An empirical investigation of supermarket differentiation

Bachelorarbeit von Cornelia Obitz

Abstract:

Shopping at supermarkets plays an important role in our all lives. Food consumption increased immensely over the past decades and transferred food retailing into a potential and profitable market especially for big supermarket chains in the UK.

However this has been realised not only by a few enterprises, thus food retailing became a challenging and demanding business in a high competitive environment. In correlation with these facts the first question that comes in mind is how can all these supermarkets compete successfully and defend their market position?. It is generally agreed that competitive advantage is necessary for companies to be successful. Mintzberg explains that supermarkets have represented successful generic strategies in the past but they must go beyond this generic strategy and find a way of competing in this business. With this background differentiation turns out as a current problem in the field of food retailing. Above all, plenty of theories of competitive advantage for manufacturers exist but retailing is still a sparely investigated field.

Furthermore food retailers in the UK are operating in a high competitive industry more than every other European country and Cox & Brittain describe grocery retailing in the UK as an interesting field of competitive battles. Thus, theories are applied especially to supermarkets in the UK.

Hence, this study focuses on the largest supermarket chains in the UK and the role and importance of differentiation in the field of competitive advantage is investigated and questioned.

Academic objectives of the dissertation: The objective of this dissertation is to enrich the profound and wide field of competitive advantage with new findings. With the investigation of differentiation in food retailing a so far scarce analysed but complex topic is enlightened.

During the exploration of the literature it became apparent that differentiation strategies are only of value for companies when differences between companies or brands add value to customers. Hence, customer perception creates a further main part of the literature review and the research.

An empirical study with customers is conducted to highlight the customer perception of differentiation strategies in the UK food retail industry. The aim of the study is to reveal to what dimensions customer perception can influence differentiation strategies.

The end result of primary research will rectify whether theory and practice of competitive advantage match up. Finally advices for keeping or changing strategies are given and it is suggested how theories should be handled in further research.

Outline of chapters:

Chapter 2 illuminates the main issues in the food retail industry and market.

In Chapter 3 the theory of the chosen topic is discussed. Competitive advantage, differentiation, positioning and customer approaches justify the chosen approach for the later research.

Chapter 4 narrows research questions, explain and legitimate the chosen research methods, describe limitations and bias of the survey and insures that ethical issues are no disregarded.

Chapter 5 illustrates the findings of the survey and questions them. Additional these are analysed and linked to theories of the literature review.

Chapter 6 highlights the main results of the research on the basis of the given research questions and suggests issues that should be considered in the future.

Table of Contents:

	Title page	1
	Declaration and Word Count	2
	Abstract	3
	Acknowledgements	5
	Contents Page	6
	List of figures	9
	CHAPTER 1 INTRODUCTION	10
1.1	Choice of the topic	10
1.2	Academic objectives of the dissertation	11
1.3	Outline of chapters	12
	CHAPTER 2 SETTING THE SCENE	13
	CHAPTER 3 LITERATURE REVIEW	15
3.1	Competitive advantage	15
3.1.1	Resource-based approach	16
3.1.2	Competitor-based approach	16
3.1.3	Customer-based approach	17
3.2	Strategic positioning, differentiation and customer perception	18
3.2.1	Strategic positioning	18
3.2.2	Types of differentiation	19
3.2.3	Strategic positioning and customer perceived value	19
3.3	Types of differentiation combined with retailing	23
3.3.1	Differentiation in retailing	23
3.3.2	Price differentiation	24
3.3.3	Image differentiation	25
3.3.4	Support differentiation	26
3.3.5	Quality differentiation	27
3.3.6	Design differentiation	28
3.3.7	Undifferentiation	28
3.3.8	Categorisation of differentiation	29
	CHAPTER 4 METHODOLOGY	30
4.1	Research questions	30
4.2	Research methods	31
4.2.1	Research philosophy	31
4.2.2	Research approaches	32
4.2.3	Research strategies	33
4.2.3.1	Descriptive research	33
4.2.3.2	Survey	34
4.2.4	Time horizons	34
4.2.5	Data collection and analysis methods	35
4.2.5.1	Primary and secondary data	35
4.2.5.2	Qualitative and quantitative data	36
4.2.5.3	Interview	36
4.2.5.4	Sampling	37
4.2.5.5	Questionnaire design and methods of data analysis	38
4.3	Limitations and bias	40
4.4	Ethical issues	41
	CHAPTER 5 FINDINGS AND ANALYSES	43
5.1	Gender and age	43
5.2	Choice of supermarkets	43
5.3	Shopping frequency	45
5.4	Supermarkets and product categories	46
5.5	Supermarkets and differentiation factors	50
5.6	Rated importance of differentiation categories	61
	CHAPTER 6 CONCLUSION	63
	REFERENCES	66
	BIBILIOGRAPHY	71
	APPENDICES
	A - Statement of Learning	73
	B - Food retail formats	74
	C - Supermarket sales	75
	D - Questionnaire	76
	Last page	77

Text Sample:

Chapter 3.3.1, Differentiation in retailing: While Porter bases his work on manufacturers, Walters & Knee suggest a similar conceptual model for retailers with productivity led (e.g. effective cost management and economies of scales) and marketing led differentiation (e.g. product range characteristics or customer services). This model is similar to Porter’s generic strategies and does not give deepened information about differentiation elements.

Only one empirical study analyses retailing with a focus on differentiation. Morschett, Swoboda & Schramm-Klein surveyed managers of food retailers and customers in Germany, Switzerland and Austria. Hypermarkets, supermarkets, convenience stores, discounters and others were analysed based on a pool of items derived by marketing mix elements. It provides evidence for three differentiation strategies: Price, quality (product and service) and convenience. He refers beside others to Wortzel who provides a conceptual approach for retail differentiation with product, service and personality (includes also convenience and location) and price leadership. Wortzel names a particular level of advertising and promotion as a matter of course but not as a positioning strategy.

These categorisations are tried to include in further considerations of Mintzbergs’ differentiation types and expanded with ideas of other retail authors who touch differentiation.

Chapter 3.3.2, Price differentiation: Instead of cost-leadership the term price should be preferred and included into perceived differentiation strategies. Lower relative costs are rather part of the resource-based approach as they are the result of e.g. better manufacturing facilities and can not be perceived by customers.

But an equation of price with other differentiation strategies like Mintzberg suggests is disputable because a strong interdependency between perceived value and price can not be ignored.

Varley rates price as the second important factor in retail positioning strategies. A market skimming pricing strategy in retailing might be the same as Porter’s differentiation strategy and means a consistently price merchandise above the market and stores that do this appeal to people who are less concerned with price and willing to pay for exclusivity, quality, convenience, service, assortment and prestige.

A market penetration pricing, which means no differentiation and low prices, is in general used by so called discounters. Walters & Knee and Seth & Randall mention that price is always relevant but argument that low prices cannot make an abiding differential advantage. According to them most customers have only the vaguest awareness of the overall price differences between stores and it is rather a matter of managing the price reputation or image.

Chapter 3.3.3, Image differentiation: Image has its roots in marketing scholars. According to Hawkins, Best & Coney image is the interpretation of a brand that is influenced by product attributes, benefits, usage situations, users, and manufacturer/marketer characteristics. Aaker lists further aspects like relative price, celebrity/person, intangibles, lifestyle/personality, product class, competitors, and country/geographic area and describes image as a set of associations. Store image is according to Hawkins, Best & Coney similar to brand image and Berman & Evans determine that an image represents how a given retailer is perceived by consumers and others.

Aaker and Hawkins, Best & Coney points out that positioning is closely related to image but two aspects distinguish image and positioning. On the one hand positioning implies a reference that is usually being competition and on the other hand it can reflect what a brand is trying to be perceived.

Image can also affect strategies. It is admitted by different authors that image is a possibility for differentiation. According to Kotler image consists of a set of brand beliefs that vary from true attributes and others like the effect of selective perception. Martineau makes a similar distinction with functional qualities and psychological attributes. Differentiation as functional qualities is then communicated or just connected with other psychological attributes like intangibles or advertising campaigns to create image.

Thus, differentiation can be seen as a true attribute which is fundamental for building image and image is just a result of additional supportive marketing actions. The other way around, image can contribute to differentiation and gives a retailer uniqueness that can not be easily duplicated. Especially when product performance and mode of distribution are very difficult to differentiate, image may be the only source of positive differentiation.

Thus, image shows that customer perceived value is more than differentiation but image might be also a significant part of differentiation as a strategy.

Chapter 3.3.4, Support differentiation: With no effect on the product itself support differentiation is something that goes alongside the product and is in general achieved by service. Service has become a major focus of many retailers differentiation strategies and the potential scope of a retailers service mix is very wide.

Services should be run to suit the convenience of customers and convenience is defined as the state of being able to proceed with something without difficulty. Services that provide convenience are basic to the operation of any retail store. Such services include convenient shopping hours, attractive displays, adequate parking, effective personal selling, pleasing and effective store layout and appearance, convenient store location, computer-aided centres to help locate products, shopping carts, etc.

Even though enhanced convenience could be easy achieved through e. g. aesthetically pleasing or logically layout and free bagging or carry-out services Seth & Randall criticise that shopping experience is still clinical, unexciting and undifferentiated. Mc Goldrick also criticises that the retail industry in general is characterised by rather dull and uniform selling environments. According to Seth & Randal the basic weekly main shop is acceptable but a chore with finding the way around the aisles, little assistance, shortage of meaningful information, queuing at check-outs and so on are still the same problems.

A good location is also a matter of convenience but seems to be crucial and not relevant for differentiation. The big five players have all similar location characteristics: large stores on highly accessible sites with significant dedicated same-level free parking and easy commercial vehicle access.