On the Stability of Store Format Choice

Inc. for providing the data used in this study and David Bell for assistance with the use of the data. We also thank the editor and three anonymous reviewers for their comments and suggestions. This paper investigates the nature of segmentation in store choice behavior where competing supermarkets offer Every Day Low Price (EDLP) and High-Low Promotional Price (HILO) formats. Previous research, both theoretical and empirical, has held that supermarkets offering EDLP and HILO price formats compete for the business of the same shoppers (e.g., Lal and Rao 1997) – though they may do this in different ways for different segments. The authors propose an alternate segmentation structure where inter-format competition (i.e., HILO versus EDLP) occurs for the business of some shoppers while intra-format competition (i.e., HILO versus HILO and EDLP versus EDLP) takes place for the business of other shoppers. Relatively stable demographic traits (e.g., income and family size) are hypothesized to characterize the shoppers in the various segments, implying that the choice of price format also will be relatively stable for many supermarket shoppers. The authors provide empirical evidence for their framework from the scanner data records of households shopping among five nearby supermarkets (two EDLP, three HILO) in a large city in the midwest U.S. First, a store switching analysis reveals only modest levels of inter-format switching, but a large extent of intra-format switching. Second, a multinomial logit model of store choice estimated with latent classes reveals three distinct shopper segments: one that is almost exclusively EDLP, one that is almost exclusively HILO, and one that switches among both EDLP and HILO price formats. The estimated size of the two intra-format segments together is substantially larger than the inter-format segment. This suggests that, depending upon market conditions, competition within price formats may be a more significant factor in supermarket retailing than competition between price formats. On the Stability of Store Format Choice Understanding the nature of competition among supermarkets is an important and active area of inquiry for both researchers and practitioners in retailing. In particular, supermarkets offer the opportunity to study retail competition based primarily on price format and service levels, given that most supermarkets stock a comparable, though not identical, assortment of goods. Attesting to the growing interest in the topic, a number of papers have recently appeared on the subject of price format competition among supermarkets (e. Supermarket price formats – like most elements …