San Francisco, CA- According to Frank Liu, a strategic manipulation of store layouts is driven primarily by the incentive to balance the shopping process of “fit-uncertain consumers” and the pricing behavior of suppliers for all retail businesses.
“Retailers face two different kinds of markets – the consumers who buy goods, and the manufacturers that supply goods,” he said. “It’s a very important variable for local retailers and marketing managers to play with in this era of increased competition with online retailers, and it has important implications for companies and consumers.”
The study appeared in Marketing Science, and is the first to formally look at the significance of store layouts, according to Liu, who co-authored the study with Zheyin Gu.
“If we look at the current retailing environment, local retailers are in intense competition with online retailers, which means real-world retailers really need to think about how they’re going to differentiate themselves,” Liu said.
While the consumers live in the highly-informed environment of online/offline searchable data, where the often known very little about the unique “fit” of the product until they walk into a store and physically interact with a product, says Liu.
“For many products, consumers typically remain uncertain about a product’s fit until physically inspecting it,” he said. “That could mean how a shirt feels when you try it on, or what a certain size tablet feels like in the consumers’ hands. And since the consumer has to travel to the store and compare the products, that is to the local retailer’s advantage, because that’s something that online retailers can’t do.”
Retailers also compete with online merchants by asserting that physical actions involved in shopping are convenient to the highest extent. With market characterized by what is known as “consumer-fit uncertainty” an owner can design the layout of a store specifically to facilitate the inspection of products.
“For basic goods like toothbrushes, the fit probability is really high, because to most consumers, a toothbrush is a toothbrush,” he said. “In that case, the retailer should group all toothbrushes together in the same location, forcing the manufacturers to compete on price.”
There are times, however, where it becomes difficult to manage convenience with the need to compete with other chains, which can at times appear counterintuitive to marketing managers.
“Sometimes it’s not in retailers’ interests to make certain things convenient to consumers, because they have to consider the balance between the consumer market and the manufacturer market,” Liu said. “By affecting consumers’ fit inspection processes, the retailer’s store layout design also influences pricing behaviors of upstream manufacturers.”
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