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Market Entry and Consumer Behavior: An Investigation of a Wal-Mart Supercenter

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Author Info

  • Vishal P. Singh

    ()
    (Tepper School of Business, Carnegie Mellon University, 244 Posner Hall, 5000 Forbes Avenue, Pittsburgh, Pennsylvania 15213)

  • Karsten T. Hansen

    ()
    (Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, Illinois 60208)

  • Robert C. Blattberg

    ()
    (Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, Illinois 60208)

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    Abstract

    This paper provides an empirical study of entry by a Wal-Mart supercenter into a local market. Using a unique frequent-shopper database that records transactions for over 10,000 customers, we study the impact of Wal-Mart's entry on consumer purchase behavior. We develop a joint model of interpurchase time and basket size to study the impact of competitor entry on two key household decisions: store visits and in-store expenditures. The model also allows for consumer heterogeneity due to observed and unobserved factors. Results show that the incumbent supermarket lost 17% volume—amounting to a quarter million dollars in monthly revenue—following Wal-Mart's entry. Decomposing the lost sales into components attributed to store visits and in-store expenditures, we find that the majority of these losses were due to fewer store visits with a much smaller impact attributed to basket size. We also find that Wal-Mart lures some of the incumbent's best customers, and that retention of a small number of households can significantly reduce losses at the focal store. Finally, certain observed household characteristics such as distance to store, shopping behavior, and product purchase behavior are found to be useful in profiling the defectors to Wal-Mart. Implications and strategies for supermarket managers to compete with Wal-Mart are discussed.

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    File URL: http://dx.doi.org/10.1287/mksc.1050.0176
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 25 (2006)
    Issue (Month): 5 (September)
    Pages: 457-476

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    Handle: RePEc:inm:ormksc:v:25:y:2006:i:5:p:457-476

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    Related research

    Keywords: entry; retail competition; Wal-Mart supercenter; frequent-shopper data;

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    Cited by:
    1. Noel, Michael & Basker, Emek, 2007. "The Evolving Food Chain: Competitive Effects of Wal-Mart's Entry Into The Supermarket Industry," University of California at San Diego, Economics Working Paper Series qt4nq8d4sm, Department of Economics, UC San Diego.
    2. Glandon, PJ & Jaremski, Matthew, 2012. "Sales and Firm Entry: The Case of Wal-Mart," Working Papers 2012-03, Department of Economics, Colgate University.
    3. Cleary, Rebecca & Lopez, Rigoberto, 2007. "Is Wal-Mart Good for Competition? Evidence from Milk Prices," Research Reports 149207, University of Connecticut, Food Marketing Policy Center.
    4. Ellickson, Paul B. & Grieco, Paul L.E., 2013. "Wal-Mart and the geography of grocery retailing," Journal of Urban Economics, Elsevier, vol. 75(C), pages 1-14.
    5. Jun, Duk Bin & Kim, Jungki & Park, Myoung Hwan & Cha, Kyoung Cheon, 2012. "Modeling patronage shift to a new entrant for predicting disproportionate losses for incumbent outlets," International Journal of Forecasting, Elsevier, vol. 28(3), pages 660-674.
    6. Emek Basker, 2013. "Change at the Checkout: Tracing the Impact of a Process Innovation," Working Papers 1302, Department of Economics, University of Missouri.
    7. Xiaoou Liu & Rigoberto A. Lopez, 2011. "Entry of Wal-Mart Supercenters and Supermarkets’ Profit Margins," Working Papers 03, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    8. Daunfeldt, Sven-Olov & Mihaescu, Oana & Nilsson, Helena & Rudholm, Niklas, 2014. "What Happens When IKEA Comes to Town?," HUI Working Papers 100, HUI Research.
    9. Widenhorn, Andreas & Salhofer, Klaus, 2012. "Price sensitivity within and across retail formats," Congress Papers 124108, Italian Association of Agricultural and Applied Economics (AIEAA).

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