Competitive strategies in retailing—an investigation of the applicability of Porter's framework for food retailers

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Journal of Retailing and Consumer Services 13 (2006) 275–287 www.elsevier.com/locate/jretconser

Competitive strategies in retailing—an investigation of the applicability of Porter’s framework for food retailers Dirk Morschetta,, Bernhard Swobodab, Hanna Schramm-Kleina a

Department of Business Administration, Saarland University, Im Stadtwald, Geb. 15, 66123 Saarbruecken, Germany b Department of Business Administration, University of Trier, Universitaetsring 15, 54286 Trier, Germany

Abstract The objective of this research is to develop a framework for competitive strategies in food retailing. Managers of food retail channels were surveyed in order to derive the basic dimensions of competitive advantages that companies attempt to achieve in this industry sector. In a second study based on consumers, the central dimensions of retail store perception were investigated. Both studies reveal that three basic types of competitive advantage seem to prevail in food retailing: (1) price, (2) quality (with a comprehensive set of qualityorientated instruments, including customer service), (3) convenience. We find quality leadership and price leadership to be independent factors which can be achieved without conflicting with one another. r 2005 Elsevier Ltd. All rights reserved. Keywords: Retailing strategy; Competitive strategy; Positioning; Customer perception

1. Introduction Competitive strategies deal with the development of attributes that characterise a company and differentiate the value it creates and offers in comparison to its competitors (Porter, 1980), i.e. the ‘‘core idea about how the firm can best compete in the market place’’ (Pearce and Robinson, 1994, p. 220). Because competition in the retail sector has been increasing for years, the importance of developing an effective competitive strategy appears to be increasing constantly (Cortjens and Doyle, 1989; Ellis and Kelley, 1992; Harris and Ogbonna, 2001). Given that retailing has become a mature industry with overcapacity, high concentration and, in many cases, price-driven marketing strategies which have led to rather homogeneous stores, differentiation from competitors through positioning seems increasingly necessary (Wortzel, 1987; Walters and Knee, 1989, p. 74). According to Porter (1985), competitive strategy can be understood as the activities a company undertakes to gain a sustainable competitive advantage in a particular industry. These activities are determined by the strategic Corresponding author. Tel.: +49 681 302 4471; fax: +49 681 302 4532.

E-mail address: [email protected] (D. Morschett). 0969-6989/$ - see front matter r 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.jretconser.2005.08.016

decision on the particular competitive advantage which the company is attempting to achieve, i.e. what advantage should be used to elevate the company from its competitors? This competitive advantage should fulfil certain criteria (Simon, 1988; Aaker, 1992; Mintzberg, 1996, p. 88; Walters and Knee, 1989; Brooksbank, 1994, p. 12; Corstjens and Doyle, 1989, p. 171). It must:






Relate to an attribute with value and relevance to the targeted customer segment. Be perceived by the customer. Be sustainable, i.e. not easily imitated by competitors.

Consequently, the competitive advantage that a company selects should be based on its resources, strengths or distinctive competencies relative to competitors (Brooksbank, 1994, p. 12), but must also be perceived by consumers. That is, consumers must be aware of these competencies. This implies a simultaneous consumer and competitor-orientated perspective in the development of competitive strategies (Aaker, 1992). In his familiar matrix with the dimensions ‘‘competitive advantage’’ and ‘‘scope of operation’’, Porter (1985) assumes that there are essentially three generic types of

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competitive strategy (based on two basic types of competitive advantage): cost leadership, differentiation and focus on certain target segments (which itself is either anchored through low-cost or differentiation). He also emphasises that companies must ‘‘make a choice’’ between the different generic strategies, since ‘‘being ‘all things to all people’ is a recipe for strategic mediocrity and belowaverage performance’’ (Porter, 1985, p. 12; see also Mintzberg, 1996, p. 87). While it is commonly accepted that the (basic) concept of competitive advantage and competitive strategy is applicable across different industries, researchers have criticised Porter’s concept in several respects, including the allegedly oversimplified dichotomy of cost leadership vs. differentiation (for an overview, see Miller and Dees, 1993). Also, the particular characteristics of certain industries, including (food) retailing, would require a more specific concept and allow different competitive advantages than in other industries (e.g. Harris and Ogbonna, 2001, p. 157; Uncles, 1998; Turock, 1999). While Porter’s concept has been tested for manufacturing companies in a number of studies, empirical evidence on the generalisability of the concept to retailing is rare. Accordingly, the purpose of this research is to investigate empirically Porter’s framework of competitive advantage in the context of food retailing. Two empirical studies are conducted in order to develop a framework for competitive strategy and to evaluate the transferability of Porter’s two basic types of strategy to retailing, one focussing on retail companies and the advantages they attempt to offer their customers compared to their competitors, and the other study surveying consumers and the dimensions in which they perceive food retail stores. Both aspects (company and consumer view) are treated as two perspectives of the same phenomenon in this paper. 2. The concept of competitive strategies Porter (1980, 1985) proposes two distinct competitive strategies. A company (or strategic business unit) that decides to follow a cost leadership strategy has the objective of being able to realise its offer at the lowest possible cost. The competitive advantage of cost leadership is achieved by performing important value chain activities at a lower cost than competitors (Porter, 1985). Low-cost leaders must either have or develop some unique capabilities in order to achieve and sustain that position. Examples of such capabilities and resources are: a dominant market share, secured supplies of scarce raw materials or having developed more efficient linkages to suppliers. Companies striving for cost leadership in their industry usually look constantly for cost reductions and efficiency. They maximise economies of scale, reduce overheads and administrative expenses and use volume sales techniques (often including aggressive pricing) to proceed on the experience curve. Sustained capital investment is usually necessary and so too is a tight coordination of operations (Porter, 1980;

Pearce and Robinson, 1994). Having achieved cost leadership, the company can—if it simultaneously offers an acceptable quality level (‘‘all other things being equal, or not too unequal’’ (Mintzberg, 1996, p. 89))—either charge the same prices as competitors and enjoy higher profit margins or it can charge lower prices, usually increasing its sales volume (Day and Wensley, 1988; Pearce and Robinson, 1994). Companies following a differentiation strategy strive to create and market unique products for varied customer groups. They aim to create a superior fulfilment of customer needs in one or several product attributes in order to develop customer satisfaction and loyalty, which can often in turn be used to charge a premium price for products. Contrary to competition with rather homogenous products, where price as a marketing instrument is in the focus, a differentiation strategy aims at reducing competitive pressure. It is a strategy that reduces the price sensitivity of consumers by offering uniqueness (Porter, 1980; Aaker, 1991; Pearce and Robinson, 1994). As mentioned, it is assumed in the Porter framework that a company can only be successful by clearly deciding in favour of one of the generic strategies. He characterises companies that try to follow several generic strategies at the same time as ‘‘stuck in the middle’’, since he assumes that those companies fail to achieve any of them (Porter, 1985, p. 16; Walters and Knee, 1989). Limited resource availability is one reason for this assumption. Many researchers have tested Porter’s framework in different (industrial) sectors. Miller and Dees (1993) give an overview of the results. Some empirical studies have confirmed that the empirically observable strategies can, in general, be categorised into Porter’s basic types (Miller and Dees, 1993; Walters and Knee, 1989). Others criticise that Porter’s two basic types oversimplify potential sources of differentiation. Mintzberg (1996) conceptually develops six differentiation strategies. Miller (1992) empirically confirms his own hypothesis that the differentiation strategy (for manufacturing companies) can be carried out in (three) different variants, namely innovation (innovative products), marketing (brand image based communication policy), and quality (high quality and durable products). Other academics have added other possible competitive advantages for industrial companies, e.g. product range (Bolz, 1992) or customer service (Loomba, 1998). However, these conceptual and empirical studies have been conducted for manufacturing companies. Also, the argument by Gilbert and Strebel (1987) that highly successful companies have combined differentiation advantages and cost advantages in so called ‘‘outpacing strategies’’ is based on observations of manufacturing firms. 2.1. Competitive strategies in retail markets Considering the characteristics of retail markets as mentioned above, clear competitive advantages relative to those of competitors become essential to success.

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Companies need to be significantly more attractive to consumers than their competitors and to develop a strategic position in the market (Wortzel, 1987, p. 47; Walters and Knee, 1989, p. 75). If a company strives for cost leadership, all sources of cost reduction must be exploited. A retailer must minimise cost throughout its value chain (and possibly intercompany supply chain) activities. The source of cost-based competitive advantage in retailing lies especially in the cost of goods sold or operating expenses. Large retailers usually achieve cost leadership more easily than smaller retailers, since economies of scale and the associated negotiation power over suppliers enables them to secure low procurement prices for the purchased goods (Ellis and Kelley, 1992, p. 384; Anderer, 1997, p. 26). On the market side of the value chain, minimum investment in store design and ambience (often with Spartan store atmosphere) and reduced customer service (mainly store personnel) are part of this strategy. Highly efficient supply chain operations, often based on limited assortments, are also necessary. The prototypes of the cost leadership strategy in retailing are the hard discounters, but also some hypermarkets and superstores (Ellis and Kelley, 1992; McGoldrick, 1990, p. 98; Davies and Brooks, 1989, p. 193; Hoch, 1994). Aldi, Lidl or Wal-Mart could be mentioned as examples for this type of strategy. The argument that price competition is easily duplicated (Porter, 1980; Ellis and Kelley, 1992, p. 381) is only relevant in the short-term. In the long run, price leadership is not possible without cost leadership. An important benefit of cost leadership strategies is that price is an important store-choice attribute for many consumers, which is reflected in empirical investigations as well as in the tremendous growth of the above-mentioned priceoriented store formats in most national markets. Price comparison is—due to the fact that retailers often carry branded products in their assortments—not particularly difficult for consumers (Corstjens and Corstjens, 1995). However, the growth of these formats, on an almost worldwide scale, also indicate that competitive advantage based on price is difficult for other retailers to beat when using other formats. Therefore, while price is important for almost all retailers, other competitive advantages have to be developed if the firms strive for superiority in their competitive field (see, for example, Davies and Brooks, 1989). As an alternative to price competition a retailer can differentiate its offer from its competitors. Davies (1992) demonstrates that the rise of efficient and professional chain store operations leads to lower cost differentials between them which simultaneously intensifies the need to use non-price attributes to distinguish and characterise retailer. Especially in retailing, the uniformity of competition which resulted in a lack of profiled retailers with a clear image is often criticised and blamed on a one-sided focus on price competition (Martineau, 1958; Wortzel, 1987; Walters and Knee, 1989; Corstjens and Corstjens,

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1995). Differentiation in retailing can be seen as a strategy with the objective of adapting certain store attributes more closely to the specific needs of chosen customer segments. Douglas in Germany, Sephora in France, Nordstrom or Trader Joe’s in the USA, Harrod’s in London, but also the convenience stores and some supermarket chains can serve as a few examples of this strategy. However, in the retailing literature, a common understanding of the options for differentiation is lacking. While a number of typologies have been developed and tested for competitive advantages in industrial sectors, comparatively less work on this topic has been conducted in retail research (Conant et al., 1993, p. 257). A number of retail researchers have applied Porter’s concept in retailing and shown that the two strategies of differentiation and cost leadership can be found in this sector and some indications of the expected effects on performance (i.e. that ‘‘stuck in the middle’’ companies perform lower) have also been found (transferring Porter’s concept to retailing has been tried by several German researchers: e.g. Meffert, 1985; Patt, 1990; Anderer, 1997; Gro¨ppel-Klein, 1998). In retailing, as for manufacturing companies, two main arguments against Porter’s framework have emerged (see for example Mintzberg, 1996; Walters and Knee, 1989, p. 80; Corstjens and Corstjens, 1995; Wortzel, 1987; Zentes and Anderer, 1994):





Strategies that combine several competitive advantages are not considered by Porter. The reduction of possible competitive advantages to two basic types is simplistic, and especially differentiation advantages can be reached in many different ways.

Due to the intensive competition in retailing, outpacing strategies that offer several competitive advantages are increasingly necessary in order to satisfy consumers and empirical research shows that there are companies which combine price and quality leadership (Anderer, 1997, pp. 218, 302). Tesco in the UK, for example, clearly differentiates from the competitors, but also intends to offer low prices. Also, while it is widely accepted that superior product quality (in the product assortment) can be—in close association with Porter’s typology—considered a possible advantage in retailing (Harris and Ogbonna, 2001, p. 160), other differentiating strategies can be added or chosen alternatively. Whilst Porter considers the differentiation strategy as one strategy, retailing reality shows that the options for differentiation are very heterogeneous (Walters and Knee, 1989, p. 80; Burkhardt, 1997). While it is not their intention and they do not comment on this finding, the research by Ellis and Kelly (1992) strongly indicates that the dichotomous concept of differentiation vs. price leadership is excessively simplified in the context of retailers. Palmer (1994, p. 73) categorises British food retailers with respect to the dimensions of price and quality, but comments that this elementary

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categorisation is oversimplified for useful positioning strategies. He points out that ‘‘quality’’ in his example has to be seen as an aggregated construct that consists of a range of issues: assortment, speed and efficiency of transactions, quality of store personnel, quality of store ambience and others. Other researchers emphasise the strength of a comprehensive experiential marketing strategy which evokes positive emotions in consumers as the main component of the positioning strategy, strategically managing a customer’s entire experience with the retailers, focussing on store atmosphere, consumers desires, consumer excitement, entertainment and a clear, emotionfocused image, since these features are expected to be less imitable than most functional attributes (Schmitt, 1999; Ailawadi and Keller, 2004; Weinberg, 1986; Esch and Levermann, 1993). Also, more than in the case of consumer goods, retailing is also able—due to the direct interaction with consumers—to offer superior service quality. Major retailers (maybe to a lesser degree in continental Europe than in the UK) seek to differentiate themselves from competitors on customer services and transform their customer service activities in many ways (Harris and Ogbonna, 2001, S. 164). Wortzel (1987, p. 50) suggests three basic strategies for retail positioning: (1) a product differentiation strategy through offering a different assortment to those of competitors, (2) a service and personality differentiation strategy based on the addition of unique services and personality to differentiate the store, and (3) a price leadership strategy. He challenges one basic assumption of Porter, by explicitly mentioning the possibility of combining ‘‘two or possibly all three of the above positioning strategies’’ (p. 50). In addition, those three basic strategies can be achieved by means of different instruments. For example, a product differentiation strategy can mean offering unique and distinctive merchandise or providing the widest possible product line in every category. However, these strategy typologies are conceptual rather than being based on empirical results. In an empirical study, Ellis and Kelley (1992, p. 388) reduce 24 items which are based on the primary activities of the retail value chain into four subscales: (1) product (variety in brands and sizes), (2) amount of promotion (e.g. advertising and instore promotions), (3) promotion effectiveness and (4) customer service. They also show empirically, that combinations of different competitive advantages are achieved by retailers in their sample. Conant et al. (1993) attempt to find generic competitive advantages in retailing and empirically by means of factor analysis and extract seven factors: (1) presentation and preparation, (2) product variety and depth, (3) low price, (4) high-priced convenience, (5) inventory control and advertising, (6) targeted incentives (e.g. direct mailing), (7) traditional fashions and service. Using cluster analysis, they also show that combinations of these are common practice. Other researchers add to this list and mention other options for competitive advantages, among them ‘‘rela-

tional attributes’’, i.e. the advantage of building lasting relationships with customers, which is among the advantages that have received more attention over the last few years, based on the development of loyalty schemes and ITbased relationship marketing, as well as in-store operational efficiency (customer processes) which can directly influence customer satisfaction through actual shopping experience (for example by reducing long checkout queues or reducing inventory out of stocks (Harris and Ogbonna, 2001). In summary, it seems evident that Porter’s framework is not without its shortcomings when applied to the retail sector. Many of the suggestions that have been made in the context of competitive advantage in retailing show that Porter’s proposed dichotomy of competitive advantages is not adequate for a detailed investigation (and at a managerial level, not suitable for the development of effective competitive strategies that differentiate the retailer from its competitors). Differentiation can encompass all retail activities and relationships with respect to retail companies (Ellis and Kelly, 1992, p. 385; Day and Wensley, 1988). Also, Porter separates the strategy of cost leadership from all other means of differentiating the company from competitors without providing clear reasoning. However, cost leadership can also be regarded as just one of the possible forms of differentiation with respect to the competition (Mintzberg, 1996, p. 87). However, even those studies that criticise Porter’s concept come to the conclusion that there are indeed a limited number of central, strategic dimensions of competitive strategies. Finding a typology for those strategies remains important if a company is to be able to develop strategies including bundles of instruments, instead of dealing individually with the many relevant variables (Bolz, 1993, p. 31; Conant et al., 1993, p. 257). 2.2. Positioning: influencing consumer’s subjective perception of retailers Closely related to the concept of competitive advantage is the (more marketing-oriented) concept of positioning. ‘‘Positioning is the deliberate, proactive, iterative process of defining, measuring, modifying and monitoring consumer perceptions of a marketable object’’ (Arnott, 1993, p. 24). ‘‘For a retailer, strategic positioning involves providing unique value [y] Strategic positioning involves selecting and then bringing to bear an integrated set of tools and communication techniques that identify and explain the store to the customer’’ (Wortzel, 1987, p. 47). These comments (similarly Corstjens and Doyle, 1989, p. 171; Brooksbank, 1994) link competitive strategy—in choosing the unique value and set of tools the company wants to offer in order to differentiate itself from the competitor—and the customer’s perception of these values, given that the effect of positioning is based on the subjective perception of (store or company) attributes and not on objective truth. At the same time, a clear

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position in retailing implies a complete strategic bundle of merchandise, locations, customer service, communication and other store attributes (Walters and Knee, 1989, p. 75; Pessemier, 1980; Birtwistle et al., 1999). In the retailing literature, both theoretically and empirically, a number of potential benefits to be derived from a clear and distinct retail positioning have been demonstrated (Walters and Knee, 1992; Ellis and Kelley, 1992; Birtwistle et al., 1999; Wortzel, 1987). Consequently, strategic positioning links the concepts of choosing, developing and maintaining certain competitive advantages and the concepts of consumer perceptions of the retailer. Consumer perceptions of retail stores have been thoroughly investigated in store image research (see the extensive overview by Peterson and Kerin, 1983, p. 294 on early research on this construct and also Mazursky and Jacoby, 1986; Birtwistle et al., 1999). A clear positioning is considered the prerequisite for a clear store image. The terms image and positioning are frequently considered as synonymous or at least closely associated with one another (Walters and Knee, 1989, p. 78). Only the fixed dimensions of positioning are seen as different: ‘‘The term ‘position’ differs from the older term ‘image’ in that it implies a frame of reference’’ (Auken and Lonial, 1991, p. 11; and for more detail, Keller, 1993). However, in many cases, the store image literature also provides the frame of reference, i.e. dimensions on which to compete with other retailers. Therefore, both concepts deal with the same phenomenon, but from slightly different perspectives. The store image research mainly deals with the position of the retail stores as perceived by the consumers. Strategic positioning through competitive advantages focus more strongly on the relationship between a retailer and his competitors and the realised strategy of the retailer (Scruggs, 1995, p. 9; Mintzberg, 1996). However, both concepts are seen as closely related to one another. Blankson and Kalafatis (1999, p. 109) point out that the two ‘‘positioning perspectives’’ are the managerial/ organisational on the one side, and the consumer on the other. Since positive consumer perceptions of a retailer are the ultimate goal of competitive strategy, the perceptional dimensions of store attributes are important (Schiffman and Kanuk, 2004). Only by knowing and understanding consumer perceptions of retail stores (their own as well as those of competitors’), can a company create a differential positioning which relates to the target customers’ patronage behaviour (Pessemier, 1980, p. 96; Auken and Lonial, 1991, p. 11). 3. Research methodology The research questions for the following empirical investigation are:




What are the basic dimensions of competitive strategy in food retailing? Is Porter’s dichotomy of potential

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competitive advantage a suitable typology of competitive strategies in food retailing? How does the perspective of food retail managers compare to those of consumers? Since, as has already been shown, it is important that the competitive advantage of retailers is clearly recognised by consumers, conceptualising competitive advantages along the same dimensions as consumer perceptions of retailers would seem beneficial to their success.




In order to enhance knowledge about competitive strategy in retailing and to analyse the above questions, two surveys have been carried out, one of retail managers and one of consumers. 3.1. Food retail company survey 3.1.1. Survey procedure and sample For the company perspective, a written, standardised questionnaire was mailed to food retail companies in German-speaking countries (Germany, Switzerland, Austria) at the level of distribution channels (e.g. a retail company with discounters and supermarkets received two questionnaires, because the competitive strategies were supposed to differ from one another). No exact information on the total population was available, so neither a random sample nor a quota sample were possible. The sample selection was based on data bases, internet and the trade press1 for the three countries. Altogether, 176 different distribution channels were identified. Due to the high concentration level in the retail sector in the three markets and the availability of addresses of the most important retailers and channels, we expected to have a coverage of well above 95 percent (of total food retail sales) in the mailing.2 The mailing was personalised and directed to the CEO or the managing director or the marketing director of the retail channel. After six weeks, the nonrespondents were contacted by telephone and the questionnaire sent a second time upon request. Altogether, 58 usable questionnaires were returned, which covered the full 1

The most important German food retail magazine ‘‘Lebensmittel Zeitung’’ provides ‘‘Top-Lists’’ of food retailers in different country markets (www.lz-net.de) and publishes a yearly list of the top food retailers in Germany, which were important sources for retail addresses. Also information by Trade Dimensions/M+M Eurodata was used. Additionally, articles in the trade press were searched as well as the internet. 2 Since exact turnover for each distribution channel was not always available (sometimes only total turnover for the whole company with several distribution channels was given), and also not even the exact figures for total turnover in the country markets were known, an exact calculation of the sales targeted in the survey is not possible. Given that the top 5 food retailers in each country market (Germany, Austria and Switzerland) realise well more than 60% of food sales as different press releases of A.C.Nielsen and M+M Eurodata state, and that more than 30 retailers in Austria and Switzerland and more than 100 retailers in Germany were addressed (including the top lists), an almost ‘‘full coverage’’ of sales was targeted in the study.

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Table 1 Sample description for company survey

Table 2 Sample description for consumer survey

Sales (Mio. EUR)

No. of retail channels

Share (%)

Below 250 Between 250 and 500 Between 500 and 2500 Above 2500 No answer

13 16 10 5 14

22.4 27.6 17.2 8.6 24.2

Total

58

100.0

Original survey was in German marks. Instead of calculating with 1.96 DM/EUR, the figures were transformed with 2.00 DM/EUR (this seems to be sufficiently precise for the purpose of this table). The sales figures relate to the specific retail channels targeted, not the retail company in total.

range of food retail store formats, i.e. hypermarkets, supermarkets, convenience stores, discounters and others. The response rate of 32.9 percent is very high for studies of this kind, which can be explained by the fact that the respondents were in many cases personally known to the authors or in contact with the authors’ research institution. Also, single respondents were often able to complete questionnaires for several distribution channels, depending on their hierarchical level. A short sample description is shown in Table 1.

3.1.2. Operationalisation and measurement In order to collect information on the basic orientations of retail companies with respect to their competitive strategy, retail managers were given a list of various potential competitive advantages and asked to evaluate to what degree their company intends to strive for superiority over its rival companies on that particular attribute. We used 5-point rating scales (from 2: not necessarily better than competitors to +2: superior to competitors). In order to reduce the tendency to answer ‘‘superior to competitors’’ for many or even all attributes, an explanation was given to clarify that trade-offs usually have to be taken into account, since superiority in all areas is not realistic, considering the limited resources within companies. To be able to fully capture the spectrum of potential advantages, the notion that all (market-oriented) retail activities are potential sources of competitive advantages was used for developing the item battery. A pool of items was developed, based on the retail marketing mix. The following (potential) market-oriented company objectives (competitive advantages) were measured: (1) quality leadership (in assortment/products), (2) price leadership, (3) cost leadership, (4) service leadership, (5) best variety of assortment/widest choice, (6) leadership in customer communication (‘‘best advertising’’), (7) convenience leadership, (8) leadership in store design/layout (‘‘best store atmosphere’’), (9) customer process leadership, and (10) best customer relationship management.

Respondents Absolute

In %

Gender Female Male

305 255

54.5 45.5

Age 14–20 years 20–30 years 30–40 years 40–50 years 50–60 years 60 and older

40 86 129 112 101 92

7.1 15.4 23.0 20.0 18.0 16.4

Household size 1 person 2 persons 3 persons 4 persons 5 and more persons

132 173 107 107 41

23.6 30.9 19.1 19.1 7.3

Total

560

100.0

3.2. Consumer survey 3.2.1. Survey procedure and sample An empirical study was conducted in one major German city with oral interviews based on standardised questionnaires and 560 respondents. To ensure the sample was representative of food store shoppers, quota sampling was undertaken, taking into consideration the age and gender distribution of grocery shoppers in Germany (see Table 2 for sample description). Each respondent was asked about one specific retail store in the city. Seven different stores were chosen as stimuli (the seven stores most often mentioned in pre-tests as places where respondents did their grocery shopping), i.e., 80 questionnaires were completed for each retail store. The seven stores represent different store formats: superstores/hypermarkets (Globus, Real), Discounters (Aldi, Lidl, Plus), Supermarkets (Edeka), and the grocery department of a large department store (Karstadt). It was also ensured that each respondent did grocery shopping at least occasionally in this city, so that the respondent was able to evaluate the local shopping situation. 3.2.2. Operationalisation and measurement Because store image research has done a considerable amount of work identifying the major facets of store image (and store image-dimensions are considered to constitute the consumers’ perception of relevant competitive advantages of the retailer), this study will draw on their results as well as specific categorisations of retail marketing mix instruments (see e.g. Doyle and Fenwick, 1974/75; Lindquist, 1974/75; Mazursky and Jacoby, 1986; Birtwistle et al., 1999).

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Table 3 Exploratory factor analysis of competitive advantage items Rotated component matrix (n ¼ 58)

Factor 1: experience/ price

Factor 2: quality of core functions

Factor 3: convenience

Best store atmosphere Best customer relationship management Cost leadership Best advertising Price leadership Quality leadership (assortment/products) Service leadership Customer process leadership Convenience leadership Best variety of assortment

0.859 0.839 0.761 0.677 0.662 0.275 0.392 0.383

0.250

0.169 0.206 0.419 0.541

0.104

0.103 0.791 0.735 0.731 0.137 0.371

0.801 0.677

3.363

2.101

1.791

Eigenvalue

0.166

Factor loadings below 0.1 are not displayed.

These usually encompass the most relevant elements of the perception of a retail store (5-point rating scales were used (from 1: much better than most competitors to 5: worse than most competitors): (1) selection, (2) quality products, (3) freshness, (4) price, (5) one-stop shopping possibility, (6) advertising, (7) length of checkout lines, (8) service, (9) convenience, (10) store design, (11) customer relationship programmes, (12) tidiness, and (13) cleanliness. 4. Empirical results

that the dichotomy of competitive strategies that Porter postulates (cost leadership vs. differentiation) cannot be confirmed in the context of food retailing:







4.1. Competitive strategies from the perspective of food retail companies The first objective of the research was to derive basic dimensions of competitive strategies in retailing. As mentioned, the retail companies were evaluating an item battery of different competitive advantages and the respondents were asked to indicate to what degree they strive for superiority in that specific area. The ten items that were included in the survey were analysed by factor analysis. Since independence of the basic dimensions was not theoretically argued, nonorthogonal factor rotation was used (PCA, oblimin rotation, Kaiser normalisation), which allows for correlation of the factors. The Kaiser–Meyer–Olkin (KMO) measure of sampling adequacy was 0.655 and the w2 of Bartlett’s test of sphericity was 265.2 (sign. ¼ 0.000), so that factor analysis of the sample data seems suitable. The results of the factor analysis are given in Table 3. Three factors were extracted that are not completely independent of each other. However, intercorrelations are low and not significant (r1,2 ¼ 0.07 (n.s.), r1,3 ¼ 0.02 (n.s.), r2,3 ¼ 0.154 (n.s.)). Explaining 70.3 percent of the total variance, the three factors account for a substantial part of the variance of the original item battery. The derived factors can be considered to be the underlying, basic dimensions of competitive advantages retail companies try to achieve. The interpretation of the factors reveals




Factor 1 combines the experiential aspects of retailing such as store atmosphere, CRM and advertising, on the one hand and on the other hand (with negative loading) price leadership and cost leadership. This factor can be labelled ‘‘experience/price’’. On factor 2, the items quality of assortment, quality of customer service and quality of customer processes load highly. This factor can therefore be interpreted as the (comprehensively understood) ‘‘quality of the core functions’’ of food retailers. A similar combination of merchandise and service quality can already be found in one of the oldest categorisations of retail marketing by Lazer and Kelley (1961), who see the ‘‘goods and services mix’’ as one instrument. Factor 3 is made up of the items convenience leadership and best variety of assortment. The factor can be labelled ‘‘convenience’’, since this variable loads highest on the factor and the (negatively correlated) item ‘‘best variety’’ seems to represent the same dimension with an inverted direction.3

Several aspects of this result are relevant to the research question on the applicability of Porter’s matrix to retailing. First, the bipolarity of the first factor is of some significance. While Porter assumed that cost and quality 3 One could theoretically also consider the best variety of assortment as a positive dimension of convenience. Wortzel (1987, p. 48) mentions that convenience for the consumer can be reached by short driving times and rather small stores, but also by a large assortment offering the possibility of a one-stop shopping. While both goals usually cannot be reached at the same time, it shows that both are facets of the convenience-phenomenon. However, the retailer survey considered ‘‘convenience’’ in the more traditional sense of the concept (‘‘convenience stores’’), i.e. small stores, fast and efficient transactions, close-by short-term parking and so on. Auken and Lonial (1991, p. 13) also directly link the convenience orientation of consumers to one-stop shopping orientation.

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are one dimension, with cost leadership and quality leadership as opposing extremes (Porter, 1985; Auken and Lonial, 1991, p. 12), the first factor makes clear that in retailing, it is not the quality of the core functions that is the converse of cost and price leadership, but only the store atmosphere and other (mainly non-functional) store attributes. Thus, it can be concluded that a focus on the experiential retail marketing and a strong cost/price orientation are difficult to achieve simultaneously. However, having cost/price leadership on the one side and a high quality assortment, the service and the customer processes on the other side loading highly on different (almost independent) factors can be seen as indication that the simultaneous achievement of both of these basic types of competitive advantages is possible. In summary, it can be concluded that from the perspective of food retailing managers, the competitive advantages in food retailing can be reduced to three basic types, which can be denoted as ‘‘experience/price’’, ‘‘quality of core functions’’, and ‘‘convenience’’. To analyse this outcome further, a cluster analysis was performed with the three basic types of competitive strategies as cluster criteria. A six-cluster solution emerged from a k-means clustering (using the elbow-criterion). Discriminant analysis was applied to the cluster solution. The three discriminant functions show high explanatory power, all three having eigenvalues well above unity (9.231, 4.194, 2.442). The cumulated Wilk’s Lambda was 0.005 (sign. ¼ 0.000). Since 98.4% of cases were correctly classified, the very high discriminating power of the cluster solution becomes evident. To characterise the cluster solution further, Fig. 1 shows how the analysed retail channels are positioned within the competitive advantage space. This illustration, together with the ANOVA shown in Table 4 with the cluster centroids for the six derived clusters, show that the three factors for competitive advantage are suitable for classifying retail competitive strategies and also for distinguishing groups of retailers which follow different competitive strategies. However, since the mapping of strategic groups in retailing (Porter, 1980) is not in the focus of this paper, there is no further discussion of the cluster solution. 4.2. Competitive strategies from the perspective of consumers As described in the section on perception, this construct was initially measured with a comprehensive item battery (13 items). To establish meaningful groups of items, the items were (after an extensive examination and following adjustment of the item battery4) analysed by an exploratory and then a confirmatory factor analysis. 4 The items ‘‘tidiness’’ and ‘‘cleanliness’’ are highly correlated and measure similar facets of the perception of store orderliness, and were therefore combined. The items ‘‘quality products’’ and ‘‘freshness’’ are different facets of the quality of the assortment and they were also

2

quality of core functions

282

cluster 1

1

2

0

3 -1 4 -2

5 6

-3

2

1 0 expe -1 rienc e/pric e

-2

-1

2

0

1

3

nce

enie

conv

Fig. 1. Surveyed companies in the three-dimensional competitive advantage space.

Theoretical considerations lead to the assumption that the underlying factors are probably not independent of each other, since consumers do not strictly distinguish between each component, but tend to see the ‘‘whole picture’’ with interrelated attributes (Oxenfeldt, 1974/75; Zimmer and Golden, 1988; Kahn and McAlister, 1997; Morschett, 2000; Ailawadi and Keller, 2004, p. 333). Therefore, instead of the usual orthogonal factor rotation, an oblique (non-orthogonal) rotation was employed, which allows for a correlation of the factors. In this case, principal component analysis with oblimin rotation with Kaiser normalisation was used. The KMO measure of sampling adequacy equalled 0.787 and the w2 of Bartlett’s test of sphericity was 1066.8 (sign. ¼ 0.000). The results of the factor analysis are given in Table 5. Three factors were extracted that explain 73.3% of total variance. There is significant intercorrelation between the three factors (r1,2 ¼ 0.363; r1,3 ¼ 0.126; r2,3 ¼ 0.180). These factors, which can still be clearly distinguished from one another, can be interpreted as follows:

(footnote continued) combined into one measure. Since Cronbach’s alpha was high or satisfactory for both pairs of items (0.79 for orderliness, 0.64 for quality of assortment), an unweighted averaging was used for aggregation. In the further adjustment process, four items were removed. The number of missing values for the item ‘‘advertising’’ was too high for a useful interpretation of the variable (12.9%) (Kline 1998, p. 72–73). Since five of the stores used as stimuli did not have an explicit ‘‘customer relationship programme’’ and spurious correlations of this variable with other variables emerged, this variable was also dropped. The variable ‘‘length of checkout lines’’ was eliminated due to very low indicator reliability in the first calculation of a confirmatory factor analysis. The variable ‘‘convenience’’ did load highly, but not unambiguously, on two separate factors and was therefore not considered.

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Table 4 Statistical results of the cluster analysis (final cluster means) Competitive advantage factors (n ¼ 58)

Factor 1: experience/price Factor 2: quality of core functions Factor 3: convenience n

Cluster means

ANOVA

Cluster 1

Cluster 2

Cluster 3

Cluster 4

Cluster 5

Cluster 6

F-ratio

2-tail sign.

0.72 0.17 1.35 11

0.32 2.16 1.28 3

0.46 0.36 0.23 19

0.35 0.08 1.29 12

1.93 0.59 0.15 8

1.28 1.30 0.096 5

69.2 35.8 39.1

0.000 0.000 0.000

Table 5 Exploratory factor analysis of the perception items (reduced item battery) Rotated component matrix (n ¼ 560)

Factor 1: quality of performance

Factor 2: scope of offers/convenience

Factor 3: price level

Store design Orderliness Service Quality of assortment One-stop shopping Variety of assortment Price

0.808 0.785 0.769 0.695

0.149 0.100

0.146

Eigenvalues

0.183

0.114

0.223 0.889 0.842

2.722

2.074

0.969 1.150

Factor loadings below 0.1 are not displayed.










Items such as quality of assortment, store design, service and orderliness load highly on the first factor. This factor can therefore be interpreted as a comprehensive kind of ‘‘quality of performance’’. The second factor is made up of two items describing the ‘‘scope of offers/convenience’’ of a store, namely the opportunity of doing all shopping at one outlet and the variety in the assortment.5 Only one item loads highly on the third factor, the price. This factor is labelled ‘‘price level’’.

coefficients. However, even the highest coefficient (0.62 between quality of performance and scope of offers/ convenience) still indicates discriminant validity. Therefore, the three-dimensional structure of food retail store perception is well confirmed by the data. Comparing the results of the consumer survey to Porter’s basic types of competitive advantages, his suggested bipolar structure of potential competitive advantages is (again) not supported by the empirical data:


To test this result further, the reliability and validity of the scale and its dimensions were additionally evaluated with confirmatory factor analysis applied to the three latent constructs. AMOS 4.0 was selected for the analysis. Parameter estimation was done with the ML-method (Kline, 1998). The values of the overall fit measures (GFI ¼ 0.972; AGFI ¼ 0.935) indicate a very good fit of the analysed model to the empirical data. In a second step, the fit of the local structures of the model was also examined. Indicator reliability, factor reliability and explained variance of the three latent variables all imply a good model fit. The expected interdependence between the latent constructs (which was also a result of the exploratory factor analysis) appears clearly in the path 5 The link between convenience and one-stop shopping has already been pointed out (Wortzel 1987; Auken and Lonial 1991). Also in a prior calculation, the item ‘‘convenience’’ loaded negatively on this factor (but also on another factor). This would allow us to interpret this factor as ‘‘scope of offer’’ on the one hand, but also as the as convenience, with a negative sign.







The factor ‘‘quality of performance’’ is much more comprehensive than the quality advantages as presented and explained by Porter, who focused on product quality advantages. Quality of performance also includes store atmosphere, service and orderliness. More importantly, the factor ‘‘scope of offers/convenience’’ extracts another basic dimension of competitive differentiation advantage for retailers. To distinguish oneself from the competition, a wide range of goods and services might serve just as well as the merchandise quality. Also, with price being a separate factor, it becomes clear that quality advantages and cost advantages are not the opposite ends of one dimension as Porter’s assumption would suggest. We find quality and cost leadership to be independent factors, whose mutual achievement is not contradictory or characterised by a trade off.

All in all, this factor structure can be seen as evidence, from a consumer perspective, that the bipolar pattern of competitive advantage as postulated by Porter (1985) is

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0.000

0.000

1.23 0.95 Globus, Real, Aldi, Lidl, Plus 0.37 Aldi, Edeka, Karstadt 0.61 Globus, Real, Edeka, Karstadt 0.93 Globus, Real, Plus, Edeka, Karstadt 0.17 Aldi, Edeka, Karstadt Factor 3: price level Difference sign. at p ¼ 0.05 (Scheffe´) to

0.07 Aldi, Lidl, Edeka, Karstadt

Globus, Real, Aldi, Plus, Karstadt Globus, Real, Edeka, Karstadt Globus, Real, Karstadt Aldi, Lidl, Plus, Edeka Aldi, Lidl, Plus, Edeka

Globus, Real, Edeka, Karstadt

0.43 0.82 0.68 0.80 0.80 1.22

Factor 2: scope of offers/ convenience Difference sign. at p ¼ 0.05 (Scheffe´) to

Real, Aldi, Lidl, Plus

Globus, Edeka, Karstadt

Globus, Plus, Karstadt

Globus, Plus, Karstadt

Globus, Aldi, Lidl, Edeka, Karstadt

Real, Plus

0.74

111.1

183.1

35.8 0.72 0.28 0.87 0.15 0.09 0.47

F-ratio Real

Aldi

Lidl

Plus

Edeka

Karstadt Globus

0.59

Factor 1: quality of performance Difference sign. at p ¼ 0.05 (Scheffe´) to

This explorative grouping should demonstrate that the classical categorisation of store formats only reflects one facet of customer perception of food retail stores. Different central dimensions of consumer perception might be neglected and store formats and the separation into

ANOVA




Factor values




Considering price level and scope of offers/convenience (left diagram in Fig. 2), the groups follow the usual store formats. The hypermarkets (Globus and Real) are close to each other in consumer perception, and so too are the discounters (Aldi, Lidl, Plus). The department store grocery department (Karstadt) and the supermarket (Edeka) are distinct from those two groups. If quality of performance and price level are taken as grouping dimensions (middle diagram), no clear clusters emerge. However, different positions seem to be taken by the relatively expensive retailers (supermarket and grocery department), which are perceived to offer high price/high quality and the discounters and hypermarkets on the other hand (with relatively large intra-heterogeneity). A third ‘‘clustering’’ results from the dimensions ‘‘quality of performance’’ and ‘‘scope of offer/convenience’’ (right diagram). Here the different store formats are mixed in different groups. The two ‘‘hard discounters’’ (Aldi and Lidl) are in the same cluster as Edeka, showing the danger that discounters pose to supermarkets, since discounters are perceived to be similar in two of the three relevant perceptual dimensions. The hypermarket Globus is in the same cluster as the grocery department store, demonstrating the high quality perception of this hypermarket. The second hypermarket (real) and the discounter Plus, are distinct from those two groups due to their lower perceived quality of performance.

Table 6 Perception of store attributes (factor values) for seven German retailers




2-tail sign.

probably too simplistic and cost and differentiation advantages are not mutually exclusive in retailing. The three-dimensional structure we have found for food retailing clearly contradicts Porter’s (1985) assumption of two generic competitive strategies, if the central dimensions of perception from a consumer perspective are accepted as reflecting potential competitive advantages. Some further results which are based on the extracted factors should also be discussed. Table 6 and Fig. 2 show the discriminative power of the derived perception factors by displaying the factor values for the seven retailers used as stimuli in the consumer survey. Table 6 demonstrates that the factor values of all three factors are significantly heterogeneous for the seven retailers, i.e. the factors are suitable to discriminate between the seven retailers from the consumer perspective. Fig. 2 shows that consumers perceive the retailers belonging to different ‘‘groups’’ (the ‘‘clustering’’ was, due to the low number of objects, carried out only by inspecting their position in the diagrams and the results of the post-hoc tests shown in Table 6):

0.000

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Perception factors (n ¼ 560)

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low

high

high -2

-2

Globus Real Karstadt

0

Edeka

Aldi

Lidl

2 -2

-1

0

low

1

2 high

Price Level

low

-1

Karstadt Globus Edeka

Aldi

0

Lidl Real Plus

1

Plus

1

-1

Quality of Perf.

-1

Quality of Perf.

Scope of Offers/Conv.

high -2

285

2 -2

-1

1

0

low

2

low

high

Karstadt

Globus

Edeka Aldi

0

Lidl Real Plus

1

2 2

1

0

-1

low

Price Level

-2 high

Scope of Offers/Conv.

Fig. 2. Positioning of seven German retailers along the central dimensions of store perception.

intra- and inter-format competition might become superfluous when seen from the customer perspective. Obviously, the ‘‘clustering’’ procedure used here has substantial methodological shortcomings and is used only to indicate a possible direction for future research in which more stores would have to be included and a cluster analysis can be undertaken, which is based on the three dimensions simultaneously. 5. Discussion and conclusion One central research issue was to identify distinguishable competitive strategies in food retailing. There is a paucity of detailed and large-scale empirical research and the results obtained in earlier research are, in any event, ambiguous. One objective of this investigation was to derive basic types of competitive strategy for a specific retail sector and to do this from two perspectives. Firstly, whether there are basic dimensions of competitive advantage was tested from a retail company perspective. Reducing a large item battery of potential advantages by means of factor analysis, three factors were extracted and discussed in detail. It was shown that three dimensions of competitive advantages can be derived and that Porter’s dichotomy of quality and cost leadership is not confirmed by the empirical data in the company survey. Quality and cost/price leadership do not contradict each other, but are independent dimensions of competitive advantage. In addition, a third dimension, convenience, was shown to be a potential basic competitive advantage for food retailers. From the consumer perspective, different food retail store perception items were aggregated by factor analysis. Again, the analysis resulted in three factors, which did not support Porter’s hypothesis of only one dimension of strategic strength. As in the company perspective, from the consumer perspective, price advantages and quality advantages are not diametrically opposed, but separate

Table 7 Basic types of competitive strategies from the company perspective and central dimensions of consumer perception of retail stores Company perspective

Consumer perspective

Experience/price Price leadership (), cost leadership () Best store atmosphere Best customer relationship management Best advertising

Price level Price

Quality of core functions Quality leadership Service leadership Process leadership

Quality of performance Quality of assortment Service Processes Store design

Convenience

Scope of offers/ convenience Variety of assortment, one-stop shopping

Best variety of assortment () Convenience leadership () indicates a negative loading on the factor.

factors (only slightly negatively correlated). Convenience is also a central dimension of retail store perceptions of consumers. Table 7 compares the results of both empirical studies. Considering the basic types of competitive strategies and the central dimensions of consumer perception of retail stores, the results are very similar and in the core findings, even parallel. In each perspective, three dimensions were extracted, (1) a price-orientated dimension, (2) a qualityorientated dimension, and (3) a convenience-orientated dimension. None of the conceptual papers on competitive strategies in retailing (e.g. Walters and Knee, 1989; Wortzel, 1987) have proposed these exact dimensions, but the finding resembles the results of an early store image analysis. Doyle and Fenwick (1974/75) used multidimensional scaling to extract quality, selection and price as

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central dimensions of grocery store perception. The strong focus on convenience in our survey (which is related to selection) probably only developed later. On the one hand, this supports the enduring high relevance of price and quality as central competitive advantages (while quality now has to be seen as comprehensive and not only assortment-based) and, on the other hand, the high significance of convenience (i.e. to complete shopping comfortably and efficiently, either through small convenience stores or through one-stop shopping) as a third basic type of competitive advantage in food retailing. There are slight differences between the managers’ perspective and the consumer perspective only at the level of attributing specific items to the dimensions. While, from the consumer perspective, the experiential aspects of marketing (here: store design) are closely connected to the evaluation of the quality of performance in general, managers associate them with the price/cost dimension.6 Obviously, the consumers—as previous research has also shown (Kahn and McAlister, 1997; Morschett, 2000; Ailawadi and Keller, 2004)—use indicators such as store design to evaluate other facets of quality. A positive and emotionally appealing store atmosphere might therefore bias consumer interpretations of other quality attributes. From the company perspective, however, a dichotomy between the experiential marketing instruments and cost/ price leadership seems to be based on the (realistic) assumption that store atmosphere and other experiential instruments cannot be easily achieved without sacrificing some cost advantages. Besides these differences, food retail companies seem to develop their competitive strategies along the same dimensions that consumers use to evaluate the retailer. Thus, the cost-quality-convenience-framework obviously can adequately serve to describe the development of competitive strategies in food retailing as well as to evaluate the positioning success from the consumer perspective. References Aaker, D., 1991. Managing Brand Equity. Free Press, New York. Aaker, D., 1992. Strategic Market Management. Wiley, New York. Ailawadi, K., Keller, K., 2004. Understanding retail branding: conceptual insights and research priorities. Journal of Retailing 80, 331–342. Anderer, M., 1997. Internationalisierung im Einzelhandel. Deutscher Fachverlag, Frankfurt. Arnott, D.C., 1993. Positioning: redefining the concept. Warwick Business School Research Papers, No. 8. Auken, S. van, Lonial, S., 1991. Multidimensional scaling and retail positioning: an appraisal. International Journal of Retail & Distribution Management 19 (3), 11–18. Birtwistle, G., Clarke, I., Freathy, P., 1999. Store image in the UK fashion sector: consumer versus retailer perceptions. The International Review of Retail, Distribution and Consumer Research 9 (1), 1–16. 6 The advertising and the relationship management could not be evaluated from the consumer perspective. However, this probably reveals weaknesses of the retailers in the realisation of these competitive advantages.

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