A Discrete Choice Model for Retailer Selection in Emerging Markets

Abstract

Abstract In the context of increasing competition between chained retailers and family-owned retailers, it is key to understand the customer's format choice. Using a logistics regression (i.e., binary logit) model, we explain customers' preference to buy in supermarkets or in small-scale, mom-and-pop stores like nanostores. We collect a representative sample of over 110 surveys from customers in the district of Surco, Lima, Perú, which is a representative area of the features of Lima's residents. We asked customers to focus on analyzing their preference between two retail formats: modern channel (i.e., big-box retailers, supermarkets, and hypermarkets) and traditional channel (i.e., mom-and-pop stores, nanostores). Our surveys included factors pertaining retail format attributes as well as factors related to the purchasing process. The results showed that time available for purchase and a comparatively better perceived service at a mom-and-pop store (i.e., nanostore) are significant factors that explain a higher probability of selecting these retailers, while a better store's ambience benefits more supermarkets. The overall discrete choice model is able to explain 65% of the variance using pseudo R-squared of the actual format choice decisions.

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