Modeling for the Growth of Unorganized Retailing in the Presence of Organized and E-Retailing in Indian Pharmaceutical Industry

TL;DR

This study models the competitive dynamics among unorganized, organized, and e-pharmaceutical retailers in rural India, revealing counterintuitive effects of pricing strategies and customer behavior on market survival.

Contribution

It develops an empirically grounded agent-based simulation incorporating primary data, conjoint analysis, and experiments to analyze multi-channel competition in Indian pharmaceutical retail.

Findings

Unorganized retailers' price discounts have a tipping point beyond which they lose market share.

High emergency customers prioritize store attributes differently than low emergency customers.

Counterintuitive effects of pricing strategies influence unorganized retailers' market survival.

Abstract

The present study considers the rural pharmaceutical retail sector in India, where the arrival of organized retailers and e-retailers is testing the survival strategies of unorganized retailers. Grounded in a field investigation of the Indian pharmaceutical retail sector, this study integrates primary data collection, consumer conjoint analysis and design of experiments to develop an empirically grounded agent-based simulation of multi-channel competition among unorganized, organized and e-pharmaceutical retailers. The results of the conjoint analysis reveal that store attributes of price discount, quality of products offered, variety of assortment, and degree of personalized service, and customer attributes of distance, degree of mobility, and degree of emergency are key determinants of optimal store choice strategies. The primary insight obtained from the agent-based modeling is that the attribute levels of each individual retailer have some effect on other retailers performance. The field-calibrated simulation also evidenced counterintuitive behavior that an increase in unorganized price discounts initially leads to an increase in average footprint at unorganized retailers, but eventually leads to these retailers moving out of the market. Hence, the unorganized retailers should not increase the price discount offered beyond a tipping point or it will be detrimental to them. Another counterintuitive behavior found was that high emergency customers give less importance to variety of assortment than low emergency customers. This study aids in understanding the levers for policy design towards improving the competition dynamics among retail channels in the pharmaceutical retail sector in India.