This document summarizes key points from Chapter 4 of Dunne, Lusch, & Carver, which discusses models of retail competition. It outlines five fronts of competition - price, service, product selection, location, and customer experience. The four models of market structure are described as pure competition, pure monopoly, monopolistic competition, and oligopolistic competition. The chapter also summarizes four theories of retail competition - the wheel of retailing, retail accordion, retail lifecycle, and resource-advantage theory. Finally, it outlines future changes like non-store retailing and new formats.

1. Dunne, Lusch, & Carver
Chapter 4
Evaluating the Competition
in Retailing

2. Avenues for a Differential Advantage
• Retailers compete for customers on five major
fronts:
1. Price (for benefits offered ~ value)
2. Service level
3. Product selection
4. Location or access
5. Customer experience

3. A Market’s Competitive Structure
• Competition generally falls into one of four
categories:
1. Pure Competition
2. Pure Monopoly
3. Monopolistic Competition
4. Oligopolistic Competition

4. Pure Competition
• Is really more theoretical than realistic*
• Due to stringent assumptions*
• Forms basis for much of neoclassical economics
• Assumptions: (i.e., Occurs when a market has)
1. Homogenous products,
2. Many buyers and sellers,
3. There’s ease of entry for both buyers and sellers.
4. Buyers and sellers have perfect knowledge of the
market*

5. Pure Competition (cont.)
• In such a situation:
• Retailers face horizontal demand curve
• Must sell product at the going ‘‘market’’ or equilibrium
price.
• Quite rare in retailing.
• The 4th assumption makes this likely never
possible*
• Approximation of this situation is possible via e-tailing,
• But even online marketplaces that post the prices of other
sellers don’t have the price of all or in real time
• Easy to see if we only consider nontraditional retailers who don’t have a website, etc.

6. Demand Curves*
• Again, retailers face a horizontal demand curve in market
characterized by pure competition.
Price
Quantity
P.C.

7. Demand Curves*
• Again, retailers face a horizontal demand curve in market
characterized by pure competition.
• That means a perfectly elastic demand curve
• Easy recall tool  note it can be made into a lower-case “e”
Price
Quantity
P.C.

8. Pure Monopoly
• Is more theoretical in the long-term*
• Due to laws preventing them, but
• Can be enacted by the consumer due to extreme loyalty
• Occurs when there is only one seller for a
product or service.
• Yet this does not mean one can simply sell at
whatever price s/he wants…
• Law of diminishing returns (i.e., declining marginal
utility)
• To sell more units, one must lower the selling price.

9. Demand Curves*
• So does this mean retailers with a monopoly face vertical (i.e.,
perfectly inelastic) demand curve since it’s essentially the
opposite of pure competition?
Price
Quantity
P.C.
?

10. Demand Curves*
• No. It faces a declining demand curve as not all consumers demand the
products equally and/or there’s a declining marginal utility associated with
the product(s).
• And degree of slope will be unique to situation*.
Price
Quantity
P.C.
P.M.

11. Monopolistic Competition
• Unlike the first two, this is realistic
• Most common form of competition in retailing,
particularly at the national-level
• Occurs when a market has:
1. Heterogeneous products,
2. Yet products are viewed as substitutes for each other,
3. Sellers recognize that they compete with sellers of
these substitute products.
• Here, retailers attempt to differentiate themselves
with the products or services they offer.

12. Oligopolistic Competition
• The second more realistic structure
• Most common at the local-level, particularly in smaller
communities, and in consolidated industries (airlines)
• Occurs when a market has:
1. Essentially homogeneous products (e.g., gas),
2. Relatively few sellers (i.e., top 4 firms account for 60-
80%),
• Or, many small firms who follow the lead of a few larger firms,
3. Any action taken by is expected to be noticed and reacted to
by the other sellers.
• Likely to lead to:
• Similar prices as everybody knows what others are doing.
• “Outshopping” if prices are too high, selection too limited…

13. Differential Advantages Based Upon
Non-price Variables
• Competing on price alone is a no-win situation
• It’s the easiest to copy
• Non-price variables seek to enhance the overall
value proposition and lessen imitability by others
• Avenues include, but are not limited to:
• Private-label merchandise with unique features or better value
• Convenience (includes online channel option)
• High merchandise service levels for “basics”
• Clean bathrooms

14. Marketplace Equilibrium
• Equilibrium exists when:
• ROI is high enough to justify keeping capital
invested in retailing, but
• Not so high as to invite more competition
• Marketplaces are out of balance, in terms of
retail establishments, when they are either:
• Overstored
• Understored

15. Suppliers as Partners and Competitors
• Partners or Competitors?
• A retailer must develop a loyal group of patrons
that encourages the supplier to accommodate the
needs of its retail partner.
• Manufacturers routinely evaluate their investments
and marketing money
• Toss-up between providing to retailers and marketing
“direct”
• Retailers must offer a differential advantage for their
suppliers yet still maintain profitability.

16. Types of Competition
Intratype Intertype
Divertive Competition is
more likely here.
Ra Ra Ra Rb

17. Four Theories of Retail Competition
1. The Wheel of Retailing
2. The Retail Accordion
3. Retail Life Cycle
4. Resource-Advantage (RA) Theory
Note: the term “theory” is used loosely here as only the last is a theory*

18. The Wheel of Retailing

19. The Retail Accordion
• Retailers…
• Begin as outlets offering wide variety and
assortment (e.g., the General store)
• Evolve into more specialized stores with limited
variety and assortment (e.g., the department)
• Expand to offer more variety and assortment (e.g.,
the Supercenter)
• Continue to repeat process of expansion and
contraction.

20. The Retail Life Cycle

21. Resource-Advantage Theory
• States that firms gain competitive advantage
based upon the resources they have available.
• Resources need to be:
1. Rare,
2. Nonimitable,
3. Nonsubstitutable, and
4. Valuable (i.e., able to produce value for
customers)
• Further, all retailers cannot achieve superior
results at the same time.

22. Future Changes in Retail Competition
• Changes in retail competition are likely to
come from:
1. Nonstore retailing
2. New retailing formats
3. Integration of technology
4. Increasing use of private labels

23. Nonstore Retailing
• Includes:
• Direct sales, catalogs, and the internet
• Represents roughly 7% of total retail sales currently
• Internet is only one expected to grow in the future
• Growth due to:
• Accelerated communication technology,
• More educated consumers,
• Web 2.0

24. New Retailing Formats
• Include:
1. Off-price retailers
2. Supercenters
3. Recycled merchandise retailers
4. Liquidators
5. Rentals

25. Integration of Technology
• Include, but are not limited to:
1. Direct Store Delivery systems (DSDs)
2. Radio Frequency Identifiers (RFIDs)
3. Customer identification cards (e.g., Casinos)

26. What You Should Have Learned…
Chapter’s Learning Objectives
1. The various models of retail competition.
2. The various types of retail competition.
3. The four theories used to explain the
evolution of retail competition.
4. The changes that could effect retail
competition.