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Implications for the development of Sainsbury in the future

1. Introduction

The retail industry is one of the oldest industrial sectors of UK having its roots based in the 19th century. An article in “The Financial Times” about Sainsbury’s dropping sales and consequently market shares triggered the research topic and we drove ourselves to the history of supermarkets to reveal the secret behind the big giants (Tesco, Sainsbury’s and ASDA) fighting for the top position in the market. The reason to select Sainsbury’s rather than other two foes from the flock was the interesting reign of Sainsbury’s in past 100 years of business.

• The article first illustrates the supermarket retailer’s background and outlines the present problems.
• Secondly, it analyzes the perception of customers towards the current supermarkets and the extent to which their needs are satisfied by Sainsbury’s.
• Finally, the possible solutions are evaluated and it indicates some recommendations for implementation.

The work established in the following research is purely based on a quantitative data collection and scrutiny with a wide implementation of literature and marketing research tools. In the following research work, we, group of five students, have cloaked the role of researchers and reaped a considerable amount of sagacious know-how about conducting a research and using marketing research gears in different areas of research.

2. Background to the problem

2.1 About Sainsbury’s

Sainsbury’s Supermarket is the longest standing major food retailing chain in the UK, with their first store opened in 1869. The mission and policy of Sainsbury’s is to provide customers with healthy, safe, fresh and tasty food. The quality and fair prices of Sainsbury’s is taking responsibility to their business. Sainsbury’s stores have particularly emphasized on fresh food and they devote themselves to create continuous innovation. Moreover, they are concerned about customer needs and based on these needs improve products regularly.

Its market share is around 16 % and now they serve over 18 million customers a week. Sainsbury’s own 455 supermarkets and 301 convenience stores, the type of these stores are categorized into 3 types, which are “Main Mission” outlets, “Main Plus format” stores (hypermarkets),and “Mixed mission format” shops (Sainsbury’s Central and Local). The large stores offer approximately 30,000 products and offer and support the non-food products and services in many of their stores. Around 88% of British households are provided by the internet-based home delivery shopping service.

At present, Sainsbury’s is the third biggest supermarket chain in Britain after the country’s largest retailer Tesco and Wal-Mart owned ASDA. Their business mission is to be the consumer’s first choice for food, delivering products of outstanding quality and great service at a competitive cost working ‘faster, simpler and together.'(http://www.sainsburys.co.uk/sol/index.jsp, N.D)

2.2 Describe the problem

Sainsbury’s used to take the biggest slice of the whole retail market in the UK. However, since 1995, Tesco started with their membership cards, and out of blue their sales have increased rapidly. Sainsbury’s became the third biggest supermarket chain in Britain after the country’s largest retailer Tesco and Wal-Mart owned Asda.

(http://news.bbc.co.uk/1/hi/business/4694974.stm, N.D, BBC News)

2.3The main reasons for exploring the problem

The formula of Sainsbury’s success could be concluded in the points which are listed below:

• High quality products – quality assurance
• Wide range of products
• Different customer segmentations (http://www.foodprocessing-technology.com/features/feature56457/, ND)

Although Sainsbury’s still follows these points to manage the company, but according to the reduction of the market share, the profit of managing Sainsbury’s has been more seriously affected. Although Sainsbury’s could retain the balance of revenue and expenditure, moreover, it remained permanent. It still needs to attract more customers and raise its market share.

Furthermore, the needs of its customers should be valued and respected. We need to do marketing research to explore the possible factors which affect customers’ satisfaction and then use marketing strategies to improve these factors to increase customers’ shopping demands and enhance their loyalty.

3. Problem Definition

An extensive study of market conditions and retail industry in United Kingdom gave us a brief idea about the status of Sainsbury’s in the retail industry. The largest retailer in the UK till mid 1990s suddenly dropped to the third position loosing its hold on market and decrement in the potential market customers. The decline in market shares and a low rate of sales returns was enough to define the problem for Sainsbury’s in the present market scenario. With new retailers emerging in the sector deploying all their marketing strategies to be the best in the race, it is very important for Sainsbury’s to take a brave step now to protect their current position and then to improvise on their hold in the industry.

3.1 Management Decision Problem

What can Sainsbury’s doto regain the market share in retailing industry?

The management team now require to sit down and discuss the failure points and the current shortcoming to establish a conclusion to why there is a constant downfall in the shares of the company and why it is being overtaken by a company (ASDA) which has its central operating sector based in a country (USA) which is thousands of miles away from UK. As per a latest study, the retail industry is expected to show an increase in 15% annually and Sainsbury’s needs to identify the market requirement till they become history for the consumers. (sources)

3.2 Marketing Research Problem

The Management Problem was turned into a Research Problem which more specifically tackles the aim of this study.

l To determine the various needs of shoppers and the extent to which current Sainsbury’s experiences were satisfying those needs compared to the competitors.

The conversion of the management problem into a research problem makes the concept easier to understand and tackle. It gives a broader prospective of the problem and alongside makes a simple way to handle and implement the desired implications.

3.3 Research Components

The research components further diversify the purpose of research and explain the problem in detail. The following components define the research problem:

• What is the demographic and psychographic profile of the customers?
• What do customers expect when going shopping in the stores?
• How well does Sainsbury’s existing products and service offering meet customers’ needs compared to Tesco and ASDA?
• Are there any customer needs that are not being adequately met by Sainsbury’s?
• How often do customers go shopping per week?

4. Research Approach Development

In this section, it reveals the Exploratory Research conducted and the Conceptual Model.

4.1 Exploratory Research

4.1.1 Literature Reviews

This section concerns some available information extracted from Literature Reviews. Based on literature reviews, service quality, is seen as an important factor, and closely related to a retail companies’ performance. “Service quality is perceived by customers as the result of comparing the expectations about the service they are going to receive and their perceptions of the retail company’s actions.” (Rodolfo Vazquez et al, 2001). It is of great help to demonstrate how to assess the service performance of a retail company and it carries some implications itself as well, which is beneficial when making the model of this study.

According to Yan Lu et al (2008) there are five dimensions of service quality in a retail store setting, including: “physical aspects, reliability, personal interaction, problem solving and policy”. In addition, Rodolfo Vazquez et al. (2001) found that “service quality in retail companies adopting the commercial format of supermarkets has a four factor structure (physical aspects, reliability, personal interaction and policies).”

Physical Environment

Physical environment incorporates the inward and outward appearance of the store. According to Rodolfo Vazquez et al (2001), physical environment involves the simplicity and importance of shopping from the internal appearance of the sales outlet. Based on this, Rodolfo Vazquez et al states that there are two physical aspects of supermarkets: store appearance, which includes: “decoration, fixtures, equipment, cleanliness, design of product and services publicity leaflets” and the convenience of shopping, which includes: “interior design and store layout of sections and product shelf position.” According to Poping Lin (2005), traditional wisdom teaches that one key to win market share is offering a wide variety of products, which can be helpful for attracting a wider variety of customers. Providing products and services at a close and most convenient location, is the very core of deriving the best return from investments, also the ambience a store maintains can influence a customer’s purchase decisions to a great extent. (Prakash Gupta, year)

Reliability

According to A.Parasuraman et al. (1988), to be reliable is being able to perform the promised service dependably and accurately. Based on his research, A.Parasuraman et al. found out that reliability is the most important factor taken into consideration by customers when they evaluate a retail company’s overall service quality. This has also been supported by many researches in other studies. Dabholker et al. (1996) indicate that reliability in the eyes of customers is a combination of keeping promise and doing it well. Keeping promise means that a retail company should stock enough products to satisfy customer’s needs and guarantee the products’ quality as well as allowing returns and exchanges and being willing to dealing with any problems from customers. On the other side, in the terms of doing it well, a company is expected to be able to provide customers with fast sales transactions and precise information, such as sales promotions, price and sales slips. (Rodolfo Vazquez et al, 2001)

Personal Interaction

Based on existing literature, it is noted that customers are not only interested in the product offerings and physical environment, but also on the service provided by staffs. Personal interaction involves the process followed in order to obtain the sale and the service encounters where the need arises while coming in contact with the retail company employees. (Rodolfo Vazquez et al, 2001) According to Prakash Gupta (year), consumers look for help whenever they are in an emergency. In that situation, store employees’ helpful advice and assistance will help to reduce the attrition rate of customers and enhance shopping experience.

Policy

Policy captures aspects of service quality affected by the strategies of the prices and brand assortment. “Brand assortment policy must be established with great care and also a large and wide-ranging assortment of well-known brands is needed.” (Rodolfo Vazquez et al, 2001) In addition, retail stores should be able to come up with an attractive pricing policy. According to Siu and Cheung, policy has a great impact on customer’s repeat purchase intention. (Yan Lu, Yoo-Kyoung Seock, 2008)

Customer Satisfaction

Customer satisfaction is a measure of how an organization’s total product performs in relation to a set or customer’s requirement (Nigel Hill, Jim Alexander, 2006). “There is no better advertisement than a Satisfied Customer and nothing worse than a Dissatisfied Customer” (Phillip Kotler et al, 2008). Marketing Researchers and Managers have realized how important customer satisfaction is. According to Robert Heller (2006), customer based strategy is the only important form of strategy, product and producer driven strategies are fast dying. Similarly, Customer Satisfaction is the ultimate goal, and an investment that often doesn’t produce result in a short term, but leads to Customer loyalty in a medium or long term (Craig Cochran, 2003). The lack of attention to customer Satisfaction costs companies money because there is an intractable connection to high level of customer satisfaction and increased share holder value (Chris Denove, James D. Power IV, 2007)

Loyalty

It is believed that maintaining the current customers costs less than attracting new customers, in the light of this; it is wise for companies to pay close attention to retaining their current customers. There are efficiencies in dealing with existing customers rather than new customers. (Ruth N.Bolton, 2000) Relative retention has been shown to explained profits better than market share, scale, cost position, or any of the other variables usually associated with competitive advantage. (Niren Sirohi et al, 1998) In general, “the customers’ loyalty is indicated by an intention to perform a diverse set of behaviors that signal a motivation to maintain a relationship with focal firm, including allocating a higher share of the category wallet to the specific service provider, engaging in positive word-of -mouth, and repeat purchasing.” (Ulrich R. Orth, Mark T.Green, 2009) According to Zeithaml et al., “favorable assessment of service quality leads to favorable behavioral intentions such as positive word-of-mouth and preference for one company over others.” (Yan Lu, Yoo-Kyoung Seock, 2008). In other word, higher satisfaction relates to higher loyalty. (Ulrich R. Orth, Mark T.Green, 2009)

4.2 Conceptual Model

On the basis of the literature reviews, a final model has been defined (Refer to figure 1), which consists of two parts. In the first part of the model, there are 4 Independent variables (namely Physical Environment, Reliability, Personal Interaction, Policy), consisting of several aspects respectively, that may have an impact on the Dependent variables (Customer Satisfaction as shown in the model). As regard to the second part of the model, we assume that the Independent variable, Satisfaction, is connected with Loyalty, Dependent variable.

Table 1: Summary of Research Questions and Hypothesis

Specification of information needed

Depending upon each component of the problem and the conceptual model, research questions and hypothesis, the information needed can be defined as follows:

Component 1: To determine the factors customers are apprehensive about when selecting a store for shopping.

– Perceptions of customers on factors that influence choice of supermarkets

Component 2: To determine how well do existing service offering meet customers’ needs.

– Evaluation of customers on the performance of ASDA.

– Evaluation of customers on the performance of Sainsbury’s.

– Evaluation of customers on the performance of Tesco.

5. Research Design and Methodology

5.1 Research Design

In order to obtain the required information to solve the marketing research problems, research design was carried out for the further step. “The research design is the framework or blueprint for conducting the marketing research project that specify the procedures necessary to obtain the information needed.” (Malhotra, 2009) There are two basic types of research designs available which are classified in terms of the research objectives: exploratory and conclusive. (Malhotra, 2009)

In this report, both exploratory and conclusive research designs were conducted for Sainsbury’s.

5.1.1 Exploratory research design

In order to understand and gain insight to the problem that the company is facing now, a detailed literature review was prepared.

5.1.2 Conclusive research design

After gaining understanding of current situation and management-decision problem of the company from exploratory research, the conclusive research was designed to make the management decision, testing hypotheses and also examining relationships between factors influencing the supermarket selection and customer satisfaction of Sainsbury’s as compared to its competitors. Furthermore, the descriptive research was used to describe the market characteristics and determine those relationships. Due to time constraint, the single cross-sectional design was used and a selected group of respondents were measured at one time. The data-collection technique used in this report was the survey conducted by a predesigned questionnaire.

5.2 Methodology

5.2.1 Secondary research methodology

In order to collect data about the company’s problem in general, two types of the secondary research were collected. The first one is the internal secondary data. Obtaining information from company’s annual report provided the background of the company and fundamental data about its market shares. The second one is the external secondary data. In research approach development step, literatures have been reviewed. The information was retrieved from many sources including census data that provided elementary background of demographic data of UK households and consumption behaviors of UK consumers. In addition, abstracts in form of bibliographic databases have been retrieved from the University of Leeds Portal’s library.

Gaining information from above secondary data can help us to understand the company’s situation, define the research problem and also develop an approach to that problem. Journal articles and books provide knowledge in defining the variables in the research model which led to formulate the hypotheses and forming questionnaire design.

5.2.2 Primary research methodology

5.2.2.1 Research approach

The major research approach chosen in this report is questionnaire survey. A detailed survey selecting a large sample was conducted to support the literature to get a deeper understanding of factors in choosing supermarkets. Furthermore, surveys were chosen in order to gain insights into the consumer behaviors’ pattern and consumers’ perceptions of UK supermarkets.

5.2.2.2 Sampling design

Due to budget and time limitation, sample surveys were selected based on direct questioning. “A sample is a subgroup of the elements of the population selected for participation in the study.” (Malhotra, 2009) In this report, the sample group was selected from the total population in the UK.

In determining the sample size, the statistical method was chosen. The sample size was calculated as follows:

2500 * N * Z2

n = ____________________

[25(N-1)] + [2500 * Z2]

Where n = sample size required

N = population size

Z = number of standard errors

The total population size (N) is 41,020,711 which are derived from the estimated people aged at 15-64 years in the United Kingdom as of July 2009. The source of information is The Central Intelligence Agency (CIA). In this case, the most commonly used 95% confidence level is applied.

When the variables are taken, the result obtained from the formula could be as below:

2,500 * 41,020,711 * 1.962

n = __________________________

25(41,020,711 -1) + (2,500 * 1.962)

= 384

Due to time and cost constraints, 40% of the total sample size was taken into consideration, therefore adding up to 154 samples could be collected in conducting the survey.

For the sampling method used in the surveys, the data collected through a survey of 154 respondents was divided into two proportions equally. The probability sampling techniques used in this report is Simple Random Sampling (SRS) in which each sample in the total population has an equal probability in selecting. (Malhotra, 2009) Therefore, half of the total questionnaires were executed by people living in Leeds and the rest was from people living outside Leeds. Moreover, two ways in distributing the questionnaires were conducted: paper based and online based survey.

5.2.2.3 Questionnaire Design (Refer to Appendix 1)

The division of research problem into components made the way to design the questionnaire to analyze the market scenario and the customer needs. The background of the questionnaire design was the basic study of the component and sub-dividing the components into various similar factors which are considered to select or prefer any retail industry. The Physical Factors were classified as size, location, layout, and etc. of the store and mentioned as questions in the draft. 12 broad questions were decided on the basis of relevance and availability of time for the participant to come out with rational answers without any external or internal influence of reviewer or the industry.

The intention was to collect some primary data about the general perception of people and then segmenting them as per their responses and choices. As required questionnaire was designed in 4 major segments in five pages including the introduction and purpose of study, literature was consulted to find out the best blue print of the questionnaire. It was also considered that all the questions are easy to understand and the response is useful for the analysis of the components. The questionnaire was designed with both multiple choice and dichotomous questions with all the scales referred as per the “5 Point Likert Scale”

l The first section dealt with the general introduction of the respondents to the retail industry, the shopping habits and the familiarity with the retail market.

l Section 2 were the general factors affecting the selection of supermarkets and respondents’ preference of retail stores, continued with the acuity of three major supermarkets in the UK namely ASDA, Sainsbury’s and Tesco.

l Section 3 covered the satisfaction and loyalty level of the participants towards their favorite retail store.

l The final section was the personal information about the respondent assisting with the demographical and segmentation of the participants.

The sentences of the questionnaire were made simple and all the options and questions were double checked for any offence in the questions. It was specially taken care that every response should be informative and two open questions were also provided in the questionnaire in order to find depth know-how about the stance of people towards Sainsbury’s irrespective they are loyal members of Sainsbury’s shopping club or not.

5.2.2.4 Field work

The data was collected between the 18th and the 22th of November, 2009. The questionnaires were collected in different times and different places, targeting all supermarket shoppers throughout the UK; starting from University of Leeds, city centre, flat residents and people outside Leeds. The questionnaire delivering method was personal interviews in order to control the response rate and clarify the complex questions.

5.2.2.5 Analytical issues

A diversity of analytical methods was used to gather the data and analyze the results. To analyze the basic statistics, descriptive statistics has been used. Furthermore, graphical representations and one-sample tests were applied to present the demographic and psychographic profile of respondents and also examine the influential factors when choosing a supermarket.

To analyze the relationship between independent and dependent variables, the regression analysis has been used. Bivariate regressions were used to test the hypotheses H1, H2, H3, H4, and H5 while multiple regression analysis was used to test whether or not there is collective relation between all hypothetical factors and customer satisfaction.

6. Results and Analysis

In this part, SPSS was used to represent the basic statistics, graphical representations and one-sample tests in order to answer the five problem components. Also, it was used for testing whether or not the results support the hypotheses.

6. 1. Analysis of Problem Components

6.1.1 Examining demographic and psychographic profile of respondents

There are 154 questionnaires have been completed which 60 % is female and the other 40% is male. (Refer to Appendix 2) More than 50% of respondents aged between 18-24 years old and they are all students. The second most majority is people aged between 25-34 years old. The minority is people aged more than 65 years old. (Refer to Appendix 3) By far the most of respondents are single due to the fact that they are students. One-fifth of them are married and there is no widowed who filled in the questionnaires. (Refer to Appendix 4) More than a half of respondents are students and nearly 30% of all respondents are working and employed by the company. (Refer to Appendix 5) Nearly half spend between £20 – 40 when going shopping while the average household annual income is below £ 15,000. (Refer to Appendix 6 and 7)

6.1.2 Examining factors affecting supermarket selection

Table 2: One-sample T-test statistics results

One sample T-test were carried out to test the extent to which the mean scores are significantly higher than the mid point 3 on the scale ranging from 1 = the least important to 5 = the most important. Results summarized in the table indicate that customers evaluate the Independent variables positively when choosing which supermarket to shop in, but at different levels. It is also obvious from the table that “Price”, “Location/Nearness”, “Quality of Products”, “Variety of Products” have the strongest mean.

It is important to note that the 4 Independ