According to Yunchuan “Frank” Liu, a retailer’s strategic manipulation of store layout is driven by an incentive to balance the shopping process of “fit-uncertain consumers” and the pricing behavior of upstream suppliers.
“Retailers face two different kinds of markets – the consumers who buy goods, and the manufacturers that supply goods,” he said. “It’s a very important variable for local retailers and marketing managers to play with in this era of increased competition with online retailers, and it has important implications for companies and consumers.”
The study, which will appear in the journal Marketing Science, is the first paper to formally study the significance of store layouts, said Liu, who co-wrote the study with Zheyin (Jane) Gu, a professor of marketing at the State University of New York, Albany.
“If we look at the current retailing environment, local retailers are in intense competition with online retailers, which means real-world retailers really need to think about how they’re going to differentiate themselves,” Liu said.
Although consumers live in an information-rich environment, where they know just about everything – reviews, price and quality – about a product before they handle it, they know virtually nothing about the unique “fit” of the product until they walk into a store and handle the product, Liu says.
“For many products, consumers typically remain uncertain about a product’s fit until physically inspecting it,” he said. “That could mean how a shirt feels when you try it on, or what a certain size tablet feels like in the consumers’ hands. And since the consumer has to travel to the store and compare the products, that is to the local retailer’s advantage, because that’s something that online retailers can’t do.”
Another way retailers can compete with online merchants is by making the physical act of shopping as convenient as possible for consumers. In a market characterized by what the researchers call “consumer-fit uncertainty,” a retailer may design the layout of a store to facilitate the simultaneous inspection of products, Liu says.
“For basic goods like toothbrushes, the fit probability is really high, because to most consumers, a toothbrush is a toothbrush,” he said. “In that case, the retailer should group all toothbrushes together in the same location, forcing the manufacturers to compete on price.”
But making the consumer shopping experience as easy as possible may not be the best retail strategy for certain products, Liu says.
According to the research, sometimes retailers might want manufacturers to compete on location in the store, even if it’s inconvenient for consumers, which may sound counterintuitive to marketing managers.
“Sometimes it’s not in retailers’ interests to make certain things convenient to consumers, because they have to consider the balance between the consumer market and the manufacturer market,” Liu said. “By affecting consumers’ fit inspection processes, the retailer’s store layout design also influences pricing behaviors of upstream manufacturers.”
Not only do marketing managers have to decide whether to group competing firms’ products together or separately, they also must balance that strategy with consumers’ perception of the store.
“Think about Bloomingdale’s versus Sears – high-end luxury items versus basic items,” Liu said. “Sears puts all of a manufacturers’ products together. If you’re looking for a table at Sears, they’re all stocked together. If you go to Bloomingdale’s, you’ll notice that they sell furniture by brands. If you go to this room, it has everything from one manufacturer. If you want to look at another set of table and chairs, you have to go to another room.”
That’s because for basic products, such as the table from Sears, the product’s fit probability is very high, Liu says.“But if you go to Bloomindale’s, they have the high-end furniture – and for
It also depends on the product itself, Liu says.
“Even within high-end stores, individual product strategies will be different,” he said. “For some product categories, such as kitchenware, which is quite standard, even a high-end retailer will sell everything together.”
Name-brand clothes, however, are usually sold by the brand.
“Macy’s puts some goods from competing manufacturers together, but if you look at clothing – jeans, shirts, sweaters – they usually sell them by brand,” he said. “Calvin Klein is here, but Ralph Lauren is way over there.”
But for low-fit probability products such as shirts, where each shirt is different, “even if retailers put them all together, like toothbrushes, the price competition is not that intense, because consumers have different preferences for shirts than they do for toothbrushes,” Liu says.
“Even if one shirt manufacturer is running a promotion with a lower price than the competition – if that shirt doesn’t fit me; if its material irritates my skin; if it doesn’t have the color I like, it doesn’t matter how low the price is, because I won’t buy it,” he said.
“In this case, if the retailer sells all of the products together, it doesn’t intensify the competition from the manufacturers. So the retailer should put the products in different locations so the manufacturers have to compete on the locations rather than on prices.”
Although many retailers also offer the price-matching policy with online retailers like Amazon.com, that’s really not the smartest strategy, according to Liu.
“Retailers probably do not want to play the pricing game with online retailers,” he said. “They have certain inherent advantages in their store, in that the consumer has to find the right ‘fit’ for certain products. That’s the frontier on which they have the advantage. So they should not give ground by playing the pricing game.”
Phil Ciciora | University of Illinois
Antarctic Ice Sheet mass loss has increased
14.06.2018 | Technische Universität Dresden
WAKE-UP provides new treatment option for stroke patients | International study led by UKE
17.05.2018 | Universitätsklinikum Hamburg-Eppendorf
In a recent publication in the renowned journal Optica, scientists of Leibniz-Institute of Photonic Technology (Leibniz IPHT) in Jena showed that they can accurately control the optical properties of liquid-core fiber lasers and therefore their spectral band width by temperature and pressure tuning.
Already last year, the researchers provided experimental proof of a new dynamic of hybrid solitons– temporally and spectrally stationary light waves resulting...
Scientists from the University of Freiburg and the University of Basel identified a master regulator for bone regeneration. Prasad Shastri, Professor of...
Moving into its fourth decade, AchemAsia is setting out for new horizons: The International Expo and Innovation Forum for Sustainable Chemical Production will take place from 21-23 May 2019 in Shanghai, China. With an updated event profile, the eleventh edition focusses on topics that are especially relevant for the Chinese process industry, putting a strong emphasis on sustainability and innovation.
Founded in 1989 as a spin-off of ACHEMA to cater to the needs of China’s then developing industry, AchemAsia has since grown into a platform where the latest...
The BMBF-funded OWICELLS project was successfully completed with a final presentation at the BMW plant in Munich. The presentation demonstrated a Li-Fi communication with a mobile robot, while the robot carried out usual production processes (welding, moving and testing parts) in a 5x5m² production cell. The robust, optical wireless transmission is based on spatial diversity; in other words, data is sent and received simultaneously by several LEDs and several photodiodes. The system can transmit data at more than 100 Mbit/s and five milliseconds latency.
Modern production technologies in the automobile industry must become more flexible in order to fulfil individual customer requirements.
An international team of scientists has discovered a new way to transfer image information through multimodal fibers with almost no distortion - even if the fiber is bent. The results of the study, to which scientist from the Leibniz-Institute of Photonic Technology Jena (Leibniz IPHT) contributed, were published on 6thJune in the highly-cited journal Physical Review Letters.
Endoscopes allow doctors to see into a patient’s body like through a keyhole. Typically, the images are transmitted via a bundle of several hundreds of optical...
13.06.2018 | Event News
08.06.2018 | Event News
05.06.2018 | Event News
22.06.2018 | Materials Sciences
22.06.2018 | Earth Sciences
22.06.2018 | Life Sciences