Principles of Marketing Research 3

Article

Market Development by Multinational Brands: Empirical Evidence from Indian Fast Food Retailing Business

Jaydeep Mukherjee

Abstract One of the major dilemmas faced by the multinational marketer is to decide on opening up new markets. This study develops a framework for market development activity by multinational brands based on literature. In the framework, expected customer demand (ECD) is dependent on acceptance of global brand (AGB), image of the parent brand (IPB) and quality perception (QP) about the product. The framework is empirically tested in urban Indian fast food market. The results demonstrate that each of these variables have significant impact on ECD. The priority of marketing budgets allocation should be in order of improving the AGB and IPB and then on QP, so as to have the highest impact on the demand.

Key Words Market Development, Expected Customer Demand, Food Retailing in Emerging Market, Marketing Budget Allocation

Vision 18(1) 1–7

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Washington DC DOI: 10.1177/0972262913517325

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Introduction Emergence of fast food culture dates back to the nineteenth century, driven by the societal changes brought about by the Industrial Revolution. The workforce then worked for extended hours, and an easy quick lunch was a good option.

Post-independence, India saw fast food culture setting in around 1950s. The fast food industry in India has had a favourable growth owing to rising disposable income, young workforce, increase of women in workforce, exposure to global culture, rise in nuclear families and so on. According to a National Restaurant Association of India (NRAI) 2010 report, the fast food industry in India is currently estimated at US$ 1.6–1.8 billion, growing at a compound annual growth rate (CAGR) of 35–40 per cent annually. A major chunk of this market is ruled by global players like McDonald’s, Yum! Brands, Dominos, Subway, Taco Bell, Barista and so on.

Traditionally in India, eating out from road side stalls and eateries formed the major chunk of the unorganized sector. With revolution in Indian economy and corporate culture finding its way in, the organized eating out sector has emerged successfully. World is seeing India emerge as one of the quickest growing markets for fast food. Most of the key global brands of fast food have introduced their offerings in India and are running good business.

Yet, the potential needs to be tapped as the current penetration of the global chains is in metro cities and good business lies in Tier 2 and Tier 3 cities too. Fast food players have understood well this existing potential of small cities and are adopting various strategies to reach out. However, the challenges are manifold:

1. Food is a matter of habit and culture-specific behaviour; the consumers are likely to take time to change their food habits from the traditional to fast food.

2. The urban markets are very diverse demographically and hence would require customized marketing plan, making it quite resource intensive.

3. There may be significant early mover advantage while the adoption rate is also likely to be slow. Hence there is premium on having an understanding of the variables, which are likely to impact the demand.

Thus, the marketers would be immensely benefitted if they have validated frameworks for taking their marketing decisions.

Conceptualization of the Problem Marketers operating in emerging markets have the need to expand their presence in the markets by developing

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untapped markets. This can be done by either introducing new products in their served markets or exploring new markets. Entering new markets with existing products is called market development (Baker and Becker, 1997). Every new product rollout, the managers need to plan which markets to enter first as all markets are not equally attractive or effective in generating spillover effects (Bonnenberg, 2004). Physical distance from the home market is one of the factors that prevent or disturb the flow of information between potential suppliers and customers. These factors are based on country-based diversities and can be classified under cultural, administrative and political, geographic and economical heads. Psychic distance is the distance between the home market and a foreign market, based on the understanding of differences in the culture and business realities (Srivastava, 2011). Hence, the market development plans require the conceptual soundness and contextual relevance.

This study develops a framework of deriving the ex- pected consumer demand of products from global brands and empirically tests the same in urban Indian fast food market. The study also finds out the different determinants of demand and their relative importance in impacting the demand. The results could be used many marketing de- cisions such as selecting the target markets, developing appropriate marketing tools and allocating marketing budgets for market development activities.

Literature Review for Developing a Conceptual Framework of Market Development

The context of the research is related to introduction of a product into new market, introduction of new brand and geographical expansion. Conceptually, entering new mar- kets with existing products is called market development (Baker and Becker, 1997). For effectively achieve market development, there is a need to study the way the consumers form their perception about global brands and make the purchase decision regarding their product offers. The new user’s brand acceptance is based on explanatory variables such as brand loyalty, product class usage, deal coverage, deal size and brand identity (Aaker, 1972). The consumer response to foreign brands in terms of attitude and behaviour depends on the perception of product quality, brand and word of mouth (Ergin and Akbay, 2010).

Expected customer demand (ECD) is the key variable which we would like to measure. This depends on many factors such as the brand image enjoyed by the marketer, as well as the perception of quality of the product. The literature review aimed at exploring the relevant variables to arrive at a model which adequately explains the

consumer demand. It is organized in sections which reflect the conceptual underpinnings of this research. Since the model is conceptual in nature and hence should be applicable in any product–market situation.

Expected Customer Demand

High-equity brands which have higher price and quality perceptions (QPs) tend to gain better than others, in case of new feature introduction. The brands’ performance may be improved by changing the price, promotion and distribution (Nowlis and Simonson, 1996).

There is positive relationship between the brand equity and the perceived quality. Brand equity is driven by perceived quality, brand loyalty and brand awareness. The more the value of the brand, the more is the likelihood of purchase (Villarejo-Ramos and Sánchez-Franco, 2005).

After accounting for order of entry and time of entry in market, the stage in the life cycle in which a brand enters has a significant impact on the brand growth, market response and eventually sales. There is a greater response to the pioneer’s marketing spends and that enables them to spend less and achieve greater sales than later entrants (Shankar et al., 1999).

Thus, we can conclude that there is research evidence that the expected consumer demand is likely to be dependent on the consumer’s perception of the tangible product as well as the intangible value of the product through the brand image.

Perception of Brand

Even though the product is not used by the consumers, there are many instances that the consumers have perception about the products, brands and the marketers. The brand perception could be important element in adoption of a new product. Marketing literature specifically in the area of brand image and acceptance of new products being launched by multinational companies was explored.

The parent brand quality thought drove the evaluation of pioneer brand extension (Oakley et al., 2008). Consumers fit perceptions; knowledge about parent brand/extension category and external information influences the attitude towards brand extension (Mollahosseini et al., 2011).

Psychic distance is a factor which has an impact on the acceptance of global brand (AGB) and explains significant portion of the differences in the marketing programme and its adaptation towards brands. Global experience helps companies which are launching brands in international markets that are economically distant (Srivastava, 2011).

When predicting the impact of a new product feature on the expected sales, the image of the parent brand (IPB) also needs to be considered. Normally the high-equity brands gain more from the introduction of new product

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features as compared with low-equity brands (Nowlis and Simonson, 1996).

The premise of extending a brand is that the consumers use their belief about parent brand to draw conclusion about the extended brand. A positive interaction is expected between the new product introduction and the quality of the parent brand. Marketing support, retailer support, parent brand conviction and parent brand experience as well as history of previous extensions and specific product attributes drive the success of the parent brand extension (Volckner and Sattler, 2006).

Word of mouth is more effective than media communication as they are perceived to be more reliable, come with social support and possibility of clarification. Although, advertising was found to play a very important role in the acceptance of the established brand of the convenience food product, word of mouth helped provide a satisfactory usage experience (Day, 1972).

Although consumers ‘own’ a brand in terms of expectations, perceptions and attitudes they hold about it, marketers can and should actively manage the consumer’s brand knowledge structure (Keller and Sood, 2003).

The literature demonstrates that there are essentially two concerns related to the global brands, and they need to be studied separately; one is contextual and collective and the other is individual. Hence, one of the concerns can be classified as acceptance of the global brand, which is a contextual aspect. There is also a customer-specific aspect, about the image enjoyed by a specific brand in the mind of the specific consumer.

Perception of Quality

The new product evokes uncertainty and anxiety in the minds of the consumer, and they are concerned about the quality of the same. In a lot of cases, in case of new products and new marketers, the consumer does not have any past experience to fall back on and takes decisions based on the perceptions about the products or other surrogates. A few of such measures given in the literature are

• Pioneer evaluation is driven by parent brand quality thoughts (Oakley et al., 2008).

• Purchase intention is influenced by the perceived value. Introducing higher priced products may be useful in increasing the perceived quality (Taylor and Bearden, 2002).

• There is direct effect of perceived quality of the product on purchase intention and indirect effect on purchase intention through satisfaction. Thus prod- uct quality has a dominant role in product purchase intention (Tsiotsou, 2006).

It is possible to conclude that in the process of pur- chase decision making, consumers are likely to take into consideration the product and its quality. Quality may be very difficult for the consumers to quantify, and they may have to use surrogate measures for making their purchase decision.

Framework for Market Development

Based on the literature review, it could be derived that existing product, which was being taken to a new geo- graphy, was essentially a market development activity. In case of market development, the ECD is dependent on brand perception and QP about the product. However, for a multinational firm, brand perception had two components, one was the AGB and the other was IPB. The same could be represented as Figure 1.

The framework could also be represented as

ECD = Function of (AGB, IPB, QP)

This conceptualization could be valid in many product market contexts and hence used in solving managerial decision-making problems. However, the practical utility of the construct is likely to be product-market specific. Hence the model needs to be validated in specific contexts and marketing implications and decisions derived. The objective of the research is to empirically validate this conceptualization. In case the framework is supported by empirical evidence, the multinational marketers could use it as a toolkit to plan their market development initiatives. Also, if this conceptualization is empirically validated, it would be also interesting to find out the relative importance of the different variables in impacting the ECD. The finding would have many managerial applications in its specific context.

Figure 1. Conceptual Framework for Market Development

AGB

IPB ECD

QP

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Methodology Data Collection

Selection of Indian Market: Contextual Relevance of the Research

Liberalization of the Indian economy 1991 had led to influx of many multinational retail chains in foods, such as McDonald’s, Domino’s, KFC, Pizza Hut and so on and now form part of the US$ 1.3 billion restaurant Industry. They initially concentrated on the metro markets and customized their offerings to suit the Indian taste and traditions (like more vegetarian options, non-vegetarian option does not include beef and pork). Fast food has gained acceptance; outlets have mushroomed in metro cities1 in India and have a wide presence through malls, shopping complexes, cineplexes and so on and achieved considerable penetration.

The organized restaurant business is likely to increase from US$ 1.3 billion in 2010 to US$ 4 billion by 2015. Urban Indian markets are going to be the growth drivers’ in future in India as they have significant population (Financial Chronicle). Most of the multinational retail chains are in the process of making significant investments in these markets. There are many urban markets in Tier 1 and Tier 22 cities, where the potential exists (Economic Times), and the marketers would like to cherry pick their markets which offer them easier access, more market size and profit potential (Bonnenberg, 2004).

Geographical and cultural diversity of India is reflected in its food diversity. Traditionally home-cooked meals were a preference, but with changing times, globaliza- tion and influence of western culture, there has been a modification in patterns of food consumption in urban India. At the same time, urban markets are likely to be significantly different from the metro markets. The consumer in urban markets have psychographic and demographic profiles, which are distinctly different from metro and hence the marketing initiatives need to be recalibrated to the needs these markets (Srivastava, 2011).

Sample Characteristics

Convenience sampling was used as respondents were intercepted in markets as well as their homes. Data were collected from respondents by administering the ques- tionnaire as most respondents were not comfortable in English, the language of the questionnaire. The respondents were from 29 Tier 1and Tier 2 cities in India (see Table 1 for the list of urban centres covered). A total of 558 completely filled-in questionnaire were received, and data were entered for analysis in the SPSS 10 software. There were 403 male and 155 female respondents. The annual household incomes were well distributed, less than 0.3 million INR were 157 respondents, 0.3–0.6 million INR were 220 respondents, 0.6–0.9 million INR were

105 respondents, 0.9–1.2 million INR were 33 respondents and above 1.2 million INR were 41 respondents. One hundred and thirty-four respondents were within 15–20 years of age, 356 were from 20–30 years, 53 respondents between 30 and 40 years and 15 were above 40 years of age.

Instrument

The standard method of measuring the construct was followed. Literature suggests that the dimensions and the latent variables that represent the concept to be measured create indicators based on past theoretical positions and show the relationship between the observed variables and the latent constructs (Villarejo-Ramos and Sánchez- Franco, 2005).

Thus, the latent constructs ECD, AGB, IPB and QP were measured using a scale derived from the existing literature (see Table 2 for details). Thus, the conceptual

Table 1. List of Urban Centres from Where the Samples Were Collected

Agra Gurgaon Moradabad Ajmer Hissar Muzzaffarnagar Allahabad Jaipur Palwal Bahadurgarh Jind Rewari Ballabgarh Jhodhpur Rohtak Bareilly Kanpur Saharanpur Bhiwani Karnal Sirsa Dehradun Kota Sonepat Faizabad Lucknow Varanasi Ghaziabad Mathura

Table 2. Operationalization of Variables in Questionnaire

Construct and Questions Adapted from (Source)

Image of Parent Brand Keller and Sood (2003)I only try out new products in fast food where

the brand name of the outlet can be trusted I experiment with dishes from new brands of fast food outlets I trust food that comes from big brands I am guided by brand names when I make fast food purchase decisions My past experiences with a food chain are important when I buy fast food Quality Perception Nowlis and

Simonson (1996)

The brand name of the fast food chain is a good indicator of the quality of the food served The more is the price I pay, the better is the quality of food The ingredients used in the preparation determine the quality of the fast food The processes followed in the preparation determine the quality of fast food

(Table 2 continued)

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Construct and Questions Adapted from (Source)

Expected Customer Demand Wieseke et al. (2007)I try out new food that is popular abroad

My family is willing to go to a new brand of fast food outlet I am ready to pay extra for rare foods served by good brands of fast foods I stick to my tried and tested menu from my trusted fast food brand Acceptance of Global Brand Oakley et al.

(2008)Global brands are acceptable to me I think global brands deliver on their promises I think global brands are reliable I feel comfortable while using international brands I would like to buy products of global brands

Table 3. Reliability Results

Cronbach’s Alpha Figures

ECD 0.6749 AGB 0.7416

IPB 0.7113

QP 0.6795

Table 4. Regression Results

Variables Entered/Removeda

Model Variables Entered Variables Removed Method

1 AGB, QP, IPBb Enter

Notes: aDependent variable: ECD. bAll requested variables entered.

Model Summary

Model R R Square Adjusted R Square Std. Error of the Estimate 1 0.802a 0.643 0.641 0.4524

Note: aPredictors: (constant), AGB, QP, IPB.

ANOVAa

Model Sum of Squares df Mean Square F Significant

1 Regression 204.187 3 68.062 332.583 0.000b

Residual 113.375 554 0.205 Total 317.561 557

Notes: aDependent variable: ECD. bPredictors: (constant), AGB, QP, IPB.

Coefficientsa

Model

Unstandardized Coefficients

Standardized Coefficients

t Significant

Collinearity Statistics

B Standard Error Beta Tolerance VIF 1 (Constant) 0.281 0.118 2.393 0.017

IPB 0.369 0.047 0.339 7.795 0.000 0.341 2.936 QP 0.195 0.038 0.195 5.077 0.000 0.436 2.294 AGB 0.353 0.041 0.349 8.534 0.000 0.386 2.589

Note: aDependent variable: ECD.

validity was provided by literature. However, the instrument was adapted for the fast food retail context, so as to provide the respondents a specific frame of reference to anchor their responses. The reliability of the instrument

was tested by using Cronbach’s alpha figures and which were in the acceptable range of 0.675–0.741 (see Table 3 for details).

Results The regression analysis results from the SPSS output were analyzed (see Table 4).

The variables AGB, IPB, QP are indeed independent as their VIF scores are less than 10. They have significant impact on the variable ECD as their significance score is 0.000. The R-square value of 0.64 means that the three variables studied (AGB, IPB, QP) explained around

(Table 2 continued)

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64 per cent of the dependent variable (ECD), and hence it seems to be a very good model which explains the data collected empirically. The standardized beta values of AGB, IPB, QP are 0.35, 0.34 and 0.20, respectively, which gives the relative importance of the different variables in impacting the observed variable.

Discussion One of the major dilemmas faced by the multinational marketer is to decide on opening up new markets. Literature suggests that the advantages that pioneer enjoys in market diversification are direct result of order of entry and indirect impact of marketing mix effectiveness. Later entrants also may enjoy certain advantages and outperform the pioneer (Shankar et al., 1999). So pioneering into new markets need not always be the most effective business decision. However, the effect of pioneering on brand retrieval, brand consideration and brand choice produces a remarkably robust pioneering advantage (Kardes et al., 1993). Hence, from the commercial business manager’s point of view, it is important to pioneer as well as ensure that it succeeds, so as to derive long-term advantages in the market.

The key issue is to have demand for the product. Many a times the decision-making dilemma is resolved by doing market research. Typically the results indicate either evidence of adequate market opportunity even if a tiny part of the potential market adopts a new product or absence of potential. However, the practical problem is that even if there is a market potential, whether that would translate into actual demand? More specifically, the focus is to achieve a specific budgeted demand figures in a timeframe.

If a marketer is able to generate adequate demand by using the various marketing mix elements, pioneering would be a preferred strategy. In fact the managerial success is measured where marketing initiatives are able to convert a no or low demand situation to acceptable or high demand situation. This research gives managers a parsimonious model based on empirical evidence from food retail business, which highlights the impact of the different marketing mix element that determines success in market development. Based on the beta values, we could arrive at the mathematical equation for the empirical relationship as follows:

ECD = 0.281 + 0.353 AGB + 0.369 IPB + 0.195 QP

The standardized beta values of AGB, IPB, QP give clear indication that AGB and IPB have greater impact on ECD as compared with QP. The results also demonstrate that each of these variables have significant impact on ECD and could be considered as important elements of marketing mix. The priority of marketing budgets allocation should be in order of improving the AGB and IPB and then on QP, so as to have the highest impact on the demand.

The data also assure practicing managers that three variables, namely, AGB, IPB, QP, are able to explain more than 64 per cent of the expected consumer demand. Thus, the marketing managers would find it easy to focus on these variables in taking their marketing decisions in the initial stages of the market development activities, specially related to food retailing in India.

The above findings confirm that acceptance of global food retailer and image of the specific brand are more important as compared with product-specific aspects. Thus, in markets which are not yet tapped, presence of a favourable image of the global brand and company-specific brand image would be the first priority for the marketer, followed by the perception of product quality. Thus, this research provides the priority order for marketing budget allocation criteria among the different marketing objectives. The marketers can create benchmark figures for the variables AGB, IPB and QP for making entry in these markets. Or, conversely, the marketers should focus on AGB, IPB, QP in the markets which they want to develop.

Limitations of this Research This research had two major limitations, one regarding the sample selection and the other about the completeness of the construct. This research was conducted in diverse markets in the northern part of India and hence may not represent the all-India market. Also, the sample selection was convenience sampling technique, while a stratified random sampling would have represented the population more accurately. Only three variables AGB, IPB and QP were used as a predictor of ECD, which could explain about 64 per cent of data. Other variables such as first mover advantage, social status associated with the consumption, competitive brand image and so on could further improve the predictive power of the model.

Scope for Future Research The findings of study need to be re-validated with an all- India sample, and the sampling techniques could be improved. Also, more constructs could be studied like first mover advantage, social status and competitive variables.

This research indicates that AGB and IPB have greater impact on ECD as compared with QP. However, this research does not throw any light on why the AGB and IPB have greater impact on the ECD and could be a question for further research.

Notes 1. The top six markets that have metropolitan consumer base. 2. The next level of cities where the population is more regional

and less cosmopolitan.

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Jaydeep Mukherjee ([email protected]) is an Associate Professor at Management Development Institute, Gurgaon, India. He teaches Marketing for Virtual World, Marketing Strategy, Product Management, Sales and Distribution Management. His research interests are in the area of new product adoption and use of social media as a marketing tool. He takes active interest in developing case studies and developing simulation games to aid in the classroom teaching.

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