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Heterogeneous consumers, search and retail formats

Author

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  • Mingming Shi

    (Business School, Renmin University of China)

  • Xiao Yan

    (Business School, Renmin University of China)

Abstract

This paper proposes a model featuring the heterogeneity of consumer preferences and analyzes the multiple equilibrium of retail formats by building a map of the relationships between consumer heterogeneity and retail formats. The key questions analyzed in this paper are how the retailer adjusts its combination of marketing elements through repositioning and how innovation in retail formats is implemented to match consumers’ heterogeneous preferences in a market with consumer search costs. Unlike recent research, our model, by taking different consumer preference structures into account, introduces consumer psychological costs into the Ehrlich-Fisher model and deduces the existence of different retail formats and their multiple equilibriums. We find that consumer heterogeneity, retailers’ diversified transfer costs and economies of scale are endogenous drivers of prosperous retail formats. Accordingly, diversified retail formats with complementary functions and differentiated services can be described as the horizontal extensions and interface changes of the retailing industry.

Suggested Citation

  • Mingming Shi & Xiao Yan, 2017. "Heterogeneous consumers, search and retail formats," Frontiers of Business Research in China, Springer, vol. 11(1), pages 1-16, December.
    • Handle: RePEc:spr:fobric:v:11:y:2017:i:1:d:10.1186_s11782-017-0017-3
    DOI: 10.1186/s11782-017-0017-3
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    References listed on IDEAS

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    1. Kopalle, Praveen & Biswas, Dipayan & Chintagunta, Pradeep K. & Fan, Jia & Pauwels, Koen & Ratchford, Brian T. & Sills, James A., 2009. "Retailer Pricing and Competitive Effects," Journal of Retailing, Elsevier, vol. 85(1), pages 56-70.
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    3. Betancourt, Roger R. & Chocarro, Raquel & Cortiñas, Monica & Elorz, Margarita & Mugica, Jose Miguel, 2016. "Channel Choice in the 21st Century: The Hidden Role of Distribution Services," Journal of Interactive Marketing, Elsevier, vol. 33(C), pages 1-12.
    4. Sorescu, Alina & Frambach, Ruud T. & Singh, Jagdip & Rangaswamy, Arvind & Bridges, Cheryl, 2011. "Innovations in Retail Business Models," Journal of Retailing, Elsevier, vol. 87(S1), pages 3-16.
    5. Roger Betancourt & David Gautschi, 1990. "Demand Complementarities, Household Production, and Retail Assortments," Marketing Science, INFORMS, vol. 9(2), pages 146-161.
    6. Walter Y. Oi, 1992. "Productivity in the Distributive Trades: The Shopper and the Economies of Massed Reserves," NBER Chapters, in: Output Measurement in the Service Sectors, pages 161-193, National Bureau of Economic Research, Inc.
    7. Roger Betancourt & Monica Cortiñas & Margarita Elorz & Jose Mugica, 2007. "The demand for and the supply of distribution services: A basis for the analysis of customer satisfaction in retailing," Quantitative Marketing and Economics (QME), Springer, vol. 5(3), pages 293-312, September.
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    Cited by:

    1. Shaolong Tang & Stella Cho & Jacqueline Wenjie Wang & Hong Yan, 2018. "The newsvendor model revisited: the impacts of high unit holding costs on the accuracy of the classic model," Frontiers of Business Research in China, Springer, vol. 12(1), pages 1-14, December.
    2. Kerry Liu, 2020. "Chinese consumer finance: a primer," Frontiers of Business Research in China, Springer, vol. 14(1), pages 1-22, December.

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