J00799
This article appeared in a journal published by Elsevier. The attached
copy is furnished to the author for internal non-commercial research
and education use, including for instruction at the authors institution
and sharing with colleagues.
Other uses, including reproduction and distribution, or selling or
licensing copies, or posting to personal, institutional or third party
websites are prohibited.
In most cases authors are permitted to post their version of the
article (e.g. in Word or Tex form) to their personal website or
institutional repository. Authors requiring further information
regarding Elsevier’s archiving and manuscript policies are
encouraged to visit:
http://www.elsevier.com/authorsrights
Author's personal copy
Journal of Retailing and Consumer Services 21 (2014) 108–117
Contents lists available at ScienceDirect
Journal of Retailing and Consumer Services
journal homepage: www.elsevier.com/locate/jretconser
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
a
Department of Industrial and System Engineering, Chung Yuan Christian University, Chung Pei Road No. 200, Chungli City 32023, Taiwan
Department 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
b
art ic l e i nf o
a b s t r a c t
Article history:
Received 7 April 2013
Received in revised form
13 July 2013
Accepted 10 September 2013
Available online 14 October 2013
This paper explores the influence of strategic planning and functional-business strategy in helping smallindependent 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 model fit and the five 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.
These findings 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.
Keywords:
Small-independent retailers
Organized retailers
Structural equation model (SEM)
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 technique. 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 and fifth 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,
n
Corresponding author at: Department of Information Technology, Satya Wacana
Christian University, Jl. Diponegoro No. 52-60, Salatiga 50711, Central JavaIndonesia. Tel.: þ62 298 321212x274; fax: þ62 298 321433, 3419240.
E-mail addresses: [email protected],
[email protected] (Y. Praharsi).
0969-6989/$ - see front matter & 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.jretconser.2013.09.002
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 by Runyan and Droge (2008). Their works suggested that
focusing on buyer's behavior, both in retailer–supplier relationship
(up-stream behavior) and retailer–consumer relationship (downstream 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 (structure) 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.
Author's personal copy
109
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
This research extends the study by Runyan and Droge (2008)
who investigated the relationships between the small retailer
research streams. We propose categories of buyer behavior (retailer–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 performance 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 2 provides model
development and research hypotheses. Section 3 describes methodology of the research. Section 4 highlights research findings. 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 in Fig. 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 comprising 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
Overall Strategy
Competitive strategy
Strategic planning
Marketing strategy
Buyer Behavior
Consumers/B2C/Downstream
Suppliers/B2B/Upstream
Structure
Strategic
Implementation
Alliances
Franchise/Independent
Size(Large/Small)
Local/Global
Labor issues
Technology issues
Fig. 1. Emergent macrostructure of small retailer research stream (Runyan and
Droge, 2008).
Retailersupplier
relationship
H5
H1
H2
Strategic
planning
Consumer
loyalty
program
H4
Retailer
performance
H3
Functional
and
business
Fig. 2. Theoretical model.
retailer–supplier relationship (B2B upstream) and consumer loyalty 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 formulation. It includes developing a vision and mission, identifying
an organization's external opportunities and threats, determining
internal strengths and weaknesses, establishing long-term objectives, 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
Author's personal copy
110
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
strategic choices and resource allocation for small-independent
retailer. Strategic choice provides managerial characteristics of perception 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 with Olsen and Ellram (1997) who stated that the strategic
planning has an influence in managing retailer–supplier relationships. 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 of firm 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 achievable sales revenue, based on historical data, analysis of market
surveys and trends, and salespersons' estimates. Firms that inconsiderably execute plans exhibited a slower growth rate than firms
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 comprehensive theories (Hambrick, 1980). Some variables are considered in functional strategy such as pricing, product, and service.
Meanwhile, Porter’s conceptualization of the three generic business 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. Meanwhile, differential pricing charges dynamic prices to different
customers based on group pricing, channel pricing, and regional
pricing (Simchi-Levi et al., 2008). Ramakrishnan (2010) emphasized 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 perceived 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 competitors 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 behavior. 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
Author's personal copy
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
111
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. Customer 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 relationship 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 OdekerkenSchroder, 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 propose that building consumer loyalty program will improve the
retailer’s performance.
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 retailers 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 communication and building satisfaction in this wholesaler–retailer relationship, 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 satisfaction with product portfolio, satisfaction 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.
H4. The consumer loyalty program has an influence to small
retailer performance
H5. The retailer–supplier relationship has an influence to small
retailer performance
2.4. Retailer–supplier relationship
2.5. Retailer performance
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 endeavored 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, relationships 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 longterm 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 association with retailer’s performance.
In the relationship between retailer and supplier at physical
distribution service quality, Zeng et al. (2011) examined the order
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 measurement (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
We used a questionnaire survey as instrument for the collection of data. The survey included multiple scaled items for each of
Author's personal copy
112
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
Table 1
Summary of the five constructs and their sources.
Construct
Measurement item
Sources
Functional and business
1. Good quality merchandize
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
Ramakrishnan (2010) and Grewal et al. (2011)
Strategic planning
1. Generating merchandize plan
2. Generating sales forecast
3. Resource allocation for product and/service
Gaskill et al. (1993)
Perry (2001)
Sharma (2008)
Retailer–supplier relationship
1. Satisfaction with product portfolio
2. Satisfaction with smoothly product ordering service
3. Satisfaction with well order fulfillment service
4. Get good values of relationship such as personal, knowledge, and financial
5. Support and influence the decision concerning retailer business
Zeng et al. (2011)
Davis-Sramek et al. (2008)
Ping (1997)
Biggemann and Buttle (2012)
Chatterjee et al. (1995)
Consumer loyalty program
1. Build trusting relationship
2. Builds loyalty program by fulfilling customer needs and expectation
3. Builds loyalty program by giving rewards and discount
Wulf and Odekerken-Schroder (2003)
Fullerton (2005)
Retailer performance
1. Has increment of sales/revenue growth
2. Has increment of net income growth
3. Has increment of expanding clientele
4. Has increment of increasing staff/employee
5. Has good overall performance
Veskaisri et al. (2007)
Griffith et al. (2006)
Peel and Bridge (1998)
McGee and Rubach (1996)
Ailawadi et al. (2009)
the research constructs. The questionnaire was first 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 a five-point
scale with “1 ¼strongly disagree” and “5 ¼strongly agree.”
3.2. Research sample
Purposive sampling is applied in order to study the competitive
response of traditional retailers to the organized retailers (minimarkets). 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 appliances 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 questionnaire inquired the respondent to record their strategic perspectives such as functional-business and planning, retail's
relationship development with their key supplier, retail's relationship 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 2 presents 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
model fits 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 Performance (PF5) are removed because they have low factor loading
value and high error value.
Table 3 summarizes the goodness-of-fit indices of the CFA. All
the indicators passed the minimum requirement for model fitness.
Author's personal copy
113
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
Table 2
Demographic characteristics of small independent retailers.
Demographic characteristics
Level
Frequency
Percentage (%)
Gender
Female
Male
123
119
50.8
49.2
Age
o 25
25–40 years
41–55 years
455 years
10
86
109
37
4.1
35.5
45.0
15.3
Marital status
Yes
No
227
15
93.8
6.2
Children in household
0 children
1–2 children
3 or more children
18
148
76
7.4
61.2
31.4
The type of business store
Household appliances
Groceries
Groceries & Household appliances
Others
72
100
60
10
29.8
41.3
24.8
4.1
The age of business
0–4 years
5–9 years
10–19 years
420 years
27
62
73
80
11.2
25.6
30.2
33.1
Number of years of working with key supplier
o 2 years
2–3 years
4–5 years
6–10 years
410 years
25
34
47
70
66
10.3
14.0
19.4
28.9
27.3
Total sales growth over past 3 years
Increased
Not changed
Decreased
142
79
21
58.7
32.6
8.7
Table 3
Fit indices for measurement model.
Table 4
Factor loadings, construct reliability, and variance extracted.
Fit indices
χ2
Degree of freedom
Level of significance of χ2
χ 2 =df
Goodness-of-fit index
Adjusted goodness of fit index
Root mean square error of approx.
Comparative of fit index
Tucker–Lewis index
GFI
AGFI
RMSEA
CFI
TLI
Threshold
Result
PZ 0.05
r3
Z 0.9
Z 0.85
r 0.08
Z 0.9
Z 0.9
217.880
109
0.000
1.999
0.906
0.868
0.064
0.935
0.919
The overall model's p-value is significant (p o0.05), 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 model fitness 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 construct reliability and variance extracted.
All the indicator loading factors are above 0.5 minimum acceptance 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 minimum 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.
Construct/ AMOS factor Square
Item
loading
loading
Measurement
error
Construct
reliability
Variance
extracted
Functional-business (FB)
FB1
0.708
0.501
FB3
0.804
0.646
FB4
0.691
0.478
FB5
0.661
0.437
FB6
0.564
0.318
Total FB
3.428
2.380
0.499
0.354
0.522
0.563
0.682
2.620
0.818
0.476
Strategic planning (SP)
SP1
0.795
SP2
0.619
Total SP
1.414
0.368
0.617
0.985
0.670
0.508
0.265
0.625
0.890
0.708
0.555
Retailer supplier relationship (RSR)
RSR1
0.752
0.565
RSR2
0.669
0.448
RSR3
0.787
0.619
RSR4
0.537
0.289
Total RSP 2.745
1.921
0.435
0.552
0.381
0.711
2.079
0.784
0.480
Performance (PF)
PF1
0.915
PF2
0.942
PF3
0.872
PF4
0.518
Total PF
3.247
0.163
0.112
0.239
0.732
1.246
0.894
0.689
Consumer
CLP1
CLP2
Total CLP
0.632
0.383
1.015
loyalty program (CLP)
0.857
0.735
0.612
0.375
1.469
1.110
0.837
0.888
0.761
0.268
2.754
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
Author's personal copy
114
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
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 in Table 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 in Table 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
in Fig. 3 and Table 8. H1 postulates that the retailer's strategic planning
Table 5
The correlation estimate and the square roots of average variance extracted.
FB
FB
SP
CLP
RSR
PF
SP
0.690
0.008
0.177
0.044
0.006
0.713
0.518
0.446
0.305
CLP
RSR
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 at po0.01. Thus, H1 is supported. H2 posits 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, with P of 0.475,
which is significant at po0.01. This leads to the acceptance of H2.
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 a P of 0.186, which is
significant at po0.05. Thus, H3 is accepted. H4 postulates that the
consumer loyalty program has influenced the retailer's performance.
The result indicates that retailer's performance is significantly positively affected by the consumer loyalty program, with a P of 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 a P of 0.252, which is significant at po0.05. Thus, H5 is accepted.
Table 8 summarizes 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
PF
Retailersupplier
relationship
0.745
0.362
0.446
0.443**
0.693
0.293
Table 6
The results of common method bias.
Total
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
25.499
43.701
55.015
62.577
68.704
73.625
77.609
81.314
84.605
87.526
90.093
92.324
94.535
96.614
98.378
99.393
100.000
H2
0.475**
Consumer
loyalty
program
H4
0.702**
Retailer
performance
H3
Functional
and
business
Extraction sums of squared loadings
% of
Cumulative Total
variance %
4.335 25.499
3.094 18.202
1.923 11.314
1.285 7.562
1.042 6.127
.837 4.921
.677 3.984
.630 3.705
.560 3.292
.497 2.921
.436 2.567
.379 2.231
.376
2.211
.353 2.079
.300 1.764
.173
1.015
.103
.607
0.252*
0.830
Strategic
planning
Component Initial eigenvalues
H5
H1
4.335
% of
variance
Cumulative
%
25.499
25.499
0.186*
** 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
Consumer loyalty program←Strategic planning
Consumer loyalty program←Functional-business
Performance←Consumer loyalty program
Performance←Retailer–supplier relationship
p
p
p
p
p
r 0:05
r 0:05
r 0:05
r 0:05
r 0:05
0.000
0.000
0.033
0.000
0.040
Author's personal copy
115
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
Table 8
Summary of the hypothesis testing results.
Hypothesis
Dependent variable
Independent variable
Path coefficient
Probability
H1
H2
H3
H4
H5
Retailer–supplier relationship
Consumer loyalty program
Consumer loyalty program
Performance
Performance
Strategic planning
Strategic planning
Functional-business
Consumer loyalty program
Retailer–supplier relationship
0.443
0.475
0.186
0.702
0.252
0.000
0.000
0.033
0.000
0.040
Table 9
The result of a mediation test.
CLP
RSR
PF
FB
SP
CLP
RSR
–
–
0.003
–
–
0.001
–
–
–
–
–
–
Result
Supported
Supported
Supported
Supported
Supported
Likewise, the retailer-supplier relationship fully mediates the relationship 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
Table 10
The result of a partial or a full mediation.
CLP
RSR
PF
FB
SP
CLP
RSR
0.005
–
0.508
0.001
0.001
0.064
–
–
0.003
–
–
0.013
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 category 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 competitive response towards organized retailers. The strategic planning
development promotes the retailer–supplier relationships and consumer loyalty program whereas consumer loyalty program is promoted 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.
This study has discussed the strategic planning and functionalbusiness 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 contributing to the retailer–supplier relationship, consumer loyalty program, 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 relationship. 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 important 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), suggesting 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
Author's personal copy
116
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
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 supports the previous literatures (Sharma, 2008; Gaskill et al., 1993).
As argued by Fullerton (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 merchandize, everyday low prices, differential pricing based o
copy is furnished to the author for internal non-commercial research
and education use, including for instruction at the authors institution
and sharing with colleagues.
Other uses, including reproduction and distribution, or selling or
licensing copies, or posting to personal, institutional or third party
websites are prohibited.
In most cases authors are permitted to post their version of the
article (e.g. in Word or Tex form) to their personal website or
institutional repository. Authors requiring further information
regarding Elsevier’s archiving and manuscript policies are
encouraged to visit:
http://www.elsevier.com/authorsrights
Author's personal copy
Journal of Retailing and Consumer Services 21 (2014) 108–117
Contents lists available at ScienceDirect
Journal of Retailing and Consumer Services
journal homepage: www.elsevier.com/locate/jretconser
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
a
Department of Industrial and System Engineering, Chung Yuan Christian University, Chung Pei Road No. 200, Chungli City 32023, Taiwan
Department 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
b
art ic l e i nf o
a b s t r a c t
Article history:
Received 7 April 2013
Received in revised form
13 July 2013
Accepted 10 September 2013
Available online 14 October 2013
This paper explores the influence of strategic planning and functional-business strategy in helping smallindependent 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 model fit and the five 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.
These findings 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.
Keywords:
Small-independent retailers
Organized retailers
Structural equation model (SEM)
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 technique. 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 and fifth 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,
n
Corresponding author at: Department of Information Technology, Satya Wacana
Christian University, Jl. Diponegoro No. 52-60, Salatiga 50711, Central JavaIndonesia. Tel.: þ62 298 321212x274; fax: þ62 298 321433, 3419240.
E-mail addresses: [email protected],
[email protected] (Y. Praharsi).
0969-6989/$ - see front matter & 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.jretconser.2013.09.002
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 by Runyan and Droge (2008). Their works suggested that
focusing on buyer's behavior, both in retailer–supplier relationship
(up-stream behavior) and retailer–consumer relationship (downstream 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 (structure) 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.
Author's personal copy
109
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
This research extends the study by Runyan and Droge (2008)
who investigated the relationships between the small retailer
research streams. We propose categories of buyer behavior (retailer–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 performance 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 2 provides model
development and research hypotheses. Section 3 describes methodology of the research. Section 4 highlights research findings. 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 in Fig. 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 comprising 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
Overall Strategy
Competitive strategy
Strategic planning
Marketing strategy
Buyer Behavior
Consumers/B2C/Downstream
Suppliers/B2B/Upstream
Structure
Strategic
Implementation
Alliances
Franchise/Independent
Size(Large/Small)
Local/Global
Labor issues
Technology issues
Fig. 1. Emergent macrostructure of small retailer research stream (Runyan and
Droge, 2008).
Retailersupplier
relationship
H5
H1
H2
Strategic
planning
Consumer
loyalty
program
H4
Retailer
performance
H3
Functional
and
business
Fig. 2. Theoretical model.
retailer–supplier relationship (B2B upstream) and consumer loyalty 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 formulation. It includes developing a vision and mission, identifying
an organization's external opportunities and threats, determining
internal strengths and weaknesses, establishing long-term objectives, 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
Author's personal copy
110
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
strategic choices and resource allocation for small-independent
retailer. Strategic choice provides managerial characteristics of perception 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 with Olsen and Ellram (1997) who stated that the strategic
planning has an influence in managing retailer–supplier relationships. 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 of firm 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 achievable sales revenue, based on historical data, analysis of market
surveys and trends, and salespersons' estimates. Firms that inconsiderably execute plans exhibited a slower growth rate than firms
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 comprehensive theories (Hambrick, 1980). Some variables are considered in functional strategy such as pricing, product, and service.
Meanwhile, Porter’s conceptualization of the three generic business 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. Meanwhile, differential pricing charges dynamic prices to different
customers based on group pricing, channel pricing, and regional
pricing (Simchi-Levi et al., 2008). Ramakrishnan (2010) emphasized 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 perceived 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 competitors 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 behavior. 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
Author's personal copy
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
111
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. Customer 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 relationship 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 OdekerkenSchroder, 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 propose that building consumer loyalty program will improve the
retailer’s performance.
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 retailers 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 communication and building satisfaction in this wholesaler–retailer relationship, 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 satisfaction with product portfolio, satisfaction 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.
H4. The consumer loyalty program has an influence to small
retailer performance
H5. The retailer–supplier relationship has an influence to small
retailer performance
2.4. Retailer–supplier relationship
2.5. Retailer performance
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 endeavored 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, relationships 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 longterm 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 association with retailer’s performance.
In the relationship between retailer and supplier at physical
distribution service quality, Zeng et al. (2011) examined the order
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 measurement (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
We used a questionnaire survey as instrument for the collection of data. The survey included multiple scaled items for each of
Author's personal copy
112
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
Table 1
Summary of the five constructs and their sources.
Construct
Measurement item
Sources
Functional and business
1. Good quality merchandize
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
Ramakrishnan (2010) and Grewal et al. (2011)
Strategic planning
1. Generating merchandize plan
2. Generating sales forecast
3. Resource allocation for product and/service
Gaskill et al. (1993)
Perry (2001)
Sharma (2008)
Retailer–supplier relationship
1. Satisfaction with product portfolio
2. Satisfaction with smoothly product ordering service
3. Satisfaction with well order fulfillment service
4. Get good values of relationship such as personal, knowledge, and financial
5. Support and influence the decision concerning retailer business
Zeng et al. (2011)
Davis-Sramek et al. (2008)
Ping (1997)
Biggemann and Buttle (2012)
Chatterjee et al. (1995)
Consumer loyalty program
1. Build trusting relationship
2. Builds loyalty program by fulfilling customer needs and expectation
3. Builds loyalty program by giving rewards and discount
Wulf and Odekerken-Schroder (2003)
Fullerton (2005)
Retailer performance
1. Has increment of sales/revenue growth
2. Has increment of net income growth
3. Has increment of expanding clientele
4. Has increment of increasing staff/employee
5. Has good overall performance
Veskaisri et al. (2007)
Griffith et al. (2006)
Peel and Bridge (1998)
McGee and Rubach (1996)
Ailawadi et al. (2009)
the research constructs. The questionnaire was first 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 a five-point
scale with “1 ¼strongly disagree” and “5 ¼strongly agree.”
3.2. Research sample
Purposive sampling is applied in order to study the competitive
response of traditional retailers to the organized retailers (minimarkets). 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 appliances 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 questionnaire inquired the respondent to record their strategic perspectives such as functional-business and planning, retail's
relationship development with their key supplier, retail's relationship 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 2 presents 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
model fits 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 Performance (PF5) are removed because they have low factor loading
value and high error value.
Table 3 summarizes the goodness-of-fit indices of the CFA. All
the indicators passed the minimum requirement for model fitness.
Author's personal copy
113
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
Table 2
Demographic characteristics of small independent retailers.
Demographic characteristics
Level
Frequency
Percentage (%)
Gender
Female
Male
123
119
50.8
49.2
Age
o 25
25–40 years
41–55 years
455 years
10
86
109
37
4.1
35.5
45.0
15.3
Marital status
Yes
No
227
15
93.8
6.2
Children in household
0 children
1–2 children
3 or more children
18
148
76
7.4
61.2
31.4
The type of business store
Household appliances
Groceries
Groceries & Household appliances
Others
72
100
60
10
29.8
41.3
24.8
4.1
The age of business
0–4 years
5–9 years
10–19 years
420 years
27
62
73
80
11.2
25.6
30.2
33.1
Number of years of working with key supplier
o 2 years
2–3 years
4–5 years
6–10 years
410 years
25
34
47
70
66
10.3
14.0
19.4
28.9
27.3
Total sales growth over past 3 years
Increased
Not changed
Decreased
142
79
21
58.7
32.6
8.7
Table 3
Fit indices for measurement model.
Table 4
Factor loadings, construct reliability, and variance extracted.
Fit indices
χ2
Degree of freedom
Level of significance of χ2
χ 2 =df
Goodness-of-fit index
Adjusted goodness of fit index
Root mean square error of approx.
Comparative of fit index
Tucker–Lewis index
GFI
AGFI
RMSEA
CFI
TLI
Threshold
Result
PZ 0.05
r3
Z 0.9
Z 0.85
r 0.08
Z 0.9
Z 0.9
217.880
109
0.000
1.999
0.906
0.868
0.064
0.935
0.919
The overall model's p-value is significant (p o0.05), 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 model fitness 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 construct reliability and variance extracted.
All the indicator loading factors are above 0.5 minimum acceptance 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 minimum 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.
Construct/ AMOS factor Square
Item
loading
loading
Measurement
error
Construct
reliability
Variance
extracted
Functional-business (FB)
FB1
0.708
0.501
FB3
0.804
0.646
FB4
0.691
0.478
FB5
0.661
0.437
FB6
0.564
0.318
Total FB
3.428
2.380
0.499
0.354
0.522
0.563
0.682
2.620
0.818
0.476
Strategic planning (SP)
SP1
0.795
SP2
0.619
Total SP
1.414
0.368
0.617
0.985
0.670
0.508
0.265
0.625
0.890
0.708
0.555
Retailer supplier relationship (RSR)
RSR1
0.752
0.565
RSR2
0.669
0.448
RSR3
0.787
0.619
RSR4
0.537
0.289
Total RSP 2.745
1.921
0.435
0.552
0.381
0.711
2.079
0.784
0.480
Performance (PF)
PF1
0.915
PF2
0.942
PF3
0.872
PF4
0.518
Total PF
3.247
0.163
0.112
0.239
0.732
1.246
0.894
0.689
Consumer
CLP1
CLP2
Total CLP
0.632
0.383
1.015
loyalty program (CLP)
0.857
0.735
0.612
0.375
1.469
1.110
0.837
0.888
0.761
0.268
2.754
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
Author's personal copy
114
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
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 in Table 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 in Table 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
in Fig. 3 and Table 8. H1 postulates that the retailer's strategic planning
Table 5
The correlation estimate and the square roots of average variance extracted.
FB
FB
SP
CLP
RSR
PF
SP
0.690
0.008
0.177
0.044
0.006
0.713
0.518
0.446
0.305
CLP
RSR
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 at po0.01. Thus, H1 is supported. H2 posits 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, with P of 0.475,
which is significant at po0.01. This leads to the acceptance of H2.
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 a P of 0.186, which is
significant at po0.05. Thus, H3 is accepted. H4 postulates that the
consumer loyalty program has influenced the retailer's performance.
The result indicates that retailer's performance is significantly positively affected by the consumer loyalty program, with a P of 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 a P of 0.252, which is significant at po0.05. Thus, H5 is accepted.
Table 8 summarizes 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
PF
Retailersupplier
relationship
0.745
0.362
0.446
0.443**
0.693
0.293
Table 6
The results of common method bias.
Total
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
25.499
43.701
55.015
62.577
68.704
73.625
77.609
81.314
84.605
87.526
90.093
92.324
94.535
96.614
98.378
99.393
100.000
H2
0.475**
Consumer
loyalty
program
H4
0.702**
Retailer
performance
H3
Functional
and
business
Extraction sums of squared loadings
% of
Cumulative Total
variance %
4.335 25.499
3.094 18.202
1.923 11.314
1.285 7.562
1.042 6.127
.837 4.921
.677 3.984
.630 3.705
.560 3.292
.497 2.921
.436 2.567
.379 2.231
.376
2.211
.353 2.079
.300 1.764
.173
1.015
.103
.607
0.252*
0.830
Strategic
planning
Component Initial eigenvalues
H5
H1
4.335
% of
variance
Cumulative
%
25.499
25.499
0.186*
** 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
Consumer loyalty program←Strategic planning
Consumer loyalty program←Functional-business
Performance←Consumer loyalty program
Performance←Retailer–supplier relationship
p
p
p
p
p
r 0:05
r 0:05
r 0:05
r 0:05
r 0:05
0.000
0.000
0.033
0.000
0.040
Author's personal copy
115
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
Table 8
Summary of the hypothesis testing results.
Hypothesis
Dependent variable
Independent variable
Path coefficient
Probability
H1
H2
H3
H4
H5
Retailer–supplier relationship
Consumer loyalty program
Consumer loyalty program
Performance
Performance
Strategic planning
Strategic planning
Functional-business
Consumer loyalty program
Retailer–supplier relationship
0.443
0.475
0.186
0.702
0.252
0.000
0.000
0.033
0.000
0.040
Table 9
The result of a mediation test.
CLP
RSR
PF
FB
SP
CLP
RSR
–
–
0.003
–
–
0.001
–
–
–
–
–
–
Result
Supported
Supported
Supported
Supported
Supported
Likewise, the retailer-supplier relationship fully mediates the relationship 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
Table 10
The result of a partial or a full mediation.
CLP
RSR
PF
FB
SP
CLP
RSR
0.005
–
0.508
0.001
0.001
0.064
–
–
0.003
–
–
0.013
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 category 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 competitive response towards organized retailers. The strategic planning
development promotes the retailer–supplier relationships and consumer loyalty program whereas consumer loyalty program is promoted 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.
This study has discussed the strategic planning and functionalbusiness 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 contributing to the retailer–supplier relationship, consumer loyalty program, 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 relationship. 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 important 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), suggesting 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
Author's personal copy
116
Y. Praharsi et al. / Journal of Retailing and Consumer Services 21 (2014) 108–117
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 supports the previous literatures (Sharma, 2008; Gaskill et al., 1993).
As argued by Fullerton (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 merchandize, everyday low prices, differential pricing based o