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.
Highlights
The retailing industry is continuously undergoing stunning innovations
This paper describes the distribution of the multiple equilibriums of retail formats and analyzes the evolution of equilibrium with changes in the external environment
Scholars have fully realized that roundabout and flexible production based on modularization is an important response to consumer heterogeneity in the post-Fordism Era
Summary
The retailing industry is continuously undergoing stunning innovations. These innovations include the transformation of economic and social environments with changes in consumer behaviors and changes in production patterns from mass production, namely Fordism, to flexible and mass customization production, namely post-Fordism. The Ehrlich-Fisher model starts from consumer cost, translates the cost consumers spend on getting commodities into the services retail formats provide and expresses the price and service combination in a formal theoretical model Another noteworthy study is Betancourt (2006). Taking into account recent research progress, especially the contributions of Betancourt (2006), Betancourt et al (2016), it may be an appropriate time to comprehensively model the mapping between consumer heterogeneity and retail formats by considering both different consumer preference structures and the unique features of retailing. This is the basic considerations and contributions of this paper. Based on the literature review, we construct a retail formats model from the consumer perspective, the core of which includes two core technical assumptions
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