CUSTOMER DEMAND AND GREEN PRODUCT INNOVATION INFLUENCE TO FIRM PERFORMANCE: CASE OF FOOD MANUFACTURING FIRMS IN

TANZANIA

BY Julian Kimario (AL)

University of Dar es Salaam Business School (UDBS)

Presentation Outline

• Introduction• Literature Review• Hypotheses• Methodology• Findings• Discussion of Findings• Conclusion and Managerial Recommendations

Introduction

The study was to assess whether customer demand and green product innovation can influence firm performance as a way of enhancing wealth creation.

Why the study• Increased debate and interest on whether green

product innovation can improve firm’s performance (Pujari, 2006).

• Green product innovation can present an opportunity for firms to utilize (Porter and Linder, 1995)

• Relationship between customer demand, green product innovation and firm performance is still controversial. (Pujari, 2006, Chein, 2001, Berchicci and Bodewes, 2005)

• Conflicting findings - scholars have indicated a concern of further research in this area e.g Koellling, 2008

Literature Review• Green production refers to manufacturing firms

adopting best practices in the design and production process of products that are consistency with the demand of customers and nature in large (Yang et al., 2003).

• Such practices link to sustainability with manufacturing firms having ability to meet the needs of the present customers without infringing the needs of the future generation.

Literature Review Cont….

• From literature, the following variables were identified for measuring firm performance:– Market share– Sales volume/revenue

• Green innovation– number of new or redesign process, – new products or improved existing products

• Customer demand– Flexible prices

Literature Review Cont..• These elements are considered important factors for

firms to compete in the markets place (Chen, 2008; Oltra and Saint, 2009).

• Many firms have taken market share as a way to push sales volume and to satisfy customer needs (Rex and Baumann, 2007).

• Firms that have adopted the green production have successfully push more volume to the market place Rubik et al., (2005)

• Today customers have increased demand for green and efficient products and even ready to pay for high prices (Meyer and Clavel, 2006).

Hypotheses• H1a: There is no relationship between customer demand and

green product innovation• H1b: There is a relationship between customer demand and

green product innovation

• H2a: There is no relationship between green product innovation and market share

• H2b: There is a relationship between green product innovation and market share

• H3a: There is no relationship green product innovation and sales volume/revenue

• H3b: There is a relationship between green product innovation and volume/revenue

Methodology• 75 manufacturing firms in Dar es salaam were

purposively sampled from food manufacturing companies .

• Green product innovation is measured by number of new or redesign process, new products or improved existing products introduced to the market.

• Market share is measure as percentage of firm’s specific market to total market share and sales volume/revenue is measured in units.

• Market demand can be measured by price flexibility

Methodology• Questionnaire was designed with four parts:

descriptive data of participants, customer demand, green product innovation and firm performance with five likert scale.

• The questionnaire was pre- tested in two stages: – First it was given to experienced researches to critique on clarity,

ambiguity and to comment on the appropriateness of the items to operationalize the constructs.

– In the second test the questionnaire was sent to three marketing, technical directors and CEOs in the industry to give their opinion on the readability, understability, accuracy and completeness of the instrument.

Findings• Cross tabulation was run to perform Chi-square test

to demonstrate the relationship between the variables.

• Data about demographic characteristics was collected to summarize participating firms’ background features.

• Results show that more than 61% of the responding firms have more than ten years of operations, 53.6% with a turnover between TZS 10 billion and 350 billion. 43.1% with a capital of more than TZS 1 billion and with more than 150 employees.

Findings Cont..• The mean and standard deviation were calculated to explain association between

customer demand, green product innovation and firm performance.

N MeanStd. Deviation

Customer Demand 75 4.10 0.78

Green Product innovation 75 4.26 0.73

Firm Performance 75 4.33 0.86

In the table above the mean range from 4.1 to 4.33, implying that many firms have taken actions to implement green product innovation.

Findings Cont…• The constructs are considered to have high content

validity, since the instrument was adopted and modified from Wong and Law, 2002.

Constructs Cronbach’s α values

Customer Demand 0.848Green Product Innovation 0.960Firm Performance 0.754

Findings Cont…• Three hypotheses were tested to establish

relationship between the variables.• The results are significant if p-value <0.05

– Hypothesis 1: There is relationship between Customer demand and product innovation

Value Degree of freedom

Asymp. Sig. (2-sided)

Pearson Chi-Square 48.626(a) 24 .002*Likelihood Ratio 21.335 24 .619Linear-by-Linear Association

1.718 1 .278

N of Valid Cases 75*Significant at p<0.05

Findings Cont…– Hypotheses 2, and 3 aimed at establishing relationship

between green product innovation and firm performance which is measured items of market share, enhanced revenue and increased reputation of the firm.

Pearson Chi-Square Value Degree of

freedom

Asymp. Sig. (2-sided)

Market Share 23.789(a) 24 .004*Sales Revenue 22.110(a) 12 .036*N of Valid Cases 75

*Significant at p<0.05

Findings Cont…• The tests evidenced that all variables are significant

since p-values are less than hypothesized values (p<0.05)

• Therefore there is relationship between customer demand and green product innovation.

• and also a relationship between green product innovation and firm’s performance.

Discussion of Findings• Findings reveal that customer demand has relationship

with green product innovation. • These findings are consistent with other studies

(Lunghwa et al., 2013, Gronhaug and Kaufmann, 1988) who said customer demand can exert significant pressure to firms to adopt the green innovation design and process, and to introduce new products development strategies.

• A discussion with some respondents in the industry revealed that firms that adopt flexible strategy in meeting customer demand by introducing the eco-friendly products have increased business sales and revenue.

Discussion of Findings Cont..• There is significant relationship between green

product innovation and firm performance. The findings are in consistency with the finding of Lin et al., (2013).

• This mean that green product innovation is an important element to induce performance and not otherwise.

• A discussion with some respondents in the industries said that implementation of the green innovation can require huge investment which in turn cannot enable firm to attain their competitive position.

CONCLUSION AND MANAGERIAL IMPLICATION • The study provides a useful managerial guideline to

manufacturing firms on strategies to adopt in order to improve performance.

• By showing a relationship between customer demand and green product innovation, we recommend firm to take a positive approach to study and understand customer preference, anticipating changes of customer preferences in the future and try to deliver products that satisfy the needs of the customers.

• The firm that will be able to satisfy needs of customer accordingly will be able to enhance its performance and attain its market position.

• Also the green innovation should be taken as competing strategy to gain competitive advantage, and firms should always strive

ENDTHANK YOU

Q & A

Why Tanzania• Following privatization, trade liberalization and regional

integration in 2000’s, performance of Tanzania manufacturing firms is not impressive (TIC Report, 2012).

• She remains behind regional models both in terms of quantity and quality of products produced in the region.

• Also she continue to relay heavy on unproductive agriculture sector, extraction of raw minerals and low value adding manufacturing products which has resulted into a low share of GDP of 9.5% between 2000 and 2010 making her to be below regional average and the least industrialized country in the world (TIC Report, 2012).

Why Tanzania Cont….• Industrial sector in Tanzania contributed a GDP of

9.5% of the whole economy between 2000 and 2010 and employing 36% of all manufacturing labour (TIC Report, 2012).

• Development and growth of manufacturing sector in Tanzania is taken as key element in attaining 2025 vision

• By shifting a focus from agricultural economy to self-sustaining semi-industrialized economy, that will transform the nation from least developed country to middle income country by 2025 through transformation of agricultural economy to industrial economy.

The Conceptual Framework

Customer Demand

Green Product Innovation

Firm Performance

H1

Market Share

Sales Revenue

H2

H3