Retail environment and manufacturer competitive intensity

We study how the intensity of competition and the degree to which manufacturers enjoy market power depends on the retail environment in a given market. Past research has discussed the growing importance of retailers and the power they enjoy over manufacturers. Yet, the empirical literature to date has not determined which retail characteristics have the largest impact on competitive behavior.Our starting point is the estimation of a structural demand-and-supply model, where both consumers’ decisions and the strategic interactions between manufacturers and retailers are explicitly modeled. We identify the type of competitive behavior of manufacturers by measuring the deviation from a Bertrand-Nash equilibrium. This measure of competitive conduct is expressed as a function of key retail characteristics such as size of the retailer, its assortment depth, and category expertise.We illustrate the proposed approach using data for the ground coffee category in Germany. Our findings indicate that retail characteristics have indeed a significant effect on competitive intensity among upstream firms and on their ability to exercise market power. Hence, a manufacturer considering entry into a new market should not only take into account its competitors but also the specifics of the retail environment in this market.     

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.     

The effects of multi-channel assortment integration on customer confusion

Abstract

The effects of assortment strategy on customer confusion have been discussed for singular channels in the past. However, multi-channel retailers also have to coordinate their assortment across channels. Recent literature has started to investigate which assortment integration strategy is most favourable for retailers, but theoretical and empirical research is still scarce. Until today, customer confusion has not been considered in this discussion. This article seeks to identify the impact of a retailer’s assortment integration on customer overload confusion, assortment perception and their consequences. In an experiment, we manipulate assortment integration internally (online and offline channel of the focal retailer; full and asymmetrical integration) and externally (online channel of the focal retailer and a competing online retailer; full, asymmetrical and no integration). The results indicate that both internal and external assortment integration have an impact on overload confusion and assortment perception. Asymmetrical internal integration induces less overload confusion in terms of its cognitive and affective components and leads to superior assortment perception. Full and asymmetrical external integration evoke less confusion with regard to its cognitive component. Eventually, overload has detrimental short- and long-term effects for the retailer. Multi-channel retailers should consider our results when implementing an assortment integration strategy.     

The strategic drivers of drop-shipping and retail store sales for seasonal products

Retailers that sell seasonal products face significant challenges when planning inventory assortment. The incorporation of drop-shipping into their operations, wherein suppliers own and ship products directly to consumers at retailers’ requests, has only complicated these challenges. This study investigates multichannel assortment planning of retailers that sell seasonal products. We first capture structural properties of multichannel retailing of seasonal products through a simple and parsimonious analytical model. The analytical model uncovers key seasonal product attributes that make it more attractive for retailers to allocate a product for sale in the drop-shipping channel than in the store channel. We then empirically assess the findings of the analytical model. Using a rich and unique dataset from the fashion retail industry, we test relationships between product attributes and retailers’ channel choice. The application of a generalized linear latent and mixed model controls for selection bias by jointly estimating retailers’ likelihood of allocating a product’s inventory to the drop-shipping channel and the allocated volume in each channel according to the product’s characteristics. The empirical findings suggest that retailers are less likely to drop-ship products that are colored, irregularly sized, and offered in more style variants. They also unveil cross-channel effects in terms of inventory amounts allocated for sale in each channel according to those characteristics. Our analytical and empirical assessments jointly demonstrate the complementary roles played by drop-shipping and store channels for seasonal products and offer important academic and practical implications.     

Explaining customers' switching patterns to brand delisting

Delisting is frequently used by retailers to strengthen their negotiating position against manufacturers. However, both parties have to consider the risk of potential reactions when customers are faced with a reduced or modified assortment and thus, different choice. This research investigates customers' switching behavior if a brand is delisted by taking into account context theory. The results of two real-life quasi-experiments reveal that customer responses depend significantly on the context and that manufacturers may encounter substantially larger losses than retailers. Two further online experiments support the hypotheses on the existence of negative context effects for brand removals. Managerial implications can be derived and recommendations for further research are developed.     

零售情景下营销组合的基础与框架探索

在零售情景下,传统营销组合范式具有一定的局限性。这是因为传统营销组合框架是以制造商为视角构建起来的,而制造商与消费者交换的内容同零售商与消费者交换的内容是不同的。制造商向消费者提供的是价值方案,零售商向消费者提供的是合格价值方案的获取过程。因此,获取过程是零售商与消费者交换的基本内容。效率、乐趣、费用、沟通是消费者与零售商发生交换的四个必要条件,即零售营销的四项基本功能。零售营销活动的功能性归属分别是:定价属于费用类别,广告属于沟通类别,物理环境的设计与管理属于乐趣类别,商品组合、选址、商店布局、物流与结算属于效率类别。     

Pricing practices: A critical review of their effects on consumer perceptions and behaviour

With the present challenge to compete on price or product assortment, retailers and manufacturers are increasingly focusing on state-of-the-art pricing strategies which have their roots in behavioural economics and psychology. The current review is an empirical investigation on the relative effectiveness of various pricing practices on consumer perceptions and behaviour. Six pricing strategies were reviewed; drip pricing, reference pricing, the use of the word ‘free’, bait pricing, bundling and time-limited offers. The review shows that the former three have received a significant amount of attention and have a robust impact on consumer perceptions and behaviour. There is less research on the latter three; however, the available evidence does suggest that they, too, may be capable of influencing consumers’ choices. Finally, it is also clear that the effects of pricing practices can be moderated by a variety of factors. Overall, the current review indicates that sellers are able to influence perceptions and purchase decisions of consumers based on the manner in which prices are displayed. The implications of these findings for retailers, policy makers and researchers are discussed.     

Innovation Cloning: The Introduction and Performance of Private Label Innovation Copycats

A controversial trend in grocery is the practice by retailers to quickly copy innovative national brands (NBs) launched by manufacturers with their own private label (PL). In a sample of 1,100+ NB pioneers launched in The Netherlands between 2005 and 2009, 11.7% faced a PL copycat by at least one of the seven leading grocery retailers. These copycats obtained an impressive 5.8% category share at the retailer in the year after launch, thereby outperforming the NB pioneers they copy (2.1%) as well as non-copycat PLs launched in the same period (4.4%). Using a two-step selection model, we identify what motivates retailers to copy NB innovations, and what factors drive subsequent copycat performance, thereby taking into account retailers’ innovation assortment decisions. As expected, retailers are more likely to copy successful NB innovations, and these copycats indeed perform well in their stores. However, retailers do not only take into account financial considerations. They are especially hesitant to copy heavily promoted NB innovations and those launched by manufacturers with a strong reputation. To enhance copycat performance, retailers should keep prices of the copycat sufficiently below those of the NB pioneer and limit its promotions. Apart from guiding retailers in their copycat decisions, also NB manufacturers can learn from this study how to discourage retailers from imitating their innovations.     

Advertising competition and industry channel structure

The introduction of independent retailers has long been recognized as a buffer that alleviates the price competition between channels. In this paper, we argue that this effect may be counter-balanced if the manufacturers compete along dimensions that differ from prices (such as advertising). We find that delegating to retailers may intensify other non-price competition between the manufacturers and therefore make the manufacturers worse off. Our analysis shows that the “retailer buffer” may be a two-edged sword and thus suggests that channel structure may critically depend on the specific dimensions along which the manufacturers compete with each other.     

Why is Assortment Planning so Difficult for Retailers? A Framework and Research Agenda

When retailers conduct product assortment planning (PAP), they determine (1) The variety of merchandise, (2) The depth of merchandise, and (3) Service level or the amount of inventory to allocate to each stock-keeping unit (SKU). Despite longstanding recognition of its importance, no dominant PAP solution exists, and theoretical and decision support models address only some of the factors that complicate assortment planning. This article simultaneously addresses the variety, depth, and service level aspects of PAP to provide a more thorough understanding. A review of current academic literature and best trade practices identifies open questions and directions for further research and applications.     

Empirical investigation of channel reactions to brand introductions

We investigate how incumbent manufacturers and retailers alter their pricing behavior in response to new product introduction. In performing our analysis, we need to be cognizant of the fact that the observed price changes can be due to entry-induced changes in a) demand conditions or b) costs or, on the other hand, to the competitive behavior of c) manufacturers and/or d) the retailer. In order to separate these four changes, we posit that manufacturer and retailer pricing is an outcome of maximizing a combination of shares and profits. This enhanced objective function allows us to measure competitive conduct benchmarked as less or more competitive than under the Bertrand-Nash framework. Our empirical analysis is based on the toothpaste category for the time period January 1993–February 1995. During this period, there were three brand introductions in two rounds of entry. Using the estimates from the demand and the supply model, we compute the changes in the retail and wholesale prices that are attributable to changes in demand conditions, manufacturer and retailer competitive conduct, and cost changes. These results support our conjecture that inferring the change in conduct solely based on a change in observed prices is likely to be erroneous. For the first new brand entry, we find that the brand introduction did not significantly increase competition between manufacturers. As a result, the balance of channel power between the manufacturers and the retailers remained unaltered. Both retailer and manufacturer profit margins increased after the first entry. However, subsequent to the second entry, retailer share of channel profits increased at the expense of the manufacturers; manufacturers even saw a decline in their absolute profit margins. We believe that this research will provide insight for manufacturers and retailers regarding how the various channel participants are likely to react to new product introduction. Furthermore, policymakers interested in understanding competitive reactions to new product introduction should find this research useful.     

Sources of Power in International Marketing Channels

In response to certain important gaps in existing knowledge of distribution channels in international markets, this paper reports an empirical study on the sources of power in cross-cultural buyer-seller relationships. Specifically, the focus of attention is an examination of the nature of and interrelations among the sources of power held by overseas distributors in their relationships with export manufacturers. The findings suggest that an overseas distributor's use of reward is positively related to its informational, referent, legitimate and expert power sources, as is perceived by export manufacturers. It has also been found that there is a negative relationship between an importer's use of coercion and its informational base of power over the exporter. Moreover, specific reward and punishment elements are identified that play an important role in influencing the pattern of interactions in manufacturer-overseas distributor relationships. The implications of these findings for business practitioners and public policy makers are discussed and directions for future research on the topic considered.     

Shopping in the omnichannel supply chain under price competition and product return

In recent years, omnichannel retailing has created value for prospective consumers. The rise of omnichannel retailing has changed consumers' buying habits, and manufacturers are facing stiff competition from retailers. To reduce this competition effect, manufacturers and retailers often work together to reduce showroom display costs. Despite this practice, there is little understanding of how omnichannel retailing impacts supply chain (SC) profit under competitive conditions. We investigate the test-in-store-and-buy-online (TSBO) retailing strategy and its impact on SC profit and price competition between manufacturers. The retailer sells products of both manufacturers through its website but displays products of only one manufacturer in the showroom, which bears the displaying cost. The retailer adopts a return policy for the other manufacturer. Stackelberg game was used to examine how members of the chain interact, and Nash equilibrium was used to find optimal strategies for players under decentralized and integrated channels. The results show that the TSBO strategy in retailing benefits all supply chain players under the integrated channel. A further interesting finding is that omnichannel SC profits are highest when retailers adopt a return policy. When two manufacturers compete and adopt different sales models, the manufacturer who uses the TSBO retail model reaps the most profit. Several other managerial insights are drawn from sensitivity analyses.     

Understanding retail branding: conceptual insights and research priorities

With the growing realization that brands are one of a firm's most valuable intangible assets, branding has emerged as a top management priority in the last decade. Given its highly competitive nature, branding can be especially important in the retailing industry to influence customer perceptions and drive store choice and loyalty. We integrate lessons from branding and retail image research to provide a better understanding of how retailers create their brand images, paying special attention to the role of the manufacturer and private label brand assortment. We also highlight some important areas that deserve further research in the form of three sets of research priorities.     

Perceptions of assortment variety: The effects of congruency between consumers’ internal and retailers’ external organization

This research shows that consumers’ perceptions of variety and satisfaction are dependent upon how the assortment is organized, both internally by the consumer and externally by the retailer. The results of three laboratory studies indicate that for familiar categories, congruency between a consumer's internal categorization structure and the external store layout leads to higher perceptions of variety and higher satisfaction with product choices, while for unfamiliar product categories, congruency between shopping goals and external structure leads to lower perceptions of variety but increased satisfaction with the store's assortment. However, if retailers institute external category filters congruent with consumers’ internal shopping goals that allow them to bypass products, consumers have both lower variety perceptions and satisfaction with the assortment offering.     

Economic and non-economic factors of Korean manufacturer-retailer relations

The purpose of the study was to examine the impact of antecedent channel power sources on satisfaction, conflict, trust, dependence and long-term channel relationships between Korean retailers and manufacturers. The sample included 210 cosmetic retailers in 15 Korean cities. The results indicate that Korean manufacturers' exercised coercive power decreases retailers' economic and non-economic satisfaction, while exercised non-coercive power increases economic and non-economic satisfaction. Second, exercised coercive power increases both economic and non-economic conflict, and exercised non-coercive power decreases non-economic conflict. Third, retailers' economic and non-economic satisfaction is negatively related to economic and non-economic conflict. Fourth, trust is a mediating factor between satisfaction (economic and non-economic) and a long-term relationship. Finally, results indicate that neither conflict nor satisfaction is unidimensional; each has an economic and non-economic dimension. This finding is an important contribution to the channel relations literature.     

Incorporating balance of power in channel decision structure: Theory and empirical application

The objective of a manufacturer is to maximize the profits of its brands. The retailer, on the other hand, is not interested in the profitability of any particular brand but concentrates on the overall category profit. In spite of these apparently diverging profit objectives, both manufacturers and retailers are increasingly realizing that profit margins for both may be increased when retailers and manufacturers recognize the strengths of each other and utilize them to maximize the overall category profit. We develop a game theoretic model to demonstrate that when the retailer allows a few large manufacturers to practice independent brand management but manages the rest of the brands, the category profit is indeed higher than the profits generated when it allows independent brand management by all manufacturers or acts as an uncompromising category manager. We also provide an empirical application of our model on scanner data.     

Retailer Marketing Communications in the Digital Age: Getting the Right Message to the Right Shopper at the Right Time

The evolving retail landscape in the digital age has resulted in opportunities and novel capabilities for retailers. This paper identifies four key challenges facing retailers based on insights from practitioners and academics using the customer journey framework as a guide. It then considers evidence from both practice and theory on how contemporary retailers might best innovate in the face of these challenges, to get “the right message to the right shopper at the right time.” Historically, retail was largely constrained to focus on individual touchpoints as manufacturers drove the majority of communication decisions. More recently, with the ability of e-commerce to capture the shopper decision journey more comprehensively, retailers are better able to understand what the right message would be as well as where, when, and how to deliver it to reach the most responsive shoppers to achieve the retailer’s strategic objectives in each phase of the journey. It is within this context that this paper considers the following key challenges: 1) When is the right time to communicate with a given shopper?, 2) What is the right way to communicate with a given shopper?, 3) What is the right way to leverage in-store collateral?, and 4) How do we cultivate the right long-term relationship with a shopper?     

Organizing Products with Complements versus Substitutes: Effects on Store Preferences as a Function of Effort and Assortment Perceptions

Retailers often organize at least part of their assortment by displaying complementary products from different product categories together (e.g., a pair of pants with a shirt) rather than grouping items by product type (e.g., a pair of pants with other pants). However, little is known about how retailers should choose between complement-based and substitute-based organizations. The present paper shows that consumers’ preferences for such store organizations are a function of the effort and assortment perceptions cued by these organizational formats. Holding the underlying assortment constant, complement-based organizations are always more effortful than substitute-based organizations. This difference in effort can create downward pressure on complement-based store choice. Moreover, the effects of organization format on assortment perception depend on whether consumers hold a hedonic or utilitarian focus. When consumers have a highly hedonic focus, complement-based based stores create more positive assortment perceptions than substitute-based stores. Such positive assortment perceptions can, in turn, raise complement-based store choice. However, as consumers’ utilitarian focus increases, substitute-based assortments are seen as both easier and more attractive, leading to a strong advantage in store choice. Our findings provide actionable guidance for retailers considering various store organizations and suggest opportunities for future research.