Introduction and the Research Problem
David L. Appel conducted a study titled “Market Segmentation- A Response to Retail Innovation” published in the Journal of Marketing by Sage Publication in 1970. The study investigates how innovative institutions disrupt the current patterns of market segmentation. In addition, the author highlights that very little is known about market segmentation being critical for the success of innovative institutions. Therefore, the study focuses on the extent of market segmentation occurrence as a response to institutional innovations such as the food retailing sector—furthermore, the research reports about various characteristics in the innovative market segment.
According to the author, the retail industry has undergone dynamic transitions in the United States, with chains and supermarkets being prime examples. The lifecycle of retailing continually trades to the point where mature institutions that started with low-status, low-price, and low margins begin to emerge with higher margins and prices. However, at this stage, other institutional innovations appear to turn the wheel of this lifecycle. Despite the importance of institutional innovation, there is limited information about consumer acceptance, which is a critical aspect of determining the success or failure of the new types of retail institutions.
To address some of these questions, the study investigates market segments that are crucial for institutional innovation’s success. Furthermore, the study focuses on evaluating the segmentation of the emerging markets due to the introduction of one-stop shopping centers. Finally, the study aimed to identify various characteristics of the market segments based on the type of retail outlet as the significant source of supply for food to evaluate integral factors such as gross margins of such outlets as opposed to conventional general stores and annual sales.
Research Problem Solution
The study was conducted in a geographically concentrated region of Lansing, Michigan, Standard Metropolitan Statistical Area. The purpose of selecting the region was because of a one-stop shopping center and two conventional supermarkets. In addition, the author listed all the housing units within the region as part of the research population. Next, the study used a randomly selected systematic sample comprising 200 housing units from the population with a starting point and predetermined skip-interval. Furthermore, with the help of interviews, a 20-page survey was generated of the homemakers in each unit. However, the research findings are based on the analytical reports generated from bivariate and multivariate statistical techniques and the responses of 159 housing units.
Findings of the Research
The study’s findings indicate that while market segments tend to respond to each type of outlet, they are similar in most aspects. However, few differentiating characteristics were identified by the study. Moreover, these 24 characteristics were tested with bivariate analysis; wherein seven characteristics (the group of shoppers which patronized the one-stop shopping centers) provided clear distinction for innovative market segments (see Figure 1).
Figure 1: Shopper Characteristics for Each Type of Retail Outlet
A secondary analysis was performed that comprised “14 key variables for multiple discriminant analysis”. The analysis provided critical insights on both market segments in terms of convenience, economic and promotional variables . While the convenience variable indicate the ease of shopping, economic variable indicate whether purchasing from either options is an economic option for the consumers to buy items that fulfill the daily necessities. Finally, the promotional variable highlights the promotional offers that the stores offer. The convenience and economic variables were found to have a positive correlation with the innovative market segment and a negative correlation with the conventional market segment, while the promotional variables correlated with the respective segments in the opposite direction.
For socioeconomic characteristics, the age of the household head and the family lifecycle were taken into consideration, where both characteristics differed between the two segments. The author highlights that the shoppers who prefer one-stop shopping centers were generally the younger age groups. Moreover, 54.5% of the customers who prefer one-stop shopping centers were under 40 years of age, while only 31.1% of the conventional shoppers were of the same age group.
Additionally, the family lifecycle proved to be a good indicator of the type of retail institutions families prefer. Besides, families with younger children accounted for 57.6% of the innovative shoppers, and only 31.2% of such families opted for conventional shopping. However, it was identified that the families’ children over ten years of age constitute 65.5% of the conventional shoppers. Therefore, the author indicates that with such analysis, it can be summarized that the market segment responding to institutional innovation consists of younger family units, especially with younger children below ten years.
According to the redemption rates of trading stamps, it was identified that the two market segments differentiate from one another significantly. As per the study, 70% of the conventional shoppers had redeemed their trading stamps within one year, while 48.5% of the innovative shoppers redeemed trading stamps within the same duration. On the contrary, conventional shoppers who redeemed their trading stamps received more gifts with greater retail value than innovative shoppers. For example, the conventional shoppers received gifts of the total retail value of over ten dollars, whereas only 34.8% of innovative shoppers were offered such gifts.
Furthermore, these market segments exhibit different usage patterns with manufacturer “cents-off” coupons. At the same time, 50% of the one-stop shopping customers have not redeemed any manufacturer “cents-off” coupons in one month, whereas in the case of conventional supermarket customers, 67.7% of customers had not redeemed any coupons during the same period. However, price awareness was not found to be a differentiating factor in both market segments. Additionally, actual prices were included in the study to identify the customer attitudes and understand the customer perceptions.
On the other hand, testing price awareness with ten frequently purchased products showed that neither segment exhibited a high awareness level. The two market segments had a low level of awareness, with 20% of the homemakers identifying the correct prices. Besides, the innovative market segments were less motivated by trading stamp redemption and being heavy users of manufacturer “cents-off” coupons. In such a scenario, price awareness was not found to be differentiated between the market segments.
Another critical finding of the research highlights that the market segments had a high degree of homogeneity for purchase behavior and patronage loyalty. These market segments provided helpful information on distinct food shopping patterns regarding the number of stores visited for shopping, specific purchase areas, average order size, and the number of days visited in a week. Therefore, the author suggests that the adoption of a one-stop shopping center appears to have a marginal impact on the personal food-shopping habits of the innovative segment.
Furthermore, the author postulates that the data from the analysis provided a higher degree of carryover in shopping behavior between different food purchases and related general products for the innovative market segment. Although the carryover was most distinct in this segment in terms of convenience goods and less with specialty and shopping goods, such patterns were significantly absent in the conventional market segment.
In addition, the study reviewed the purchase patterns of three convenience goods, and it was identified that a large number of conventional shoppers tend to purchase convenience goods from retail outlets where they purchase other general food items. Similarly, this tendency was more prevalent in the one-stop shopping center customers. For example, 59.1% of the innovative segment customers purchased cigarettes, 75.9% purchased nonprescription-related drugs, and 43.9% purchased magazines from the one-stop shopping centers. However, the conventional customers purchasing similar products in the supermarket stood at 44.1% for cigarettes, 11.8% for nonprescription drugs, and 33.3% for magazines. Therefore, the author concluded that each market segment had multiple-purchase patterns for different products from a single retail outlet.
In contrast, innovative segment customers had a much stronger desire for minimizing the shopping effort by purchasing multiple products in a single retail outlet. Similarly, an example was presented wherein mail-order shopping customers preferred to reduce the total shopping effort. Additionally, 60% of the one-stop shopping customers purchased merchandise through mail-order when they investigated their shopping patterns for three months. However, only 41.9% of the conventional customers had purchased merchandise items by mail-order during the same period.
Future Work Suggestions and Implications for Practitioners
In this research, the author attempted to identify the extent of market segmentation in response to institutional innovation in food retail. The study presented critical findings which can be helpful for future research, such as the existence of various similarities in the innovative and conventional market segments. In addition, practitioners need to be mindful that innovative segments do not have distinguishing and identifiable characteristics, and most of the one-stop shopping segment growth is due to the young families with children under ten years of age.
Additionally, the author suggested that any targeted research on innovative segments has to be aware that these segments are primarily concerned about the pricing and profits, and less effort is invested for promotional techniques than conventional segments. Moreover, the author provided a distinct way of identifying the innovative market segment in terms of analysis, highlighting the decreased shopping effort or convenience cost as the primary target area by the innovative market segment. In addition, these innovative segment customers tend to exhibit a greater risk of purchasing related merchandise once the general food shopping is complete.
Another crucial identifiable characteristic is that the innovative segment customers rely upon mail-order purchases to reduce shopping efforts. Furthermore, the study indicates that multivariate analysis is essential in identifying indicators that show that the innovative market segment is more interested in the economic and convenience aspects than the conventional customers. However, it is the reverse in terms of promotional aspects of shopping.
Therefore, the author illustrates that if the findings are helpful for retailers to optimize the individual marketing mixes, then the retailers must understand the significance of the specific market segment orientation to acknowledge the customers’ perspective on an ideal place to shop. Finally, the one-stop shopping center must facilitate the services to attain an economical and convenient place to shop and similar promotional techniques that have been successful for traditional approaches. Although market delineation concerning economic, promotional, and convenience dimensions is essential, it does not solve all the problems associated with services and customer behavior and purchasing patterns. Therefore, as an obvious next step, the author suggests that practitioners aim for a psychologically oriented study to understand different perspectives and address the existing challenges.