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Date Created: 12/20/15
E -mail: firstname.lastname@example.org Hitoshi TSUCHIYA Senior Instructor, Department of Marketing and Distribution Management NationalKoahsiung First University of Science and Technology 1 University Road, Yuanchau, Kaohsiung 824, Taiwan, R. O. C Tel: 886-7-6011000 ext. 4213; Fax:886-7-6011043 E-mail: email@example.com 1 prosperous business in the marketplace ofTaiwan, but languishing in other Asian markets. Competitive advantage established by Carrefour, relative to both inter - and intra-institutionalcompetitors, may account for its success in Taiwan. Following the contention ofthe extant marketing and strategy literature, this study asserts that the essence ofestablishing competitive advantage comes fromdelivering superior value offering to customers. Thus, the concept ofcustomer value was applied to understand the accomplishment of Carrefour’s development in Taiwan. According to the research findings in this study, Carrefour outperformed competitors on the basis of economical value; that is, to lessen customers’ monetary and nonmonetary (e.g., time and effort) expenditures. Until recently, Carrefour opened a shopping-mall-type hypermarket that, unlike traditional hypermarket stores, offers customers more hedonic value (e.g., entertainment). Whether this special offering receives customers’ acceptance and widespread popularity requires further observation. Key words: Institutional Development, Hypermarket Retailing, Competitive Advantage, Customer Value, Carrefour 2 in response to the diversity ofconsumption patterns but also in reaction to changes in the socio-politicalenvironment. Concentration means that, given a retailing format (i.e., a set of involved participants whose operations are perceived as homogenous), participant companies have become larger in size and smaller in number. In 2005, the top two convenience-store retailers (i.e., 7-11 and Family Mart) owned store number more than 70 percent of the total store number in this retailing sector. In the same year, the top two hypermarket retailers (i.e., Carrefour and RT Mart) held sales volume almost 60 percent of the totalsale volume in the hypermarket sector. Hypermarket has become one ofdominant retailing formats (including department store and convenient store) in Taiwan. In 2005, hypermarket held almost 20 percent market share in the general merchandise sector, right behind department store (28%) and convenient store (25%). Among hypermarket retailers in Taiwan, Carrefour has been viewed as a leading hypermarket retailer in terms ofowned store number and corporate annualrevenue. According to the most recent record (on February, 2006) showed that Carrefour owned the store number growing to 37 (33 % of the total hypermarket stores). In 2005, Carrefour’s corporate annual revenue was about NT$ 56 billion (40% of the total sales volume in the hypermarket sector) that was twice more than that of the second hypermarket retailer- RT Mart. 3 Carrefour is still striving for its survival in the marketplaces such as South Korea and Thailand. It is interesting to inquire why Carrefour experienced success in some countries but failed in others. The explanation to Carrefour’s success and failure may come from different theoreticalperspectives. In this study, however, we tend to apply the concept of customer value to account for why Carrefour has been successful in establishing its competitive advantage, relative to inter- and intra-institutional competitors, since its entering to the Taiwan marketplace in 1989. This study is organized as follows: first, we discuss theories of institutional evolution, which can be expanded to account for relevance and importance of customer value. After that, the concept ofcustomer value is discussed in detailed. And then, we begin with separating the historicaldevelopment ofCarrefour into three phases, and identify what, on the basis of customer value, contributes to the competitive edge ofCarrefour within the individual phases. Finally, we discuss the research conclusion and recommend potential topics for future research. Theoretical Background Theories of Institutional Evolution The evolution of a given institution (i.e., retailing format) may be examined on 4 to match with the changing environmental circumstances are likely to prosper and survive in the long run. Otherwise, they are inevitably extinct. The conflict -based perspective proposed that the dynamic interaction (or dialect) between a novel institution and existing ones results in the institutions’evolution. In the dialectical theory of Gist (1968), the change ofretail institutions comes from inter-institutional dialects in terms of the thesi-antithesis-synthesis sequence. An inter-institutional dialect occurs when the established retail institution (i.e., thesis) is confronted with a newly emerged institution (i.e., antithesis). The inter-institutional dialect may function as a process of mutual assimilation between the two opposite institutions. As the mutualassimilation continues, a synthetic institution (i.e., synthesis) emerges eventually. However, the synthetic institution becomes the thesis as long as another antithetic retail institution appears. The cyclical perspective contended that the evolution of a retail institution takes place in a rhythmic pattern. That is, the replacement ofone retail institution by the other may be manifested as a cyclical fashion. This cyclicality of institutional evolution may be accounted for by the “wheel ofretailing” theory (McNair 1958) and the “retail accordion”theory (Hollander 1966). According to the McNair’s (1958) theory, the institutional evolution is described in terms of the price-quality aspect; that is, a new institution starts with low-cost and cut-price operations. Over time, the 5 where the institutionalevolution is described in terms ofthe number (i.e. , wide versus narrow) of merchandise lines carried out by the focal retail institutions. That is, the cyclical pattern may be manifested as generalists (handling a wide variety of merchandise) and specialists (focusing on a narrow range of merchandise) dominate alternately in a retailing sector with the passage of time. In sum, these theoreticalperspectives, although each concentrates upon one particular facet (Brown 1987a; 1987b; 1988), all contribute to our understanding of why and how a focal retail institution evolves. In this study, we are not devoted to elaborate the merits and the shortcomings of the individualtheoretical perspectives. As suggested in the extant literature (Brown 1987a; 1987b; 1988; Hollander 1996), no theory is able to provide a complete explanation to the evolution ofretailing institution. Hence, this study applies consumer demand, either explicitly or implicitly relevant to all these theoreticalperspectives, to examine the success ofCarrefour since its presence in Taiwan seventeen years ago. Relevance of ConsumerDemand to Institution-evolutionary Theories In order to argue the relevance ofconsumer demand to these theoretical perspectives, we start with the raison d’etre ofretailing institutions. The fundamental function c arried out by retailing institutions is to serve as a system to bridge from 6 demands, stemmed from difference in lifestyles, values and shopping habits. When the bargaining power is changing to be uneven in favor of consumers, the system is forcedly or voluntarily fractioned into a variety of operational formats (e.g., department store, convenience store or hypermarket). With the combination of various operationalcomponents (e.g., selling price, merchandise assortment and sales policy) perceived by consumers, each operational format tends to satisfy the particular demand ofa certain consumer group (i.e., a market segment). The competition between the formats (i.e., inter-institutional strife) emerges from the shift ofconsumer demands. The competition within a focal format (i.e., intra-institutional strife) occurs when its target segment is shrinking or the format’s excess capacity appears. Thus, consistent with the contention ofMay (1989), we assert that changes in consumer demand are the principal causes of the evolution ofretailing institution. Competitive Advantage and CustomerValue As mentioned before, the analysis of this study is upon the level of the development ofthe specific retailer- Carrefour. According to the disciplines of marketing and strategic management (e.g., Day and Wensley 1988; Porter 1985), competitive advantage has been viewed as centralexplanation to a firm’s success and long-termsurvival. The firm, relative to its competitors, can establish competitive 7 relative to competitors, holds an advantageous position or not. That is, customers patronize retailers from whom the customers expect to receive the most value from the shopping experience and from the merchandise acquired (May 1989). Thus, the competitiveness of value offering delivered to customers is the primary determinant of retailers’success. Following the contention of Zeithaml (1988), customer value in this study may refer to the customer’s overall assessment of the utility ofa store’s patronage based on “what is received and what is given”(p.14). By implication, the concept of customer value represents a trade-offbetween the two basic components:received benefits and incurred costs. The enhancement of customer value mayresult fromeither increasing the received-benefit component, decreasing the incurred-cost component, or doing both simultaneously. The component of received benefits consists of three components: functional (e.g., the quality of merchandise acquired) (Holbrook 1999; Sweeney and Soutar 2001), hedonic (e.g., emotionalpleasure aroused from in-store atmosphere) (Holbrook 1999; Sheth, Newman and Gross 1991; Sweeney and Soutar 2001), and social (or symbolic) (e.g., respects received from interactions with salespersons) (Holbrook 1999; Sheth, Newman and Gross 1991; Sweeney and Soutar 2001). The component of incurred costs refers to economical value that includes both monetary (e.g., purchasing prices of merchandise) and non -monetary factors (e.g., 8 expenditures incurred to customers. Location convenience saves customers time needed to travel to and return fromstores. By selling higher quality of products (e.g., durables) creates cu stomers’ functional value resulted from longer duration of consuming these products. The improvement of in-store atmosphere rewards customers with pleasure in their shopping experience (i.e., hedonic value). Thus, we assert that this is the value offering delivered by retailers to customers determines the retailers’prosperity and long-term survival. Historical Development of Carrefourand Its Competitive Advantage On the basis of store number owned by major hypermarket retailers (including Carrefour, Makro and RT Mart) within the time period from 1989 to 2005, we separate the historical development of Carrefour into three phases: market presence, market expansion, and market leadership, as illustrated in Figure 1. In this study, we will not attempt to be exhaustive; rather, we highlight important events occurred within the individualphases. Concurrently, this study tends to identify operations carried out by Carrefour and its competitors (including inter- and intra-institutional), to specify the associations ofthese identified operations with the value offering to target customers, and then to describe the establishment ofCarrefour’s competitive advantage, relative to the competitors’, on the basis of the creation of value offering 9 1989 1991 1993 1995 1997 1999 2001 2003 2005 Year Phase ofMarket Presence (from1989 to 1993) Inter-institutional Competition Carrefour was one of pioneers (including Makro) in establishing hypermarket as one innovative retailing format in Taiwan. The first Carrefour’s hypermarket store was opened in Kaohsiung, the largest city in the southern part of Taiwan, in 1989. The name “Carrefour” is transliterated into Mandarin as “a household’s happiness and prosperity.”This seems a starting-up edge appealing to consumers; however, the key to the consumers’acceptance is still the innovative retailing format itself. The essence of the hypermarket format consists of low selling price, convenience in free parking, and wide product assortment (i.e., one-stop shopping). These features altogether formed an attractive offering in the eyes ofconsumers, relative to those offered by the existing retailing formats such as conventional small-scale retailers, supermarkets, and department stores. The main segment targeted by hy permarket is limite-income customers (or households) who are mainly influenced by selling price while acquiring merchandise. 10 created in terms of saving time and effort involved in the merchandise acquisition. The wide range of merchandise carried out by hypermarket appeals to time -pressed customers who prefer not to visit a number of stores for their regular and routine purchases. That is, customers receive better value fromshopping hypermarket that not only offers lower prices but also supplies one-stop shopping with a wide array of merchandise in one location. Moreover, the vast assortments of merchandise also provide customers with an opportunity to try out various ‘new’products that were formerly unreachable to the customers given their time constraints. With this widened selection within one store, time-pressed customers can assemble their own portfolio of merchandises to enrich their distinct lifestyles. Therefore, hypermarket offered customers substantially more value for their expenditures (i.e., monetary and nonmonetary) than did other existing retail formats. Intra-institutionalCompetition At the same year, Makro (a Dutch retailer) opened its first store located at Taoyuan, about 30 kilometers south from Taipeicity. Different from Carrefour who targeted individualconsumers and households, Makro was positioning itself as a warehous-etype hypermarket whose customers are supported to small retailers and organizationalbuyers. Although without proximity convenience and sophistic layout 11 mind. In view of potential wholesaling market, Carrefour opened a warehouse -type store at Sanchong, a part of the Taipei metropolitan, in 1993. Since then, Carrefour separated its stores into two groups (retail-type and wholesale-type), each store-type’s operations corresponding to the different segments: households and organizational buyers. To respond the Carrefour’s competition, Makro started with emphasizing its operations on the household segment at the same year. By means ofselling merchandise based on larger package with lower price, Makro offered customers (including households and organizationalbuyers) with the most economic value per unit. The household customers eventually realized that they were not really better off with Makro’s value offering in that the received benefit was unable to be compensated by additionalstock-up cost, due to limited storage space for extra quantity. Therefore, the households were motivated to deflect if there existed the availability of the better value offering. As Carrefour expanded its stores whose trading areas overlapped with Makro’s, Carrefour easily attracted Makro’s household shoppers. On the other hand, organizationalbuyers also found out the most economic value per unit being diluted by the crowding shoppers which may slow down their shopping speed and waste extra time waiting in check -out lines. Therefore, the organizational buyers hesitated to patronize Makro. In other words, Makro tended to appeal to the two customer 12 inter- or intra-institutionalmpetitors. In 1994, the Taiwan authorities were informed of Makro’s violating the regulations of land usage. That is, stores located at industrial districts are prohibited in undertaking commercial (i.e., retailing) transactions, for example, directly selling to households or individual consumers. This unlawful action forced Makro to close its two stores located at Wugu and Kaohsiung. Concurrently, one ready-to-open store at Jhongshan (a part of the Taipei metropolitan), a location strategically important to Makro, could not receive the business license from the Taipei county government. Store expansion of Makro had been suspended not until 1998. The negative image known by the public and the insufficiency of store number, however, caused Makro to lose opportunity to win back its initial leading position in the marketplace. In 2000, Makro tended to reposition itself as a warehouse-type hypermarket. There still existed the mismatch between theoperations and the customer’s demand. That is, relative to competitors (e.g., Carrefour), Makro could not offer the greater value to its customers so that Makro’s perfomance suffered financial deficits since 2001. When receiving the operation permission from the authorities of Mainland China, Makro withdrew from the marketplace ofTaiwan in 2003. Intra-institutionalCompetition with Domestic Rivals When Makro was striving for its survival, one domestic hypermarket, RT Mart, 13 2005. In the meantime, Carrefour underwent an extensive store expansion (from eight stores in 1994 to25 stores in 2001) in hope ofachieving the economy scale, relative its intra-institutionalcompetitors. In view of the intensity of intra-institutional competition, Carrefour continuously improved its operations such as emphasizing fresh produce quality, introducing private brands and reinforcing low-price corporate image. The consumption of fresh produce occupied a major proportion of household’s living expenditures. The improvement of fresh produce quality may be viewed as an important element to establish competitive edge. Buying locally allowed Carrefour to respond closely to consumers’preferences and to ensure the quality of fresh produce. The improved quality of fresh produce represented to create additionalbenefits (e.g., nutrition retention, better taste and longer duration of storage) to customers. Concurrently, a comfortable in-store atmosphere (e.g., air-conditioned) also rewarded the shopping experience to many housewives who used to buy fresh produce in the conventional marketplace. The main reasons for the adoption by retailers ofa private brand are a need for independence from national and multinationalbrands, an urgency to increase profit margin, and a desire to differentiate themselves fromcompetitors. Derived from the 14 value to customers by saving their monetary expenditures. In addition, the red tag displayed on the shelf may also create customer value in terms of saving customers’ searching cost (i.e., to spare efforts in undertaking pricecomparison activities). By predicting that price-oriented formats (e.g., hypermarket) have had more sustained growth than service -oriented formats (e.g., department store and convenient store), Carrefour clearly positioned itself as price-oriented format by promoting the image of “Every Day Low Price”(EDLP) in 1999. Since then, the message has been widespread through TV commercials although advertising on TV was not very common for hypermarket retailers. Perhaps, due to the powerful advertising activities, the low-price image was strongly established in the minds ofthe target customers. Since then, Carrefour has become the first-choice destination of customers’patronage. In order to maintain the EDLP policy, Carrefour continued to undertake store expansion in order to achieve the economy scale so that Carrefour lowered its operationalcosts and then past saving on to customers. Concurrently, the greater store number owned by Carrefour engendered its greater bargaining power relative to suppliers so that Carrefour was able to obtain the lowest purchasing price. Furthermore, Carrefour adopted “back margin”practices (i.e., supplier’s credit term longer than the stock turnover) and multi -form trade allowances (e.g., merchandise supports and slotting allowances) to strengthen its own financial consequences. Most 15 Carrefour continued to hold its leading position in the hypermarket sector. However, the advantageous position was seemingly not sustainable because of the imitation ofcompetitors (e.g., RT Mart) who followed more or less Carrefour ’s operations. For example, to improving the quality of fresh produce, RT Mart searched for innovative ways to offering customers the service (special to seafood) of on-the-spot slaughtering. In the eyes of traditional housewives, fish handled by on-the-spot slaughtering is perceived more freshness than that ofprepackaged fish placed on the iced shelf. At the same time, RT Mart also introduced its own private brands (i.e., THUMB) with lower selling prices relative to those of nationalbrands. Thus, the difference in customer value offered by Carrefour relative to its intra-institutionalcompetitors’(e.g., RT Mart) became diminishing. As competitors were catching up fast and became more aggressive, Carrefour continued to reinforce the EDLP image through TV commercials and the press. Besides, Carrefour also tended to differentiate by undertaking trade-up operations, for example, improving store layout design and offering 24-hour opening in several specialoccasions such as Chinese Lunar New Year and Ghost Festival (the seventh month in Chinese Lunar Calendar). The sophistication ofstore design may enrich customers’shopping experience while acquiring merchandise. The 24-hour opening provided customers with a flexible schedule so that they could shop at any time 16 Mart may create Carrefour a more sustainable competitive edge. In addition to the improvement of scale advantage, new -acquired stores enabled Carrefour to approach customers who used to be geographically unreachable. These customers typically selected stores for their convenient locations to which transportation costs would be minimized. In other words, Carrefour enhanced customer convenience by expanding the geographic distribution of shopping locations. Prospective Inter-institutionalCompetition The h ypermarket sector may be mature in the marketplace of Taiwan. According to the report ofAC Nielsen Shopper Trends in 2004, Taiwan, among Asian countries, was the country with the highest density of hypermarket stores. By implication, market opportunities to hypermarket retailers have been diminishing. The growth rate of the hypermarket sector was changing from double-digit increase to single-digit growth, even lower than the growth rate of the general-merchandise sector in recent years. On the other hand, as illustrated in Table 1, Carrefour’s average sale revenue per store was less than that ofcompetitors (e.g., RT Mart); that means that the marginal contribution ofan additional store to Carrefour’s total sales revenue showed in a diminishing fashion. 17 2001 $17.04 25 $17.37 19 $10.88 8 2002 $16.07 28 $16.67 21 $12.50 8 2003 $16.13 31 $17.27 22 2004 $14.71 34 $16.00 23 2005 $15.14 37 $17.39 23 One illustrative strand can be identified in the society of Taiwan; that is, leisure time has become increasing important in contemporary lifestyles. A growing proportion ofpeople emphasized their leisure time more than before. To the time-impoverished consumers, shopping may bear an additional function by offering themopportunities to escaping fromdaily-life routine, even boring, activities. When the conventionaldistinction between leisure and shopping becomes obscured, shopping has been viewed as a new expansion of leisure activity to these consumers. This expressed demand of consumers may provide Carrefour with profitable opportunities for diversification. In 2005, Carrefour diversified its original operations to introduce a new retailing type, shopping-mal-ltype hypermarket (located at Neihu, Taipei). This innovative-type store has modern-looking facilities, emphasizes one particular theme (mainly based upon a well-known brand name) on each floor and creates various shopping spaces for all family members. For example, on the food and beverage flood, a variety of 18 Carrefour’s diversification. From the viewpoint of customers, the image created by this new store may not be consistent with the original EDLP image established in the customers’ mind. Does this image inconsistency matter to customers? Whether this new type hypermarket has added value to customers and then becomes their favorite patronage destination requires further observation. Research Conclusion and Recommendation for Future Studies The retailing sector in Taiwan has been rapidly changing for the last three decades. Derived from the theories of institutionalevolution, the swiftness of retailing transformation was simulated by the growth in various demands ofcustomers, the dynamism ofthose involved retailers and the liberal nature of legislation on the investment of foreign retailers. Among pioneering foreign retailers, Carrefour has become a successful hypermarket retailer since its presence to Taiwan in 1989. The retail format of hypermarket has received a wide acceptance in the Taiwan marketplace because this retailing format (e.g., low price and one-stop shopping), relative to existing formats, mainly appeals to customers by reducing their monetary and nonmonetary (e.g., time and effort) expenditures involved in merchandise acquisition. Another foreign hypermarket pioneer, Makro, experienced adverse destiny 19 hypermarket in the mind ofcustomers. At the phase of market ex tension, Carrefour reinforced its competitive edge by means of improving the quality of fresh produce, introducing its own private brand and establishing the EDLP image in the mind ofcustomers. As the domestic hypermarket retailers (e.g., RT Mart) have been more aggressive by following similar operations undertaken by Carrefour, the difference in the advantageous position between Carrefour and its competitors becomes diminishing. Although Carrefour attempted to undertake trade-up operations such as providing 24-hour opening in several special occasions and improving the sophistication of in-store design, these trading-up operations were easily imitated by competitors. Up the present, the competitive edge ofCarrefour, we consider, can be sustained by both the number of stores owned by Carrefour and the EDLP image deeply established in the mind of customers. As to the future development ofCarrefour in Taiwan, there exist several hidden difficulties. Among them, the conflict between Carrefour and its suppliers is worth further observation. The continuity of the verticalconflicting relationship, we believe, will not be constructive to the forthcoming development ofCarrefour in Taiwan. In view of the maturity of hypermarket sector and the importance of leisure time to consumers, Carrefour diversified its original operations (retail-type and 20 exploratory, lack of inter-subjective certificate. If it is valid to assume that customer value is the principal cause to the success of a specific retailer, a quantitative, longitudinal survey may be undertaken in future research to justify the cause effect relationship. That is, a retailer that, relative to its competitors, continues to offer more value to customers, the temporal success ofthis retailer and its long-term survival should be granted. On the other hand, the research nature of this study may be viewed as an “emic’study whose researchsetting was in the specific country- Taiwan. 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