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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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