Market entry and consumer behavior: An investigation of a Wal-Mart supercenter

Market entry and consumer behavior: An investigation of a Wal-Mart supercenter

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Article ID: iaor20071643
Country: United States
Volume: 25
Issue: 4
Start Page Number: 457
End Page Number: 476
Publication Date: Jul 2006
Journal: Marketing Science
Authors: , ,
Keywords: behaviour, retailing
Abstract:

This paper provides an empirical study of entry by a Wal-Mart supercenter into a local market. Using a unique frequent-shopper database that records transactions for over 10,000 customers, we study the impact of Wal-Mart's entry on consumer purchase behavior. We develop a joint model of interpurchase time and basket size to study the impact of competitor entry on two key household decisions: store visits and in-store expenditures. The model also allows for consumer heterogeneity due to observed and unobserved factors. Results show that the incumbent supermarket lost 17% volume – amounting to a quarter million dollars in monthly revenue – following Wal-Mart's entry. Decomposing the lost sales into components attributed to store visits and in-store expenditures, we find that the majority of these losses were due to fewer store visits with a much smaller impact attributed to basket size. We also find that Wal-Mart lures some of the incumbent's best customers, and that retention of a small number of households can significantly reduce losses at the focal store. Finally, certain observed household characteristics such as distance to store, shopping behavior, and product purchase behavior are found to be useful in profiling the defectors to Wal-Mart. Implications and strategies for supermarket managers to compete with Wal-Mart are discussed.

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