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Learning Objectives
Explain the various models of retail competition Distinguish between various types of retail
competition
The Competitive Marketplace Market Structure The Demand Side of Retailing The Supply Side of Retailing The Profit-Maximizing Price Nonprice Decisions Competitive Actions
While retailers typically compete for customers on a local level, catalog and electronic retailers compete at national and international levels.
Market Structure
LO 1
Market Structure
LO 1
Pure Competition Occurs when a market has homogenous products and many buyers and sellers, all having perfect knowledge of the market, and ease of entry for both buyers and sellers.
Market Structure
LO 1
Pure Monopoly Occurs when there is only one seller for a product or service.
Market Structure
LO 1
Monopolistic Competition Occurs when the products offered are different, yet viewed as substitutable for each other and the sellers recognize that they compete with sellers of these different products.
Market Structure
LO 1
Oligopolistic Competition Occurs when relatively few sellers, or many small firms who follow the lead of a few larger firms, offer essentially homogeneous products and any action by one seller is expected to be noticed and reacted to by the other sellers.
Market Structure
LO 1
Outshopping Occurs when individuals in one community travel usually to a larger community to shop.
Price
Quantity Demanded
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Nonprice Decisions
LO 1
Nonprice competition strategies Position itself as different from the competition by altering its merchandise mix to offer higher quality goods, great personal service, etc. Offering private label merchandise.
Provide free services or products, such as free gas to out of town customers.
Strive to always have basic merchandise in stock.
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Nonprice Decisions
LO 1
Store Positioning Is when a retailer identifies a well-defined market segment using demographic or lifestyle variables and appeals to this segment with a clearly differentiated approach.
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Kmart: Joe Boxer, Martha Stewart Everyday, Disney Sears apparel brands: Apostrophe, TKS, Lands End JCPenny: St. Johns Bay, Arizona, Stafford Wal-Mart: Equate, Simply Basic, Great Value Target: Cherokee, Honors, Furio
Saks Fifth Avenue: 5/48, Real Clothes, SFA Collections Federated Department Stores: I.N.C., Alfani, Green Dog Nordstrom: BP, Halogen, Studio 121 Lord and Taylor: Katie Hill, Context, Identity
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Competitive Actions
LO 1
Competitive activity can be examined by the number of retail establishments of a given type per thousand households.
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Competitive Actions
LO 1
Overstored
Is a condition in a community where the number of stores in relation to households is so large that to engage in retailing is usually unprofitable or marginally profitable.
Understored
Is a condition in a community where the number of stores in relation to households is relatively low so that engaging in retailing is an attractive economic endeavor.
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Types of Competition
LO 2
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Types of Competition
LO 2
Intratype Competition
Occurs when two or more retailers of the same type as defined by NAICS codes in the Census of Retail Trade, compete directly with each other for the same households.
Intertype Competition
Occurs when two or more retailers of a different type, as defined by NAICS codes in the Census of Retail Trade, compete directly by attempting to sell the same merchandise lines to the same households.
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Intertype Competition
Supermarkets offering Home Meal Replacements (HMR) compete with fast-food restaurants
Albertsons Supermarket
McDonalds
Intratype Competition
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Types of Competition
LO 2
Divertive Competition Occurs when retailers intercept or divert customers from competing retailers.
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Types of Competition
LO 2
Break-even Point Is where total revenues equal total expenses and the retailer is making neither a profit nor a loss.
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Wheel of Retailing
LO 3
Some would argue that McDonalds has become a victim of the wheel of retailing. When McDonalds started out, it served a select menu. Over the years, the McDonalds product offering has expanded to the inclusion of playgrounds, thus opening the way for new, low-cost fast-food providers, such as Checkers.
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Retail Accordion Describes how retail institutions evolve from outlets that offer wide assortments to specialized stores and continue repeatedly through the pattern.
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Wide Assortment
Time
Narrow Assortment
Wide Assortment
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Retail Life Cycle Describes four distinct stages that a retail institution progresses through: Introduction Growth
Maturity
Decline
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LO 3
Introduction Begins with an aggressive, bold entrepreneur who is willing and able to develop a different approach to retailing of certain products. During this stage profits are low, despite increasing sales levels.
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LO 3
Growth Sales and profits explode, validating the entrepreneurs good idea. New retailers enter the market and begin to copy the retailers idea. Late in this stage both market share and profitability approach their maximum levels.
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LO 3
Maturity Market share stabilizes and profits decline because: managers use to managing simple small retail outlets must now manage large complex firms,
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LO 3
Decline The once promising idea is no longer needed in the marketplace. As a result, market share and profits fall.
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Recyclers (2000s)
Maturity Warehouse clubs(1970s) Department stores (1860s) Supermarkets (1930s) Convenience stores (1960s) Category killers (1970s) Fast food (2000s)
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Resource-Advantage Theory
LO 3
Resource-advantage theory Is based on the idea that all firms seek superior performance in an ever-changing environment.
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Nonstore Retailing New Retail Formats Heightened Global Competition Integration of Technology Increased use of Private Labels
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Nonstore Retailing
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LO 4
Off-price Retailers Sell products at a discount but do not carry certain brands on a continuous basis. They carry those brands they can buy from manufacturers at closeout or deep one-time discount prices.
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LO 4
Supercenters Combine a discount store and grocery store to carry 80,000 to 100,000 products in order to offer one-stop shopping.
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LO 4
Number of Supercenters by Retailer 1998 1999 721 127 126 105 16 2000 894 144 135 115 31
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LO 4
Recycled Merchandise Retailers Are establishments that sell used and reconditioned products.
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LO 4
Liquidators Liquidates leftover merchandise when an established retailer shuts down or downsizes.
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Sears
Wal-Mart
$5B $800M $500M $200M 1900 20 30 40 50 60 70 80 90 2000
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K-Mart A&P
Quantity Pricing Actions move the consumer up and down the current demand curve.
Quantity Non-price Actions seek to shift the demand curve to right and make it more inelastic.
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Heightened Global Competition Increasing Rate of Change Greater Diversity Creation of New Retail Formats
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Increasing Use of Private Labels Helps in protecting retailer niche Sets retailer apart from competition
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JCPenney has built significant store loyalty through the introduction and development of the private label brand Arizona Jeans Co.
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Question to Ponder
Should retailers advertise the fact that they are the
owners of the private label brand(s) they sell?
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Additional Slides
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Market Structure
LO 1
Oligopolistic Competition
Pure Monopoly
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Direct Selling
Catalog Sales
E-tailing
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Supercenters
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