Market Entry and Consumer Behavior: An Investigation of a Wal-Mart Supercenter
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.
Volume (Year): 25 (2006)
Issue (Month): 5 (September)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Seetharaman, P B & Chintagunta, Pradeep K, 2003. "The Proportional Hazard Model for Purchase Timing: A Comparison of Alternative Specifications," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(3), pages 368-382, July.
- Martin Pesendorfer, 2002. "Retail Sales: A Study of Pricing Behavior in Supermarkets," The Journal of Business, University of Chicago Press, vol. 75(1), pages 33-66, January.
- Kristiaan Helsen & David C. Schmittlein, 1993. "Analyzing Duration Times in Marketing: Evidence for the Effectiveness of Hazard Rate Models," Marketing Science, INFORMS, vol. 12(4), pages 395-414.
- David R. Bell & James M. Lattin, 1998. "Shopping Behavior and Consumer Preference for Store Price Format: Why “Large Basket” Shoppers Prefer EDLP," Marketing Science, INFORMS, vol. 17(1), pages 66-88.
- Rajiv Lal & Carmen Matutes, 1989. "Price Competition in Multimarket Duopolies," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 516-537, Winter.
- Paul R. Messinger & Chakravarthi Narasimhan, 1997. "A Model of Retail Formats Based on Consumers' Economizing on Shopping Time," Marketing Science, INFORMS, vol. 16(1), pages 1-23.
- Pradeep K. Chintagunta, 1993. "Investigating Purchase Incidence, Brand Choice and Purchase Quantity Decisions of Households," Marketing Science, INFORMS, vol. 12(2), pages 184-208.
When requesting a correction, please mention this item's handle: RePEc:inm:ormksc:v:25:y:2006:i:5:p:457-476. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
If references are entirely missing, you can add them using this form.