LAYSI A RAWAK SA IVE RSIT N U I MA Faculty of Economics and Business UN I M AS Faculty of Economics and Business CONSUMER PERCEPTIONS TOWARDS SALES PROMOTION TOOLS APPLIED BY HYPERMARKET IN KUCHING Chai Fang Fang Bachelor of Business with Honours (Marketing) 2009 CONSUMER PERCEPTIONS TOWARDS SALES PROMOTION TOOLS APPLIED BY HYPERMARKET IN KUCHING CHAI FANG FANG This project is submitted in partial fulfilment of the requirements for the degree of Bachelor of Business with Honours (Marketing) Faculty of Economics and Business UNIVERSITI MALAYSIA SARAWAK 2009 Statement of Originality The work described in this Final Year Project, entitled “Consumer Perceptions towards Sales Promotion Tools Applied by Hypermarket in Kuching” is to the best of the author’s knowledge that of the author except where due reference is made. 20th April 2009 Date Chai Fang Fang 16049 ABSTRACT CONSUMER PERCEPTIONS TOWARDS SALES PROMOTION TOOLS APPLIED BY HYPERMARKET IN KUCHING By Chai Fang Fang Sales promotion has been constantly growing since the 1960’s and today, it is one of the key factors in the promotional mix. Since the hypermarket format is very new in Kuching retail industry, the choice of appropriate sales promotion tools is important decisions for the retailers. The purpose of this study is to provide a general understanding on consumer hypermarket shopping behaviour in Kuching. This study identifies the consumer segments that visit the hypermarket in Kuching, the sales promotion tool that is favoured most when applied in the hypermarket format, and the effects of seven sales promotion tools, namely sample, coupon, cash refund offer, price-off, premium, patronage reward, and contest and sweepstake on consumers’ purchase intentions. The data base comprising a total of 285 hypermarket consumers in Kuching, Sarawak were surveyed using structured questionnaire. The results show that price-off is the most favoured sales promotion tool but it does not have any effect on consumes’ purchase intentions. Cash refund offer, coupon, premium, and contest and sweepstake are associated with consumers’ purchase intentions. Details of the findings and the implications are discussed. iv ABSTRAK PERSEPSI PELAGGAN TERHADAP ALAT PROMOSI JUALAN YANG DIGUNAKAN OLEH PASAR RAYA BESAR Oleh Chai Fang Fang Promosi jualan telah berkembang sejak tahun 1960an. Kini, ia merupakan salah satu faktor penting dalam promosi campuran. Oleh kerana format pasar raya besar masih baru di Kuching, maka pilihan alat promosi jualan yang bersesuaian adalah penting kepada pihak peruncit. Tujuan kajian ini adalah untuk membekalkan secara umum, pemahaman tentang tabiat membeli-belah pelanggan pasar raya besar di Kuching. Kajian ini mengenal pasti segmen pelanggan yang melawat pasar raya besar di Kuching, alat promosi jualan yang paling diminati apabila digunakan oleh pasar raya besar, dan kesan-kesan tujuh alat promosi jualan iaitu sampel, kupon, bayaran balik tunai, potongan harga, premium, ganjaran naugan, serta pertandingan dan cabutan undi terhadap niat membeli pelanggan. Pangkalan data seramai 285 orang pelanggan pasar raya ditinjau dengan menggunakan borang kaji selidik berstruktur. Keputusan menunjukkan bahawa potongan harga paling diminati tetapi tidak mempunyai kesan ke atas niat membeli pelanggan. Bayaran balik tunai, kupon, premium, dan pertandingan dan cabutan undi adalah berhubungkait dengan niat membeli pelanggan. Hasil temuan dan implikasi turut dibincang. v ACKNOWLEDGEMENT I have been working very hard on writing this Final Year Project for the last nine months, a time full of both expected and unexpected challenges. This project has brought me new impressions and influenced the way I look at research and sales promotions. When this project is finally complete, I hope it can contribute to better understanding of sales promotion tools. I would like to express sincere appreciation to people who have helped and supported me during this project writing. Thank you, Mr Puah Chin Hong, my dedicated supervisor for reserving time for my project consultation and providing me with valuable information regarding project writing. I would like to give my heartiest thanks to him for his active supervision and support throughout the time I was working on my project writing. Without him, this project is impossible to complete. I would like to express my appreciation to my family members for their unending support and encouragement throughout my journey to complete this study. They have given me the precious motivation and warmth needed in completing this project. I would also like to extend my appreciation to the lecturers who have provided me with generous advice, friends and seniors who have given unrelenting help in my endeavour, the staff of Faculty Economics and Business and anyone who has had a hand, either directly or indirectly in the accomplishment of this project. vi TABLE OF CONTENTS Page LIST OF TABLES................................................................................................ ix LIST OF FIGURES.............................................................................................. x CHAPTER ONE: INTRODUCTION 1.0 Hypermarkets............................................................................................. 1 1.1 Hypermarkets in Kuching.......................................................................... 5 1.2 Why Sales Promotion?............................................................................... 9 1.3 Problem Statement.................................................................................... 16 1.4 Objective of the Study............................................................................... 19 1.4.1 General Objective.......................................................................... 19 1.4.2 Specific Objectives........................................................................ 19 1.5 Significance of the Study........................................................................... 20 1.6 Scope of the Study..................................................................................... 21 CHAPTER TWO: LITERATURE REVIEW 2.0 Introduction............................................................................................... 24 2.1 Sales Promotion........................................................................................ 25 2.2 Findings Related to Sales Promotion........................................................ 27 2.3 Sales Promotion Trends............................................................................ 28 2.4 Sales Promotion Tools.............................................................................. 30 2.4.1 Samples......................................................................................... 31 vii 2.4.2 Coupons........................................................................................ 32 2.4.3 Cash Refund Offers....................................................................... 35 2.4.4 Price-off (Price Packs).................................................................. 36 2.4.5 Premiums...................................................................................... 38 2.4.6 Patronage Rewards (Frequency Programmes)............................. 40 2.4.7 Contests and Sweepstakes............................................................ 42 2.5 Purchase Intentions....................................................................... 44 2.6 Theoretical Underpinnings........................................................... 45 2.6.1 Attitude............................................................................. 47 2.6.2 Subjective Norms.............................................................. 47 2.6.3 Perceived Behavioral Control........................................... 48 CHAPTER THREE: METHODOLOGY 3.0 Introduction.............................................................................................. 50 3.1 Research Framework................................................................................ 51 3.2 Research Design....................................................................................... 54 3.3 3.4 3.2.1 Population..................................................................................... 54 3.2.2 Sample.......................................................................................... 55 Research Instrument................................................................................. 57 3.3.1 Item............................................................................................... 58 3.3.2 Measurement Scale....................................................................... 61 Data Analysis............................................................................................ 62 3.4.1 Descriptive Statistics..................................................................... 62 3.4.2 Mean............................................................................................. 63 viii 3.5 3.4.3 ANOVA........................................................................................ 63 3.4.4 Reliability Test.............................................................................. 64 3.4.5 Factor Analysis............................................................................. 65 Hypothesis Statements............................................................................. 65 CHAPTER FOUR: EMPIRICAL RESULTS AND DISCUSSIONS 4.0 Introduction............................................................................................... 68 4.1 Feedback from Questionnaires................................................................. 68 4.2 Descriptive Analysis................................................................................. 69 4.2.1 Analysis on Respondent Profile (Objective two)......................... 69 4.2.1.1 Gender.............................................................................. 70 4.2.1.2 Age................................................................................... 71 4.2.1.3 Marital Status................................................................... 72 4.2.1.4 Highest Level of Education............................................. 73 4.2.1.5 Income Level................................................................... 75 4.2.1.6 Occupation....................................................................... 76 4.2.1.7 Race................................................................................. 78 4.2.1.8 Religion........................................................................... 80 4.3 Cross Tabulation (Objective one and two).................................. 81 4.4 Mean (Objective three)................................................................ 89 4.5 One-way ANOVA (Objective four)............................................. 91 4.6 Reliability Test............................................................................. 97 4.7 Factor Analysis (Objective five).................................................. 98 ix CHAPTER FIVE: RECOMMENDATIONS AND CONCLUSIONS 5.0 Introduction............................................................................................... 105 5.1 Summary of the Study................................................................... 105 5.2 Recommendations......................................................................... 108 5.3 Limitations and Future Research.................................................. 112 REFERENCES APPENDIXES x LIST OF TABLES Table Page Table 1.1: Floorspace and Product Range in West German Hypermarkets January 1982............................................................ 3 Table 4.1: Portion of Questionnaires................................................................ 68 Table 4.2: Cross Tabulation Test on Demographic Variables versus Types of Retail Outlets.................................................................... 81 Table 4.3: Cross Tabulation Test on Demographic Variables versus Frequency of Visit........................................................................... 83 Table 4.4: Sales Promotion Tools Rank............................................................ 89 Table 4.5: Value of One-Way ANOVA for Sales Promotion Tool towards the Purchase Intentions.................................................................... 92 Table 4.6: Reliability Statistics.......................................................................... 98 Table 4.7: KMO and Bartlett’s Test.................................................................. 99 Table 4.8: Factor Analysis on Response towards Sales Promotion.............. 100 xi LIST OF FIGURES Figure Page Figure 3.1: Research Framework......................................................................... 51 Figure 4.1: Percentage of Respondents’ Gender................................................. 70 Figure 4.2: Percentage of Respondents’ Age....................................................... 71 Figure 4.3: Percentage of Respondents’ Marital Status..................................... 72 Figure 4.4: Percentage of Respondents’ Highest Level of Education............. 73 Figure 4.5: Percentage of Respondents’ Income Level..................................... 75 Figure 4.6: Percentage of Respondents’ Occupation......................................... 76 Figure 4.7: Percentage of Respondents’ Race.................................................... 78 Figure 4.8: Percentage of Respondents’ Religion.............................................. 80 xii CHAPTER ONE INTRODUCTION 1.0 Hypermarkets Hypermarkets are defined slightly different by individual national agencies, but the definitions are attempted to characterize hypermarkets in essentially the same way. International Chamber of Commerce defined hypermarkets as a retail establishment of a minimum sales area of 2,500 m2 selling mainly in self-service way, with a wide range of foods and non-foods products at very competitive prices, and having in place adequate parking facilities (Findlay and Sparks, 2002). Global supercenters or hypermarkets are large format stores offering grocery products in combination with general merchandise and successfully capturing substantial market share from traditional grocery stores as well as mass merchandisers (Morganosky, 1997; Arnold and Luthra, 2000; Seiders et al., 2000); and Graff, 2006). Due to the supercenters’ or hypermarkets’ ability to offer low prices, they often appeal to lower income, large households (Carpenter, 2008). Additionally, the large format stores’ one-stop shopping convenience also attracted time-pressed consumers. Nevertheless, recent reports in the trade literature specify several interesting changes in the makeup of the hypermarket customer base including a sales decline to lower-income households and sales growth to affluent consumers (Grocer, 2005) as well as considerable growth in supercenter patronage among males (Duff, 2003). 1 While these definitions refine the fundamental nature of the hypermarket, the hypermarket concept is not just a large unit with a mix of foods and non-foods products. There are many other characteristics present in various hypermarkets. According to Findlay and Sparks (2002), among the few commonly present mix of features of the hypermarkets are:- (i) At least 2,500 m2 of sales area In the UK, the name hypermarket is limited to only units with over 5,000 m2, whereas stores with a sales area of 2,500 to 5,000 m2 are sometimes termed as superstores. On the other hand, in the US, the term combination store is used to describe units similar to the hypermarkets and large hypermarkets there have sales areas in excess of 20,000 m2. The average size of a hypermarket is of 3,500 m2 gross floor space. (ii) The merchandise mix results in at least 35% of sales area and normally more than 50% of this sales area is given to non-food items In the US, the hypermarkets (alternatively termed as combination stores) are defined to have 40% of floor space in non-foods products. While a comparison of British and French surveys show that respectively, 50% and 55% of sales space are allocated to non-foods. This shows that in the hypermarkets, non-foods take up a larger proportion of the sales area than food products do. 2 (iii) Gross floor space ranges from more than twice the sales area to around 20% more than sales area Sales area accounts for a larger percentage of the gross floor space. This could range from 50% to around 80% of the gross floor space. In a survey of British hypermarkets, sales space takes up 62% of gross floor space and this proportion increased with store size. As quoted in Findlay and Sparks (2002), see Table 1.1, the proportion of space and of sales in non-foods increases with sales space. Table 1.1: Floorspace and Product Range in West German Hypermarkets January 1982 Sales space m2 Percentage of floor Percentage of Number of lines space in gross area in sales space Food Non-food Food Non-food 2,500-3,999 45 55 79 7,100 13,400 4,000-4,999 39 61 80 8,300 19,100 5,000-6,999 36 64 82 8,700 23,200 7,000-9,999 32 68 79 11,400 26,900 10,000 and over 24 76 80 10,600 36,100 Source: Institut fűr Selbstbedienung und Warenwirtshaft (1982). (iv) Involves a wide assortment of product range but with shallow range of lines with relatively few brands, colours, and sizes of any of them A product range is also known as product line, which is defined as a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within a given price ranges (Kotler and Armstrong, 2006). For example, Maggi produces several lines of packaged food products. Each product line has got its varieties of items. Take for example the seasoning lines, which consist of products such as ketchup sauce, chilli sauce, soy sauce and others. The ketchup sauce can be 3 divided into different brands, sizes, and colours. A shallow range of lines means that within a particular product line (e.g. seasoning), there are little variations in terms of brands (e.g. Maggi, Ayam Brand, and others). Statistics on the US from the Food Marketing Institute suggests that the hypermarkets with 3,500 m2 gross floor space carry an average number of 22,500 regular items. The Mammout chain in France carries approximately 2,000 food lines, 1,200 toiletries and cosmetics, and 13,000 non-food lines, but summing up altogether, there are around 9,000 extra-seasonal lines. Another well-known hypermarket in France with exceptionally large stores of over 15,000 m2 is Carrefour, which carries more than 40,000 lines of non-foods and 4,000 lines of food and cosmetics items. Again, as shown in Table 1.1, product range is positively related to store size. Product range increases with store size. (v) The merchandising policy is mass, scrambled merchandising with relatively low margins and high sales volume The grocery items in hypermarkets are often priced lower (low-margin sales) than a regular supermarket. Normally, hypermarkets have business model which focus on high volume but low-margin sales. However, the higher margins on non-foods offset the lower sales per m² in the non-food sector. (vi) Car parking space is near or close to the store site It is common to have parking space over 1,000 cars, with parking ratios less than ten places per hundred m² sales space. 4 (vii) Locations in out-of-town positions are previously favoured Earlier on, locations in out-of-town or edge-of-town positions are favoured, but recently hypermarkets have been operating in all types of locations such as inner cities, within all kinds of shopping centres, and in small towns. Favours in edge-oftown locations were simply the result of land-cost differentials. Besides that, many hypermarkets choose suburban or out-of-town locations due to the store’s large size and the need for many of its shoppers to carry large quantities of goods to be easily accessible by automobile. 1.1 Hypermarkets in Kuching Among the few famous hypermarkets in Malaysia are Carrefour, Giant, Jusco, The Store, Makro Cash and Carry, and Tesco. Whereas in East Malaysia, there are a fewer number of hypermarkets. There are not many hypermarkets in Malaysia as compared to other regions, partly due to government policy. Over the past few years, foreign hypermarket companies have swept through Asia, bringing controversy (Pristay, 2002). Take for example the Thai government. After local retailers reported a drastic drop in business, the Thai government planned to consider putting limits on the number of hypermarkets. Malaysia is also taking up the battle as well. Malaysian officials are currently freezing applications from new hypermarket companies and studying possible industry controls. This may involve restricting the expansion by existing operators and barring new market entrants. 5 According to Prystay (2002), retail analyst worry this would scare foreign investors as most of the hypermarket chains are run by foreign concerns including the Francebased Carrefour, Dutch-owned Makro and Britain’s Tesco. The government restrictions were partly the results of the continuing economic slowdown and the declining numbers of the traditional retail-distribution channel, which is by 38% from 46,544 in 1992 to 28,659 in 2001 (according to a private study conducted by ACNielson for a client as quoted in Prystay (2002)). The decreasing number of children taking over family-run business has lead to the latter. In addition, the growing numbers of hypermarkets from 1 in 1995 to 21 in 2001 has also contributed to the controversy. According to Anton van Gorp, again as quoted in Prystay (2002), managing director of the Malaysian unit of Makro, “It has been proven that hypermarkets do kill a lot of small businesses,” and “Expansion should be regulated.” However, hypermarkets do contribute a lot to the local economy. For instance, Carrefour employs 2,300 people at its six Malaysian stores, and sources about 80% of its goods in Malaysia. President of the Thai Retailers’ Association, Pittaya Jearavisitkul said that the government should help Thai retailers to modernize, beef up selection and compete, but not just by beating competition back. He urged that this kind of situation is severe and they should think of other consumers and not just by protecting operators who are less efficient. 6 Although over the past decades, there is no hypermarket in Kuching (until recently only one has been established - Boulevard Hypermarket and Departmental Store), however, there are many supermarkets and retail outlets serving to the needs of the consumers. Among the famous ones are: Sarawak Plaza; one of Kuching’s older malls and is located next to Holiday Inn at Jalan Tunku Abdul Rahman. Tun Jugah; which is also located at Jalan Tunku Abdul Rahman and is located at the opposite of Sarawak Plaza. Riverside Mall - Parkson Grand; which is another shopping outlet located at Jalan Tunku Abdul Rahman with Parkson Department Store and Giant Supermarket under one roof. Wisma Saberkas; is located at the junction of Jalan Tun Abang Haji Openg and Jalan Rock; and is a round tower on the outskirts. Hock Lee Centre; is located at Jalan Abang Abdul Rahim, with a supermarket in the basement. Crown Square; is situated along the road towards Pending and is also opposite Hock Lee Centre. Kenyalang Park; which is a very old place consisting of a cluster of shop houses and only one enclosed area. Wisma Satok; which is one of the older malls in Kuching, holding a departmental store and supermarket. Wisma Hopoh; is located at Jalan P. Ramlee, near Syariah Court. It is still frequented by shoppers although it is a small and old shopping centre. 7 Despite the fact that there is currently only one hypermarket in Kuching, which is Boulevard Hypermarket and Departmental Store, another one is projected to be erected in the near future, namely Isthmus Hypermarket Mall. The development of this mall is part of the Kuching City Extension plan and it will house a hypermarket and retail shop lots. It is also expected to be the largest shopping mall in the region upon its completion. As its name tells, Boulevard Hypermarket and Departmental Store is at present, the only hypermarket in Kuching. Being the major tenant of Boulevard Shopping Mall, the hypermarket holds most of the characteristics mentioned in section 1.0. Among which are; the hypermarket covers over 150,000 square feet of Phase 1 of the mall; it offers various range of products; and offers nearly 800 parking bays in the basement, which is just below the mall (Chin, 2007). Upon the completion of Phase 2 in December 2008, the mall is expected to have a retail space of over 700, 000 square feet together with 2,011 parking bays. Apart from that, in terms of location, the hypermarket is also situated at out-of-town position. Perhaps some of us might think that Ta Kiong (inside The Spring Shopping Mall) is also categorized as a hypermarket. In fact, it is not a hypermarket but a supermarket which offers on majority, food products rather than non-food products. On a more specific term, it is a gourmet supermarket, offering all kinds of food products. Despite the large size of the supermarket, Ta Kiong is still not in the hypermarket group. 8 1.2 Why Sales Promotion? Here, the researcher will talk about how marketing is related to sales promotion tools and the reason why the researcher chooses to study on sales promotion tools compared to other promotion tools. Marketing refers to the process by which companies create value for customers and build strong relationships in order to capture value from customers in return (Kotler and Armstrong, 2006). American Marketing Association (AMA) defined marketing as the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives (AMA, 1985). One of the major concepts in modern marketing is the marketing mix, which is also defined as a set of controllable, tactical marketing tools that the firm blends to produce the response it wants in the target market (Kotler and Armstrong, 2006). The marketing mix consists of everything the firm can do to influence the demand for its products and the many possibilities can be accumulated into four groups of variables known as the “four Ps”: product, price, place, and promotion. The authors added that, marketing in today’s society does not only call for developing a good product (product), pricing it attractively (price), and making it available to target customers (place), but companies must also communicate with current and prospective customers (promotion). All of the companies’ communications efforts must be blended into a consistent and coordinated communications program. The authors said that good communication is not just crucial in building and maintaining any type of relationships but it is also a 9 very important element in a company’s efforts to build profitable customer relationships. A company’s marketing communications mix (also called its promotional mix) consist of the specific blend of advertising, sales promotion, public relations, personal selling, and direct-marketing tools that the company uses to pursue its advertising and marketing objectives (Kotler and Armstrong, 2006). It is the specific mix of promotion tools that a company uses. From the same source, the five major promotion tools are defined as follows: Advertising: Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor (e.g. print, broadcast, Internet, outdoor and others). Sales promotion: Short-term incentives to encourage the purchase or sale of a product or service (e.g. point-of-purchase displays, coupons, premiums, discounts, specialty advertising, and demonstration). Public relations: Building good relations with the company’s various publics by obtaining favourable publicity, building up a good corporate image, and handling or heading off unfavourable rumours, stories, and events (e.g. press releases, sponsorships, public affairs, lobbying, investor relations, and special events). Personal selling: Personal presentation by a firm’s sales force with the purpose of creating sales and establishing customer relationships (e.g. sales presentations, trade shows, and incentive programs). 10 Direct marketing: Direct connections with carefully targeted individual consumers to both acquire an immediate response and encourage lasting customer relationships (e.g. catalogs, telephone marketing, kiosks, the Internet (email), fax and other tools that enable direct communications with specific consumers). This study will focus on the sales promotion tools because it often works closely with another promotion tool - advertising, and sales promotion can be found everywhere. According to Kotler and Armstrong (2006), there is also a rapid growth of sales promotion application, whereby in today’s average consumer packagedgoods company, sales promotion accounts for 76% of all marketing expenditures. Sales promotion tools are not only used by most organizations, but they are also applied by manufacturers, distributors, retailers, and not-for-profit institutions. They are widely used in business. They are targeted not just toward final buyers (consumer promotions), but also toward retailers and wholesalers (trade promotions), business customers (business promotions), and members of the sales force (sales force promotions). Again, this study will focus on consumer markets (consumer promotions) due to several factors which have also contributed to the rapid growth of sales promotion. As pointed out by Kotler and Armstrong (2006), the first factor being the growing pressures that product managers face in increasing their current sales, which occurs inside the company (internal) and to solve this, promotion is viewed as an effective short-run sales tool. Secondly, companies are facing with more competitions and 11 competing brands are less differentiated. To solve this problem that occurs outside the company (external), sales promotion is used to help differentiate their offerings. Thirdly, advertising efficiency has declined due to the rising costs, media clutter, and legal restraints, and last but not least, consumers have become more deal oriented, and ever-larger retailers are demanding more deals from manufacturers. Apart from that, the researcher believes it is beneficial to study sales promotion tools rather than other promotion tools due to the communications environment that is changing. The marketing communications environment today is changing as a result of two major factors (Kotler and Armstrong, 2006). One is that marketers are shifting away from mass marketing as a result of the fragmented mass markets and they are increasingly developing focused marketing programs which are designed to build closer relationships with customers in a more narrowly defined micro market. Secondly, huge improvements in information technology (IT) speed up the movement towards segmented marketing. The ability of the IT today does not only help marketers to keep closer track of customer needs but the emergence of new technologies also provide new opportunities and paths for reaching smaller customer segments with more effective customized messages. These indicate a shift from mass marketing to segmented marketing and no doubt, this shift has had a dramatic effect on marketing communications. The authors further added that, just as the emergence of mass marketing gave rise to a new generation of mass media communications, the shift towards one-to-one marketing is also initiating and producing a new generation of a more specialized and highly targeted effort. 12