Physical Availability: Presence and Nash Equilibrium

Presence as a Pillar of Physical Availability

  • Definition: Presence is one of the three pillars of physical availability, focusing on where a product needs to be stocked.
  • Considerations:
    • Retailer Variety: Determining if a product should be available across different retailers (e.g., Target vs. Kmart).
    • Channel Diversity: Deciding if a product should be stocked across multiple channels (e.g., online, big box retailers, discounters, department stores).
    • Channel Importance: Assessing if some retailers or channels are more critical for a brand than others.
  • Shopper Behavior: Shoppers typically use multiple channels and retailers, making broad coverage essential.
  • Availability and Market Coverage: Key to presence is ensuring availability wherever shoppers are.
  • Prioritization: Maximize locations to enhance market coverage.
  • Laws of Marketing: Larger retailers tend to have more shoppers with slightly higher loyalty.
    • Strategy: Start with the largest retailers or channels, then expand based on incremental coverage.

Channel Preferences and Shopping Behavior

  • Multi-Channel Shopping: Shoppers use various channels to make purchases.
  • Channel Popularity:
    • Supermarkets: Generally, the most common place to buy goods.
    • Traditional Markets: Remain significant in many regions.
    • Convenience Stores: Very popular in numerous areas.
    • Online Growth: E-commerce is expanding its reach.
  • Online Shopping Penetration:
    • China: Leads in the number of shoppers who buy online at least once.
    • South Korea: Has a high percentage of shoppers making most purchases online (approximately 10%).
  • Loyalty and Size Correlation: Loyalty tends to be correlated with the size of the retailer or channel.
  • Infrastructure Impact:
    • Kenya and Nigeria: Lower supermarket use due to infrastructure limitations (e.g., road quality).
    • Transportation Issues: Lack of adequate roads and personal vehicles restricts the ability to transport large quantities of goods.

Channel Prioritization

  • Decision-Making: Prioritize channels based on reach and accessibility.
  • Primary Choice: Supermarkets and hypermarkets should be the initial focus due to their high reach.
  • Alternative Options: If primary options are not viable, choose the next largest channels.
  • Double Jeopardy Pattern: Applies to channels and stores, similar to other areas of marketing.

Channel Performance and Loyalty

  • Analysis: Comparison of monthly shoppers per channel against shopping frequency (visits per month).
  • Size vs. Frequency: Size varies significantly, but frequency (loyalty) remains relatively consistent around the average.
  • Repeat Visits vs. Penetration: Follows the Double Jeopardy pattern; aim for placement in the largest retailers and channels.

Nash Equilibrium and Spatial Competition (Hotelling's Model)

  • Nash Equilibrium: A state where no player can benefit by unilaterally changing their strategy, assuming the other players remain constant.
  • Application: Not immediately applicable in many careers but explains business clustering.

Hotelling's Model: Ice Cream Vendor Scenario

  • Initial Setup (One Vendor):
    • A single ice cream vendor on a one-mile-long beach.
    • Optimal location: Middle of the beach (0.5 miles) to maximize customer reach.
  • Introduction of Competition (Two Vendors):
    • Cousin Teddy enters the market with an identical ice cream cart.
    • Initial agreement: Split the beach in half.
    • Locations: Vendor 1 at 0.25 miles, Vendor 2 at 0.75 miles.
    • Outcome: Socially optimal solution, minimizing the maximum distance any customer must walk.
  • Competitive Shifts:
    • Day 2: Teddy moves to the center of the beach.
    • Vendor 1 returns to 0.25 miles and loses market share.
    • Day 3: Vendor 1 moves to 0.75 miles, trying to capture most customers.
    • Teddy adjusts slightly south, regaining the majority.
    • Progression: Both vendors continually adjust, moving closer to each other.
  • Equilibrium:
    • Both vendors end up back-to-back in the center serving 50% each.
    • This is a Nash equilibrium because neither vendor can improve their position by moving.
    • The initial socially optimal solution (vendors at 0.25 and 0.75 miles) is unstable because each vendor can gain by moving towards the center.
  • Implications:
    • Suboptimal Customer Experience: Customers at the ends of the beach must walk further.
    • Real-World Examples: Fast food chains, clothing boutiques, and mobile phone kiosks clustering in malls.

Real-World Considerations

  • Customer Diversity: Customers approach from multiple directions, not just linearly.
  • Competitive Strategies: Businesses differentiate through marketing, product variations, and price adjustments.
  • Proximity to Competition: Companies often position themselves close to competitors.