This research question helps one develop on the aspects of demand and market structure. One can examine the different strategies and policies used by local store owners to maintain or increase sale of jeans that might have affected due to the malls.
Relevant Theories to Economics –
A market is a situation where potential buyers are in contact with potential sellers. It enables the needs and wants of both parties to be fulfilled whilst establishing a price and allowing an exchange to take place.
To define the market structure of the retail stores and the malls, one would need to look at two different types of markets, an oligopoly and monopolistic competition. This is because of the number and size of competitors and the barriers to entry.
The properties that make this structure an oligopoly –
- The number of firms is small, but the size is large (malls).
- High barriers to entry, like high setup cost, high maintenance cost etc.
- Production of both homogenous and non homogenous products.
The properties that make this structure monopolistic competition –
- The number of firms is high and the size is small. This can be attributed to the retail stores present in the market structure.
- Production of non – homogenous but similar goods.
- Consumer sovereignty is considerably high.
(Consumer sovereignty is when consumers have a good deal of influence on the goods and output1.)
Therefore, after looking at the different properties, one can say that the market structure is a mixture of an oligopoly and monopolistic competition.
This is a market where a lot of product differentiation takes place. This is basically when two firms producing the same type of product use different marketing strategies to make their own product seem unique. The type of jeans sold by any shop, or even the mall in this case is basically of the same style. Now, the stores (in the malls and outside the mall) come up with their own strategies to differentiate their product from the other jeans. This is done by marketing, as mentioned before. For example, one shop might advertise their product by a certain phrases like, “Now in a different shade of black and blue” or “Now in unique print”. It is these kinds of statements that effectively differentiate the products and thus give the shopkeepers to sell more jeans.
Shops also use different pricing strategies to lure more consumers. It was noticed in this case that they mainly used two different types of pricing strategies. The first strategy was to introduce an offer from time to time. For example, discounts and free gifts were offered with a certain number of purchases. This would convince consumers to buy their goods. Another pricing strategy used was in fact the type of pricing. It is called psychological pricing. This is basically when the price of a product is kept just under the desired whole number value. For example, when a product is worth Rs. 600, the shop owner would price his product at Rs. 599. This gives the impression to the customer that product in the range of Rs. 500 and not Rs. 600. Thus, by reducing the price by a small amount, the owners influence the consumer into thinking that it is cheaper.
Methodology –
There were 6 small retail stores in the area of research that sold jeans whereas there was 1 multi branded shop in the entire mall that sold jeans. The six retail stores have similar types and styles of jeans whereas on the other hand, the shop in the mall had a particular and unique style of jeans. The general price trend was that prices of jeans sold in the shop (in the mall) were higher than that of those products sold in the small retail stores.
For primary research, a questionnaire was carried out among a random sample of consumers or potential consumers in and around the area. Also, a series of questions were asked to various shop owners regarding the change in sales after the mall had been setup in the area. This data was then analyzed and compared with the results from the questionnaires.
For secondary research, sales data for jeans in retail stores was collected and certain sales data of the mall was collected. This data was then analyzed and compared against each other. This data was collected from the shop owners themselves and therefore there is no apparent room for inaccuracy of data.
It was noticed that in all the shops, there was a certain style of jeans that was common throughout. Therefore, the prices of these pairs of jeans in each and every shop (including the shops in the malls) were noted down. These prices and the different pricing strategies were then compared.
Data Collection and Processing –
To find the impact of the setup of the malls, primary data was collected by the means of a questionnaire (Appendix A1) carried out near the mall and near the local shops as well.
The total number of people who undertook the survey was 50.
The diagram below shows the different income groups of the costumers who purchase products from either the mall or the local retail stores.
This graph clearly shows us that customers with a low monthly income tend to visit the local retail stores (due to the low price) and the middle and upper section of the income groups purchase their products at the mall. This graph also shows us that some customers with a low income still do visit the mall, which tells us that the monthly income of a person no longer proves to be barrier as to where the costumer might buy his/her products.
The diagram below shows us the average expenditure made by a consumer at the mall or the local retail stores.
By analyzing the graph, one can see that costumers who spend more on a single visit tend to purchase their products at the mall, whereas the people who spend less show the tendency of buying their jeans from the local retail stores. This graph also shows us that the shops in the malls also serve to the low earning groups of customers. This graph also shows a general trend of pricing, telling us that the prices of jeans at the mall are considerably more expensive than those sold at the local stores.
The diagram below shows us the number of times a consumer would visit the shop of their choice to purchase jeans.
Once again it is noticeable that consumers who purchase their jeans at the local retail stores tend to visit the shop between once every 2 months to once every 6 months, whereas on the other, the frequency of visits by consumers to the mall is much higher. This is can be co related to the previous two graphs, the fact being that middle to high income earning consumers visit the malls more often and buy more products as compared to the low income earning consumers, who visit the local retail stores at a lower regularity (as compared to the frequency of visits to the mall) and buy products which are cheaper.
The next diagram shows us the reasons why consumers visit the shop in the mall.
This graph tells us that the shop in the mall is much more appealing to the upper income earning group of consumers, for whom the price of the product doesn’t matter. This effectively makes the demand for branded jeans in the shop relatively inelastic. The reason for this is also shown, that consumers prefer a better shopping atmosphere and the variety of jeans rather than the price of the product or the proximity of the location.
The diagram below shows us the reasons why consumers visit the local retail stores.
As we can see, the major reason as to why consumers visit the local retail stores was due to low prices. This corresponds with the graph above which told us that low income groups tend to visit the local retail stores more. Another reason is that the local retail stores are closer to their living proximity as compared to any other store. Also, this diagram shows us that there was a certain amount of costumer loyalty, which was the reason for 12% of the sample to continue purchasing their products from the local retail store.
The next diagram is specific to the sample who took the survey near the local retail stores.
This diagram shows us that majority of the people purchasing their jeans at the local retail stores would want to start purchasing their products from the mall. Some costumers said they would still prefer the quietness of the local stores as compared to the hustle bustle of the mall.
The next diagram shows us the overall views of the sample, as to which store they prefer, the one situated in the mall or the local retail stores.
This tells us that most people prefer going to the mall to buy their jeans which directly indicates the effect of the set up of the mall in the area. This is because now the local stores are losing out their potential consumers to the store present in the mall.