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Small-independent retailers vs. organized retailers: An empirical study
in Indonesian economics of service industries
Yugowati Praharsi
a,b,n, Hui-Ming Wee
a, Ronald Sukwadi
c, Marivic V. Padilan
a aDepartment of Industrial and System Engineering, Chung Yuan Christian University, Chung Pei Road No. 200, Chungli City 32023, Taiwan bDepartment of Information Technology, Satya Wacana Christian University, Jl. Diponegoro 52-60, Salatiga 50711, Indonesia c
Department of Industrial Engineering, Atma Jaya Catholic University, Jakarta, Indonesia
a r t i c l e
i n f o
Article history: Received 7 April 2013 Received in revised form 13 July 2013
Accepted 10 September 2013 Available online 14 October 2013
Keywords:
Small-independent retailers Organized retailers
Structural equation model (SEM)
a b s t r a c t
This paper explores the influence of strategic planning and functional-business strategy in helping small-independent retailers/traditional retailers to survive amidst the competition with organized retailers. Based on cross-sectional survey research, this study illustrates the influence of strategic planning and functional-business strategy to retailer–supplier relationship, consumer loyalty program, and retailer performance. In order to clarify the relationships among these constructs, a structural equation model (SEM) is employed to examine the modelfit and thefive hypotheses. The results show that strategic planning is critical for small independent retailers due to its influence on the retailer–supplier relationship and consumer loyalty program. Besides, consumer loyalty program is also influenced by functional-business strategy. The retailer–supplier relationship and consumer loyalty program exhibits a positive influence on the small-independent retailer performance. The research supports the existence of a more complex that the consumer loyalty program fully mediates the relationships between strategic planning and functional-business strategy on retail performance. Moreover, the retailer–supplier relationship fully mediates the relationship between strategic planning and small retailer performance. Thesefindings constitute a new contribution to the literature on small retailer research streams through the development of cross category relationships such as strategy, buyer behavior, and structure categories. Besides, this study can enhance the strategic management as well as the performance of small-independent retailers to achieve sustainable competitive advantage.
&2013 Elsevier Ltd. All rights reserved.
1. Introduction
In the Free Trade Area (FTA) era, several organized retails operate in Indonesia. Organized retail is defined as large-scale chain stores that are corporatized and are applying modern management tech-nique. Due to her huge population of 230 million, Indonesia attracts many organized retailers such as hypermarket (Carrefour, Makro), supermarket (Giant, Hero), and mini-market (Indomaret, Alfamart); and they are rapidly expanding by using various formats. Given fourth andfifth rank, Indomaret and Alfamart are two top retailers in Indonesia that lead mini-market chains respectively in the retail business (Retail, 2007). In a relatively short time, these mini-markets quickly mushroomed into giant chains in a number of outlets. This evidently threats small-independent retailers. Traditionally, small independent retailers/traditional stores are mom-and-pop stores,
single stores, sole-proprietorships, or owned and run by individuals or family. Currently, there is tight competition between organized retailers (Indomaret and Alfamart) and small-independent retailers since these organized retailers have expanded to smaller cities and also have grown in suburban areas due to the growing number of residential complexes. We aim to investigate how small-independent retailers can be successful in that competitive environment.
Previous studies of small-independent retailers have been reviewed byRunyan and Droge (2008). Their works suggested that focusing on buyer's behavior, both in retailer–supplier relationship (up-stream behavior) and retailer–consumer relationship (down-stream behavior/consumer loyalty) would be essential for retailers. The question is how different exogenous variables impact buyer behavior to uncover the key factors that influence small retailer performance and survival.Runyan and Droge (2008)suggested the need to examine in detail the relationships of local retailing (struc-ture) with local consumer loyalty (buyer behavior). Recently, some researchers have begun to consider the functional-business (Ramakrishnan, 2010;Paswan et al., 2010;Massa and Testa, 2011) and strategic planning (Veskaisri et al., 2007) on various aspects of retailer performance. This study is motivated by their initiatives. Contents lists available atScienceDirect
journal homepage:www.elsevier.com/locate/jretconser
Journal of Retailing and Consumer Services
0969-6989/$ - see front matter&2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.jretconser.2013.09.002
n
Corresponding author at: Department of Information Technology, Satya Wacana Christian University, Jl. Diponegoro No. 52-60, Salatiga 50711, Central Java-Indonesia. Tel.:þ62 298 321212x274; fax:þ62 298 321433, 3419240.
E-mail addresses:[email protected], [email protected] (Y. Praharsi).
This research extends the study byRunyan and Droge (2008) who investigated the relationships between the small retailer research streams. We propose categories of buyer behavior (retai-ler–supplier and retailer–consumer relationships) and an overall categories of strategy (strategic planning, and functional-business strategy) for small-independent retailer to determine its key performance and survival. The key drivers of business perfor-mance as stated by some researchers are strategic planning and functional-business strategy (Ramakrishnan, 2010; Paswan et al., 2010;Veskaisri et al. 2007;Perry, 2001).
Strategic planning serves an important role in stimulating the collective process for shaping the development of common goals and priorities (Vila and Canales, 2008). In the past, strategic planning was used as a means to shape commitment towards a budget, but now it sets guidelines for operation planning. Existing literature (Veskaisri et al., 2007) exhibits that there is a positive association between the strategic planning and the growth of small retailer. By means of practicing strategic planning, small retailers can inherit a significant advantage regardless of the time it takes to adopt those strategies. This result is consistent with previous studies showing small retailers that have adopted more planning strategies managed to survive (Perry, 2001;Phillips and Calantone, 1994). Moreover,Ramakrishnan (2010) adopted functional-business strategy for small-independent retailer to operate their business. Functional strategies rooted from an enunciation of the elements of marketing-mix (Hambrick, 1980). Some variables are considered in the functional strategy such as pricing, product, and service. Meanwhile, the conceptualization of the three generic business strategies by Porter, such as cost, leadership, differentiation and focus are adopted in retail business strategy. By integrating functional-business strategy, retailers can achieve competitive advantage that improves their performance (Ramakrishnan, 2010).
This study shows some evident areas where the research on small retailer is relevant. Firstly, we investigate the retailer– consumer relationship from the standpoint of small-independent retailers. Secondly, we empirically demonstrate the relationship between buyer behavior, structure, and overall strategy (Runyan and Droge, 2008). By examining the links among these factors, we provide insights that influence small retailer performance and survival. We propose a structural equation model (SEM) approach to analyze the relationships between the overall strategy (strategic planning and functional-business strategy), the buyer behavior (retailer–supplier and retailer–consumer relationships), and the small-independent retailer performance. As expected, the insights from the proposed model can enhance the strategic management as well as the performance of small-independent retailers.
This paper is organized as follows. Section 2provides model development and research hypotheses.Section 3describes meth-odology of the research.Section 4highlights researchfindings. The
final section provides conclusion, theoretical implications, and managerial insights.
2. Model building and research hypotheses
The framework of the emergent theoretical macrostructure for small retailing is described inFig. 1(Runyan and Droge, 2008).
In this study, we examine all categories excepting strategic implementation. There are five constructs engaged in the model building process that are extracted from three categories compris-ing of the overall strategy, the buyer's behavior, and the structure. Runyan and Droge's (2008) competitive strategy and marketing strategy are incorporated into the functional-business strategy. Therefore, the overall strategy category in this study consists of sub-constructs, such as strategic planning and functional-business strategy. Similarly, the categories of buyer's behavior consist of
retailer–supplier relationship (B2B upstream) and consumer loy-alty program (B2C downstream). The small independent retailer is selected to represent the structure category. The overall constructs and their relationship are illustrated in Fig. 2. By studying these relationships, we could uncover the most important resources in small retailers that influence their performance and survival.
2.1. Strategic planning
Among the four basic functions of management, planning is the
first essential function. Prior planning remarkably reduces the probability of failure. Strategic planning refers to strategic for-mulation. It includes developing a vision and mission, identifying an organization's external opportunities and threats, determining internal strengths and weaknesses, establishing long-term objec-tives, generating alternative strategies, and choosing particular strategies to pursue (David, 2009).
In establishing long-term objectives,Gaskill et al. (1993)identified that generating a long term business plan such as generating merchandize plan is the most important determinant contributing to business success. A merchandize plan is defined as the planning of size and composition of merchandize inventories as well as a variety of functions dealing with the purchase, display, pricing, promotion, and sale of merchandize. For generating alternative strategies and choosing particular strategies to pursue,Sharma (2008)developed
Overall Strategy
strategic choices and resource allocation for small-independent retailer. Strategic choice provides managerial characteristics of per-ception and choice of product or service mix. Resource allocation requires production and service skills for developing an exclusive product or service mix. Strategic planning considers an exclusive product influences the relationship between a retailer and a supplier. In line withOlsen and Ellram (1997)who stated that the strategic planning has an influence in managing retailer–supplier relation-ships. Meanwhile, strategic planning considers an exclusive service influences the relationship between a retailer and a consumer. In addition to that,Greenwell et al. (2002)suggested strategic planning of physical facilities such as core product and service personnel has been found to influence consumer loyalty program.
Perry (2001)found strong indications that planning does make a difference and can reduce the probability offirm failure. To measure the extent of planning, they proposed business plan forecast such as sales forecast in order to enhance the chance of survival and success. A sales forecast is a projection of the expected customer demand for products at retailers for a specific time horizon, and with certain underlying assumptions. It is also defined as a projection of achiev-able sales revenue, based on historical data, analysis of market surveys and trends, and salespersons' estimates. Firms that incon-siderably execute plans exhibited a slower growth rate thanfirms with more sophisticated planning.
In developing competitive advantages,Hyun (1994)suggested that supplier relationships need to be incorporated into strategic planning process. Building on the past conceptualization to explore the relationships between strategic planning and upstream/downstream behavior, the indicators used to measure strategic planning are generating merchandize plan, resource allocation for product and/service, and sales forecast (Gaskill et al., 1993;Sharma, 2008;Perry, 2001). We propose that strategic planning has an impact on retailer's relationship with upstream behavior/supplier and downstream behavior/consumer.
H1. Strategic planning has an influence to the retailer–supplier relationship.
H2. Strategic planning has an influence to the consumer loyalty program.
2.2. Retail functional-business
Small-independent retailers have the flexibility in devising strategy for operating their business (Conant and White, 1999). Ramakrishnan (2010) categorized the small-independent retail strategy into retail functional and business strategy. Functional strategies rooted from an enunciation of the elements of the marketing-mix that permits a more precise study of a limited array of strategic variables which can be incorporated into com-prehensive theories (Hambrick, 1980). Some variables are consid-ered in functional strategy such as pricing, product, and service. Meanwhile, Porter’s conceptualization of the three generic busi-ness strategies, such as cost leadership, differentiation, and focus are adopted for the retail business strategy.
In functional strategy, prior research by Simchi-Levi et al. (2008) described that pricing is essential in inducing demand. The association between pricing and demand for each product would be significant to determine an optimal price. Everyday low price (EDLP) such as stable pricing or featuring consistently has attracted many retail business sectors as an alternative pricing promotion strategy. However, stable prices are ambiguous for the sustainability of the retail sectors.Levy et al. (2004)asserted that optimal pricing is not a static problem. Few retailers can survive with a low price strategy. Besides, there are sophisticated pricing techniques that retailers can adopt to maximize their profit.
Simchi-Levi et al. (2008)and Grewal et al. (2011) defined price models as dynamic and differential pricing. Dynamic pricing charges different price over time based on the availability capacity, demand variability and seasonality in demand pattern. Mean-while, differential pricing charges dynamic prices to different customers based on group pricing, channel pricing, and regional pricing (Simchi-Levi et al., 2008). Ramakrishnan (2010) empha-sized a focus on monitoring competitor's promotional activities and prices as the sensitivity to the competitors. Drawing from existing literature (Kukar-Kinney and Walters, 2003), the per-ceived value of the pricing policy affected consumer loyalty program in competitive environment.
Product selection and service in functional strategy are studied by Ramakrishnan (2010). Good quality of product/merchandise, such as standard of national and foreign product is essential to guarantee top quality. This is a factor of competitive strategy in innovative business model to influence consumer loyalty (Massa and Testa, 2011). Good service quality in retailer personnel can be most effective in the distribution services from which ambient, fulfillment customer special request, safe product delivery, and information are provided (Barber and Tietje, 2004). As suggested by Virchez and Cachon (2004), emphasizing superior customer service or good service quality is the most effective competitive strategy to influence consumer loyalty program.
In business strategy, focus on specific customer is clearly used to aim for a niche or a section of the market which is not served well by main stream competitors in the sector (Capon, 2008). Clarity in positioning compared with competitor is also considered as business strategy (Ramakrishnan, 2010;Parnell and Lester, 2008). Clarity in positioning is a part of differentiation strategy which aims to offer the customer added value. This occurs when a retailer provides products which are different and distinctive compared to competi-tors such as providing private label, stocking unique products, and facilitating small pack. In addition, focus on specific customers and clarity in positioning are key activities of business marketing strategy to influence consumer loyalty program (Capon, 2008).
Building on the past conceptualization, this study considers the dimensions of functional strategy; for instance everyday low price, differential pricing, dynamic pricing, monitoring competitor's activities and prices, good service quality and good quality product, and the dimensions of business strategy; among others focus on specific customer and clarity in positioning compared with competitors as appropriate indicators to measure the retail functional-business strategy to the consumer downstream beha-vior. For the consumer loyalty program, dimensions of functional and business are found to be the most influential to the small retailer (Paswan et al., 2010). Therefore, we propose that the retail functional and business strategy has an influence to the consumer loyalty program.
H3.The retail functional and business strategy has an influence to consumer loyalty program.
2.3. Consumer loyalty program
Building consumer loyalty involves a program that encourages a willingness of consumer to forego their own interests, to a certain extent, in the interests of maintaining their relationship with the retailer (Crosby et al., 1990; Gilliland and Bello, 2002). Building consumer loyalty program emphasizes a consumer’s desire or intention to repurchase (Czepiel and Gilmore, 1987). Building consumer trust is the one of consumer loyalty programs that has a significantly positive impact on the consumer loyalty (Wulf and Odekerken-Schroder, 2003). Building consumer trust can be achieved by rewarding the consumers for their loyalty to the retailer. Retailers could give tangible reward such as free gifts, and Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
bonuses to keep the consumer’s loyalty. Consumers are expected to be more committed as they trust the retailer. Consequently, the relationship commitment has a significantly positive impact on the consumer loyalty (Wulf and Odekerken-Schroder, 2003).
Another insight of consumer loyalty program is presented by Fullerton (2005). Building customer commitment is regarded to be the important determinants of a customer loyalty program. Custo-mer commitment are categorized into affective and continuance commitments. In continuance commitment, customers stand loyal to their partner because they feel bound to that relational partner. The loyalty management program with continuance commitment is built based on giving the benefits/tangible rewards to the partner. In affective commitment, customers maintain a relation-ship because they identify and get along well with their partners in the business. The loyalty management program with affective commitment results in fulfilling customer needs and expectations and then impacts on customer loyalty (Wulf and Odekerken-Schroder, 2003). Building consumer loyalty program is essential in creating profits (Lewandowski, 2008). Building consumer loyalty program is a long-term process of delivering value to customers. Furthermore, the customer’s attitude moves beyond loyalty. When consumers seem obliged to shop in the small retailers’store, this produces loyal customers resulting in the survival of retailers.
Building on the past conceptualization, this study considers consumer loyalty programs such as building trusting relationship, loyalty program by fulfilling customer needs and expectation, and loyalty program by giving rewards and discount to measure the loyalty management program in retailers performance (Fullerton, 2005; Wulf and Odekerken-Schroder, 2003). Therefore, we pro-pose that building consumer loyalty program will improve the retailer’s performance.
H4. The consumer loyalty program has an influence to small retailer performance
2.4. Retailer–supplier relationship
The relation between retailer and supplier is an antecedent of doing business (Esbjerg and Skytte, 1999). Direct relationships between buyers and suppliers attempted to minimize the inherent risk associated with operating in a volatile environment and endea-vored to strengthen competitive advantage (Parker et al., 2006). The close relationship between retailer and supplier produces good values of relationship such as personal, financial, knowledge, and strategic values (Biggemann and Buttle, 2012). The creation of trust and dependability for business side are the values of personal relations. Close relationships also open up channels that improve knowledge value by the generation of new ideas, sharing information for better market intelligence and more innovation. Besides, relation-ships have financial and strategic values as well. Financial value connects to economic satisfaction and indicates an increase in efficiency, more business share and predominant capture of market. Meanwhile, the strategic value of relationships is evident in the long-term planning and access to extended network connections. By obtaining the relationship values from the supplier, the retailers favor an improved performance (Biggemann and Buttle, 2012). Chatterjee et al. (1995) examined the retailer’s relationship to the wholesaler on how well they support the management of the retailer and how they actually influence the decisions concerning the retailer’s business. The result showed that retailers do not see themselves as being overpowered by their wholesalers and therefore may not perceive wholesaler control as a problem. They found that wholesaler’s superior role performance has a strong positive associa-tion with retailer’s performance.
In the relationship between retailer and supplier at physical distribution service quality,Zeng et al. (2011)examined the order
fulfillment, ordering procedures and product portfolio or offering dimensions to the retailer satisfaction and its perceived value. Operational order fulfillment service is supplier’s operational delivery activities including physical features of the service and perceptions of reliability, such as the ability to perform the promised service dependably and accurately (Stank et al., 2003). Meanwhile, simplification of ordering procedures could help retai-lers minimize mistakes and reduce costs resulting from wrong orders (Yang and Peterson, 2004). For product portfolio or offerings, Bakos (1997)points out those higher degrees of differentiation in the product category enhance quality information transparency. Smoothly product ordering, well order fulfillment, and product portfolio/offerings that tailored to the retailer’s needs can create a competitive advantage and consequently build satisfaction and retailer performance (Zeng et al., 2011; Davis-Sramek et al., 2008). Satisfaction is a customer’s overall or global judgment regarding the extent to which product or service performance such as order fulfillment matches expectations. By encouraging commu-nication and building satisfaction in this wholesaler–retailer rela-tionship, the retailer acquires the benefit and maintains to survive in their business performance (Anderson and Sullivan, 1993).
Based on the combination and synthesis of past formulations, the indicators used in the retailer–supplier relationship are satis-faction with product portfolio, satissatis-faction with smoothly product ordering service; satisfaction with well order fulfillment service (Zeng et al., 2011;Davis-Sramek et al., 2008;Anderson and Sullivan, 1993); good relationship values such as personal, knowledge,
financial, and strategic values; and supplier’s support and influence to the decision on retailer’s business (Biggemann and Buttle, 2012; Chatterjee et al., 1995). Therefore, we propose that the retailer– supplier relationship influences the small retailer performance.
H5. The retailer–supplier relationship has an influence to small retailer performance
2.5. Retailer performance
Researchers attempt to understand the factors on the small retailer performance because to do so may help retailers to survive and grow. Some literatures have shown that both quantitative and qualitative indicators are generally employed. This study used sales growth and net-income growth after taxes as quantitative measure-ment (Ailawadi et al., 2009; Peel and Bridge, 1998; Griffith et al., 2006;McGee and Rubach, 1996). Sales growth also can be considered as a quantitative measure as it reflects both short and long-term changes in the performance. Meanwhile net-income growth gives a good picture of the rate at which retailers have grown their profits. For the qualitative indicators, we used expanding clientele, increasing staff/employee, and overall store success or performance (Griffith et al., 2006;Veskaisri et al., 2007;McGee and Rubach, 1996).
Small retailer performance and survival is closely linked to the community. The successful retailers must be supported by the communities in which they are embedded. The community social environment inspires, mentors, assists, and directly affects the small retailer performance (Miller et al., 2003). Improved retailer performance facilitates the economic development, growth, and resilience. Their role significantly affects the country's economic growth (Verheugen, 2005).
3. Methodology
3.1. Research design
the research constructs. The questionnaire wasfirst reviewed by two academicians and two retail managers to ensure that the measurement items are appropriate measures for the related constructs. We also pre-tested the survey instrument with retail managers to ensure the questionnaires' readability and ease of understanding. The survey consists of five constructs. Table 1 shows the measurement items of the five constructs in the questionnaire. These measurement items represent a combination and synthesis of past formulations as shown by the source of references. All the items in the construct measured on afive-point scale with“1¼strongly disagree”and“5¼strongly agree.”
3.2. Research sample
Purposive sampling is applied in order to study the competitive response of traditional retailers to the organized retailers (mini-markets). The target respondents are the traditional stores which is located near to the minimarket. The respondent's information such as the names and addresses of retailers are obtained from the directories of Industries and Trade Department in Central Java, Indonesia. A total of 400 small-independent retailers/traditional retailers from several cities surrounding the big cities in Central Java such as Purworejo, Magelang, Salatiga, and Boyolali were selected as respondents. Their stores operate in household appli-ances and groceries business types and both of them.
3.3. Data collection
We distributed the questionnaire to the groceries, household appliances store and/traditional business stores, with the target respondents being the retail managers in the sample. The ques-tionnaire inquired the respondent to record their strategic per-spectives such as functional-business and planning, retail's relationship development with their key supplier, retail's relation-ship with customer also known as consumer loyalty program, and their retail's performance and survival.
4. Data analysis and results
4.1. Demographic profile
We distributed 400 questionnaires to the retail managers listed in the directories mentioned above. This generates a total of 261 returns, yielding a response rate of 65.25%. There are 19 rejected responses due to incomplete data, leaving 242 usable returns for analysis.Table 2presents a summary of the descriptive statistics of the respondents. Of the respondents, 123 were female (50.8%) and 119 were male (49.2%). The majority, 146 (60.3%), were above 40 years of age. Two hundred and twenty seven (93.8%) respondents have been married with 1–2 children (148; 61.2%). As many as 153 (63.3%) respondents run the business for more than 10 years and 136 (56.2%) respondents have been working with key supplier for more than 5 years. The majority, 142 (58.7%) respondents have increment on the total sales growth over past 3 years.
4.2. Confirmatory factor analysis
Confirmatory factor analysis (CFA) is employed to test the hypotheses regarding the proposed model. We used AMOS 16.0 to analyze the data and test the relationships between the constructs and the measurement items or indicators. The CFA offers various indicators of fit to show how well the proposed modelfits the observed sample model.
A CFA is conducted using the 24 items that measure the 5 dimensions. Some indicators are eliminated according to the suggestions of factor loadings and measurement error. Some indicators of Functional-Business variable (FB2, FB7, FB8), Strategic Planning variable (SP3), Consumer loyalty Program variable (CLP3), Retailer-Supplier Relationship variable (RSR5), and retailer Perfor-mance (PF5) are removed because they have low factor loading value and high error value.
Table 3summarizes the goodness-of-fit indices of the CFA. All the indicators passed the minimum requirement for modelfitness. Table 1
Summary of thefive constructs and their sources.
Construct Measurement item Sources
Functional and business 1. Good quality merchandize Ramakrishnan (2010)andGrewal et al. (2011) 2. Good service quality
3. Everyday low prices 4. Differential pricing 5. Dynamic pricing
6. Monitors competitor's pricing 7. Focus on specific customer
8. Clear positioning compared with competitors
Strategic planning 1. Generating merchandize plan Gaskill et al. (1993)
2. Generating sales forecast Perry (2001)
3. Resource allocation for product and/service Sharma (2008)
Retailer–supplier relationship 1. Satisfaction with product portfolio Zeng et al. (2011) 2. Satisfaction with smoothly product ordering service Davis-Sramek et al. (2008) 3. Satisfaction with well order fulfillment service Ping (1997)
4. Get good values of relationship such as personal, knowledge, andfinancial Biggemann and Buttle (2012) 5. Support and influence the decision concerning retailer business Chatterjee et al. (1995)
Consumer loyalty program 1. Build trusting relationship Wulf and Odekerken-Schroder (2003) 2. Builds loyalty program by fulfilling customer needs and expectation Fullerton (2005)
3. Builds loyalty program by giving rewards and discount
Retailer performance 1. Has increment of sales/revenue growth Veskaisri et al. (2007) 2. Has increment of net income growth Griffith et al. (2006) 3. Has increment of expanding clientele Peel and Bridge (1998) 4. Has increment of increasing staff/employee McGee and Rubach (1996) 5. Has good overall performance Ailawadi et al. (2009)
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
The overall model's p-value is significant (po0.05), because we have a complex model with 5 constructs and several indicators. Previous research has shown that χ2 value accumulates with model complexity. In fact, the χ2/df is only 1.999 (well below threshold of 3.0), due to model complexity (Cheng et al., 2012). The overall modelfitness is thus acceptable.
Given the acceptance of the overall model, we separately evaluate each of the constructs by examining their indicator loadings for statistical significance and assessing the construct's reliability and variance extracted. Table 4 shows the indicator loadings and con-struct reliability and variance extracted.
All the indicator loading factors are above 0.5 minimum accep-tance level (Hair et al., 2010). The construct reliability of the four constructs ranged from 0.708 to 0.894, which is over the 0.7 mini-mum acceptable level (Hair et al., 2010), except the strategic planning construct. The reliability of strategic planning construct is 0.670, which is a marginally acceptable level. Some authors set a tolerance of 0.6 as the minimum acceptable level of construct reliability (Bagozzi and Yi, 1988). For the variance extracted, the constructs of strategic planning, consumer loyalty program, and retailer performance are over the 0.5 minimum acceptable levels.
The variance extracted values of functional and business strategies and retailer-supplier relationship are 0.476 and 0.480, respectively, which are at the marginally acceptable level (Diamantopoulos and Siguaw, 2000;Cheng et al., 2012). Accordingly, all the constructs Table 2
Demographic characteristics of small independent retailers.
Demographic characteristics Level Frequency Percentage (%)
Gender Female 123 50.8
Male 119 49.2
Age o25 10 4.1
25–40 years 86 35.5
41–55 years 109 45.0
455 years 37 15.3
Marital status Yes 227 93.8
No 15 6.2
Children in household 0 children 18 7.4
1–2 children 148 61.2
3 or more children 76 31.4
The type of business store Household appliances 72 29.8
Groceries 100 41.3
Groceries & Household appliances 60 24.8
Others 10 4.1
The age of business 0–4 years 27 11.2
5–9 years 62 25.6
10–19 years 73 30.2
420 years 80 33.1
Number of years of working with key supplier o2 years 25 10.3
2–3 years 34 14.0
4–5 years 47 19.4
6–10 years 70 28.9
410 years 66 27.3
Total sales growth over past 3 years Increased 142 58.7
Not changed 79 32.6
Decreased 21 8.7
Table 3
Fit indices for measurement model.
Fit indices Threshold Result
χ2 217.880
Degree of freedom 109
Level of significance ofχ2 PZ0.05 0.000
χ2=df r3 1.999
Goodness-of-fit index GFI Z0.9 0.906 Adjusted goodness offit index AGFI Z0.85 0.868 Root mean square error of approx. RMSEA r0.08 0.064 Comparative offit index CFI Z0.9 0.935 Tucker–Lewis index TLI Z0.9 0.919
Table 4
Factor loadings, construct reliability, and variance extracted.
Construct/ Item
AMOS factor loading
Square loading
Measurement error
Construct reliability
Variance extracted
Functional-business (FB)
FB1 0.708 0.501 0.499 FB3 0.804 0.646 0.354 FB4 0.691 0.478 0.522 FB5 0.661 0.437 0.563 FB6 0.564 0.318 0.682
Total FB 3.428 2.380 2.620 0.818 0.476
Strategic planning (SP)
SP1 0.795 0.632 0.368 SP2 0.619 0.383 0.617
Total SP 1.414 1.015 0.985 0.670 0.508
Consumer loyalty program (CLP) CLP1 0.857 0.735 0.265 CLP2 0.612 0.375 0.625
Total CLP 1.469 1.110 0.890 0.708 0.555
Retailer supplier relationship (RSR) RSR1 0.752 0.565 0.435 RSR2 0.669 0.448 0.552 RSR3 0.787 0.619 0.381 RSR4 0.537 0.289 0.711
Total RSP 2.745 1.921 2.079 0.784 0.480
Performance (PF)
PF1 0.915 0.837 0.163 PF2 0.942 0.888 0.112 PF3 0.872 0.761 0.239 PF4 0.518 0.268 0.732
achieved satisfactory levels of convergent validity. Finally, we examine the discriminate validity by comparing the correlations between constructs with the square roots of the average variance extracted from the individual constructs (Santoso, 2012; Fornell and Larcker, 1981). Table 5 indicates that the interconstruct correlations (below the diagonal) and the square roots of the average variance extracted (on the diagonal) of the constructs. It shows that all correlations between two constructs are less than the square roots of the average variance extracted measures of both constructs. Thus, this confirms the discriminate validity. We therefore conclude that the overall model and constructs are acceptable.
4.3. Model analysis
The CFA confirmed that the model is reliable and valid, and thus can be used for further analysis. Prior to test the structural equation model, we run the common method bias using Harman’s single factor test in SPSS software. The results are described inTable 6.
We can see that only one factor is going to emerge. It looks like that it is only explained 25.499% in the variance. Even though many variances are explained by single factor, it is not a majority. The factor explained is lower than 50%. Subsequently, we proceed to examine the structural model and to test the hypotheses. As shown inTable 7, all the hypothesized relationships among the constructs in the theoretical model show a significant result.
4.4. Hypothesis testing results
The theoretical model and results of hypothesis testing are shown inFig. 3andTable 8.H1postulates that the retailer's strategic planning
influences retailer–supplier relationship. The results indicate that the retailer's strategic planning is directly positively related to the retailer– supplier relationship, with a path coefficient P of 0.443, which is significant atpo0.01. Thus,H1is supported.H2posits that retailer's strategic planning influences the consumer loyalty program. The results show that the retailer's strategic planning is significantly positively related to the consumer loyalty program, withPof 0.475, which is significant atpo0.01. This leads to the acceptance ofH2. Whilst H3 proposes that retail's functional and business strategy influences the consumer loyalty program. The results show that the retail's functional and business strategy is significantly positively related to the consumer loyalty program, with aPof 0.186, which is significant atpo0.05. Thus,H3is accepted.H4postulates that the consumer loyalty program has influenced the retailer's performance. The result indicates that retailer's performance is significantly posi-tively affected by the consumer loyalty program, with aPof 0.702, which is significant at po0.01. Hence, H4 is accepted. Finally,H5 proposes that retailer–supplier relationship influences the retailer's performance. The result indicates that retailer's performance is significantly positively affected by the retailer–supplier relationship, with aPof 0.252, which is significant atpo0.05. Thus,H5is accepted. Table 8summarizes the results of the hypothesis tests.
In order to know whether there is mediation, we run a mediation test for retailer-supplier relationship and consumer loyalty program by using complex mediation bootstrapping. Based on the result in Table 9, some kind of mediation is going on. However, we do not know if this mediation is a full or a partial mediation.
Table 10 shows the result whether there is a partial or a full mediation. We see that most of the paths are significant. However, the path between strategic planning (SP) and performance (PF) is not significant because it is above the cut of value 0.05. It means that the relationship between strategic planning and performance is fully mediated by retailer-supplier relationship (RSR) and Table 5
The correlation estimate and the square roots of average variance extracted.
FB SP CLP RSR PF
FB 0.690
SP 0.008 0.713
CLP 0.177 0.518 0.745
RSR 0.044 0.446 0.362 0.693
PF 0.006 0.305 0.446 0.293 0.830
Table 6
The results of common method bias.
Component Initial eigenvalues Extraction sums of squared loadings
Total % of
1 4.335 25.499 25.499 4.335 25.499 25.499 2 3.094 18.202 43.701
** Significant at the 0.01 level *Significant at the 0.05 level
Fig. 3.Theoretical model and results of hypothesis testing.
Table 7
Summary of the significance of the hypothesized relationships among the constructs.
Item Prob. Threshold Result
Retailer–supplier relationship←Strategic planning p r0:05 0.000 Consumer loyalty program←Strategic planning p r0:05 0.000 Consumer loyalty program←Functional-business p r0:05 0.033 Performance←Consumer loyalty program p r0:05 0.000 Performance←Retailer–supplier relationship p r0:05 0.040 Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
consumer loyalty program (CLP). Similarly, the path between retailer functional-business strategy (FB) and performance (PF) is not also significant. It means that the relationship between retailer functional-business strategy and performance is fully mediated by consumer loyalty program.
5. Conclusions and implications
5.1. Conclusions
This paper empirically examines a theoretical model of a relational approach in small retailer research streams for cross categories. The strategic category consists strategic planning and functional-business strategies; the buyer behavior category contains the retailer–supplier relationship and consumer loyalty program; and the structure cate-gory is implemented for small-independent retailer in order to determine its key performance and survival. The results support our hypothesis H1–H5, indicating that small-independent retailers should develop strategic planning and functional-business strategies as com-petitive response towards organized retailers. The strategic planning development promotes the retailer–supplier relationships and con-sumer loyalty program whereas concon-sumer loyalty program is pro-moted by functional-business strategy. Finally, the results show that the retailer–supplier relationships and consumer loyalty program have a positive effect on the retailer performance. The research supports the existence of a more complex, mediating relationship between strategic planning, functional-business strategy, consumer loyalty program and retail performance. The consumer loyalty program fully mediates the relationships between strategic planning and functional-business strategy on retail perceived performance. In addition, the retailer– supplier relationship fully mediates the relationship between strategic planning and small retailer performance. The consumer loyalty program fully mediates the relationships between strategic planning and functional-business strategy on retail perceived performance.
Likewise, the retailer-supplier relationship fully mediates the relation-ship between strategic planning and small retailer performance. Just retail–supplier relationship may not be enough to influence retail performance, forging emotional bonds and trust in the customer– retailer relationship stems from planning and functional-business strategies and consequently influences retail performance.
5.2. Theoretical implications
This study has discussed the strategic planning and functional-business strategies that are important for increasing the retailer performance and survival through retailer–supplier relationship and consumer loyalty program. The paper empirically investigates this relationship in the context of the small retailer research streams by specifically focusing on strategic planning and functional-business strategies and assessing its impact on retailer–supplier relationship, consumer loyalty program, and retailer performance. The findings generally support the proposed retailer's strategic model in contri-buting to the retailer–supplier relationship, consumer loyalty pro-gram, and retailer performance. The findings add credence to the relational paradigm, which suggests the beneficial performance outcomes of small retailer strategies. In line with the essence of strategic management, the retailer manager should determine how they compete so that they obtain advantages that are sustainable over a lengthy period of time.
Hypothesis 1. indicates that the strategic planning facilitates better strategy in order to enhance the retailer–supplier relation-ship. We should emphasize that strategic planning contributes not only to the retailer–supplier relationship, but also to the retailer performance. Generating a long term business plan such as a merchandize assortment plan and sales forecast become impor-tant factors in implementing planning strategy. These factors are found to be critical in improving retailer–supplier relationship for small-independent retailer. Retailer–supplier relationship is assessed in terms of satisfaction with smooth product ordering service, satisfaction with well order fulfillment service, satisfaction with product portfolio/offerings, and good relationship values. The result conforms to the studies in the previous literatures (Gaskill et al., 1993;Hyun, 1994; Olsen and Ellram, 1997). Subsequently, these retailer–supplier's measurement items are critical issues for small retailer performance. The retailer performance is evaluated in terms of revenue growth, net income growth, expanding clientele, and increasing staff/employee. Our result is consistent with previous studies of small-independent retailers (Biggemann and Buttle, 2012;Ping, 1997;Davis-Sramek et al., 2008), suggest-ing that the satisfaction and values of relationship are positively related to the retailer's performance and survival.
Hypothesis 2. postulates that strategic planning also facilitates better strategy in order to enhance the consumer loyalty program. Besides, it contributes to the retailer–supplier relationship (Hypothesis 1), we should assert that strategic planning also elevates the consumer loyalty program and directly affects retailer performance. Generating merchandize plan and sales forecast are Table 8
Summary of the hypothesis testing results.
Hypothesis Dependent variable Independent variable Path coefficient Probability Result
H1 Retailer–supplier relationship Strategic planning 0.443 0.000 Supported
H2 Consumer loyalty program Strategic planning 0.475 0.000 Supported
H3 Consumer loyalty program Functional-business 0.186 0.033 Supported
H4 Performance Consumer loyalty program 0.702 0.000 Supported
H5 Performance Retailer–supplier relationship 0.252 0.040 Supported
Table 9
The result of a mediation test.
FB SP CLP RSR
CLP – – – –
RSR – – – –
PF 0.003 0.001 – –
Table 10
The result of a partial or a full mediation.
FB SP CLP RSR
CLP 0.005 0.001 – –
RSR – 0.001 – –
critical in loyalty program such as building trusting relationship and satisfying customer needs and expectation which these are crucial factors in encouraging consumer loyalty. The result sup-ports the previous literatures (Sharma, 2008;Gaskill et al., 1993). As argued byFullerton (2005), the loyalty program that develops and enhances customer needs and expectation may achieve the desired objectives and have a positive impact on customer loyalty. Subsequently, these consumer loyalty program are critial issues for small retailer performance and survival. The result is in line with the previous literatures (Wulf and Odekerken-Schroder, 2003; Lewandowski, 2008).
Hypothesis 3. implies that the retail functional-business strategy influences the consumer loyalty program. Good quality merchan-dize, everyday low prices, differential pricing based on channel and regional, dynamic pricing based on the availability of capacity and demand variability, and monitoring competitior's prices become important factors in implementing functional-business strategy.These factors are found to be critical in improving the consumer loyalty program. The result is similar to previous literatures (Bailey, 2008; McGee and Rubach, 1996; Simchi-Levi et al., 2008;Ramakrishnan, 2010).
However, this study creates newfindings by investigating the link between overall categories of strategy (strategic planning, functional-business strategy), categories of buyer behavior (retailer–supplier relationship, consumer loyalty program), and structure category (small-independent retailer) in the context of small retailer research streams. More specifically, this study answers several gaps in literature on small retailer, which has been understudied in previous literature (Runyan and Droge, 2008). The results indicate that consumer loyalty program mediates the strategic planning and functional-business strategies on retail perceived performance. In addition, the retailer–supplier relationship mediates the relationship between strategic planning and small retailer performance. Hence, most of thefindings in this study support the theoretical notion in the literature for small retailer.
5.3. Managerial implications
The findings suggest that strategic planning and retail functional-business strategies have effects on the consumer loyalty program. It is also found that only strategic planning positively influences the retailer–supplier relationship directly, and indirectly influences the retailer performance. Retail managers should respond to the enhancement of the retailer–supplier relationship by promoting merchandize planning and sales forecast. This reason makes sense because retail manager can generate a merchandize assortment plan or sales forecast so that supplier can serve product portfolio/offerings, smoothly product ordering, fulfill the orders well and provide service satisfaction to the retailer. The retail managers also get good values from the retailer–supplier relation-ship such as personal, financial, knowledge and strategic (Biggemann and Buttle, 2012). The adoption of planning strategy in small-independent retailer is positively related to the retailer– supplier relationship. It follows that small-independent retailers with more planning strategy are likely to increase retailer–supplier relationship and overall retailer performance.
Moreover, this study provides insights for strategic planning and retailer performance. By promoting long term business plan such as a merchandize assortment plan, and sales forecast, retail managers can enhance consumer loyalty program such as building of trusting relationship and satisfying customer needs and expec-tations. These loyalty management programs are rooted in affec-tive commitment which are important determinants of customer loyalty-related intentions. This is similar to thefindings reported
by Fullerton (2005) that has examined loyalty management programs that create affective commitment having a positive impact on customer loyalty. From this study, strategic planning can positively influence consumer loyalty program and improve the retailer performance.
Equally importantly, consumer loyalty program is also infl u-enced by retail functional-business strategy. By promoting functional-business strategies such as good quality of merchan-dize, everyday low prices, monitoring competitor's prices, differ-ential pricing based on group or channel pricing, dynamic pricing based on availability capacity and demand variability, retail managers can enhance consumer loyalty program. These results are complementary to prior research bySimchi-Levi et al. (2008) that has studied dynamic pricing which is very significant for industry with low profit margins such as retail industry.
By asserting the essentials of strategic planning, it is likely to enhance the retailer–supplier relationship directly, and indirectly influences the retailer performance. In addition, orienting strategic planning and retail functional-business strategies favor to the enhancement of consumer loyalty program and retailer perfor-mance. These would be the key antecedents of small-independent retailers performance and survival in a competitive environment.
5.4. Limitations of the study and future research
In this study, we focus on the relationship between the strategic categories, the structure category, and buyer behavior category. There are several variables not considered in our research, such as alliances (structure category) between small retailers and out-shopping behavior from society nearby (buyer behavior category). Further study can be done to include those confounding variables and consider other types of retail store (e.g. electronic and cellular, materials, book store and stationery sup-plies, etc.). In addition, strategic implementation category includ-ing labor issues and technology issues can be studied further in investigating cross category relationships.
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