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Manufacturer competition in the nanostore retail channel

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  • Ge, Jiwen
  • Honhon, Dorothee
  • Fransoo, Jan C.
  • Zhao, Lei

Abstract

In emerging markets, a significant share of the revenue of Consumer Packaged Goods (CPG) manufacturers comes from the traditional retail channel, composed of millions of independent family-owned nanostores. Nanostore owners typically have limited cash flow and are driven by the modest goal of making a living. It is common practice for manufacturers to dispatch sales representatives to visit nanostores directly in order to drive product sales. We study the sales visit and pricing decisions of manufacturers supplying to a nanostore over an infinite time horizon. We first consider the case of a single manufacturer and show that the manufacturer should price the product such that the nanostore can earn enough to pay for his subsistence spending. Such a supplier-retailer mutual reliance relationship continues to hold for the two-manufacturer model where the manufacturers compete for the nanostore’s cash resources under shelf space limitations. Further, under some conditions, the two manufacturers can mutually benefit, that is, instead of jeopardizing each other through competition, they contribute collectively to satisfy the nanostore family’s subsistence needs such that nanostores are more likely to survive; besides, each can earn more profit than in a single-supplier setting. The results can help us understand the current industry dynamics in this vital sector.

Suggested Citation

  • Ge, Jiwen & Honhon, Dorothee & Fransoo, Jan C. & Zhao, Lei, 2020. "Manufacturer competition in the nanostore retail channel," European Journal of Operational Research, Elsevier, vol. 286(1), pages 360-374.
    • Handle: RePEc:eee:ejores:v:286:y:2020:i:1:p:360-374
    DOI: 10.1016/j.ejor.2020.03.011
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    1. Camilo Andrés Mora-Quiñones & Leopoldo Eduardo Cárdenas-Barrón & Josué C. Velázquez-Martínez & Karla M. Gámez-Pérez, 2021. "The Coexistence of Nanostores within the Retail Landscape: A Spatial Statistical Study for Mexico City," Sustainability, MDPI, vol. 13(19), pages 1-17, September.
    2. Sun, Shuxing & Zhang, Bin, 2022. "Operation strategies for nanostore in community group buying," Omega, Elsevier, vol. 110(C).
    3. Fransoo, Jan C. & Escamilla, Rafael & Ge, Jiwen, 2024. "Nanoretail operations in developing markets," Other publications TiSEM 11ea94fa-87eb-41ca-89f6-b, Tilburg University, School of Economics and Management.
    4. Rafael Escamilla & Jan C. Fransoo & Christopher S. Tang, 2021. "Improving Agility, Adaptability, Alignment, Accessibility, and Affordability in Nanostore Supply Chains," Production and Operations Management, Production and Operations Management Society, vol. 30(3), pages 676-688, March.

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