Why Outlet Stores Exist: Averting Cannibalization in Product Line Extensions

Ngwe, Donald

doi:10.1287/mksc.2017.1031

Cited by 21 publications

(17 citation statements)

References 27 publications

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“…This trend of increasing convenience in online shopping is in stark contrast with the practice of brick-and-mortar retailers, who have long embraced the deliberate use of search frictions to improve in-store margin performance. By making lower-priced and lower-margin items harder to locate, placing the sale section in the back of the store, using bargain bins and discount racks, or having a separate outlet store miles away, physical stores induce a self-selection among consumers who are heterogeneous in their willingness to pay (e.g., Coughlan and Soberman 2005; Ngwe 2017).…”

mentioning

confidence: 99%

The Impact of Increasing Search Frictions on Online Shopping Behavior: Evidence from a Field Experiment

Ngwe¹,

Ferreira²,

Teixeira³

2019

Journal of Marketing Research

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Many online stores are designed such that shoppers can easily access any available discounted products. The authors propose that deliberately increasing search frictions by placing obstacles to locating discounted items can improve online retailers’ margins and even increase conversion. The authors demonstrate this using a simple theoretical framework that suggests inducing consumers to inspect higher-priced items first may simultaneously increase the average price of items sold and the overall expected purchase probability by inducing consumers to search more products. The authors test and confirm these predictions in a series of field experiments conducted with a dominant online fashion and apparel retailer. Furthermore, using information in historical transaction data about each consumer, the authors demonstrate that price-sensitive shoppers are more likely to willingly incur search costs when locating discounted items. Our results show that increasing search frictions can be used as a self-selecting price discrimination tool to match high discounts with price-sensitive consumers and full-priced offerings with price-insensitive consumers.

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mentioning

confidence: 99%

The Impact of Increasing Search Frictions on Online Shopping Behavior: Evidence from a Field Experiment

Ngwe¹,

Ferreira²,

Teixeira³

2019

Journal of Marketing Research

Self Cite

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“…They nd out that the retailer can induce customer segmentation through self-selection when the channels are dierentiated in price and quality levels. In another empirical study, Ngwe [17] shows that when a retailer captures consumers dierences through both regular and outlet stores, it can increase its prot by consumers' self-selection. Among the few analytical works in this regard, Li et al [18] investigate the strategy of a manufacturer in opening an outlet channel when outlet sales may impact on the manufacturer's brand awareness.…”

Section: Related Literaturementioning

confidence: 99%

Price and Quality Decisions in Heterogeneous Markets

Sedghi

Shavandi

2020

Scientia Iranica

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This paper analyzes the optimal price and quality decisions of a retailer for its dierent stores in a heterogeneous market. The consumers are assumed to be heterogeneous in their willingness to pay for quality and are non-uniformly distributed in the market. This type of heterogeneity which is identied based on income disparity can have important implications for a retailer's optimal policy. The specic objective of this paper is to investigate how the distribution of consumers' types in the market and their travel costs aect the optimal setting of price and quality levels among dierent stores of a retailer. Our results express that the geographical disparity of willingness to pay plays a signicant role in the dierentiation and targeting strategy of a retailer. Comparative analysis shows that the widely adopted assumption of uniform distribution of consumers in the literature leads to non-optimal decisions where the distribution of consumers is non-uniform in a real-world situation.

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“…where is a vector representing product variability, while is a scalar representing individual variability, both follow Gumbel probability distribution. and are determined such that the simulator can accommodate differential impact, differential substitution, and differential enhancement [10]. Having simulated based on the above equation, individual will choose product in a particular choice scenario if .…”

Section: Letmentioning

confidence: 99%

“…The demand is a function of product attributes (including price) and share of a group where the product belongs. Ngwe [10] investigated cannibalization between regular and outlet stores using nested logit demand model, which is expressed as a function of product quality, product newness, price, type of outlet, time of purchase, and type of product. Guo and Chen [11] developed a demand model for a multi-generation product which considers cannibalization.…”

Section: Introductionmentioning

confidence: 99%

“…Under this model, a decisionmaker is assumed to be a utility-maximizer over several discrete alternatives, each of which has random utility (McFadden [14]). Some of the above research adopt this approach, such as Albuquerque and Bronnenberg [6], Pacras et al [8], Haynes et al [9], and Ngwe [10]. Modeling demand this way ensures its validity.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Incorporating Cannibalization into Pricing Optimization Using Choice Data: An Application to the Pricing of Mobile Broadband Services

Pratikto

2019

jti

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Price differentiation may not be as effective in increasing profitability due to imperfect segmentation, arbitrage, and, cannibalization. Cannibalization takes place when customer with higher willingness-to-pay buys lower-priced product. This research proposes an approach to incorporating cannibalization into pricing optimization using choice data. From choice data, individual level utilities are estimated using hierarchical Bayes and individual choice is predicted using randomized first choice simulation. Individual choices are then aggregated to obtain the demand function. The novelty of this research is in the way cannibalization is incorporated into the pricing optimization. Instead of integrating cannibalization into the demand function or representing it as a separate component in the optimization formulation, in this research, cannibalizing products are incorporated into the simulation scenario as competing products, based on which the demand functions used in the optimization are derived. This approach is more direct and realistic than those in the previous research. The approach was implemented in a case study of mobile broadband services in Indonesian price-sensitive market. The result shows that two-fare-class price differentiation incoporated with product differentiation increases total contribution of about 60% compared to single-fare-class policy. Furthermore, it is also shown from our case study that starting from a three-fare-class policy, through iterations, our approach suggests that policy with two-fare-class results in a not significantly different total contribution.

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Why Outlet Stores Exist: Averting Cannibalization in Product Line Extensions

Cited by 21 publications

References 27 publications

The Impact of Increasing Search Frictions on Online Shopping Behavior: Evidence from a Field Experiment

The Impact of Increasing Search Frictions on Online Shopping Behavior: Evidence from a Field Experiment

Price and Quality Decisions in Heterogeneous Markets

Incorporating Cannibalization into Pricing Optimization Using Choice Data: An Application to the Pricing of Mobile Broadband Services

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