Customer Service Strategy

and Segmentation in
Food Retailing using the
Importance-Performance
Paradigm

Dimitrios Theodoras
Ministry of Economy,
Competitiveness and Shipping
(former Ministry of Development)
General Secretariat of Industry,
Directorate of Quality Policy
Greece
dtheod@unipi.gr
This paper will provide a framework on how to design a customer service
strategy and apply it to the food industry in Greece. Building a customer
service strategy requires the evaluation of marketing and logistics service
elements, the identification of importance-performance gaps in relation
to those elements, and the segmentation of the service offered. To
evaluate service elements, retailers were asked to rate the elements'
importance and the food suppliers' performance. To identify importance-
performance gaps, a paired samples t-test was used. Statistical differences
between importance and performance exist in various customer service
elements. To reveal different retailer segments, a cluster analysis with
K-means was applied. The cluster analysis indicates that the prior
classification of multiple food retailers according to their annual
purchases of food products (hypermarkets, supermarkets, and
convenience stores) affect their ratings on the importance of customer
service. This study provides insight into the customer service-based
segmentation. In addition, it provides an approach to identify customer
segments by using the importance-performance analysis.

Introduction logistics functions and at the

The growing importance of
customer service to achieve high
levels of customer satisfaction and
loyalty is widely acknowledged.
Customer service is recognized as
an integral component of a firm's
marketing and logistics strategy
aimed at enhancing market share
and managing logistics cost trade-
offs.
same time is responsible for
disagreements and noncooperation
between them (Murphy & Poist,
1996). It is not surprising that
the most frequent functions
performed by customer service are
marketing oriented: customer
complaints, sales support,
and logistics-oriented emergency
orders, and product recalls
(Lancioni, 1995, p. 21).

In practice, customer service is the The importance-performance

Acknowledgments:
Many thanks for the encouragement and support to
my Director Mrs Harito Piperopoulou, MSc, Eng. D.
Massachusetts Institute of Technology.
most cost-effective component of
the marketing mix and can be used
to focus marketing strategy on
diverse customers' needs, which is
extremely important in highly
competitive markets (Sharma &
Lambert, 1994). In addition,
customer service is a key activity
that integrates marketing and
analysis, in relation to customer
service definition and evaluation,
has been conducted in a number of
industries including beverage,
food, and banking (Bommer et al.,
2001; Collins et al., 2001; Joseph &
Stone, 2003). By placing emphasis
on the interaction between
importance and performance, we

Supply Chain Forum An International Journal Vol. 10 - N°2 - 2009 64 www.supplychain-forum.com

suggest that customer service
strategy should concentrate mainly
on the elements with a mismatch
between importance and
performance.
Customer service elements can be
classified by four multifunctional
dimensions: time (for example,
order cycle time), dependability
(for example, undamaged orders),
communications (for example, ease
of order taking), and flexibility (for
example, the ability to recognize
and respond to a customer's
changing needs) (Rushton et al.,
2000; Gourdin, 2001).
Fundamental customer service
attributes are availability,
performance, and reliability.
Availability is the capability of
having inventory when it is desired
by the customer. Performance
deals with the time required to
deliver a customer's order and
involves logistical commitment to
expected performance time and
acceptable variance. Reliability
refers to consistency in quality and
accuracy in information regarding
order status and operations
(Bowersox & Closs, 1996; Bowersox
et al., 2002).
Traditionally, customer service
analysis has been carried out by
conducting a survey among the
customers and measuring the
importance and performance of
various service elements. The next
step is to submit to statistical
analysis the results of such a
survey by which the service
elements and the customer base
can be classified into useful groups
(for example, different customer
segments). Undoubtedly, a In the relevant literature, we can
customer service strategy should
include decisions about the need
for segmenting customers with
regard to their service
requirements. In other words, it
answers which are the most
important service elements and
what levels of service are to be
offered to each customer segment
(Huiskonen & Pirttila, 1998).
It is suggested that industrial
market segmentation on the basis
of customer service should be used
to target marketing mix strategies
Supply Chain Forum An International Journal
to specific groups of customers.
Moreover, the development of
greater research in service
marketing could be supported by
classification of services for
industrial consumers. Classification
of products-and to a lesser extent
service-has played an important
role in marketing to differentiate
consumers. However, service
classification proposals for
customers have been very broad
and lack managerial implications
(Boyt & Harvey, 1997).
What are the logistics
service elements
to be taken into
consideration for food
suppliers to formulate
their service strategy?
Customer service is critical in
business-to-business markets
because the core of what is
exchanged between sellers and
buyers-and experienced by the
latter-is service. However, much of
the existing literature on service
offering is based on research
involving end consumers rather
than business customers. Although
the growing importance of
customer service is widely
acknowledged, scholarly research
on the topic in business-to-
business contexts is limited
(Parasuraman, 1998).
find studies that contribute to the
customer service segmentation
either theoretically or practically
with case studies in a variety of
industries (Anderson & Narus,
1995; Eckert & Goldsby, 1997; Boyt
& Harvey, 1997; Gilmour et. al.,
1994; Kyj & Kyj, 1994; Mentzer et al.,
2004; Mikkal et al., 2004; Pirttila &
Huiskonen, 1996; Murphy & Daley,
1994; Zinszer, 1997; Sharma &
Lambert, 1994).
A framework for designing an
effective customer service strategy
Vol. 10 - N°2 - 2009 65
requires the evaluation of
marketing and logistics service
elements, the identification of
importance-performance gaps on
those elements, and the
segmentation of the service
offering.
The aim of this study is to assist
food suppliers in linking their
customer service strategy with the
service elements that comprise
importance-performance gaps
based on multiple food retailers'
perceptions. Although focusing on
these elements is a primary goal for
food suppliers, the identification of
different retailer segments is the
next step in designing a successful
service strategy. Having this in
mind, a prior segmentation of the
retailers in three groups
(hypermarkets, supermarkets, and
convenience stores) was done
based on their annual purchases of
food products. Finally, a cluster
analysis was carried out in order to
determine how each retailer's
group rates customer service
importance and performance as
well as to reveal new segments by
using simultaneously importance
and performance as the clustering
dimensions.
Key financial data
and characteristics
of the Greek food industry
Only since the 1990s have
nonstandardized products, bulk
items, and mostly domestic brands
dominated Greece's food and
beverage sector. Since 2000, there
have been significant changes
shown by an explosion of new
products, brands, and investments
in production plants within
southeastern Europe.
Developments in nutrition and
health have contributed greatly to
the improvement of the quality and
safety of food products. The
majority of Greek companies are
well aware of these developments
and the competitive challenge is
now moving towards customer
service quality and performance.
The priorities of the industry over
the next few years are sustaining
the high quality of the food
products, developing new products
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that will meet consumer needs, and
providing superior customer
service to the retailers.
Collaborative arrangements in the
field of customer service between
food industries and large multiple
food retailers will play a significant
role in supporting the attempts of
food suppliers to differentiate their
position against competitors and to
increase their market share.
In Greece, the traditional ways food
have been produced and consumed
have influenced the formation of a
distinctive indigenous food
industry. The entrance of Greece
into the European Union in 1981
increased competition within the
Greek food industry as new players
entered the market. Certainly, there
has been a process of integration
and convergence within all of the
European Union food industryin
addition to growth in all forms of
international activity. During the
1980s the acquisitions of domestic
firms in Greece may have been
motivated by the multinational
food industries' need to build on
the strong and distinctive
established knowledge of Greek
food firms. This knowledge
occurred not only from
competencies in the local market
but also in international
experiences through exports. In
fact, a number of Greek food
industries have a strong presence
in particular export markets, for
example, in Bulgaria, where many
multinational companies have little
expertise (Anastassopoulos, 2004).
The Greek food industry represents
a significant proportion of the
country's manufacturing sector
and operates on a multi-domestic
level as many small national
businesses coexist with other
large multinational companies
(Anastassopoulos, 2004). According
to the Hellenic Centre for
Investment Newsletter in February
2009, the food and beverage sector
represented 25% of Greek
manufacturing turnover, 24% of
employment, and 25% of total
invested capital. Greek food
companies are the leading
exporters, accounting for almost
20% of total export sales, with
revenues exceeding 2 billion euro.
Supply Chain Forum An International Journal
The industrial production index (in
the manufacturing sector) in May
2009 as compared to May 2008
recorded a decrease of 7.3%, while
the food industrial production
index increased by 0.3% (National
Statistical Service of Greece, 2009).
Research methodology
Despite the importance of
customer service in obtaining
competitive advantage in the
supply chain, relatively little
research has been undertaken to
provide a thorough understanding
of the marketing and logistics
aspects of customer service in the
food industry (Canen & Lawrie,
1995; Collins et al., 1998 2001;
Kearney, 1995; Wetzels et al., 1995).
More broadly, previous research in
a variety of industries examined
only the marketing or logistics
framework of customer service
(Emerson & Grimm, 1996). The
significant contribution of the food
industry to the Greek economy and
the fact that customer service
research is limited were the major
motivations in selecting this sector
as our subject matter.
To conduct our research, two
leading food suppliers were
selected. These companies are
among the 20 largest industries in
Greece by total assets. They also
account for approximately 1.7% of
the total turnover and 2.6% of the
total pretax profits in the food
industry (ICAP, 2008). The food
manufacturers under study are
international in terms of their
supply sources and their markets
and they deliver their products in
the Greek market through their own
distribution network. The survey
was focused on the distribution of
food products to multiple food
retailers in the Greek market.
To identify the fundamentals of
customer service, a list was formed
with elements well established in
the literature as well as ones
commonly used in previous studies
both from logistics and marketing
approaches to customer service
(Christopher, 1997; Emerson &
Grimm, 1996; Gilmour et al., 1994;
Kyj & Kyj, 1994; La Londe & Zinszer,
1976; Stock & Lambert, 2001;
Vol. 10 - N°2 - 2009 66
Wetzels et al., 1995). Subsequently,
the food suppliers' logistics
managers and five sales
supervisors modified the list,
during short interviews, to ensure
that the identified elements
provided a comprehensive view of
customer service in the food
sector.
We asked the logistics managers to
provide a customer list excluding
stores with wholesale activities and
stores supplied by the central
warehouses of the retailer they
belong to as well as discount
formats. A random sampling
procedure was then used for the
selection of multiple food retailers.
At supermarkets and convenience
stores, the key informants were
depot managers or managing
directors, whereas at hypermarkets
the key informants were senior
managers within the food
department. Thirty-five out of the
40 key informants agreed to
participate in the survey,
representing a response rate of
87.5%, which was considered quite
satisfactory for subsequent
analysis.
The aim of the next stage was to
elicit from the key informants what
service elements, from the
modified list, made a contribution
to customer service offering within
the food market. All the elements
were chosen at least once, but only
those selected by 75% or more of
the respondents were considered
significant. Ten service elements
satisfied this criterion and were
used to design the questionnaire.
The key informants were asked to
rate their perception, on a 7-point
scale (with 1 representing “low”
and 7 representing “high”), of the
importance of each service element
and of the food suppliers'
performance. The key informants
filled in the questionnaires in face-
to-face interviews.
A prior segmentation of the
retailers in three groups
(hypermarkets, supermarkets, and
convenience stores) was
conducted based on their annual
purchases of food products. The
objective of cluster analysis was to
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determine how each retailer's
group rates customer service
importance and performance. The
objective of the segmentation was
to partition heterogeneous groups
of individuals (or companies) into
homogenous subgroups. Cluster
analysis is one of the major
methodologies for carrying out
segmentation. Hierarchical and
nonhierarchical methods can be
used in cluster analysis (Morwitz &
Schmittlein, 1992). Morwitz and
Schmittlein (1992) show that the K-
means, a nonhierarchical methods,
was preferred because no clear
consensus favoured either
hierarchical or nonhierarchical
method. However, in other studies
a combination of hierarchical and
nonhierarchical methods was used
(Sharma & Lambert, 1994; Fischer,
2004). For example, hierarchical
cluster analysis (Ward's method)
was initially used to identify the
optimal cluster number and then
nonhierarchical K-means clustering
was performed, using the results
from the previous analysis, to
determine the optimal cluster
structure of the companies under
study (Fischer, 2004).
In this study we used a
combination of hierarchical and
nonhierarchical methods as the
clustering approach. Factor scores
were saved and used as inputs to
cluster analysis taking into
Table 1
Importance and performance rating of marketing and logistics customer service
Supply Chain Forum An International Journal
consideration the previous study of
Sharma and Lambert (1994).
Concerning customer service
importance, factor analysis
generated four factors with
eigenvalues greater than one, and
the rotated factor loadings could
not be interpreted. However, one
dominant principal factor emerged
that had significant loadings on
four out of the ten customer
service elements and a large break
in eigenvalue from the second
factor. Using this criterion, factor
analysis was carried out again by
setting the number of factors to
one. In relation to customer service
performance, factor analysis
generated three factors with
eigenvalues greater than one, and
the rotated factor loadings could
not be interpreted. However, one
dominant principal factor emerged
that had significant loadings on six
out of the ten customer service
elements and a large break in
eigenvalue from the second factor.
Using this criterion, a factor
analysis was carried out again by
setting the number of factors to
one. Hierarchical cluster analysis
(Ward's method) determined two
clusters as the optimal cluster
number and based on this result, K-
means was used in order to identify
the optimal cluster structure of the
multiple food retailers.
Vol. 10 - N°2 - 2009 67
Results
Table 1 presents the means of each
element's importance, the means of
the food suppliers' performance,
and the importance-performance
gaps. During data processing, it was
found that the multiple food
retailers' ratings on the
performance of each supplier
present little standard deviation
and there are no statistical
differences between the two
suppliers' performance. Thus in
Table 1 we used the average
performance instead of the two
performances.
As is clear in Table 1, the retailers'
perceptions of importance are
higher than their perceptions of
performance in eight service
elements and they are lower in two
elements. However, further analysis
with a paired samples t-test
revealed that the higher ratings on
these elements' importance are
statistically significant in six
elements: providing technical
information, informing about
shortages in the orders, order
completeness, invoice error-free,
delivery of products without defects,
and efficient handling of returned
products. The lower ratings on
elements' importance compared
with elements' performance are not
statistically significant. Moreover,
the overall customer service
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 Table 2
Results of Cluster Analysis with K-means

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importance is higher than the
overall customer service
performance and statistically
significant. These results suggest
that the multiple food retailers
considered the service elements'
importance more significant than
the suppliers' performance on
these elements.
As far as the elements product
availability and efficient handling of
emergency orders are concerned,
the retailers are satisfied by the
food suppliers' performance on
both elements and they gave a
higher rating to the performances
than to the elements' importance,
as presented in Table 1. During the
personal contacts, the majority of
the retailers mention that
emergency orders are rare due to
the regular visits of the salesmen
(up to three times a week) and this
perhaps reduces their perceived
importance of the element efficient
handling of emergency orders.
Similarly, product availability is
considered to be of medium
importance by the retailers
because they gave high importance
to the element order completeness.
We must point out that order
completeness is the outcome of the
element product availability and
affects the retailers' satisfaction
directly. It appears thus that the
suppliers do not have to focus their
service strategy on the elements
product availability and efficient
handling of emergency orders.
As far as the elements on-time
delivery and efficient handling of
customers' requests are concerned,
the difference between importance
and performance is the smallest
and statistically nonsignificant. In
relation to these elements, the
multiple food retailers' perceptions
of importance are equal to their
perceptions of performance. The
food suppliers should maintain
their level of performance in these
areas.
The results suggest that the food
suppliers should align their
strategy with the following logistics
service elements in order to
improve customer service and
satisfaction: order completeness,
delivery of products without defects,
Supply Chain Forum An International Journal
and informing about shortages in the
order. Food suppliers should also
align their strategy with the
following marketing service
elements: invoice error-free,
efficient handling of returned
products, and providing technical
information.
Although the focus on the elements
that comprise importance-
performance gaps has high priority
for food suppliers, the
identification of different retailers'
segments is also an essential
component of a successful
customer service strategy. The
objective of the cluster analysis
was to determine how each retailer
group rates customer service
importance and performance.
The results of cluster analysis are
reported in Table 2. Curiously,
supermarkets form one cluster
(second cluster) that considered
customer service to be important
in their decision to continue doing
business with a food supplier. The
hypermarkets and convenience
stores form two clusters with the
first considering customer service
less important than the second
cluster. Supermarkets,
hypermarkets, and convenience
stores form two clusters
respectively concerning customer
service performance. The first
cluster perceived customer service
performance to be higher than the
second cluster.
By using simultaneously the
importance and performance of
customer service, the multiple food
retailers can be grouped in three
segments as presented in Table 3,
which is based on the contents of
Table 2 and further processing,
compared to Tables 1 and 2, which
are the precise outcome of the
statistical software SPSS. Each
segment represents a combination
of two variables in the form of
Cluster (X, Y) with X representing
customer service importance and Y
representing customer service
performance. The variable X
receives values 1 or 2 with 1
representing less important and 2
representing more important. The
variable Y receives values 1 or 2
with 1 representing high
Vol. 10 - N°2 - 2009 69
performance and 2 representing
low performance. For example,
Segment A represents the Cluster
(2, 1), which means that the
retailers included in this segment
considered customer service to be
important and rated high the
performance of the suppliers.
Segment A contains the retailers
that consider customer service to
be important in their decision to
continue doing business with a
food supplier and rate customer
service performance higher
(Demanding but Satisfied Cluster).
Segment A consists of 11
supermarkets, five hypermarkets,
and five convenience stores.
Segment B contains the retailers
that consider customer service
important and rate customer
service performance lower
(Demanding and Unsatisfied
Cluster). Segment B consists of six
supermarkets, one hypermarket,
and one convenience store.
Segment C includes the retailers
that consider customer service less
important and rate customer
service performance lower
(Undemanding and Unimpressed
Cluster). Segment C consists of
three hypermarkets and three
convenience stores. Segment A
contains the greatest number of
retailers (21 out of 35) and segment
C the smallest number of retailers
(6 out of 35). Segment A represents
higher retailers' perceptions in
both importance and performance
indicating that these demanding
customers believe their suppliers
to be providing superior customer
service. Segment B represents a
mismatch between importance and
performance. In segment B the
retailers' perceptions are higher in
the customer service importance
and lower in the customer service
performance. Suppliers should pay
attention to Segment B because
retailers may turn to the
competitors. Segment B consists of
eight retailers-one hypermarket,
one convenience store, and six
supermarkets. Thus, six out of 17
supermarkets that participated in
the current research-approximately
35%-are dissatisfied with the
suppliers' customer service
performance. In segment B there
are opportunities for customer
service improvement and it is
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 Table 3
Multiple food retailers' clustering by using two dimensions: customer service importance
and performance
essential for the food suppliers to
identify the reasons that lead to the
mismatch between the retailers'
perceptions of importance and
performance. More specifically,
subsequent analysis reveals that
the eight retailers' perceptions of
importance are higher than their
perceptions of performance in five
service elements: invoice error-free,
on-time delivery, informing about
shortages in the orders, product
availability, and efficient handling of
emergency orders. The differences
between importance and
performance on those elements are
statistically significant. The
retailers rate low the performance
of the suppliers in the efficient
handling of emergency orders (2.18
on a 7-point scale). The retailers
rate medium the performance of
the suppliers in the invoice error-
free, on-time delivery, informing
about shortages in the orders, and
product availability (3.87, 4.44, 4.75,
and 4.12 respectively on a 7-point
scale). However, the retailers rate
high the importance of all service
elements. In segment D Greek food market consists of four
(Undemanding but Satisfied
Cluster) the retailers' perceptions
are lower in the customer service
importance and higher in the
customer service performance.
Segment D could consist of retailers
who are interested only in the
outcome of customer service such
as the performance of the food
suppliers. It is not a common case
Supply Chain Forum An International Journal
and it is encouraging that no
retailers entered this segment.
Because of the natural
characteristics of food products
and the attention given to quality
and safety, the importance of
customer service is also significant
for the retailers.
Conclusions and
future research
The aim of this paper has been to
assist food suppliers in developing
an effective service strategy by
focusing on the marketing and
logistics components of customer
service, by identifying the service
elements' importance-performance
gaps, and by segmenting the
retailers on the basis of their
perceptions regarding customer
service importance and
performance.
Based on the choices of retailers
from a prestructured list modified
by the food suppliers, it emerged
that customer service within the
marketing and six logistics service
elements. The elements based on
the marketing perspective of
customer service are (in order of
importance): invoice error-free,
efficient handling of returned
products, providing technical
information, and efficient handling
of customers' requests. The elements
based on the logistics perspective
Vol. 10 - N°2 - 2009 70
of customer service are (in order of
importance): order completeness,
delivery of products without defects,
on-time delivery, informing about
shortages in the orders, product
availability, and efficient handling of
emergency orders.
The food suppliers should
formulate their service strategy by
taking into consideration these
logistics service elements-order
completeness, delivery of products
without defects, and informing about
shortages in the orders-and the
marketing service elements:
invoice error-free, efficient handling
of returned products, and providing
technical information.
Prior segmentation of the multiple
food retailers into three groups
(hypermarkets, supermarkets, and
convenience stores) was carried
out based on their annual
purchases of food products and
then cluster analysis was
performed. All the supermarkets
formed one cluster that considered
customer service important while
the hypermarkets and convenience
stores formed two clusters. The
hypermarkets and convenience
stores that formed the first cluster
considered customer service as
less important compared to the
hypermarkets and convenience
stores that formed the second
cluster.
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In addition, with the help of cluster
analysis and further processing the
retailers were classified into three
segments-segment A (Demanding
but Satisfied Cluster), B customer service issues in other
(Demanding and Unsatisfied
Cluster), and C (Undemanding and
Unimpressed Cluster). In Segment
A the suppliers should continue to
provide the same level of customer
service. In segment B the suppliers
should satisfy the retailers by
improving their customer service
performance. Segment C is an
intriguing combination of low
perceptions of importance of
customer service and a low rating
of performance and it is necessary
to conduct more in-depth
qualitative research to understand
the motivation of the retailers
making up this group. An emerging
trend in the field of customer
service in consumer service
marketing, for example, is that of
“low expectation,” whereby
customers have reacted to low
service levels by becoming less
demanding through a process of
“learned hopelessness” (Goodman,
2009, p. 34). It would thus be ill-
advised to reduce customer service
level for this group without further
investigation of the specific service
context that may have led to the
development of such customer
service perceptions and ratings.
However, our analysis was only
focused on multiple food retailers.
If the survey is also carried out with
food wholesalers, differences in
their perceptions can be noted. For
instance, it is possible that a
service element may present a gap
between performance and
importance according to the
perceptions of the food retailers
and not food wholesalers. Thus, an
effective service strategy should
also segment customer service
offerings by providing different
service elements per customer
group (for example retailers versus
wholesalers). Instead of providing
the same service elements to all
customers, suppliers should know
which services the customers
really want and should not provide
customers with more services than
they want or need. Restricting the
Supply Chain Forum An International Journal
evaluation of customer service to
the food sector in Greece is a main
limitation of this research and
future research should examine
sectors and in other Balkan
countries in order to compare the
results with this study.
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Parasuraman, A. (1998). Customer About the author
service in business-to-business markets:
An agenda for research. Journal of Dimitrios Theodoras received his PhD
Business & Industrial Marketing, 13(4/5), (Honors) in Industrial Management and
Technology from the University of Piraeus,
309-321.
Greece. He received his MSc (Honors) degree
in Logistics Management and a Bachelor
Pirttila, T., & Huiskonen, J. (1996). A degree in Economics from the University of
framework for cost-service analysis in Piraeus. He has lectured in customer service-
differentiation of logistics services. service management at the postgraduate
level at the University of Piraeus and in
International Journal of Production operations management at the Hellenic Police
Economics 45, 131-137. Academy. He was the assistant logistics
manager in the Organizing Committee for the
Rushton, A., Oxley, J., & Croucher, P. Olympic Games in Athens and has served as
an advisor at the Ministry of Economy and
(2000). Logistics and distribution
Finance. He is a part-time lecturer in the
management (2nd ed.). London: Kogan Hellenic Air Force Academy. Dr. Theodoras's
Page. teaching, research, and consulting interests
include customer service, logistics
management, services marketing, and quality
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management.
Segmentation of markets based on
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Physical Distribution & Logistics
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Strategic logistics management (4th ed.).
New York: McGraw Hill International.
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Koelemeijer, K. (1995). Measuring
customer service quality in international
marketing channels: A multimethod
approach. Journal of Business & Industrial
Marketing, 10(5), pp. 50-59.
Zinszer, P. H. (1997). Segmenting
logistical service offering using the
extended buy grid model. International
Journal of Physical Distribution & Logistics
Management, 27(9/10), 588-599.
Vol. 10 - N°2 - 2009 72 www.supplychain-forum.com
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