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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 2
nd
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
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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 2
nd
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.
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 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.
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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 1
st
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
wholesalers,
agents,
retailers,
the internet, overseas, distributors,
direct
marketing (from
manufacturers
to
user without an
intermediary), and
many others. But this paper will
only explain 2; wholesalers and retailers.
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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.
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 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
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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)
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 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
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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.
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 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
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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
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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.
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 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
Interpretation
Attention
Exposure
Memory
Purchase and
Consumpetion
Decisions
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 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:
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 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.
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 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
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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
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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 2
nd
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
2
nd
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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24
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
“G
ET
R
EAL
”
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,
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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
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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).
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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
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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
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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 2
nd
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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 31
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 2
nd
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.
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