Academic journal article Academy of Entrepreneurship Journal

Does On-Market Experience Make Products More Attractive to Mass Retailers?

Academic journal article Academy of Entrepreneurship Journal

Does On-Market Experience Make Products More Attractive to Mass Retailers?

Article excerpt

INTRODUCTION

Selecting the right products and suppliers is essential for long-term success in the mass merchandising industry. Product acceptance, however, often involves substantial risk due to the high failure rates associated with unproven goods and the financial uncertainty associated with a new buyer-seller relationship. According to the Federal Trade Commission (2003), failure rates for new products can be as high as 70 percent, and product sales may not be strong enough to cover the cost of market introduction. Retailers also have limited shelf space; therefore, they must be careful in determining their overall product mix. Not having a popular product on-shelf when customers want or need it is a critical mistake that most retailers cannot afford.

Product acceptance and product attractiveness seem to go hand in hand. Retailers desire products that have unique features, strong demand expectations, and promotional support, and studies have shown that these factors increase product attractiveness and ultimately product acceptance (Rao & McLaughlin, 1989; St. John & Heriot, 1993; Kim, Jones, & Knotts, 2005). In this paper, we propose that "market experience" or prior on-shelf status is an attractive product feature to mass retailers and that suppliers who have it enhance their odds at product acceptance.

Specifically, we looked at small manufacturers who were attempting to become vendors to Wal-Mart and posed the question--does market experience affect which products buyers actually reviewed positively and which products retailers placed on-shelf? In other words, does having a product already on-shelf in another market make a product more attractive to mass retailers? Because entrepreneurial firms and their owners may face more marketplace hurdles than large established businesses, these small manufacturers were of particular interest. We wanted to know if having a proven product helped their vendor selection chances. We begin by describing the desire of small suppliers for mass merchandising shelf space and the challenges they face, followed by a discussion of product attractiveness and its role in supplier selection/product acceptance. The remainder of the paper discusses our study and its findings.

LITERATURE REVIEW

The Appeal of Mass Merchandising

Becoming a mass merchandising supplier is not easy, especially for smaller firms. According to Wal-Mart executives, small manufacturers have about a 1 in 300 chance of actually getting their product reviewed and on-shelf at the retail giant because Wal-Mart buyers may not see the need to invest time in small ventures when they already have established relationships with larger ones (Udell, Atehortua, & Parker, 1995). In addition, acceptance rates are not good for new vendors, and small firms are unlikely to get a second chance if they fail the first time (Anderson, 2003). With these roadblocks, why do some small firms want to become Wal-Mart suppliers?

Wal-Mart's never-ending quest for the next best product makes being their supplier seem like the American dream. Don Harris, Wal-Mart's former Executive V.P. of General Merchandise, estimated that Wal-Mart reviews 2,000 product submissions each week from entrepreneurs who believe that being on-shelf at the mass retailer epitomizes business success. Some of these entrepreneurs are so intent on becoming rich with Wal-Mart that they ignore the price concessions, production costs, and delivery requirements necessary to supply the world's largest retailer. Others actually pick up and move to Bentonville, Arkansas, where Wal-Mart is headquartered, in order to be more responsive to the retailer's needs (Anderson, 2003). As Fishman (2003) stated, these potential suppliers believe that "the only thing worse than doing business with Wal-Mart may be not doing business with Wal-Mart."

The Role of Product Attractiveness

Product acceptance for retailers involves choosing the best supplier or the one who has the most attractive product (Swift & Gruben, 2000). …

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