Retail power: Monster or mouse?

  • Farris P
  • Ailawadi K
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Many industry observers contend that retailers have increased their power relative to manufacturers over the past twenty years. The alleged growth in trade power has been attributed to higher concentration of retail buying power, buyers who have access to scanner information, and more frequent sales promotions. Increased sales promotions are said to achieve short-term gains in sales, but at the expense of long-term increased consumer price sensitivity and decreases in funds for pull programs. If this power shift has really occurred, a shift in the relative profitability of manufacturers and retailers would have been expected to also occur. We use data on the food industry to examine this hypothesis and find that manufacturer profits have been increasing at a fairly steady rate over the past ten years while retailer profits have been quite stable. This evidence casts doubt on whether a shift in power has really occurred and we offer some speculations on why the evidence does not support the conventional marketing wisdom.

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  • Paul W Farris

  • Kusum L Ailawadi

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