Evaluating Competition in Retailing¶

Evaluating competition is a critical aspect of retail strategy. Understanding the competitive landscape helps retailers position themselves effectively in the market and make informed decisions about location, pricing, product offerings, and marketing strategies.

1. Understanding the Competitive Environment¶

Intratype Competition¶

Definition: Intratype competition refers to competition between retailers of the same type. For example, department stores competing against other department stores or supermarkets competing with other supermarkets.
Indian Example: In India, intratype competition can be seen between major supermarket chains like Big Bazaar and Reliance Fresh, both of which target similar customer segments with comparable product assortments.

Intertype Competition¶

Definition: Intertype competition occurs when retailers of different types sell similar merchandise. For example, a drugstore offering groceries competes with supermarkets.
Indian Example: DMart, a discount retailer, competes with local kirana stores and online grocery platforms like BigBasket for the same customer base by offering competitive prices on daily essentials.

2. Key Competitive Factors¶

Barriers to Entry¶

Definition: Barriers to entry are obstacles that make it difficult for new competitors to enter the market. High barriers to entry can include factors like scale economies, customer loyalty, and the availability of prime locations.
Impact: Markets with high barriers to entry are more attractive to existing retailers because they limit competition. However, these markets are less attractive to new entrants.
Indian Example: The organized retail market in India, dominated by players like Reliance Retail and Future Group, presents high barriers to entry due to their extensive supply chain networks, established brand presence, and strong customer loyalty.

Scale Economies¶

Definition: Scale economies are cost advantages that a retailer achieves due to its size. Large retailers can often negotiate better prices with suppliers and spread fixed costs over a larger number of stores.
Indian Example: Reliance Retail benefits from scale economies by leveraging its vast network of stores across India to negotiate better prices with suppliers, which helps them offer competitive pricing and maintain market dominance.

Customer Loyalty¶

Definition: Customer loyalty refers to the likelihood of customers consistently choosing one retailer over others. Strong customer loyalty makes a market less attractive to new entrants.
Indian Example: Shoppers Stop has cultivated strong customer loyalty through its loyalty program, the First Citizen Club, which offers exclusive discounts and benefits to repeat customers. This loyalty makes it difficult for new entrants to attract the same customer base.

Availability of Locations¶

Definition: The availability of suitable retail locations can significantly impact a retailer's ability to compete. Markets with limited prime locations present challenges for new entrants.
Indian Example: In cities like Mumbai and Delhi, prime retail locations in high-traffic areas like malls or central business districts are limited. Phoenix Marketcity in Mumbai, for example, is a prime retail location that is highly sought after by both national and international brands.

Competitive Rivalry¶

Definition: Competitive rivalry is the intensity of competition between retailers in a market. High levels of rivalry can lead to price wars, increased advertising costs, and reduced profit margins.
Factors Influencing Rivalry:
Number of Competitors: More competitors can lead to higher rivalry.
Market Growth: Slow market growth can intensify competition as retailers fight for market share.
Fixed Costs: High fixed costs can increase rivalry as retailers strive to cover their costs.
Product Differentiation: A lack of perceived differences between retailers can lead to higher rivalry.
Indian Example: The e-commerce sector in India is marked by intense rivalry between giants like Amazon India and Flipkart. This competition has led to frequent price wars, extensive advertising campaigns, and heavy discounting, particularly during the festive seasons like Diwali.

3. Evaluating Specific Sites (Continued)¶

Trade Area Characteristics¶

Definition: Trade area characteristics involve analyzing the demographic and economic factors of the area surrounding a potential retail site. This includes population density, income levels, consumer preferences, and the presence of competitors.
Indian Example: When DMart chooses new locations for its stores, it often targets densely populated urban areas with a growing middle-class population, such as Pune or Hyderabad. These areas provide a steady stream of customers who value the low prices and wide product assortment that DMart offers.

Matching Trade Area with Site¶

Definition: Retailers should match the characteristics of the trade area with the potential site to ensure strategic fit and competitive advantage. This involves ensuring that the site can attract the desired customer demographic and support the retailer's business model.
Indian Example: IKEA's first store in India was strategically located in Hyderabad, a city known for its tech-savvy, upwardly mobile population with a high demand for home furnishings. IKEA chose a large, easily accessible location to cater to this customer base, ensuring alignment between the trade area and the retail site.

4. Competitive Strategies for Indian Retailers¶

Differentiation¶

Definition: Differentiation involves offering unique products or services that set the retailer apart from competitors. This can include exclusive product lines, superior customer service, or a distinctive shopping experience.
Indian Example: FabIndia differentiates itself by offering a wide range of handcrafted products sourced from rural artisans across India. This unique product offering, coupled with its focus on sustainability and community development, helps FabIndia stand out in the competitive retail market.

Cost Leadership¶

Definition: Cost leadership focuses on becoming the lowest-cost producer in the industry, enabling the retailer to offer lower prices than competitors.
Indian Example: Big Bazaar, part of the Future Group, has pursued a cost leadership strategy by focusing on high-volume sales and operational efficiencies. This allows the chain to offer products at competitive prices, attracting budget-conscious consumers.

Focus Strategy¶

Definition: A focus strategy involves targeting a specific niche market with tailored products or services, rather than trying to appeal to the broader market.
Indian Example: Nykaa has successfully implemented a focus strategy by catering specifically to beauty and personal care products. By concentrating on this niche market and offering a curated selection of brands and products, Nykaa has become a leader in the beauty retail segment in India.

Summary¶

Evaluating competition in retailing involves understanding various competitive factors, including intratype and intertype competition, barriers to entry, customer loyalty, and the availability of prime locations. Retailers in India, such as DMart, Big Bazaar, and FabIndia, must carefully assess their competitive environment and strategically select retail sites that align with the characteristics of their target trade areas. By adopting appropriate competitive strategies like differentiation, cost leadership, and focus, Indian retailers can effectively position themselves in the market and achieve long-term success.

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