Market Entry and Consumer Behavior: An Investigation of a Wal-Mart Supercenter

Vishal P. Singh, Karsten T. Hansen and Robert C. Blattberg
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Vishal P. Singh: Tepper School of Business, Carnegie Mellon University, 244 Posner Hall, 5000 Forbes Avenue, Pittsburgh, Pennsylvania 15213, USA
Karsten T. Hansen: Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, Illinois 60208, USA
Robert C. Blattberg: Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, Illinois 60208, USA

Chapter 19 in Perspectives on Promotion and Database Marketing:The Collected Works of Robert C Blattberg, 2010, pp 297-316 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis 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.

Keywords: Quantitative Marketing; Tracker Model; Customer Level Data; Marketing-Mix Modeling (search for similar items in EconPapers)
JEL-codes: M31 (search for similar items in EconPapers)
Date: 2010
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