The Domination Effect of Supermarket Chains on Small Retail Outlets

by

TABLE OF CONTENTS

CHAPTER 2: LITERATURE REVIEW1

Market Dominance1

Effect on Suppliers2

Competitive Strategies3

Suppliers/Farmers4

Differentiation4

Effect on Small Retailers5

Summary8

REFERENCES9

CHAPTER 2: LITERATURE REVIEW

This chapter presents a review of the literature concerning definitions and concepts of marketing dominance and competitive strategies adopted by firms. The purpose of this review was to identify and discuss research studies and related literature regarding strategies that lead to market dominance. The section will first discuss the concept of market dominance followed by the concept of competitive advantage and the strategies used by firms, in particular supermarket chains to achieve market dominance.

Market Dominance

Market dominance is the ability to influence market outcome. More specifically, it is defined as the ability to control quantity and therefore influence prices. One indicator of market power is the size of the importer or exporter relative to market size. Size alone however is not sufficient evidence of market power. A monopoly must have the control necessary to alter supply (demand) by its own action, so that competitors cannot offset it (Bloom, 2001, 379). The ability of a seller to control supply could be in the form of a storage mechanism, possession of superior information, participation in many markets, or control over channels in the marketing system.

Making more profit due to higher efficiency does not make a retailer dominant. A retailer becomes a dominant retailer when it starts to project its pricing or channel power over other channel members (Bloom, 2001, 380). Tesco, for instance, started as a discount store, and it has since maintained and enhanced its reputation of being a lower-priced store despite its phenomenal growth over the years. To Tesco, a low-price strategy is not just a marketing tactic. In the words of a Tesco executive, "Every store manager has authority to lower prices if he sees the store across the street selling for less. If you have to lower the price, you lower it." In other words, the power retailer is declaring to dominate in the market on price (Bloom, 2001, 382).

Market dominance can be achieved by making the power retailer the follower in price, which ensures that it has the weak retailer's price information and undercuts it. Stories of price snooping by power retailers abound. For instance, Bloom (2001, 383) reports a case when senior Wal-Mart executives were sued by a competitor for snooping on prices in its store using hand-held scanners! By Wal-Mart's own admission, such "comparison shopping" is a standard practice long used by Wal-Mart and other large retailers. Furthermore, Wal-Mart goes to great lengths to prevent others from snooping on its own prices (e.g., its employee handbook instructs managers to kick out competitors who enter Wal-Mart stores to record prices). The next section discusses the concept of competitive advantage that leads firms to achieve market dominance.

Effect on Suppliers

Supermarket chains also have a huge effect on suppliers. Large supermarkets influence the power of suppliers as suppliers fear that they might lose business to the large supermarkets. Thus, this further strengthens the dominance of ...