Manufacturer competition in the nanostore retail channel

Jiwen Ge, Dorothee Honhon, Jan C. Fransoo*, Lei Zhao

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

In emerging markets, a significant share of the revenue of Consumer Packaged Goods (CPG) manufacturers comes from the traditional retail channel, composed of millions of independent family-owned nanostores. Nanostore owners typically have limited cash flow and are driven by the modest goal of making a living. It is common practice for manufacturers to dispatch sales representatives to visit nanostores directly in order to drive product sales. We study the sales visit and pricing decisions of manufacturers supplying to a nanostore over an infinite time horizon. We first consider the case of a single manufacturer and show that the manufacturer should price the product such that the nanostore can earn enough to pay for his subsistence spending. Such a supplier-retailer mutual reliance relationship continues to hold for the two-manufacturer model where the manufacturers compete for the nanostore's cash resources under shelf space limitations. Further, under some conditions, the two manufacturers can mutually benefit, that is, instead of jeopardizing each other through competition, they contribute collectively to satisfy the nanostore family's subsistence needs such that nanostores are more likely to survive; besides, each can earn more profit than in a single-supplier setting. The results can help us understand the current industry dynamics in this vital sector.
Original languageEnglish
Pages (from-to)360-374
Number of pages15
JournalEuropean Journal of Operational Research
Volume286
Issue number1
DOIs
Publication statusPublished - 1 Oct 2020
Externally publishedYes

Keywords

  • Cash competition
  • Nanostore
  • Retailing
  • Subsistence retail

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