Dominant Retailer Research Articles

The impact of global trends on Czech trade in agrarian and foodstuff products

The Czech retail market has changed its structure and form during the last twenty years. The influence of two factors is especially significant. The first one is the growth of internationalization and the second one is market concentration growth. The significant opening process of the Czech economy, accompanied by the liberalization of the Czech market process, enabled the international retail companies to penetrate the national retail market. The most powerful European retail companies are now present in the Czech market. The available shopping area/cap is also one of the largest in Europe. Retail chains have taken a dominant position in the market, and because of their market power they are able to determine trade/contract conditions for domestic suppliers. Retail chains’ sales have been constantly growing. While in 2006 the value of sales was about 258.5 billion CZK, in 2008 it was about 312.2 billion CZK. The impact of the economic crisis on the Czech retail market has not been as stressful as it was abroad. In 2009, a slowdown of the Czech retail market was recorded, but the value of sales decreased by only 3 billion CZK (in comparison with 2008). The highest sales (59 billion CZK) were recorded by the Lidl & Schwarz-Gruppe, which is the owner of two dominant retail chains in the Czech retail market (Kaufland and Lidl). The main aim of the paper is to evaluate the selected aspects, which have been influencing the relationship between multinational companies (retail companies – supermarkets and hypermarkets) and local (Czech) suppliers of agrarian and foodstuff products (farmers and foodstuff companies). The paper analyses the problem of abuse of multinational companies’ significant market power in relation to their suppliers. Based on a pilot project, the efficiency of market force law, and its use in practice, are analysed. The main idea is to analyse the following problems: the impact of 30 days payment period for goods delivered, under cost prices required by retail companies, and the structure of fees and charges required by retail companies.

Supply chain performance and consumer surplus under alternative structures of channel dominance

Supply chain partnerships exhibit varying degrees of power distribution among the agents. This has implications for pricing and operational decisions in the channel and eventually influences the end customers. To understand how different power schemes affect the supply chain partners’ performance and consumer surplus, we study channel structures with a dominant manufacturer, a dominant retailer, and no single-agent dominance. Under random and price sensitive demand, channel dominance is interpreted in our setting as exerting power to determine the retail and wholesale prices as well as to transfer the inventory risk to the weaker party. We analyze all problems in a game-theory based framework and characterize the equilibrium retail price, wholesale price, and order/production quantity. We show that the manufacturer-dominated channel structure leads to the highest production quantity, the lowest retail price, and the largest expected surplus for an individual buyer; on the other hand, the entire channel profit and the total consumer surplus are highest when the retailer holds the channel dominance. While both the manufacturer and the retailer are better off when they become a power agent individually, channel dominance does not always guarantee higher share of channel profits, as we show under the manufacturer-dominated structure. Further insights are derived analytically and numerically from comparisons of the manufacturer/retailer dominance schemes with the no single-agent dominance structure and integrated channel. We also study extensions to investigate the effect of demand model and risk sharing, and we address industry settings with alternative schemes of holding cost, shortage penalty and salvage value.

Coordination of Supply Chain with a Dominant Retailer under Demand Disruptions

We develop a coordination model of a one-manufacturer multi-retailers supply chain with a dominant retailer. We consider the impact of a dominant retailer on the market retail price and his sales promotion opportunity and examine how the manufacturer can coordinate such a supply chain by revenue-sharing contract after demand disruptions. We address the following important research questions in this paper. (i) How do we design an appropriate revenue-sharing contract to coordinate the supply chain with a dominant retailer without demand disruptions? (ii) When demand is disrupted with variations in market scale and price sensitive coefficient, can the original contract still be valid? (iii) How do the demand disruptions affect the coordination mechanism under different disruption scenarios and how should the new contract change? Finally, we generate important insights by both analytical and numerical examples.

Ananlysis of Carbon Emission Reduction and Power Dominance between Single Manufacturer and Single Retailer in Regulatory Cap and Trade System

In the cap and trade system, the paper analyses the Stackelberg game between the power asymmetrical retailer and manufacturer and designs a side-payment self-enforcing contract to resolve some arguments that the existing research overemphasizes spontaneity of participation in side-payment contracts design based on supply chain coordination and does not consider rationality and fairness of allocation of profit increment. Also, the numerical analysis was given. The research shows some important conclusions: in the supply chain, the dominant manufacturer is not able to encourage the retailer to improve its promotion level by increasing its carbon cutting level, but the optimal emission reduction level increases with the dominant retailer’s promotion level; the optimal promotion level, emission reduction, and product demand in a retailer leading supply chain are higher than those in a supply chain dominated by manufacturer; with the new side-payment self-enforcing contract, decentralized decision according to individual rationality incurs a collective reason effect in the centralized setting.

Dual-channel pricing strategies for small and medium-sized enterprises

Small and medium-sized enterprises (SMEs) usually suffer price conflicts when they sell products via dual-channel, i.e., the traditional retail channel and the online direct channel. In this paper, a spatial competition equilibrium model is established to describe price decision-making and coordination in a dual-channel system comprising two players, i.e., one manufacturer and one retailer sailing one product. Based on the model, the optimal pricing strategies for each player and the channel profits are derived mathematically under two different power structures: the manufacturer and the retailer making decisions independently, and the retailer leading the manufacturer in a Stackelberg game. The impacts of digital attributes of product and power structure changing on optimal pricing strategies and channel profits are further observed by mathematical deduction and numerical analysis. The research suggests that to achieve a win-win solution, non-dominant SMEs should follow dominant retailers’ pricing in a cooperative way.

Horizontally Differentiated Store Brands: Production Outsourcing to National Brand Manufacturers

We study a retailer's strategic decision with regard to outsourcing the production of such types of store brands (SBs) to national brand (NB) manufacturers. The wholesale price of NB is assumed to be set by the manufacturer, while that of the SB is assumed to be set by the retailer. When a retailer outsources SB production to an NB manufacturer, the NB manufacturer might suffer from cannibalization due to offering both the SB and the NB, implying that a strategic interaction between the retailer and manufacturer is an important issue. Based on this motivation, we mainly focus on the strategy of a dominant retailer in such a situation and investigate it with a game-theoretic approach. We show that the optimal strategy for the SB retailer sensitively depends on the degree of differentiation between the SB and the NB. In particular, if both products are less differentiated, the retailer benefits from offering only the SB, and, in this case, the retailer should offer its wholesale price, after the manufacturer sets the NB wholesale price. Furthermore, it is shown that the optimal strategies of the retailer are socially efficient, if and only if the SB and the NB are sufficiently differentiated.

Contract Design with a Dominant Retailer and a Competitive Fringe

We show that under some conditions, quantity discounts and two-part tariffs are equivalent as mechanisms for channel coordination when an upstream firm sells its product in a downstream market that is characterized by a dominant retailer and a competitive fringe. We consider a setting in which discriminatory offers are feasible and a setting in which the same menu of options must be offered to all retailers. We find that the upstream firm's profit in both settings is independent of whether quantity discounts or two-part tariffs are used. The implication of this finding is that the firm's choice of contract design may turn on which one is easier to implement. This paper was accepted by J. Miguel Villas-Boas, marketing.

Management Insights

Management Insights

Dominant retailers’ incentives for product quality in asymmetric distribution channels

This paper investigates the diverging incentives for product quality in a channel with two asymmetric retailers and a common supplier. When retailers differ in terms of service provision and channel power, changes in manufactured quality cause channel conflicts. In particular, our results show that if the low service retailer becomes dominant in the channel, it may induce a low level of quality that is detrimental for the other members of the channel. The low service retailer benefits from quality reduction first by improving its competitive standing against its rival retailer by lessening the importance of quality for consumer choice and second by strengthening its relative bargaining position vis-a-vis its supplier. Our results also show that consumer surplus may increase as a result of quality reduction.

The optimal cycle time for deteriorating items under retailer partial trade credit policy in supply chain

Most dominant retailers can obtain the full trade credit offered by the supplier but these retailers only offer the partial trade credit to their customers. Thus, Huang and Hsu [2008. International Journal of Production Economics 112, 655-664] investigated the retailer's inventory policy under two levels of trade credit to reflect the supply chain management situation. In their model, it is assumed that the retailer receives the payment from the last customer at the time N and the goods are not perishable.In this paper, we extend the work of Huang and Hsu (2008) by taking the deterioration rate into account and modifying the assumption of payment receiving time. We change original time N, which is the payment of the last customer, to the correct time N + T. Two theorems are developed to determine the optimal cycle time and numerical examples are given to illustrate the results.

Marketing as a response to paradox and norms in the 1960s and 1970s

PurposeThis study seeks to investigate the interaction between marketers' strategic behaviors, social norms, and societal stakeholders within a particular historical time period, the 1960s and 1970s.Design/methodology/approachThe study's findings are based on an analysis of two dominant retail industry trade publications, Chain Store Age and Progressive Grocer.FindingsThe analysis reveals an intriguing array of strategic marketing activity throughout these two decades not captured in considerations of marketing strategy at the time. The retailers examined engaged in two interesting behaviors. First, they responded to a wide range of stakeholder demands in a paradoxical fashion. Second, as retailers were confronted with social norms, instead of conforming to these norms they worked to help influence and shape them to their own advantage. This examination of retailers' behaviors over two decades has allowed the authors to present an intriguing new dimension to the understanding of marketing strategy.Originality/valueThe study found that throughout the 1960s and 1970s, marketers appeared to be actively engaged in a social dialogue. Through this dialogue, they not only responded to norms, but also attempted to shape the norms that came to define legitimate behavior for the marketers. This kind of strategic marketing endeavor was not accounted for in the managerial school of thought that dominated marketing thinking at the time.

Pricing and effort investment for a newsvendor-type product

We investigate a dominant retailer’s optimal joint strategy of pricing and timing of effort investment and analyze how it influences the decision of the manufacturer, the total supply chain profit, and the consumers’ payoff. We consider two pricing schemes of the retailer, namely, dollar markup and percentage markup, and two effort-investment sequences, namely, ex-ante and ex-post. A combination of four cases is analyzed. Our results show that: (1) under the same effort-decision sequence, a percentage-markup pricing scheme leads to higher expected profit for the retailer and the whole supply chain, but a lower expected profit for the manufacturer and a higher retail price for the consumers; (2) under the same markup-pricing strategy, the dominant retailer always prefers to postpone her effort decision until the manufacturer makes a commitment to wholesale price, since it can result in a Pareto-improvement for all the supply chain members. That is, the retailer’s and manufacturer’s expected profits are higher and the consumers pay a lower retail price; and (3) among the four joint strategies, the dominant retailer always prefers the joint strategy of percentage-markup plus ex-post effort decision. However, the dominated manufacturer always prefers the joint strategy of dollar-markup plus ex-post effort decision, which is also beneficial to the end consumers.

Dollar vs. percentage markup pricing schemes under a dominant retailer

We investigate two very common pricing schemes for a Stackelberg-dominant retailer: percentage-markup and dollar-markup. We show that when a dominant retailer switches from dollar to percentage markup, the channel’s “overall pie” and the retailer’s “pie-piece” are both enlarged. In contrast, the manufacturer will be forced to levy a lower wholesale price, thus receiving a smaller pie-piece despite the larger pie. The preceding statements hold regardless of whether the demand is deterministic or stochastic. However, the effects of switching to percentage markup on the retail price and sales volume will depend not only on whether the demand is stochastic, but also on the assumed demand-curve shape and on whether demand stochasticity is “additive” or “multiplicative”. Besides presenting a comprehensive set of answers on the comparative performance of dollar- and percentagemarkups, our results also highlight the often overlooked importance of choosing between: (i) dollar- and percentage-markup; and (ii) the formats of the assumed stochasticity and demand curves.

Defending and improving the ‘slotting fee’: how it can benefit all the stakeholders dealing with a newsvendor product with price and effort-dependent demand

‘Slotting fee’ (hereafter ‘SF’) is an upfront fee a ‘supplier’ is required to pay a retailer in order to have his product sold on the retailer's shelves. It is becoming increasingly common, but also widely reviled. This paper considers a newsvendor product whose expected demand is dependent on retail price and sales effort. The question we pose is: given that the Stackelberg-dominant retailer has to choose a pricing contract with which she transacts with the supplier, how would the supply-chain stakeholders fare when the retailer implements SF instead of another practical pricing contract? We show that, contradicting its negative public image, SF empowers the dominant retailer to specify contract terms that will benefit all the stakeholder-groups. That is, the supplier's and the retailer's profits are higher, the production workers are asked to produce more, and the consumers pay a lower retail price. We also propose a new ‘composite’ contract format that incorporates both the SF and ‘buyback’ features. This composite format empowers the retailer to provide even greater benefits to the supply-chain's stakeholders.

Is Self-Publishing a Savior to Authors or to Amazon?

Recently developed business models in the book publishing industry have led to the emergence of a self-publishing model in which authors publish their works directly through a dominant retailer like Amazon without recourse to traditional publishers, who now feel threatened. In this paper, we examine whether it is profitable for Amazon or other retailers to adopt this approach, what publishers should do, and whether it is wise for authors to embrace this self-publishing trend. Specifically, extending Viswanathan (2005), we model the publishing and retailing structure of the book industry supply chain to assess how different channel powers and structures may affect chain members’ pricing and profits. Our analysis suggests that under certain conditions, it is wise for the publisher to cut out the dominant retailer, unwise for the author to choose the self-publishing model, and better for the dominant e-tailer not to implement a self-publishing mode. Using numerical analysis, we show that when the ratio of e-book buyers is high enough, even when the author’s revenue sharing rate does not change, the publisher may retain the author as a client by encouraging consumers to buy e-books. We also show that although the self-publishing mode greatly reduces consumer welfare, it may increase social welfare.

Can a weak retailer benefit from manufacturer-dominant retailer alliance?

The paper provides a framework to help the weak retailer delineate the circumstances that allow him to benefit from an alliance between the dominant retailer and the common manufacturer. We use a game-theoretic model to determine the optimal pricing and service strategies when channel members act independently then when the dominant retailer forms an alliance with the manufacturer. We find that: (i) the alliance is formed only if the market is not strongly competitive in terms of price, (ii) differentiation in terms of price and service is beneficial to all channel members under alliance, (iii) an interaction between spillover and service effects plays a crucial role to make the weak retailer gain or lose from the alliance.

Markup pricing strategies between a dominant retailer and competitive manufacturers

Markup pricing contracts have been widely employed in many industries. Under such contracts, a retailer charges a retail margin over the wholesale price levied by the supplier to guarantee her financial prudence. In a setting where two competitive manufacturers sell substitutable products through a common dominant retailer, we investigate and compare performance of two different markup arrangements, namely, percentage and dollar, under the deterministic and stochastic demand situations, respectively. We find that, no matter what the demand characteristic is, when the retailer switches from dollar to percentage markup, the retailer makes a higher profit while the manufacturers suffer, because the switching forces manufacturers charge lower wholesale prices and thus leads to lower retail prices. Moreover, under the deterministic demand situation, the switching brings about a larger order quantity and a higher channel profit. Under the stochastic demand situation, however, the effect of the switching on order quantity and channel profit depends on manufacturer differentiation and retailer efficiency: order quantity (channel profit) becomes smaller (lower), as manufacturer differentiation becomes weaker or retailer efficiency becomes higher. And, the demand uncertainty intensifies the effect.

Price strategy, information sharing, and firm performance in a market channel with a dominant retailer

PurposeThe purpose of this paper is to provide a framework to help the manufacturers to find the optimal decisions regarding the choice of channel member for information sharing.Design/methodology/approachA game‐theoretical model plus Bayesian forecasting is developed to determine the optimal decisions for the manufacturer.FindingsThe results show that the optimal strategy for the manufacturer is to engage in information sharing with one small retailer exclusively, such that the manufacturer can gain the most benefit from information sharing arrangement in a marketing channel with a dominant retailer.Research limitations/implicationsThe present study is analyzed by a theoretical model. Future research can explore the same study by collecting data to engage in an empirical test.Practical implicationsThis paper provides a useful model framework and pricing strategy for upstream manufacturers who are engaging or planning to engage in information sharing with their retailers.Originality/valueThis paper provides practical and solid advice and examples demonstrating the optimal decisions regarding the choice of channel member for information sharing to best benefit of the manufacturer.

Pass-through of wholesale price to the end user retail price in the Norwegian electricity market

In this paper we estimate the pass-through of wholesale electricity price to the end consumer price with variable price contracts in the Norwegian electricity market using weekly data. We find substantial asymmetry when retailers pass on the impact of price changes in the wholesale market to the retail prices as price increases are transmitted more quickly than price decreases. By examining the cumulative adjustment function of price change, we identify that some dominant retailers might be exercising market power in the retail electricity market. For an average Norwegian household with variable price contract, the cost of asymmetric price pass-through due to 2.5Øre/kWh change in the wholesale price over the complete life of pass-through in a year reaches to a high of 2.28 NOK. This cost sums up to 3.8 million NOK for all the Norwegian households on variable price contracts for one time price change. To deal with this asymmetric price setting behavior, end consumers should switch to spot price contracts and make use of “smart grid” technologies.

Relationship Quality—Relationship Value and Power Balance in Business Relationships: Descriptives and Propositions

Purpose: The objective of this study is to develop understanding of the interplay between the perceptions of power balance, relationship value, and relationship quality between retail distributors and their suppliers. Methodology: The authors applied a phenomenological approach in both qualitative and quantitative data collections and analyses. Key informants in 27 of the dominant retail distributors within 5 Norwegian industries and 50 of their most important suppliers were interviewed. Findings: The power balance seems to favor the retail distributors. Retail distributors and suppliers tell of somewhat different characteristics pertaining to “best” and “worst” relationships relating to economic-, capability-, and integration-based values as perceived between retail distributors and their suppliers. Research limitations/implications: The empirical findings indicate the complexity in assessing relationship quality and show a rich basis for further research, thereby contributing to knowledge and insights in characterizing relationship quality when power is asymmetrically distributed between distributors and their suppliers. However, personal interviews may reveal answers at rational, cognitive, and even emotional levels, thus complicating subjective analysis. Practical implications: The results of the study are important for both researchers and practitioners on both sides of retail distributor–supplier relationships. Originality/value: This study advances the work on what characterizes relationship quality in asymmetric power business relationships.