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Evaluating the Competition in Retailing

Chapter 4

Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.

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Learning Objectives

Explain the various models of retail competition

Distinguish between various types of retailcompetition

Describe the four theories used to explain theevolution of retail competition

Describe the changes that could affect retailcompetition

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Models 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

LO 1

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The Competitive Marketplace

While retailers typically compete for customers on alocal level, catalog and electronic retailers compete atnational and international levels.

LO 1

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Market Structure

Pure Competition

Pure Monopoly

Monopolistic Competition Oligopolistic Competition

LO 1

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Market Structure

Pure Competition

Occurs when a market has homogenous products andmany buyers and sellers, all having perfect knowledge

of the market, and ease of entry for both buyers andsellers.

LO 1

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Market Structure

Pure Monopoly

Occurs when there is only one seller for a product orservice.

LO 1

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The Demand Side of Retailing

LO 1: Exhibit 4.1

Price

Quantity Demanded

Demand as a Function of Price

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The Supply Side of Retailing

LO 1

Dollars

Unit Sales Quantity or Sales Volume

Fixed Costs

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The Profit-Maximizing Price

A profit-maximizing price seeks to get as much profitas possible from the sale of each unit.

LO 1

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Nonprice Decisions

Nonprice competition strategies

Position itself as different from the competition byaltering 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 toout of town customers.

Strive to always have basic merchandise in stock.

LO 1

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Types of Competition

Intratype Competition

Occurs when two or more retailers of the same type asdefined by NAICS codes in the Census of Retail Trade,

compete directly with each other for the samehouseholds.

Intertype Competition

Occurs when two or more retailers of a different type,

as defined by NAICS codes in the Census of RetailTrade, compete directly by attempting to sell the samemerchandise lines to the same households.

LO 2

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Intratype and Intertype Competition

LO 2

Intratype Competition

Intertype Competition

AlbertsonsSupermarket Food GiantSupermarket

McDonalds

Supermarkets offeringHome Meal

Replacements (HMR)compete with fast-food

restaurants

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The Wheel of Retailing Theory

LO 3: Exhibit 4.3

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Wheel of Retailing

Some would argue thatMcDonalds has becomea victim of the wheel ofretailing. When

McDonalds started out,it served a select menu.Over the years, theMcDonalds productoffering has expanded tothe inclusion of

playgrounds, thusopening the way fornew, low-cost fast-foodproviders, such asCheckers.

LO 3

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The Retail Accordion

LO 3Wide Assortment

Wide Assortment

NarrowAssortment

Time

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Evolution of Retail Competition

Retail Life Cycle

Describes four distinct stages that a retail institutionprogresses through:

Introduction

Growth

Maturity

Decline

LO 3

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Evolution of Retail Competition:

Growth

Sales and profits explode, validating theentrepreneurs good idea. New retailers enter the

market and begin to copy the retailers idea. Late in thisstage both market share and profitability approachtheir maximum levels.

LO 3The Retail Life Cycle

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Evolution of Retail Competition:

Decline

The once promising idea is no longer needed in themarketplace. As a result, market share and profits fall.

LO 3The Retail Life Cycle

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Retail Institutions in the Four Stages of

LO 3: Exhibit 4.4

Introduction

E-tailing

(1990s)Recyclers(2000s)

Growth

Food Courts

(1980s)Airport-basedretailers(1980s)

Supercenters(2000s)

Maturity

Warehouse

clubs(1970s)Department stores(1860s)Supermarkets (1930s)Convenience stores(1960s)Category killers (1970s)Fast food (2000s)

Decline

Variety Stores

(1890s)Factory outletmalls (1970s)

Departmentstores (2000s)

The Retail Life Cycle

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Future Changes in Retail Competition

New Retail Formats

Supercenters

Recycled Merchandise Retailers

Liquidators

LO 4

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Future Changes in Retail Competition:

Recycled Merchandise Retailers

Are establishments that sell used and reconditionedproducts.

LO 4New Retail Formats

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Future Changes in Retail Competition:

Liquidators

Liquidates leftover merchandise when an establishedretailer shuts down or downsizes.

LO 4New Retail Formats

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Leading U.S. Retailers by Sales

LO 4

1900 20 30 40 50 60 70 80 90 2000

A&P

Sears

K-Mart

Wal-Mart

$200B

$30B

$10B

$5B

$800M

$500M

$200M

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Future Changes in Retail Competition

Integration of Technology

Supply Chain Management

Customer Management

Customer Satisfaction

LO 4

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Future Changes in Retail Competition

Increasing Use of Private Labels

Helps in protecting retailer niche

Sets retailer apart from competition

LO 4

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Question to Ponder

Should retailers advertise the fact that they are theowners of the private label brand(s) they sell?

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Market Structure

LO 1

RetailCompetition

PureCompetition

OligopolisticCompetition PureMonopoly

MonopolisticCompetition

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Future Changes in Retail Competition:

LO 4

E-tailing

Catalog

Sales

DirectSelling

Nonstore Retailing

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Future Changes in Retail Competition:

LO 4

Creation of

New RetailFormats

GreaterDiversity

IncreasedRate of

Change

Heightened Global Competition

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