Optimal retail sales strategies for old and new products in monopoly and horizontal competition scenarios

Advances in technology have made product updates more frequent and allowed consumers to choose different versions of the same product based on their preferences. It is crucial for retailers to understand how to formulate optimal sales strategies based on those different consumer preferences. To this end, we develop game models that consider the heterogeneity of consumer preferences under both monopoly and horizontal competition scenarios and perform the sensitivity analysis to examine the impact of consumer proportions and consumer preferences on retailers’ sales strategies. The results show that (i) regardless of competition or monopoly status, the original retailer can always maximize profit by setting prices based on the market share of traditional consumers, as long as the retailer sells both new and old versions of the product; (ii) the greater the competitive advantage of the competitor, the more advantageous the hybrid sales mode; (iii) if the price of the old product is below a certain threshold, there will be a positive profit for the original retailer when selling both the old and new products; and (iv) when consumer acceptance of competing retailers is lower, entering the retail market is not a good choice for competing retailers.     

Understanding consumers’ perceptions of competitive tiers—can perceived risk help?

A review is presented showing the increasing power of multiple grocery retailers from which an argument is developed questioning whether consumers perceive packaged grocery product fields in terms of brands versus own labels versus generics. Consumers’ perceptions of risk are reduced through information search and it is thought that the different search activities between the high and low risk perceivers may explain perceptions of the competitive structure of product fields. For six packaged grocery fields, separately, qualitative research was undertaken to elicit the dimensions consumers use to evaluate competing items. Data was then collected from 829 householders and was subsequently subjected to cluster analysis. Consumers’ perceptions of the competitive structure of product fields differed from marketers’ expectations and brands were always perceived as being distinct from retailer labels. The result did not appear to be influenced by consumers’ perceptions of risk. Reasons for the result are considered, and managerial implications explored.     

Why would a big retailer refuse to collaborate on manufacturer SPIFF programs?

Big retailers that carry a large assortment of products rely on knowledgeable salespeople to provide purchase advice to customers and match customers with suitable products. Interestingly, big retailers vary in their policies regarding whether to allow their salespeople to receive manufacturer SPIFF (Sales Person Incentive Funding Formula) payments, which motivate salespeople advising at no cost of the retailer. In this study, we investigate a big retailer’s incentive to block manufacturer SPIFF programs, which has the consequence of demotivating salespeople from advising customers, from the perspective of vertical channel interactions. We scrutinize a big retailer’s decision to maximize its profit through managing its channel interactions with upstream manufacturers offering horizontally differentiated products, customers uncertain about true fits with competing products, and its salesperson who can match customers with suitable products through offering purchase advice. Our analysis shows that motivating the salesperson to advise customers is profitable for the retailer only if the such advising has moderate effectiveness in matching consumers and suitable products, and only in this case would the retailer collaborate on manufacturer SPIFF programs. Otherwise, salesperson advising hurts retailer profit and the big retailer benefits from blocking manufacturer SPIFF programs. Our study reveals the interesting theoretical insight that the incentives of a big retailer and upstream manufacturers to motivate sales advising reside in their incentives to battle for a more favorable channel status.     

Why is Price Dispersion Higher Online than Offline? The Impact of Retailer Type and Shopping Risk on Price Dispersion

When physically similar products, of similar quality, are offered by retailers both online and offline, we often observe that the dispersion in prices of these products online is greater than the price dispersion offline. This observation runs counter to early theories that suggested price dispersion online would be smaller than that offline due to the ease of search and information availability online. This paper investigates and provides an explanation for this puzzling phenomenon by examining the impact of two important drivers of price dispersion: retailer type and consumers’ shopping risk. Retailer type refers to whether a retailer is a pure offline, pure online, or dual channel retailer. Shopping risk is defined as the product of consumers’ perceived risk of shopping and the transaction uncertainty related to shopping at different types of retailers.A game-theoretic approach is adopted to model consumers’ price search and product purchase, as well as price competition within and across retailer types in online and offline markets. Equilibrium pricing strategies are derived for different retailer types competing for different consumer segments with different levels of perceived shopping risk. The impact of retailer type and shopping risk on online versus offline price dispersion are quantified, and conditions when price dispersion is greater online than offline are identified.Results indicate that price dispersion is greater online when the number of pure online retailers is sufficiently large and is increasing in the number of pure online retailers. In addition, a reduction in online shopping risk may actually increase online price dispersion. Results further suggest that even without any online sales, dual channel retailers should maintain their online presence for the purpose of information dissemination, which justifies the importance for pure offline retailer to incorporate webrooming strategies, where consumers can search for prices online but purchase offline.     

Do consumers use tipping to monitor service? Role of power and embarrassment

Tipping is regarded as a buyer monitoring mechanism. By rewarding good service (by giving larger tips), and punishing bad service (by giving smaller tips), consumers can contribute to enhance service quality. However, in this paper, we show that not all consumers use tipping to evaluate service. In three experiments, we demonstrate that based on the level of power consumers feel they have, they punish/reward service differently. Specifically, we show that low-power consumers are less likely than high-power consumers to punish poor service quality (Studies 1 and 2). We find that leaving small tips (in low service quality scenarios) makes low-power consumers anticipate embarrassment. These anticipations mediate the interaction effect of service quality and power on consumer tip size (Study 3).     

Store Brand Quality and Retailer’s Product Line Design

This study analyzes a retailer’s store brand quality decision in vertically differentiated product categories. We analyze a game theoretic model composed of one or two national brand manufacturers and a retailer, who strategically chooses the quality level(s) of its store brand(s) relative to the well-established national brand position(s) to maximize its category profit. Our analysis reveals that the nature of a retailer’s store brand quality positioning is quite different from the manufacturer’s national brand positioning decision, and that the best position for a store brand is not “as close to a national brand as possible” as previous studies suggest. Instead, the optimal quality position of each store brand is remarkably sensitive to the distribution of consumers’ willingness-to-pay. In particular, the relative proportions of quality sensitive consumers and price sensitive consumers determine the balance of three key strategic forces — the market expansion force, the retail margin force, and the consumer profitability force, leading to different optimal product line designs for store brands across different category environments. Interestingly, against multiple incumbent national brands, the retailer’s optimal product line design includes a store brand positioned at the highest quality level in the category only if most consumers are moderately quality conscious. We also analyze the implications of national brands’ brand equity for retailers’ store brand strategy.     

What drives competitive webrooming? The roles of channel and retailer aspects

ABSTRACT

Competitive webrooming, the phenomenon in which consumers gather product information online but ultimately purchase the product in an offline store of a competing retailer, has gained traction and become a major threat for retailers. To gain a deeper understanding of its drivers, we surveyed 1081 retail customers about their most recent consumer electronic product purchase to examine the impact of channel-related aspects as well as retailer-related aspects – a dual approach that has not been applied previously. A channel’s anticipated after-sales service and price level are the strongest predictors for webrooming. Moreover, retailer aspects determine whether customers simultaneously switch retailer when webrooming. A retailer’s assurance of delivery, including payment modalities, return policies, and product obtainment, as well as competitive product prices motivate consumers to switch retailer when webrooming. These results suggest that customers have a fundamental need for certainty within and after the buying process, which can be satisfied by both channel and retailer. Additionally, this is the first study to empirically test for interactions between channel and retailer aspects, as they are likely to occur in real shopping situations. We identified two interactions: First, a retailer’s assurance of delivery can compensate for an anticipated lack of a channel’s after-sales service, dampening the impact of the latter on competitive webrooming. Second, retailer’s price attractiveness acts in a similar vein. Hence, to steer customers into channels and/or keep them with the company, retailers should emphasize their price attractiveness as well as assurance of delivery.     

Competitive advertising within store flyers: A win–win strategy?

This study investigates the effect of competitive advertising within store flyers on both manufacturers and retailers. Prior research implies that competitive advertising may be detrimental for manufacturers and beneficial for retailers. Findings from an intersubject experiment that uses various familiar and unfamiliar competing brands confirm that store flyers’ competitive advertising improves consumers’ perceptions of the variety of the retailer’s assortment, which has a positive impact on intentions to visit the store and buy. However, increasing the number of competing brands does not harm manufacturers; rather, it enhances recognition of brands, especially for well-known brands. This article concludes with a discussion of the theoretical and managerial implications of these findings for the design of store flyers.     

Online Price Search: Impact of Price Comparison Sites on Offline Price Evaluations

Consumers increasingly rely on Internet price comparison sites (PCS) to gain knowledge about the market. The prices generated by a PCS search can act as contextual reference prices and influence the attractiveness of prices encountered later as consumers shop offline at local stores. This paper demonstrates that both PCS retailer ratings and the shape of the PCS price distribution influence the impact of PCS search results on later price evaluations. A favorable PCS retailer rating increases the perceived validity of the price associated with that retailer, enhancing the impact of that PCS price on offline price evaluations (Study 1). The shape of the PCS price distribution can also influence later price evaluations, however this effect depends on the information provided by the PCS retailer ratings. When PCS retailer ratings are similar, implying similar validity for the associated prices, low PCS prices and those appearing more frequently in the PCS price distribution have more impact (Studies 2 and 3). When PCS retailer ratings are variable (some high and some low), the PCS price distribution effect occurs only when the PCS retailer ratings provide congruent information about price validity — that is, the most frequent price is offered by retailers with more favorable ratings. Study 3 shows that price validity inferences do mediate this result. Finally, we depart from the offline shopping context to show that when consumers choose a retailer directly from the PCS search results, the effect of PCS retailer ratings is stronger for high-priced retailers and for consumers who rely less on the retailer price as a heuristic to infer retailer service level. Based on our findings we offer insights for online and offline retailers when considering strategic responses, such as price matching guarantees.     

Manufacturer marketing initiatives and retailer information sharing

This research examines a retailer’s incentive to share information with its supplier when the supplier can also undertake initiatives to increase retail demand. It is well known that a retailer is averse to sharing market information with a manufacturer due to concern for a manufacturer’s strategic use of such information. This research shows that despite such strategic exploitation of market information, a retailer may want to establish information sharing channels with its supplier. Information sharing essentially shifts power upstream which, in turn, enhances the manufacturer’s incentive to bear costs to boost retail demand: the manufacturer is induced to invest merely by knowing that information is on its way. Hence, the retailer benefits from information sharing ex ante despite the costly ex post exploitation by the manufacturer. This finding is a stark contrast to the most of previous results which consistently point out how bad it is for the manufacturer to have the retailer’s demand information before setting prices. In fact, due to the investment effect, information sharing can lead to gains for the retailer, manufacturer, and consumers alike.     

Coupon Trading and its Impacts on Consumer Purchase and Firm Profits

When a retailer distributes manufacturer coupons to consumers without perfectly identifying their product valuations, consumers may have incentives to trade coupons. We develop a model to capture the coupon trading phenomenon and compare three scenarios: (I) no coupon, (II) coupon without trading, and (III) coupon with trading. We find that coupon trading can increase the profits of either the retailer or the manufacturers, but not at the same time. The retailer benefits from coupon trading when the coupon market is competitive and consumer hassle cost is low, while the manufacturers benefit from coupon trading when the coupon market is uncompetitive and consumer hassle cost is high. In addition, coupon trading does not always increase total demand. Firms benefit from coupon trading by charging higher prices, which leads to a decreased total demand. As a result, consumers end up with a higher average cost under coupon trading. We also compare coupon trading with improved coupon targeting, and find that coupon trading may allow firms to gain higher profits than improved coupon targeting. Further, we extend the main model to a competitive setting where the products are substitutable, and find that the main results still hold. Finally, we employ numerical analysis to identify the optimal coupon face values in different scenarios, and the results suggest that coupon trading combined with incentive mechanisms may lead to Pareto improvement for the channel as a whole.     

Extending variety seeking to multi-sided platforms: Impact of new retailer listing

This study uses theories of variety seeking to examine how a new retailer listing on a multi-sided platform (MSP) affects consumer buying behavior. Using a unique dataset from an online MSP, we evaluate changes in purchase frequency with individual retailers after a new one is listed. Contrary to expectations, the results indicate that consumers increase their purchase frequency at existing retailers. Moreover, compared to consistency seekers, variety-seeking consumers show a higher positive effect as they buy even more. This result is observed for retailers in both competing and non-competing product categories. Finally, we discuss the theoretical contributions and implications for MSPs and retailers.     

零售业顾客缺货反应研究评述

零售业主要是销售消费用品,直接面向终端顾客。关于缺货反应的研究,对后期的零售业具有重大的借鉴意义。缺货问题涉及供应链管理、顾客关系管理等诸多方面,它的研究对制造商、经销商、零售商都有很大的指导作用。否则,商品缺货可能导致零售门店损失销售额,也会削弱消费者对零售商和缺货商品品牌的信赖。     

Dominant retailers’ incentives for product quality in asymmetric distribution channels

This paper investigates the diverging incentives for product quality in a channel with two asymmetric retailers and a common supplier. When retailers differ in terms of service provision and channel power, changes in manufactured quality cause channel conflicts. In particular, our results show that if the low service retailer becomes dominant in the channel, it may induce a low level of quality that is detrimental for the other members of the channel. The low service retailer benefits from quality reduction first by improving its competitive standing against its rival retailer by lessening the importance of quality for consumer choice and second by strengthening its relative bargaining position vis-à-vis its supplier. Our results also show that consumer surplus may increase as a result of quality reduction.     

Retailer Categorization: How Store-Format Price Image Influences Expected Prices and Consumer Choices

Prior research indicates that consumers may base their retail decisions (e.g., store choice, purchase quantity) on price image, which has been defined as consumer perceptions “of the aggregate price level of a retailer” (Hamilton and Chernev 2013, p. 2). The present research shows that consumers associate different price images not only with specific retailers, but more broadly with various store formats — such as grocery stores, convenience stores, and specialty stores. Six studies provide evidence that store-format price image exerts influence on consumer price expectations and store choice decisions, and that these retailer categorization effects are distinct from the effects of retailer price image.     

企业价格战对顾客交易价值的影响

通过情景模拟实验讨论了降价因素对于己购买产品的顾客在交易价值感知上带来的影响,研究的主要发现有:顾客购后仍然会进行交易价值判断,顾客的可接受降价幅度受到使用时间和心理折旧等因素的影响,在一定时间内,当市场实际降价幅度超过顾客的合理降价预期时,顾客的交易价值感受将受到负面影响。     

On manufacturers complementing the traditional retail channel with a direct online channel

With the explosion of the Internet and the reach that it affords, many manufacturers have complemented their existing retail channels with an online channel, which allows them to sell directly to their consumers. Interestingly, there is a significant variation within product categories in manufacturer's use of the Internet as a direct distribution channel. The main objective of this study is to examine the strategic forces that may influence the manufacturer's decision to complement the retail channel with a direct online channel. In particular, we are interested in answering the following questions:

1. Why is it that in some markets only a few firms find it optimal to complement their retail channels with a direct Internet channel while other firms do not?
2. What strategic role (if any), does the direct Internet channel serve and how do market characteristics impact this role?

To address these issues we develop a model with a single strategic manufacturer serving a market through a single strategic retailer. In addition to the focal manufacturer's product the retailer carries products of competing manufacturers. Consumers in this market are one of two types. They are either brand loyal or store loyal. The retailer sets the retail price and the level of retail support, which impact the demand for the manufacturer's product. The retailer's decisions in turn depend on the wholesale price as well as the Internet price of the product if the manufacturer decides to complement the retail channel with an online channel. Our analysis reveals that the optimality of complementing the retail channel with an online channel and the role served by the latter depends critically upon the level of support that the retailer allocates to the manufacturer's product in the absence of the online channel. The level of support allocated by the retailer, in the absence of the online channel, depends upon the retail margins on the manufacturer's product relative to that on rival products in the product category. When the size of the brand loyal segment is small relative to the size of the store loyal segment then in the absence of the online channel, the manufacturer can lower wholesale price and enhance retail support, especially when the retail margins on the rival products are low. In contrast, when the size of the loyal segment is large and the retail margins on rival products are high the manufacturer will find it more profitable to charge a high wholesale price even if that induces the retailer to extend low levels of support. If the manufacturer decides to complement the retail channel with an online channel, some consumers who would have purchased from the retailer might prefer to purchase online. Our analysis reveals that when consumers' sensitivity to price differences across the competing channels exceeds a certain threshold it is not optimal for the manufacturer to complement the retail channel with an online channel. However, this price sensitivity threshold itself depends upon product/market characteristics, suggesting that manufacturers seeking to complement their retail channels with an online channel should look beyond the nature of threat the online channel poses to the retail channel in devising their optimal distribution strategies. When the retail margins on rival products are sufficiently small, complementing the retail channel with an online channel when optimal allows the manufacturer to price discriminate and enhance profits. In contrast when retail margins on rival products are sufficiently high, complementing the retail channel with an online channel serves to enhance retail support. We also identify market conditions under which profits of both the manufacturer and the retailer are greater with the online channel than that without it. This is particularly interesting since the online channel competes with the retail channel.     

Do CSR actions in retailing really matter for young consumers? A study in France and Norway

This research explores how young consumers perceive Corporate Social Responsibility (CSR) actions of French and Norwegian food retailers, and how these actions affect brand image, brand associations (adjectives, verbs, and names) and consumer–retailer relationships. It uses a qualitative methodology with in-depth interviews. This exploratory study shows that French and Norwegian young consumers have problems linking CSR with food retailing, and they question retailers' true commitment to CSR. Young French consumers had stronger brand associations than young Norwegians. Therefore, we argue that, CSR commitment among retailers in both countries is likely to positively affect retailer brand image. Nevertheless, CSR related products could also be associated with higher prices and may exclude low-income consumers.     

Effects of sales promotion type and promotion depth on consumer perceptions: the moderating role of retailer reputation

This study uses a between-subjects experimental design to test the effect of two sales promotion formats (coupon versus markdown) with either high and low face values on consumer attitudes toward the deal, perceived product quality, and purchase intentions. The reputation of the retailer offering the deal is predicted to moderate the relationship between the promotional offer and consumer responses. Consumers perceive product quality to be higher when offered a high value coupon vs. markdown but there is no significant difference in perceived quality across promotion types when the promotion face value is low. When a deep price discount is offered by a retailer with a negative reputation, however, consumers have more favorable attitudes toward the deal and higher purchase intentions when provided with a markdown vs. coupon. Conversely, a high value coupon elicits more favorable evaluations than a markdown when the retailer has a positive reputation. When the value of the promotion is low and the retailer has a positive reputation, consumers have more positive deal attitudes and purchase intentions when offered a markdown vs. coupon. There is no significant difference in the effects of promotion type when the retailer has a negative reputation. The findings therefore establish retailer reputation as an important moderator of sales promotions effectiveness. This research is limited by the use of a single product category and a student sample. Process measures are also needed to validate the proposed theoretical conceptualization. The results provide managers insight into the type and value of the sales promotion to offer based on consumer perceptions of the retailer's reputation in the market.     

Consumer response to retailer use of cause-related marketing: Is more fit better?

Although marketers increasingly rely upon cause-related marketing strategies to increase sales, controversy exists regarding whether a retailer should partner with causes offering high or low fit levels with its core business practices. The present investigation extends prior research by examining how retailer–cause fit affects consumer evaluations of retailers’ cause-related marketing strategies. The results indicate that the effects of retailer–cause fit are moderated by consumer perceptions of the retailer's motive for engaging in cause-related marketing (Study 1), by the affinity that consumers hold for the social cause component of the campaign (Study 2), as well as by the interactive effects associated with the two moderators (Study 3).