Entry and competition strategy in a neighborhood fresh product retailing market

Abstract

In the neighborhood fresh product retailing market, it remains unclear which mode—the pre-warehouse (W) or hybrid store-as-warehouse (H) mode—is more profitable for a new entrant, and how his market entry affects an incumbent retailer operating the in-store (S) mode. The analytical results show that for the entrant, the H mode will yield a higher profit when the fresh product's base value is high or consumers' hassle cost is low; otherwise, the W mode is more profitable. Furthermore, his selling price, freshness-keeping effort, and delivery time decisions are also critically affected by the fresh product's base value and consumers' hassle cost. For the incumbent, the competitor's market entry will invariably reduce her selling price and profitability. However, its impact on the incumbent's freshness-keeping effort can be either positive or negative. In addition, when facing inevitable market entry, the incumbent will prefer the entrant to adopt the H mode if the fresh product's base value is relatively low and consumers' hassle cost is sufficiently high. This study explains how neighborhood fresh product retailers adopting different modes can compete effectively and provide actionable guidance for new entrants choosing optimal modes and for incumbents defending their market position.