Abstract
In the face of struggling native-owned informal grocery businesses, immigrant-owned shops in Johannesburg townships have demonstrated remarkable success. While research on this topic has been primarily informed by shopkeeper data, this article explores the phenomenon from the viewpoint of customers. Given that customers play a significant role in facilitating the success of businesses, the dearth of a customer perspective of the success of immigrant shopkeepers presents a gap in knowledge. This study addresses this gap by investigating the interaction between shopkeepers and customers from the perspective of customers. Drawing on the theories of customer value and customer satisfaction, the author proposes that customers prefer to patronize immigrant shopkeepers due to the considerable value they provide. The study was conducted in the Johannesburg township of Alexandra and involved the collection of cross-sectional quantitative data from 400 households. The findings indicate that customers patronize immigrant-owned businesses due to the superior value they receive, thereby enabling their success. This research highlights the importance of providing value to attract customers and contributes to the literature on the role of customers in informal business performance. Furthermore, the study sheds light on the contribution of customer reciprocation of shopkeeper value and has important implications for policymakers, business owners, and scholars alike. It underscores the need for a more nuanced understanding of the dynamics underlying the success of immigrant entrepreneurs in South Africa's informal retail sector.
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Introduction
A significant portion of the population, in South Africa, resides in townships. These are urban settlements that were established during the apartheid era with the purpose of accommodating non-whites. They are densely populated and have a prevalence of low-income households (Jürgens et al., 2013). Townships reflect the complex historical context and persistent socioeconomic challenges faced by the country, including pervasive poverty and unemployment (Rogerson, 2019). They were spatially separated from cities and suburbs with the result that they had limited access to retail establishments catering to daily needs (Charman et al., 2012). To address this disparity, an active informal retail sector emerged in townships, consisting of small kiosks known as Spaza shops. Originally established by South African households to supplement their formal incomes while fulfilling the retail demands of their local communities (De Beer, 2014; Terblanche, 1991), this sector has undergone a significant demographic transformation in recent decades with asylum seekers and refugees displacing native entrepreneurs to capture a substantial share of the market. This displacement, unfortunately, coincided with a significant rise in unemployment among South Africans over the past two decades. The unemployment rate has now reached a record 44% (Naidoo, 2021).
Operators of Spaza shops, known as shopkeepers, have increasingly turned to informal retail self-employment as an alternative to formal employment, primarily due to the scarcity of job opportunities. Informal retail self-employment has been observed to yield potential benefits for the unemployed, as the income generated through it tends to surpass the average welfare grant and approaches parity with South Africa’s minimum wage (Woodward et al., 2011). Even the government now acknowledges the viability of informal self-employment as an alternative for mainstream employment (Ngota et al., 2019). Notably, immigrants have demonstrated greater success in attaining economic self-sustainability through their involvement in Spaza shop businesses compared to their local counterparts (Liedeman et al., 2013; Mampheu, 2019; Mukwarami et al., 2018). They have established a strong presence, thrived, and demonstrated adaptability to the local market (Chidau et al., 2022; Mampheu, 2019) drawing envy from their local counter-parts and prompting the government to implement measures aimed at restricting the informal business activities of immigrants (Mothibi et al., 2015; Ntema & Marais, 2014; Piper & Charman, 2016). However, it is important to highlight that a repeal of a law by the constitutional court eradicated most legal barriers, thereby offering immigrants enhanced opportunities for economic participation through informal self-employment (De Beer, 2014).
Immigration is widely acknowledged as a potentially advantageous phenomenon, facilitating intercultural exchange, and enhancing the economic prospects of both host and home countries (Boon & Ahenkan, 2012; Riaño, 2022). Many host countries have reaped various benefits from immigration, including economic growth resulting from immigrants' ability to fill labor market gaps, and their establishing of new businesses that generate employment opportunities (Riaño, 2022). Immigrants have contributed to skills and knowledge transfer through the sharing of their unique expertise, experiences, and insights. Their diverse cultures, traditions, languages, and perspectives have enriched the cultural landscape of many host countries. Immigration has played a crucial role in addressing demographic challenges such as aging populations and low birth rates by increasing the working-age population and sustaining social welfare systems through tax contributions. Immigrants also exhibit higher rates of innovation and entrepreneurship compared to native populations (Riaño, 2022). The advantages of immigration extend beyond these aspects, highlighting the multifaceted benefits associated with immigration.
Amidst South Africa's prevailing high levels of unemployment, the strategic utilization of the self-employment potential among the immigrant population presents an opportunity for South Africa to attain socio-economic benefits. Integrating the self-employment practices of immigrants into training programs can provide the country's highly unemployed and impoverished individuals with a viable avenue to acquire self-employment skills, thereby generating mutually advantageous outcomes for both immigrant and the native population. Understanding the activities of immigrants is crucial for leveraging their economic and social benefits. This understanding can facilitate the creation of tailored policies aimed at maximizing the economic contributions of immigrants, particularly in the informal sector where they can share their skills and knowledge.
Regrettably, the process of assimilating immigrants into the fabric of South African society and economy has been ineffective, thereby engendering instances of discriminatory treatment, exploitative practices, and heightened social frictions (Callaghan, 2014; Tella, 2016). This has impeded the capacity of immigrant populations to make meaningful contributions to both the social and economic dimensions of South African society (Weda & de Villiers, 2019). Unfavorable policies and practices, xenophobic rhetoric, and violent actions have acted to constrain the full integration and participation of immigrants in South Africa (Maharaj, 2002; Van Raemdonck, 2019; Weda & de Villiers, 2019). This undermines social cohesion and contributes to the marginalization of non-citizen individuals, who frequently face limitations in rights and resource access (Taylor & Foster, 2015). Such dynamics pose significant challenges to the pursuit of equity, justice, and equal opportunities, which are key objectives in South Africa's ongoing endeavors to combat systemic discrimination and foster inclusivity (Adjai & Lazaridis, 2014). Researching the entrepreneurial activities of immigrants could make a positive contribution in this regard.
Contribution of the Study
The significance of customer behavior as a driver of business success is well-established in sales and marketing domains (Kanten & Darma, 2017; Noel, 2017; Zhao et al., 2021). Recognizing the importance of customers in business performance, it is crucial to consider their perspectives when evaluating the performance of shopkeepers. However, there is a research gap in understanding how customers in the informal retail sector perceive the value provided by shopkeepers and how this affects their behavior, and subsequently, the performance of shopkeepers. Despite existing studies, this research gap persists.
The few customer-centric studies, exemplified by recent research conducted by Louw et al., (2020) and earlier work by Potgieter (2003), have highlighted the significance of customer behavior within the informal retail sector. However, these studies have not established a direct connection between customer behavior and business performance. Those studies that have examined business performance of informal retailers predominantly rely on data obtained from entrepreneurs themselves, lacking the less biased perspective of customers. Notable studies in this regard include Chidau et al. (2022), Mampheu, (2019), Mukwarami et al., (2018), Liedeman et al. (2013), and Ntema (2016). These studies highlight the importance of effective business practices and providing value to customers for achieving business success. However, the lack of the customer perspective prevents a clear connection between reported business performance and customer perception and behavior. This study aims to fill this gap by examining the performance of immigrant entrepreneurs in meeting customer needs, specifically focusing on customer perceptions and responses to the value proposition offered by immigrant shopkeepers.
Two research questions guide this study: (1) How do customers perceive the business offerings of immigrant entrepreneurs? and (2) How does customer response impact the performance of immigrant entrepreneurs? Answering these questions should broaden the scope of research in the field of immigrants in South Africa's informal sector and lead to better outcomes for businesses, customers, policy makers, scholars, and entrepreneurship practitioners.
The focus on immigrant entrepreneurs assumes significance within the research domain due to their notable resilience and accomplishments despite encountering substantial economic constraints encompassing restricted entry to formal economic structures, inadequate legal safeguarding, and absence of governmental assistance (Hungwe & Gelderblom, 2014; Moyo et al., 2018). Conversely, native entrepreneurs, benefiting from a greater array of opportunities, have been less successful when engaging in informal self-employment (Ntema, 2016). Thus, a thorough examination of the outcomes achieved by immigrant entrepreneurs is anticipated to provide valuable insights into the determinants of their success amidst the challenges they confront.
Literature Review
The informal retail sector has long been an established part of the local economy, despite concerns of overcrowding and a prevalence of duplicative entrepreneurship (Khosa & Kalitanyi, 2014; Terblanche, 1991). Nevertheless, it remains a vital source of income for the unemployed and a necessary outlet for low-income consumers (Tshuma & Jari, 2013). The significance of this sector is evidenced by the sheer number of establishments—over 100,000—and their collective annual turnover of at least R7 billion (Mampheu, 2019). A substantial 75% of low-income households patronize these businesses daily (Tladi, 2003; Wegerif, 2020), underscoring their importance to both customers and proprietors.
Immigrants have emerged as pivotal contributors to the growth and development of the informal retail sector (Ntema, 2016; Ntema & Marais, 2014). Their presence has been instrumental in addressing the void created by formal retailers within low-income households, thereby facilitating access to essential goods for local communities. Furthermore, immigrants have provided additional income opportunities to families through rental payments (Skinner & Haysom, 2016; Wegerif, 2020). Consequently, immigrant businesses have gained popularity and surpassed local shopkeepers, with a notable ratio of three immigrant-owned businesses for every South African-owned business (Singh, 2015). In South Africa, immigrant entrepreneurs face informality-related hurdles and issues tied to non-citizen status, encompassing significant obstacles. (Hungwe & Gelderblom, 2014; Khosa & Kalitanyi, 2014; Muchineripi et al., 2022; Sibanda & Stanton, 2022).
Concerning informality, immigrants confront legal and regulatory obstacles due to their operation outside the formal legal framework (Muchineripi et al., 2022; Ncube & Bahta, 2022; Sibanda & Stanton, 2022). Consequently, they encounter difficulties in obtaining essential permits, licenses, and registrations, rendering them susceptible to harassment, and even the potential closure of their businesses (Ntema & Marais, 2014). Furthermore, their informal status limits their access to formal financial services, constraining their ability to secure loans, credit, and insurance (Du Toit, 2020; Oldfield, 2014). Moreover, operating within the informal sector excludes immigrants from the social protection systems typically available to formal workers, depriving them of crucial benefits such as health insurance, pension schemes, and unemployment support (Du Toit, 2020). Consequently, they lack the necessary safeguards against economic shocks, illness, and unforeseen events, rendering them vulnerable on multiple fronts.
Additionally, Immigrants face challenges stemming from their foreign status (Hungwe & Gelderblom, 2014; Ncube & Bahta, 2022). Language and cultural differences hinder effective communication with local customers and understanding of local market dynamics (Omeje & Mwangi, 2014). Limited social support, resulting from the small immigrant population, restricts their ability to identify other business opportunities that can foster business growth (Hungwe & Gelderblom, 2014; Moyo et al., 2018). Discrimination and xenophobic attitudes further compound these challenges, leading to mistreatment such as harassment, exclusion from markets and opportunities, and even violence (Adjai & Lazaridis, 2014; Piper & Charman, 2016; Tshishonga, 2015). Despite these obstacles, immigrant entrepreneurs have shown resilience, successfully grown their businesses, and achieved economic sustainability (Chidau et al., 2022; Liedeman et al., 2013; Mampheu, 2019). To comprehensively understand the factors contributing to their success, further research is necessary to explore and assess the unique circumstances and dynamics that shape the performance of immigrant entrepreneurs in the informal sector.
With prior research associating the outstanding performance of immigrants with their distinct business practices (Chidau et al., 2022; Liedeman et al., 2013; Mukwarami et al., 2018), the present investigation constitutes an extension of prior research, centering on customer perceptions concerning the operational strategies of immigrants. It delves into the attitudes and reactions of consumers vis-à-vis the business practices employed by immigrant entrepreneurs, culminating in an evaluation of the prospective impact of these variables on the commercial performance of immigrant shopkeepers. Through a comprehensive analysis, this inquiry facilitated the establishment of theoretical connections that elucidate the phenomenon of thriving immigrant entrepreneurship, as perceived from the vantage point of their customer base.
The study drew upon the frameworks of Customer Satisfaction Theory (CST) and Customer Value Theory (CVT) to guide the research questions. The former proposes that a seller's value offering serves as the foundation for future customer shopping preferences (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). The latter posits that businesses generate revenue by augmenting and retaining satisfied customers (Bowen & Chen, 2001; Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). Informed by these theories, this study showcases immigrant business triumphs through symbiotic customer relationships. Recent research in a major Gauteng municipality supports this, showing immigrant entrepreneurs' adept use of practices that resonate with customers, fostering loyalty and overall success within the immigrant business sphere (Chidau et al., 2022). The underlying process involves immigrant vendors offering products that align with customers' needs and preferences, thereby engendering customer loyalty and driving the success of the immigrant business community.
The key factors that are interrelated within the study’s context are value proposition, customer satisfaction, and business performance. Research suggests that customer satisfaction and value offering are closely linked, as satisfied customers tend to become loyal and repeat customers who ultimately contribute to the long-term success of a business (Yang & Zhu, 2006). As a result, customer satisfaction is a crucial factor in determining future business success (Fornell, 1992), and it primarily stems from the value offering provided by the sellers (Bowen & Chen, 2001; Tsai et al., 2010). The subsequent sections provide a detailed examination of these factors within the context of immigrant activity in the informal retail sector.
Immigrant Business Practices
Crucial in grasping immigrant business strategies is understanding motives for informal self-employment over waged work, influencing commitment, actions, and customer service. Research shows that immigrants are drawn to informal self-employment by the opportunities they perceive there, rather than being forced by economic circumstances (Charman et al., 2012). Self-employment is used as an adaptation and coping strategy that enables them to overcome the socio economic challenges they face in South Africa (Ncube & Bahta, 2022). The penchant for self-employment among immigrants is not unique to those that have immigrated to South Africa but has been observed in other parts of the world (Hebbani & Khawaja, 2019). This preference for self-employment predisposes immigrants to identifying market needs and providing customer oriented services, leading to their success (Slater & Narver, 1994). Studies have found that the immigrant population operating in South Africa’s informal sector is more responsive to market needs than local entrepreneurs, who may be complacent and less attentive to customer requirements (Basardien et al., 2014; Chidau et al., 2022; Liedeman et al., 2013; Mampheu, 2019; Mukwarami et al., 2018; Ntema, 2016).
Upon joining the informal sector, immigrants leverage their advanced knowledge and skills to achieve success. Their aptitude is largely attributed to their socio-economic backgrounds (Basardien et al., 2014), as the majority of them hail from nations such as Bangladesh, Ethiopia, Somalia, and Pakistan, where informal economic undertakings are prevalent (Ntema, 2016). The Global Entrepreneurship Monitor has established a positive correlation between a nation's economic development and the nature of its entrepreneurial pursuits (Bosma et al., 2020; Faghih et al., 2019; Kelley et al., 2012). In contrast to South Africa, the higher prevalence of informal self-employment observed in the aforementioned immigrant-sending countries can be attributed to the relatively less-developed economies (Bosma et al., 2020; Faghih et al., 2019; Kelley et al., 2012). This disparity in informal activity affords immigrants a competitive edge over South Africans, as they possess greater exposure to informal economic practices (Chidau et al., 2022). Consequently, this demographic is well-positioned to excel in informal sector entrepreneurship (Khosa & Kalitanyi, 2014).
The competitive advantage of immigrants has been substantiated by their adept utilization of effective business practices, including but not limited to, collaborative network formations and shared resource allocation, as outlined by Perks (2010), Charman et al. (2012), and Jinnah (2017). These practices have enabled them to locate their business in areas that are convenient to customers, sustain adequate inventory levels, offer competitive pricing strategies, and provide additional value-added services to their customers, factors that solicit a positive response from customers (van Eyk et al., 2022).
Factors that Affect Customer Perception
Low-income households constitute the primary demographic of clientele for informal retailers, and their reliance on this sector is influenced by a multitude of factors (Chatterjee et al., 2020, 2022; Stats, 2020). Based on the findings of studies conducted by Wegerif (2020) Skinner and Haysom (2016) Tshuma and Jari (2013), it has been estimated that approximately 7 million low-income families supplement their monthly grocery supplies by purchasing from informal outlets. The purchasing behavior of these households is shaped by irregularities in income, dispersion from formal retail hubs, transportation limitations, and susceptibility to criminal activity (Chatterjee et al., 2020, 2022; Stats, 2020). These factors necessitate frequent small purchases from informal retailers in proximity to their residences. Affordability and convenience are, therefore, key factors in the buying patterns of these households.
Product Affordability
Affordability is a fundamental economic concept, which states that a decrease in product prices leads to an increase in the quantity of products that consumers can purchase (Hong et al., 2002). As disposable income decreases, the price elasticity of demand increases, suggesting that consumers prefer affordable products (Agthe & Billings, 1987). Consequently, sellers who offer affordability are more attractive (Hong et al., 2002). The concept of affordability is widely recognized as a crucial element of a product's overall value proposition (Agthe & Billings, 1987; Hong et al., 2002).
For low-income households, affordability refers to the ability to purchase goods and services at a reasonable cost that fits within their limited budgets (Petersen et al., 2019; Piper & Yu, 2016). It is pertinent to acknowledge that, despite not being cheaper than super-market offerings as documented by Louw et al., (2020), products available in Spaza shops are deemed affordable. This affordability stems from the lower costs associated with procuring products from Spaza shops compared to supermarkets. These reduced costs are primarily attributed to the proximity of Spaza shops to their customer base, which eliminates the need for additional transportation expenses (Tustin, 2004). Furthermore, Spaza shopkeepers often adopt the practice of breaking down products into smaller units beyond their minimum packaged quantity (Tustin & Strydom, 2006). This enables consumers to purchase items with minimal amounts that may not be permissible within the confines of supermarkets. This is particularly important as these households often have limited financial resources and are more likely to experience income irregularities (H. J. Dawson, 2022a, 2022b; N. Dawson, 2022a, 2022b; Stats, 2020). Affordability is crucial for meeting their basic needs and improving their overall quality of life (Battersby, 2011; Skinner & Haysom, 2016; Wegerif, 2020).
To operationalize affordability, this study examined pricing within the context of McCarthy’s 4 Ps marketing framework (McCarthy & Perreault, 1984) using 7-point Likert scale questions ranging from 0, representing "extremely disagree," to 6, representing "strongly agree." The specific questions included are presented in Table 1.
Convenience
Convenience has many elements, among which are the availability of products in a store and the extended operating hours of a store (Craig et al., 2016). This makes accessing products easier and as such is a key element of a shopkeeper’s value proposition. Product availability is a major aspect of convenience in retail stores. Consumers expect stores to carry a variety of products and maintain adequate stock levels to meet their needs (Craig et al., 2016). Extended operating hours are another critical aspect of convenience. Consumers may have limited time to shop during traditional business hours, making it challenging to access stores and purchase products (Craig et al., 2016). Extended operating hours can provide consumers with more flexibility and reduce time constraints, making it easier for them to purchase products and services.
Access to basic goods and services is often limited in low-income communities (Skinner & Haysom, 2016), and residents may have to travel long distances to purchase essential items, resulting in increased expenses and time (Ligthelm, 2008). Furthermore, the limited stock or range of products in local stores can exacerbate this problem (Battersby, 2011; Wegerif, 2020). For these customers, the availability and accessibility of products in outlets that are located nearby and have longer operating hours is attractive (Ligthelm, 2008; Ntema, 2016; Tladi, 2003) as it removes the need to travel to a more distant location (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). It can also help them save time and money and reduce the need to take time off work (Ligthelm, 2008; Ntema, 2016; Tladi, 2003).
To evaluate the extent of convenience offered by immigrant shopkeepers, the marketing component of place, as outlined in McCarthy's 4 Ps framework (McCarthy & Perreault, 1984), was adapted to a 7-point Likert scale. This scale ranged from 0, indicating strong disagreement, to 6, indicating strong agreement. The questions are listed in Table 2.
Customer Response to Immigrant Business Practices
To comprehensively assess the impact of the value delivered by immigrants to their low-income customers, it is imperative to begin by acknowledging the socio-economic realities of the consumer populations residing in townships. Townships are characterized by a prevalence of low-income households grappling with pervasive poverty and high levels of unemployment (H. J. Dawson, 2022a, 2022b; N. Dawson, 2022a, 2022b). Such economic constraints strongly shape township residents' spending habits, prioritizing basic needs like food and shelter over preferences. Particularly relevant in Alexandra, where households earn $180 monthly on average and 25% lack any income. (N. Dawson, 2022a, 2022b). The prominence of needs-driven decision-making underscores the pivotal role played by customers' essential requirements in shaping their purchasing behavior.
The degree to which shopkeepers fulfill the needs and expectations of customers is a determinant of customer satisfaction and subsequent behavior (Hallowell, 1996). Affordability is a critical factor that positively influences customer satisfaction (Agthe & Billings, 1987). Additionally, product availability plays a significant role in customer satisfaction (Ntema, 2016). Furthermore, businesses situated closer to customers' homes and with longer operating hours can enhance customer satisfaction (Tladi, 2003). In this study, the satisfaction construct is a variable that is seen as being impacted by the value proposition of immigrant shopkeepers in the informal sector.
Customer Satisfaction
Customer satisfaction refers to the level of contentment that a customer experiences when they perceive that the value, they received from a shopkeeper is in line with their expectations (Hallowell, 1996). In other words, it is the degree to which customers feel that they have received good value for the money they have spent at a shop (Söderlund, 1998; Yang & Zhu, 2006). Customer satisfaction is often reported in many studies as the bridge between value proposition and business performance (Hallowell (1996)’, Rita et al. (2019), E. W. Anderson et al. (1994), and Yeung et al. (2013).
The expectations of low-income households who patronize the shops of immigrant shopkeepers in townships are influenced by their needs, which primarily include the ability to purchase products when needed and at affordable prices, as noted in the literature by Ligthelm (2008) and Ntema (2016). To satisfy these needs, customers seek out businesses that meet these criteria, as reported by Ligthelm (2008) and Strydom (2011). Satisfaction can be manifested in several forms, such as repeat business, positive word-of-mouth referrals, customer loyalty, and positive reviews (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). It has been observed that by meeting the needs of their customers, immigrant shopkeepers have been able to cultivate customer loyalty and encourage customers to return for further purchases (Chidau et al., 2022; Mampheu, 2019; Mukwarami et al., 2018).
To gauge the level of satisfaction among low-income households, a measurement scale based on the established framework proposed by L. M. Anderson and Taylor (1995) was utilized. The scale was adapted into a 7-point Likert format, with response options ranging from 0, indicating extreme disagreement, to 6, denoting strong agreement. The specific questions employed in the scale are provided it Table 3 below.
Customer satisfaction has a significant influence on customer behavior, as satisfied customers are more likely to patronize businesses that effectively meet their needs, while avoiding those that fail to meet their expectations. This behavioral response of customers is anticipated to have a substantial impact on the performance of shopkeepers (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). The subsequent subtopic delves into this aspect.
Effect of Customer Satisfaction on Shopkeeper Performance
The preceding subsections have elucidated the fundamental role of immigrant entrepreneurs' practices in a sequence of events that lead to the provision of appealing value to customers. The assessment of this value proposition by customers against their criteria of needs has been emphasized, highlighting that customer satisfaction with the value offering of shopkeepers increases the likelihood of patronage and support for the business of immigrants. This progression brings us to the final element of interest, namely the observable factor of business performance, which represents the ultimate outcome resulting from the interplay of factors commencing with the value proposition of shopkeepers.
Business Performance
Business performance can be defined as the ability of the business to generate profits over the long term and sustainably grow over time (Murphy et al., 1996). The success of a business is influenced by a range of factors, including the quality of products or services offered, effective management, marketing and branding strategies, and the ability to adapt to changes in the market (Chidau et al., 2022; Slater & Narver, 1994). In addition, external factors such as economic conditions, competition, and the regulatory environment can also have an impact on business success.
In the context of informal retailers, their business performance can be seen in their ability to thrive and expand (Potgieter, 2003; Urban et al., 2008). One key factor that drives the business success of informal retailers is customer satisfaction (Rosen, 1981; Tsai et al., 2010) in that it results in repeat purchases, which, in turn, increases sales and enables a business to generate incremental income (Tsai et al., 2010). Thus, it can be argued that the initial and deliberate actions of entrepreneurs in offering appealing products and services to consumers are a key driver of business performance. Greater levels of customer satisfaction are associated with increased sales, which, in turn, contribute to business performance (Rosen, 1981; Tsai et al., 2010).
To measure business performance, researchers have used various measures, such as sales revenue, profitability, and market share (Ambler & Kokkinaki, 1997; Brush, 2018; Farris et al., 2010; Murphy et al., 1996). However, in the absence of documented records provided by shopkeepers, the indicators that can be utilized to evaluate the success of shopkeepers' businesses, from a customer's viewpoint, could be deduced based on the amount of money spent by customers in the outlet, the level of customer engagement observed by customers within the shop, and the physical condition of the outlet, including the quantity of inventory and equipment observed (Yeung et al., 2013). Furthermore, other factors, such as the number of employees and the size of the outlet, may also be utilized in this context (Fatoki & Patswawairi, 2012).
To assess the construct of business performance, the study employed a measurement scale reminiscent of that developed by Ambler and Kokkinaki (1997). The scale was adapted to a 7-point Likert format that encompassed a spectrum ranging from 0, signifying an extreme disagreement, to 6, indicating a strong agreement. The specific statements utilized in the measurement instrument are in Table 4.
Summary of Literature
Literature has demonstrated how immigrants maybe employing superior business practices, thereby providing greater value to their customers (Charman et al., 2012; Ntema, 2016; Petersen et al., 2019). This exceptional skill set is said to increase customer contentment and loyalty. Consequently, customers should reciprocate these positive experiences by continuously patronizing these immigrant shopkeepers, thereby contributing to the increase in their revenue (Chidau et al., 2022; Mampheu, 2019; Mukwarami et al., 2018). The reciprocal behavior is what underscores the interplay between the value proposition offered by immigrants and the customer reciprocation that plays a crucial role in their business success. Exploring the extent to which these factors influence each other and ultimately contribute to the overall business performance of immigrants is a fundamental pursuit of this study. The subsequent subsection delves into the intricate relationships among these aforementioned factors.
Hypotheses Formulation
This study puts forth a conceptual model that postulates a connection between the success of immigrant businesses and their value proposition, which plays a pivotal role in shaping customer satisfaction and fostering heightened customer patronage. To investigate this phenomenon, a set of hypotheses is presented, outlining the methodological framework that underlies the exploration of these interrelationships.
Value Proposition and Customer Satisfaction
Consistent with the CST, which suggests that the value offering of a seller influences customer satisfaction (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006), it can be argued that affordability and convenience, key elements of value proposition, play a crucial role in the satisfaction levels of customers. Drawing upon this foundational proposition, Hypotheses H1, consisting of sub-hypotheses H1a and H1b, is formulated.
Affordability and Customer Satisfaction
Satisfaction has been acknowledged as being contingent upon the extent to which shopkeepers address the affordability needs of their customers (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). Affordability, as a component of the overall value proposition, is theorized to have an impact on customer satisfaction (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). Considering this theoretical framework, a hypothesis, denoted as H1a is formulated: Affordability positively affects customer satisfaction. This hypothesis posits that greater affordability, provided by immigrants in terms of meeting customers' financial capabilities and expectations, contributes to higher levels of customer satisfaction.
Convenience and Customer Satisfaction
Furthermore, satisfaction is contingent upon customers' ability to access the products they require, considering both availability and proximity to their residences (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). The concepts of product availability and accessibility are crucial components of the overall convenience provided by shopkeepers. Based on this premise, a hypothesis, denoted as H1b, is formulated: Convenience positively affects customer satisfaction. This hypothesis suggests that a greater level of convenience provided by immigrants in terms of product availability and accessibility leads to higher levels of satisfaction among customers.
Value proposition and Business Performance
The value proposition elements of affordability and convenience are expected to positively influence business performance by attracting a high volume of customers. This aligns with the principles of the CVT which suggest that repeat purchases from loyal customers contribute to increased revenue for a business (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). Considering this rationale, Hypotheses H2, which encompasses sub-hypotheses H2a and H2b, is developed to examine the association between affordability, convenience, and business performance.
Affordability and Business Performance
Previous studies have established a positive relationship between the value proposition element of affordability and increased sales of a business (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). According to the CVT, retaining customers over the long term contributes to higher income for suppliers, as businesses generate revenue through customer augmentation and retention (Bowen & Chen, 2001; Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). Building upon this theoretical foundation, a hypothesis denoted as H2a is formulated: Affordability positively affects business performance. This hypothesis posits that a higher level of affordability, provided by shopkeepers, leads to greater levels of business performance by drawing increased number of customers.
Convenience and Business Performance
Previous research has also established a positive correlation between the convenience provided by shopkeepers and the rate of sales of a business (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). Aligned with the CVT which states that the sustained patronage of customers over an extended period offers substantial benefits to suppliers, leading to amplified financial gains (Bowen & Chen, 2001; Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006), the hypothesis denoted as H2b is formulated: Convenience positively affects business performance. This hypothesis proposes that a higher level of convenience, offered by shopkeepers, leads to elevated levels of business performance by drawing increased levels of customers.
Customer Satisfaction and Business Performance
The degree of satisfaction among customers influences their attitude towards a shopkeeper (Tsai et al., 2010), which subsequently impacts their purchasing behavior (Söderlund, 1998). Through the display of positive sentiment towards a shopkeeper, such as frequent patronage and repeated purchases, customers enhance the rate of business activity of that shop and bolster its overall success (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). This aligns with the guidance of the CST and that of the CVT. Based on this premise, a hypothesis denoted as H2c is posited: Customer satisfaction positively affects business performance. This hypothesis proposes that a higher level of customer satisfaction leads to elevated levels of business performance.
Value proposition, Customer Satisfaction, and Business Performance
The relation among value proposition, customer satisfaction, and business performance can be conceptualized as a tripartite relationship, whereby the impact of the value proposition on business performance is mediated by customer satisfaction (Al‐Hawari & Ward, 2006). According to the mediation framework proposed by Baron and Kenny (1986), this relationship suggests that the components of value proposition; affordability and convenience, exert their influence on business performance by affecting customer satisfaction. Building upon this framework, Hypotheses H3 is formulated to examine the connection between value proposition and its impact on business performance through customer satisfaction.
Affordability, Customer Satisfaction, and Business Performance
Customer satisfaction is an outcome of the value offering component of affordability, and customer satisfaction subsequently influences business performance, which is also impacted by affordability. This tripartite relationship signifies a mediating association (Baron & Kenny, 1986), wherein affordability, having a direct association with business performance, directly affects customer satisfaction, which in turn has a direct impact on business performance. Building upon this explanation, a hypothesis referred to as H3a is proposed: The relationship between affordability and business performance is mediated by customer satisfaction. This hypothesis proposes that customer satisfaction acts as an intermediary between the affordability, provided by immigrants, and their business performance.
Convenience, Customer Satisfaction, and Business Performance
Another argument is posited, suggesting that customer satisfaction is an outcome of the value offering component of convenience, and that customer satisfaction subsequently influences business performance, which is also influenced by convenience. This additional tripartite relationship indicates a mediating association (Baron & Kenny, 1986), wherein convenience, having a direct association with business performance, directly impacts customer satisfaction, which, in turn, has a direct effect on business performance. Expanding upon this explanation, a hypothesis labeled as H3b is put forward: The relationship between convenience and business performance is mediated by customer satisfaction. This hypothesis proposes that customer satisfaction serves as an intermediary between the convenience, provided by immigrants, and their business performance.
Summary of Hypotheses
The hypotheses outlined above are summarized in Table 5, and their graphical representation can be observed in Fig. 1.
Conceptual Model
Methodology and Methods
The study employed a quantitative cross-sectional research design. Data was collected through a structured survey instrument that employed closed-ended seven-point Likert scales. The research was conducted in Alexandra Township, a predominantly low-income setting, which provides an ideal market for informal retailers (Strydom, 2011). The residents of Alexandra township represent a segment of the South African population characterized by significant poverty, as evidenced by the average monthly household income of $180 in the township. Furthermore, a substantial proportion of households, accounting for 25%, have no income at all (N. Dawson, 2022a, 2022b).
Proportional quota sampling was utilized to sample respondents, with the township divided into strata representing different sections. The sample size was calculated by adjusting the 2016 population of Alexandra (750,000) (Rudolph & Kroll, 2012) to that of 2020, taking into account the 6.6% population growth rate of South Africa from 2016 to 2020 (Stats, 2020). Based on this, the estimated population of the township in 2020 would have been 799,767 and the number of households determined by dividing the population size by the average number of family members per household in South Africa of 4.45 (Rudolph & Kroll, 2012) would result in an estimated 179,723 households. The formula n = N/ (1 + N (e^2)) applied on this number determined a minimum sample size of 400.
To address the challenge of a low response rate and ensure the attainment of a minimum sample size, field researchers approached a total of 865 households to administer the survey instrument. The data collection process continued until a total of 400 survey instruments were completed. It is worth noting that 396 households declined to participate in the study, and that an additional 69 households were excluded due to the absence of adults at the time of data collection.
Data Analysis
An initial evaluation was conducted using Exploratory Factor Analysis (EFA) following the recommendations of Yong and Pearce (2013). The aim of this analysis was to determine the relevance and appropriateness of the scales in measuring the variables under investigation. Subsequently, Confirmatory Factor Analysis (CFA) was employed to further validate and establish the reliability of the identified constructs retained from the EFA, in line with the guidelines provided by Alarcón, Sánchez, and De Olavide (2015) and Child (2006).
Descriptive information of the variables was determined, and the variables were incorporated into a model, which was then subjected to a goodness-of-fit test. Additionally, correlation analysis was conducted to explore the interrelationships among the variables, following the recommendations of Gogtay and Thatte (2017). A more comprehensive analysis, through Structural Equation Modeling (SEM), was subsequently employed to test the hypotheses. SEM is a statistical technique widely used in the social sciences to examine complex relationships among variables (Fornell & Larcker, 1981).
Findings
Demographic Information of Respondents
The demographic information of the respondents is presented in Table 6. Forty seven percent of the participants were male, while the remaining portion constituted females. The age distribution ranged from a minimum of 20 years to a maximum of 56 years. Twelve percent of the respondents completed primary school, 48% completed secondary school, 33% completed high school, and 7% pursued post-high school education.
Validity and Reliability Test
Table 7 displays the results of the CFA, providing insights into the composition of the final constructs. The table includes the factor loadings, composite reliability (CR), and Average Variance Extracted (AVE) values. Most of the items demonstrated factor loadings above the recommended threshold of 0.5. However, one item had a loading slightly below the threshold at 0.496. The reliability of the constructs was assessed using the composite reliability (CR) values, which were found to be: CONV (CR = 0.713), AFF (CR = 0.708), SAT (CR = 0.871), and BP (CR = 0.679). Convergent validity, indicating the extent to which the items within a construct measure the same underlying concept, was evaluated using the average variance extracted (AVE) values. All AVE values were above the minimum threshold of 0.4, and below the recommended cutoff of 0.5 (Table 8).
Correlation Analysis
The CR values, which assess the reliability of the constructs, surpassed the recommended threshold of 0.6. Convergent validity, measured by AVE values, exceeded the minimum criterion of 0.4. Discriminant validity, which ensures that each construct is distinct from others, was confirmed as the maximum shared variance (MSV) values were lower than the AVE values for all constructs. Additionally, the square root of AVE for each construct (diagonal elements) exceeded the correlations with other constructs, for instance, the square root of AVE for the CONV construct (0.673) was higher than the correlations of 0.357 with SAT, 0.536 with AFF, and 0.212 with BP, indicating that CONV is distinct from the other constructs. Moreover, the correlation analysis output revealed the presence of positive relationships among the variables under investigation.
Hypothesis Testing
The SEM model of the hypothesized relationships is displayed in Fig. 2.
SEM Model
Table 9 presents the descriptive statistics for all constructs in the study. The means are larger than the standard deviations, indicating that the data points are relatively close to the mean. Additionally, the skewness and kurtosis values are close to the values expected for a normal distribution, suggesting that the data is normally distributed.
Table 10 presents the global model fit indices, which evaluate the degree of alignment between the model and the observed data. The majority of the fit indices, except for the Normed Fit Index (NFI) and Adjusted Goodness of Fit Index (AGFI), are within the acceptable range for a well-fitting model.
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H1: Value proposition positively affects customer satisfaction
The findings pertaining to hypotheses H1a: Affordability (AFF) positively affects customer satisfaction (SAT) and H1b: Convenience (CONV) positively affects customer satisfaction (SAT), are presented in Table 11.
The findings reveal that the direct effects of AFF and CONV on SAT are both positive and statistically significant. Consequently, hypotheses H1a and H1b are accepted. Furthermore, the results indicate that the combined impact of the value proposition elements, AFF and CONV, accounts for 19.3% of the observed variance in SAT.
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H2: Value proposition and customer satisfaction positively affect business performance
The findings pertaining to hypotheses H2a: Affordability (AFF) positively affects business performance (BP), H2b: Convenience (CONV) positively affects business performance (BP), and H2c: Customer satisfaction (SAT) positively affects business performance (BP), are presented in Table 12.
The results reveal that the direct effects of AFF and CONV on BP are positive, but they do not reach statistical significance. As a result, hypotheses H2a and H2b are rejected. However, the direct effect of SAT on BP is both positive and statistically significant, with a standardized coefficient of 28.6%. H2c is accepted. Additionally, the findings indicate that the combined influence of AFF, CONV, and SAT account for 13.7% of the observed variance in BP.
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H3: The relationship between value proposition and business performance is mediated by customer satisfaction
The results pertaining to hypotheses H3a: Customer satisfaction (SAT) mediates the relationship between affordability (AFF) and business performance (BP), and H3b: Customer satisfaction (SAT) mediates the relationship between convenience (CONV) and business performance (BP), are presented in Table 13.
The introduction of SAT as a mediator between AFF and BP reveals a statistically significant positive relationship, leading to the acceptance of hypothesis H3a. Additionally, when SAT is introduced as a mediator between CONV and BP, another statistically significant positive relationship emerges, leading to the acceptance of hypothesis H3b.
Summary of Hypotheses
The results provide support for hypotheses H1a, H1b, H2c, H3a, and H3b, while hypotheses H2b and H2c are not supported. A summarized overview of the hypotheses is presented in Table 14.
Discussion
Demographic Information of Respondents
The findings demonstrate a gender distribution in the consumer population that is relatively balanced. The age range of the participants falls within the working-age population, ranging from 20 to 56 years old. It is noteworthy that the overrepresentation of this age group in Alexandra, a low-income settlement with high poverty rates, indicates a heightened vulnerability to poverty. This vulnerability may be influenced by the prevailing unemployment rate in the country.
Regarding the educational attainment of the consumer population, it is worth mentioning that 40% of the participants had completed high school, while only 7% had pursued education beyond the high school level. The majority of the participants had lower levels of education. This low rate of post-high school educational attainment raises concerns, particularly because the lack of education beyond high school significantly hampers the acquisition of crucial skills needed for employability.
Validity and Reliability Test
The measurement model's factor loadings are mostly above 0.5, indicating the presence of valid constructs based on Yong and Pearce (2013). However, one item has a factor loading of 0.496, slightly below the threshold. It is, however very close to the accepted threshold. The CR values for CONV (0.713), AFF (0.708), and BP (0.871) exceed the recommended threshold of 0.7, indicating good reliability according to Yong and Pearce (2013). Although the CR value for BP (0.679) is slightly below the threshold, it is still in close proximity, suggesting an acceptable level of reliability. In terms of model fit, most of the fit indices are within an acceptable range, except for the NFI and AGFI. However, considering that most fit indices meet the thresholds recommended by Fornell and Larcker (1981), it can be concluded that the overall model exhibits a good fit.
Hypotheses Discussion
The normality tests and correlation analysis that were conducted before the hypotheses testing revealed that the variables had central tendency because of the small standard deviations in relation to the means. Furthermore, the skewness and kurtosis values were within acceptable range, suggesting a reasonably symmetrical data distribution. In addition, correlation analysis revealed the presence of potentially significant positive correlations among the variables.
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H1: Value proposition positively affects customer satisfaction
The findings provided empirical support for hypotheses H1a and H1b, demonstrating a positive relationship between affordability and customer satisfaction, as well as between convenience and customer satisfaction. This is consistent with existing theories, such as the CST, which posits that when customers perceive that sellers' offerings adequately meet their needs, they are likely to experience satisfaction (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006).
Furthermore, the findings align with previous research conducted by Louw et al., (2020) and Potgieter (2003), who reported that consumers evaluate the offerings of shopkeepers when making purchasing decisions in the informal retail sector. Additionally, Tladi (2003) highlighted the significance of value offerings, including affordability and convenience, in influencing the consumption patterns of low-income consumers. These congruent findings underscore the crucial role of value offering in shaping the consumption behavior of the low-income population. Moreover, the findings suggest that immigrant entrepreneurs in the informal retail sector maybe differentiating themselves from competitors by satisfying the needs of their customers as suggested in previous studies (Liedeman et al., 2013; Mampheu, 2019; Mukwarami et al., 2018).
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H2: Value proposition and customer satisfaction positively affect business performance
The results do not provide sufficient support for hypotheses H2a and H2b, which posit a positive relationship between affordability and business performance, as well as convenience and business performance. With these findings, it is important to recognize that the translation of value proposition to business performance is a complex process that encompasses multiple intermediate factors, such as customer satisfaction, behavior, and other factors (Al-Hawari & Ward, 2006). These factors may interact with affordability and convenience to influence the ultimate impact on business performance. Therefore, future research should aim to explore and account for additional variables that may mediate or moderate the relationship between value proposition elements and business performance. This will provide a more comprehensive understanding of the underlying mechanisms at play.
The findings, however, do provide support for hypothesis H2c, which posits a positive relationship between customer satisfaction and business performance. This is consistent with relevant theoretical frameworks, particularly the CVT, which emphasizes the positive impact of meeting customer needs on a business's performance (Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006). Moreover, the findings align with prior research that highlights the role of customer satisfaction in driving business performance through the enhancement of customer loyalty (Hallowell, 1996; Söderlund, 1998; Tsai et al., 2010). The findings emphasize the significance of customer satisfaction as a critical determinant of business performance and suggest that it may act as a differentiating factor for immigrant entrepreneurs operating in the informal retail sector.
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H3: The relationship between value proposition and business performance is mediated by customer satisfaction
The results support hypotheses H3a and H3b, which propose that customer satisfaction mediates the relationship between affordability and business performance, as well as convenience and business performance. The results indicate that the impact of value offering on entrepreneurial performance is indirect and is mediated by customer satisfaction. The findings are aligned with the customer satisfaction and customer value theories that link value offering to businesses performance by explaining that value offering impacts customer satisfaction which in turn impacts business performance (Bowen & Chen, 2001; Hom, 2002; Tsai et al., 2010; Yang & Zhu, 2006).
These results are in line with previous research conducted by Hallowell (1996)’, Rita et al. (2019), E. W. Anderson et al. (1994), and Yeung et al. (2013) who have consistently demonstrated a connection between value proposition and business performance, with customer satisfaction acting as a mediating factor. These findings of the current study underscore the significance of meeting customer needs through value proposition, as it can potentially drive business performance. Furthermore, these results provide a clue regarding one of the factors that may contribute to the positive performance of the immigrant population in the informal retail sector.
Conclusion
This study investigates the drivers of performance for immigrant informal businesses, with a specific focus on their ability to offer products and services that hold relevance and significance from the customers' perspective. Drawing upon established Customer Satisfaction and Customer Value theories, the study employs adapted scales to examine the success of immigrant entrepreneurs operating in the informal retail sector. The findings indicate that immigrants in the Alexandra area possess a compelling value proposition that elicits positive customer responses, shedding light on potential factors contributing to their success. Furthermore, the results contribute to the existing body of knowledge by providing empirical evidence that supports the theoretical foundations and previous empirical findings regarding the relationship between value proposition, customer satisfaction, and business performance.
These findings underscore the importance of prioritizing customer needs and offer insights into how customer perceptions and responses influence the performance of immigrant entrepreneurs in the informal retail sector. However, it is important to exercise caution when interpreting these findings, as the study does not include a comparative analysis between immigrant and native entrepreneurs. Nonetheless, the results emphasize the significance of value offerings, such as affordability and convenience, in shaping consumer choices and suggest that immigrant entrepreneurs play a crucial role in meeting the consumption needs of the vulnerable population residing in low-income areas.
The implications of these findings extend to various stakeholders, including scholars, policymakers, immigrant and non-immigrant informal entrepreneurs, and consumers. Entrepreneurs should recognize the positive relationship between the variables examined in this study and understand the importance of delivering value to customers. Local entrepreneurs can learn from the successful practices of immigrant entrepreneurs and adapt them to the local business context to enhance their own ventures. Additionally, the study highlights the applicability of mainstream marketing theories, such as the Customer Satisfaction Theory and the Customer Value Theory, in comprehending the dynamics of the informal sector.
To advance knowledge in this field, academic researchers are encouraged to actively engage with the informal sector by involving key stakeholders and establishing a feedback mechanism to share study findings with the communities under investigation. Developing comprehensive policies tailored to the specific needs of the informal sector is crucial for supporting and embracing entrepreneurial activities, benefiting both immigrant and native entrepreneurs. The formalization of the informal sector should be promoted, ensuring recognition and legal protection while preserving the advantages associated with informality.
Regarding the demographic of consumers, this study emphasizes the notable concentration of individuals within their prime working years and the relatively low levels of educational attainment beyond high school in low-income areas. Encouraging informal self-employment has the potential to facilitate economic engagement among this demographic, while pursuing higher education can disrupt the cycle of poverty and empower individuals for socioeconomic progress. Furthermore, leveraging the positive interaction between immigrant shopkeepers and the community holds the potential to foster immigrant integration, favorable economic prospects, and community well-being.
This study advocates for a shift in perspective regarding the informal sector, recognizing its potential as a critical avenue for economic participation. Informal entrepreneurship provides valuable opportunities for marginalized groups, including women, minorities, and immigrants, to establish businesses, generate income, and contribute to poverty reduction, social mobility, and local economic development. Policymakers and development practitioners are urged to implement supportive policies and programs that facilitate the growth and success of informal entrepreneurs, ensuring inclusive economic participation for marginalized groups.
Based on the finding that value proposition positively impacts customer satisfaction and considering previous research indicating higher success rates among immigrant entrepreneurs compared to their native counterparts, conducting a comparative study that examines differences in factors such as value proposition, customer satisfaction, and business performance between immigrant entrepreneurs and native entrepreneurs would be valuable. Such a comparative study could explore various aspects, including the unique strengths and offerings of each population.
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Maisela, S. How Immigrant Shopkeepers in Johannesburg Townships Succeed: A Customer's Eye View. Int. Migration & Integration 25, 359–389 (2024). https://doi.org/10.1007/s12134-023-01079-9
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DOI: https://doi.org/10.1007/s12134-023-01079-9