tices”. Best practices explored from the review process are then published on the Intranet or in the manuals provided by Inter IKEA Systems B.V. As one manager describes the process: To conceptualize is very much about documenting and making the concept accessible all over the world.
Best practices are thus explored and exploited in the IKEA-world. Best practices are spread both through manuals and via the Intranet, through what is called a Toolbox. In an ad in the internal newspaper IKEA Ideas it is written that the IKEA toolbox is a digital concept communication system from Inter IKEA Sytems BV where information about IKEA retailing know-how and tools to use within the IKEA con- cept […] Take a look in the IKEA tool box and see how you can use it to improve your skills. And save time and money [12].
The Intranet is considered an important tool for sharing knowledge about best practices. How- ever, depending on ones position within the organization it is regarded as more or less impor- tant. Part-time co-workers working on the shop floor do not have much time or easy access to the Intranet. Different solutions, such as installing computers in the staff canteen, can provide the means for all co-workers to explore the Intranet and learn more about IKEA. The IKEA Group is responsible for the organic growth of IKEA and thus for securing that these best prac- tices and “proven solutions” are followed. However, part of the IKEA concept is to question and seek new solutions, to explore new opportunities. There is an organizational structure for guid- ing co-workers in new countries in their search for new solutions at the same time as they adhere to the IKEA concept.
From the interviews it is obvious that knowledge sharing is central to IKEA’s expansion and for securing the IKEA way of doing business. Part of IKEA’s strategy when entering new markets is to send out expatriates to share their knowledge about IKEA. This solution is an example of organizational factors explaining knowledge sharing (e.g. Kalling/Styhre 2003). One HR man- ager expresses it this way: When the expatriates leave it is necessary that it has grown under the tree because otherwise we will have a huge problem … . […] So that you really work with transferring your knowl- edge, to really share with others. You can’t sit in a corner with all your knowledge and give orders without sharing - then there will be a vacuum when you leave. 44 European Retail Research, Vol. 24, Issue I, pp. 27-50
Expatriates and existing co-workers are responsible for sharing this knowledge with new co- workers. Having a “buddy”, an experienced IKEA employee, is one solution for IKEA to edu- cate new employees in the IKEA way of doing business and to share their knowledge about IKEA. In each country there is one IKEA store functioning as a learning centre for new IKEA stores managed by that country’s Service office. In this learning centre new co-workers are trained according the IKEA principles. When entering a new market, and if a learning centre is not yet in place, employees are sent to other markets in order to learn about IKEA. This is applied both for co-workers working at the Service office and for co-workers and department heads working in the store. In addition, expatriates are not only employed for the purpose of entering a new market and to set up the business but also to train local employees according to the IKEA way. Having a foundation and long-term strategies enables the organization to work with knowledge sharing at all levels, ensuring that everybody can identify with the IKEA con- cept. In the HR idea it is explicitly stated that, as an IKEA employee you are willing to share your knowledge and experience with all IKEA employees (IKEA HR Idea). As an IKEA co-worker you continually learn from your own and other’s experiences, which enable you to solve and complete your own tasks (IKEA HR Idea).
6. Concluding Discussion
This article has taken an intra-organizational perspective on the retail internationalization process, by focusing on organizational routines and specifically on knowledge sharing in order to better understand how to manage and maintain a process perspective on retail international- ization. Because of the lack of research on knowledge sharing in the context of retail interna- tionalization, this present study provides an opportunity to reinterpret and re-evaluate existing research on retail internationalization.
The case study of IKEA illustrates how knowledge is shared within the IKEA-world. Focusing on organizational routines for supporting multiple knowledge flows across national and intra- organizational levels. The dynamic capability of IKEA to manage the internationalization process according to “IKEA way” is a result of what has been learnt from the international expansion. As IKEA learns from challenges met in new markets, best practices are spread to IKEA worldwide. There are a number of routines and mechanisms for sharing knowledge and supporting the international expansion of IKEA. These have developed over time and as a con- sequence of experiential knowledge. Knowledge sharing has become increasingly important as an enabler for the expansion of IKEA. Knowledge sharing was often mentioned as part of the IKEA culture, which is important to understand as it explains the institutional forces driving knowledge sharing across borders. Knowledge sharing within the IKEA world is also support- ed by a matrix organization, ensuring multiple knowledge flows throughout the organization. Jonsson, A. 45
The central organization, in this case both the IKEA Group and Inter IKEA Systems, also plays an important and coordinating role in terms of both securing that experiential knowledge is acquired from different markets and that the replicating formula is kept viable; i.e., where adjustments are made in accordance to gained experiences, and shared and followed within the IKEA-world. The method for how knowledge is shared within IKEA corresponds with recent research stressing the importance of acknowledging the organizational context and institutional forces (e.g. Ciabuschi 2005; Kalling/Styhre 2003). This view also corresponds with the ideas about the transnational corporation as first introduced by Bartlett and Ghoshal (1989). An inter- esting link to this discussion is the argument by Özomer/Gençtürk (2003) that, when taking a transnational view, it becomes clear that it is also necessary to incorporate reasoning on how experiences gained in one market will influence the ongoing replication process, and on how knowledge flows across national borders.
In relation to the contribution to research, this study contributes to the expressed need for devel- oping our understanding of the process perspective of retail internationalization and where management learning is a core activity (Burt et al. 2008). By focusing on how knowledge is shared within an international retail firm this study also contributes to research that has expressed the need for a deeper understanding for knowledge and learning in the retail interna- tionalization process (e.g. Dawson 2007; Doherty 1999; Palmer/Quinn 2005). There is also a need to incorporate and benefit from existing research and move away from a focus on only descriptive or empirical studies (Picot-Coupey 2006). By linking existing research on knowl- edge sharing, and illustrating that knowledge and learning are complex concepts spanning dif- ferent research fields, this research aims to meet that criticism. This study also contributes to general internationalization and MNC research seeking more details on how experience can be translated into a capability and how firms can best distribute and institutionalize organizational knowledge (Heimeriks/Duysters 2007).
In terms of implications for managers this study has focused on the organizational routines sup- porting the retail internationalization process. The IKEA case clearly illustrates the importance of always being open to learning from experiences, good and bad, in order to be innovative and cost efficient; i.e. to understand and take a process perspective. A part of the IKEA business idea stresses that it is essential to always search for new opportunities and better solutions. Organizational routines must embrace continuous learning in order to employ such a pattern. From the IKEA case it is clear that HR plays an important role in building and nurturing a strong corporate culture supporting organizational routines such as those for knowledge shar- ing. Drawing on the insights of this in-depth case study it is clear that managers will have to pay more attention to how knowledge is shared in order to facilitate international expansion. For international firms this has to do with the challenges of entering new markets, and at the same time maintaining growth and gaining market share in existing markets. Market entries must be 46 European Retail Research, Vol. 24, Issue I, pp. 27-50 supported but the ongoing activities in existing markets must also be recognized and supported. Thus it is crucial to understand the process perspective of the retail internationalization process. Not only is knowledge sharing important from a cost-efficiency perspective, but also from an innovation perspective when new opportunities or lessons learned are explored and then exploited throughout the organization. When focusing on factors for knowledge sharing it was illustrated that when knowledge sharing has become part of the corporate culture and work rou- tines, less effort has to be put into steering knowledge flows.
Notes
[1] For an overview of research on retail internationalization that has drawn from general internationalization. [2] Figures from August 2009 (http://www.ikea-group.ikea.com, accessed August 30, 2009). [3] All IKEA stores are franchise operations that have been granted their franchise licenses by Inter IKEA Systems B.V. When referring to organic growth it is expressed that this is run by means of internal franchising as the IKEA concept and brand is owned and controlled by Inter IKEA Systems B.V. [4] In July 2002, the IKEA Group established IKEA Japan KK. IKEA opened its first store in Tokyo, Funabashi in April 2006. The second store also placed in Tokyo, Kohoku opened in September 2006. The entrance is described as the biggest Greenfield foreign investment ever made in Japan. Initially, IKEA plans to launch eight to twelve outlets, with the first stores in Tokyo. In a longer perspective IKEA plans to open 46 stores in Japan. [5] “Inter IKEA Systems B.V - The owner and franchisor of the IKEA Concept”, Inter IKEA Systems B.V. 2002: 8. [6] “The IKEA Symbols - leadership by example”, Inter IKEA Systems B.V. 2001: 10. [7] http://www.ikea.com/ms/en_GB/about_ikea/timeline/full_story.html, accessed May 11, 2007. [8] “Recruitment through our values”. Inter IKEA Systems. [9] My translation. [10] “IKEA - We’re looking for more enthusiasts to help us prove that nothing is impossible”, Inter IKEA Systems B.V. 2006. http://www.ikea-group.ikea.com, accessed August 30, 2009. [11] “Mobility - working abroad with IKEA”, IKEA Intranet, 2006-01-11. [12] Ad in IKEA ideas 3.03. Inter IKEA Systems B.V.
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Trade Credit Periods in Retail Commerce for Products of Mass Consumption: An Application to Spanish Legislation
Javier Oubiña, Jaime Romero and María Jesús Yagüe
Abstract Trade credit periods from providers constitute a key indicator of the market power of large retail groups in distribution channels. The current study uses a database of financial statements of retail and production firms to demonstrate that the legal measures established at the European level in general, and specifically in Spain, to fight delinquency in commercial operations are having an appreciable effect on reducing payment periods for retail firms. On the other hand, an analysis of trade credit periods at the level of manufacturers enables us to confirm that manu- facturers also postpone a substantial part of their payment to their respective suppliers of raw materials. Finally, we propose an explanatory model for trade credit periods in retail firms that, once contrasted, enables us to conclude that the explanations for trade credit periods should be found in the market power, efficiency and level of indebtedness of the retail firms.
Keywords Trade Credit, Payment Period, Manufacturer-Retailer Relationship, Market Power, Distribution Channel
Acknowledgements: This study received support from project ECO2008-00488 of the Spanish Ministry of Science and Innovation and from the agreement signed between the SECRETARY OF STATE OF TOURISM AND COMMERCE of the Ministry of Tourism and Commerce and the Autonoma University of Madrid to analyze the trade credit periods in retail commerce for products of mass consumption.
Javier Oubiña (corresponding author) Departamento de Financiación e Investigación Comercial, Universidad Autónoma de Madrid, Madrid, Spain (Tel: ++34 914973551; E-mail: [email protected]).
Jaime Romero Departamento de Financiación e Investigación Comercial, Universidad Autónoma de Madrid, Madrid, Spain.
María Jesús Yagüe Departamento de Financiación e Investigación Comercial, Universidad Autónoma de Madrid, Madrid, Spain.
EUROPEAN RETAIL Received: August 31, 2009 Revised: January 31, 2010 RESEARCH Accepted: February 1, 2010 Vol. 24, Issue I, 2010, pp. 51-70 52 European Retail Research, Vol. 24, Issue I, pp. 51-70 1. Introduction and Objectives
“Commercial credit”, that is, credit that firms provide amongst themselves, is the first form of extended credit that appears as society develops. For example, the manufacturer who provides the distributor with specific merchandise enables him or her to defer payment until the distrib- utor has resold the merchandise and received payment from the end consumers (Petersen/Rajan 1997; Alfaro 2005). At present, this is one of the most problematic issues of manufacturer- distributor relations, as it is one of the key elements demonstrating the market power of large retail groups in distribution channels (Cruz et al. 1997; Sheu/Hu 2009).
The concern shown by the main associations and groups that represent European manufacturers indicates the importance of this topic, as do the legal initiatives that government bodies in each of the European Union member countries have undertaken. The European Economic and Social Committee takes this market power approach when it makes the claim that long-term payments often stem from the abuse of a dominant position and that reducing payment deadlines must be an economic policy objective (EESC 1998; Iglesias et al. 2007). In Spain, specifically, Law 3/2004 of December 29, which went into effect January 1, 2005, introduces legal regulations to limit the excessive use of this kind of commercial practice.
This article is a practice and conceptually based article that will use a series of simple research methodologies to answer the main questions that should be considered in the study of trade credit periods granted by providers in the distribution channels. The main objective is to con- firm the effect of European governments’ legislative measures to combat excessive numbers of days of trade credit in commercial operations. We will take as our reference the impact of the Spanish law cited above, which establishes measures to fight delinquency in commercial oper- ations. The law fixes maximum limits for trade credit periods at 30 days for fresh or perishable products and 60 days for canned goods and non-food mass consumption goods.
A full study of trade credit periods in the value chain of mass consumption products requires complementing information on retail firms’ deferrals of payment with data on the number of days that manufacturers of products of mass consumption in turn postpone paying their raw materials suppliers. In this way, we hope to identify the proportion of the financing cost of the commercialization process that each agent in the channel assumes until the products are in the hands of the end consumers. The second goal of this study is thus to quantify the manufactur- ers’ deferments to their respective providers.
Finally, we cannot conclude this study without addressing the causes for trade credit periods among retail firms. We therefore propose an explanatory model based on the main theoretical focuses that have been contrasted empirically in different economic contexts. In the model, we incorporate different independent variables that reflect financial, competitive, and marketing arguments to explain the differences in entrepreneurial behavior observed among the main Oubiña, J.; Romero, J.; Yagüe, M.J. 53 firms in the sector. The information on these variables comes fundamentally from the structure of their results accounts and balance sheets. We attempt to identify the main factors and their effect on the different periods of trade credit that retail firms establish in their commercial transactions with their providers.
Thus, in this study we apply a twofold methodology. On the one hand we provide a descriptive analysis of the evolution of trade credit periods for both manufacturers and retailers. On the oth- er hand we develop a regression model that aims to identify the drivers of trade credit period length.
2. Literature Review
Distribution in Europe has undergone an especially intense and rapid process of modernization, changing in three decades from a distribution-based model of traditional commerce to the implementation of modern hypermarket and supermarket chains. This consolidation of mass distribution involved considerable increases in concentration levels in the retail step of distribu- tion channels (Casares/Rebollo 2004).
The first efforts to systematize knowledge of the distribution channels were based on the analy- sis of the functions to be performed by commercial distribution (Alderson 1954) and analysis of the efficiency of their execution (Bucklin 1965). This “economicist” perspective was followed by considerations of the distribution channel’s socio-political aspects (Stern/Reve 1980). This second perspective considered that issues related to market environment and connections between firms in the commercial process have components and repercussions that go beyond the strictly economic aspects of commercial transactions. However, “socio-political” and “eco- nomic” aspects are without doubt closely related to each other, as the exercise of market power by the party with a strong negotiating position is revealed in a series of economic concessions granted in one form or another by the party in a weaker position.
Specifically, one of the most common ways that large retail groups show market power in dis- tribution channels is the achievement of longer payment periods, through which these retail groups carry out a financial leveraging strategy to take advantage of the “cash flow” generated. If applied without proper financial analysis, this dynamic can considerably increase the risk of insolvency and ultimately the firm’s vulnerability if the guarantees that the financing itself pro- vides decrease substantially.
In the debate on trade credit periods from producers to distributors, it is usually argued that pay- ment periods cannot be classified as “correct” or “excessive” when they emerge from the rules of the market itself. According to this view, agreements between the parties should determine the contract conditions, one of which is payment period. The principle of freedom of contract 54 European Retail Research, Vol. 24, Issue I, pp. 51-70 cannot be considered to have absolute validity, but only to be valid within a specific kind of environment. The principle of mercantile relations states that payment should be made when the transacted product is delivered, while admitting the possibility that the parties negotiate pay- ment deferrals by mutual agreement in recognition of the need to finance the existing merchan- dise for the duration of the commercialization process.
It is on this basis that the contracting parties establish the relation that leads to sharing respon- sibility for financing during the “maturation period” of the goods based on the average time of sale of each product in the different phases of the commercialization process. If the payment period exceeds the time of commercialization, it seems clear that this “denaturalizes” the eco- nomic foundation of the trade credit period. The credit can then be seen either as a strictly financial credit (at low cost) not motivated by the buying and selling of products, or as an “excessive” deferral outside common commercial practice.
In Spanish markets, these “commercial practices” have traditionally been the well-known prac- tices of cash payment at 30, 60 or 90 days, depending on the kind of product. The principle of freedom of contract thus has a basis in the commercial practices that serve as common, tacit pre-agreements whenever they appropriately include the different product maturation periods. In principle, we can thus consider “excessive” a payment period that goes beyond these com- mon commercial practices.
Based on the BACH database (Bank for the Accounts of Companies Harmonized) developed by the Commission of the European Communities and distributed by the Second Directorate Gen- eral of the European Commission, Román (2000) argues that during the 1990s, Spanish retail commerce experienced a considerable difference between the period of payment to providers and the customers’ payment. At the same time, there was a greater laxness in payment periods in large firms relative to small and medium-sized enterprises. His results show that during this period Spain was, after Italy, the European country with the longest trade credit periods from providers, with periods considerably higher than in countries like France, Austria or Belgium.
The patterns reported by Román (2000) are still valid (see Figure 1). Mediterranean countries, such as Italy, Portugal and Spain, have longer trade credit periods (around 80 days) than coun- tries in Central Europe such as Austria, Germany, Finland and Belgium (around 40 days). This is partly due to differences in the legal environment of these nations. The regulations in Central Europe, which arise from Germanic Law, state that owning a good requires having previously paid for it. This has encouraged low non-payment rates and the acceptance of low trade credit periods. In contrast, the regulations in Mediterranean countries which come from Roman Law don’t require prepayment in order to transfer the property of a good. This has provoked a per- missive attitude towards non-payment and the incorporation of trade credit periods as an impor- tant element in negotiations. Oubiña, J.; Romero, J.; Yagüe, M.J. 55
Figure 1: Trade Credit Evolution in European Countries
! " #
Source: Boletín Económico ICE (2009, No. 2969, pp. 79-81).
The legislative measures to fight delinquency are based on the idea that providers are exploited by customers, who impose long periods for payment and payment delays without compensa- tion. And apparently the large distributors obtain the longest deferrals of payment, while the small manufacturers are obliged to grant them, making trade credit periods the result not of efficiency but of the large commercial distributors’ abuse of their dominant position (Alfaro 2005).
Cannari et al. (2004) in fact argue that large distributors with a good reputation obtain very long payment periods and the small providers, who lack such a reputation, suffer especially from these deadlines. The large firms receive better treatment, whether in prices or in payment peri- ods, than the small ones. These findings are corroborated by the European Commission, whose “Guide for Companies on Directive 2000/35/CE” indicates that “the results of research per- formed show that large firms make delinquent payments twice as often as is recorded for SMEs and that, further, the delays in payment of large firms to SMEs are twice as long as the delays recorded for payments by SMEs to large firms.”
The study by Iglesias et al. (2007) shows, however, that even if the theories on market power in distribution channels are essential to understand the phenomenon of trade credit periods, they are not sufficient and should be complemented by a focus on efficiency. According to this 56 European Retail Research, Vol. 24, Issue I, pp. 51-70 study’s findings, some retailers use commercial credit as an instrument of protection against potential opportunistic behavior on the part of the provider. Likewise, distributors who invest in the provider’s brand image tend to obtain more commercial credit. Finally, distributors with high degrees of flexibility benefit from financial efficiency without having to have a strong negotiating position.
Cruz et al. (1997) argue that the greater the degree of entrepreneurial growth experienced by the retail company, the greater the financing needs. We can thus expect that those retail organiza- tions which are growing rapidly will focus their negotiating strategy on achieving longer trade credit periods. The goal is to find ways to finance their assets without explicit cost, ways that complement traditional sources of financing.
In addition to their own resources, retail firms can turn to essentially two kinds of outside financing, one of these short- and the other long-term. In the case of retail businesses, the short- term source is constituted fundamentally by financing from trade credits from providers, while the second involves using creditors or credit entities that grant a financing period of longer than one year. It is clear that the firms with a smaller proportion of long-term outside financing will tend to turn more to commercial creditors in the short term.
3. Methodology: Database and Variables
To achieve the first goal proposed, we analyze the evolution of trade credit periods granted to retail firms by providers in recent years. By doing this, we hope to verify and quantify the effect of Law 3/2004, of December 29, which establishes measures to combat delinquency in com- mercial operations. As three years have passed since the law went into effect, we have a long enough time to make a sufficiently realistic and reliable evaluation of the influence of Law 3/2004 on trade credit periods from providers to retail firms.
The sample of retail firms to be studied is formed of retail organizations belonging to non-spe- cialized commerce (Group 521 of the NCEA - National Classification of Economic Activities). Our study focuses on the sector of products of mass consumption (primarily, fresh and canned foods, personal hygiene and home cleaning products).
The study performed is based on analysis of the financial statements of these retail firms (prof- it and loss accounts and balance sheets). The information comes from CABSA [1] (Centre for Analysis of Balances), a firm that specializes in the creation and management of economic and financial databases included in the financial statements of firms in Spain. Further, this study includes complementary information provided by the DGPC (Directorate General for Commer- cial Policy of the Ministry of Industry, Tourism and Commerce). Oubiña, J.; Romero, J.; Yagüe, M.J. 57
We hope to achieve a fundamentally descriptive analysis whose keystone is the definition and quantification of the concept of the trade credit period from providers under study. The indica- tor for evaluation is “the number of days that firms on average postpone or defer payment to their providers.” Taking two of the items included in the financial statements of the retail firms, we construct a variable of trade credit period from providers (TCP) using formula (1), the for- mula usually employed in studies of commercial credit:
TCP = Commercial creditors * 360/Sales costs (1) Where: Commercial creditors are the items so-named included under the rubric of short-term creditors of the liability of the balance, 360 is the number of days in the year and, Sales costs: the item in the profit and loss statement.
The ratio above is used to calculate the trade credit period from providers for each individual firm. The aggregate indicator, the object of interest in our study, is calculated by the weighted sum of the individual ratios of trade credit periods for the billing percentage that each firm’s sales represent with respect to the total sales in the sample analyzed.
The time period of the study includes the maximum number of years for which we have full information on the sample analyzed, 1999-2007. The time period 1999-2007 represents a suffi- ciently long period of time to observe the basic trend of trade credit periods from providers in recent years and the effect of the legal measure introduced during this period to regulate com- mercial delinquency.
The common sample is constituted of 99 retail firms for which we have complete information from 1999-2007. We thus hope to minimize the presence of bias from the incorporation into the study of factors not controlled for, such as variation in the number and characteristics of the firms analyzed at different moments in time. In this way, differences in the results obtained can- not be attributed in any case to changes in the sample. According to AC Nielsen the sales vol- ume of the five largest retailers of consumer goods in Spain represent a market share of more than a 60% in 2007. The 99 companies of our sample represent 38.97% of retail firms with more than 49 employees and 83.52% of sales volume in Spain, thus ensuring that the sample is representative.
Further, we establish a classification based on size, using business turnover as a variable to measure size. We establish two groups of firms distinguished by whether their turnover in the last year analyzed, 2007, is less than 300 million EUR (SMEs) or greater than or equal to that figure (large firms). This segmentation of the sample seeks to confirm whether or not there are significant differences in trade credit periods by providers between both groups that might be attributable to differences in entrepreneurial size. 58 European Retail Research, Vol. 24, Issue I, pp. 51-70
The second goal of this study is to complement the study of the evolution of trade credit periods for retail firms with a corresponding study of the evolution of trade credit periods by the manu- facturers who supply those firms with products in order to identify what proportion of the cost of financing the commercialization process each agent in the channel assumes for the products of mass consumption before they reach the end consumer. The starting assumption of this analysis is that the financial burden is distributed or shared among the members of the commercialization channel. Contrary to this assumption, the manufacturers usually complain that they are victims who bear exclusively the entire cost of financing the commercial process of these products.
The analysis is applied to a common sample of 319 producing firms belonging to the Grocery and Beverage Industry (Group 15 of the NCEA), which includes the following subsectors: Meat, Fish, Fruits and Vegetables, Greases and Oils, Dairy Products, Milled Products, Pet Food, Other Grocery Products` and finally, Beverages. See Table 1. The economic-financial informa- tion of the financial statements comes from the SABI database [2].
The study performed consists of analyzing the evolution of trade credit periods granted to providers by the manufacturing firms belonging to the subsectors indicated since 2005, the year in which Law 3/2004 against delinquency in commercial operations went into effect. To facili- tate comparison, the TCP was calculated using the indicator applied to retail firms and Formula (1).
Table 1: Sample Characteristics of Manufacturers
!" # $ # % & " # % ' ! "# $ %&
Source: Elaborated using information from SABI.
To create the aggregate indicator we weighted the trade credit period of the individual firms by the percentage of each firm’s sales as compared with the total sales of the group considered.
The third goal of this study is to propose an explanatory model of trade credit periods granted by providers. Oubiña, J.; Romero, J.; Yagüe, M.J. 59
To achieve this, we design a “cross-sectional” model applied to the last year, 2007, for which we have the information necessary to calculate both the variable to be explained and the variables representing the factors that influence the size of the TCP. Although the results obtained refer to 2007, we expect the significant factors explaining the phenomenon in one year to have a greater temporal validity, as financial and commercial decision-makers do not modify their decision rules with respect to the TCP in the short term.
The model’s construction is based on the theoretical focuses that have been the subject of rigor- ous empirical contrast in different economic contexts (Cruz et al. 1997; Ng et al. 1999). Our model incorporates different independent variables that reflect the competitive, financial and marketing arguments supporting the factors that may potentially explain differences in entre- preneurial behavior observed between the main firms in the sector.
Specifically, we see that the retail distributor’s market power acts as a key determinant of the TCP. Schiller (2003), building on industrial organization models by Bain (1956) and Scherer (1980) and the notion of extended rivalry by Porter (1979), proposes that market power refers to the ability of a firm to alter the market price of goods or services without the fear of losing cus- tomers to rival firms. This market power is often seen in the firm’s competitive position in terms of market share or participation (Rhoades 1985), which translates into greater dependence on manufacturers, who negotiate with these market-powerful retailers and are obligated to grant them longer payment periods.
Another important indicator of market power is the gross margin [3] of the retail firm, defined as the difference between the sales figures and the sales costs. This indicator has been typically used as a proxy variable of market power in Industrial Economics. The relationship between gross margins and market power is supported by classical models of imperfect oli- gopolistic competition (Waterson 1980; Armstrong/Porter 2007). The purchase conditions are affected by incentives in the form of discounts and rappels on the tariff prices established, which exercise a decisive influence in increasing the gross margin. As these discounts are usually associated with amounts purchased, they should be more substantial for larger retail firms.
Efficiency is another of the important explanatory factors of TCP, as improvements in efficien- cy should imply fewer financing needs and thus lower payment periods. A commonly used indi- cator of efficiency is rotation, defined as the relation between sales and assets, or economic profitability of assets, also understood as return on investment.
In contrast, we expect that financing needs will be greater if the retail company experiences a higher degree of entrepreneurial growth. The indicators for measuring growth correspond to the inter-annual rates of variation in activity, in terms both of assets and of sales. 60 European Retail Research, Vol. 24, Issue I, pp. 51-70
Finally, it is clear that among the factors determining TCP we find variables of financial man- agement. To obtain the funds necessary to function, in addition to their own resources, retail firms can turn to two basic kinds of outside financing, one short- and the other long-term. In the case of retail businesses, short-term funding is constituted fundamentally of the financing from trade credits granted by the providers, whereas long-term funding involves creditors or credit entities that grant financing with a period of more than one year. It is obvious that firms with a greater proportion of outside financing in the long term will tend to use commercial creditors less in the short term. Along these lines, we can introduce a battery of explanatory variables into the model that reflect different ratios of the retail firms’ financing structure, on the level both of liquidity and debt quality and of solvency and financial autonomy.
The description of the dependent variable used in the TCP model (number of days of the retail firms’ trade credit) and the independent variables incorporated into the final model [4] are the figures that contribute most to explaining the trade credit period (gross margin percentage, asset rotation, debt quality and indebtedness) and are shown in Table 2.
We should point out that we also included a dummy variable in the analysis (1, 2) to indicate the size category to which the retail firm belongs. For SMEs (small and medium-sized firms), the dummy takes a value of “1” and for large firms (those whose billing volume exceeds 300 mil- lion EUR) a value of “2”.
The empirical contrast of the explanatory model of the TCP is applied to a sample of 99 non- specialized retail distribution firms (Group 5211 of the National Classification of Economic Activities, NCEA). [5]
Table 2: Indicators of the Variables
Name Indicator Formula Measure unit Dependent Payment Commercial creditors * 360/Sales costs Days Variable Period Explanatory Gross (Sales – Sales costs)*100 / Sales % Variables Margin Asset Sales / Assets 0-1 Rotation Debt Long-term creditors / (Long-term creditors + 0-1 Quality Short-term creditors) Indebtedness (Liabilities – Own funds) * 100 / Liabilities %
4. Results
In this section we present two types of results. We first show a descriptive analysis of the evolu- tion of trade credit periods of food products in Spain. Subsequently we present the results of our explanatory model for trade credit periods. Oubiña, J.; Romero, J.; Yagüe, M.J. 61 4.1. Evolution of Trade Credit Periods in Retailers
Table 3, which corresponds to the graph shown in Figure 2, presents the results obtained in the analysis of evolution of trade credit periods from providers to Spanish retail firms in non- specialized commerce for the period 1999-2007. In reading the table and the graph, we find information of considerable interest on the evolution of trade credit periods granted to retailers in Spain.
First, for the total sample of firms considered in the last year analyzed, 2007, we observe a sig- nificant decrease - around 7 days, which increases to 10 days if we consider the period after Law 3/2004 comes into effect in 2005. To this we must add that, even in 2004, we see some anticipatory effect of the law when compared with 2003, as the economic agents in the sector knew that it was about to come into effect. Thus, the sum of successive decreases that occurred from 2003 until the last year available (2007) is quantifiable as 16 days.
This analysis shows a clear effect: decrease in the trade credit period from providers in accord with the fundamental goal of Law 3/2004 to fight delinquency in commercial operations.
Table 3: Payment Period Evolution: Retailer
!
Source: Elaborated using information from CABSA
Second, the individual analysis of the evolution of trade credit periods granted to large firms, on the one hand, and to small and medium-sized firms on the other produces the following conclu- sions. 1) The tendency of the total sample is marked by the evolution of large retail firms that absorb most of the total sales in the sector, in spite of the fact that they are in the minority. This fact can be seen in the nearly parallel, almost superimposed, evolution of both functions. 2) The large firms maintain trade credits that are permanently longer than those of small firms. This evidence corroborates the proposal by Cannari et al. (2004) that the large distributors show greater market and negotiating market power to achieve longer trade credits. However, in recent years, the difference between large and small firms has decreased due to the fact that the large firms have reduced their number of days of delinquency more than the small firms have. 3) The cumulative decrease by the large distributors since the Law went into effect is ten days, while the SMEs’ reduction is just over one and a half days. 4) The weak negotiating position of the 62 European Retail Research, Vol. 24, Issue I, pp. 51-70 small distributors vis à vis the providers is shown in their acceptance of shorter payment peri- ods. In reality, we see a very constant tendency in SMEs to maintain their trade credit periods consistently around levels that range from 66-71 days of payment deferral. In sum, we see that the Law has affected principally the large firms, which have reduced their levels of TCP signif- icantly.
Figure 2: Payment Period (Retailers)
4.2. Evolution in Trade Credit Periods in Manufacturers of Food Products
Table 4, associated with Figure 3, shows the evolution of the TCP both for the full sample of the firms manufacturing food products and for the firms belonging to each of the subsectors.
For the total of the sample, we observe that the TCP is located around 50 days, although the quantity varies considerably based on the subsector considered. The TCP of firms that manu- facture greases and oils is around 30 days on average, whereas the TCP for fruit and vegetables firms is approximately 60 days.
Further, within the same subsector, we see variations over the three years considered. The TCP of manufacturers of dairy products, animal foods and other food products shows an increasing evolution throughout the period considered. In contrast, in the subsectors of fruits and vegeta- bles and of greases and oils, the TCP has tended to decrease, whereas in subsectors for fish, Oubiña, J.; Romero, J.; Yagüe, M.J. 63
Table 4: Payment Period Evolution Manufacturers
3&X746E4(&C 1&48 a#$ $a! $a 455&C F)@G a # a" #Qa" 3&X746E4(&C D&(&84H'&@ !a" !aQ# # a"! A3&4@& 45C#B)' $a# $aQ "a$! I4)39 73BC068@ $ a a #a P)''&C 73BC068@ Qa## $Qa$# $a &8 FBBC #!aQ #!a$Q #a! )8G&3#(3B6&39#73BC068@ #$aQ# #a# #aQ %&D&34(& # a# a$ #"a
Source: Elaborated using information from SABI beverages and milled products, the period increases from 2005 to 2006 and decreases from 2006 to 2007. Finally, the TCP of meat companies hardly fluctuates, presenting a stable level throughout the three years considered.
To provide evidence that supports or refutes our proposed assumption concerning the distribu- tion of the cost of financing among the agents composing the chain for commercialization of
Figure 3: Payment Period (Manufacturers)
! " # !$ % !$ !! & ! # !$ ' (! 64 European Retail Research, Vol. 24, Issue I, pp. 51-70 products of mass consumption, we perform a comparative study of the TCP of the retailers and of manufacturers, Table 5, associated with Figure 4.
The data indicate that the TCP of retailers is approximately the period shown, around 80 days, whereas that of the manufacturers is less, around 50 days. The TCP of retailers is thus 30 days longer than that of the manufacturers. However, the manufacturers postpone payment to their providers for a period of approximately two months. Therefore, the provider located at the beginning or at the origin of the physical distribution flow of the product in the supply chain is the one who assumes a good percentage - approximately two thirds - of the financial cost of the process.
Table 5: Comparative Analysis of Payment Period: Retailers vs. Manufacturers
2005 2006 2007
% of trade credit periods of manufacturers over 58 % 63 % .68 % distributors Difference in retailer-to-manufacturer trade credit 35.27 29.64 23.52 periods
Source: Elaborated using information from CABSA y SABI.
Figure 4: Comparative Analysis of Payment Period: Retailers vs. Manufacturers
Oubiña, J.; Romero, J.; Yagüe, M.J. 65 4.3. Explanatory Model of Trade Credit Periods for Retailers
Now that we have analysed the temporal evolution of the TCP, from the perspective of both the production firms and the distribution companies, we present our work towards this paper’s third major objective. The basic idea is to estimate an explanatory model of trade credit periods granted by providers. The goal is to advance our understanding of the determinants of the dif- ferences observed between the TCPs of the individual firms for year 2007.
In table 6 we show the average and standard errors of the dependent and explanatory variables of the model. The average payment period is 77.78 days (standard deviation: 47.17 days)
Table 6: Descriptive Statistics of the Variables Used in the Regression Model
Mean Standard Deviation Dependent Payment Period (Days) 77.78 47.17 Variable Explanatory Gross Margin 17.65 11.75 Variables Asset Rotation 2.44 1.33 Debt Quality .12 .15 Indebtedness .64 .23
For the regression analysis, we apply the step-wise procedure, obtaining the results shown in Table 7. Here we can see the statistically significant effect of the independent variables indicat- ed in the descriptive analysis. We should mention that the coefficient of determination R2 adjusted to the ascending model is “.28”, indicating that the model explains 28% of the variance of the dependent variable TCP. The F Snedecor obtained is 10.502, with a significance level of .000, which shows that the model as a whole is statistically significant.
Table 7: Multiple Regression Model of the Retail Payment Period
!! " # #$ % &'('# )* '''+ 66 European Retail Research, Vol. 24, Issue I, pp. 51-70
The results show that, in agreement with the hypotheses derived from our theoretical review, retail firms’ market power and their degree of efficiency show a statistically significant influ- ence on trade credit periods granted by providers. Indeed, the results show that the retailers with efficient asset management measured as the quotient of sales volume over total assets (both fixed and current) postpone payment to manufacturers less, whereas a lower level of rotation means that the retailers must resort to greater financial leveraging to compensate for the mini- mal productivity of their assets.
In contrast, the retailers who have greater market power, expressed in higher gross margins due to their negotiating market power, achieve longer deferrals. And the debt quality measured as the relation between long-term creditors and total outside funds (both long- and short-term) helps those firms with more long-term financing not to have to resort to the financing granted by commercial creditors in the short term.
The results show that the fundamental explanatory factor of trade credit periods granted by providers, as well as the above-mentioned efficiency evaluated in terms of rotation, is based on the financial policy of the retail firms, specifically in their indebtedness policy. The degree of indebtedness was measured through the relation between outside funds and liabilities. That indebtedness takes a positive sign in the model shows that firms with fewer of their own resources which are therefore in greater need of outside funding achieve this funding, among other formulas, through the financing included in trade credit granted by providers.
4.5. Managerial Implications
Some managerial implications arise from our analyses, particularly for retailers and manufac- turers of consumer goods. First, companies do not negotiate trade credit periods without taking into account their financial situation. By contrast, even having the same profitability and/or growth objectives, the importance of trade credit periods of retailers varies according to their efficiency and market power. Thus, retailers with a high monopolistic power will probably con- sider enlarging trade credit periods as a way of reaching their objectives. On the other hand, an efficient retailer - with a business model based upon high rotation rates - will prefer reducing its supplying costs in exchange for accepting shorter trade credit periods. Similarly, retailers with a different financial structure will have a different attitude toward the employment of trade credit periods as a financial instrument.
As a consequence, retailers that use trade credit periods for obtaining financial resources at a low cost as an alternative to long term indebtedness in order to pay for the growth of their fixed assets are assuming a high level of risk. Oubiña, J.; Romero, J.; Yagüe, M.J. 67
Manufacturers that need to sell their products through large retail chains (due to their size or other economic reasons) must foresee that they are going to be obligated to accept very long trade credit periods. They must find mechanisms to compensate for the financial cost of these credit periods. These mechanisms include: 1) increasing their prices (adequate for owners of strong brands), 2) neutralize the increase in financial costs by lowering manufacturing costs (appropriate for cost leader companies, usually very large firms) or 3) increase trade credit peri- ods for their inputs suppliers. Similarly, manufacturers should deeply analyse the economic efficiency and the liabilities of the retailers they have to negotiate with, in order to check whether the distributors really need to postpone payments.
Finally, our study also provides some insights for policy makers. In particular, our analysis makes clear that the identification of the links between the financial structure of retailers and their competitive patterns are very strong. Policy makers must take into account these links in order to set off control systems that allow anticipating when companies might stop paying their debts.
6. Conclusions, Limitations and Future Lines of Research
Performing this study has enabled us to confirm that the legislative measures to combat delin- quency in commercial operations have been having a considerable and continuous effect since the law went into effect in 2005. This effect began as an anticipated influence in 2004, produc- ing a decrease in the trade credit period as compared to 2003. The credit continued to decrease in the first two years that the law was in effect (2005 and 2006), with a marked downward trend in the length of trade credit from providers to retail firms. This trend has been confirmed and consolidated in the last available set of statistics from 2007, the year in which the reduction of days that these firms postponed their payments was especially significant.
The results obtained also show that larger retail firms always have longer trade credits than small firms in the period analyzed. This difference in the deferral between large and small-to- medium sized firms may be attributed in principle to the negotiating market power that larger distribution companies have in their transactions with production firms.
On the other hand, the analysis performed of the TCP enables us to confirm that the average length of trade credit period from providers varies considerably based on the subsector consid- ered. Therefore, we observe that not only do distributors delay payment to manufacturers, but manufacturers also defer payment to a lesser but not insignificant extent (especially in some subsectors) to their providers of raw materials. These initial agents in the value chain assume to a large extent, and in many cases the greatest part, of the financing cost for the production and commercialization process of the products of mass consumption. 68 European Retail Research, Vol. 24, Issue I, pp. 51-70
To this we must add that, while the trade credit period of retail firms has declined consistently in recent years, the same trend does not occur in the case of manufacturing companies, which have tended to experience moderate growth or even remain stable in the last period.
If we look for explanations for the extent of the trade credit period granted by providers, we find the cause to lie fundamentally in the strength of the negotiating position that comes with market power as well as in the firm’s capability to manage their retail business efficiently. Indeed, the regression analysis shows that the retail firms which defer payment most are those with the highest gross margins and the greatest asset rotation.
This shows that the market-powerful retailers demonstrate their influence by, among other ways, obtaining longer trade credit periods. This enables them to easily reorganize and improve their profit and loss statements through effective management of the greater level of cash flow that they enjoy. On the other hand, there is less financial need in firms that manage their retail businesses efficiently, thereby decreasing the days of trade credit granted by providers.
Although important, these two explanatory factors have less influence on the TCP than the two financial ratios: degree of indebtedness and debt quality. The former shows that the most indebted retail firms defer their payments longer, as part of this debt comes precisely from the short-term debt contracted with the commercial creditors. The second ratio shows that retail firms which obtain better long-term financing, associated with a better quality of debt contract- ed, do not have as great a need for the financing granted by their providers of goods.
We must take into account that this study has a general and descriptive focus, as it is based on data from the profit and loss statements of the retail firms. This limitation in the sources of information has prevented us from incorporating into the analysis a series of explanatory fac- tors used in other studies mentioned in the literature review as conditioners of the period of commercial credit. These are variables such as the length of the manufacturer-distributor rela- tionship, the provider’s control over variables of its product marketing at the point of sale, by belonging to a purchase centre, and opportunistic behavior by the provider. In a future study, it would be interesting to obtain and introduce this set of variables.
It would also be interesting to develop an explanatory model of trade credit periods for manu- facturers. This would allow testing whether the drivers of trade credit periods are the same as for retailers, thus generalizing our model’s results. Not reaching similar results would indicate that the model should be adapted to each type of company.
In any case, the debate over whether the legal regulation of trade credit periods is appropriate remains unresolved. It is perhaps important to remember that the key to combating delinquency lies not only in the passing of laws but also, as Brachfield (2006) indicates, in improving Span- ish and European retail firms’ payment behavior through an ethical code that ensures self-regu- lation of payment periods. Oubiña, J.; Romero, J.; Yagüe, M.J. 69 Notes
[1] The authors wish to thank CABSA (Central de Análisis de Balances) for its collaboration in providing without restrictions the information on the financial statements of the firms we analyzed. [2] Free access to SABI is available through the web server of Autonoma University of Madrid Library. [3] Gross margin can be considered as the operational variable of the theoretical concept underlying in Lerner’s index, which is an indicator of monopolistic power. [4] This explanatory analysis was performed using Minimum Least squares in stages until we determined the indicators that best explained the differences in the TCPs observed. [5] These 99 firms were obtained after filtering out cases that were either missing data for some variables or that include observati ons that they are not strictly retail firms.
References
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Eva Walter, Claudia Steyrer and Stefan Wiesel
Abstract The popularity of relationship marketing has increasingly grown in the past couple of decades. Retailers recognize that satisfying and retaining consumers by building relationships is one of the most sustainable competitive advantages. Although the use of loyalty cards is popular in retailing, a lot of customer loyalty programs are virtually interchangeable, lacking in attractive- ness and differentiation. Therefore, it is important to identify the determinants of customer sat- isfaction relating to these programs. Does aiming for customer satisfaction mean understanding and anticipating what customers want from a loyalty card program? A Kano model of customer satisfaction is investigated; and “attractive”, “must-be”, “one-dimensional” and “indifferent” requirements are identified based on a sample of 300 customers.
Keywords Customer Satisfaction, Loyalty Card Programs, Kano Theory
Eva Walter (corresponding author) Department of Marketing, Institute for Retailing and Marketing, WU Vienna University of Economics and Business, Vienna, Austria (Tel: +43 1 31336 4622; E-mail: [email protected]).
Claudia Steyrer Department of Marketing, Institute for Retailing and Marketing, WU Vienna University of Economics and Business, Vienna, Austria.
Stefan Wiesel Department of Marketing, Institute for Retailing and Marketing, WU Vienna University of Economics and Business, Vienna, Austria.
EUROPEAN RETAIL Received: December 4, 2009 Revised: April 22, 2010 RESEARCH Accepted: April 26, 2010 Vol. 24, Issue I, 2010, pp. 71-96 72 European Retail Research, Vol. 24, Issue I, pp. 71-96 1. Introduction
Around the world retail competition in consumer markets continues to intensify and retailers as well as marketers are seeking strategies for maintaining both the interest and loyalty of their customers. Therefore, relationship marketing has grown in popularity during the past decades and the implementation of relationship marketing programs is steadily increasing (Noble/ Phillips 2004, p. 290). Today, retailers recognize that satisfying and retaining consumers by using relationship building activities is one of the most promising forms of sustainable compet- itive advantage. Although loyalty cannot be taken as a direct proxy for profitability, numerous theoretical and empirical studies have found that customers generate increasingly more profits for each year they buy from and continue to trust the company (Meffert 2008, p. 160; Noble/ Philips 2004, p. 290; Reinartz/Kumar 2000, p. 28).
In retail practice it is very common to use card-based programs for loyalty enhancement strate- gies. Such programs involve the issuance of specially coded cards or other special scanner-read- able cards, which can then be used at the checkout with the objective of increasing customer propensity. The customer can derive several benefits from the usage of loyalty cards like per- centage/price reductions, special offers, gift-packaging-service, their own parking area or addi- tional information (Allaway et al. 2006, p. 1318). After growing by 25 to 30 percent a year during the 1990s, loyalty cards are now commonplace in European retailing. In some markets, the penetration has approached saturation, while in others it is still advancing at a steady pace (Ziliani/Bellini 2004, p. 282f.). In Austria, loyalty card programs are among to the most popu- lar relationship-building activities (Seebacher 2007, p. 78).
Nonetheless, a lot of customer loyalty card programs are virtually interchangeable and con- sumers do not use them (Hoffmann/Naß 2007, p. 6). There are many different reasons why con- sumers do not want to engage in a relationship with the retailer. Often consumers do not feel that the benefits offered by retailers are sufficient or of interest for them (Noble/Philips 2004, p. 300). Furthermore, there is also a lack of attractiveness and differentiation (Tomczak et al. 2008, p. 325).
Consequently, it is important to identify the determinants of customer satisfaction with loyalty programs to offer suitable benefits to the customers. Aiming for customer satisfaction means understanding and anticipating what customers want from a loyalty card program, which per- formance attributes generate positive response and have the ability to surprise the customer. Which benefits can be offered to obtain a high level of customer satisfaction, which features have a disproportional influence on satisfaction, and which attributes are essential to the cus- tomer? Based on the Kano model of customer satisfaction, the purpose of this study is to ana- lyze different performance attributes and to identify the most influencing factors on customer satisfaction. Walter, E.; Steyrer, C.; Wiesel, S. 73
The remainder of this paper is organized into four parts. The following section (section 2) pro- vides a literature review and the description of the Kano model of customer satisfaction. In the third section the conceptual framework and the derived hypotheses are reported. The fourth presents the construction of the Kano questionnaire, the empirical study and the steps of data analysis. Finally, the results are discussed and we explore limitations and some implications for future research.
2. Theoretical Background
In modern management theory, customer satisfaction is considered one of the most important drivers of long-term business success. This shift in strategic thinking is based on the assumption that customer satisfaction is one of the most powerful indicators for a company’s future, as a high level of customer satisfaction leads to a high level of customer loyalty. Numerous theoret- ical and empirical studies discuss the positive effects of customer satisfaction (Bolton 1998; Homburg/Bucerius 2006, p. 93; Mittal/Kamakura 2001). Albeit nonlinear, higher satisfaction nevertheless increases customer loyalty and ensures a lasting cash flow. Satisfied customers are, furthermore, less price sensitive and more inclined to spend more on tried and tested prod- ucts (Homburg et al. 2005, p. 94; Yu/Dean 2001, p. 247). Stable business relations have other advantages: the positive image reduces the costs of attracting new customers, and the high level of customer loyalty lowers transaction costs for existing customers (Matzler et al. 2009a, p. 9). As a consequence, practitioners need to understand how satisfaction is engendered, how it can be influenced, which features have a more than proportional influence on satisfaction and which attributes are an absolute must in the eyes of the customer.
So far, the literature on customer satisfaction is characterized by the predominance of one- dimensional models (Anderson/Mittal 2000, p. 108). The best known framework for satisfac- tion studies is probably the expectation disconfirmation paradigm. It proposes that customers maintain a standard of reference to which they compare perceived performance. Satisfaction results if performance is higher than expected; dissatisfaction results if it is lower (Homburg/ Stock-Homburg 2008, p. 19; Foscht/Swoboda 2005, p. 209). In this case, only the overall cus- tomer satisfaction with the total product or service performance is considered (Bartikowski 2002, p. 16). But the identification of the determinants of customer satisfaction is a central con- cern for both marketing research and practitioners. It is important to know which service attrib- utes add value and increase satisfaction, which of them merely fulfill minimum requirements and minimize dissatisfaction, and which do both. Consider the following examples: a clean restaurant engenders no satisfaction, but a dirty restaurant strongly attracts negative feelings; receiving a free drink in a restaurant is pleasantly surprising, but there is no reason for dissatis- faction if it is not delivered for free. In cases such as these, variant attributes may result in cus- 74 European Retail Research, Vol. 24, Issue I, pp. 71-96 tomer satisfaction or dissatisfaction or evoke no feeling from the consumer (Bartikowski/Llosa 2004, p. 68). This is the core concept of the Kano model.
The earliest concept for a two-dimensional model was proposed by Frederick Herzberg (Herzberg et al. 1959). The motivator-hygiene theory or the two-factor theory of work intro- duces a distinction between satisfaction and dissatisfaction. The theory posits that the factors causing job dissatisfaction are different from the factors causing job satisfaction (Matzler et al. 2004, p. 1182; Tontini 2000, p. 728). Inspired by Herzberg’s theory in behavioural science, Kano et al. (1984) developed the “Theory of Attractive Quality”. The theory of attractive quali- ty is useful to better understand different aspects of how the customer evaluates a product or service (Löfgren/Wittell 2007, p. 56; Nilsson-Witell/Fundin 2005, p. 152). To understand the role of quality attributes, Kano et al. (1984) present a model that evaluates patterns of quality based on customers’ satisfaction with specific quality attributes and their degree of sufficiency. The theory explains how the relationship between the degree of sufficiency and customer satis- faction with a quality attribute is different for different kinds of attributes. For some attributes this relationship is positive asymmetrically, positive linearly, negative asymmetrically, non-exis- tent or negative linearly (Ting/Chen 2002, p. 548). Depending on the nature of this relationship, product and service attributes are distributed amongst five categories of perceived quality: “must-be elements”, “one-dimensional elements”, “attractive elements”, “indifferent elements” and “reverse elements” (Löfgren/Wittell 2005, p. 62). If must-be requirements are not fulfilled, the customer will be dissatisfied, but their fulfillment will not increase satisfaction, as these requirements are taken for granted. So, fulfilling these requirements will only lead to a state where the consumer is not dissatisfied. Contrary to the must-be requirements, a high level of fulfillment of one-dimensional requirements will lead to a high level of consumer satisfaction. Attractive requirements have the most influence on satisfaction. Those requirements are neither explicitly expressed nor expected by the consumer (Sauerwein 1999, p. 416).
Kano’s model of customer satisfaction connects the ideas of the theory of attractive quality with the acceptations of the expectation disconfirmation paradigm. According to Kano’s model of attractive quality, satisfaction with a quality attribute is the result of an evaluation of objective and subjective qualities. Transferring this acceptation to the expectation disconfirmation para- digm, customer satisfaction then is the result of an evaluation of the standard of reference to the perceived performance (Hölzing 2008, p. 85). Figure 1 shows the nature of this relationship.
Consequently performance attributes are classified into the following five categories (Matzler et al. 2009b, p. 322f.; Homburg/Stock-Homburg 2008, p. 33f.; Matzler et al. 2004, p. 1183f.):
- Must-be requirements: are minimum requirements that cause dissatisfaction if not fulfilled but do not lead to customer satisfaction if fulfilled or exceeded. Negative performance on these attributes has a greater impact on overall satisfaction than positive performance. The Walter, E.; Steyrer, C.; Wiesel, S. 75
Figure 1: Kano’s Model of Customer Satisfaction
" " !
#
Source: Berger et al. (1993), p. 4.
fulfillment of basic requirements is a necessary but not a sufficient condition for satisfaction. Basic requirements are entirely expected. The customer regards them as prerequisites, they are taken for granted. - One-Dimensional requirements: lead to satisfaction if performance is high and to dissatisfac- tion if performance is low. In this case, the attribute performance-overall satisfaction relation- ship is linear and symmetric. Usually one-dimensional requirements are explicitly demanded by customers. - Attractive requirements: are the requirements that increase customer satisfaction if delivered but do not cause dissatisfaction if they are not delivered. Positive performance on these attrib- 76 European Retail Research, Vol. 24, Issue I, pp. 71-96
utes has a greater impact on overall satisfaction and these requirements are the key to cus- tomer satisfaction. Attractive requirements are neither explicitly expressed nor expected by the customer. - Indifferent requirements: these requirements refer to aspects that are neither good nor bad. Consequently they do not result in either customer satisfaction or customer dissatisfaction. Often indifferent requirements are those product or service attributes that are never or rarely used by the customer. - Reserve requirements: these requirements refer to a high degree of achievement resulting in dissatisfaction and to the fact that not all customers are alike.
The model implies that basic requirements establish a market entry threshold. If they are deliv- ered to a satisfactory level, an increase in their performance does not lead to an increase in customer satisfaction. One-dimensional requirements are typically directly connected to cus- tomers’ explicit needs and desires. Therefore, a company should be competitive with regard to one-dimensional factors. Attractive requirements are unexpected and surprise the customer. As they generate delight, a company should try to stand out from the competition with regard to these attributes.
Furthermore, additional advantages exist for classifying customer requirements by means of the Kano method. Attributes requirements are better understood. The criteria that have the greatest influence on customer satisfaction can be identified (Matzler/Bailom 2009, p. 293). Classifying attribute requirements into must-be, one-dimensional and attractive dimensions can be used to focus on priorities for development. It is not very useful to invest in improving must-be requirements which are already at a satisfactorily level, but better to improve unidimensional or attractive requirements as they have a greater influence on the customers’ level of satisfaction (Matzler/Bailom 2009, p. 293; Sauerwein 2000, p. 180). Kano’s method provides valuable help in trade-off situations in the development stage. If two features cannot be met simultaneously due technical or financial reasons, the criterion can be to identify which has the greatest in- fluence on customer satisfaction (Matzler et al. 2004, p. 1184). Kano’s model of customer satisfaction can be used to optimize quality function deployment. A prerequisite is identifying customer needs, their hierarchy and priorities. Kano’s model is used to establish the importance of individual features for the customer’s satisfaction and thus it creates the optimal prerequisite for process-oriented product development activities (Sauerwein 2000, p. 5).
The Kano method has been discussed in numerous theoretical articles and empirical studies and the basic idea of this model is widely accepted in current research (Matzler et al. 2009b, p. 324; Hölzing 2008, p. 149f.; Bartikowski/Llosa 2004, p. 70f.; Matzler et al. 2004, p. 1183; Gierl/ Bartikowski 2003, p. 24f.; Anderson/Mittal 2000, p. 108f.; Vavra 1997, p. 380ff.; Tontini 2000, p. 730ff.; Sauerwein 2000, p. 25f.). Furthermore, several researchers have studied Kano’s Walter, E.; Steyrer, C.; Wiesel, S. 77 method in combination with other methods (Tontini 2007, p. 603f.; Chen/Su 2006, p. 595f.). Finally, the Kano method has been used in current empirical studies to classify consumer requirements in, for example, supermarkets (Ting/Chen 2002, p. 548f.), building centers (Sauer- wein 2000, p. 154f.), shopping centers (Baier 2001, p. 4), in tourist offers (Lee/Chen 2006, p. 301) and tourist agencies (Kaapke/Hudetz 2001, p. 128).
3. Research Hypotheses
The literature review does not show a consensus on the minimal characteristics of a loyalty card program. From a retailer’s perspective, the loyalty card is the prime interface between the retail- er’s database and the customer. From a customer’s perspective, the card is a tool that generates extra rewards (Wieder 2009, p. 625; Tomczak et al. 2008, p. 335; Schweitzer 2003, p. 21).
Typically, loyalty card programs serve four functions (see Figure 2). First, customer cards per- form an identification function. Nowadays cards are normally configured with a magnetic strip, barcode or chip, to transfer information to the retailer (Kasavana 2005, p. 31). Second, customer cards serve a memory function and act as an advertising medium. Finally, loyalty card programs have a finance function and a marketing function (Helm/Ludl 2005, p. 1137). Through these functions, loyalty cards provide benefits to the customers.
Customers can benefit from participation in loyalty card programs in several ways. Within the finance function, programs offer customer price performance (percentage/price reductions, specials offers) or payment- and credit performance (credit facilities) and bestow economic benefits (Guldin/Ohr 2008, p. 837; Teichmann 2006, p. 57). Together, these can create economic switching barriers, in which case customers loose advantages if they change suppliers (Meyer- Waarden 2006, p. 225). In relation to their marketing function, customers can be offered special services. These services endow service benefits (gift packaging, reserved parking, additional information) and psycho-social benefits (preferential treatment sponsored by the retailer like pre-sale campaigns, style counseling) (Guldin/Ohr 2008, p. 837; Teichmann 2006, p. 55). Such service performance attributes can create emotional bonds that enhance customer commitment, which will strengthen the loyalty program’s effects beyond those of the economic aspects. Con- sumers may appreciate rewards which make them feel like preferred customers and thus will identify more strongly with the company. In this scenario, an interactive, high quality, long- term relationship that leads to greater trust, commitment and loyalty becomes an emotional choice factor and could lead to a high switching cost (Allaway et al. 2006, p. 1319; Helm/Ludl 2005, p. 1139).
According to the extant literature, price performance is considered a standard attribute of a loy- alty card program (Hari/Meyer 2008, p. 20; Teichmann 2006, p. 56; Lauer 2004, p. 46; Ploss 78 European Retail Research, Vol. 24, Issue I, pp. 71-96
Figure 2: Functions of a Loyalty Card Programm
# ! ! $ " " %
Note: Helm/Ludl (2005), p. 1137.
2002, p. 28). For customers price performance is often a basic criteria and a reason to join a loy- alty card program. Therefore, we hypothesize as follows:
H1.a: The evaluation of price performance is identified as a must-be requirement of loyalty card programs.
Service performance has the potential to surprise customers. The fulfillment of these require- ments brings high satisfaction and creates emotional solidarity (Hoffmann/Naß 2007, p. 41; Teichmann 2006, p. 55). A retailer can set itself apart from its competitors through service per- formance. Therefore, we hypothesize as follows:
H1.b: The evaluation of service performance is identified as an attractive requirement of loy- alty card programs.
Besides the fact that Austria has been typically a “cash” country over the past decade, there has been a steady increase in the preference for cashless purchasing. From a consumer’s perspective a credit card or other type of card functions as an alternative payment and financing medium. From a retailer’s perspective it is possible to perform a payment- or credit service in several ways. First, it is possible to create an in-house card or a sales account. Consequently, the cus- Walter, E.; Steyrer, C.; Wiesel, S. 79 tomer has an additional payment card. These non-cash payment facilities are often character- ized by high abstraction levels, and loss of subjective control over expenditures (Penz et al. 2004, p. 771; Schweizer 2003, p. 23). Second, it is possible to cooperate with a debit card com- pany (Maestro) or a credit card company (Visa, MasterCard) to create a versatile usable card. These facilities have the benefit that they are easy to handle and increase convenience. Also, control over expenditures could be increased (Teichmann 2006, p. 61). In Austria, such loyalty programs are not very popular. Hence it would be interesting to find out how these services influence customer satisfaction and we hypothesize as follows:
H1.c: The evaluation of in-house payment- and credit service is identified as an indifferent requirement of loyalty card programs. H1.d: The evaluation of general payment- and credit functions is identified as an attractive requirement of loyalty card programs.
For better customer satisfaction and less customer dissatisfaction, a company has to make the effort to offer attractive product or service elements in new services as well as eliminate possi- ble defects in must-be elements. Because the judgment of an attractive element or a must-be element is highly personal, it is important to designate segments. Segmentation, the notion that nearly any market can be divided up into variety of different behavioural, demographic, or psy- chographic groups with potentially very different reactions to marketing stimuli, is a central concern for marketing researchers and practitioners (Chen/Su 2006, p. 598f.; Baier 2002, p. 5). Having now established the background that the Kano model demonstrates that performance attributes can be transformed into terms of requirements, one can then take demographic vari- ables such as age, gender, etc. or behavioural variables to create different market segments and develop services with attractive requirements for these respective customer groups (Hölzing 2008, p. 87f.). Therefore, we propose as follows:
H2.a: There are no differences between men and women in the evaluation of performance attributes within loyalty card programs. H2.b: There are differences between credit cardholders and customers without any credit card in the evaluation of loyalty cards with payment and/or credit functions.
Kano’s theory predicts that product and service attributes are dynamic in that, over time, an attribute will change from being indifferent, to attractive, to one-dimensional, and finally into a must-be (Hölzing 2008, p. 61). According to Kano product and service attributes do follow this lifecycle. When introduced to a market, often an attribute may not be very interesting to cus- tomers - they feel indifferent towards the new attribute. In the growth phase of a market, an attribute might gain the ability to make customers feel satisfied, but still neutral if the service does not include this attribute. However, customers who have used the attribute will frequently be strongly dissatisfied if it later disappears. After frequent usage, the perception of the attrib- 80 European Retail Research, Vol. 24, Issue I, pp. 71-96 ute changes to one-dimensional, and over time to must-be (Nilsson-Witell/Fundin 2005, p. 153f., Sauerwein 2000, p. 20). Therefore, we hypothesize as follows:
H3: There is a difference between loyalty cardholders and customers without loyalty cards in the evaluation of performance attributes within loyalty card programs.
The literature review shows that customers in retail fashion are poised for testing new functions in loyalty card programs (Pohlmann 2003, p. 161; Ritter 2002, p. 54). So it is important to find out if there is an acceptance for a payment- or credit function and which factors influence the use of such cards. Actually, little is known about the factors that influence consumers’ use of store cards. According to Lee and Kwon (2002, p. 241) the usage is related to a number of vari- ables, including the use of payment cards, income and education. In Austria, preference for cashless payments increases with higher income and education (Mooslechner et al. 2006, p. 134). Therefore, we propose:
H4.a: Education has positive affects on the usage of cards with payment and/or credit func- tions. H4.b: Income has positive affects on the usage of cards with payment and/or credit functions. H4.c: The more loyalty cards a customer has, the more likely the consumer will want to use loyalty cards with payment and/or credit functions.
Nowadays, most customer loyalty card programs are virtually interchangeable. They lack in attractiveness and differentiation. A retailer has to offer an additional incentive to make its card competitive and attractive (Hoffmann/Naß 2007, p. 6). According to Ferguson (2006, p. 374) a payment- and credit service should be an integral part of the loyalty strategy and can effective- ly differentiate the loyalty card. Finally, an integral payment- and credit service can positively affect customer satisfaction with the loyalty program. In line with these findings we hypothe- size as follows:
H5: Loyalty cards with payment and credit functions positively affect consumer satisfaction with the loyalty card.
The hypotheses formulated will be subjected to an empirical review in the following chapter.
4. Empirical Study and Methodology
4.1. Kano Questionnaire
The Kano model brings a different perspective to the analysis of product or service attributes because it takes into consideration the asymmetrical and non-linear relationship between per- formance and satisfaction. Walter, E.; Steyrer, C.; Wiesel, S. 81
The identification of attractive, must-be, one-dimensional and indifferent requirements is based on a “Kano questionnaire”, which is constructed of pairs of customer requirement questions. The first question, or functional question, identifies the reaction of the customer as to whether or not the performance of the requirement is sufficient. The second question, or dysfunctional question, identifies the reaction in case the performance is insufficient. So each question has two parts: “How do you feel if that feature is present in the product or service?” (functional question) and “How do you feel if that feature is not present in the product or service?” (dys- functional question).
In the original version customers had to select one of five alternative answers for each part of the question. These five alternatives are described as “I like it that way”; “It must be that way”; “I am neutral”; “I can live with it that way” and “I dislike it that way”. The wording of the alter- natives is a critical choice when using this approach.
Depending on the customers’ answers to the functional and dysfunctional questions, the requirement may be classified as an attractive, must-be, one-dimensional, questionable, reserve or indifferent. The five-level Kano evaluation table has 25 possible outcomes (see Table 1).
Table 1: Kano Evaluation Table
Performance Dysfunctional Requirements 1. I like it 2. It must 3. I am 4. I can live 5. I dislike that way. be that way. neutral. with it that way. it that way.
Functional 1. I like it that way. Q A A A O 2. It must be that way. R I I I M 3. I am neutral. R I I I M 4. I can live with it that way. R I I I M 5. I dislike it that way. R R R R Q
Notes: A(ttractive), O(ne-dimensional), M(ust-be), Q(uestionable), R(everse), I(ndifferent) Source: Sauerwein (2000), p. 38.
A lot of studies use simplified versions of the original five-level Kano questionnaire (Löfgren/ Witell 2007, p. 58f.; Corbella/Maturana 2003, p. 73; Gierl/Bartikowski 2003, p. 24; Baier 2001, p. 5; Sauerwein 2000, p. 82f.). The aim of this approach is to reduce complexity. The advantage of simplified response scales lies in the fact that reduced scales represent an option for devel- oping simpler, less extensive questionnaires, which is important for correctly filling out the questionnaires and for attaining a higher response rate in surveys (Hölzing 2008, p. 116; Gierl/Bartikowski 2003, p. 24; Matzler et al. 2009b, p. 334). In this study, the simplified ver- sion according to Gierl/Bartikowski is used (Gierl/Bartikowski 2003, p. 24). For each part of the question, the customer selects one of three instead of five alternative answers (see Table 2). 82 European Retail Research, Vol. 24, Issue I, pp. 71-96
Table 2: Functional and Dysfunctional Questions in the Kano Questionnaire
I like it It must be I am I can live I dislike it that way. that way. neutral. with it that way. that way.
Functional Question O O O Dysfunctional Question O O O
Source: Gierl/Bartikowski 2003, p. 24.
The three-level classification has the additional benefit of facilitating the completion of the classification of attributes. This scheme thus has 9 possible outcomes (see Table 3). The two classes questionable and reserve do not exist in this evaluation table. The category “question- able” shows that there are contradictions in the responses given by the consumer that may be due to a misinterpretation of the answers or to errors in filling out the questionnaire.
Table 3: Modified Kano Evaluation Table
Performance Requirements Dysfunctional 3. I am 4. I can live 5. I dislike neutral. with it that way. it that way.
Functional 1. I like it that way. A O A 2. It must be that way. I M I 3. I am neutral. I M I
Notes: A(ttractive), O(ne-dimensional), M(ust-be), Q(uestionable), R(everse), I(ndifferent) Source: Hölzing 2008, p. 18.
The standardized questionnaire is divided into four parts. The questions in the first part are related to store cardholders, their overall satisfaction and usage. The main part of the Kano questionnaire is in the second part. The Kano pair questions are about price performance attrib- utes (percentage/price reductions, specials offers), in-house payment- and credit function attrib- utes (loyalty card with credit card functions, sales account), general payment and credit per- formances attributes (debit card, credit card), service performance attributes (extra info, special benefits like gift packaging service or reserved parking) and for psycho-social performance attributes (special treatment like pre-sale-campaigns, style counseling). The third part of the questionnaire is about the attitude of the consumer towards payment- and credit services in gen- eral. The interviewee has to rank several possible ways to include a payment- or credit function in a loyalty card program and they have to evaluate the usefulness of this combination and its possibility to improve the overall satisfaction. Concluding, personal data like sex, age, educa- tional background, monthly income and ownership of credit/debit cards were surveyed. Walter, E.; Steyrer, C.; Wiesel, S. 83 4.2. Field Study
Since the business environment of the fashion sector is constantly changing, the development and implementation of effective and successful marketing strategies are particularly important in the retail clothing sector (Moore/Fairhurst 2003, p. 386; Meffert 2008, p. 159; Müller-Hage- dorn 2006, p. 35; KMPG 2006, p. 58; Liebmann/Zentes 2008, p. 170). Therefore, the empirical study underlying this research was conducted in the main fashion shopping streets of Vienna using personal interviews based on a standardized questionnaire containing mainly closed questions. The experience has shown that standardized, oral interviews are the most suitable method for Kano surveys. A standardized questionnaire is advantageous in that it reduces the interviewer’s influence and usually increases the return rate (Hölzing 2008, p. 119f.; Sauerwein 2000, p. 39).
In selecting the main shopping streets several aspects were taken into consideration. There are many fashion stores located on these streets and, as the interviews were done shortly after a pur- chase, the customer was still in the shopping situation when they were asked to do the interview. Also, the loyalty card, if available, was used a short while ago at the point of sale. The data was collected within a period of one month. To improve data quality, the survey was carried out on the four main shopping streets of Vienna (Mariahilfer Straße, Kärtner Straße, Landstraße and Favoritenstraße) using a convenience sample of 300 shoppers.
70.3% of the respondents were female, and 29.7% were male. The reason for this relation may be that women are more interested in fashion shopping and are therefore overrepresented on shopping streets (Größe-Bölting 2005, p. 104). The survey distinguishes five age categories (see Table 4).
Table 4: Age and income
Age Sample Income Sample
20 to 29 years of age 63 (21%) less than 1,000 Euros 37% 30 to 39 years of age 82 (27%) 1,000 to 2,000 Euros 45% 40 to 49 years of age 63 (21%) more than 2,000 Euros 9.3% 50 to 59 years of age 61 (20%) n/a 8.7% over 60 years of age 31 (10%)
Most respondents have a vocational education or apprenticeship (40.7%), 36.3% have a gener- al qualification for university entrance and 14% have a university degree. 6% have only com- pulsory education. 98% own a debit card and 37% have a credit card. About 1% of the sample has a co-branded payment card. 192 respondents (64%) have a loyalty card from a fashion retailer. 84 European Retail Research, Vol. 24, Issue I, pp. 71-96 4.3. Results
In the following the Kano questionnaire is analyzed. After combining the answers, results are listed in an evaluation table which shows the overall distribution of the “requirement cate- gories”. Subsequently, multi-group comparisons were drawn and a possible category shift over the course of time was discussed. Finally, the influencing factors on the usage of cards with pay- ment functions were determined.
Nine performance attributes were categorized. Each attribute is classified according to the evaluation table as either attractive, one-dimensional, must-be or indifferent. The results of the basic analysis are shown in Kano’s summary table (see Table 5). 49% of the respondents think that a debit card is attractive, 4% are satisfied with this performance attribute, .3% see it as must-be and 46.7% are indifferent. So, the majority sees the debit card as either a one-dimen- sional attribute or are indifferent to it. Two or more categories are often linked (percentage/price reductions) or almost linked (special offers, debit card, additional informa- tion, special benefits). Moreover, this could be an indication that a more exacting analysis is needed.
Table 5: Response Distribution by Performance Attributes and Grading of Categories
Performance Attribute A O M I Total Category
Percentage/price reductions 25 31 31 13 100 O/M Special offers 27 32 34 7 100 M Debit card 49 4 .3 46.7 100 A Loyalty credit card 15 .7 1 83.3 100 I Co-branded credit card 25.7 1 .7 72.6 100 I Sales account 13 .7 1.3 85 100 I Additional information 15 13.3 31.7 40 100 I Special benefits 33.3 29.7 23.3 13.7 100 A
Preferential treatment 41 25 6.7 27.3 100 A
A: Attractive, O: One-dimensional, M: Must-be, I: Indifferent; n = 300
The classification of quality attributes was tested through a t-test. This statistical test was con- ducted for comparing the proportions of respondents classifying a performance attribute with a specific category. This test was possible since the conditions for approximation of multinomial distribution to the normal distribution were satisfied for this empirical investigation (Löf- gren/Witell 2007, p. 63; Nilsson-Witell/Fundin 2005, p. 162). The classification of all attributes is statistically significant (p < .001) (see Table 6). Fong (1996) developed a test for analyzing the statistical significance of the classification. This test can be used if the analysis of frequen- Walter, E.; Steyrer, C.; Wiesel, S. 85 cies does not show satisfactorily results. Therefore a classification is presumed to be non-sig- nificant, when
[1] a - b < 1.65a + b(2n - a - b) 2n a and b are defined as the categories most mentioned and n is the total number of mentions (Fong 1996, 22). Therefore, the classification of the attributes store credit card, co-branded credit card, sales account and preferential treatment are significant (see Table 6).
Table 6: Results of t-test and Fong test
Performance Attribute A O M I Cat. t-test Fong test
Percentage/price reductions 25 31 31 13 O/M 40.57* mixed Special offers 27 32 34 7 M 41.55* n.sig. Debit card 49 4 .3 46.7 A 28.78* n.sig. Loyalty credit card 15 .7 1 83.3 I 56.56* sig. Co-branded credit card 25.7 1 .7 72.6 I 42.21* sig. Sales account 13 .7 1.3 85 I 60.86* sig. Additional information 15 13.3 31.7 40 I 48.21* n.sig. Special benefits 33.3 29.7 23.3 13.7 A 36.11* n.sig.
Preferential treatment 41 25 6.7 27.3 A 30.82* sig.
A: Attractive, O: One-dimensional, M: Must-be, I: Indifferent; * p < .001; n = 300
Category and total strength are calculated to classify performance attributes. They show us whether or not the categorization is clear. The higher the category strength the more precise is the classification. Category strength is a result of subtracting the second most frequent answer from the most frequent answer. As a rule of thumb, the requirement is considered clearly classi- fied when category strength is greater than 5% (Sauerwein 1999, p. 421; Löfgren/Witell 2005, p. 13; Lee/Newcomb 1996, p. 16). The classification of the attributes “percentage/price reduc- tion”, “special offers”, “debit card” and “additional information” is significant (Category strength >6%). The category strength of the other four categories is lower than 6% and there- fore, they do not have a significant influence on customer satisfaction (Hölzing 2008, p. 126). Total strength is the product of the percentages of attractive, one-dimensional and must-be requirements. It shows whether or not for most of the consumers this attribute is of importance (Löfgren/Witell 2005, p. 13; Lee/Newcomb 1996, p. 16). The total strength (Tot % > 60) of the majority of the attributes is satisfied for this empirical investigation (see Table 7).
The customer satisfaction coefficient (CS coefficient) can be applied to classify the attributes in each category (Tontini 2007, p. 604). The coefficient shows whether satisfaction can be increased by meeting a requirement, or whether fulfilling this requirement merely prevents dis- 86 European Retail Research, Vol. 24, Issue I, pp. 71-96
Table 7: Category and Total Strength (Cat., Tot., CS , CS)
Performance Attribute A O M I Cat. Cat>6 Tot % CS CS
Percentage/price 25 31 31 13 O/M 0 87 .56 -.62 reductions Special offers 27 32 34 7 M 2 93 .59 -.66 Debit card 49 4 .3 46.7 A 2.3 53.3 .53 -.04 Loyalty credit card 15 .7 1 83.3 I 68.3 16.7 .16 -.02 Co-branded credit card 25.7 1 .7 72.6 I 46.9 27.4 .27 -.02 Sales account 13 .7 1.3 85 I 72 15 .14 -.02 Additional information 15 13.3 31.7 40 I 8.3 60 .28 -.45 Special benefits 33.3 29.7 23.3 13.7 A 3.6 86.3 .63 -.53
Preferential treatment 41 25 6.7 27.3 A 13.7 72.7 .66 -.32
A: Attractive, O: One-dimensional, M: Must-be, I: Indifferent; n = 300 satisfaction. Matzler et al. (1996, p. 13f.) provide a rule of classification for the case when a certain quality attribute cannot be clearly assigned to any of the various categories. The evalua- tion rule “M > O > A > I” is useful and basically conservative in classification. When making decisions about performance attribute development, those features which have the greatest influence on the requirements have to be taken into primary consideration. Those requirements must be fulfilled which cause dissatisfaction if not fulfilled. When deciding which attractive requirements should be fulfilled, the decisive factor is how important they are to the consumer. The CS Coefficient will be calculated as follows (Sauerwein 1999, p. 421):
The positive CS (extent of satisfaction) indicates that customer satisfaction will increase by providing an attribute:
[2] A + OA + O + M + I
The negative CS (extent of dissatisfaction) indicates that customer satisfaction will decrease when the attribute is not provided:
[3] O + MA + O + M + I × (-1)
The maximum value of CS and CS is 1 and -1, respectively. The closer the value is to 1 (or -1), the greater the influence on customer satisfaction. A value of about 0 signifies that a certain attribute has little influence on customer satisfaction (Löfgren/Witell 2008, 68). Values from .5 and -.5 are of relevance (Sauerwein 2000, p. 48). The two coefficients are plotted in a diagram divided into halves (see Figure 3),
The category “percentage/price reductions” has a negative CS which is higher than the positive CS (CS prime). This indicates that customer satisfaction will decrease if this attribute is not Walter, E.; Steyrer, C.; Wiesel, S. 87
Figure 3: Customer Satisfaction Coefficients