The Changing Communication of the Retail Industry

Table of Contents

List of Abbreviations

1 A New Focus in Retail Communication
1.1 Introduction
1.2 Purpose of the Paper
1.3 Research Objective
1.4 Methodology

2 Fundamentals of Communication and the German Retail Industry
2.1 Fundamentals of Communication
2.1.1 Definition of Communication and Communication Objectives
2.1.2 Classification and Analysis of Communication Instruments
2.1.2.1 Classification of Communication Instruments
2.1.2.2 Media Advertising
2.1.2.3 Offline and Online Direct Marketing Including Mobile Marketing
2.1.2.4 Online Marketing and User-Generated content
2.2 The Retail Industry in Germany
2.2.1 Definition of Retailing
2.2.2 Analysis of the German Retail Market
2.2.2.1 Structure of the German Retail Market
2.2.2.2 Retail Competition in Germany
2.2.2.3 Trends in Consumer Behavior

3 Challenges in Communication and Implications for Retailers
3.1 Special Characteristics and Problems of Retail Communication
3.1.1 Retail Communication in Comparison to Communication of Manufacturers
3.1.2 Positioning and Retail Branding as Challenges for Retail Communication
3.1.3 The Role of Communication in Retail Marketing
3.2 Identification of Future Challenges and Implications for Retail Communication
3.2.1 Economic Challenges
3.2.2 Socio-Cultural Challenges
3.2.3 Technological Challenges
3.2.4 Summary: Implications for Retail Communication

4 Analysis of Practical Examples of Communication Strategies and Instruments of the Retail Industry
4.1 From Price Communication to Image and Assortment Communication
4.1.1 Evaluation of Flyers and Leaflets as an Example of Price Communication
4.1.2 Image Communication and Retail Branding Through Media Advertising
4.1.3 Private Labels as an Example of Assortment Communication
4.2 Individualization and Customer Retention Through via Direct Communication
4.2.1 Online and Offline Direct Communication
4.2.2 Customer Cards and Bonus Programs
4.2.3 Customer Magazines
4.3 From Classical Communication to New Media Communication
4.3.1 Weblogs and Online Communities as an Example of Web 2 Opportunities
4.3.2 Viral Marketing
4.3.3 Integration of User-Generated Content for Communication
4.3.4 Marketing Strategies for 3D Internet Using the Example of “Second Life”

5 Recommendations for Food Retail Communication

6 Conclusion

References

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1. Need for a New Focus in Retail Communication

1.1 Introduction

Aldi, Media Markt, Lidl, Edeka, Saturn, Schlecker, Rewe, Penny; according to Nielsen Media Research, eight out of the ten most advertised brands or products in Germany in February 2007 were retail brands (Nielsen Media Research, 2007a). In 2006, retail companies accounted for approximately 20% of the total budget of advertising agencies (Konrad, 2007a, p. 46).

Moreover, recent campaigns indicate that retailers are trying to change the focus of their communication by developing new ways of addressing customers. Edeka and Rewe, two German food retailers, use statements like “Wir lieben Lebensmittel” and “Jeden Tag ein bisschen besser”^[1] in order to emphasize the importance of quality, competence and service. Hornbach, a Do-It-Yourself (DIY) company, carried out a viral marketing campaign by distributing a video-clip online which shows a fake stuntman who tried to jump over a Hornbach store with his motorbike. Image advertising, the growing importance of online communication, the opportunities of Web 2.0 (e.g. weblogs, online communities, and user-generated content), viral marketing as well as the need to integrate the different communication measures are just a few examples which point out the complexity and challenges for developing successful retail communication strategies.

1.2 Purpose of the Paper

During the last decades, in particular food retailers became famous for their so-called Schweinebauch^[2] advertisements. They stress their inexpensiveness by distributing leaflets and flyers showing products, as for example a pork belly, and the respective prices of that product. This is an example for the fact that in the past, most retailers in Germany exclusively focused on price communication (Morschett, 2002, p. 243; Schröder, 2002, p. 167). Considering the decreasing profit margins, which are approximately one percent for food retailers (Kreimer, Acar, & Vogell, 2006, p. 51) and close to zero percent for DIY retailers (Schommer, Harms, von le Fort & Seitz, 2005, p. 4), the usefulness of pure price communication is more than questionable. Already in 1990, Berekoven (1990, p. 274) requested that communication in retail has to find a new focus and emphasize performance indicators apart from price. Schröder (2002, p. 157) states that the increasing competition, the customers’ behavior, and the development of new technologies are the three decisive factors for retail communication. When it comes to competition, communication can be used to create a unique positioning and thus lead to differentiation (Barth & Blömer, 1995, pp. 9-10).

Although there are a lot of approaches dealing with communication measures and objectives in general, the amount of articles which explicitly research communication in the retail industry is fairly small (Müller-Hagedorn & Zielke, 1999, p.186). The purpose of this paper is to discuss practical examples and provide evidence that that there is a actual change in retail communication. Thus, this paper attempts to provide a link between theory and practice of retail communication.

1.3 Research Objective

The overall objective of this paper is to discuss the contribution of communication instruments and measures to successful retailing. The paper will focus on the German retail market and primarily on food retailers. It is the aim to analyze the status quo of retail communication and to discuss advantages and disadvantages of different communication strategies and to derive practical implications for the future.

According to Morschett (2002, p. 2), the creation of a retail brand is a crucial task for retailers. A stong brand mainly facilitates competitive differentiation (Morschett, 2002, p. 11). Therefore, it will be discussed to which degree communication should emphasize performance characteristics apart from price in order to contribute to establishing a retail brand. Bruhn (2004, p. 201) postulates that in the future the importance of dialog communication will rise significantly and that an ongoing dialog can help to strengthen the relationship between the company and the customer. Consequently, the dialog potential has to be taken into account when evaluating the current and future communication strategies. The presence of the US company Sears in the virtual reality of the online game “Second Life” is just one example for the vast opportunities of online communication for retailers. Despite the uncertainty about the effectiveness of, for example, discussion forums and weblogs, these new online communication channels offer the opportunity to directly communicate with the customer and increase the degree of interaction and involvement. For this reason, special attention is paid to the different possibilities of online communication and its integration in the overall communication mix.

Taking these aspects into account, the research objective is to derive practical implications for how retail companies should design their communication strategy and apply (new) communication instruments in order to improve their competitive positioning and increase customer loyalty.

1.4 Methodology

In chapter two, the fundamentals of communication and retailing in Germany are discussed. Considering communication, the focus is to develop an understanding of objectives and to provide a classification of different instruments. The analysis of the strengths and weaknesses of the respective instruments later serves as framework to evaluate retail communication measures. Next, the characteristics of the German retail market in terms of structure, competition and customer behavior are examined in order to outline drivers of retail performance and identify current and future challenges.

Chapter three brings together communication and retailing. After having discussed special characteristics of retail communication and the concept of retail branding, implications for successful retailing are derived. The paper will show how competition, the changing communication behavior, and the development of new communication instruments result in economic, socio-cultural and technological challenges for retailers. Moreover, it will be deduced which requirements retail communication has to fulfill in order to help overcoming the respective challenges and to contribute to competitive differentiation and the strengthening of customer loyalty. Thereafter, the paper merges the identified challenges with the different communication instruments and thus derives major areas of retail communication. These are image communication to find a way out of price competition, individualized communication to increase customer loyalty, and new media communication to strengthen the dialog with the customer.

Chapter four aims at providing practical evidence for changes in retail communication and will evaluate the future potential of different communication measures. For this purpose, the paper cites best practice communication examples of retailers as well as of other industries and uses related empirical studies in order to analyze the status quo and the future success potential . At the end of each subchapter, implications for retailers are derived. Given the complexity of the communication opportunities and the various retail sectors, chapter five concentrates on food retailers and outlines a sample communication strategy. Along with the conclusion, this chapter responds to the question to what degree a change in retail communication can support competitive differentiation, increase customer loyalty, and thus contribute to successful retailing.

2. Fundamentals of Communication and the German Retail Industry

2.1 Fundamentals of Communication

2.1.1 Definition of Communication and Communication Objectives

Bruhn (2005, p. 2) defines the communication of a company as all communication instruments and communication measures which are used to present the company and its performance characteristics to internal and external target groups and/or to initiate interaction between the target groups and the company. Communication measures are the total of all single activities whereas communication instruments are defined as an aggregation of similar measures (Bruhn, 2005, p. 3). For instance, a TV spot is a communication measure and simultaneously a part of the communication instrument media advertising. Considering the target groups, this paper exclusively focuses on customers, which are a subset of the total external target group.

According to Mattmüller, communication contributes to the exchange of information and thus reduces the informational asymmetries between the customer and the company (2006, p. 240). Consequently, communication decreases the degree of uncertainty which leads to lower transactional costs. Bruhn (2005) asserts critically that the initialization of transactions will not be sufficient in the future. He assumes that instead the importance of dialog marketing and relationship marketing will grow (p. 9). Moreover, Oehme (2001, p. 375) and Mattmüller (2006, p. 249) stress that communication can only be successful if it is not exclusively used for purposes of information but for the creation of a unique company image and company profile.^[3] Following Mattmüller (2006, pp. 247-250) as well as Oehme (2001, p. 369), three main tasks of communication can be identified: information, initiation of a dialog and image building.

In terms of communication objectives, Steffenhagen (1993, p. 288) differentiates between advertising contacts (quantitative) and advertising impact (qualitative). Bruhn applies the same classification for communication and states that impact is more important than the amount of contacts (2005, p. 159). The communication impact can be classified into three psychological categories (Bruhn, 2004, p. 205):

- Cognitive: The cognitive impact measures the perception of communication measures, the change in brand awareness, and the knowledge about brand characteristics.
- Affective: Through affective effects, interest in the product or brand should be raised while influencing the customer’s attitude towards the brand. Therefore, affective communication often addresses consumers in an emotional way.
- Conative: The final goal of communication is to make the consumers change their behavior. Examples are attempts to influence purchase intentions or rebuys.

To be successful, a company has to make decisions about the content of its communication. The copy strategy, (e.g. Mattmüller, 2006, p. 289; Schröder, 2002, p. 176) which was created to design advertising strategies, provides a useful framework for communication as well. The copy strategy comprises the following aspects: customer benefit, reason why, and tonality. First, a company has to choose a consumer benefit, a unique selling proposition (USP) (reason why) to strengthen purchase intention. Potential communication contents for a retailer are the quality of the products, the level of prices, the variety of the assortment, the service level, the atmosphere of the shop, or company advertising (Müller-Hagedorn, 1999, pp. 196-200; Happel, 1998, p. 8). Besides the “what is communicated” the company has to decide about the “how”; the tonality. Following Schweiger & Schrattenecker (1995, p.185) the tonality can be moral, emotional or rational. In the next chapter, it will be evaluated how different communication instruments fulfill the requirements of the distribution of information, the initiation of a dialog with the customer, and the creation of a positive image.

2.1.2 Classification and Analysis of Communication Instruments

2.1.2.1 Classification of Communication Instruments

In the literature there is no consistent classification of communication instruments. Examples are the approaches used by Braun (2006, pp. 152-155), Bruhn (2005, pp. 328-329), and Meffert (2000, pp. 684-685). Following these three authors, this paper differentiates between media advertising, offline and online direct marketing (including mobile marketing), sales promotions, public relations, sponsoring, fairs, event marketing, product placement, and online marketing and user-generated content. In the light of the growing importance of online communication (Konrad, 2006a; Rode, 2006a), it seems suitable for this paper to enlarge the classical definition of Bruhn and Meffert and to ascribe more importance to online communication instruments, as does Braun. Schröder (2002, p. 156) argues that product placement and fairs are of minor importance for retailers. Moreover, public relations include communication activities to all stakeholders and are therefore of minor relevance for this paper. The assumption of this paper is that media advertising, offline and online direct marketing, and online marketing and user-generated content bear the most potential for change in retail communication. These instruments are discussed in more detail in the following chapters.

2.1.2.2 Media Advertising

Each communication instrument comprises different communication media channels (Bruhn, 2005, p. 4). According to Nielsen Media Research, media advertising consists of newspapers, magazines, trade magazines, television (TV), radio and posters (Nielsen Media Research, 2007b, p. 1). Strenghts and weaknesses of newspapers and TV advertising will be discussed in more detail, since the other media instruments are of minor importance to retailers.^[4]

The media newspapers include national newspapers like “Die Welt” as well as regional shopping newspapers (Mattmüller, 2006, p. 276). The advantages of advertisements or brochures in newspapers are a high degree of credibility, timeliness and flexibility (Schröder, 2002, p. 179). For instance, a company can rapidly react to a special offer of a competitor. Shortcomings are high coverage waste, the lack of individuality and often a poor print quality (Braun, 2006, p. 152). In general, newspapers are best suited to boost sales on a short-term basis (Mattmüller, 2006, p. 276) or to communicate special offers (Bruhn, 2004, p. 211). Thus, they rather concentrate on rational and/or price communication than on emotional and/or image communication.

Television spots are an excellent measure for image building. The consumer is addressed in a multi-sensory way (sounds, movements, images) which increases awareness and learning effects and facilitates the transmission of emotional content (Bruhn, 2004, p. 211; Mattmüller, 2006, p. 278; Schröder, 2002, p. 180). In addition, television offers a high national coverage and can reach customers of diverse target groups (Braun, 2006, p.153). Disadvantages are that the consumer stays passive and can actively avoid TV Spots through zapping (Braun, 2006, p.153; Mattmüller, 2006, p. 278; Schröder, 2002, p. 180). Likewise, cost and coverage waste are relatively high.

2.1.2.3 Offline and Online Direct Marketing Including Mobile Marketing

Following the definition of Bruhn (2004, p. 230), the objectives of direct marketing are the initiation of a dialog between the consumer and the company by directly contacting and addressing the individual. Direct marketing can be passive, reaction-oriented or interaction-oriented (Bruhn, 2004, p.231). When using passive direct marketing, the consumer has no chance to respond (e.g. flyer, leaflet) whereas measures of reaction-oriented direct marketing always contain a response element (e.g. a telephone number in a personal mailing, coupons). During interaction-oriented communication, there is a direct dialog between vendor and customer (e.g. telephone selling, sales conversation). For this paper, bonus programs and customer clubs will be classified as means of direct marketing, since they offer an opportunity to communicate with the customers and the acquired customer data can be used as a basis for online and offline direct marketing.

Direct marketing can be tailored to a specific target group and, in addition, offers the possibility of a high level of personalization. This decreases coverage waste. Thanks to the response elements, it is an easier method for companies to track the success of their communication measures (Braun, 2006, pp.153-154; Schröder, 2002, p. 181). Several authors assume that the importance of direct and dialog marketing will rise in the future (e.g. Bruhn, 2005, p. 524; Meffert, 2000, p. 746). An indicator for this trend is the Nielsen Media Research report “Direct Mail 2005”. Spending for flyers/leaflets, samples, catalogues, brochures, letters and postcards rose by 13.7 % to 2,96 billion € from 2004 to 2005 (Rieche & Reinbothe, 2006, p.3). In 2006, however, the growth has slowed down to 0.8 % (Rieche & Reinbothe, 2007, p. 3).

According to Braun (2006, p. 156), direct emails, email newsletter, and SMS/MMS are elements of online direct marketing. They are low-cost instruments and allow for a high degree of success measurement via response rates (Braun, 2006, p.156). In addition, direct emails can easily be tailored to the specific needs of a target group and a company can address their customers individually (Bruhn, 2005, p. 434). Apart from information, emails can contain coupons or invitations to online raffles to offer a response incentive. In the same way, information can be distributed which is not directly related to the company’s products or services but offers an added value to the customer, as for example cooking recipes with the respective shopping list. A limitation is that the company needs the agreement of the consumer before sending emails. However, this is also an advantage, since the recipient actively demands the email newsletter by consenting (Bruhn, 2005, p. 372) which heightens the chance that the newsletter is read.

Considering the technical development as well as the fact that more than 90% of German teenagers possess a mobile phone (Konrad, 2006b), this demonstrates the potential for mobile phone communication. Currently mobile marketing is used for surveys, the distribution of coupons, raffles and the downloading of ring tones and video clips which can also be used for advertising (Konrad, 2006b; “Trendbarometer”, 2006). However, according to a recent study of the Bundesverband Digitale Wirtschaft, only 16 % of all males and 13 % of all females would accept mobile marketing and only five percent stated that they received SMS with advertising content (“Trendbarometer”, 2006).

2.1.2.4 Online Marketing and User-Generated Content

According to Braun (2006, pp. 154-155), online marketing and user-generated content comprise websites, banner and search engine adverting, online communities, and web-logs. In general, the recipient is addressed in a multi-sensory way (e.g. images and sound) and is actively involved in the process. Online marketing enables experience- oriented as well as emotional communication; mass communication as well as individualization. Thereby, the recipients control the communication process and can adopt it according to their needs (Bruhn, 2005, pp. 426-427).

On account of their similarity to media advertising, online banners and advertising in search engines are neglected here. Although they allow for a higher degree of interaction, the focus is rather on information than on dialog. According to the CEO of Nielsen Media Research, companies increasingly use the Internet for brand communication (Konrad, 2006a). Particularly websites allow for image creation since the customer actively gets involved with the products or evens downloads TV spots of the recent campaigns. Furthermore, websites are relatively cost-effective (Braun, 2006, p. 154).

Web 2.0 technologies rely on user-generated content and comprise, among other things, weblogs and online communities (Bughin & Manyika, 2007, p. 2). In online communities, users can create personal profiles (MySpace), publish video content (YouTube) or create encyclopedias (Wikipedia). Companies can use these external online communities or create corporate (brand) communities. The term weblog (in the following also blog is applied) consists of the words “web” and “log” and originates from the term logbook (Eck, 2006, p. 203). Using this tool, private users and companies, can publish their opinions and comments regarding various topics online. This paper concentrates on blogs which are used for corporate communication, the so-called corporate blogs.

An advantage of communities and blogs is that they can positively enhance customer word-of-mouth. Since the customer influences the content, credibility is likely to be higher than for corporate communication (Richter & Weber, 2007, p. 15). However, user-generated content is difficult to control and can hardly be influenced by the company. Braun (2006, p. 154) criticizes that communities and blogs concentrate on customer-to-customer (C2C) rather than on business-to-consumer (B2C) dialog. Moreover, it is questionable to what extent they can be used for corporate communication without compromising credibility. A study of the Leipzig University revealed that corporate blogs obtain a lower score in terms of credibility than private blogs.^[5]

2.2 The Retail Industry in Germany

2.2.1 Definition of Retailing

According to Katalog E, there is a difference between the functional and the institutional sense of retailing and retail companies. The functional definition stresses that retailing is characterized by selling products which have been purchased from other market participants to a third party without altering the goods. The institutional definition only comprises (retail) companies which focus their economic activities on retailing in the functional sense. (Ausschuss für Begriffsdefinitionen aus der Handels- und Absatzwirtschaft, p. 28). The main tasks of retailers are to bridge spatial, temporal, quantitative, and qualitative tensions between the first supplier and the end consumer. Therefore retailers use their own supply processes and retail stores (spatial tension), store products in their warehouses (temporal tension), distribute goods in small quantities (quantitative tension), and offer an assortment (qualitative tension) with a variety of goods (Mattmüller & Tunder, 2004, p. 10). In contrast to wholesalers, retailers sell their goods to private consumers (Mattmüller & Tunder, 2004, p. 11). In practice, retail companies are often classified by business sectors. A recent KPMG study differentiates between drugstores, DIY markets, food, fashion, furniture and consumer electronics retailers (Kreimer et al., 2006, p.2). The paper applies the definition of retailing in the narrow sense, which excludes car dealers, pharmacies and gas stations (Auer, 2006, p.3)

2.2.2 Analysis of the German Retail Market

2.2.2.1 Structure of the German Retail Market

With sales of 390 billion €, the retail market represented 29 % of the German gross domestic product (GDP) in 2005 (Auer, 2006, p. 2). This demonstrates the overall economic importance of this sector. However, from 1970 to 2005 the turnover per square meter in Germany decreased from 5,200 € to 3,300 €. The surface productivity is expected to further shrink to 2,900 € in 2010. This explains why total sales stagnate although retailers continue to augment the total surface (Kreimer et al., 2006, pp. 17-18).

Likewise, the share of consumer spending for retail products declined from 40 % of the total income in 1990 to 30 % in 2004 (Kreimer et al., 2006, p. 19). Consequently, retailers would not even benefit from an economic upswing, since additional income is spent elsewhere (Harms & Schommer, 2004, p. 8). According to a study of Deutsche Bank, turnover is expected not to exceed an increase of one percent per year in the future (Auer, 2006, p. 8). Another trend of the German retail market is the increasing degree of concentration. The market share of the top five food retailers grew from 62.1 % in 2000 to 69.2 % in 2005 and is expected to reach 76.5 % (Kreimer et al., 2006, p. 52) or even more than 80 % in 2010 (Schommer, Harms, von le Fort, Seitz, 2006, p. 17). Similar trends can be observed for fashion retailers and DIY retailers (Kreimer et al., p. 58, p.67). Recent examples are the acquisition of the German Wal-Mart stores through the Metro Group and the DIY acquisitions (e.g. Max Bahr was purchased by Praktiker).

2.2.2.2 Retail Competition in Germany

As can been seen from the figures above, the German retail market is saturated. The intensity of retail competition in Germany is extremely high compared to other countries (Schommer et al., 2006, p. 15). The failure of Wal-Mart, in the German market supports this assumption. A further special characteristic is the influence of discounters, in particular for food retailers. Considering fast moving consumer goods (FMCG) in 2006, companies like ALDI and Lidl accounted for 41.8 % of total retail sales (Twardawa, 2006, p. 9). This strengthens the importance of price for the German retail customer. Consequently, in the past most retailers attempted to stress their low-cost character. Moreover, the excessive use of discounts made the customers reject normal prices and instead wait for special offers (Harms & Schommer, 2004, p. 18). “Geiz is geil”, a slogan used by the consumer-electronics retailer Saturn, is the most common example to reflect price orientation Germany. As a result of price competition, the profit margins are relatively low: on average one percent for food retailers (Kreimer et al., 2006, p. 51) and zero percent for DIY retailers (Schommer et al., 2005, p.4). To be successful in the future, retailers need to identify new strategies apart from price competition (Morschett, 2002, p. 82, Kreimer et al., 2006, p. 5).

2.2.2.3 Trends in Consumer Behavior

According to a recent study of the Gesellschaft für Konsumforschung (GfK), 54 % of all food retail customers state that price is more important than quality. However, the importance of quality rose from 41 % in 2003 to 46 % in 2006 (Twardawa, 2006, p. 11). “Shopper-Trends Germany 2006”, a study of ACNielsen, reveals that cheap prices are required but not sufficient for success. Aspects like quality, freshness and a convenient shopping experience (e.g. service-oriented personnel) are of great value to customers (Fikenscher, 2006, p. 10). It can thus be concluded that customers are willing to spend money for quality and that other performance indicators for retailers exist apart from price.

These findings are in line with the concept of smart shoppers or hybrid consumers who often switch between discounters and specialty stores and combine products of different quality and price levels. For instance, a consumer might drive a Porsche and buy ALDI products (Auer, 2006, p. 11; Kreimer et al., 2006, p. 30). Further support for this polarization can be found when examining the development of premium brands and private label products for FMCG. Private labels accounted for 36.1 % in 2006 (29,2 % in 2003); the market share of premium brands has risen by one percent to 30.3 % in the course of the last three years (Twardawa, 2006, p. 12). Moreover, the consumers tend to seek for variety. The average customer frequents six fashion retailers (Kreimer et al, 2006, p. 60); the share of patronized customers per company in food retail is about 20 % (Kreimer, 2005, p. 7). This indicates the difficulty to establish customer loyalty.

In addition, the demographical development will affect retail companies in the future. The population in total will diminish and the share of old people will grow significantly. Since the needs and wants of this customer group are different, an increasing demand for services and convenience can be expected whereas the frequency of purchasing expensive goods (for example furniture) is likely to decline (Schommer et al., 2006, p. 17). Nevertheless, the generation 50+ in general is consumption-oriented and prefers to spend money for wellness and indulgence (Kreimer et al., 2006, p. 20). Moreover, in 2010, the share of customers who are younger than 20 years will be decreased by three million. This affects the retail industry, since these customers are open towards the use of new technologies and of innovative products (Kreimer et al., 2006, p. 21).

3. Challenges in Communication and Implications for Retailers

3.1 Special Characteristics and Problems of Retail Communication

3.1.1 Retail Communication in Comparison to Communication of Manufacturers

Retail companies have the advantage of being in direct contact with their customers (Müller-Hagedorn & Zielke, 1999, p. 203); which enables individualized and target group specific communication (Berekoven, 1995, p. 225). Moreover, it is easier to track the success by using the sales data that is generated by the retail stores (Berekoven, 1995, p. 225). Some authors argued in the past that often mass media is not effective for retail companies since they have a limited distribution area and insufficient capital due to a smaller company size (Berekoven, 1995, p. 228, Müller-Hagedorn, 1999, p. 203). Media advertsing, in particular TV, is often used on a national scale which would lead to coverage waste and to high costs. Considering the change in the retail market structure described in chapter 2.2.2.1, this argument can be proven wrong. As a result of the concentration process, retailers often have stores nationwide and the company size allows for investments in mass media^[6]. However, every retail store faces the challenge to react in a flexible way to changes in the environment, for instance to a special offer of a competitor or even the weather (Berekoven, 1995, p. 228). As a conclusion, the use of mass media communication is reasonable but not sufficient.

In contrast to a manufacturer of consumer goods, a retailer offers a larger quantity of products that need to be advertised (Müller-Hagedorn, 1999, p. 203) which leads to lower communication spending per product (Berekoven, 1995, p. 228). In addition, the core competency of a retailer, which is the offered service to the customer, is more difficult to communicate. Consequently, retail companies often put single (manufacturer) products and prices to the forefront in order to demonstrate their performance potential (Berekoven, 1995, pp. 227-228). Considering the homogeneity of the assortment of different retailers (e.g. Happel, 1997, p. 10; Schröder, 2002, p. 157), these measures have to be regarded as critical since they do not allow for differentiation. A further source of complexity is the “totality” (Oehme, 2001, p. 370) a retailer has to communicate. Apart from the product quality, the friendliness of the personnel and the layout of the store also matter for communication.

To conclude, there are two objectives for retailers: on the one hand to communicate competitive advantages (Kotler & Bliemel, 1999, p. 504-505) and on the other hand to create a unique image of the retail company (Happel, 1997, p. 10). Oehme (2001, p. 376) differentiates between short-term communication to inform the customer about the performances offered (products, prices), and long-term communication which should aim at establishing a retail brand. A sophisticated communication strategy can contribute to creating a unique profile of a company which builds up consumer preferences and may lead to increased customer loyalty (Oehme, 2001, p. 45).

3.1.2 Positioning and Retail Branding as Challenges for Retail Communication

The more distinctive the profile of a retail company, the less the need to use cheap prices as a performance indicator (Oehme, 2001, p. 45). The question is whether positioning and retail branding can contribute to creating a unique profile. According to Tietz (1993, p. 552), positioning includes the differentiation from the competitors and the optimization of the company or store image. Store image is based on the individual experiences of the consumers regarding retail performances which are of importance to them (Hildebrandt, 1988, p. 93). The concept of positioning is similar to the creation of a competitive advantage. According to Simon (1988, p. 465), a competitive advantage has to focus on characteristics which are important to the customer and difficult to imitate. Moreover, the advantage needs to be perceived by the customer.

Distinctive positioning is a precondition for a strong retail brand (Liebmann & Zentes, 2001, p. 191). In order to achieve this, the company needs to identify and communicate dimensions which are of great importance to the customer. A retail brand has to be representative of the unique selling proposition of a company (Liebmann & Zentes, 2001, p. 191) and help to build a “quasi monopoly” (Ahlert, 2000, p. 101) in terms of perception for the relevant dimensions. According to Morschett (2002, p. 108), a retail brand is a single or a group of retail stores using the same brand. The acceptance of the brand from the customer’s point of view is the essential element. Whereas even innovative communication measures are often easy to copy (Bruhn, 2005, p. 30; Oehme, 2001, p. 368 ), the identity of a brand is more difficult to imitate and consequently fulfills the requirements of a competitive advantage. In general, the concept of brand management can be applied to retail companies (Mattmüller & Tunder, 2004, p. 310; Morschett, 2002, p. 193). Next, advantages and requirements of a retail brand have to be examined.

First, customers are more likely to buy a well-established brand than an unknown brand. For the customers it is easier to associate certain characteristics, as for example quality, with the brand. A high profile of a brand makes customers more comfortable with their buying decision and decreases transactional costs due to a lower information effort (Morschett, 2002, pp. 32-33). A retail brand supports the creation of trust. In the best case scenario there is a transfer of trust from the retail brand to the products (Mattmüller & Tunder, 2004, p. 315). IKEA and ALDI are two examples for this (Oehme, 2001, p. 45). On top of that, a retail brand can increase loyalty. If a customer feels attached to a brand he is less likely to change the brand (Morschett, 2002, p. 39). In terms of communication, a retail brand decreases cost and complexity since retailers only need to advertise one brand instead of their numerous products (Mattmüller & Tunder, 2004, p. 315). Moreover, a strong brand generates higher awareness when being communicated which raises the general efficiency of communication and marketing measures (Morschett, 2002, p. 38-39). However, the management of a retail brands is complex because numerous aspects influence brand perception (Mattmüller & Tunder, 2004, p. 311) such as the quality of the products, the variety of the assortment, or the friendliness of the personnel. A risk of retail branding is a negative image transfer (Mattmüller & Tunder, 2004, p. 315). If a customer is unsatisfied with the performance (e.g. quality) he may attribute a negative image to all products offered by this retailer. This strongly demonstrates that successful retail branding is not limited to communication.

To conclude, the existence of a mutual dependence between communication and retail branding has been identified. On the one hand, the unique positioning, as the base of a retail brand, needs to be communicated. On the other hand, a retail brand increases communication efficiency. Consequently, the following assumption can be derived: Communication can contribute to building a retail brand which then leads to an improved competitive differentiation and an increase in customer loyalty. Considering the goal of this paper, the focus is to which degree communication is a success engine for a strong retail brand and which communication measures are best suited for that purpose. The role of communication in retail marketing will be discussed in the following chapter.

3.1.3 The Role of Communication in Retail Marketing

The classification of retail marketing instruments varies significantly in the relevant literature.^[7] This paper concentrates on those instruments which most approaches have in common. Besides communication policy, assortment policy, pricing policy, service policy, and store location are mentioned. The objective of this chapter is to illustrate the interdependencies between communication and the other instruments.

- Assortment policy: Assortment policy comprises decisions about the product mix’s breadth and depth, the quality of the products offered and the private label policy (Morschett, 2002, p. 105). The main characteristic for private labels is that the proprietor of the brand is a retailer (e.g. Koppe, 2003, p. 19-20). Since private labels are in general exclusively sold at one retailer, they allow for differentiation. When applying the copy strategy outlined in chapter 2.1.1, communication can emphasize the private label range of a retailer as a consumer benefit (“what” is advertised). However, there is a potential source of a communication deficit if a retailer cannot keep the promises of his advertising campaigns. A problem is likely to arise if there is insufficient coordination between internal and external communication (Bruhn, 2005, p. 81). For instance, the advertising campaign cannot focus on product quality when the purchasing department is attempting to buy products at the cheapest price possible.
- Pricing policy: The general price level and the use of special offers in contrast to everyday low prices are aspects of pricing policy (Morschett, 2002, p. 105). In terms of communication, it is crucial to use a consistent message throughout the different communication instruments (Bruhn, 2005, p. 84). It is not recommended to emphasize quality and service as a unique selling proposition (USP) in national TV spots and simultaneously focus on discounts and special offers in weekly leaflets. Contradictory communication is likely to confuse the customer and hinders the creation of a retail brand.
- Service policy: This dimension covers the competence and the friendliness of the personnel as well as additional guarantees or services, as for example delivery or a repair center. Similar to the argument used for the assortment policy, a gap between customer expectations raised by communication and the actual service performed can cause frustration (Bruhn, 2005, p. 84). The employees have to be capable of keeping the promises.
Although the location is one of the most important instruments in retail marketing (Schröder, 2002, p. 43), it is not discussed here because only few connections with communication exist. To summarize, communication is not a stand-alone instrument in retail marketing. In order to avoid communication deficits, messages have to be coordinated with the assortment policy, the pricing policy, and the service policy of a retailer. Communication alone is not capable of creating a competitive advantage or a unique profile.A gap between promised and actual performance is likely to destroy trust. Nevertheless, communication is needed to point out the competitive differentiation.

3.2 Identification of Future Challenges and Implications for Retail Communication

Three main drivers for retail communication are identified in the literature: Retail competition, consumer behavior and the development of new technologies (Schröder, 2002, p. 157). Müller-Hagedorn & Zielke (1999, p. 188) use a similar approach and differentiates between economic, socio-cultural and technological challenges. This classification is applied as a framework for discussing challenges and identifying implications for retail communication in the following subchapters.

3.2.1 Economic Challenges

As already explained in chapter 2.2.2, an increase in turnover and profit are the major economic challenges for retailers. Müller-Hagedorn & Zielke (1999, p. 191) assume that it is not sufficient to simply increase advertising spending to survive retail competition, but to find a way out of price communication. Retail branding and private label communication are two options to achieve this goal. In chapter 3.1.2 the theoretical advantages of retail branding have already been discussed. Morschett (2002, p. 465) empirically proved that for German food retailers a strong retail brand increases the customer’s purchase frequency and the amount of money spent per shopping trip. Thus, it is assumed that the creation of a retail brand positively effects profit.

According to a study of AT Kearney, there is a significant positive correlation between the private label share and the profit margin for food retailers worldwide. Tesco, for example, yields a five percent profit margin with a private label share of 50 % (Pfeiffer & Rothmann, 2004, p. 18). Moreover, a Harvard Business School study researched the retail market for packaged consumer goods in Europe, the United States and Canada. The findings are that particularly high quality private labels strengthen store loyalty and thus significantly increase profits (Corstjens & Lal, 2000, p. 290). A similar correlation has been found for the German food retail industry. Olbrich & Windberg (2005, pp. 30-32) revealed that the introduction of a new premium private label positively effects store loyalty, turnover and profit. In addition, Morschett (2002, p. 367) confirms that retailers use their private label ranges to strengthen competitive differentiation and to create a unique retail brand. Given the profit and differentiation potential for private labels, it is attractive for retail companies to intensify the communication efforts for their private labels. Primarily premium private labels require professional brand management. Finally, the financially tense situation constrains the communication spending for retailers. When evaluating different measures, not only the communication impact but also the effect on the company’s costs, have to be taken into account.

3.2.2 Socio-Cultural Challenges

The changing behavior of customers can be characterized by increasing expectations in terms of product and service quality. They seek for variety which consequently decreases loyalty (Bruhn, 2005, p. 26-27). As outlined in chapter 2.2.2.3, this trend can be corroborated for retailers. Consequently, retail communication has to aim at strengthening customer retention. Furthermore, society is split up into numerous sub-target groups which can no longer be classified by general indicators as age, sex or residence. Individuality has become the predominant trend (Engeser, 2004, p. 5). “When targeting the average consumer, one will miss him to a maximum extent” (Bosshart, 2006). Thus retailers need to find media channels which allow for an individual and target group-specific addressing of the customers. Bruhn (2005, p. 27) consequently expects a disproportionately high rise in the communication spending per capita.

On average, a consumer faces 3,000 advertising messages per day (Breuer, 2007, p. 4). The advertising information overflow has reached 95 % (Kroeber-Riel & Esch, 2000, pp. 13-14). This is to say that only 5 % of advertising information is likely to be perceived. In order to increase awareness, retail communication has to emphasize entertainment and emotionality (Müller-Hagedorn & Zielke, 1999, p. 189). Moreover, the recipients lose trust in classical advertising and rather rely on personal recommendations and word-of-mouth (Oetting, 2006, pp. 180-181). In terms of theoretical background, two studies demonstrated that customer word-of-mouth advocacy is a crucial success driver for a company's sales growth. Reichheld (2003, pp. 50-51) found that the likelihood that a customer recommending a company or a product to a friend or colleague predicts sales growth in different US industries. Mardsen, Samson, & Neville (2005, p.4) applied this concept to UK companies, amongst others to UK supermarkets, and found a strong correlation between personal promotion and sales growth (p. 5). Since positive correlations have been found for two countries and various industries including UK supermarkets, it is likely that a similar effect exists for German retailers.

Instead of staying passive, the customers increasingly want to get involved in terms of communication or even product design (Richer & Weber, 2007, p. 14). In return they are willing to criticize, recommend and even improve products (Arbach & Hemmasi, 2006). Consequently, it is attractive for retailers to apply communication instruments which allow interactivity, participation, and forwarding of recommendations.

3.2.3 Technological Challenges

According to a recent survey of the European Interactive Advertising Association (EIAA), internet use in Germany increased by 14 % whereas the figures for other media stagnated (“Mediascope Europe”, 2007). In addition, a study of the company Novomind revealed that more than 80 % of consumers gather product information and compare prices prior to their purchase decision; 60 % have subscribed to online newsletters (“Online-Käufer”, 2007). In an empirical study, Esch & Kiss (2006, pp. 110-111) demonstrated that interactive online websites positively affect the attitude towards the brand as well as actual behavior (e.g. purchase intentions). Moreover, via weblogs, emails, or online discussion forums, opinions and recommendations can be exchanged at a low. According to Bruhn, the development of dialog communication instruments is one of the major future challenges (Bruhn, 2005, pp. 524-525).

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^[1] Translation: “We love food” and “Every day a little better”.

^[2] Explantory note: Schweinebauch means pork belly.

^[3] The terms company image and company profile are discussed in more detail in chapter 3.1.2.

^[4] In 2005, retailers spent approximately 80 % of their media budget for newspapers and 10 % for TV advertising (Poppelbaum, 2006).

^[5] The findings of the study are discussed in chapter 4.3.1 in more detail.

^[6] A similar reasoning is applied by Theis, 1999, p. 33.

^[7] An overview about different classifications can be found in Schröder, 2002, p. 40-42.