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Marketing Letters

Erschienen in:

01.06.2009

Manufacturer-owned retail stores

verfasst von: Yusong Wang, David R. Bell, V. Padmanabhan

Erschienen in: Marketing Letters | Ausgabe 2/2009

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Abstract

Increasingly, manufacturers sell their products in their own retail stores, and many of these stores appear to be in direct competition with independent retailers; i.e., both types of retail stores are physically co-located. We analyze one way this practice affects the retail market. We find that, when independent retailers compete against company stores (instead of just against other independent retailers), they (1) charge higher prices and (2) are more willing to engage in marketing efforts on behalf of the manufacturer’s brand. Furthermore, when company stores and independent retailers compete in the same market, the company store charges higher prices and provides more marketing effort. Anecdotal data are consistent with these model predictions.

Nächster Artikel The impact of customer-specific marketing expenses on customer retention and customer profitability

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Not only is this market arrangement increasingly common in the physical world but also, by definition, pervasive on the Internet. All Internet retail sites—whether owned by manufacturers or independent retailers are “physically co-located.”

This issue has a long history. See, for example, Coleman Motor Co. v. Chrysler Corp. (1975), Columbia Metal Culvert Co. v. Kaiser Alumin um (1978), and U.S. v. Alcoa (1945).

More detailed discussions of restraints on trade with respect to pricing and distribution can be found in Nagle and Holden (2002), and Coughlan et al. (2006). In June 2007, the US Supreme Court ruled that it was no longer appropriate to outright condemn resale price maintenance (see Stoll and Goldfein 2008 for details). We thank the editor for this update and reference.

For a more detailed analysis of these and other issues, see Bell et al. (2006).

In addition to articles based on formal economic models, a number of others explore retail outcomes from the perspective of organizational incentives and transaction cost analysis. Examples include Anderson (1985), Bradach (1997), and Brickley et al. (1991). A review of this literature is beyond the scope of our work. The interested reader is referred to Coughlan et al. (2006) and Tsay and Agrawal (2004). For a general economic model for durable goods, see Desai et al. (2004).

“Marketing effort” refers to brand-building activities by retailers. These include but are not limited to the hiring of knowledgeable salespeople, investments in advertising, and increases in the quality of in-store merchandizing and displays, etc. In economics, the term “service” is sometimes used in the same way. We use the two terms interchangeably.

We do not consider contractual mechanisms such as two-part tariffs (e.g., Ingene and Parry 1995, 1998; Moorthy 1987; McGuire and Staelin 1986) as our interest lies solely in the effect of the company store on the retail market.

We subsequently allow demand to depend on own and competitor prices, as well as own and competitive effort levels, i.e., q _s = 1 − p _s + θ(p _3−s− p _s) + e _s + βe _3−s. Since the qualitative results are unchanged, we focus first on the simpler setup in Eq. 1, which allows us to concentrate on the key variable of interest—marketing effort. We thank an anonymous reviewer for drawing our attention to this issue.

We thank an anonymous reviewer for suggesting this interpretation.

This assumption is line with institutional practice as determined by personal interviews with members of the Jay H. Baker Retailing Initiative, University of Pennsylvania. Equations 3a and 3b also assume that the base level of demand for the manufacturer’s brand is the same at both outlets.

For the moment, the company store is assumed as efficient as the independent retailer in the practice of retailing. McGuire and Staelin (1986), among others, call this assumption into question. In the next section, we allow the marginal retailing cost at the company store to differ from that at the independent store.

For simplicity, we use C to stand for CS in notations.

Recall the assumption that base demand is the same at both outlets (Eqs. 3a and 3b). If brand-specific demand at the company store is “very small” relative to that at the independent retailer, this result may not hold. Provided demand at the company store exceeds a critical value, the results do go through (details are available from the authors upon request). We thank an anonymous reviewer for this observation. In some instances, e.g., for Apple stores, an “equal intercept” assumption may even be conservative.

Interestingly, even if it is optimal for the two retailers to put in the same amount of effort as if the channel structure were independent (I), the manufacturer will still choose a positive level of brand assistance, a ^* > 0. As a result, the company store’s demand function is shifted out more than the independent retailer’s demand function. Consequently, the company store finds it best to put in more marketing effort and is also able to charge a higher price (findings 3 and 4). We thank an anonymous reviewer for this observation.

See http://www.icsc.org for recent trends including analyses of Apple, Prada, and other premium brands that have opened retail outlets and Kozinets et al. (2002) for a research perspective.

Finding 1 (strict price maintenance) cannot be tested directly in an Internet setting as there is no “parallel Internet” that contains independent retailer websites only (in the “real world,” there are malls that contain independent retailers but no company stores). Our conjecture, however, is that the presence of the company website (e.g., http://www.truereligionbrandjeans.com) helps to keep prices at the independent sites higher than they otherwise would be. The dataset is available from the authors upon request.

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Titel: Manufacturer-owned retail stores
verfasst von: Yusong Wang
David R. Bell
V. Padmanabhan
Publikationsdatum: 01.06.2009
Verlag: Springer US
Erschienen in: Marketing Letters / Ausgabe 2/2009
Print ISSN: 0923-0645
Elektronische ISSN: 1573-059X
DOI: https://doi.org/10.1007/s11002-008-9054-1

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