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Marketing Strategy in Periods of Economic Crisis

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Bachelors in Marketing - Final Project

Bachelors in Marketing - Final Project

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  • 1. Polytechnic Institute of Setúbal School of Business and Administration Bachelor in Marketing Thesis MARKETING STRATEGY IN PERIODS OF ECONOMIC CRISIS.CASE STUDY: PINGO DOCE AND MODELO CONTINENTEStudent: Diogo R. SeborroSupervisor: Prof. Duarte Xara Brasil Setúbal, January 2012
  • 2. ABSTRACTThe financial crisis that we live in today has had great repercussions in the waycompanies look at the market and define their strategy.One of the main reasons for that are the shift in consumer behavior and the alterations inpurchasing patterns due to the eroding consumer confidence and buying power.This project utilizes the Ansoff matrix and its four development strategies to betterunderstanding and identification of organizational strategic changes. Appling them alsoto marketing strategy and the retailing mix thus identifying and suggesting crucialmarketing growth drivers in turbulent times.It was suggest by the literature review that in times of crisis a continuous investment onmarketing is essential and the market penetration strategy and product developmentoccupy central roles. Growth drivers like product innovation, R&D investment,penetration price, advertising or matching new consumer needs with new productsbecome very important in these times.A practical approach was used trying to identify and match the suggestions found in theliterature with two of the main food retailers in Portugal: Pingo Doce and ModeloContinente.It was found that both based their strategy and marketing approach mainly on themarket penetration strategy and product development, differing only in specific strategicoptions like sales promotion or service offer.Key Words: Economic and Financial Crisis, Growth strategies, Marketing strategy,Consumer Behavior, Retail Mix. I
  • 3. TABLE OF CONTENTSTABLES AND FIGURES INDEX .............................................................................................. IVLIST OF ABBREVIATIONS AND ACRONYMS ...................................................................... VINTRODUCTION......................................................................................................................... 1 1.1 Framework .................................................................................................................... 2 1.2 Theme justification........................................................................................................ 2 1.3 Object of Investigation .................................................................................................. 3 1.4 Methodology ................................................................................................................. 3CHAPTER 1- MARKETING STRATEGY DURING CRISIS .................................................... 4 1.1 Introduction ................................................................................................................... 4 1.2 Consumer Buying Behavior .......................................................................................... 5 1.2.1 Crisis and Consumer Behavior .................................................................................. 5 1.3 Company’s Growth Strategies ...................................................................................... 7 1.3.1 Market Penetration ................................................................................................ 9 1.3.2 Market Development ............................................................................................. 9 1.3.3 Product Development ............................................................................................ 9 1.3.4 Diversification ..................................................................................................... 10 1.4 Marketing Strategies during Periods of Crisis. ........................................................... 10 1.5 Marketing Operational Strategy during Crisis ............................................................ 14 1.5.1 Product and product set .............................................................................................. 14 1.5.2 Pricing ........................................................................................................................ 15 1.5.3 Promotion ................................................................................................................... 16 1.5.4 Services ...................................................................................................................... 17 1.5.5 Location, Place and Sales Force ................................................................................. 18 1.5.6 Store Design ............................................................................................................... 18 1.6 Conclusion................................................................................................................... 19CHAPTER 2 - CASE STUDY .................................................................................................... 21 2.1 Companies Studied – Characterization ............................................................................. 21 2.1.1 Pingo Doce ................................................................................................................. 21 2.1.2 Modelo Continente ..................................................................................................... 22 II
  • 4. 2.2 Marketing Strategy during Crisis ...................................................................................... 22 2.3 Retailing-mix Analysis...................................................................................................... 24 2.3.1 Product and Product Set ............................................................................................. 24 2.3.2 Pricing ........................................................................................................................ 25 2.3.3 Promotion ................................................................................................................... 26 2.3.4 Services ...................................................................................................................... 27 2.3.5 Location, Place and Store Design............................................................................... 27 2.4. Conclusion........................................................................................................................ 29CONCLUSION ........................................................................................................................... 31REFERENCES ............................................................................................................................ 33APPENDIX ................................................................................................................................. 36 1 – PD sales growth 2009-2010. ............................................................................................. 37 2 – PD’s own brand growth..................................................................................................... 38 3 - Sonae MC’s Business volume growth. .............................................................................. 39 4 – 2010 Consumer Confidence Index. ................................................................................... 40 5 – Marktest – November 2011 top advertisers in Portugal. ................................................... 41 III
  • 5. TABLES AND FIGURES INDEXTablesTable 1 – Ansoff’s development strategies applied to marketing ............................................... 12Table 2 – Growth strategies during crisis.................................................................................... 28Table 3 – Retailing-mix during crisis. ......................................................................................... 28FiguresFigure 1 – Igor Ansoff’s Model. ................................................................................................... 8 IV
  • 6. LIST OF ABBREVIATIONS AND ACRONYMS- DOB (Distribuitor Own Brand)- e.g. (exempli gratia)- EBITDA (earnings before interest, taxes, depreciation and amortization)- et.al. (et aliae)- GDP (Gross domestic produt)- LFL (like-for-like)- MC (Modelo Continente)- PD (Pingo Doce) V
  • 7. “In Italy for thirty years under the Borgias they had warfare, terror, murder andbloodshed but they produced Michelangelo, Leonardo da Vinci and the Renaissance. - Orson Wells VI
  • 8. INTRODUCTIONThe financial crisis that hit the global economy in 2007 does not have any historicprecedents since the post-war period. It had its origin in the sub-prime crisis started inthe Unites States of America, where high risk credit proliferated, liquidity wasabundant, the price of real-estate assets was very high what consequently conducted tothe formation of speculation and a bubble in the real-estate sector and market. Thedissemination of those toxic assets and derivatives in the international market lead to aworld scale economic crisis.An economic crisis exists when we face a recession, or by other words, when the grossdomestic product (GDP) decreases for two consecutive quarters. Using marketingstrategy literature, Shama (1978) states that “recession is a period where the demand forraw materials, products or services, including labor force decreases”.The lack of liquidity in the financial markets result of huge losses from the world’slargest banks is still a reality today, affecting especially the more fragile and financiallydependent economies like Greece and Portugal.The transmission of this financial stress evolved at great pace with credit restrictions,decrease of investment both intern and external, decrease in demand and buying power(in what concerns consumer behavior).Taking in consideration this conjuncture it becomes important to understand in whatmeasure this affects marketing strategy and its operational environment (retailing-mix).Generically this crisis affects most companies but others seem to sail untouched throughturbulent waters, even improving performance and growth during it. This is the case ofthe two biggest Portuguese food-retailers in Portugal: Modelo Continente and PingoDoce. These two companies, object of study in this thesis, registered solid growthduring crisis and it matters to understand how they made it possible and how theyadapted to these economic conditions and what was their strategy.Recession requires marketers to modify their strategy and action so the companiescontinue to be profitable and keep delivering value to the consumer (Shama, 1973).These strategies can include the decrease of the product line, offering cheaper productsand quantity discounts, altering distribution channels and rethink the communicationstrategy (Shama, 1993). 1
  • 9. It also matters to analyze from the consumer behavior point of view, what impact theseperiods of economic turbulence have in the buying decision process and how theseaffect consumer attitudes in purchasing environment. During crisis it is observable thatconsumers take more time to compare different options and alternatives they have, theybuy less and prefer cheaper products (e.g. distributers own brands (DOB)) (Ang, 2001).According to Koksal and Ozgul (2007) “the economic crisis also has a psychologicalimpact on consumer” that we must take into account in this study.This change in consumer behavior must be followed by and change in marketingmanagement and strategy so that the proposed objectives can be reached. It is ofextreme importance that a marketer has consciousness of the environment thatsurrounds his organization, whether it is on a socioeconomic level or the waycompetitors are interacting with the market. Taking to himself the capacity to actaccordingly to change. Companies must adapt its strategy and marketing-mix tomaintain or gain market share in a crisis environment (Koksal and Ozgul, 2007).1.1 FrameworkThe framework of this thesis takes the scope on the strategic marketing decisions thatact as a response to the global economic and financial crisis started in 2007 and that stilllasts today. Exploring also the changes occurred in the consumer behavior and buyinghabits in this period of time.For case study effects this thesis concentrates on the Portuguese food-retailing market,especially on the biggest food-retailers: Modelo Continente and Pingo Doce. Analyzingtheir strategic and operational decisions.1.2 Theme justificationThe theme for this thesis comes naturally from the urge to understand the mutations andactions needed in terms of marketing strategy and operational framework as an answerto adverse economic conjunctures and alterations on consuming habits.Trying this way to help companies solve possible paradigms in terms of strategy andmarketing-mix definition during these times. 2
  • 10. The choice to analyze Modelo Continente and Pingo Doce results from their positiveperformances and growth during the crisis, and also because they are the most importantcompanies in food-retailing in Portugal and have a great impact in national economy,we will then try to identify those growth strategies that are the base for their continuousgrowth.1.3 Object of InvestigationThe primary objective of this investigation is the analysis of marketing strategies duringperiods of economic crisis, and the ways these can contribute to their positiveperformance. We will also analyze the necessary mutations in the retailing-mix, becausethe practical application of this thesis inserts itself in the retailing sector.And from that point of view we will utilize the food-retailing companies ModeloContinente and Pingo Doce.1.4 MethodologyBesides all the literature review utilized for the theoretical base of this thesis, there werealso secondary data sources used in the case study like: finance and accounting reports,activity and performance reports (monthly and annual), interviews with marketingmanagers from the two companies, case studies, press and market research reports (e.g.Nielsen).The choice for the use of this type of data is a consequence of the need to gatherhistorical data and the shortage of time and resources for the conclusion of this thesis. 3
  • 11. CHAPTER 1 MARKETING STRATEGY DURING CRISIS1.1 IntroductionThis chapter includes a review of theoretical perspectives that are important tounderstand the role and modes of action of marketing management and its strategiccomponent in periods of economic and financial crisis, responding to the objectives ofthis research project. It will also serve as the basis for the practical application andsubsequent analysis of the case study.The theoretical principles reviewed in this chapter are firstly the importance andrelevance of marketing management, specifically the strategic decisions to be taken incontext of crisis. For this it is necessary to understand the changes caused by the crisisin consumer behavior. Because those are changes that underlie the strategic marketingchanges.We will take as our basis, for strategy formulation, the development strategies of IgorAnsoff, trying to understand how companies can grow in a particular market,considering their offering.After understanding the different strategies that can be applied, it becomes necessary tomake the transfer from the corporate environment (Ansoff application target) tomarketing strategy specifically. For doing so we can observe different growth driversused in strategic marketing management that descended and can be applied directlyfrom the development strategies.By listing the different marketing growth drivers we will then proceed in this project tothe analysis of their use in environments of economic crisis.We have as objectives for this chapter the understanding of changes in buying behavior,the use of marketing strategies in times of crisis and subsequent operational changes interms of retailing mix. Looking for a way to allow businesses to base their conduct, inthis case those in the food retail sector, to maintain or increase their performance on themarket during these periods. 4
  • 12. 1.2 Consumer Buying BehaviorThe study of consumer behavior covers the processes that are implied when individualsor groups select, purchase, use or dispose of products, services, ideas or experiences tosatisfy their needs and wishes (Solomon, et.al, 2002).The same authors also define the process of buying decision as a process of five stages:recognition of the need, information search, evaluation of alternatives, decision andpurchase. Consumers do not use this process in the same way for all decisions, somestages may have a reduced importance in relation to involvement, consumer confidenceand effort.Quelsh (2009) suggests that the buying decision depends on the disposable income ofconsumers, the confidence in their future, the trust in companies and in the economyand in particular the adoption of a lifestyle and values that encourage consumption.The crisis is destroying the confidence and purchasing power of consumers, leadingthem to adjust their behavior in a fundamental way and perhaps permanent. Manyconsumer spending seen in the last two decades have been supported by a growingindebtedness. Given that consumers are now faced with piles of debt, stagnant ordeclining incomes and no space to build savings. And so are forced to change theirconsumption habits.1.2.1 Crisis and Consumer BehaviorThe environment caused by the economic and financial crisis is bringing downconsumer confidence and purchasing power, making their behavior change and adjust tonew conditions and type of products (Quelsh, 2009). It is suggested that during theseperiods consumers reduce their purchases, look for cheaper products and brands, spendmore time in comparing prices and attributes, there is a reduction in the purchase ofluxury durable goods (Nguyen, 2011), individuals become more active privilegingactivities and products such as "do-it-yourself" and above there is a greater emphasis onthe binomial price/value over time/convenience. (Ang, 2001). However the basicproducts that meet the needs of the first levels of the pyramid of Maslow did not recordlarge variations in the reduction of purchase, those such as food, cleaning products andpersonal hygiene (Nguyen, 2011). According to Kappler (2009), temporal orientation of 5
  • 13. purchase also changes, consumers will reduce their purchases on the long-term and puttheir focus on short-term commitment and greater flexibility of supply.Quelsh (2009) points out that "as priorities change, consumers can eliminate thepurchase of certain categories of products moving what was once essential to the fieldof luxuries. Or one can simply switch to another category such as prefer the "take-away" instead of having a meal in a restaurant. "There is a greater concern with the perceived risk, greater hesitancy in purchasingdecisions, and a preference for tangible benefits over image and secondary attributes(Perriman, et.al, 2006).The case of increased sales of DOB is an example of latent changing patterns of buyingbehavior in an environment of crisis. As a result of increased price sensitivity andtherefore a possibility of brand loyalty being undone, consumers will look for theirfavorite products at the lowest possible price or choose cheaper alternatives like DOBs.(Quelsh, 2009).With regard to the purchase decision process during these periods it may be far morerational, where the individual assesses and analyzes all available information at eachstage of the process. Consumers now spend much more time to gather information andevaluate alternatives before making a purchase (Ang, 2001). Thus a continuouscommunication and information, including product disposition on the store and storedesign may have an important role in these times.This causes a shift in decision making patterns, where the routine type of decisioncomes closer to an extensive problem solving type. In this latter form prevails greaterinvolvement, more time spent on the contemplation of categories and unknown brandsand a longer research and formulation time span of the decision.After the recession is suggested that the purchasing behavior and attitudes will return to"normal" level observed before the crisis. However the larger and deeper the recessionthe greater the possibility of profound changes in values and attitudes of consumers.This is the case of this recession caused by the so-called sub-prime crisis (Quelsh,2009).It is also suggested that companies that can identify and respond to these changes inconsumer psychology, applying a strategy for the long term, will have a greaterlikelihood of success in post-crisis period (Perriman, et.al., 2006). 6
  • 14. 1.3 Company’s Growth StrategiesMarketing management should always be framed in the external and internalcircumstances that affect the organization, to support that statement we can definemarketing as a way of adaptation to the market and its environment by the company(Lindon, et.al, 2009). Manipulating thus its strategic component or as suggested byNunes and Cavique (2008), "manipulating a series of decisions in advance, about howto effectively combine the resources and means (human, material, technical andfinancial) in order to achieve the objectives defined by the company”.A business strategy indicates where and how the organization should compete (Freire,1997). The same author suggests that the purpose of a strategy is to ensure thesatisfaction of customer needs, achieving a competitive advantage through thisassumption.Several authors propose different ways of formulating organizational strategy. ForPorter (2004), "the essence of formulating competitive strategy is the companysrelationship with its environment. (...) The key aspect of the firms competitiveenvironment is the industry (s) in which it competes”. Analyzing and weighing theforces acting on market competition Porter (2004) suggests three generic strategies:differentiation, cost leadership or focus. In cost leadership the company gainscompetitive advantage by minimizing costs as a result of the experience curve, processefficiency and reducing costs of R&D, services or sales force. With differentiation thecompany gains competitive advantage by offering a product or service (or both) that isunique in the market where it competes. This strategy can be achieved through design orunique brand image, technology or customer service. Finally the focus strategy, similarto the differentiation strategy is the result of a unique offering in the market but with theparticularity of addressing a very specific segment (niche) or geographic area.We can still distinguish a different orientation for strategy formulation developed byWernerfelt (1984) called the Resource Based View (RBV). Unlike Porter this guidancesuggests that the strategy will start from the analysis of the core competencies of thecompany or its distinctive features as a means of interaction with the externalenvironment (Wernerfelt, 1984).Business strategy formulation should always start with a commercial orientation,defining which products to sell and the market segments they are intended for (Freire, 7
  • 15. 1997). With this in mind and taking into account the earlier strategic visions, we maytake as a basis for formulating the company’s growth strategies the product-marketmatrix. According to Freire (1997) "depending on customers and competition on onehand, and core competencies, on the other hand, the company should managestrategically its product-market matrix to ensure the continuous adaptation to the newcompetitive environment”. The management of the matrix assumes a predominantorientation to the market or to the product and its development allows two distinctpatterns: expansion/reduction or generalization/specialization.A company can increase or reduce the number of products sold or served segments,according to its assessment of attractiveness. And can extend its product-market matrixto new areas or keep and concentrate on current products and segments. However thetwo alternative patterns of development can be conjugated (Freire, 1997).These different perspectives of development and growth can be framed in the strategicmodel developed by Igor Ansoff. Figure 1 - Igor Ansoff’s Model Existing Products New Products Existing Market Product Markets Penetration Development New Market Diversification Markets Development Source: Freire, 1997A company to optimize its competitiveness and profitability will have to match itsstrategy with the surrounding environment, Ansoff’s growth strategies leave from twovectors which are the axes of a matrix that allows the company to combine its productswith the markets in which their business is implemented (Nunes & Cavique, 2008).Business is centered on products and services that define its value proposition howeverit is limited according to the time variable in the sense that its importance diminishesalong the product life cycle and renewal or redesign is needed, and a second variablethat incorporates the tendency to get better performance under certain market 8
  • 16. conditions. The axis of the matrix corresponding to the markets sets the options amongwhich are already known by the company and all others who are not (Lowy and Hood,2004). We thus have present in the matrix products and markets that may be new(unknown products and markets for the company) or current (products that the companyalready sells and markets or segments where the company already operates).So this way Ansoff proposes four basic strategies of development. The company cangrow by increasing market penetration, through market development or productdevelopment and the strategy of diversification (Ansoff, 1965).1.3.1 Market PenetrationThe market penetration strategy is an effort by the company to increase sales withoutabandoning its original product-market strategy (Ansoff, 1957). This can be achieved byattracting new potential customers and consumers of competing products, increasingconsumption in volume or income “per capita” by customer or even figuring out newuses or applications for existing products and current clients (Nunes & Cavique , 2008)the company should select the strategy of market penetration if there is still room forgrowth in the current market and therefore market share gain is still possible (Lowy &Hood, 2004).1.3.2 Market DevelopmentThe development of markets is achieved through the companys attempt to adapt theirexisting products to new markets (Ansoff, 1965). It may be implemented according toNunes and Cavique (2008), "through investment and pooling of resources and means fordevelopment of market structures, partnerships, exports, internationalization anddevelopment of new distribution channels”.1.3.3 Product DevelopmentA strategy of product development keeps the market where the company operates andits customer base but develops new products with new features that will enhance 9
  • 17. performance in the market. This strategy is associated with innovation and investmentin R&D, development and launch of new products as well as finding new suppliers.1.3.4 DiversificationFinally we have the diversification strategy that requires an abandonment of the existingproduct line and market structure in which the company operates (Ansoff, 1957). Thisaccording to Nunes and Cavique (2008), can be concentric (in house), horizontal(integrating business at the same level of the production chain) and vertical upstream ordownstream (integrating business suppliers or customers). This is according to Ansoff(1957) a strategy aside from the other three, because it requires technical, financial,technological or infrastructure other than those used for products or markets where thecompany operates. Technological and commercial synergies should be explored toensure that the company has expertise to approach these new areas (Freire, 1997).The strategy of diversification may be defensive or offensive. Its defensive nature mayarise as a response to the growth of a market or exhaust of the possibility of growth. Theoffensive side may be caused by the existence of cash flow, the prospect of superiorreturns compared to the decision of market development, opportunity for achieving anew market position or following the diversification of a competitor (Harvatopoulos andCalori, 1998).1.4 Marketing Strategies during Periods of Crisis.Based on Ansoff’s development strategies we can establish and apply specific strategicand operational marketing growth drivers. These drivers thus offer different tacticaloptions and growth paths for the company in accordance with the intended strategy asexemplified in table 1.The marketer can utilize the market penetration strategy in two ways, by increasing therate of consumption or by increasing the rate of penetration. Intensifying consumptionby making the customer acquire new consumption and purchasing habits in volume andfrequency, practicing a penetration price, investing in advertising and sales promotionor enhancing distribution channels (e.g. push strategy). To increase the penetration rate 10
  • 18. the marketer may act through the conquest of non-users prospective clients andcustomers that usually buy from the competition through advertising, intensification ofdistribution (e.g. increase the number of outlets), promotion of samples, increased salesaggressiveness, targeted promotions and aggressive price competition.In the case of product development strategies they can be implemented through theexpansion or innovation of the product line with changing’s in design, packaging,quality improvements or new features. Also new brands can be created or new productsthat will directly respond to new identified costumer needs.For the strategy that requires current products being launched in new markets orsegments, the marketing manager acts in the development or acquisition of newgeographical areas or market segments. This can be achieved through new distributionchannels or market skimming strategy in the case of the conquest of new segments andextensive distribution, export, internationalization or globalization in the case ofgeographical development.Finally in what regards the strategy of diversification, it can be accomplished by threedifferent routes: Concentric, vertical and horizontal diversification.In concentric diversification the know-how, marketing capabilities and existingtechnology are mobilized (or acquired externally) to develop new products for newmarkets. In horizontal diversification the company enters the market through acquisitionor direct competition in businesses of the same production and sales level, but not in amarket where it already operates. In the case of vertical diversification the company willinvest in new products that allow it to enter markets that are from higher or lowerproduction levels (suppliers or clients). This way we have an upstream verticaldiversification when the company enters the market of their suppliers and a downstreamdiversification when the company enters the level below their production andcommercialization process, thus the market of their clients (Nunes and Cavique, 2008).What is generally accepted in terms of measures to be taken in periods of economicdownturn where there is a drop in demand is normally cost reduction, production cuts,investment reduction, internationalization (e.g. market development), processimprovement in terms of efficiency and debt restructuring (Beaver and Ross, 1999). Butthese will have no positive impact on company performance if sales do not increase(Özgül & Koksal, 2007). 11
  • 19. Market Product Market Penetration Diversification Development Development Develop primary demand and buying Lauching new dynamics. New market entry. Innovation. products. Defend market share. New distribuition Added services. Concentric. Advertising Investment circuits. Sales promotion. Internationalization. Product line extension. Horizontal. Adaptation/Pattern. Increase purchase volume. Product line renewal. Vertical. Market skimming. Redesign. Penetration price. Conglomerate. New moments for consuming. New Packaging. Promotions for non-users. Quality improvemnts. New ways of utilizing products. Functional changes. Product line aquisition. Increase of distribuition. Product line optimization. Table 1 – Ansoff’s development strategies applied to marketingAdapted from: Nunes and Cavique, 2008.The strategy of market development through internationalization may be a viablestrategy to escape the internal crisis, but due to its complexity and difficulty ofimplementation it will not be a direct response to these conditions. The study by Koksaland Özgül (2007), which relates different marketing strategic options common to thedevelopment strategies, with performance reported by companies during periods ofcrisis, weighing in the final outcome the correlation of each strategy with sales increase,impact on net profit and market share variation, suggests that there is a strongcorrelation between the strategy of market development, sales increase, market shareand subsequent performance during the recession.Regarding the use of the product development strategy, the study also showed acorrelation with some degree of importance to average performance, registering asatisfactory impact on the increase of sales and net profit. A component of this strategy,which proved to be quite important during the crisis, is the investment in R&D, whichregisters a great influence on all studied variables acting as a crucial strategy oncompany performance. Related to this variable is also the introduction of new products 12
  • 20. that are launched in response to new consumer needs, this helps improve sales dynamicsin decisive way.In the case of market penetration strategy, the concentration in markets where thecompany already has a strong position, growth occurs mainly through increasedmarketing spending and sales force increasing. This increase in marketing spendingduring crisis is primarily from investments in communication specifically in advertisingin an attempt to continue close with the customer, and in the sales promotion to boostsales levels and promote an increase in the buying volume and repetitive purchasing. Itis suggested by Koksal and Özgül (2007) that along with the strategy of productdevelopment the market penetration strategy occupies a central role in the positiveperformance registered by firms in periods of recession.Finally, analyzing the diversification strategy, we can observe that the entry into newbusiness areas shows no significant correlation with the variables under study, and itsimpact on company performance is very low. We can thus suggest that the use of thisstrategy in response to crisis periods is less effective.Koksal and Özgül (2007) also suggest in reference to the strategy of market penetration,"an increase in the marketing expenditure, or at least keep it level with the periodpreceding the crisis will increase the company’s performance in the market”. Thesecosts generally assume the form of communication spending and investment indistribution channels and sales force.Also Roberts (2003), shows that companies that increased their marketing expenditurescould be as or more profitable than they were before the economic turbulence. Thisimproved performance is also recorded in terms of market share gains where companiesthat have invested more in its marketing could improve its position three times fasterduring recovery.Thus we have that there are some development strategies that offer a better response tocrisis periods, these are the strategies for product development and market penetration.Demonstrating the tendency of companies during this period, to defend its marketposition and try to grow either by increasing its penetration rate possibly by gainingspace to weaker competitors, or by developing new solutions to meet new needs of theconsumer.The segmentation of markets, competition on the basis of delivering value to theconsumer and not for the price, being innovative in terms of new business units, all 13
  • 21. these, continue to be pillars of strategic marketing management during periods ofeconomic crisis (Brooksbank and Garland, 2007) .1.5 Marketing Operational Strategy during CrisisMarketing mix is defined by Nunes and Cavique (2008) as "a set of key variables thatallow the company to put into action in the market, the strategy chosen to achieve theobjectives determined by satisfying costumers." The marketing mix consists ofeverything the company can do to influence demand for your product. The manypossibilities are grouped into four clusters, known as the four Ps, being those the"product", "place", "promotion" and "price" (Kotler, et.al., 2001). In addressing thespecific reality of food retailing the distributors have a modified marketing mixvariables called retailing mix. These variables are product set and services offered,pricing policy, communication, merchandising and store design and finally the location(Levy and Weitz, 2011).The economic crisis requires changes in the four elements of the marketing mix b ycompanies (Özgül and Koksal, 2007), and subsequently we have to extend those to the"retailing mix", as a response to the changes of the surrounding environment.1.5.1 Product and Product SetProduct means the totality of goods and services that constitute the offer to yourorganizations "Target" (Kotler, et.al., 2001). In addition to the defining product strategywe also have brand management and product life cycle management as key elements inproduct variable. (Lehman and Winer, 2005). As for the product set, which reflects thevariety of products, this is articulated between its width and depth just like the productline and its range (Lindon, et.al., 2009).In the configuration of the variable output during this period is important to identifythose products in the portfolio that have little chance of survival, those that with adecrease in sales can still be stabilized and those that can grow during and after therecession (Quelsh, 2009). So marketers can "clean up" their product line, and redefinethe product set, because the higher its depth, the higher will be the costs and lessinventory rotation will exist. 14
  • 22. On another perspective, research and development (R&D) is suggested as an importantactivity of product strategy in times of crisis (Özgül & Koksal, 2007). Companies thatinvest more in R&D during recessions get a better performance than their competitorswho do not. This is achieved due to the fact that companies obtain possible incrementalimprovements or transformations in their products that bring new dynamics to andgrowth to the sales level (Morbey & Dugal, 1995). Also due to the deceleration of theintroduction of new products, the launch of these innovations gain greater visibility andin a more cost-effective way (Quelsh, 2009).In terms of brand management it is observed the growing use of and preference forcheaper brands or DOBs. According Quelsh (2009), the expansion of private labels is anessential tactic in terms of recession. Another brand strategy employed is to introduce a"fighter brand" by the company, a version priced lower than the premium brand but soldunder a different name and with low investment in communication. With the economicrecovery it may be discontinued or integrated in the product line (Quelsh, 2009).In periods of economic turbulence it is suggested an analysis and disposal of productsthat will have little chance to succeed in this period, thus reducing the amplitude ordepth of assortment. An investment and promotion of private labels or DOBs as aresponse to crucial changes in the consumer behavior, appears as the main strategy forcompanies in food retailing. Not forgetting the R&D activity, which can offer productenhancements, explore a lower capacity for innovation of the competition, and allowpotential savings in terms of production (e.g. process improvements).1.5.2 PricingThe variable price is the companys attempt to capture some of the value it provides onthe form of profit (Nagle and Holden, 1995).This variable is particularly important in times of economic turmoil, when dealing withthe increased price sensitivity among consumers, who often force companies to changetheir pricing strategy and embark on reductions (Shama, 1978). But this strategy canbring negative consequences on profitability in the long-term, damaging the brandimage and so that there is a resistance on the part of consumers to return to old priceswhen the recovery period starts (Özgül and Koksal, 2007).The same authors also suggest that the pricing strategy during crisis is closely linkedwith the product and the variation in quality. In companies that have maintained their 15
  • 23. price levels but increased the quality of the product there was an increase in sales,market share and subsequent performance, the opposite occurred in the companies thatlowered the quality of the product and its price in response to the crisis. Note that therewas no established relationship between increased performance and practice of differentpricing policies between companies during the recession.Temporary discounts gain some relevance in this context especially those that are madedirectly at payment time, marketers may feel the need to increase its depth andfrequency. In addition to offering discounts or changes in the pricing list companiesmay also, in an attempt to boost sales, reduce its threshold of quantity discounts,improve credit terms to their customers or implement lay way plans (Quelsh, 2009).1.5.3 PromotionMarketers have a wide range of tactics to ensure maximum impact of marketingcommunications (e.g. advertising, public relations, sales promotion or "directmarketing") (Blythe, 2003).In crisis environments this is often the variable that undergoes major changes through areduction in investment. The marketing communication costs can be reduced morereadily and rapidly than production costs, and can also avoid downsizing. Howevercompanies that through an increase of the investment in communication kept beingclose to the consumer and increased their share-of-voice in these periods were also ableto capture market share from their weaker competitors. And during recovery they canfurther enhance its financial performance even over the period preceding the crisis(Quelsh, 2009).The same author suggests that "typically a percentage of the communications budget foradvertising on television or radio has decreased, while the communication efforts aregoing towards more measurable media, such as direct marketing, online advertising andpromotion at point of sale through price cuts or proactive actions in-store (e.g.merchandising). Also during crisis it is suggested that the company should consolidateits communication in a single agency to be able to receive discounts, it should move to amedia type that allows a precise targeting of its segments and fulfills the need fordetailed monitoring of responsiveness (e.g. Google ads). Extension or adaptation of anadvertising campaign is preferable to the creation of a new one from scratch. 16
  • 24. It is also important at this stage to strengthen and enhance relationships with consumersbecause familiar brands during this period are seen as brands of confidence and a safechoice in dubious times. Messages that reinforce an emotional bond with the consumerand demonstrate empathy are essential. Companies will need also to support thosemessages with actions to protect consumers and encourage loyalty, these can befinancial education programs, warnings when approaching credit limit or evencontribute to charity actions (Quelsh, 2009).In the study by Koksal and Özgül (2007), it was concluded that the communicationvariable during crisis had a strong correlation with changes in sales level, net profit,market share and thus resulting in a positive performance. Among them we canhighlight the investment in advertising, public relations, use of rational messages andsales promotion, the latter is more significant in relation to market share gains. Note thattactics such as quantity discounts, sample offering, coupons or guarantee increase werenot considered significant in relation to the variables under study, mentioned above.1.5.4 ServicesServices offered at the point of sale are a mean of differentiation from competition andwill serve as an attraction element for the store, however they require staff training andincreased costs. We can observe three types of service strategies, included service,optional services (paid) and limited services. The first is a strong source ofdifferentiation and avoids price competition however the costs are easily inflated, thelatter are easily imitated by competitors and the decision to acquire them is made by thecostumer, finally limited services can also make a distinction in terms of image (e.g.discount format) and allow for cost reductions (Lindon, et.al., 2009).The 2007 study conducted by Koksal and Özgül suggests that services, specificallythose offered after the sale have a positive correlation with the performance ofcompanies in times of crisis. This can be explained by the sense of reliability this typeof services confers to the buying decision and also by the increased value proposition itgives to the product or business. 17
  • 25. 1.5.5 Location, Place and Sales ForceLocation is perhaps the most important decision in terms of retailing mix, and it must bedetermined according to the desired attraction area, in what regards sales potential andcompetitive intensity (Lindon, et.al, 2009). In times of crisis it is observable relocationor closure of outlets that are less attractive or a change in the store’s environment(Favaro, et.al, 2009).It is also necessary to determine the suitability of our distribution policy and channelconfiguration (Ang, 2001). It should also be weighed the importance of the sales forcein an environment where personal contact is more important but there is nonethelesspressure to reduce the staff.A possible change in the place variable during times of crisis is the use of channels thatvalue price like discount stores or wholesalers. However and accordingly to Özgül andKoksal (2007) it was not found a significant relation between this tactic andperformance grwth during recessions. It is however important to note that the strategyof increasing the number of distribution channels is significant for success during thisperiod through the positive impact on sales, net income and market share.In what concerns the sales force and its size the same authors classified it “as thevariable that has the strongest impact on performance, registering significant impact onthe sales level, market share and net income”. It is also significant the importance ofsales force training, highlighting the need to coordinate and inform it on how toapproach and operate under these conditions effectively. Related to the importance ofsales force is the observation of positive impact by tools of other variables such aspublic relations and after-sales service.1.5.6 Store DesignStore design concerns the use of space, optimizing the movement of consumers andattractiveness of the supply. In times of crisis it is observable in relation to this variable,an attempt to change the store space to enable greater efficiency and cost reduction, aswell as attracting new customers (Favaro, et.al., 2009). 18
  • 26. 1.6 ConclusionIn this chapter we suggested some changes regarding consumer behavior during periodsof economic turbulence such as a bigger emphasis on the perception of price/value, achange in the priority of product and purchase categories and also a growing preferencefor distributors own brands. Subsequently there are changes in the purchasing anddecision process, where the phase of information search and alternative contemplation isnow extended in time and has a greater importance. Similarly, and looking to decisiontypes, those purchases that were considered routine may now approach the mostextensive kind of decision, where the involvement and deliberation time are greater.Through the analysis of the Ansoff model we saw that organizations have four differentways of growth: market penetration, market development, product development anddiversification. And that these same pathways can be transported to the environment ofmarketing strategy using certain growth drivers and operational strategies within theretailing mix.Analyzing the development strategies in an environment of crisis we can suggest thatthe strategy of market penetration and product development have a higher correlationwith a positive performance in these periods.It is also suggested that the cut in marketing spending during crisis is not an effectivestrategic option and even has very negative consequences in the long run as the loss ofcompetitiveness and damaged brand image. Companies that maintained or increasedtheir marketing investment, achieved better or as good results than in the pre-crisisperiod, these results are reflected in gains of market share and profit but also a higherincrease in capacity and market position during recovery.In terms of operational strategy, reflected in the retailing mix, during periods ofeconomic turmoil we conclude that the price alone is not a crucial variable as one mightthink, and reductions in its level could have severe consequences in terms of image andcompetitiveness in the recovery period. The variables with the highest correlation with apositive performance during crisis are the product and marketing communication. Inproduct strategy it is particularly important to rationalize the product line, weighing inthat decision its depth and costs of maintenance. Also an investment in R&D can bringimprovements in product or process by eliminating costs and boosting sales. Howeverthe main factor in this is the growing importance and expansion of DOB’s. 19
  • 27. Regarding the other crucial variable, marketing communication, it is suggested thatcompanies that managed to increase their share-of-voice in the market thus continuingbeing close to the customer at a time when he needs the most, were also able to gainmarket share. Among the communication tools we highlight the use of salespromotions, advertising and public relations as the most effective. 20
  • 28. CHAPTER 2 CASE STUDY2.1 Companies Studied – Characterization2.1.1 Pingo DocePingo Doce supermarkets, Food Distribution Ltd. belong to Jerónimo Martins inPortugal and were established in 1980 as part of the groups clear strategy to address thesegment of supermarkets. From 1980 until 2010 Pingo Doce (PD) already has 340supermarkets in continental territory, 13 in Madeira and 9 hypermarkets. And togetherwith the other insignia of the group, Recheio, occupies a leading position in the fooddistribution market with an aggregate of 3.6 billion euros.The store concept that prevails up to today was implemented in 1994 and focuses on theorganization, easy access, fresh produce and convenient purchase for the costumer.During 2002, Pingo Doce had an important strategic repositioning exercise focused onthe price variable, and it was observable a structured fall of the price level.Pingo Doces mission is “To be the best supermarket chain operating in Portugal in thebusiness of perishables. Provide a solution to the Portuguese consumer with qualityfood at stable and competitive prices. Cultivate a relationship of trust and lastingrelationship with their customers”.Its positioning reflects the benchmark of quality and innovation in modern distribution,especially in regard to fresh produce and its own brand. It is assumed as the idealsupermarket for active consumers who value quality and convenience at competitiveand always stable prices (every day low price strategy).Its value proposition is characterized by satisfying the relevant needs of the targetcustomer, through a complete product set of perishables of higher quality than otherfood products and innovative label. This made possible with stable and competitiveprices, stressing quality, shopping environment and safety, to maintain a relationship oftrust with the consumer. 21
  • 29. 2.1.2 Modelo ContinenteModelo Continente (Modelo Continente, S.G.P.S, S.A.) is a subsidiary of SonaeDistribution, which in turn belongs to Sonae SGPS. It is the largest portuguese retailerwith 415 retail food stores in Portugal. Modelo Continente (MC) was established in1985 with the grouping of Modelo retail chains, owned by Sonae, and Continente,owned by the French retailer Promodes (Carrefour). In 2004 Sonae takes Carrefour’sshare in the society and later in 2008 ends up purchasing all the food retailing chainsowned by the French insignia in Portugal.Modelo Continente supermarkets are retailers of close proximity with the costumer,with store space of about 2000 square meters situated in areas of medium populationdensity.Continente’s mission is to “be the brand leader in food retail in Portugal and ensure theloyalty of its customers, offering them innovative solutions, the best services and bestprices, acting in an ethical and sustainable way throughout the chain of value”.Reflected on its positioning is the will to be a reference in food retail in Portugal forconsumers who are increasingly informed and demanding. The purpose of the brand isto continue to offer to their customers a full range of products, services and pricingoptions, according to their needs, cultivating a relationship of trust and loyaltysupported by constant innovation.Its value proposition is based on price, variety, quality and service combined with asense of proximity and convenience. The value proposition is further enhanced with astrong emotional identification with the consumer.2.2 Marketing Strategy during CrisisAt a time where economies show modest growth rates or even absence of it and wherethe consumer has acquired a more rational and objective approach to consuming,resulting in a possible decrease in the level of sales it is essential for retailers to rethinktheir marketing strategy. 22
  • 30. Observing the behavior of both retailers and using the Ansoff model, for our strategicanalysis, we suggest that there is in general a strategic match. However, differences areobserved in some specific points.The dominant strategy in both retailers is the market penetration, where prevails a cleardirection for the growth of their market share in the same format and using the sameproducts. This is observable through the commitment of both companies to use a pricepenetration strategy, continuous investment in advertising, the focus of PD in its mainpillars (price, private label and perishables) and an increase in aggressive salespromotions from MC particularly for non-users. In the competition for new customers itis to emphasize a greater investment in advertising from both MC, who leads thiscategory at the national level several times a year, and PD since 2009. And also note theincrease in promotional discounts and promotion of the MC client card as a way toacquire and retain new clients.We also noted that the unification of the supermarket Modelo under the Continente’sinsignia in 2011 and likewise the unification of supermarkets Feira Nova and Plusunder the insignia of Pingo Doce in 2007 could be a form of supporting andstrengthening of the market penetration strategy allowing both retailers to increase theirpenetration and geographical representation.Taking the strategy of product development in consideration we find that both retailershave decided to use the growth driver product line extension under its own brands. BothMC and PD have as objectives the continuous expansion of their product set in areaswhere their brand was not well represented and also improving their profitability andcompetitiveness through it. This strategy confirms the growing importance DOBs as aresponse to the change in consumer behavior and consumer perception during periodsof crisis. Also works as a defense tactic against dependence on private labels, which isessential to get some control over prices.Also in response to new needs that emerged during this period there were created newproduct categories inside both retailers like the take-away section and mini restaurants.This has proven to be an important source of differentiation, customer loyalty and boostsales in the other categories.Regarding the diversification strategy there was not observed any data that mightsuggest its utilization and positive impact in performance, supporting, in that way, theconclusions drawn about the use of this strategy in the first chapter. 23
  • 31. Finally, and analyzing the market development strategy, we can highlight thegeographical development of MC through internationalization in Angola, where theopening of the first unit is scheduled for 2013. Jerónimo Martins (JM) also has plannedan internationalization of its food retail business in Colombia but it will not beconsidered in this study due to the fact that the format of this insignia may not be PDbut something closer to the store format of Biedronka (JMs presence in Poland with adiscount format).Still using the market development strategies we can highlight the new MC storesdevoted entirely to frozen foods (Continente Ice) in response to an increasedconsumption of meals in home by the consumer. MC also initiated an approach to thewholesale segment by introducing its new horeca channel that aims to serving businesscustomers operating in hotels, restaurants, cafés and also public and private companies.Similarly both retailers decided to create a new format to approach the traditionalretailing sector located in neighborhoods, trying to get to areas where their main storesand brands did not had representation. This was achieved first through PD’s storesAmanhecer, and then, mimicked by MC with the MeuSuper stores.2.3 Retailing-mix Analysis2.3.1 Product and Product SetBoth retailers base their product and product set variable in a wide but not deep range(as is characteristic of such surfaces) favoring a wide variety in their offer, but withoutneglecting quality. This is seen especially in the attention given to national andinternational sourcing in effort to strengthen its growth in the set of perishables, pillar ofdifferentiation of PD.However, the dominant behavior in this variable, concerns brand management (offeringmulti-brand) and the constant investment of both retailers in their own brands. This isnot surprising because as discussed above this is a tactical aspect relevant during timesof crisis as a response to change in consumer buying behavior. MC points out thisinvestment to be the main cause of their positive performance and increased businessvolume in 2010, along with the effort to make its brand with high quality and the lowest 24
  • 32. price in the market. Reality is identical in PD. MC own brand in 2011 represents about25% of the sales of FMCG in food retail of the company (excluding perishables) andhas already 2400 references . PD brand has a weight of 40% in the business volume ofthe company and a total of 2011 references. In this field we also highlight an importantextension of the range of own brands by PD in introducing its low-cost coffee capsules,which achieved an outstanding performance in terms of competitiveness, sales andmarket share, leading in the market established brands as Nespresso or Dolce Gusto.This contradicts the assumption (Breaking news Nielsen 2010) that the price is not adriver of growth in premium sectors.Consumer behavior also led to the creation of new products as a response to new needs,with PD and then MC developing the take-away service in store to correspond to theincreasing trend of consumption of meals in home. This operation has proved animportant source of differentiation, customer loyalty and also boosted sales of productsin other categories.The change in behavior has also led to the introduction of a tactic of pure productbundling from PD by offering bundles of products (denominated family basket) atgreatly reduced prices. PD which did not practice this type of promotions (PD has aneveryday low price positioning) was then forced by the conditions in the surroundingeconomic environment to respond and even break, although in a light way, its strategicpositioning.2.3.2 PricingRegarding the pricing policy both retailers have a penetration strategy, as it is part oftheir proposal to offer the best value and the most competitive prices in the marketalways with stability in perspective.This perspective of stability is assumed as the main challenge during times of crisis,where the increase in the price of raw materials and product taxes proliferate. So theremust be a balance between rising costs, changing consumer behavior and price settingin accordance with company strategy.It was noticeable the effort of PD in 2010 to maintain its strategy of low prices whenthere was a change in the VAT rate from 21% to 23%. In response PD began itscampaign "In Pingo Doce VAT increase is 0%," reflecting the companys commitment 25
  • 33. (or pressure on the suppliers) to absorb such an increase of 2% thus keeping the price oftheir products unchanged. Effort that will be unrepeatable in 2012 (as alreadyannounced by PD) facing the proposed increases in various levels of product taxesstated in the National Budget for 2012 (e.g. beverages (6% to 23%) or oils and ready toeat meals (13% to 23%). There is already information on which products will suffer theincreases provided to clients by PD.Facing this reality both PD and MC, which have in price and quality offered the pillarsof their value proposition, developed direct partnerships with suppliers of their ownbrands and fresh produce, allowing greater control over quality and cost reductionthrough intermediate cut.2.3.3 PromotionIn times of crisis it is still observable an investment of both retailers in promotion,especially in advertising and above the line media. MC is in fact the leader ofadvertising investment in Portugal, where in November 2011 had a percentage of share-of-voice of 4.8% over the total advertising market and 13.8% over the total 20 majoradvertisers in that month.In comparison PD occupies the 16th position in the top advertisers in Portugal with ashare of voice total of 1.1%, despite having increased its investment in advertising since2009. We also highlight the higher advertising recall of MC in relation to PD(November 2011).During the crisis we see that the communication of both retailers is based on their valuepropositions, similarly ruled by price, quality and fresh produce. However differ insome points, MC makes use of celebrities and mascots (especially childrens segment onChristmas) to promote their campaigns, many of the ads released are directed at thecommunication of specific promotions limited in time, as of January 2012 we can seeads that refer to the client loyalty card. Meanwhile PD bases its advertising around thebrand and increasing its notoriety, very simple ads and often using jingles. Figurationsand major players of the ads in PD are the employees themselves. Both brands havestrengthened the relationship with the consumer, increasing their confidence andsecurity through their campaigns during the crisis (e.g. MC campaign - "I count onModelo Continente"). PD assumes a more rational posture through consumer education, 26
  • 34. like explaining the nature of certain price increases (e.g. PD “why will the price of milkincrease” ad).In strengthening this relationship and as a response to hard times experienced byconsumers, there was an unusual phenomenon in the communication strategy of PD byusing the technique of sales promotion. PD is not known for using promotional tactics,because its positioning is everyday low price, decided in 2011 to introduce the familybasket (e.g. a mix of meat, drinks or detergents), a set of products (own brand andvendor) at the lowest price including discounts that can go from 20% to 50% (familybaskets August).MC assumes a much more aggressive promotional policy which emphasizes the use ofits client card which is now used by three million families and allows discounts of 50%and 75%. Also noteworthy was the extensive use of coupons and discount partnershipswith companies from other sectors (e.g. EDP and Galp).2.3.4 ServicesBoth brands have an inclusive services policy as evidenced by its butcher, take-away,meat and fish section.In the service policy the focus is on the introduction of these new take-away andrestaurant sections inside store responding to changes in buying behavior and newconsumption moments.MC stands out in offered services, it was the first retailer in Portugal to introduce “selfcheck out” which allowed increased convenience and reduced waiting time. Alsocreated a service on its online platform that allows consumers to scan their shoppingbasket and look for cheaper products. Home delivery, labeling in Braille and insuranceservice (e.g. car, health insurance) by the recently created Continent Insurance are alsoother proposals in terms of services available on MC.2.3.5 Location, Place and Store DesignIn regard to the location variable at a time when most consumers value low prices,convenience and the frequency of purchase an effort was made by the two retailers to 27
  • 35. reduce distance from consumers. For this fact contributed the merge of the chains FeiraNova and Plus under the insignia PD and the retail chain Modelo under the MC insigniathus increasing the penetration and geographical representation of both retailers. In thesame strategic line we can mention the opening of new stores in residential areas, aswell as the introduction of Amanhecer stores by PD and MeuSuper by MC therebyentering the segment of convenience stores and traditional proximity retail.In 2010 PD and MC opened respectively 7 and 6 new stores (1 Modelo and 5Continentes).With regard to the place variable and in order to save costs by eliminatingintermediaries and ensure the level of price/quality of its products both brands havemade an effort to increase and develop direct partnerships with suppliers of freshproduces and own brand products.As for store design the most significant changes at a national level were the introductionof the take-away and restaurant sections inside the store space, in PD case they arealready present in 214 of their 349 stores. Market Penetration Market Development Product Development Diversification Increase market share Pingo objective Doce New distribuition channel (Amanhecer) Own brand focus Penetration price - New products for new Increased investment necessities (take-away). in advertising Agressive sales Internacionalization to Angola. Own Brand focus promotion New distribuition channels (Continente New products for new Modelo Increase market share Horeca; Continente Ice; MeuSuper) necessities (take-away).Continente objective Penetration price - Leader in share-of- voiceTable 2 – Growth strategies during crisis.Adapted: Nunes and Cavique (2008); Sonae Annual Report 2010; Jerónimo Martins, Annual Report 2010. 28
  • 36. Product and Price Promotion Services Location, Place product set and DesignPingo Doce Wide but not deep set Penetration Price Increase investment Included services Reforce proximity and above-the-line convinience Focus on perishables Price maintenance after 2010 VAT increase Advertising based on Increase geographic Investment and extension brand and notoriety penetration of own brands Information about VAT increase in 2012 Use of workers and 7 new stores take-away unit collaborators Cost reduction through Direct partnerships with Family basket intermediaries cut Reforce trust and security suppliers Rational and educative Take-away and communication restaurants in store Use of sales promotion for first timeModelo Wide but not deep set Penetration Price Increase investment Included services Reforce proximity and above-the-line convinienceContinente Investment and extension Cost reduction through of own brands intermediaries cut Share-of-voice leader Self-service check-out Increase geographic penetration take-away unit Leader in advertising Online shopping recall platform 6 new stores Communication based on In-house delivery Direct partnerships with sales promotions suppliers Labels in braile Use of celebrities Take-away and Insurance service restaurants in store Reforce trust and security Agressive sales promotion Client card discounts Use of coupons Cross-discountsTable 3 - Retailing Mix during crisis.Adapted: Nunes and Cavique (2008); Sonae Annual Report 2010; Jerónimo Martins, Annual Report 2010.2.4. ConclusionBy observing the action of both retailers we can conclude that, in line with thetheoretical conclusions, the development strategies that drive their performance duringcrisis are mainly the market penetration and product development strategies. Drivenmainly by growth drivers such as penetration price, agglutination of other retailers ofthe group, increased investment in advertising and extension of the product range ofown brands.As for the remaining strategies, the internationalization of MC to Angola and theapproach of new segments in the convenience stores market are the main drivers of themarket development strategy. The diversification strategy has no significant record.Regarding the retailing-mix variables we see that the product and the product set butespecially promotion are the most important and the ones that change the most duringcrisis. Again in line with the theoretical perspective the growth driver of investment andextension of own brand line reveals a response to changing consumer behavior. Also in 29
  • 37. response to this change in consumption we have the introduction of new sections liketake-away and sales promotions such as the “family basket” on both retailers. But thesesimilarities fade in the setting of the promotion variable where both invest heavily butwith different strategies. The difference is mainly in the style of communication and theuse of sales promotions. PD opts for a simpler message and mainly communicates forbrand notoriety and its value proposition, while MC emphasis is on promotional offersand discounts like cross-discounts or their loyalty card. It should be noted that the crisisled PD to break its positioning of everyday low price by introducing latent salespromotion tools, most notably with its “family basket”.In the other variables we see that an effort was made to maintain price level andcompetitiveness, MC has a much broader service component than PD, particularly interms of convenience and online presence and solutions. In terms of location, storedesign and place the main changes are the proximity and convenience strengtheningwith the opening of stores directed specifically to a segment that values them as well asthe increased geographic penetration result of agglutination of other food retail brandsalready owned by the respective groups.Despite the negative economic environment that is felt in Portugal, both retailers presentgood results and a very positive performance. PD in 2010 achieved a like-for-like (LFL)sales growth of 8.4% in supermarkets (+7.2% in the total chain stores), according to theannual repot of 2010. Noting also a net sales growth of 9.9% over 2009 and an EBITDAgrowth of 3.8% to 186.5 million euro (all food retail). This is mainly explained,according to the company, by a price policy that emphasizes stability, by an investmentand focus on own brands and quality perishable goods and also by the continuousadvertising investment since 2009.Meanwhile, according to the 2010 annual report, Sonae MC (MC, Wells, Book.it)registered an increase in business volume of 5.4% for 3.275 milllion euro in 2010 (3%LFL). And also an EBITDA of 16% with a margin on sales of 7.1% over 2009. To thiscontributed largely a greater supply of own label products and a higher level ofeffectiveness of sales promotions (e.g. client card). 30
  • 38. CONCLUSIONThe economic and financial crisis has had a significant impact on consumer behaviorand the way they formulate their own decisions. Given this fact and given an economicenvironment that challenges sales and business growth it is necessary to act strategicallyin order to reverse this trend.During these periods it is often accepted as common practice a cut in marketing costs,but as evidenced by the companies studied it is not the way. It is suggested by theresearch conducted in this work that the idea of cutting costs particularly in areas whereit is easier like marketing should be ruled out risking the company to losecompetitiveness, market share, sales and depreciation of its “brand equity”. Covin andSlevin (1989) argue that, in hostile environments to continue or increase a proactivestrategic posture results in superior performance for the company. While other firms inthe industry are reducing their marketing programs and activities (e.g. advertising),others during the recession will increase these proactive marketing activities, gainingshare-of-voice in the market, increasing its reputation, differentiation, reaching andretaining new customers. In these situations companies that invest aggressively inmarketing send a message of security and confidence to consumers that are worried andafraid, encouraging them to change their preference (Srinivasan et.al., 2005).From the analysis of the product-market matrix and consequently Ansoff’s developmentstrategies we were able to identify that within these, market penetration and productdevelopment strategies are those that have greater influence on the performance ofcompanies during the crisis. And the same was confirmed by observing the performanceof the two food retailers in the study. In terms of market penetration the maintenanceand increased investment in advertising, penetration price strategy and sales promotionare the most influential growth drivers. In the product development strategy the focus ison the own brands and the extension of their product lines and sets, and also importantis the creation of new products to meet changing customer needs as the inclusion instore of take-away units.We also noted some relevance in the use of the market development strategy throughinternationalization and the approach of new markets and segments namely convenienceand neighborhood stores, however taking into account the costs, risks andimplementation time is not a direct response strategy. The diversification strategy does 31
  • 39. not present any significant observation in the activities of PD and MC, fact that is in linewith the theoretical conclusions.In respect to operational strategy and retailing-mix, we have the variables product andproduct assortment policy, and promotion as the most influential and facilitators of salesincrease and customer retention. In the product strategy it is of particular relevance thecontinued expansion of DOBs and the development of new products tailored to the newchanges in consumption patterns as the take-away in store unit or the family baskets thatgather essential products at the lowest prices. Note that the setting of this variable isvery similar for both retailers. Something that does not happen in the variablepromotion, where it is suggested that a greater investment in increasing share-of-voiceresults in increased closeness and conveys greater security and confidence to theconsumer, thus transferring to the market performance in terms of market share gains.MC stands out through heavy investment in advertising and its agressive salespromotion strategy, mainly through the use of aggressive discounts, cross-discounts,coupons, and especially its client card.This study has permitted the identification and suggestion of key growth strategies andmarketing drivers, including the changes in retailing-mix, that allow companies tomaintain its growth path during periods of economic turmoil, as exemplified in chaptertwo . The path will be the adaptation to changes in consumer behavior, by investing inmarketing and strengthening brand-equity, in a time when consumers need it the most. 32
  • 40. REFERENCESAng, S. (2001). Crisis Marketing: a comparison across economic scenarios.International Business Review, 263-284.Ansoff, I. (1957). Strategies for Diversification. Harvard Business Review, 113-124.Ansoff, I. (1965). Corporate Strategy. New York: McGraw-Hill.Beaver, G. Ross, C. (1999). Recessionary consequences on small business managementand business development: the abondonment of strategy. Strategic Change, 251-261.Blythe, J. (2003). Essentials of Marketing Communications. Essex: Prentice Hall.Brooksbank, R. Garland, R. (2007). Key Drivers of Successful Marketing Strategy inTimes of Recession Versus Growth. Waikato: University of Waikato.Calori, R. Harvatopoulos, Y. (1988). Diversification: Les régles deconduit. HarvardUniversity Press, 48-59.Covin, G. Slevin D. (1989). Strategic Management of Small Firms in Hostil andBenign Environments. Strategic Management Journal, 75-87.Dugal, S. Morbey, G. (1995). Revisiting Corporate R&D Spending During a Recession.Research Technology Management, 23-27.Favaro, K. Romberger, T. Meer, D. (2009). Five Rules for Retailing in a Recession.Harvard Business Review.Freire, A. (1997). Strategy: Success in Portugal. Lisboa: Verbo.Kappler, A. (2009). Consumer behaviour in times of recession. Hedingen: KapplerManagement AG.Koksal, M. Ozgul, E. (2007). The relationship between marketing strategies andperformance in an economic crisis. Marketing Intelligence & Planning, 326-342.Kotler, A. et.al. (2001). Principles of Marketing. Essex: Prentice Hall.Lehman, D. Winer, R. (2005). Product Management. New York: McGraw Hill.Levy, M. Weitz, B. (2011). Retailing Management. New York: McGraw-Hill.Lindon, D. et.al. (2009). Mercator XXI - Marketing Theory and Practice. Alfragide:Publicações Dom Quixote.Lowy, A. Hood, P. (2004). The Power of 2x2 Matrix. San Francisco: Jossey-Bass.Nagle, T. Holden, R. (1995). The Strategy and Tactics of Pricing. New Jersey: PrenticeHall. 33
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  • 43. APPENDIX1 – PD sales growth 2009-2010, pg. 372 – PD own brand growth, pg. 383 –Sonae MC Business volume growth, pg. 394 –2010 Consumer Confidence Index, pg. 405 – Marktest – November 2011 top advertisers in Portugal, pg. 41 36
  • 44. 1 – PD sales growth 2009-2010.Fonte: Relatório e Contas Jerónimo Martins 2010 37
  • 45. 2 – PD own brand growth.Fonte: Relatório e Contas JM 2010 38
  • 46. 3 - Sonae MC Business volume growth.Fonte : Sonae, Comunicado de performance ano 2010 (26/01/2011). 39
  • 47. 4 – 2010 Consumer Confidence Index.Fonte: Nielsen, Breaking News (14/05/2010). 40
  • 48. 5 – Marktest – November 2011 top advertisers in Portugal. 41