CHAPTER 2
THEORITICAL FOULDATION
2.1 Overview
This chapter was prepared to support the base of the objectives claimed in the previous
chapter. Once again the objectives is to understand the retail warung’s point of view
towards selling snack products and to learn what it takes to satisfy warung owners as a
brand owner’s most populated retailer. The stream of the paper will start on explaining
about the background of necessaries to improve distribution and then briefly explain the
details that will support the objective theory.
The theoretical foundations will start on explaining the background of distribution
channels there are and lastly explain the retailer warung, added by the characteristics of
products sold in the warung; the FMCG product as impulse product and how it
influences the customer’s perceived value.
The 1st research question is how to make warungs interested to sell manufacturing
companies product considering levels of competition with other snack manufacturing
companies is getting more severe.
The 1st research question will be answered by
knowing what warung owners like to sell why and then be compared to what’s the most
sellable product currently and why. Thus, a few backgrounds of the snack manufacturing
companies will be included in this chapter. The 2nd research question comes from the
agreement that in order to adapt to the severe competition between the snack
manufacturing companies, the customer service satisfaction of a business (snack brand
owners) can give its customer (retail warung) will be analyzed through all the
components in the marketing mix, since in Indonesia customer satisfaction elements
6
7
cannot be analyzed through the ‘place’ component alone. For that reason all categories
in the marketing mix will be analyzed and the top 3 elements in each category will be
classified as the factors retail warungs thinks important. This 2nd research question will
be useful for snack manufacturing companies to improve their service to their retail
warungs as they already know what the retail warungs wants.
2.2 Brief Understanding of the Background
For a product brand owners companies that produces Fast Moving Consumer Goods
(FMCG) products; snacks in particular. Companies like PT. Kacang Garuda, PT. Orang
Tua Group, PT Mayora, etc they are competing with one another to grab the market
share. There are many strategies to grab market shares, but understanding the
characteristics of an impulse product itself is particularly a beginning.
Snacks can be categorized as an impulse product, thus selling impulse products is
different from selling products which takes planning to purchase. An impulse product
needs a push strategy, so that the product will be available when and where the
consumers seek the impulse buy. Manufacturing companies need to market their
products to as many and as varied distribution channels as possible, to build product
availability for the customers. Some examples include distributing their products to
retailers in the distribution channel; hypermarkets, supermarkets, minimarkets and
warung (traditional market). This research agrees that warung will be used as a
distribution channel of choice for the reasons stated in the next point.
8
2.3 Reasons for Choosing the Retail Warung
 Frequency
Increased points of scale can be created through retail warungs, as you can find them in
every five meters along the road side on your way to work as your way home. In
addition the number of warung is 115 times the number of convenient stores,
supermarket, hypermarkets and mini markets; therefore we can say that warung is
among the distribution channel with the largest coverage of market shares.
•
Exposure
Placing products in retail warungs can cover a large amount of market share points, and
as consumers notice your products everywhere they go, through this, consumers will
associate your product as a accepted product for the reason of existence, and thus will
create inquisitiveness and interest drawn to the product itself that will prompt them to
test the product, and if the consumers experience towards the product is good, repeat
demand can be achieved.
•
Turnover
Another reason to address retail warungs, survey shows that the average of a warung’s
turnover reaches Rp. 233.223,00 in a single day; times the quantity of the warung itself
that reaches 1.7 million warungs in 2007. We can imagine the amount of transactions
that the retail warungs can contribute a day to a product. Manufacturing companies
would want a share of their product in that transaction.
9
For the advantages stated above, we can all agree that distributing any products to the
retail warung is a fine choice. That leads us to our 1st Research question of this research:
If we are interested in distributing our products to retail warungs, how do we make
warungs interested to sell our products? Assuming not everyone wants to sell our
products because high levels of product choices in the market or in other words ‘product
competition’. Here we want to know what they love to sell and why. That will later be
compared to the current most sellable product. The next point will explain the
background theories related to the 1st research above.
2.4 Warung as a Positive Potential Channel of Distribution
This subchapter will explain why warung is a potential channel of distribution. First this
research will explain what channels of distribution is and the different forms it takes,
then defined the characteristics of a retail warung followed by why warung is a big
potential channel of distribution for any product.
2.4.1
Channels of distribution
Channel, distribution, or intermediary is the mechanism through which goods and/or
services are moved from the manufacturer/ service provider to the user or consumer
(Marketing Teacher.com, 2008).
The distribution channels comprises of many intermediaries including
agents,
retailers,
the
internet, overseas, distributors, direct
wholesalers,
marketing (from
manufacturers to user without an intermediary), and many others. But this paper will
only explain 2; wholesalers and retailers.
10
2.4.1.1 Wholesalers
Wholesalers – Wholesalers buy from producers; provide storage facilities and breaks
down ‘bulks’ into smaller packages for resale by a retailer. Basically people or
companies that sells goods wholesale is a middleman that buys its merchandise from a
third party supplier and resells the merchandise to retail businesses or the end consumer.
(allwords.com, 2008). But this research assumes that the retail warung distribution
channel does not pass through the wholesalers, but straight to retailers. It will be
explained in the next point.
2.4.1.2 Retailers
Retailers - A business which sells goods to the consumer, as opposed to a wholesaler or
supplier which normally sell their goods to another business. Retailers include large
businesses such as Wal-Mart, and also smaller, non-chain locations run independently
such as a family-run bookstore (Business Dictionary.com, 2008)
Characteristics of retailers are that generally they hold several brands that will give their
customers more exposure to the many brands and they do have a much stronger personal
relationship with the customers. Sometimes retailers offer credit to the customers and
they can carry out promotion of the products services, as well as giving the final selling
price to the product. Retailers often have a strong brand themselves (e.g. Hero
Supermarket, Carrefour, Hyper mart etc) (Marketing Teacher .com2008).
Next, this Research will explain briefly more about retail outlets there is as our target
audience is in the retailing level.
11
The Retailing Market Outlets
In Indonesia, specifically in Jakarta many food industries deliver their goods to regional
distribution centers or directly to specific outlets (retailers). Jakarta as the capital city
has a variety of specific outlets, from the neighborhood gathering vegetable sellers
(grocery cart), to the traditional markets, wet market, minimarts, supermarkets, and
hypermarkets. And the rates of growth in these sectors are ever increasing every year as
you can see in Figure 1. This section comprises the definitions, attributes, and strong
points of each segment and a small portion background of the retail growth in Indonesia.
FIGURE 1 GROWTH OF RETAIL STORES IN INDONESIA
Source: AC Nielsen 2006
As you can see in the graph, the sales value increases each year in all the retail industry
in Indonesia, and the growth of Indonesian retail sales grocery in 2006 reaches 14.3% in
2007. This demonstrates high purchasing power of the consumers in Indonesia increases
each year, thus supply of products must also be properly distributed to the retail stores
12
where it will reach the end consumers. The next point will explain types of retail stores
that are available here, hyper marts, super market, mini marts and retail warungs.
2.4.1.2.1 Hypermarkets
According to the businessdictionary.com, 2008 hypermarkets are vast self-service
warehouse-customer-retail outlet that combines the features of a supermarket,
department store, discount store, and specialty store in one location. Their product range
includes more than 15,000 items; selling space is more than 2,000 square meters; and
more than 15 POS terminal.
2.4.1.2.2 Super Markets
Supermarket can be considered as a self service store with the characteristics of having a
wide range of fast moving merchandise at premium prices (Marketing Association of
Australia and New Zealand, 2008). Product range includes more than 3,000 items;
selling space is more than 100 square meters (Service Plus Co. 2003). In selling
vegetables, fruit, meat, and fish, the supermarket usually displays them inside a cooling
storage to keep them fresh. This provides the supermarket with one advantage over the
traditional market.
The supermarket is usually designed with a layout and display of goods to look
attractive, to lure and comfort the customers so they can move about and choose items
without hassles. The supermarket also makes sure that their attendants dress neatly and
kind and the quality of the goods in supermarkets are also reliable with fixed prices
(with the prices are clearly shown on the tag of every good being displayed) to make it
easy for their customers to find them. (The Gale Group, 2001)
13
AC Nielson has categorized mini markets as part of a supermarket, only that is a smaller
version of a supermarket with products similar to supermarkets but with a smaller space
area, at least 140 m2.
2.4.1.2.3 Traditional Market as Retail’ Warung’
The existence of traditional retail stores in an integral part of life in Indonesia for
generations and as it is growing 9.6% yearly (Nielsen.com, 2008). According to AC
Nielson (2008) traditional markets are Mom & Pop stores indicted as ‘toko kelontang’ or
‘warung’. Composed of independent vendors coordinated by a loose management
system, these markets can be found alongside streets or in vacant lots, their jerry built
stalls illuminated by bare light bulbs dangling from a tangle of overhead wires. Most
traditional markets are not made from concrete buildings. They have lighting and are
somewhat protected from bad weather, with the doors and windows kept open for better
ventilation.
TABLE 1 VARIOUS RETAIL STORES IN INDONESIA
Sector
2004
2005
Remarks
Traditional market
1,745,589 1,787,897 Traditional and Wet Market
Convenience Store
145
115 Circle K, 7‐Eleven
Supermarket
6,56
7,606
‐ Sub‐Supermarket
956
1,141 Hero supermarket
‐ Minimarket
5,604
6,456 Alfamart, Indomart
Large Format Store
90
107
‐ Hypermarket
68
83 Carrefour
‐ Warehouse Club
22
24 Makro
Total Store
1,751,393 1,795,725
Source: AC Nielsen 2006
14
As shown in the chart 99% of Indonesia retail market is still seized by traditional and
wet markets, attractive as it gets, these traditional markets called ‘Warung’ are spread
among the cities like a coral reef in the deep blue sea, in between every building office,
in front of every housing complex, 2 to 3 warung by every 1km on the road, or even in
deepest rural areas in Jakarta. For snack manufacturing goods that distribute crackers,
drinks and cigarettes, necessitate themselves, they need to get their hands on these little
warung. As these ‘warung’ are first-rate channels for retail industries as they are the
channel for reaching the everyday lives of 35.10% of Indonesia’s 220 million people
(data Survei Sosial Ekonomi Nasional (Susenas) 2005).
In this ‘Warung’, individual purchases are handled directly between shoppers and each
retailer in cash, without a government receipt system (which saves paying 5 percent
value added tax charged in supermarkets and hypermarkets). Charles Trappey points out,
why people still go to these small warungs, Individual contact between vendors and
consumers still stands out that creates a sense of familiarity with the owner, they offer
consumers, especially older consumers, a shopping environment that is deeply rooted in
tradition. (Trappey, 03/01/1997)
Now these little warung’s allow more products to be within the reach of consumers.
That’s why ever increasing competition to get products to be sold in the traditional
market will be beneficiary points for snack Brand owners.
15
FIGURE 2 FREQUENCY OF VISITS THAT PEOP LE IN JAKARTA PAYS TO A RETAIL
STORE
Source: AC Nielsen 2006
“Looking into the shopping behavior, fresh foods are majority bought in the wet market;
food and soft drink bought in the traditional grocery; while caring products in the
modern retailer.
Indonesian shoppers use 4 to 5 channels every month, Hypermarket
for twice a month shopping, Supermarket (3 times) and minimarket (5 times) for weekly
shopping, traditional store (25 times) for daily shopping, fresh products shopping in the
wet market in every two days (12 times). The significant growth is the frequency of
shopping through grocery cart from 13 times to 19 times a month.” (Nielsen, The growth
of Indonesian retail sales grocery in 2006 reaches 14.3%, 2007)
Apparently familiarity keeps the consumers to build up frequency of their purchase,
since the consumers of a traditional market likes to credit their purchase allowed by the
16
vendor. The above statement by AC Nielson shows that retail warungs are most often
approached by the consumers.
Once again we can agree that distributing products
through retail warungs is a fine choice, as they are windows to grab market share points.
As interesting as it, is for these traditional and wet markets can only carry a minimum
amount of goods in their small 2*2 or sometimes 1*1 mini cubical warung with the
average of 4 m square (Based on this research survey). Therefore with the limited
products a traditional warung can carry and the ever increasing product competition,
manufacturers must keep a good relationship with their traditional markets. Which
defies to our 1st research question: If we are interested in distributing our products to
retail warungs, how do we make warungs interested to sell our products?
2.5 Snack as Impulse Product
This subchapter will explain firstly what impulse products are. Explanations will be
done by elaboration of the need of push strategy in order to better sell impulse products.
Furthermore, consequences of our elaboration push strategy can have positive side
benefits of increased positive end customer perception through repeated exposure that
leads to purchase and consumption decision. At last this paper will present some leading
companies in the snack business.
2.5.1
FMCG, Snacks and Impulse purchase and push strategy
FMCG is described as a product that are sold quickly because of frequent usage and sold
at relatively low cost (Professional). Young Professional gives snack as an example of a
FMCG product type. Snacks are categorized as an impulse product (BusinessWire,
2004). Impulse products are usually placed at strategic locations to trigger impulse
17
buying behavior, example: such snacks like gums, candy, mints and chocolate (Del I
Hawkins, David L. Mothersbaugh and RogerJ. Best, 2007). Impulse buyers are people
who buy the impulse product that made an impulse purchase. And an impulse purchase
or impulse buy is an unplanned or otherwise spontaneous purchase.
These snack impulse products are products of choice in this research, as it meets the
characteristic of products to be sold in a retail warung, sold quickly and at a low cost.
These products are simple to sell, they are suppose to trigger impulse buyer thus they are
placed in front of the checkout aisle because at that spot people have to wait as their
purchase is being scanned, and there is where the exposure of these impulse products are
sent to the waiting customer. High possibility of spontaneous purchase might happen.
In order for spontaneous purchase to occur, products must be placed in a strategic
location, for example the checkout aisle in the supermarket, this is called the push
strategy. The push strategy involves pushing the impulse product to be placed at a
certain place in the eye level of the customer to trigger impulse purchasing. (Philip
Kotler and Gary Armstrong, 2006)
In the retail warung’s case, their tiny shop of 4 m square has a frontal display booth that
exposes all carried products of the retail warung, having products all exposed in all the
retail warungs where potential customers see over and over again every 5 meters,
potential customers automatically receives repeated exposure. This repeated exposure
will increase consumer’s tendency to buy. This will be further explained in the consumer
perception.
18
2.5.2 Consumer perception
The consumer perception theory starts from information processing. Information
processing is a series of activities by which stimuli are perceived, transformed into
information and then stored. As the products are placed in the range of the consumer’s
environment, the consumers get ‘exposure’. Exposure is when a stimulus is placed
within a person’s relevant environment. After consumers receive exposure consumers
will notice your products everywhere they go is called ‘attention’. Attention is the
sensory receptor nerves go to the brain for processing. Through attention, consumers
will associate your product as to exist after ‘interpreted’. Interpretation is how people
comprehend and make sense of the information. And this final step will create
inquisitiveness and interest drawn to the product itself after storing the value in the
‘memory’ that will prompt them to test the product. This is related to ‘purchase and
consumption decisions’, and if the consumers experience towards the product is good,
repeat demand can be achieved.
The figure is placed below, the Information processing for consumer decision making
(Del I Hawkins, David L. Mothersbaugh and RogerJ. Best, 2007)
FIGURE 3 INFORMATIO N PRO CESSING
Memory
Interpretation
Attention
Exposure
Purchase and
Consumpetion
Decisions
19
To achieve repeated demand through consumer perception, pushed strategy will be more
functional with the right place to position the product. And placing that product will be
performed through positioning the product at the right distribution channel that has been
explained above in the retail warung.
The 1st research question will be associated with retail warung’s preferences to sell and
reasons behind it, and by knowing what products are currently most sellable and why.
This research will be able to compare the situation and decide, do the retail warung
owners love to sell just sellable products? And if they do, does just distributing the retail
warung the sellable products alone can make the retail warung owners interested to sell
the product? But first this research will state some snack manufacturing companies and
the items they produce that is sold in the retail warung.
The research findings can also give snack manufacturing companies a picture of who is
the leading company in the retail warung and why. The next point will state some
companies and the products they produce that retail warungs carry.
2.6 Background of Companies that Sells Snacks in Indonesia
 PT. Mayora Tbk
Established in 1977, PT Mayora Indah Tbk I one of Indonesia’s important food
industries. As a result of the country’s growth in economy and the shift of social
consumptive pattern towards more practical products, PT Mayora boasts a rapid growth
over the years.
Today, PT Mayora Indah Tbk is divided into 6 business divisions:
20
•
Biscuit: Roma, Better, Slai O Lai, and Danisa
•
Candy: Kopiko, Kis, Tamarin, and Plonk
•
Wafer: Beng Beng, Astor, and Roma
•
Chocolate: Choki Choki, and Danisa
•
Health Food: Energen
•
Coffee: Torabika
 PT. Orang Tua Group
PT. Orang Tua Group started their company with snacks and drinks that has been well
researched and made with the best qualities to serve their consumers.
Their Product Ranges Include: Tanggo, Mio, Oops, Kaya King, Krik krak, Station Rasa
Minis, Mintz Cannon Ball Blaster Formula, Bonfree, Kurang Asem, Capilano's, Tango
and Station Rasa.
 PT. Garuda Food
In national level, Garuda Food is also positively perceived as one of the admired food
and beverage companies. Survey made by Frontier and Business Week Indonesia
Magazine in Jakarta and Surabaya in 2006 and 2007 indicated that Garuda Food was in
the third position of Indonesian Most Admired Company (IMAC). Garuda Food also
actively performs corporate social responsibility (CSR) under the flag of Garuda Food
Sehati.
Their Product Ranges includes: Kacang Garuda, Atom, Leo, Pilus, Gerry Bismart, Ting
Ting Peanut, and Jellies.
21
 Unilever
PT Unilever Indonesia Tbk (the company) was established on 5 December 1933. The
company is engaged in manufacturing soaps, detergents, margarine, edible oil and dairy
based foods, ice cream, snacks, tea based beverages and cosmetic products. And their
snack products include: Taro Snack.
 PT. Dua Kelinci
Started on 1972 in Surabaya, this company started out simple by packaging peanuts
named Dua Kelinci. And because of their commitment towards their product quality,
they are proud to say that they are the best in the peanut industry.
Their product ranges include: Sukro, Deka, Katom, Polongku, Koroku and Tic Tac
 PT. Indofood Sukses Makmur Tbk.
From its humble beginning as an instant noodle company, Indofood has transformed into
a “Total Food Solutions” company, engaged in all stages of food manufacturing from
production and processing of raw materials through to finished products on the retailer’s
shelf. A leader within its industry in Indonesia, Indofood is supported by an extensive
distribution system that has made its products household names in every part of the
country.
Their product ranges include:
•
Noodles: Indomie instan, Sarimi, Supermie, Mie instan sakura, Pop Mie, Pop
Bihun, Mi Telur 3 Ayam
•
Food Seasonings: Indofood Racik, Indofood Syrup, Kecap Indofood
22
•
Snack Food: Chitato, Chiki
•
Biscuit: Trendz
•
Nutrition and special food: Promina, Sun
•
Bogasari: Cakra Kembar, Segitiga Biru, Kunci Biru, Lafonte
•
Cooking Oils and Fats: Bimoli, Simas, Happy Salad Oil
The entire snack manufacturing companies above has a wide range of products that are
now distributed to almost all around Indonesia and even some to other countries. What
differentiate the companies above and the rest of the snack manufacturing business is
their distribution channels are very strong they can reach retail warungs that counts for
millions.
2.7 Servicing Warung Owners as Business Customers
This subchapter will firstly elaborate on the need for giving proper customer service to
any customer to achieve sustainable competitive advantage status. It will be further
explained the different elements in the extended marketing mix that will be used to
ensure proper customer service for warung owners.
As acknowledged above companies like PT. Kacang Garuda, PT. Orang Tua Group, PT
Mayora, etc are competitors. Understanding the characteristics of the product itself may
be a beginning strategy to grab market shares but as business competition among the
companies is getting fierce, the brand owners’ trend strategies begin to shift to service
orientation type. Thus it is important for managers to recognize the importance in
response to adapt to the trend through the marketing concept. As the target audience is a
business to business basis, this research will deal with one aspect of the adaptive
23
process; the customer satisfaction (Rama Yelkur Eau Claire, 2000). In marketing
terminology, giving excellent customer service to the business’s (brand owners)
customer (retail warungs). The 2nd research question’s scope is to develop a model of
customer service elements in each category of the marketing mix that matters most to
the customers to better focus on the company’s limited resources that will be explained
below including why it is necessary to achieve a sustainable competitive advantage
through customer service satisfaction.
In the previous journal by Demetrius from Greece with the title of ‘Improving customer
service performance within a food supplier retailer’s context’, only the ‘place’
component out of the marketing mix was used to examine feedbacks from the retail
stores’. In Indonesia, the ‘place’ component of the marketing mix alone cannot be used
as a measurement to satisfy the business’s (manufacturing companies) customers
(retailer warungs). As retail warungs only order small amounts of products to sell
(instead of bulks), it is hard to justify the logistics costs that the brand owners would
have to cover. Different from in Greece where the research was conducted towards
multiple retailers (hyper marts, supermarkets, mini markets and convenient stores), retail
warungs amount is 115 times the multiple retailers amount.
This leads us to the 2nd research question, considering the ‘place’ component alone
cannot be used as a base measurement of customer service elements that satisfies the
retailer warungs. All components in the marketing mix will be used as a measurement.
What are the top 3 elements in each category in the marketing mix is most valuable for
the customers (retail warungs). This research question will help snack manufacturing
companies to better focus on the company’s limited resources.
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2.7.1
Servicing Warung Owners as Business Customers Background
2.7.1.1 Competition, Competitive Advantage and Sustainable Competitive
Advantage
In the emergence of the global marketplaces in the modern day, increased business
competition is unavoidable (The Progressive Policy Institute (PPI), 1998). As said in the
book of “GET REAL” The ultimate goal of any commercial, profit seeking enterprise is
having sustainable profits. As for a snack brand owners, their product is their item to
gain profit, but with the competitive market, to achieve an outstanding performance
through the company’s product alone is easier said than done. The problem is that since
the competitors are all striving to gain more market share, product performances in each
company becomes similar. (Douglas M. Lambert and Arun Sharma, 1990)
For that reason snack brand owners’ managers have to understand that competitive
advantages must be griped. A competitive advantage is a condition which the company
operates in a more efficient or higher quality manner than the companies it competes
with, and which results in benefits for the company itself. (WenFinance, 1997-2008).
The snack brand owners might be successful with more competitive advantages than its
competitors, but a sustainable competitive advantage will carry the snack brand owners
into a longer term success. The snack brand owners must have the capability to
anticipate and make use of changes towards its environment. A sustainable competitive
advantage is indicated by the extent to which the company continuously generates a
steady flow of cash, creates wealth for its shareholders, delivers products and services
that satisfy its customers, provides a competitive source of livelihood for its employees,
25
and maintains mutually beneficial relationships with its suppliers and creditors, the
regulating institution and the society at large (Tani, 2002).
Today’s successful companies that have a competitive advantage than its competitors
have one thing in common; they are strongly customer focused and deeply committed to
marketing. These companies share a passion in satisfying their customers’ needs. They
set up a working environment that supports their people to help build a lasting customer
relationship through superior customer satisfaction (Philip Kotler and Gary Armstrong,
2006). And the existing snack brand owners could implement this strategy to gain more
market shares through their customer’s (retail warung) satisfaction.
Delivering products and services that satisfies customers can be achieved through the
one aspect of the adaptive process; the customer service satisfaction. (Rama Yelkur Eau
Claire, 2000) And customer satisfaction will be achieved after companies present
customer services. The next point will discuss about customer services.
2.7.1.2 Customer Service
The ‘service’ is the intangible part of the product and it is created by human activity to
satisfy customer needs. Service is often an important element to compete even in
manufacturing companies (Ljungberg, Measurement of Service and Quality in the Order
Process, 1994).
Customer service’ in essential to customer relationship as it acts as a supporter for the
firm with the customer. Well responsive, informed manufacturer can improve the
customer experience and their performances. Finding patterns in problems for instance
26
like delivery delays, complaints, claims and information delays that lead to proactive
solutions (Lambert, D.M., and Burduroglou, R., 2000).
And a good company should priorities their customer service efforts so they don’t lose
their most profitable customers. Kotler discusses the marketing strategic plans that focus
to develop a marketing mix in order to satisfy customer needs. Guided by the marketing
strategy, the company designs an extended marketing mix made up of factors under its
control – Product, Price, Place and Promotion. But research will implement the 7-Ps or
Extended Marketing Mix from Booms and Bitner. The extended Marketing Mix expands
the number of controllable variables from the 4P’s in the original Marketing Mix Model
to 7P’s, adding People, Process and Physical evidence.
With reason that the traditional Marketing Mix model was initially useful for tangible
products. Because of similarity of product performance between companies and agreeing
that customer service must be added to the product for a product manufacturing
companies to achieve sustainable competitive advantages, the additional 3P’s were
added to the measurement tool, as the 7P’s model was used for services industries
(Aaker, 1998). The next point will explain each Marketing Mix categories.
2.7.1.3 Marketing Mix
Marketing mix is one of the major concepts in modern marketing; meaning a set of
controllable, tactical marketing tool that a firm can do to produce the response it wants
from their target market. The marketing mix consists of everything the firm can do to
influence the demand for its product. (Hampton, 2008).
27
The seven groups of variables known as the 7 P’s: Product, Price, Place, Promotion,
People, Process and Physical Evidence:
2.7.1.3.1 Product
Product – Product may be described as a bundle of attributes. The physical product
offered to the consumer.
In the global market place, all major competitors are required to have high quality
products. The company may develop new products or improve the quality of the existing
products through allocations. Although by reducing the quality of the product may
reduce the manufacturing cost and gain short term profits but it may not gain longer term
profits, as the quality of the product influences the demand in the marketplace and the
price charged to the product. (Douglas M. Lambert, 1998)
Thus it is not easy to achieve a competitive advantage through the product, to quote a
senior vice president of a Fortune 500 firm:”A high quality product is simply the price of
admission; the Japanese competitors all have high quality, innovative products. It is
very difficult, if not possible, to differentiate the firm based on the product.”
2.7.1.3.2 Price
Price – Price is a payment received for a product or a service. The amount of money
customers have to pay to obtain the product (Philip Kotler and Gary Armstrong, 2006).
A change in the price affects the purchase behavior of intermediaries and ultimate
customers in the marketplace, and price changes are not just limited in list price. When
a supplier demand faster payments on its products, discounts are offered for early
28
payments and price will also vary depending on the channels of distribution used. Such
changes might affect demand.
The company may attempt to increase sales and profit through reducing price, however
achieving the necessary sales increase in a mature market is very difficult, because in
different distribution channels, different price occurs, and that is why companies need to
establish the right price to sell to the retailers. Typically competitors will match price
reductions, and every firm will then make less profits because industry sales increase
very little or not at all.
2.7.1.3.3 Promotion
Promotion – includes both advertising and personal selling. The activities that
communicate the merits of the product and persuade target customers to buy it (Quick
MBA, 2007)
Promotion does not only target end consumers to sell their products but retailers too,
motivate the retailer to sell the company’s products, usually by giving them gifts
products like calendar or a pen etc. But when a company increases its expenditures for
advertising, the company not only increases its sales but at some point their expenditures
as well.
Promotion can be classified as “above the line” and “below the line” promotion. The
promotional activities carried out through mass media like television, radio, newspaper
etc is “above the line” promotion
Below the line promotions refers to forms of non media communication and non media
advertising. It is increasingly important within the communications mix of many
29
companies such like FMCG products. Some of the ways by which companies do Below
the line includes exhibitions, sponsorship activities, public relations and sales promotion
like giving freebies with goods, trade discounts a given to dealers and customers,
reduced price offers on products, giving coupons which can be redeemed etc. (Dhiraj,
2006)
2.7.1.3.4 Place
Place - includes company activities that make the product available to target consumers
(Philip Kotler and Gary Armstrong, 2006). It is with channels of distribution that serve
as the means for getting the product to the target customers.
Booms and Bitner suggest that Place includes the accessibility of the service too.
2.7.1.3.5 People
People - All people directly or indirectly involved in the consumption of a service.
Knowledge Workers, Employees, Management and other Consumers often add
significant value to the total product or service offering. (Behera, 2008)
It is essential for the businesses customer to realize that the brand the manufacturing
companies are representing can show integrity. In the case between a snack brand
owners and the retail warung, the people representing the company is the salesman.
2.7.1.3.6 Progress
Process – a procedure, mechanisms and flow of activities by which services are
consumed (customer management processes) are an essential element of the marketing
strategy it is essential to have a thorough knowledge on whether the services are helpful
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to the customers. (Behera, 2008)In This research progress is represented as the
distribution progress.
2.7.1.3.7 Physical Evidence/ Layout
Physical Evidence/Layout: The environment in which the service is delivered, both
tangible goods that help to communicate and perform the service and intangible
experience of existing customers and the ability of the business to relay that customer
satisfaction to potential customers. (Behera, 2008)
From the additional 3P’s 2 Ps are explicit (People, Process) and (Physical
Evidence/layout) is an implicit factor which means for a snack manufacturing good that
distributes their products, the physical layout of production units in the factory is not
very important as their products are delivered away, not visited by their consumers the
retail warung. (Aaker, 1998).
Once again from all the 7P’s of the marketing mix above, only 6P’s will be used to
measure the retailer warung’s perspective as the last P (Physical Layout) does not come
to the retail warung’s extent. Thus it comes back to our 2nd research question:
 RQ 2(a) = what are the top 3 product elements that are most important to the
retail warung?
 RQ 2(b) = what are the top 3 price elements that are most important to the retail
warung?
 RQ 2(c) = what are the top 3 promotion elements that are most important to the
retail warung?
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 RQ 2(d) = what are the top 3 place elements that are most important to the retail
warung?
 RQ 2(e) = what are the top 3 people elements that are most important to the
retail warung?
 RQ 2(f) = what are the top 3 process elements that are most important to the
retail warung?
In short ‘what are the elements that need to be focused on in order to satisfy the owner
of the warung retailers that they want to keep on selling brand owners products given
that not all companies have unlimited resources to conduct all the elements there but
rather focus on just the few elements that the retailer warung feels it matters to them in
other words; thinking from a retail warungs as customers point of view gaining inputs to
improve the brand owner’s as suppliers performances.’
The overall of the 2nd research question can assist the product manufacturing companies
to allocate and concentrate their resources and know what really matters more to their
customers, the retailer warung.