Category Positioning and Store Choice: The Role of Destination Categories

We focus on destination categories, so named because they have the greatest impact on where households choose to shop and, more generally, on how category positioning affects which store a household chooses. We propose a reduced-form model-based analytical approach to identify categories that fill the destination role. Our approach determines which categories are most important to shoppers' store choice decisions and helps determine in which categories the retailer provides superior value. In addition, our approach allows us to understand the impact of the retailer's long-run merchandising policy decisions on the value it provides. Previous store choice research considered the effects of pricing, assortment and other merchandising decisions at the store level but did not focus on the effect of specific categories on store choice. This focus leads us to formulate a model that can (1) measure and explain the differential impact that specific categories have on shoppers' store choice decisions and (2) measure the relative value of retailers' category offerings, partitioning that value into the component resulting from retailer merchandising and the component that is nonmerchandising related. The model form captures differences in category value across stores (i.e., the store's category positioning) by specifying a spatial model for the store choice and category incidence intercepts. Our spatial model recognizes that stores position their offering vis-à-vis the category ideal based on long-run category merchandising decisions and that not all categories have the same importance in store choice decisions. We explore these issues for five retailers in the Charlotte, North Carolina market. We find that (1) category impact on store choice is highly skewed; (2) although categories with higher sales generally have a higher impact on store choice decisions, there are exceptions; (3) impact on store choice decisions does not vary systematically by the type of category (e.g., perishable versus dry grocery); and (4) our measure of category impact on store choice, although correlated with the category development index between retailers, is superior in that it provides a basis for comparing category impact within a retailer and how relative category value, based on long-run merchandising decisions, attracts shoppers to a store.