Il rapporto dettagliante-produttore nell'industria della moda: un'analisi basata su regressioni panel dinamiche

D I ’I

IPARTIMENTO DI NGEGNERIA DELL NFORMAZIONE E

S M

CIENZE ATEMATICHE

Corso di laurea in

ENGINEERING MANAGEMENT

THE RETAILER-MANUFACTURER RELATIONSHIP

IN THE FASHION INDUSTRY: AN ANALYSIS BASED

ON DYNAMIC PANEL REGRESSIONS

Relatore: Candidato:

Prof. Gianluca Murgia Valentina Bonaccini

Anno Accademico 2020/2021 A Mamma e Papà

Ai Nonni

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INDEX

Introduction 4

Chapter 1 7

Brand and retailer relationship: satisfaction and repurchase intention 7

1.1 Introduction to Retail 7

1.1.1 Retail history in brief 8

1.1.2 Retail sectors 9

1.2 Fashion retail overview 10

1.2.1 The supply Chain evolution 11

1.2.2 The fashion retailers’ categories 12

1.3 The relationship between retailer and company: satisfaction 13

and repurchase 13

1.3.1 Introduction to the concept of "satisfaction" 13

1.3.2 Introduction to “trust” 15

1.3.3 The importance of Service Quality 16

1.3.4 The Loyalty Model 18

1.3.5 Three-way relationship: brand, retailer and consumer 22

1.3.6 Brand-retailer relationship: in-depth study of the fashion sector 23

Chapter 2 27

Case Study 27

2.1 Introduction to CRM 27

2.2 Salesforce.com: the structure of the software within the company and the objects of

interest 28

2.3 The Case Study 34

2.4 The dataset 37

Chapter 3 39

Regression models and statistical tests 39

3.1 Introduction to Regression Models 39

3.2 Panel Regression Models 40

3.3 Testing the consistency: the Hausman’s Test 42

3.4 Heteroskedasticity: Breusch-Pagan test 43

3.5 The Sandwich estimator 44

3.6 The Multicollinearity test 45

3.7 The Poisson Regression Model 46

3.8 Overdispersion: the solution through the Poisson model with Robust Errors 49

3.9 The Arellano Bond Model 50

Chapter 4 54

Results obtained and managerial implication 54

4.1 Analysis of the variable “Total Amount” 54

4.2 Preliminary Analysis 56

4.3 Description of the variables under examination 71

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4.4 Results of the analysis: regression models obtained 74

4.4.1 Fixed Effects model 74

4.4.2 Random Effects model 75

4.4.3 Hausman Test and Breush-PaganTest 77

4.4.4 Fixed-Effects model with robust errors 78

4.4.5 The Arellano-Bond model 78

4.5 Recap and interpretation of the results obtained 87

4.6 Robustness analysis: analysis of cases opened by retailers 88

4.6.1 The fixed-effects Poisson Model 88

4.6.2 The random-effects Poisson Model 89

4.6.3 Hausman’s test and Breush-Pagan Test for Poisson models 90

4.6.4 Fixed-Effects Poisson model with robust errors 91

4.6.5 The Arellano-Bond model for robustness analysis 92

4.7 Overview of the robustness analysis results 96

4.8 Managerial implications of the results obtained 97

Conclusions 100

Appendix 102

References 119

Sitography 121

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Introduction

The objective of the study in this thesis is to understand what factors influence the

relationship between retailers and a fashion company. More specifically in this case we

study firstly what drives retailers to contact the company's customer service and how

these contacts (which represent negative elements for the company) can be limited. In

addition, we analyze what drives retailers to re-order the company's products and what

influences the total quantity ordered in the different months of the year. The figure of the

retailer is one that originated in antiquity and has evolved over time into what we know

today. Today it is essential for a company to work and improve its relationship with its

retailers for several reasons. Among the main ones:

• Trying to retain existing retailers rather than having to acquire new ones: this is

important to avoid incurring higher costs and more risks

• To better reach the end consumer

• To increase product knowledge

There are many studies that analyze the relationship between retailers and companies and

how this relationship is influenced by various factors such as retailers' satisfaction and

trust in the manufacturer. What is clear from the various studies reported is that to have a

long and lasting relationship, it is fundamental to build trust and satisfaction in the retailer,

which depends, among other things, on the service provided and the company's ability to

solve reported problems. What these studies also show is that if the retailer is not satisfied

or has problems with the company, they can still decide to maintain the relationship with

the manufacturer to avoid incurring higher costs due to switching suppliers.

To achieve the set objectives and to analyze these aspects in the company under analysis,

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data on the company and its interactions with retailers contained within a CRM (Customer

Relationship management) system were extracted. For this reason, the Salesforce system

used by the company's customer service and the main processes guiding the interactions

between customer and company are briefly introduced in the report. The data extracted

for the reported analysis relates to the number of retailer reports of any problems

encountered, some variables that indicate the nature of the problems encountered and

other variables that measure customer service performance. This data is key to

understanding what drives customers to report problems and at the same time repurchase

the company's products. In order to analyze the extracted variables and to understand how

the dimensions under analysis are affected, a number of panel regression models are

introduced theoretically in the course of the paper and used later on like, for example, the

Poisson models with fixed or variable effects and Arellano-Bond models. To accompany

the theories on the various regression models, the statistical tests used to analyze, for

example, multicollinearity and heteroskedasticity are also reported. The models were

therefore used to analyze the variables extracted from the CRM system. Several results

and models are reported, considering both the number of problems reported by retailers

in different months as the dependent variable (to analyze which variables push customers

to report problems) and the variable representing the amount ordered in each month (in

terms of euros) by different retailers (to analyze what influences their spending). Both

analyses produced consistent results indicating that the performance of customer service

agents is key to reducing retailer complaints and increasing orders at the same time.

Another important factor influencing the two variables is the type of "problems" the

agents focus on. Retailers are more influenced by some types of problems than others

(different types of problems have different importance). Once these aspects have been

identified, managerial actions can be implemented that work by prioritizing the problems

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reported by retailers, improving and modifying the current form of the software, and at

the same time intervening on customer service agents to improve their performance and

provide them with the best possible tools. 6

Chapter 1

Brand and retailer relationship: satisfaction and

repurchase intention

In this first chapter, the world of retailers is introduced and how their satisfaction drives

them to repurchase a given company's products. Before getting into the heart of the topic,

it's important to introduce what retailers are and give an overview of the retail world.

1.1 Introduction to Retail

Retailing can be defined as “the set of activities that markets products or services to

consumers for their own or personal household use. It does this by organizing their

availability on a fairly large scale and supplying them to consumers on a relatively small

scale” (Newman and Cullen 2002 p.12). "Retail" encompasses all those activities of selling

products (or services) carried out by a company (retailer).

The retailer is a part of a larger system: the distribution chain. In particular in the

distribution chain are found:

• Producer: the company that produces the final product

• Wholesaler: buys the product in large quantities from the company and

resells it to the retailer

• Retailer: buys the product and retails it to the final consumer

• Consumer: the person who purchases for personal use

It is of interest to this study to delve into the figure of the retailer.

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1.1.1 Retail history in brief

Retail activities have very distant origins. It is enough to think that already in the ancient

times men started to exchange objects and animals giving birth to a first form of buying

and selling. For many years, simple family-run stores sold products to local consumers.

In particular, the birth of retail as it is known today can be traced back between 1800 and

1900: in these years there was a shift from small family stores to large warehouses. One

of the reasons for this evolution can certainly be traced back to the invention of the cash

register by James Ritty (1879). The first stores developed in this period were mostly

physical stores where consumers went to buy what they needed. Frank Woolworth gives

a twist to retailers as they were known in the past and introduces the modern retailer: he

introduces the concept of self-service by moving the product from behind the cash register

(so it is the retailer who serves the customer) to the shelf. In this way, the customer can

service themselves. It is thanks to Woolworth's idea and to the migration of citizens from

the countryside to large suburban centers that the first shopping centers were born (1956

the first in the United States). We have to wait until 1990 because technological progress

leads to retailing as we know it today. In 1991, in fact, e-commerce was born and already

in 1995 Jeff Bezos shipped the first book sold on Amazon.com. In the following years e-

commerce like eBay and Alibaba were born. In the 2000s the growth of online sales

through e-commerce is exponential thanks to a continuous improvement of available

technologies and an increasing number of users with access to the internet through

smartphones and tablets.

Nowadays, therefore, different types of retail can be listed:

• Retail "fixed location": it is the physical store where the customer can find the

products

• Supermarket: store that has a wide range of food (main product), household

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items and technology products

• Discount: unlike the supermarket in this case most of the products are "non-

branded". It is a retailer with low prices

• Temporary stores: temporary stores that can be used as a marketing strategy to

launch a new product or strengthen the company's product

• Vending machines: product vending machines that are open 24 hours a day

• Mobile retail: it is an app that can be downloaded on smartphones through which

the consumer can make purchases. It can be thought of as a "virtual store"

• Internet retail: these are e-commerce. In these websites the customer can order

and purchase products and receive them at home by courier.

1.1.2 Retail sectors

It should be clear that the world of retail is very broad and includes not only supermarkets

and specialty stores (opticians, clothing stores, grocery stores, etc. ..) but also all service

companies in the areas of catering, hotels and so on.

For this reason, for the sake of clarity, the retail world can be divided into three different

sectors:

• Food: these are stores that specialize in the sale of food products, i.e. products that

the consumer buys to meet basic needs related to nutrition

• Durable consumer goods: all those stores that sell to the final consumer all those

goods that can be used several times over time by the final consumer and

deteriorate very slowly

• Consumer goods: all those stores that sell the end consumer all those goods that

can be used several times over time by the end consumer but deteriorate quickly

(usually within 3 years of purchase). 9

1.2 Fashion retail overview

"Fashion is a complex social phenomenon that is defined as the attitude of a collectivity

which manifests a predominant style in a given period” (Maizza).

The object of this thesis is an analysis of data from a company operating in the fashion

sector. For this reason, it is considered opportune to go to introduce what is the fashion

retail. With fashion retail is meant the retail trade in clothing and accessories. Retail in

fashion has been the protagonist of significant growth both in the industrialized world and

in developing countries. Increasing globalization and international communication have

allowed the creation of global fashion retailers (Jackson & Shaw, 2001). In recent years,

fashion manufacturers have shown a preference for retail as a means of achieving success

and a competitive advantage over their competitors. The store becomes the place where

consumers can satisfy their needs and feel "emotions". In particular, the figure of the

retailer has three main objectives in relation to the manufacturer:

• Increase the value of the product offered by the company

• To build a purchasing "experience" for the consumer

• To make the customer be loyal and repurchase the product

Between the 90s and 2000s, physical retail stores expanded their spaces and the offer

proposed to the customer by adapting to an increasing interest from consumers and a

change in the customer itself:

• the consumer wants a fast delivery

• the customer wants perfect service

• the consumer ask for efficient management services for post-purchase issue

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To demonstrate that these aspects are important, consider that 50% of consumers tend to

change brands when they do not see in the company an ability to meet or even anticipate

their needs. To satisfy increasingly demanding consumers, high fashion companies have

exploited new technologies to optimize sales processes and customer relationship

management itself: new technologies (such as, for example, online catalogs) have allowed

companies to exponentially increase sales. However, even if the number of consumers

who buy in the physical store is decreasing by 5% every year, there are still about 30%

who prefer to go and buy the product in the store rather than buying it online. When it

comes to retail in the fashion world, therefore, there is no one-size-fits-all solution, but

we must talk about “omnicanality”: artificial intelligence systems must collaborate with

traditional retail to satisfy any type of consumer.

1.2.1 The supply Chain evolution

The arrival of new technologies has allowed to bring a change in the mechanisms of the

supply chain regarding the supply of the product from the producer to the retailer. These

improvements allow a better management of the product and consequently an increase in

sales. In particular some examples of development can be listed:

• Data mining: nowadays, thanks to new technologies, retailers and manufacturers

have the possibility to monitor sales and stock data in time and make fast and

accurate decisions

• Products tracking: how to monitor the advanced delivery status of a given order

• Customer experience: this is where the already introduced omnichannel

approach comes in to make sure you deliver the best possible customer

experience, but not only. Omnichannel can also be used for all communication

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and contacts between manufacturers and retailers to simplify and improve the

retailer's experience with the supplier.

1.2.2 The fashion retailers’ categories

There is also a classification of fashion retailers into different types. Two main classes of

fashion retailers are highlighted:

• Specialized Retailers: they are retailers specialized in the sale of a particular

product and they can be mono-brand or multi-brand. Particularly in this group can

be inserted the specialized chains that are retailers with a wide geographic

coverage (that is that they have multiple points sales distributed on a vast territory).

The fundamental element is the strong verticality of the specialized chains

(examples are H&M, Zara...) which sell their products with their own brand obtained

as output of the production of selected suppliers. Together with the specialized

chains, independent stores are also part of this category. These are stores that sell

one or more types of products and are multi-brand (i.e. they sell more brands of

the product sold). Unlike the specialized chains, the independent stores operate on

a restricted geographical area and serve a limited number of consumers.

• Non-specialized retailers: these are all those retailers that are not focused solely

on the sale of a specific product. This group includes hypermarkets and

supermarkets, department stores and mail-order retailers. To better understand the

differences between these three retailers, a brief description is provided. Starting

with hypermarkets (for example, Auchan and Carrefour), these are retailers that

combine the offerings of supermarkets with those of department stores. They are

retailers that have very large spaces available and for this reason they offer a large

quantity of products in a common space. They are usually located in peripheral

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areas and characterized by a business model that includes the sale of large

volumes. Moving on to department stores are stores that sell large quantities of

products organized into precisely "departments". Compared to hypermarkets there

is a greater selection of the type of products sold (usually clothing, cosmetics,

accessories, perfumes and household products) as well as a careful selection of

brands and spaces dedicated to them. The last type is made up of mail-order

retailers, that is, all those retailers that allow customers to order remotely (via

online sites, apps or telephone) and receive the product directly at home.

1.3 The relationship between retailer and company: satisfaction

and repurchase

To introduce and present the study and the results obtained in this thesis, it is necessary

to analyze the relationship between the companies and their respective retailers and how

satisfaction, trust and the quality of the service offered by the company can influence this

relationship and the repurchase intention of the retailers themselves.

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