www.emeraldinsight.com/0959-0552.htm
IJRDM
37,7 Internal marketing impact
on business performance
in a retail context
600
George G. Panigyrakis
Department of Business Administration,
Received March 2008
Revised June 2008 The Athens University of Economics and Business, Athens, Greece, and
Accepted November 2008 Prokopis K. Theodoridis
Department of Business Administration of Food and Agricultural Enterprises,
University of Ioannina, Agrinio, Greece
Abstract
Purpose – The majority of research pertaining to internal marketing (IM) is conceptual and still
remains so even at present. The lack of widely accepted definitions of the IM concept and a relevant
valid measure has lead to increased attempts by academia to investigate the relative concepts and
measures. The purpose of this paper is to examine a synthesis of IM and investigates its effect on
business performance in a retail context.
Design/methodology/approach – The context of this paper is within supermarket chains in
Greece with nation wide coverage. A survey is designed and implemented using the branch managers.
Findings – SEM analysis indicates five dimensions of the IM construct: formal interaction, reward
systems, feedback, internal procedures and policies and internal customer orientation (ICO). Retailers
seem to adopt in an embryonic stage a concept of IM. IM indeed has a positive effect on business
performance.
Research limitations/implications – Single key informant, single context of the paper are
considerations when examining research limitations.
Practical implications – The embryonic stage of adopting and implementing IM within
supermarket chains illustrates a certain manner of managing the internal customer; centralisation
of procedures and tactics. Even if the concept of IM is partially exploited, the respective organisational
behaviours clearly have a positive impact on both financial and non-financial aspects of retail
performance, thus revealing their importance.
Originality/value – This paper contributes to the rare empirical investigation of the IM notion in the
firm and provides evidence on both its synthesis and its impact on business performance. The authors
synthesize the concepts of internal market and ICOs providing a new approach to IM. Construct and
research propositions have been axiomatic and in an only conceptual context until recently.
Keywords Internal marketing, Business performance, Retailing, Supermarkets, Greece
Paper type Research paper
Introduction
Since the 1970s, internal marketing (IM) appeared to be a solution to the problem of
International Journal of Retail & delivering high service quality (Berry et al., 1976). The literature devoted to IM is
Distribution Management rapidly growing (Sasser and Arbeit, 1976; Berry, 1981; Grönroos, 1981; Richardson and
Vol. 37 No. 7, 2009
pp. 600-628 Robinson, 1986; Barnes, 1989; George, 1990; Piercy and Morgan, 1990, 1991; Collins and
q Emerald Group Publishing Limited Payne, 1991; Piercy, 1995; Foreman and Money, 1995; Varey, 1995; Cahill, 1996;
0959-0552
DOI 10.1108/09590550910964620 Sergeant and Asif, 1998; Pitt and Foreman, 1999). The majority of the work pertaining
to IM, especially in the 1980s and 1990s, is conceptual and still remains so even at IM impact
present (Flipo, 1986; Grönroos, 1994; Rafiq and Ahmed, 1993; Cahill, 1995; Varey, 1995; on business
Pitt and Foreman, 1999; Varey and Lewis, 1999; Rafiq and Ahmed, 2000; Bansal et al.,
2001; Ballantyne, 2003; Lings, 2004). performance
In the literature IM has two prime motives. First, it complements external strategic
marketing efforts, through interactions between the personnel and customers. These
interactions are perceived as instrumental in encouraging customer attraction and 601
satisfaction. Second, it effectively develops and maintains a workforce which is both
motivated and satisfied (Dunne and Barnes, 2000). This consecutively contributes to
external and strategic marketing objectives as well as to quality, productivity and
efficiency (MacStravic, 1985). So, the IM initiative serves both the organisation and the
individual employee successfully (Dunne and Barnes, 2000).
IM stresses the importance of the marketing concept internally, within the firm, by
focusing on the employee and providing a source of competitive advantage (Sasser and
Arbeit, 1976; Berry, 1984; Berry and Parasuraman, 1991).
There is little empirical evidence of an attempt to construct a valid measure to
elucidate the concept of IM (Lings and Greenley, 2001; Lings, 2004; Table I). The fact is
that there is extremely limited empirical research in the area to provide some evidence
of a paradigm of the philosophy, notion and implementation of IM. Therefore, this lack
could most probably be the main or high percentage factor when considering the rare
presentation of IM in organisations.
Recent studies attempted an operationalized concept of IM mostly through the
adoption of the internal market orientation (IMO) concept: “[. . .] internal market
orientation is about identifying and satisfying the wants and needs of employees as a
prerequisite to satisfying the wants and needs of customers [. . .]” (Lings, 2004, p. 408).
A stream of recent studies are based on the pioneer work of Foreman and Money (1995)
with an appropriate and analogous expansion relative to the market orientation
concept (Kohli and Jaworski, 1990), mirroring and adapting it internally in the firm
(Lings and Greenley, 2001, 2005; Naudé et al., 2003; Lings, 2004; Gounaris, 2006).
This paper takes a step forward as it amalgamates the two major approaches of the
concept of IM. IMO and internal customer orientation (ICO) are incorporated into one
operationalized construct in order to measure the IM notion within a retail context in
Greece.
This paper aims to empirically investigate:
. the operationalization of the IM in terms of measurement; and
.
its impact on business performance in a retail context.
The contribution of this piece of research is threefold. First, it provides a new approach
to IM literature and within the limited empirical attempts it combines the two major
approaches in the subject area which till nowadays have been examined separately.
Second, it provides empirical findings relative to an under-examined relationship
between IM and business performance, hypothesised for years, like an axiom or being
examined in parts. Finally, the context of the paper provides insight into a sector with
only a few empirical results and at the same time in a cultural context of Southern
Europe which is differs from other more researched countries and cultures (the USA,
UK, Asia and Australia). Retailing is an environment with high employee turnover.
This is due on the whole to mediocre or inadequate employee conditions and
IJRDM
Aim – methodology – Main findings –
37,7 Author (year) sample Background – variables discussion topics
Job and employee related information, effective internal two-way communication and
feedback
Most of the approaches attempting to describe the IM concept have revealed a common
element: the need of gathering and analysing information relative to the internal
market, i.e. employees (Sasser and Arbeit, 1976; Lings and Greenley, 2001, 2005; Lings,
2004; Gounaris, 2006). There is a need of exploring the desires and the degree of
satisfaction of employees as well as various factors affecting employee satisfaction and
the subject of their work (Lings, 2000; Lings and Greenley, 2001, 2005). Simultaneously,
firms should also investigate the external environment. The task is to collect and
analyse information and further to create intelligence on the competitors’ personnel,
potential employees and relative legislative job subjects. Currently firms compete for
the best-qualified potential employees, which could provide them with a competitive
advantage (Lings, 2000, 2004; Lings and Greenley, 2001, 2005). So, the need of
information (internal and external) relative to employees and employment subjects is a
critical dimension of the IM construct.
Furthermore, it is crucial for an organisation to operate in a transparent way.
Organisations have to be able to openly share with their members information and
intelligence concerning strategy, objectives, performance and financial situation
(Dessler, 1999; Pfeffer and Veiga, 1999; Bansal et al., 2001). As it has been stated, if we
want to create a climate in the organisation where everyone is for everyone, secrets
cannot be kept (Bansal et al., 2001). The exclusion of information within the
organisation, the various departments and the levels of hierarchy prevents personnel
from taking effective decisions (Pfeffer, 1995, 1998). Concurrently, the provision of
information could operate as an effective feedback mechanism for the personnel in
order to evaluate their performance and the degree of their effective and efficient
decision-making (Robbins and Langton, 1999; Slater and Narver, 1994; Bansal et al.,
2001). Consequently, effective internal communication is necessary for both the
external and internal market (Lings, 2000). Two-way communication between middle
managers, top management and personnel provides appropriate feedback to
employees, thus, improving their job performance (Conduit and Mavondo, 2001;
Grönroos, 1990). Employees need information relative to customer needs, firm’s
objectives, as their contribution may be crucial for the firm and the customer (Conduit
and Mavondo, 2001). The provision of information through the procedure of formal
feedback by the firm to employees is another important dimension of the IM.
Internal procedures and policies, reward systems and management consideration to IM impact
employees on business
IM also requires the formulation of a response attitude and behaviour towards
employee related information. This in terms of job design, rewards and other forms of performance
motivation (which are of great importance to employees), training, recruitment,
internal communications, top management support and other strategic activities in
order to support effectively the market orientation of the firm (Berry and Parasuraman, 607
1991; Lings, 2004; Lings and Greenley, 2001). These targeted internal behaviours
describe the degree of a firm’s attitude in job related subjects. It is widely known that
reward and wage systems determine to a certain degree the level of the improvement of
the work of the internal customer. Reward and motivation schemes and systems are
crucial elements of employees’ behaviour (Lawler and Rhode, 1976; Anderson and
Champers, 1985; Jaworski, 1988). Reward systems can motivate employees to adopt
new behaviours and attitudes towards the firm’s market orientation (Ruekert, 1992;
Hauser et al., 1996). But these are not the only ones. Job improvement can be created by
providing care services for employees’ children or older relatives (Comm, 1989). Varey
(1995) gives an emphasis on the social aspect of IM and claims that it is not restricted
only to the financial aspect, taking the form of any wage, bonus or other monetary
incentive (Lings, 2000; Lings and Greenley, 2001). The social aspect of IM is also
presented within the concept of managerial consideration. It refers to the degree that
managers exploit a work climate with psychological support, friendship, help, mutual
trust and respect (Johnston et al., 1990). As the supervisor is the first link between the
employee and the organisation, a positive behaviour with employees could generate
better attitudes towards the firm (Katz and Khan, 1978).
So far, it has been revealed that the “blanket” concept of the IM incorporates
the following aspects:
.
ICO.
. Collection of specific job and employee related information internal and external
to the firm, effective internal two-way communication between all levels of
management, hierarchy and employees as well as the provision of formal
feedback to personnel.
.
Targeted internal procedures and policies describing the degree of the firm’s
responsiveness to job related subjects, wage and reward systems and
management consideration of employees.
0.64
form_1 FORMAL_IN_1 0.80
Formal_INT
0.76 0.87
form_2 FORMAL_IN_2
0.79 0.67
rwd_1 REWARD_1 0.89
0.23
inprcd_1 INTEPROCED_1 0.45
0.48 0.59
0.55
0.74 INT_Procedures
inprcd_2 INTEPROCED_2
0.50 0.46
0.84
0.71
inprcd_4 INTEPROCED_4
0.65
0.49
0.77
fdk_1 FEEDBACK_1
0.88
0.49
Fdback
0.78 0.88
fdk_2 FEEDBACK_2
0.72
0.68
imrel_2 IMAREL_2 0.83
ICO
0.57 Figure 1.
0.32 IM – the construct
imrel_5 IMAREL_5 (Model 1)
IJRDM and variance extracted values (Hair et al., 1998). The composite reliabilities and the
37,7 values of variance extracted are shown in Table III and findings reveal that Model 1 is
superior to the other models in terms of reliability. These estimates indicate that trying
to force the items measuring IM onto fewer factors leads to a significant deterioration
of the model fit relative to the five-factor model. Therefore, Model 1 can be proposed as
the model which fits data better than the other two models.
614 It is known that evidence of discriminant validity is provided by a low to moderate
correlation among measures when are designed to measure conceptually different but
related constructs: a value of f coefficient significantly less than one, offers support
for discriminant validity among the constructs (Anderson and Gerbing, 1988). The
inter-factor correlations (f) are shown in Table IV. Another test of discriminant
validity proposed by Fornell and Larcker (1981) was adopted: a construct is empirically
distinct if the average variance explained by that construct’s items is greater than the
construct’s shared variance with every other construct, i.e. the square of the inter-factor
correlations (f 2) between any two constructs. Model 1 shows evidence of discriminant
validity.
SEM analysis indeed indicates that the construct of IM consists of five latent
variables which are allowed to correlate and eleven items (Table V): formal interaction,
reward systems, feedback, internal procedures and policies and ICO. Formal
Model 1 (five factors) Formal interaction Feedback Reward systems Internal procedures ICO
Composite reliability 0.82 0.87 0.84 0.73 0.66
Variance extracted 0.69 0.77 0.72 0.50 0.50
Model 2 (three factors) Generation Dissemination Response
Composite reliability 0.82 0.51 0.96
Variance extracted 0.69 0.34 0.80
Model 3 (one factor) IM
Composite reliability 0.85
Variance extracted 0.40
Table III.
IM models: composite Notes: Construct reliability ¼ (S standardized loading)2/(S standardized loading)2 þ Se j; variance
reliability and variance extracted ¼ (S standardized loading 2)/(S standardized loading)2 þ Se j
extracted Source: Fornell and Larcker (1981)
Model 1 (five factors) Formal interaction Feedback Reward systems Internal procedures ICO
Formal Interaction 1
Reward systems 0.672 1
Internal procedures 0.479 0.455 1
Feedback 0.592 0.505 0.494 1
ICO 0.457 0.651 0.493 0.716 1
Inter-factor correlations (f)
Table IV. AVE
IM Model 1: inter-factor Formal interaction 0.705 0.590 0.730 0.595
correlations (f) – square Reward systems 0.452 0.605 0.745 0.610
of inter-factor Internal procedures 0.229 0.207 0.630 0.495
correlations (f 2) and Feedback 0.350 0.255 0.244 0.635
average variance ICO 0.209 0.424 0.243 0.513
extracted (AVE) Square inter-factor correlations (f 2)
interaction represents the need of gathering and analysing information relative to IM impact
employees. Super market chains explore employee attitudes when considering reward on business
systems and compensation. At the same time, they are concerned about employees’
participation in decisions and actions regarding the branch (Table AI). The reward performance
system seems to concern only the top and middle management (head office branch
managers). There is no evidence of rewarding the “first line” even though it is focusing
on customer satisfaction. In contrast retailers respond to changes in labour issues and 615
to employees’ complaints (internal procedures and policies). Employees receive
feedback from branch managers on their job performance and they know how their
performance is being appraised (feedback). Moreover, one could find the diffusion of
the notion that everybody within the firm is an internal customer and supplier and the
aim is to provide a quality service to other colleagues, branches or departments (ICO)
(Table AI). All these aspects represent the concept of IM within the super market
chains indicating an exploratory route.
The CFA procedure was also employed for the construct of business performance.
Two different models were compared – Model 1, covariation among items is best
explained by two factors which are allowed to correlate, financial performance and
non-financial performance (Figure 2) and Model 2, covariation among items is best
explained by one single factor, business performance. Statistics strongly indicated that
Model 1 fits better than Model 2 to the specific data (Table VI). Model 1 provides
evidence of convergent and discriminant validity as well as composite reliability
(Tables VII and VIII).
Findings
The median respondent – branch manager has the following profile: male (63.10
per cent), 11-15 years of total work experience (58.8 per cent), 4-6 years in the position
of branch manager (59.9 per cent) and possessing only a lyceum (high school) degree
(50.8 per cent; Table IX).
After the methodological procedure indicating the adoption of the best models
regarding the specific data, the relationship between IM and business performance was
examined (Figure 3 and Table X). It was revealed that IM has a positive significant
616
0.83
0.81
er_ms PER_MARKET SHARE 0.90
Figure 2. 0.79 0.89 NF_PERFORMANCE
Retail business er_sp PER_SPACE PROD
performance – the 0.76
0.57
construct (Model 1) er_ps PER_STOCK
Model 1 2
Number of factors 2 1
x2 19.450 * 113.053
Degrees of freedom 8 9
NFI 0.983 0.901
CFI 0.990 0.908
PNFI/PCFI 0.524/0.528 0.541/0.545
Table VI. RMSEA 0.076 0.215
Statistics of business
performance models Note: *Non-significant at p , 0.013
Except for the apparent implications for retailers, it is certain that this important 617
empirical evidence provides an amelioration of our knowledge and fills a gap in the
scarce literature devoted to IM.
f Values
Financial performance 1 Table VIII.
Non-financial performance 0.833 1 Business performance
AVE Model 1: inter-factor
Values of f2 correlations – square of
Financial performance 0.74 inter-factor correlations
Non-financial performance 0.69 (f 2) and average
Composite reliability 0.88 0.72 variances – composite
Variance extracted 0.90 0.75 reliabilities
Frequency %
Gender
Male 159 63.10
Female 93 36.90
Position experience
Up to 3 years 77 30.56
4-6 106 42.06
7-10 59 23.41
10þ 10 3.97
Education
Compulsory 59 23.4
Lyceum 128 50.8
Vocational 35 13.9
University 28 11.2
Postgraduate 1 0.4
Other 1 0.4
Total work experience
Up to 5 years 7 2.78
6-10 67 26.59
11-15 120 47.62
16-20 47 18.65 Table IX.
21þ 11 4.36 Branch managers:
demographic
Note: N ¼ 252 characteristics
IJRDM 0.47
e-1 FORMAL
37,7 0.49 0.6
e-p
e-2 REWARD 9
0.70 0.51
0.46 0.68 0.72
e-3 FEEDBACK IM PERFORMANCE
.60
0.36 0 0.84 0.90
618
65
e-4 INT_PROC
0.
0.71 0.80
0.42
Figure 3. e-5 ICO F_PERFOR PERFOR
IM and retail business
performance
e-9 e-10
Critical Indirect
Estimatesa SE Ratio Loadingsb effects
The feeling is that factors like example organisational and structural problems,
demographics and synthesis of the employees and the ratio of turnover, restrict the
exploitation of the concept to the present limits.
The second contribution is the provision of empirical findings relative to an
under-examined relationship between IM and business performance being
hypothesised for certain for years, like an axiom or being examined in parts. The
strength of the hypothesised relationship indicates that IM is an important driver for
business performance, financial and non-financial. Findings provide credence to past
literature that has assumed this relationship as axiom, and hence, this paper
contributes to the academic literature in this area. From a managerial perspective, this
could encourage retailers to cooperate with their personnel in order to create and
maintain long-term relationships. With this approach retailers could build an effective
value chain targeted at both internal and external recipients (employees and customers;
Gummesson, 2000).
Simultaneously in one way or another we have to abandon the practice of one way
internal communication activities to promote business objectives concerning the
external market and customers (Ballantyne, 1997). Following the same logic, the IM,
philosophy and functional activities, cannot include the marketing department or
marketing people exclusively. Top management with human resources and marketing
have to play the crucial roles by actively participating in the strategic formulation and
tactical implementation of the IM concept within the firm (Ballantyne, 2000).
Finally, the context of the paper provides insight of a sector with only few empirical
results and simultaneously in a cultural context of Southern Europe which differs from
other more researchable countries and cultures (the USA, UK, Asia and Australia).
It is certain that single key informant, post-hoc analysis, the single context of the
paper and probably the sample size (concerning the initial measurement model) are
considerations when examining research limitations. Nevertheless, there is a need of
further validation of the IM scale as the behavioural aspect of the IM concept IM impact
implemented in the firm. Its applicability in different retail and service settings is being on business
considered inevitable. The “nice” of the specific type of retailing probably creates
restrictions in generalization of the scale even provides a more analytical insight of the performance
relationships being examined – Ahmed et al. (2003) call for investigation of the concept
in specific service sectors. There is also an urgent need of confirmation and a cross
validation of the IM scale or similar measurements in more contexts and cultures. 621
Context seems to affect the synthesis of the IM construct and probably the
differentiation in the stage of implementing or adopting specific behaviours by the firms.
It is crucial to investigate in a more systematic manner the possibility of casual ordering
within the dimensions of IM by trying to reveal any sequence to the applicability of firm
behaviours. For example, the organisation collects information relative to the employees
and legislate subjects and then reacts with the appropriate policies.
IM is holistic in nature (Ahmed and Rafiq, 2003). It is very difficult to be “grasped”
ignoring the organization and the employees or persons providing a meaning to it.
IM has to enhance integration and co-ordination in being a functional base of external
organizational marketing effectiveness. The route to its deeper understanding is not so
far away but there is a need of a more wide spread investigation.
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Appendix
Formal interaction
FORMAL_IN_1 – we survey our staff at least once a year to get information about their
attitudes towards reward systems and compensationb 4.54 1.51
FORMAL_IN_2 – we survey our staff at least once a year to get information about their
participation in the decisions and actions of the branchb 5.19 1.4
Reward systems
REWARD_1 – top management is rewarded for achieving customer satisfactionc 5.15 1.43
REWARD_2 – branch managers are rewarded for achieving customer satisfactionc 5.47 1.31
Internal procedures and policies
INTEPROCED_1 – it takes us forever to decide how to respond to changes in labour
issuesa,c 4.3 1.58
INTEPROCED_2 – for one reason or another we tend to ignore changes in our
employees needsa,c 4.87 1.45
INTEPROCED_4 – employees’ complaints fall on deaf ears most of the timesa,c 4.83 1.56
Feedback
FEEDBACK_1 – employees received feedback from their superiors on their job
performanced 5.58 1.28
FEEDBACK_2 – employees are made aware of how their performance is being
appraisedd 5.56 1.46
ICO
IMAREL_2 – we constantly seek to increase the value of services we provide to the
other departments or branchesd 5.33 1.34
IMAREL_5 – we charge departments the true value of services we provided 4.52 1.37
Notes: The questionnaire is available upon request; areverse order Table AI.
Sources: bLings and Greenley (2001); cKohli and Jaworski (1993); dConduit and Mavondo (2001) Model 1: IM construct
IJRDM About the authors
George G. Panigyrakis is a Professor of Marketing in the Department of Business
37,7 Administration of the Athens University of Economics and Business, in Greece. He received
his PhD in Marketing Management from the University College of Wales, UK. His research
in the areas of brand management, international-export marketing, marketing communications
and services marketing has appeared in a number of books and various journals.
George G. Panigyrakis is the corresponding author and can be contacted at: pgg@aueb.gr
628 Prokopis K. Theodoridis is lecturer in Marketing in the department of Business
Administration of Food and Agricultural Enterprises of the University of Ioannina. He holds
an MSc in Marketing (University of Stirling, UK) and was awarded a PhD from the Athens
University of Economics and Business. His primary research interests include the areas of retail
and services marketing, internal marketing and consumer behaviour.