Chapter 4
Evaluating the Competition in
Retailing
Models of Retail Competition
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The competitive marketplace
Market structure
The demand side of retailing
Nonprice decisions
Competitive actions
Suppliers as partners and
competitors
The Competitive Marketplace
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Retailers compete for target
customers on five major fronts:
 The
price for benefits offered
 Service level
 Product selection
 Location or access
 Customer experience
LO 1
Market Structure
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Economists use four different economic terms to describe
the competitive environment in the retailing industry:
Pure Competition – is rare in retailing and occurs when a market has
homogeneous products and many buyers and sellers, all having perfect
knowledge of the market, and ease of entry for both buyers and sellers.
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Pure Monopoly – occurs when there is only one seller for a product or service.
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.
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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.
LO 1
Market Structure
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Monopolistic competition
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Retailers in monopolistic competition attempt to
differentiate themselves with the products or
services they offer.
Oligopolistic competition Oligopolies are likely to end up selling at a
similar price since everybody knows what others
are doing.
 In rare cases, retailing is characterized as
oligopolistic competition.
 Oligopolistic competition is more common at a
local level, especially in smaller communities.
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Outshopping - Occurs when a household
travels outside their community of residence or
uses the Internet to shop in another community.
LO 1
The Demand Side of Retailing
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In a monopolistically
competitive market, the
retailer will be confronted
with a negatively sloping
demand curve.
caused by ―the law of
diminishing returns
LO 1
Nonprice Decisions
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Price is the easiest variable for competitors to
copy.
Ways of using nonprice variables to achieve a
protected niche:
 Store positioning - Identifying a well-defined
market segment using demographic or lifestyle
variables and appealing to this segment with a
clearly differentiated approach.
 Offering
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private-label merchandise that has
unique features or offers better value than do
competitors.
Providing additional benefits for the customer.
Mastering stockkeeping with its basic merchandise
assortment.
LO 1
Competitive Actions
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Overstored - 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.
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Understored - 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.
Competition is most intense in overstored
markets because many retailers are
achieving an inadequate return on
investment
LO 1
Suppliers as Partners and
Competitors
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Suppliers as competitors – Suppliers
compete for gross margins throughout
the supply chain. The retailer must
develop a loyal group of patrons
that encourages the supplier to
accommodate the needs of its retail
partner.
Suppliers as customers– Suppliers
can be a critical competitive
advantage to retailers when they
provide a unique product or
promotion.
LO 1
Types of Competition
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Intratype competition - two or more retailers of the same type
compete directly with each other for the same households. The most
common type of retail competition.
Intertype competition - two or more retailers of a different type
compete directly by attempting to sell the same merchandise lines
to the same households.
Divertive competition - retailers intercept or divert customers from
competing retailers. Can be either in the form of intertype or
intratype . Most retailers operate very close to their breakeven
point.
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Break-even point - Total revenues equal total expenses and the retailer is
making neither a profit nor a loss.
LO 2
Exhibit 4.6 - Retail Institutions in Their
Various Stages of the Retail Life Cycle
LO 3
The Retail Life Cycle
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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.
Growth - Sales and profits explode. New retailers enter the
market and begin to copy the idea. Late in this stage, both
market share and profitability approach their maximum
levels.
Maturity - Market share stabilizes and profits decline due
to:
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shift in type of establishment
overexpansion
competition
Decline - A major loss of market share will occur, profits will
fall, and the once-promising idea will no longer be needed
in the marketplace.
LO 3
Future Changes in Retail Competition
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Nonstore retailing (e-tailing, direct selling, catalog
sales)
New retailing formats
Heightened global competition
Integration of technology
Increasing use of private labels
LO 4
New Retailing Formats
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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. Primary
examples of off-price retailers—factory outlets and
warehouse clubs.
Supercenter - A cavernous combination of supermarket
and discount department store carrying more than
80,000 to 100,000 SKUs that allows for one-stop
shopping.
Recycled merchandise retailers - Establishments that
sell used and reconditioned products; examples include
pawn and thrift shops, auction houses, flea markets, and
eBay.
Liquidators - These firms purchase the inventory of the
existing retailer and run its ‘‘going-out-of-business’’ sale.
Rentals, another form of retailing, has been popular for
a limited number of items for decades
LO 4
Heightened Global Competition
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Increasing rate of change
Greater diversity
Creation of new retail formats
LO 4
Integration of Technology
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Technological innovations can be
grouped under three main areas:
Supply chain management using new
initiatives such as direct store delivery
(DSD) and collaborative planning,
forecasting, and replenishment (CPFR)
systems.
 Customer management
 Customer satisfaction
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LO 4
Increasing use of Private Labels
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Develop a partnership with well-known
celebrities, noted experts, and institutional
authorities.
Develop a partnership with traditionally
higher-end suppliers to bring an exclusive
variation on their highly regarded brand name
to the market.
Reintroduce products that have strong name
recognition but that have fallen from the retail
scene.
Brand an entire department or business; not
just a product line.
LO 4