Author

Zhihao Zhang

Date of Award

Summer 2020

Document Type

Open Access Dissertation

Department

Moore School of Business

First Advisor

Yan Dong

Second Advisor

Sriram Venkataraman

Abstract

The rapid growth in organic products has posed a major challenge to conventional retailer assortment planning. On the one hand, conventional retailers, driven by the relatively high margins of organic products, have increased organic product offerings. On the other hand, the shelf space for conventional retailers has remained the same, with newly opened stores much smaller in sizes. Therefore, retailers need to carefully manage their conventional product assortments to harvest the benefit of offering and increasing organic product assortments. In order to manage the assortment efficiently, conventional retailers need to understand how organic products would affect their existing products, consumers, and supply chain relationships.

From the two essays that comprise this dissertation, the first essay aims to explain how organic products would affect retailers’ conventional assortments, as well as how supply chain power would shift the connection between organic assortments and conventional assortment. The second essay estimates the substitution effect between organic products and conventional products, and how consumers choose between organic and conventional products while multiple other product attributes also present. Research questions proposed in the essays are answered by statistical analysis of difference-in-difference analysis, instrumental variable regressions, and structural estimations on retailer scanner panel data that contains weekly product sales over a 4-year time horizon.

Our findings suggest that a market expansion effect due to the introduction and expansion of organic products outweighs the operational costs for increasing both organic and conventional assortments. However, the supply chain power structure between retailers and manufacturers as well as retailer shelf space constraints will shift the relationship between organic and conventional assortments. We also find that consumers are more price-sensitive in organic products, and organic condition, product style, and seller attributes are all highly influential in shaping consumers’ purchasing decisions.

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