Marketing Strategy in Periods of Economic Crisis

Polytechnic Institute of Setúbal
School of Business and Administration

Bachelor in Marketing Thesis

MARKETING STRATEGY IN PERIODS OF ECONOMIC
CRISIS.
CASE STUDY: PINGO DOCE AND MODELO CONTINENTE

Student: Diogo R. Seborro
Supervisor: Prof. Duarte Xara Brasil

Setúbal, January 2012

ABSTRACT

The financial crisis that we live in today has had great repercussions in the way
companies look at the market and define their strategy.
One of the main reasons for that are the shift in consumer behavior and the alterations in
purchasing patterns due to the eroding consumer confidence and buying power.
This project utilizes the Ansoff matrix and its four development strategies to better
understanding and identification of organizational strategic changes. Appling them also
to marketing strategy and the retailing mix thus identifying and suggesting crucial
marketing growth drivers in turbulent times.
It was suggest by the literature review that in times of crisis a continuous investment on
marketing is essential and the market penetration strategy and product development
occupy central roles. Growth drivers like product innovation, R&D investment,
penetration price, advertising or matching new consumer needs with new products
become very important in these times.
A practical approach was used trying to identify and match the suggestions found in the
literature with two of the main food retailers in Portugal: Pingo Doce and Modelo
Continente.
It was found that both based their strategy and marketing approach mainly on the
market penetration strategy and product development, differing only in specific strategic
options like sales promotion or service offer.

Key Words: Economic and Financial Crisis, Growth strategies, Marketing strategy,
Consumer Behavior, Retail Mix.

I

TABLE OF CONTENTS

TABLES AND FIGURES INDEX .............................................................................................. IV
LIST OF ABBREVIATIONS AND ACRONYMS ...................................................................... V
INTRODUCTION......................................................................................................................... 1
1.1 Framework .................................................................................................................... 2
1.2 Theme justification........................................................................................................ 2
1.3 Object of Investigation .................................................................................................. 3
1.4 Methodology ................................................................................................................. 3
CHAPTER 1- MARKETING STRATEGY DURING CRISIS .................................................... 4
1.1 Introduction ................................................................................................................... 4
1.2 Consumer Buying Behavior .......................................................................................... 5
1.2.1 Crisis and Consumer Behavior .................................................................................. 5
1.3 Company’s Growth Strategies ...................................................................................... 7
1.3.1 Market Penetration ................................................................................................ 9
1.3.2 Market Development ............................................................................................. 9
1.3.3 Product Development ............................................................................................ 9
1.3.4 Diversification ..................................................................................................... 10
1.4 Marketing Strategies during Periods of Crisis. ........................................................... 10
1.5 Marketing Operational Strategy during Crisis ............................................................ 14
1.5.1 Product and product set .............................................................................................. 14
1.5.2 Pricing ........................................................................................................................ 15
1.5.3 Promotion ................................................................................................................... 16
1.5.4 Services ...................................................................................................................... 17
1.5.5 Location, Place and Sales Force ................................................................................. 18
1.5.6 Store Design ............................................................................................................... 18
1.6 Conclusion................................................................................................................... 19
CHAPTER 2 - CASE STUDY .................................................................................................... 21
2.1 Companies Studied – Characterization ............................................................................. 21
2.1.1 Pingo Doce ................................................................................................................. 21
2.1.2 Modelo Continente ..................................................................................................... 22

II

2.2 Marketing Strategy during Crisis ...................................................................................... 22
2.3 Retailing-mix Analysis...................................................................................................... 24
2.3.1 Product and Product Set ............................................................................................. 24
2.3.2 Pricing ........................................................................................................................ 25
2.3.3 Promotion ................................................................................................................... 26
2.3.4 Services ...................................................................................................................... 27
2.3.5 Location, Place and Store Design............................................................................... 27
2.4. Conclusion........................................................................................................................ 29
CONCLUSION ........................................................................................................................... 31
REFERENCES ............................................................................................................................ 33
APPENDIX ................................................................................................................................. 36
1 – PD sales growth 2009-2010. ............................................................................................. 37
2 – PD’s own brand growth..................................................................................................... 38
3 - Sonae MC’s Business volume growth. .............................................................................. 39
4 – 2010 Consumer Confidence Index. ................................................................................... 40
5 – Marktest – November 2011 top advertisers in Portugal. ................................................... 41

III

TABLES AND FIGURES INDEX

Tables

Table 1 – Ansoff’s development strategies applied to marketing ............................................... 12
Table 2 – Growth strategies during crisis.................................................................................... 28
Table 3 – Retailing-mix during crisis. ......................................................................................... 28

Figures

Figure 1 – Igor Ansoff’s Model. ................................................................................................... 8

IV

LIST OF ABBREVIATIONS AND ACRONYMS

- DOB (Distribuitor Own Brand)
- e.g. (exempli gratia)
- EBITDA (earnings before interest, taxes, depreciation and amortization)
- et.al. (et aliae)
- GDP (Gross domestic produt)
- LFL (like-for-like)
- MC (Modelo Continente)
- PD (Pingo Doce)

V

“In Italy for thirty years under the Borgias they had warfare, terror, murder and
bloodshed but they produced Michelangelo, Leonardo da Vinci and the Renaissance.
- Orson Wells

VI

INTRODUCTION

The financial crisis that hit the global economy in 2007 does not have any historic
precedents since the post-war period. It had its origin in the sub-prime crisis started in
the Unites States of America, where high risk credit proliferated, liquidity was
abundant, the price of real-estate assets was very high what consequently conducted to
the formation of speculation and a bubble in the real-estate sector and market. The
dissemination of those toxic assets and derivatives in the international market lead to a
world scale economic crisis.
An economic crisis exists when we face a recession, or by other words, when the gross
domestic product (GDP) decreases for two consecutive quarters. Using marketing
strategy literature, Shama (1978) states that “recession is a period where the demand for
raw materials, products or services, including labor force decreases”.
The lack of liquidity in the financial markets result of huge losses from the world’s
largest banks is still a reality today, affecting especially the more fragile and financially
dependent economies like Greece and Portugal.
The transmission of this financial stress evolved at great pace with credit restrictions,
decrease of investment both intern and external, decrease in demand and buying power
(in what concerns consumer behavior).
Taking in consideration this conjuncture it becomes important to understand in what
measure this affects marketing strategy and its operational environment (retailing-mix).
Generically this crisis affects most companies but others seem to sail untouched through
turbulent waters, even improving performance and growth during it. This is the case of
the two biggest Portuguese food-retailers in Portugal: Modelo Continente and Pingo
Doce. These two companies, object of study in this thesis, registered solid growth
during crisis and it matters to understand how they made it possible and how they
adapted to these economic conditions and what was their strategy.
Recession requires marketers to modify their strategy and action so the companies
continue to be profitable and keep delivering value to the consumer (Shama, 1973).
These strategies can include the decrease of the product line, offering cheaper products
and quantity discounts, altering distribution channels and rethink the communication
strategy (Shama, 1993).

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It also matters to analyze from the consumer behavior point of view, what impact these
periods of economic turbulence have in the buying decision process and how these
affect consumer attitudes in purchasing environment. During crisis it is observable that
consumers take more time to compare different options and alternatives they have, they
buy less and prefer cheaper products (e.g. distributers own brands (DOB)) (Ang, 2001).
According to Koksal and Ozgul (2007) “the economic crisis also has a psychological
impact on consumer” that we must take into account in this study.
This change in consumer behavior must be followed by and change in marketing
management and strategy so that the proposed objectives can be reached. It is of
extreme importance that a marketer has consciousness of the environment that
surrounds his organization, whether it is on a socioeconomic level or the way
competitors are interacting with the market. Taking to himself the capacity to act
accordingly to change. Companies must adapt its strategy and marketing-mix to
maintain or gain market share in a crisis environment (Koksal and Ozgul, 2007).

1.1 Framework

The framework of this thesis takes the scope on the strategic marketing decisions that
act as a response to the global economic and financial crisis started in 2007 and that still
lasts today. Exploring also the changes occurred in the consumer behavior and buying
habits in this period of time.
For case study effects this thesis concentrates on the Portuguese food-retailing market,
especially on the biggest food-retailers: Modelo Continente and Pingo Doce. Analyzing
their strategic and operational decisions.

1.2 Theme justification

The theme for this thesis comes naturally from the urge to understand the mutations and
actions needed in terms of marketing strategy and operational framework as an answer
to adverse economic conjunctures and alterations on consuming habits.
Trying this way to help companies solve possible paradigms in terms of strategy and
marketing-mix definition during these times.

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The choice to analyze Modelo Continente and Pingo Doce results from their positive
performances and growth during the crisis, and also because they are the most important
companies in food-retailing in Portugal and have a great impact in national economy,
we will then try to identify those growth strategies that are the base for their continuous
growth.

1.3 Object of Investigation

The primary objective of this investigation is the analysis of marketing strategies during
periods of economic crisis, and the ways these can contribute to their positive
performance. We will also analyze the necessary mutations in the retailing-mix, because
the practical application of this thesis inserts itself in the retailing sector.
And from that point of view we will utilize the food-retailing companies Modelo
Continente and Pingo Doce.

1.4 Methodology

Besides all the literature review utilized for the theoretical base of this thesis, there were
also secondary data sources used in the case study like: finance and accounting reports,
activity and performance reports (monthly and annual), interviews with marketing
managers from the two companies, case studies, press and market research reports (e.g.
Nielsen).
The choice for the use of this type of data is a consequence of the need to gather
historical data and the shortage of time and resources for the conclusion of this thesis.

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CHAPTER 1

MARKETING STRATEGY DURING CRISIS

1.1 Introduction

This chapter includes a review of theoretical perspectives that are important to
understand the role and modes of action of marketing management and its strategic
component in periods of economic and financial crisis, responding to the objectives of
this research project. It will also serve as the basis for the practical application and
subsequent analysis of the case study.
The theoretical principles reviewed in this chapter are firstly the importance and
relevance of marketing management, specifically the strategic decisions to be taken in
context of crisis. For this it is necessary to understand the changes caused by the crisis
in consumer behavior. Because those are changes that underlie the strategic marketing
changes.
We will take as our basis, for strategy formulation, the development strategies of Igor
Ansoff, trying to understand how companies can grow in a particular market,
considering their offering.
After understanding the different strategies that can be applied, it becomes necessary to
make the transfer from the corporate environment (Ansoff application target) to
marketing strategy specifically. For doing so we can observe different growth drivers
used in strategic marketing management that descended and can be applied directly
from the development strategies.
By listing the different marketing growth drivers we will then proceed in this project to
the analysis of their use in environments of economic crisis.
We have as objectives for this chapter the understanding of changes in buying behavior,
the use of marketing strategies in times of crisis and subsequent operational changes in
terms of retailing mix. Looking for a way to allow businesses to base their conduct, in
this case those in the food retail sector, to maintain or increase their performance on the
market during these periods.

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1.2 Consumer Buying Behavior

The study of consumer behavior covers the processes that are implied when individuals
or groups select, purchase, use or dispose of products, services, ideas or experiences to
satisfy their needs and wishes (Solomon, et.al, 2002).
The same authors also define the process of buying decision as a process of five stages:
recognition of the need, information search, evaluation of alternatives, decision and
purchase. Consumers do not use this process in the same way for all decisions, some
stages may have a reduced importance in relation to involvement, consumer confidence
and effort.
Quelsh (2009) suggests that the buying decision depends on the disposable income of
consumers, the confidence in their future, the trust in companies and in the economy
and in particular the adoption of a lifestyle and values that encourage consumption.
The crisis is destroying the confidence and purchasing power of consumers, leading
them to adjust their behavior in a fundamental way and perhaps permanent. Many
consumer spending seen in the last two decades have been supported by a growing
indebtedness. Given that consumers are now faced with piles of debt, stagnant or
declining incomes and no space to build savings. And so are forced to change their
consumption habits.

1.2.1 Crisis and Consumer Behavior

The environment caused by the economic and financial crisis is bringing down
consumer confidence and purchasing power, making their behavior change and adjust to
new conditions and type of products (Quelsh, 2009). It is suggested that during these
periods consumers reduce their purchases, look for cheaper products and brands, spend
more time in comparing prices and attributes, there is a reduction in the purchase of
luxury durable goods (Nguyen, 2011), individuals become more active privileging
activities and products such as "do-it-yourself" and above there is a greater emphasis on
the binomial price/value over time/convenience. (Ang, 2001). However the basic
products that meet the needs of the first levels of the pyramid of Maslow did not record
large variations in the reduction of purchase, those such as food, cleaning products and
personal hygiene (Nguyen, 2011). According to Kappler (2009), temporal orientation of

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purchase also changes, consumers will reduce their purchases on the long-term and put
their focus on short-term commitment and greater flexibility of supply.
Quelsh (2009) points out that "as priorities change, consumers can eliminate the
purchase of certain categories of products moving what was once essential to the field
of luxuries. Or one can simply switch to another category such as prefer the "take-
away" instead of having a meal in a restaurant. "
There is a greater concern with the perceived risk, greater hesitancy in purchasing
decisions, and a preference for tangible benefits over image and secondary attributes
(Perriman, et.al, 2006).
The case of increased sales of DOB is an example of latent changing patterns of buying
behavior in an environment of crisis. As a result of increased price sensitivity and
therefore a possibility of brand loyalty being undone, consumers will look for their
favorite products at the lowest possible price or choose cheaper alternatives like DOBs.
(Quelsh, 2009).
With regard to the purchase decision process during these periods it may be far more
rational, where the individual assesses and analyzes all available information at each
stage of the process. Consumers now spend much more time to gather information and
evaluate alternatives before making a purchase (Ang, 2001). Thus a continuous
communication and information, including product disposition on the store and store
design may have an important role in these times.
This causes a shift in decision making patterns, where the routine type of decision
comes closer to an extensive problem solving type. In this latter form prevails greater
involvement, more time spent on the contemplation of categories and unknown brands
and a longer research and formulation time span of the decision.
After the recession is suggested that the purchasing behavior and attitudes will return to
"normal" level observed before the crisis. However the larger and deeper the recession
the greater the possibility of profound changes in values and attitudes of consumers.
This is the case of this recession caused by the so-called sub-prime crisis (Quelsh,
2009).
It is also suggested that companies that can identify and respond to these changes in
consumer psychology, applying a strategy for the long term, will have a greater
likelihood of success in post-crisis period (Perriman, et.al., 2006).

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1.3 Company’s Growth Strategies

Marketing management should always be framed in the external and internal
circumstances that affect the organization, to support that statement we can define
marketing as a way of adaptation to the market and its environment by the company
(Lindon, et.al, 2009). Manipulating thus its strategic component or as suggested by
Nunes and Cavique (2008), "manipulating a series of decisions in advance, about how
to effectively combine the resources and means (human, material, technical and
financial) in order to achieve the objectives defined by the company”.
A business strategy indicates where and how the organization should compete (Freire,
1997). The same author suggests that the purpose of a strategy is to ensure the
satisfaction of customer needs, achieving a competitive advantage through this
assumption.
Several authors propose different ways of formulating organizational strategy. For
Porter (2004), "the essence of formulating competitive strategy is the company's
relationship with its environment. (...) The key aspect of the firm's competitive
environment is the industry (s) in which it competes”. Analyzing and weighing the
forces acting on market competition Porter (2004) suggests three generic strategies:
differentiation, cost leadership or focus. In cost leadership the company gains
competitive advantage by minimizing costs as a result of the experience curve, process
efficiency and reducing costs of R&D, services or sales force. With differentiation the
company gains competitive advantage by offering a product or service (or both) that is
unique in the market where it competes. This strategy can be achieved through design or
unique brand image, technology or customer service. Finally the focus strategy, similar
to the differentiation strategy is the result of a unique offering in the market but with the
particularity of addressing a very specific segment (niche) or geographic area.
We can still distinguish a different orientation for strategy formulation developed by
Wernerfelt (1984) called the Resource Based View (RBV). Unlike Porter this guidance
suggests that the strategy will start from the analysis of the core competencies of the
company or its distinctive features as a means of interaction with the external
environment (Wernerfelt, 1984).
Business strategy formulation should always start with a commercial orientation,
defining which products to sell and the market segments they are intended for (Freire,

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1997). With this in mind and taking into account the earlier strategic visions, we may
take as a basis for formulating the company’s growth strategies the product-market
matrix. According to Freire (1997) "depending on customers and competition on one
hand, and core competencies, on the other hand, the company should manage
strategically its product-market matrix to ensure the continuous adaptation to the new
competitive environment”. The management of the matrix assumes a predominant
orientation to the market or to the product and its development allows two distinct
patterns: expansion/reduction or generalization/specialization.
A company can increase or reduce the number of products sold or served segments,
according to its assessment of attractiveness. And can extend its product-market matrix
to new areas or keep and concentrate on current products and segments. However the
two alternative patterns of development can be conjugated (Freire, 1997).
These different perspectives of development and growth can be framed in the strategic
model developed by Igor Ansoff.

Figure 1 - Igor Ansoff’s Model

Existing Products New Products

Existing Market Product
Markets Penetration Development
New Market Diversification
Markets Development

Source: Freire, 1997

A company to optimize its competitiveness and profitability will have to match its
strategy with the surrounding environment, Ansoff’s growth strategies leave from two
vectors which are the axes of a matrix that allows the company to combine its products
with the markets in which their business is implemented (Nunes & Cavique, 2008).
Business is centered on products and services that define its value proposition however
it is limited according to the time variable in the sense that its importance diminishes
along the product life cycle and renewal or redesign is needed, and a second variable
that incorporates the tendency to get better performance under certain market

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conditions. The axis of the matrix corresponding to the markets sets the options among
which are already known by the company and all others who are not (Lowy and Hood,
2004). We thus have present in the matrix products and markets that may be new
(unknown products and markets for the company) or current (products that the company
already sells and markets or segments where the company already operates).
So this way Ansoff proposes four basic strategies of development. The company can
grow by increasing market penetration, through market development or product
development and the strategy of diversification (Ansoff, 1965).

1.3.1 Market Penetration

The market penetration strategy is an effort by the company to increase sales without
abandoning its original product-market strategy (Ansoff, 1957). This can be achieved by
attracting new potential customers and consumers of competing products, increasing
consumption in volume or income “per capita” by customer or even figuring out new
uses or applications for existing products and current clients (Nunes & Cavique , 2008)
the company should select the strategy of market penetration if there is still room for
growth in the current market and therefore market share gain is still possible (Lowy &
Hood, 2004).

1.3.2 Market Development

The development of markets is achieved through the company's attempt to adapt their
existing products to new markets (Ansoff, 1965). It may be implemented according to
Nunes and Cavique (2008), "through investment and pooling of resources and means for
development of market structures, partnerships, exports, internationalization and
development of new distribution channels”.

1.3.3 Product Development

A strategy of product development keeps the market where the company operates and
its customer base but develops new products with new features that will enhance

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performance in the market. This strategy is associated with innovation and investment
in R&D, development and launch of new products as well as finding new suppliers.

1.3.4 Diversification

Finally we have the diversification strategy that requires an abandonment of the existing
product line and market structure in which the company operates (Ansoff, 1957). This
according to Nunes and Cavique (2008), can be concentric (in house), horizontal
(integrating business at the same level of the production chain) and vertical upstream or
downstream (integrating business suppliers or customers). This is according to Ansoff
(1957) a strategy aside from the other three, because it requires technical, financial,
technological or infrastructure other than those used for products or markets where the
company operates. Technological and commercial synergies should be explored to
ensure that the company has expertise to approach these new areas (Freire, 1997).
The strategy of diversification may be defensive or offensive. Its defensive nature may
arise as a response to the growth of a market or exhaust of the possibility of growth. The
offensive side may be caused by the existence of cash flow, the prospect of superior
returns compared to the decision of market development, opportunity for achieving a
new market position or following the diversification of a competitor (Harvatopoulos and
Calori, 1998).

1.4 Marketing Strategies during Periods of Crisis.

Based on Ansoff’s development strategies we can establish and apply specific strategic
and operational marketing growth drivers. These drivers thus offer different tactical
options and growth paths for the company in accordance with the intended strategy as
exemplified in table 1.
The marketer can utilize the market penetration strategy in two ways, by increasing the
rate of consumption or by increasing the rate of penetration. Intensifying consumption
by making the customer acquire new consumption and purchasing habits in volume and
frequency, practicing a penetration price, investing in advertising and sales promotion
or enhancing distribution channels (e.g. push strategy). To increase the penetration rate

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the marketer may act through the conquest of non-users prospective clients and
customers that usually buy from the competition through advertising, intensification of
distribution (e.g. increase the number of outlets), promotion of samples, increased sales
aggressiveness, targeted promotions and aggressive price competition.
In the case of product development strategies they can be implemented through the
expansion or innovation of the product line with changing’s in design, packaging,
quality improvements or new features. Also new brands can be created or new products
that will directly respond to new identified costumer needs.
For the strategy that requires current products being launched in new markets or
segments, the marketing manager acts in the development or acquisition of new
geographical areas or market segments. This can be achieved through new distribution
channels or market skimming strategy in the case of the conquest of new segments and
extensive distribution, export, internationalization or globalization in the case of
geographical development.
Finally in what regards the strategy of diversification, it can be accomplished by three
different routes: Concentric, vertical and horizontal diversification.
In concentric diversification the know-how, marketing capabilities and existing
technology are mobilized (or acquired externally) to develop new products for new
markets. In horizontal diversification the company enters the market through acquisition
or direct competition in businesses of the same production and sales level, but not in a
market where it already operates. In the case of vertical diversification the company will
invest in new products that allow it to enter markets that are from higher or lower
production levels (suppliers or clients). This way we have an upstream vertical
diversification when the company enters the market of their suppliers and a downstream
diversification when the company enters the level below their production and
commercialization process, thus the market of their clients (Nunes and Cavique, 2008).
What is generally accepted in terms of measures to be taken in periods of economic
downturn where there is a drop in demand is normally cost reduction, production cuts,
investment reduction, internationalization (e.g. market development), process
improvement in terms of efficiency and debt restructuring (Beaver and Ross, 1999). But
these will have no positive impact on company performance if sales do not increase
(Özgül & Koksal, 2007).

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Market Product
Market Penetration Diversification
Development Development
Develop primary demand and buying
Lauching new
dynamics. New market entry. Innovation.
products.
Defend market share.
New distribuition
Added services. Concentric.
Advertising Investment circuits.

Sales promotion. Internationalization.
Product line extension. Horizontal.
Adaptation/Pattern.
Increase purchase volume.
Product line renewal. Vertical.
Market skimming.
Redesign.
Penetration price. Conglomerate.
New moments for consuming.
New Packaging.

Promotions for non-users.
Quality improvemnts.

New ways of utilizing products.
Functional changes.
Product line aquisition.
Increase of distribuition.
Product line
optimization.

Table 1 – Ansoff’s development strategies applied to marketing

Adapted from: Nunes and Cavique, 2008.

The strategy of market development through internationalization may be a viable
strategy to escape the internal crisis, but due to its complexity and difficulty of
implementation it will not be a direct response to these conditions. The study by Koksal
and Özgül (2007), which relates different marketing strategic options common to the
development strategies, with performance reported by companies during periods of
crisis, weighing in the final outcome the correlation of each strategy with sales increase,
impact on net profit and market share variation, suggests that there is a strong
correlation between the strategy of market development, sales increase, market share
and subsequent performance during the recession.
Regarding the use of the product development strategy, the study also showed a
correlation with some degree of importance to average performance, registering a
satisfactory impact on the increase of sales and net profit. A component of this strategy,
which proved to be quite important during the crisis, is the investment in R&D, which
registers a great influence on all studied variables acting as a crucial strategy on
company performance. Related to this variable is also the introduction of new products

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that are launched in response to new consumer needs, this helps improve sales dynamics
in decisive way.
In the case of market penetration strategy, the concentration in markets where the
company already has a strong position, growth occurs mainly through increased
marketing spending and sales force increasing. This increase in marketing spending
during crisis is primarily from investments in communication specifically in advertising
in an attempt to continue close with the customer, and in the sales promotion to boost
sales levels and promote an increase in the buying volume and repetitive purchasing. It
is suggested by Koksal and Özgül (2007) that along with the strategy of product
development the market penetration strategy occupies a central role in the positive
performance registered by firms in periods of recession.
Finally, analyzing the diversification strategy, we can observe that the entry into new
business areas shows no significant correlation with the variables under study, and its
impact on company performance is very low. We can thus suggest that the use of this
strategy in response to crisis periods is less effective.
Koksal and Özgül (2007) also suggest in reference to the strategy of market penetration,
"an increase in the marketing expenditure, or at least keep it level with the period
preceding the crisis will increase the company’s performance in the market”. These
costs generally assume the form of communication spending and investment in
distribution channels and sales force.
Also Roberts (2003), shows that companies that increased their marketing expenditures
could be as or more profitable than they were before the economic turbulence. This
improved performance is also recorded in terms of market share gains where companies
that have invested more in its marketing could improve its position three times faster
during recovery.
Thus we have that there are some development strategies that offer a better response to
crisis periods, these are the strategies for product development and market penetration.
Demonstrating the tendency of companies during this period, to defend its market
position and try to grow either by increasing its penetration rate possibly by gaining
space to weaker competitors, or by developing new solutions to meet new needs of the
consumer.
The segmentation of markets, competition on the basis of delivering value to the
consumer and not for the price, being innovative in terms of new business units, all

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these, continue to be pillars of strategic marketing management during periods of
economic crisis (Brooksbank and Garland, 2007) .

1.5 Marketing Operational Strategy during Crisis

Marketing mix is defined by Nunes and Cavique (2008) as "a set of key variables that
allow the company to put into action in the market, the strategy chosen to achieve the
objectives determined by satisfying costumers." The marketing mix consists of
everything the company can do to influence demand for your product. The many
possibilities are grouped into four clusters, known as the four P's, being those the
"product", "place", "promotion" and "price" (Kotler, et.al., 2001). In addressing the
specific reality of food retailing the distributors have a modified marketing mix
variables called retailing mix. These variables are product set and services offered,
pricing policy, communication, merchandising and store design and finally the location
(Levy and Weitz, 2011).
The economic crisis requires changes in the four elements of the marketing mix b y
companies (Özgül and Koksal, 2007), and subsequently we have to extend those to the
"retailing mix", as a response to the changes of the surrounding environment.

1.5.1 Product and Product Set

Product means the totality of goods and services that constitute the offer to your
organization's "Target" (Kotler, et.al., 2001). In addition to the defining product strategy
we also have brand management and product life cycle management as key elements in
product variable. (Lehman and Winer, 2005). As for the product set, which reflects the
variety of products, this is articulated between its width and depth just like the product
line and its range (Lindon, et.al., 2009).
In the configuration of the variable output during this period is important to identify
those products in the portfolio that have little chance of survival, those that with a
decrease in sales can still be stabilized and those that can grow during and after the
recession (Quelsh, 2009). So marketers can "clean up" their product line, and redefine
the product set, because the higher its depth, the higher will be the costs and less
inventory rotation will exist.

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On another perspective, research and development (R&D) is suggested as an important
activity of product strategy in times of crisis (Özgül & Koksal, 2007). Companies that
invest more in R&D during recessions get a better performance than their competitors
who do not. This is achieved due to the fact that companies obtain possible incremental
improvements or transformations in their products that bring new dynamics to and
growth to the sales level (Morbey & Dugal, 1995). Also due to the deceleration of the
introduction of new products, the launch of these innovations gain greater visibility and
in a more cost-effective way (Quelsh, 2009).
In terms of brand management it is observed the growing use of and preference for
cheaper brands or DOBs. According Quelsh (2009), the expansion of private labels is an
essential tactic in terms of recession. Another brand strategy employed is to introduce a
"fighter brand" by the company, a version priced lower than the premium brand but sold
under a different name and with low investment in communication. With the economic
recovery it may be discontinued or integrated in the product line (Quelsh, 2009).
In periods of economic turbulence it is suggested an analysis and disposal of products
that will have little chance to succeed in this period, thus reducing the amplitude or
depth of assortment. An investment and promotion of private labels or DOBs as a
response to crucial changes in the consumer behavior, appears as the main strategy for
companies in food retailing. Not forgetting the R&D activity, which can offer product
enhancements, explore a lower capacity for innovation of the competition, and allow
potential savings in terms of production (e.g. process improvements).

1.5.2 Pricing

The variable price is the company's attempt to capture some of the value it provides on
the form of profit (Nagle and Holden, 1995).
This variable is particularly important in times of economic turmoil, when dealing with
the increased price sensitivity among consumers, who often force companies to change
their pricing strategy and embark on reductions (Shama, 1978). But this strategy can
bring negative consequences on profitability in the long-term, damaging the brand
image and so that there is a resistance on the part of consumers to return to old prices
when the recovery period starts (Özgül and Koksal, 2007).
The same authors also suggest that the pricing strategy during crisis is closely linked
with the product and the variation in quality. In companies that have maintained their

15

price levels but increased the quality of the product there was an increase in sales,
market share and subsequent performance, the opposite occurred in the companies that
lowered the quality of the product and its price in response to the crisis. Note that there
was no established relationship between increased performance and practice of different
pricing policies between companies during the recession.
Temporary discounts gain some relevance in this context especially those that are made
directly at payment time, marketers may feel the need to increase its depth and
frequency. In addition to offering discounts or changes in the pricing list companies
may also, in an attempt to boost sales, reduce its threshold of quantity discounts,
improve credit terms to their customers or implement lay way plans (Quelsh, 2009).

1.5.3 Promotion

Marketers have a wide range of tactics to ensure maximum impact of marketing
communications (e.g. advertising, public relations, sales promotion or "direct
marketing") (Blythe, 2003).
In crisis environments this is often the variable that undergoes major changes through a
reduction in investment. The marketing communication costs can be reduced more
readily and rapidly than production costs, and can also avoid downsizing. However
companies that through an increase of the investment in communication kept being
close to the consumer and increased their share-of-voice in these periods were also able
to capture market share from their weaker competitors. And during recovery they can
further enhance its financial performance even over the period preceding the crisis
(Quelsh, 2009).
The same author suggests that "typically a percentage of the communications budget for
advertising on television or radio has decreased, while the communication efforts are
going towards more measurable media, such as direct marketing, online advertising and
promotion at point of sale through price cuts or proactive actions in-store (e.g.
merchandising). Also during crisis it is suggested that the company should consolidate
its communication in a single agency to be able to receive discounts, it should move to a
media type that allows a precise targeting of its segments and fulfills the need for
detailed monitoring of responsiveness (e.g. Google ads). Extension or adaptation of an
advertising campaign is preferable to the creation of a new one from scratch.

16

It is also important at this stage to strengthen and enhance relationships with consumers
because familiar brands during this period are seen as brands of confidence and a safe
choice in dubious times. Messages that reinforce an emotional bond with the consumer
and demonstrate empathy are essential. Companies will need also to support those
messages with actions to protect consumers and encourage loyalty, these can be
financial education programs, warnings when approaching credit limit or even
contribute to charity actions (Quelsh, 2009).
In the study by Koksal and Özgül (2007), it was concluded that the communication
variable during crisis had a strong correlation with changes in sales level, net profit,
market share and thus resulting in a positive performance. Among them we can
highlight the investment in advertising, public relations, use of rational messages and
sales promotion, the latter is more significant in relation to market share gains. Note that
tactics such as quantity discounts, sample offering, coupons or guarantee increase were
not considered significant in relation to the variables under study, mentioned above.

1.5.4 Services

Services offered at the point of sale are a mean of differentiation from competition and
will serve as an attraction element for the store, however they require staff training and
increased costs. We can observe three types of service strategies, included service,
optional services (paid) and limited services. The first is a strong source of
differentiation and avoids price competition however the costs are easily inflated, the
latter are easily imitated by competitors and the decision to acquire them is made by the
costumer, finally limited services can also make a distinction in terms of image (e.g.
discount format) and allow for cost reductions (Lindon, et.al., 2009).
The 2007 study conducted by Koksal and Özgül suggests that services, specifically
those offered after the sale have a positive correlation with the performance of
companies in times of crisis. This can be explained by the sense of reliability this type
of services confers to the buying decision and also by the increased value proposition it
gives to the product or business.

17

1.5.5 Location, Place and Sales Force

Location is perhaps the most important decision in terms of retailing mix, and it must be
determined according to the desired attraction area, in what regards sales potential and
competitive intensity (Lindon, et.al, 2009). In times of crisis it is observable relocation
or closure of outlets that are less attractive or a change in the store’s environment
(Favaro, et.al, 2009).
It is also necessary to determine the suitability of our distribution policy and channel
configuration (Ang, 2001). It should also be weighed the importance of the sales force
in an environment where personal contact is more important but there is nonetheless
pressure to reduce the staff.
A possible change in the place variable during times of crisis is the use of channels that
value price like discount stores or wholesalers. However and accordingly to Özgül and
Koksal (2007) it was not found a significant relation between this tactic and
performance grwth during recessions. It is however important to note that the strategy
of increasing the number of distribution channels is significant for success during this
period through the positive impact on sales, net income and market share.
In what concerns the sales force and its size the same authors classified it “as the
variable that has the strongest impact on performance, registering significant impact on
the sales level, market share and net income”. It is also significant the importance of
sales force training, highlighting the need to coordinate and inform it on how to
approach and operate under these conditions effectively. Related to the importance of
sales force is the observation of positive impact by tools of other variables such as
public relations and after-sales service.

1.5.6 Store Design

Store design concerns the use of space, optimizing the movement of consumers and
attractiveness of the supply. In times of crisis it is observable in relation to this variable,
an attempt to change the store space to enable greater efficiency and cost reduction, as
well as attracting new customers (Favaro, et.al., 2009).

18

1.6 Conclusion

In this chapter we suggested some changes regarding consumer behavior during periods
of economic turbulence such as a bigger emphasis on the perception of price/value, a
change in the priority of product and purchase categories and also a growing preference
for distributors own brands. Subsequently there are changes in the purchasing and
decision process, where the phase of information search and alternative contemplation is
now extended in time and has a greater importance. Similarly, and looking to decision
types, those purchases that were considered routine may now approach the most
extensive kind of decision, where the involvement and deliberation time are greater.
Through the analysis of the Ansoff model we saw that organizations have four different
ways of growth: market penetration, market development, product development and
diversification. And that these same pathways can be transported to the environment of
marketing strategy using certain growth drivers and operational strategies within the
retailing mix.
Analyzing the development strategies in an environment of crisis we can suggest that
the strategy of market penetration and product development have a higher correlation
with a positive performance in these periods.
It is also suggested that the cut in marketing spending during crisis is not an effective
strategic option and even has very negative consequences in the long run as the loss of
competitiveness and damaged brand image. Companies that maintained or increased
their marketing investment, achieved better or as good results than in the pre-crisis
period, these results are reflected in gains of market share and profit but also a higher
increase in capacity and market position during recovery.
In terms of operational strategy, reflected in the retailing mix, during periods of
economic turmoil we conclude that the price alone is not a crucial variable as one might
think, and reductions in its level could have severe consequences in terms of image and
competitiveness in the recovery period. The variables with the highest correlation with a
positive performance during crisis are the product and marketing communication. In
product strategy it is particularly important to rationalize the product line, weighing in
that decision its depth and costs of maintenance. Also an investment in R&D can bring
improvements in product or process by eliminating costs and boosting sales. However
the main factor in this is the growing importance and expansion of DOB’s.

19

Regarding the other crucial variable, marketing communication, it is suggested that
companies that managed to increase their share-of-voice in the market thus continuing
being close to the customer at a time when he needs the most, were also able to gain
market share. Among the communication tools we highlight the use of sales
promotions, advertising and public relations as the most effective.

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CHAPTER 2

CASE STUDY

2.1 Companies Studied – Characterization

2.1.1 Pingo Doce

Pingo Doce supermarkets, Food Distribution Ltd. belong to Jerónimo Martins in
Portugal and were established in 1980 as part of the group's clear strategy to address the
segment of supermarkets. From 1980 until 2010 Pingo Doce (PD) already has 340
supermarkets in continental territory, 13 in Madeira and 9 hypermarkets. And together
with the other insignia of the group, Recheio, occupies a leading position in the food
distribution market with an aggregate of 3.6 billion euros.
The store concept that prevails up to today was implemented in 1994 and focuses on the
organization, easy access, fresh produce and convenient purchase for the costumer.
During 2002, Pingo Doce had an important strategic repositioning exercise focused on
the price variable, and it was observable a structured fall of the price level.
Pingo Doce's mission is “To be the best supermarket chain operating in Portugal in the
business of perishables. Provide a solution to the Portuguese consumer with quality
food at stable and competitive prices. Cultivate a relationship of trust and lasting
relationship with their customers”.
Its positioning reflects the benchmark of quality and innovation in modern distribution,
especially in regard to fresh produce and its own brand. It is assumed as the ideal
supermarket for active consumers who value quality and convenience at competitive
and always stable prices (every day low price strategy).
Its value proposition is characterized by satisfying the relevant needs of the target
customer, through a complete product set of perishables of higher quality than other
food products and innovative label. This made possible with stable and competitive
prices, stressing quality, shopping environment and safety, to maintain a relationship of
trust with the consumer.

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2.1.2 Modelo Continente

Modelo Continente (Modelo Continente, S.G.P.S, S.A.) is a subsidiary of Sonae
Distribution, which in turn belongs to Sonae SGPS. It is the largest portuguese retailer
with 415 retail food stores in Portugal. Modelo Continente (MC) was established in
1985 with the grouping of Modelo retail chains, owned by Sonae, and Continente,
owned by the French retailer Promodes (Carrefour). In 2004 Sonae takes Carrefour’s
share in the society and later in 2008 ends up purchasing all the food retailing chains
owned by the French insignia in Portugal.
Modelo Continente supermarkets are retailers of close proximity with the costumer,
with store space of about 2000 square meters situated in areas of medium population
density.
Continente’s mission is to “be the brand leader in food retail in Portugal and ensure the
loyalty of its customers, offering them innovative solutions, the best services and best
prices, acting in an ethical and sustainable way throughout the chain of value”.
Reflected on its positioning is the will to be a reference in food retail in Portugal for
consumers who are increasingly informed and demanding. The purpose of the brand is
to continue to offer to their customers a full range of products, services and pricing
options, according to their needs, cultivating a relationship of trust and loyalty
supported by constant innovation.
Its value proposition is based on price, variety, quality and service combined with a
sense of proximity and convenience. The value proposition is further enhanced with a
strong emotional identification with the consumer.

2.2 Marketing Strategy during Crisis

At a time where economies show modest growth rates or even absence of it and where
the consumer has acquired a more rational and objective approach to consuming,
resulting in a possible decrease in the level of sales it is essential for retailers to rethink
their marketing strategy.

22

Observing the behavior of both retailers and using the Ansoff model, for our strategic
analysis, we suggest that there is in general a strategic match. However, differences are
observed in some specific points.
The dominant strategy in both retailers is the market penetration, where prevails a clear
direction for the growth of their market share in the same format and using the same
products. This is observable through the commitment of both companies to use a price
penetration strategy, continuous investment in advertising, the focus of PD in its main
pillars (price, private label and perishables) and an increase in aggressive sales
promotions from MC particularly for non-users. In the competition for new customers it
is to emphasize a greater investment in advertising from both MC, who leads this
category at the national level several times a year, and PD since 2009. And also note the
increase in promotional discounts and promotion of the MC client card as a way to
acquire and retain new clients.
We also noted that the unification of the supermarket Modelo under the Continente’s
insignia in 2011 and likewise the unification of supermarkets Feira Nova and Plus
under the insignia of Pingo Doce in 2007 could be a form of supporting and
strengthening of the market penetration strategy allowing both retailers to increase their
penetration and geographical representation.
Taking the strategy of product development in consideration we find that both retailers
have decided to use the growth driver product line extension under its own brands. Both
MC and PD have as objectives the continuous expansion of their product set in areas
where their brand was not well represented and also improving their profitability and
competitiveness through it. This strategy confirms the growing importance DOBs as a
response to the change in consumer behavior and consumer perception during periods
of crisis. Also works as a defense tactic against dependence on private labels, which is
essential to get some control over prices.
Also in response to new needs that emerged during this period there were created new
product categories inside both retailers like the take-away section and mini restaurants.
This has proven to be an important source of differentiation, customer loyalty and boost
sales in the other categories.
Regarding the diversification strategy there was not observed any data that might
suggest its utilization and positive impact in performance, supporting, in that way, the
conclusions drawn about the use of this strategy in the first chapter.

23

Finally, and analyzing the market development strategy, we can highlight the
geographical development of MC through internationalization in Angola, where the
opening of the first unit is scheduled for 2013. Jerónimo Martins (JM) also has planned
an internationalization of its food retail business in Colombia but it will not be
considered in this study due to the fact that the format of this insignia may not be PD
but something closer to the store format of Biedronka (JM's presence in Poland with a
discount format).
Still using the market development strategies we can highlight the new MC stores
devoted entirely to frozen foods (Continente Ice) in response to an increased
consumption of meals in home by the consumer. MC also initiated an approach to the
wholesale segment by introducing its new horeca channel that aims to serving business
customers operating in hotels, restaurants, cafés and also public and private companies.
Similarly both retailers decided to create a new format to approach the traditional
retailing sector located in neighborhoods, trying to get to areas where their main stores
and brands did not had representation. This was achieved first through PD’s stores
Amanhecer, and then, mimicked by MC with the MeuSuper stores.

2.3 Retailing-mix Analysis

2.3.1 Product and Product Set

Both retailers base their product and product set variable in a wide but not deep range
(as is characteristic of such surfaces) favoring a wide variety in their offer, but without
neglecting quality. This is seen especially in the attention given to national and
international sourcing in effort to strengthen its growth in the set of perishables, pillar of
differentiation of PD.
However, the dominant behavior in this variable, concerns brand management (offering
multi-brand) and the constant investment of both retailers in their own brands. This is
not surprising because as discussed above this is a tactical aspect relevant during times
of crisis as a response to change in consumer buying behavior. MC points out this
investment to be the main cause of their positive performance and increased business
volume in 2010, along with the effort to make its brand with high quality and the lowest

24

price in the market. Reality is identical in PD. MC own brand in 2011 represents about
25% of the sales of FMCG in food retail of the company (excluding perishables) and
has already 2400 references . PD brand has a weight of 40% in the business volume of
the company and a total of 2011 references. In this field we also highlight an important
extension of the range of own brands by PD in introducing its low-cost coffee capsules,
which achieved an outstanding performance in terms of competitiveness, sales and
market share, leading in the market established brands as Nespresso or Dolce Gusto.
This contradicts the assumption (Breaking news Nielsen 2010) that the price is not a
driver of growth in premium sectors.
Consumer behavior also led to the creation of new products as a response to new needs,
with PD and then MC developing the take-away service in store to correspond to the
increasing trend of consumption of meals in home. This operation has proved an
important source of differentiation, customer loyalty and also boosted sales of products
in other categories.
The change in behavior has also led to the introduction of a tactic of pure product
bundling from PD by offering bundles of products (denominated family basket) at
greatly reduced prices. PD which did not practice this type of promotions (PD has an
everyday low price positioning) was then forced by the conditions in the surrounding
economic environment to respond and even break, although in a light way, its strategic
positioning.

2.3.2 Pricing

Regarding the pricing policy both retailers have a penetration strategy, as it is part of
their proposal to offer the best value and the most competitive prices in the market
always with stability in perspective.
This perspective of stability is assumed as the main challenge during times of crisis,
where the increase in the price of raw materials and product taxes proliferate. So there
must be a balance between rising costs, changing consumer behavior and price setting
in accordance with company strategy.
It was noticeable the effort of PD in 2010 to maintain its strategy of low prices when
there was a change in the VAT rate from 21% to 23%. In response PD began its
campaign "In Pingo Doce VAT increase is 0%," reflecting the company's commitment

25

(or pressure on the suppliers) to absorb such an increase of 2% thus keeping the price of
their products unchanged. Effort that will be unrepeatable in 2012 (as already
announced by PD) facing the proposed increases in various levels of product taxes
stated in the National Budget for 2012 (e.g. beverages (6% to 23%) or oils and ready to
eat meals (13% to 23%). There is already information on which products will suffer the
increases provided to clients by PD.
Facing this reality both PD and MC, which have in price and quality offered the pillars
of their value proposition, developed direct partnerships with suppliers of their own
brands and fresh produce, allowing greater control over quality and cost reduction
through intermediate cut.

2.3.3 Promotion

In times of crisis it is still observable an investment of both retailers in promotion,
especially in advertising and above the line media. MC is in fact the leader of
advertising investment in Portugal, where in November 2011 had a percentage of share-
of-voice of 4.8% over the total advertising market and 13.8% over the total 20 major
advertisers in that month.
In comparison PD occupies the 16th position in the top advertisers in Portugal with a
share of voice total of 1.1%, despite having increased its investment in advertising since
2009. We also highlight the higher advertising recall of MC in relation to PD
(November 2011).
During the crisis we see that the communication of both retailers is based on their value
propositions, similarly ruled by price, quality and fresh produce. However differ in
some points, MC makes use of celebrities and mascots (especially children's segment on
Christmas) to promote their campaigns, many of the ads released are directed at the
communication of specific promotions limited in time, as of January 2012 we can see
ads that refer to the client loyalty card. Meanwhile PD bases its advertising around the
brand and increasing its notoriety, very simple ads and often using jingles. Figurations
and major players of the ads in PD are the employees themselves. Both brands have
strengthened the relationship with the consumer, increasing their confidence and
security through their campaigns during the crisis (e.g. MC campaign - "I count on
Modelo Continente"). PD assumes a more rational posture through consumer education,

26

like explaining the nature of certain price increases (e.g. PD “why will the price of milk
increase” ad).
In strengthening this relationship and as a response to hard times experienced by
consumers, there was an unusual phenomenon in the communication strategy of PD by
using the technique of sales promotion. PD is not known for using promotional tactics,
because its positioning is everyday low price, decided in 2011 to introduce the family
basket (e.g. a mix of meat, drinks or detergents), a set of products (own brand and
vendor) at the lowest price including discounts that can go from 20% to 50% (family
baskets August).
MC assumes a much more aggressive promotional policy which emphasizes the use of
its client card which is now used by three million families and allows discounts of 50%
and 75%. Also noteworthy was the extensive use of coupons and discount partnerships
with companies from other sectors (e.g. EDP and Galp).

2.3.4 Services

Both brands have an inclusive services policy as evidenced by its butcher, take-away,
meat and fish section.
In the service policy the focus is on the introduction of these new take-away and
restaurant sections inside store responding to changes in buying behavior and new
consumption moments.
MC stands out in offered services, it was the first retailer in Portugal to introduce “self
check out” which allowed increased convenience and reduced waiting time. Also
created a service on its online platform that allows consumers to scan their shopping
basket and look for cheaper products. Home delivery, labeling in Braille and insurance
service (e.g. car, health insurance) by the recently created Continent Insurance are also
other proposals in terms of services available on MC.

2.3.5 Location, Place and Store Design

In regard to the location variable at a time when most consumers value low prices,
convenience and the frequency of purchase an effort was made by the two retailers to

27

reduce distance from consumers. For this fact contributed the merge of the chains Feira
Nova and Plus under the insignia PD and the retail chain Modelo under the MC insignia
thus increasing the penetration and geographical representation of both retailers. In the
same strategic line we can mention the opening of new stores in residential areas, as
well as the introduction of Amanhecer stores by PD and MeuSuper by MC thereby
entering the segment of convenience stores and traditional proximity retail.
In 2010 PD and MC opened respectively 7 and 6 new stores (1 Modelo and 5
Continentes).
With regard to the place variable and in order to save costs by eliminating
intermediaries and ensure the level of price/quality of its products both brands have
made an effort to increase and develop direct partnerships with suppliers of fresh
produces and own brand products.
As for store design the most significant changes at a national level were the introduction
of the take-away and restaurant sections inside the store space, in PD case they are
already present in 214 of their 349 stores.

Market Penetration Market Development Product Development Diversification

Increase market share
Pingo objective
Doce New distribuition channel (Amanhecer) Own brand focus
Penetration price
-
New products for new
Increased investment necessities (take-away).
in advertising

Agressive sales Internacionalization to Angola.
Own Brand focus
promotion
New distribuition channels (Continente
New products for new
Modelo Increase market share Horeca; Continente Ice; MeuSuper)
necessities (take-away).
Continente objective

Penetration price -

Leader in share-of-
voice

Table 2 – Growth strategies during crisis.

Adapted: Nunes and Cavique (2008); Sonae Annual Report 2010; Jerónimo Martins, Annual Report 2010.

28

Product and Price Promotion Services Location, Place
product set and Design
Pingo Doce Wide but not deep set Penetration Price Increase investment Included services Reforce proximity and
above-the-line convinience
Focus on perishables Price maintenance after
2010 VAT increase Advertising based on Increase geographic
Investment and extension brand and notoriety penetration
of own brands Information about VAT
increase in 2012 Use of workers and 7 new stores
take-away unit collaborators
Cost reduction through Direct partnerships with
Family basket intermediaries cut Reforce trust and security suppliers

Rational and educative Take-away and
communication restaurants in store

Use of sales promotion
for first time
Modelo Wide but not deep set Penetration Price Increase investment Included services Reforce proximity and
above-the-line convinience
Continente Investment and extension Cost reduction through
of own brands intermediaries cut Share-of-voice leader Self-service check-out Increase geographic
penetration
take-away unit Leader in advertising Online shopping
recall platform 6 new stores

Communication based on In-house delivery Direct partnerships with
sales promotions suppliers
Labels in braile
Use of celebrities Take-away and
Insurance service restaurants in store
Reforce trust and security

Agressive sales
promotion

Client card discounts

Use of coupons

Cross-discounts

Table 3 - Retailing Mix during crisis.
Adapted: Nunes and Cavique (2008); Sonae Annual Report 2010; Jerónimo Martins, Annual Report 2010.

2.4. Conclusion

By observing the action of both retailers we can conclude that, in line with the
theoretical conclusions, the development strategies that drive their performance during
crisis are mainly the market penetration and product development strategies. Driven
mainly by growth drivers such as penetration price, agglutination of other retailers of
the group, increased investment in advertising and extension of the product range of
own brands.
As for the remaining strategies, the internationalization of MC to Angola and the
approach of new segments in the convenience stores market are the main drivers of the
market development strategy. The diversification strategy has no significant record.
Regarding the retailing-mix variables we see that the product and the product set but
especially promotion are the most important and the ones that change the most during
crisis. Again in line with the theoretical perspective the growth driver of investment and
extension of own brand line reveals a response to changing consumer behavior. Also in
29

response to this change in consumption we have the introduction of new sections like
take-away and sales promotions such as the “family basket” on both retailers. But these
similarities fade in the setting of the promotion variable where both invest heavily but
with different strategies. The difference is mainly in the style of communication and the
use of sales promotions. PD opts for a simpler message and mainly communicates for
brand notoriety and its value proposition, while MC emphasis is on promotional offers
and discounts like cross-discounts or their loyalty card. It should be noted that the crisis
led PD to break its positioning of everyday low price by introducing latent sales
promotion tools, most notably with its “family basket”.
In the other variables we see that an effort was made to maintain price level and
competitiveness, MC has a much broader service component than PD, particularly in
terms of convenience and online presence and solutions. In terms of location, store
design and place the main changes are the proximity and convenience strengthening
with the opening of stores directed specifically to a segment that values them as well as
the increased geographic penetration result of agglutination of other food retail brands
already owned by the respective groups.
Despite the negative economic environment that is felt in Portugal, both retailers present
good results and a very positive performance. PD in 2010 achieved a like-for-like (LFL)
sales growth of 8.4% in supermarkets (+7.2% in the total chain stores), according to the
annual repot of 2010. Noting also a net sales growth of 9.9% over 2009 and an EBITDA
growth of 3.8% to 186.5 million euro (all food retail). This is mainly explained,
according to the company, by a price policy that emphasizes stability, by an investment
and focus on own brands and quality perishable goods and also by the continuous
advertising investment since 2009.
Meanwhile, according to the 2010 annual report, Sonae MC (MC, Wells, Book.it)
registered an increase in business volume of 5.4% for 3.275 milllion euro in 2010 (3%
LFL). And also an EBITDA of 16% with a margin on sales of 7.1% over 2009. To this
contributed largely a greater supply of own label products and a higher level of
effectiveness of sales promotions (e.g. client card).

30

CONCLUSION

The economic and financial crisis has had a significant impact on consumer behavior
and the way they formulate their own decisions. Given this fact and given an economic
environment that challenges sales and business growth it is necessary to act strategically
in order to reverse this trend.
During these periods it is often accepted as common practice a cut in marketing costs,
but as evidenced by the companies studied it is not the way. It is suggested by the
research conducted in this work that the idea of cutting costs particularly in areas where
it is easier like marketing should be ruled out risking the company to lose
competitiveness, market share, sales and depreciation of its “brand equity”. Covin and
Slevin (1989) argue that, in hostile environments to continue or increase a proactive
strategic posture results in superior performance for the company. While other firms in
the industry are reducing their marketing programs and activities (e.g. advertising),
others during the recession will increase these proactive marketing activities, gaining
share-of-voice in the market, increasing its reputation, differentiation, reaching and
retaining new customers. In these situations companies that invest aggressively in
marketing send a message of security and confidence to consumers that are worried and
afraid, encouraging them to change their preference (Srinivasan et.al., 2005).
From the analysis of the product-market matrix and consequently Ansoff’s development
strategies we were able to identify that within these, market penetration and product
development strategies are those that have greater influence on the performance of
companies during the crisis. And the same was confirmed by observing the performance
of the two food retailers in the study. In terms of market penetration the maintenance
and increased investment in advertising, penetration price strategy and sales promotion
are the most influential growth drivers. In the product development strategy the focus is
on the own brands and the extension of their product lines and sets, and also important
is the creation of new products to meet changing customer needs as the inclusion in
store of take-away units.
We also noted some relevance in the use of the market development strategy through
internationalization and the approach of new markets and segments namely convenience
and neighborhood stores, however taking into account the costs, risks and
implementation time is not a direct response strategy. The diversification strategy does

31

not present any significant observation in the activities of PD and MC, fact that is in line
with the theoretical conclusions.
In respect to operational strategy and retailing-mix, we have the variables product and
product assortment policy, and promotion as the most influential and facilitators of sales
increase and customer retention. In the product strategy it is of particular relevance the
continued expansion of DOBs and the development of new products tailored to the new
changes in consumption patterns as the take-away in store unit or the family baskets that
gather essential products at the lowest prices. Note that the setting of this variable is
very similar for both retailers. Something that does not happen in the variable
promotion, where it is suggested that a greater investment in increasing share-of-voice
results in increased closeness and conveys greater security and confidence to the
consumer, thus transferring to the market performance in terms of market share gains.
MC stands out through heavy investment in advertising and its agressive sales
promotion strategy, mainly through the use of aggressive discounts, cross-discounts,
coupons, and especially its client card.
This study has permitted the identification and suggestion of key growth strategies and
marketing drivers, including the changes in retailing-mix, that allow companies to
maintain its growth path during periods of economic turmoil, as exemplified in chapter
two . The path will be the adaptation to changes in consumer behavior, by investing in
marketing and strengthening brand-equity, in a time when consumers need it the most.

32

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- Annual, activity, accounting and performance reports; Case Studies;
Market Research studies:

- Sonae, 2010 Annual performance report (26/01/2011).
- Sonae, 2010 Performance report – 3rd quarter.
- Sonae, 2010 Financial and Performance report.
- Jerónimo Martins, Results H1 2011 (27/07/2011).

34

- Jerónimo Martins, Individual Performance report.
- Jerónimo Martins, 2010 Financial and performance report.
- European Comission, Economic Crisis in Europe: Causes, Consequences and
Responses, 2009.
- Nielsen, Breaking News (14/05/2010).
- Ferreira, Manuel P.,Reis, Nuno R. e Santos, João C., Change in the food sector: Pingo
Doce. Case Study nº8, gobalADVANTAGE – Center of Research in International
Business and Strategy, 2011.
- Brito, C. e Silva, S., Jerónimo Martins. Portuguese cases manual – Mercator.

- Internet Pages:

- < http://www.marketeer.pt/2011/07/12/miguel-osorio-continente-tera-a-politica-
promocional-mais-agressiva/ > (12/07/2011)
- < http://aeiou.expresso.pt/sonae-e-jeronimo-martins-apostam-na-expansao-da-marca-
propria=f629656 > (02/02/2011)
- < http://www.marktest.com/wap/a/n/id~18da.aspx > (28/12/2011)
- < http://www.hipersuper.pt/2011/08/26/lares-gastam-mais-09-em-fmcg-no-semestre/ >
(26/08/2011)
- < http://economico.sapo.pt/noticias/continente-e-pingo-doce-entre-os-dez-maiores-
importadores_124468.html > (11/08/2011)
- < http://rr.sapo.pt/informacao_detalhe.aspx?fid=24&did=41200 > (05/12/2011)
- < http://www.distribuicaohoje.com/news.aspx?menuid=8&eid=6101 > (18/02/2011)
- < http://www.marketeer.pt/2011/03/09/batalha-na-distribuicao/ > (09/03/2011)
- < http://www.marktest.com/wap/a/n/id~171d.aspx > (22/02/2011)
- < http://www.hipersuper.pt/2011/11/02/jeronimo-martins-investe-400-milhoes-de-
euros-na-colombia/ > (02/11/2011)
- < http://www.oje.pt/noticias/negocios/internacionalizacao-sonae-para-angola-devera-
avancar-este-ano > (17/03/2011)
- < http://www.dinheirovivo.pt/Buzz/Artigo/CIECO013982.html > (11/09/2011)

35

APPENDIX

1 – PD sales growth 2009-2010, pg. 37

2 – PD own brand growth, pg. 38

3 –Sonae MC Business volume growth, pg. 39

4 –2010 Consumer Confidence Index, pg. 40

5 – Marktest – November 2011 top advertisers in Portugal, pg. 41

36

1 – PD sales growth 2009-2010.

Fonte: Relatório e Contas Jerónimo Martins 2010

37

2 – PD own brand growth.

Fonte: Relatório e Contas JM 2010

38

3 - Sonae MC Business volume growth.

Fonte : Sonae, Comunicado de performance ano 2010 (26/01/2011).

39

4 – 2010 Consumer Confidence Index.

Fonte: Nielsen, Breaking News (14/05/2010).

40

5 – Marktest – November 2011 top advertisers in Portugal.

41

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