Mail Versus Mall: A Strategic Analysis of Competition Between Direct Marketers and Conventional Retailers

Balasubramanian, Sridhar
September 1998
Marketing Science;1998, Vol. 17 Issue 3, p181
Academic Journal
AbstractConsumers now purchase several offerings from direct sellers, including catalog and Internet marketers. These direct channels exist in parallel with the conventional retail stores. The availability of multiple channels has significant implications or the performance of consumer markets. The literature in marketing and economics has, however, been dominated by a focus on the conventional retail sector. This paper is an effort toward modeling competition in the multiple-channel environment from a strategic viewpoint.At the outset, a parsimonious model that accommodates the following consumer and market characteristics is introduced. First, the relative attractiveness of retail shopping varies across consumers. Second, the fit with the direct channel varies across product categories. Third, the strength of existing retail presence in local markets moderates competition. Fourth, in contrast with the fixed location of the retail store that anchors its localized market power, the location of the direct marketer is irrelevant to the competitive outcome.The model is first applied in a setting where consumers have complete knowledge of product availability and prices in all channels. In the resulting equilibrium, the direct marketer acts as a competitive wedge between retail stores. The direct presence is so strong that each retailer competes against the remotely located direct marketer, rather than against neighboring retailers. This outcome has implications for the marketing mix of retailers, which has traditionally been tuned to attract consumers choosing between retail stores. In the context of market entry, conditions under which a direct channel can access a local market in retail entry equilibrium are derived. Our analysis suggests that the traditional focus on retail entry equilibria may not yield informative or relevant findings when direct channels are a strong presence.Next, the role of information in multiple-channel markets is modeled. This issue is p...


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