Even though it may be inconvenient to shoppers, the optimal store layout should take in the price benefits that come from enabling manufacturers to compete on location in the store, according to a university study.
Probably the biggest surprise of the study is that the author, Yunchuan "Frank" Liu, a professor of business administration at the University of Illinois, agreed with the need to balance the interests of consumers and suppliers.
"Retailers face two different kinds of markets — the consumers who buy goods, and the manufacturers that supply goods," he said in a press release.
On the consumer side, the professor noted that with increased competition from online retailers, consumers can learn about price, quality and other product attributes from reviews and other information found on the internet. But they know virtually nothing about the unique "fit" of the product until they walk into a store and handle the product. He stated, "Since the consumer has to travel to the store and compare the products, that is to the local retailer's advantage, because that's something that online retailers can't do."
Retailers can also benefit by making the physical act of shopping as convenient as possible through such steps as designing the layout of a store to facilitate the simultaneous inspection of products.
At the same time, stores must take advantage of vendor-on-vendor competition for floor space.
"Sometimes it's not in retailers' interests to make certain things convenient to consumers, because they have to consider the balance between the consumer market and the manufacturer market," Prof. Liu said. "By affecting consumers' fit inspection processes, the retailer's store layout design also influences pricing behaviors of upstream manufacturers."
Placement competition depends on the category. If the "fit" priority is very high, such as in toothbrushes, items should be grouped together in the same location, forcing the manufacturers to compete on price.
But in cases such as high-end furniture where consumers "have different tastes" and less price competition occurs, stores should have manufacturers compete for the best location in the store.
"In this case, if the retailer sells all of the products together, it doesn't intensify the competition from the manufacturers," Prof. Liu said. "So the retailer should put the products in different locations so the manufacturers have to compete on the locations rather than on prices."
What balance should stores seek in weighing the need to offer convenience to consumers versus offering preferential vendor placement?