Chapter.1 Introduction

1.1 Introduction and Background

The hypermarket plays an important role in Asian countries, such as South Korea, China, Thailand, and Taiwan, the numbers of hypermarkets are rising because of the dense population. Nowadays, Taiwan has experienced rapid economic expansion and a notable increase in consuming capacity. With an increasing demand for better products and services, the concept of using modern retail channels such as convenience stores and hypermarkets for daily purchases of household necessities has been adapted widely by consumers. In a survey of the role of hypermarkets in Taiwanese people’s daily lives quoted by Taiwan Today (2009) from Chinese-language China Times founded that over than eighty-four percent of 1,870 participants said they had shopped at a hypermarket. Obviously, the hypermarket became the main store format for Taiwanese people when they purchased household necessities and foods. According to Nielsen Company (2009) market research conducted in 2006, Taiwan had the second highest density of hypermarkets in Asia region. In this survey, they pointed out the population in Taiwan around 23 million and each hypermarket serves around 210,000 people. They also founded that Taiwan is significantly more developed than other Asia’s countries, with 90 percent of grocery sales going through the modern trade.

Therefore, retailing industry became competitively so retailers must put effort into increasing various products, better service or developing various sales promotions in order to tempt customers, and the results of the poll reveal that which strategies are effective. As Dibb et al. pointed out the role of promotion in a company is to communicate with customers, with the aim of directly or indirectly facilitating exchange by informing and persuading one or more audiences to accept the company’s products (Dibb et al., 2006: p.511). In addition, the resource in a company is not infinite therefore company should maximum the efficiency of resource and focus on useful marketing strategies. For that reason, we understand the promotion became a crucial issue for company which want to utilize the tools to increase communicate with customers then incentive customers purchase company’s product. Meanwhile, by providing good services and products surpass customer expectation then get higher customer satisfaction. Finally, the company can keep higher customer retention and earn more profit.

This research takes Carrefour for example and discusses the effectiveness of sales promotion operations for Carrefour. Besides, this research tries to understand how promotion campaigns to impact customer relationships and behaviours and how to use sales promotion to help company get more revenue and keep high customer retention.

1.2 Aims and Objectives

Aims

In the past, the manufacturers and retailers focus on how product more products and how to use the marketing strategies to sell the products, they also stand on supply-based side to sell products. However, in the twenty first century, the domestic and global competition is increasingly intense; the marketplace provides more options to the customers, and the whole value chain of retailing had already became the customer orientated situation and retailers seek for best ways to increase the profit.

Objectives

The purpose of this research is aimed at examine the effects of sales promotion and marketing strategy on consumers’ behaviours. Let the stores to understand the customer’s needs by distinguishing the effectiveness of individual sales promotion, then provides the new marketing strategy for fit in with the market. Therefore, there are four objectives in this study:

1) Identify the effects of individual sales promotion tools on perceived values.

2) Find out the impact of different sales promotion tools on consumer purchase intention.

3) Find out whether there is a positive correlation between sales promotion and purchasing intention.

4) Identify the demographic of consumers and behaviour response.

1.3 Research Structure

This research includes five chapters, and the outline of each chapter is as follows:

Chapter one introduces the research background, research aims and objectives, and research structure.

Chapter two reviews the existing literature relevant to this research. It consists of definition of hypermarket, sales promotion, consumer behaviour.

Chapter three illustrates the experiment design, data collection, sample selection, measurement, and pre-test.

Chapter four tests the hypotheses and shows the statistical results of the research. The data analysis methods contain Reliability Analysis, Factor Analysis, ANOVA, Independent-Sample T Test, and Simple Regression. Thus some findings could be explained through this information.

Chapter five discusses the results and implications of the study, describes limitations, and provides suggestions for future research.

The research flow is as follows:

Chapter 2. Review of the Literature

Introduction

There exist numerous theories about how an individual consumer perceives the values of products based on several elements. In this chapter, an extensive review of literature is to be presented. Basically, three sections are included in this chapter. The first section discusses the definition of Hypermarket. In the second section, the definition and classification of sales promotion are to be provided. Then, the third section reviews the theories of consumer buying behavior.

2.1. Hypermarket

2.1.1 Definition of hypermarket

According to URPI (1988), the hypermarket is an extension of the supermarket. Normally, the average supermarket covers up to 2500 m, a superstore is between 2500 and 5000 m and the hypermarket is anything over 5000 m in business size. It offers variety of choices and depth of range but usually centers mainly around groceries. Kitchen and Proctor (2001) found that, hypermarket usually over 50000 square feet, typically on one level and selling a wide range of food and non-foods products. Moreover, hypermarkets are usually built on the edge of town or near retail parks. A number of definitions have been coined for a hypermarket. The most widely used definition of a hypermarket is a large commercial establishment which comprises of departmental stores and supermarket which offer a wide range of grocery and a chain of merchandise goods at discounted prices.

2.1.2 Hypermarket in Taiwan

2.1.2.1 History

In Taiwan, the hypermarket has developed for 20 years. The first hypermarket called Makro, which were introduced to Taiwan in 1989. At same time, the French company Carrefour established a joint-venture with President Group in Taiwan. Furthermore, local brands such as Geant and RT-MART and international brands like Costco quickly join hypermarket industry. They provide with a variety of commodity and low price. At that time, Makro quickly became the biggest retail sales system in market, and set a new customer shopping trend in Taiwan. Those are self-service, low price, and get all you need in one store. Meanwhile, during 90’s Taiwan’s government comprehensively pushed commercial and service industry development, and eagerly anticipated the industry to become prosperity, globalization, internationalization and alliance. In last twenty years, hypermarkets dramatically grew under the government policy guidance.

2.1.2.2 Current situation

Recently, hypermarkets in Taiwan became already the main places that the consumers purchase household necessities for daily lives. In spite of during the global recession, the leading-brand hypermarkets still to expand their new stores every year. In Taiwan, There are 106 hypermarkets at the end of the year 2008. Table 1 shows that the largest chain of hypermarkets is Carrefour (58 stores), followed by RT-MART (24 stores) and Geant (14 stores). It is clearly that the variations and competitions between the hypermarkets in Taiwan are very fiercely. Therefore, hypermarket should find other marketing strategies to keep their market share and profit.

Table.1

Source: Collected by different hypermarkets official website in Taiwan

2. 2 Sales Promotion

2.2.1 Definition of Sales Promotion

The word promotion originates from a Latin word meaning “to move forward”. Later, the meaning has been narrowed with reference communication undertaken to convince others to accept ideas, concepts or things. Many previous studies and researches have defined of sales promotion. Each definition has its own elaboration according to the promotional methods applied. Hence, the techniques of sales promotion are diverse and widely used.

Strang (1976) had given a more simplistic definition on sales promotion where they are short-term incentives to encourage purchase or sales of a product or service. Twenty years later, Kotler and Armstrong (1996: pp.200-250) reemphasized that sales promotion consists of short-term incentives to encourage purchase or sales of a product or service. Sales promotions include a wide variety of promotion tools such as coupons, contests, cents off deals, and others are designed to stimulate earlier or stronger market response and this includes consumer promotion, trade promotion and sales force promotion. They also defined sales promotions as invite and reward quick response from consumers whereas advertising and personal selling offer reasons to buy a product or service. Later, McDonald and Christopher (2003: pp.120-140) noted that sales promotion is not a face-to-face activity concerned with the promotion of sales. Sales promotion can be an activity for saving problem designed to stimulate customers to behave more in line with the economic interests of the company, and bring forward their decisions to buy.

The design of promotion is to increase sales of product or service by encouraging consumers to try and even purchase the product. This activity provides incentives to consumer within specific time in order to help them make decision on a variety of commodities available in the market. Brassington and Pettitt (2006:pp727) also concluded that sales promotion covered a wide variety of objectives, all of which fall into three broad categories as show in Figure 1. : communication, incentive and invitation.

Figure 1 Sales Promotion objectives

Despite sales promotion have different forms or definitions offered by several credible institutes and scholars, but all sales promotion instruments would be have the common typical objectives:

1) Encourage intermediaries do more sales efforts

2) Increase shelf space for products

3) Help intermediaries’ stock levels increasing

4) Get more support for in-store displays or other promotions

5) Gain access to new outlets

6) Counteract pressure from sales downturns or competitor actions

7) Improve communication with, or education of, intermediaries

For every marketers or producers, it is essentially important for them to understand, which promotion techniques can attract and induce consumers to purchase their products respectively. In order to create better analysis of the effects of promotions, some researchers classify the sales promotion into different framing forms.

Campbell and Diamond (1990) classified the sales promotion into two main types, monetary promotion and non-monetary promotion. Monetary promotions are inducement activities made through the price mechanism and comparable with product selling price such as discount and coupons. On the other hand, non-monetary promotions are inducement activities that exclude pricing element and not comparable with product selling price, i.e., free gift or premiums. Their study concluded that non-monetary promotions are theorized to be considered as gains while monetary promotions are viewed as reduced losses in terms of value perception. Experimental results showed that monetary promotions have smaller but noticeable differences than nonmonetary promotions in value. However, non-monetary promotions had broader latitudes of acceptance than monetary promotions. Because of their relatively small noticeable difference, monetary promotions may be particularly effective for transactions with limited amount of money involved. Meanwhile non-monetary promotions, which have broader latitude of acceptance, would be better for transactions that are more expensive.

No matter how the sales promotion is classified, there are several ways of hypothesizing whether a particular promotion will be considered as a gain or a reduced loss in value perception. One of Thaler’s (1985) assumptions was that the physical or temporal separation of a rebate (monetary promotion) check from the price quotation leads to the consideration of the rebate as a gain, but he did not test that hypothesis. Price-off promotions, a monetary promotion tool, are most likely to be viewed as reduced losses in value perception and non-monetary promotions, are most likely to be framed as gains in value perception (Sawyer and Dickson, 1984). Most analytical and econometric models of sales promotions simply assume that monetary savings are the only benefit motivating consumers to respond to sales promotions (Blattberg and Neslin,1990: pp.30-100). Therefore, the determination of value perception of gains or reduced losses is depending upon which form of sales promotion would produce the most happiness for the subject (McDonald and Christopher, 2003).

2.2.2 Sales Promotion Activities

Money-off

Money-off are the most recognized use of sales promotions. Money-off offers are usually designed as short-term expedient but some brands appear to run one price reduction after another, creating clear impression and expectation in people’s mind.

Bonus packs

Bonus packs include an extra quantity of product in the pack for no extra price increase.

Banded packs

These are multi-packs of the same product, or more than one product, banded together for inclusive price.

Couponing

Coupons are extensively used in a variety if forms and are associated with other elements of sales promotions such as money-off offers and contests.

Premiums

Premiums are merchandise items or services. They include free goods and services such as a free extra item of the product being purchased, a free item of some other product or free service such as entry into a leisure park.

Sampling

Standard or trial-sized samples of the brand are provided free or at a reduced price to encourage trial.

Contests

Competitions of a variety of forms are a popular sales promotional tool. Contests encourage individual customer rivals others for prizes according to their analytical or creative skills.

Sweepstake

Sweepstake is a method of stimulating sales in which consumer submit their names for inclusion in a draw for prizes. Sweepstakes are usually used to stimulate sales contests, and sometimes sweepstakes will combine with other sales promotion tools.

Tie-in sales promotions

Tie-in sales are where multiple products are involved in sales promotions. The products may be from the same company or different companies.

Merchandising/ point- of sale displays/ demonstrations

Those promotions are anything that entices customers to buy or take action through display and atmospherics. It includes window displays, shelf and aisle displays, the use of video, and other appeals to any of the five senses.

Frequent user incentives

Frequent user incentives to reward customers who take part in repeat purchases. Basically, frequent user incentives include loyalty card and trading stamps. The loyalty provides discounts or free merchandise to regular customers.

Information leaflets/ packs and catalogues

The primary purpose of those trade items is to be informative in explaining the range products available, and give pricing and ordering procedures.

2.3 Customer behaviour

2.3.1 Theory of Consumer Buying Behavior

It is very difficult to identify the causes of consumer behaviors. People make their buying decision based on many reasons. The analysis of consumer behaviors as those acts of individual directly involved in obtaining, using, and disposing of economic goods and services, including the decision processes that precede and determine the acts. People make buying decision based on different factors. Knowledge of consumer behavior is a vital input to sales promotion activities (Blackwell et al., 2001).

Between 1950 and 1960, the field of economics was the main contributor in explaining consumer behavior and economists were the first to propose a formal theory of consumer behavior (Karin, 2003). However, marketers only borrowed rather indiscriminately from social psychology, sociology or any other fields of inquiry that might relate to consumer behavior in some way.

One of the outstanding models underlies the consumer behavior, Stimulus response model (Bagozzi, 1986), has been widely applied by marketing managers. According to Teunter (2002), most marketing managers find the economic model particularly lacking in its ability to suggest specific actions for influencing consumption or for anticipating specific demands of consumers (unless resulting from price actions). Most marketers or producers need guidelines that will indicate how their actions, especially the marketing mix, might actually influence consumers’ perception and in turn purchasing behaviors. In the stimulus-response model (Fig. 2) suggests that marketing and other stimuli enter the consumer’s black box and produce certain responses (Bagozzi, 1986). Hence, the challenge for marketers is to find out how the responses are generated in the black box. Notice that the marketing mix variables are not the only stimuli producing responses on the consumers but also external environmental factors. The stimulus-response approach is quite appealing because marketers can discover the reactions of consumers to sales promotion stimuli. Under this approach, people are represented as being buffeted by stimuli rather than freely discovering their needs and choosing among alternatives.

Stimulus Buyer Black Box Consumer Response

Marketing Mix Psychological

Variables Reactions

Product Purchase

Price Activities

Place Consumption

Promotion Patterns

External

Environmental

Economic,

Technological,

Political,

Cultural

Fig. 2. Stimulus-Response Model

Source: Bagozzi, 1986.

The central idea of the stimuli-response model is to employ marketing stimuli to influence perceived value as they affect buyer decision and intention to purchase. Sales promotion is one of the elements of marketing stimuli, this model could be very useful in explaining how and why sales promotions affect consumer behaviors through the perceived value. Usually consumers make purchase decision toward which they have a positive attitude, and avoid those, which they have, negative perception. Therefore, to make better prediction about consumers’ behaviors will need a better understanding about the formation of consumers’ perceived values (Teunter, 2002). Consumer value is very important to marketers (Fredericks and Salter,1995; Vantrappen, 1992), especially under the fierce competition in newmillennium.

The concept of perceived value has recently gained its importance in the business environment as it could affect consumer behaviors, and therefore it helps provide the basis for building strategies for the marketers/producers to gain a better competitive position in a market. However, despite its strategic importance for marketing, perceived value did not receive enough investigation in the literature in agribusiness.

Although the conceptualization of perceived value launched in the late 1970s, researchers just begin to give reasonable attention to its operationalization (Sweeney et al., 1997). Given the previous studies, perceived benefits, perceived price, monetary price, psychological price, and behavioral price are all associated with conceptualization of perceived value. Hence, the concept of perceived value is a multi-dimensional (Kotler and Armstrong, 1996).

Studying the perceived value has become quite popular recently. There are several conceptual models on perceived value, and basically they can be grouped into two categories according to the different conceptual values. First category consists of transaction utility theory and concept theory of Grewal et al. (1998a), where they define the perceived value as two dimensions-transaction value and acquisition value. Meanwhile the second category only reviews the perceived value as a whole unit without clearly segregating the value into transaction value and acquisition value. Transaction utility theory was developed by Thaler (1985) it focuses on how people build mental code combinations of events that are assumed to make themselves as happy as possible. This principle is used to explain consumers’ purchase behaviors related to their preferences and the evaluation of transactions involves the acquisition utility and the transaction utility. Conceptually, the acquisition utility is a measure of the value of the goods relative to its price, which is similar to the economic concept of consumer surplus. Transaction utility is defined as the difference between the amount paid and the internal reference price for the goods that the consumer expects to pay for. This theory leads to the evaluation of consumers’ tangible gains to their losses when they are offered with promotion, then the perceptions of value and purchase intention would be formed. During the purchase evaluation stage, consumer will makes the purchase decision based on the maximum perceived value or utility received from individual promotions. Thaler (1985), argues powerfully that promotions may frame as gains or losses in the value assessment. The transaction utility theory already becomes a fundamental base for many researches on the psychology of persuasion (Lichtenstein and Bearder, 1989).

Grewal et al. (1998a) focused on the perceived product value and customers’ choice behaviors in the pre-purchase phase. They have successfully identified the value into two aspects, perceived acquisition value and perceived transaction value. Perceived acquisition value is the perceived net gains associated with the products or services acquired. That is, the perceived acquisition value of a product will be positively influenced by the benefits they are getting from acquiring and using the product. However, it will be negatively influenced by the amount of money given up to acquire the product, i.e., the sales price. On the other hand, the perceived transaction value is the perception of psychological satisfaction or pleasure obtained from taking advantage of the financial terms of the price deal. In addition, they discovered that the influence of perceived transaction value on behavioral intentions is mediated by perceived acquisition value. The perceived transaction value could enhance consumer’s perceived acquisition value if the internal reference prices (the mental price scale by which a buyer judges the fairness of an actual price) are greater than the selling price. The likelihood that the buyer intends to purchase the product is positively related to overall perceptions of value. Their findings also reaffirmed the common belief that perceived quality is an important part of the “value equation”.

Zeithaml (1988) developed a means-end model, which specified quality and value not differentiated from one another. Quality can be defined as a consumer’s judgment about a product or service. Zeithaml (1988) found that perceived value is defined as “the consumers’ overall assessment of the utility of a product according to perceptions of what is received and what is given”. The study stated that perceived customer value can be captured in one overall definition: value is low price, value is whatever one wants in a product, value is the quality that the consumer receives for the price paid, and value is what the consumer gets (quality) for what they give (price) respectively. The moderating variables of perceived value in this model include perceived sacrificed, the effort required to purchase, extrinsic and intrinsic attributes, and high-level abstractions. The perceived sacrificed include elements of perceived monetary price and perceived non-monetary price. Perceived monetary price is the price of a product as encoded by the consumer.

Meanwhile the perceived non-monetary price is defined as the price of obtaining a product that includes the time and effort used to search for it. Both intrinsic attributes (how the product/service makes you feel) and extrinsic attributes (the reputation of the product/service) are positively related to perceived quality, while perceived monetary price is affected by objective price (actual price paid) and negatively related to the perceived quality. The result showed consumers’ perceptions of quality, price and value are interrelated and it will influence the willingness to purchase.

In 1990, Monroe developed a framework and suggested a ratio specification, which implied that the perceived value is judged to be quality at unit price in a consumers’ mind. This is the outcome of the trade off between perceived benefit and perceived sacrifice. The ratio specification is defined as: Perceived value = Perceived benefit / Perceived price sacrificed

The equation above, identify that perceived value, perceived benefits are positively related, and perceived price sacrificed is negatively related to perceived value. The relationship between actual price and perceived quality are positively related and negatively linked with perceived price sacrificed. The concept developed by Monroe, stated that buyers’ perceptions of value represents a tradeoff between the quality and benefits, they perceive in the product relative to the sacrifice they perceive by paying the price. One can reduce a product’s perceived monetary sacrifice by offering a price reduction on the product. Therefore, by keeping the benefits received by consumers

constant, different ways of communicating promotion will lead to a purchase decision.

According to Grewal et al. (1998b), integrative framework identify price, product brand and store name could influence buyers’ perceptions of quality, and extend to their perceived value. They identified that price discounts are likely to have a negative influence on perceptions of quality. If a consumer purchases a discounted product, they often attribute the fact that it was on discount because of poor quality, which is similar to the finding of other scholars (Blattberg and Neslin, 1990:pp.30-100). They suggested that internal reference price is influenced by price discounts, brand’s perceived quality and brand name. In addition, their finding supports the conclusion of other scholars that the essential components of the formation of the value perception included price, promotion and quality perception. Indeed, they also suggested the perceived quality be positively related with value perceptions. As a result, purchase intention is positively associated with perceived value as the purchase intentions is an antecedent of the consequent purchase.

Alford and Engelland (2000) applied the social judgment theory to develop the concept of value perception. Their main finding suggested that the variables influencing the formation of consumers’ internal reference prices be consumer’ perceived value and search intention. Consumer internal reference price formation is influenced by the advertised sales price (Alford and Ellgelland, 2000). They illustrated that the comparison between the advertised sales price and internal reference price is to attract consumer attention and enhance consumers’ value perception as well. Consumers define internal reference price as a fair price, the expected average market price, the average of recent purchase price, or the lowest acceptable price. In this sense, it would be more reasonable to view it as a range of prices. In their framework, the price range is appropriately associated with the social judgment theory developed by Sherif et al. (1973), which suggested that individuals develop latitudes of acceptance, rejection and non-commitment as a guideline for value evaluation. Moreover, they also realized that consumers would perceive a smaller degree of benefits of search when exposed to a plausible advertised reference price as opposed to an implausible advertised reference price. This implies that the level of purchase intention would be higher for the appropriate promotion employed.

Among the studies mentioned above, only Thaler’s transaction utility theory (1985) and framework of Grewal et al. (1998a) have segregated the perception into two dimensions – acquisition value and transaction value and defined both dimensions are inter-related. Nonetheless, most of the scholars (Zeithaml, 1988; Monroe, 1990; Grewal et al., 1998b)’ concept does not identify the value as two dimensions – acquisition value and transaction value.

The findings from previous studies suggested that perceived value is a function of perceived quality and perceived price. That is, value increases monotonically (and positively)