INNOVATION IN DISTRIBUTION CHANNELS AN EVOLUTIONARY APPROACH ANNA NYBERG AKADEMISK AVHANDLING Som for avlaggande av ekonomie doktorsexamen vidHandelshogskolaniStockholm framlagges for offentlig granskning fredagen den 18 september1998, kl 10.15 i salRuben Handelshogskolan, Saltmatargatan 13-17 INNOVATION IN DISTRmUTION CHANNELS AN EVOLUTIONARY APPROACH 4t\ STOCKHOLM SCHOOL OF ECONOMICS ," EFI, THEECONOMIC RESEARCHINSTITUTE EFIMission EFI,theEconomicResearchInstituteattheStockholmSchoolofEconomics,isascientific institutionwhichworksindependentlyofeconomic,politicalandsectionalinterests.It conducts theoretical and empirical research in management and economic sciences, including selected related disciplines. The Institute encourages and assists in the publication and distribution ofits research findings and is also involved in the doctoral educationattheStockholmSchoolofEconomics. EFI selects its projects based on the need for theoretical or practical development of a researchdomain,onmethodologicalmterests,andonthegeneralityofaproblem. Research Organization TheresearchactivitiesareorganizedintwentyResearchCenterswithineightResearchAreas. CenterDirectorsareprofessorsattheStockholmSchoolofEconomic. ORGANIZATIONANDMANAGEMENT ManagementandOrganisationTheory(A) Prof.Sven-ErikSjostrand PublicManagement (F) Prof.NilsBrunsson InformationManagement(I) Prof.MatsLundeberg ManandOrganisation(PMO) Prof.JanLowstedt IndusnnaIProduction(T) Prof.ChristerKarlsson MARKETING InformationandCommunications(CIC) AdjProf.BertilThomgren RiskResearch(CFR) Prof.LennartSjoberg Marketing,Distributionand Industrial Dynamics(D) Prof.Lars-GunnarMattsson DistributionResearch(FOR) ActingProf.RichardWahlund EconomicPsychology(P) Prof.LennartSjoberg ACCOUNTING, CONTROLANDCORPORATEFINANCE AccountingandManagerialFinance(B) Prof.LarsOstman ManagerialEconomics(C) Prof.PeterJennergren FINANCE Finance(FI) Prof.ClasBergstrom ECONOMICS HealthEconomics(CHE) Prof.BengtJonsson InternationalEconomicsandGeography(lEG) Prof.MatsLundahl Economics(S) Prof.LarsBergman ECONOMICSSTATISTICS EconomicStatistics(ES) Prof.AndersWestlund LAW Law(RV) Prof.BertilWiman OTHERS EthicsandEconomics(CEE) AdjProf.HansdeGeer PolicySciences(PSC) AdjProf.BritaSchwarz Administration ChairmanoftheBoard:Prof.Sven-ErikSjostrand. Director:EkonDrRuneCastenas Adress EFI,Box6501,S-113 83 Stockholm,Sweden •Internet:www.hhs.se/eftl Telephone:+46(0)8-7369000•Fax:+46(0)8-31 6270•[email protected] INNOVATION IN DISTRmUTION CHANNELS AN EVOLUTIONARYAPPROACH ANNA NYBERG t4l STOCKHOLM SCHOOL OF ECONOMICS ,~t~, EFI, THE ECONOMIC RESEARCH INSTITUTE r:~~~ ADissertationforthe 1",,-' DegreeofDoctorofPhilosophy,Ph.D. ...1 '!~ " StockholmSchoolofEconomics 1998 ©EPIandtheauthor ISBNNR91-7258-487-4 Keywords: Distributionchannels Marketingchannels Innovation Evolution Retailing Distributedby: EFI,StockholmSchoolofEconomics Box6501,S-113 83 Stockholm,Sweden ElandersGotab,Stockholm, 1998. ACKNOWLEDGEMENTS Although I tend to regard this thesis as mine, it is only with the help of many people that it has come into being. I would like to thank some ofyou here. Let me first thank my three advisors for their invaluable support. Lars-Gunnar Mattsson, inspired confidence, challenged my ideas and shared his knowledge about theory and the empiricalfield. Lars-ErikGadde provided apposite and insightful comments in good humour. Staffan Hulten, suggested this line of inquiryand provided supportalong theway,both as my advisor and as a research colleague. Iwould also like to expressmy gratitude toTorsten and Ragnar Soderbergs Stiftelser, whose financial supportwas essential to this research project. Working with historical material has taught me the joys of archive research. Not only are archives a source ofwritten material, but one meets knowledgeable and helpful people there. I am very grateful to Bengt Drugge at the Hakon archives, Yvonne Winblad at Konsumentforeningen Stockholm's archives, Thomas Karlsson at Praktiskt Butiksarbete and Carina Lindstrom at DLF. Nils Erik Naslund of Dagligvaruleverantoremas Forbund took time to answer my questions and gave me access to their archives and at Handelns Utredningsinstitut I also had the opportunity to talk to Barbro Johansson and Folke Larsson, the persons behind some of the HUI investigations. In collecting archive material for the case descriptions, I have enjoyed the good companionship of Hans Kjellberg whose research interests are tangent to mine. Nils-Erik Wirsall has been an invaluable source of inspiration and facts. Among the generous persons who have taken time to read and give helpful comments on the materialI would especially like to direct my gratitude to Anders Forssell, Johny KJohansson, Carina Holmberg and PatrikHidefjall. C G Engstrom and Barbro Thuresson generously shared reference material. I would like to thank Hcikan Lindgren for support and inspirations and for making the EHF seminar series an inspiring forum for presenting and discussing research on trade. I have presented earlier versions of the chapter on the introduction of the self service format on three occasions - at the 1997 Nordic Workshop on Interorganisational Research, at the EHF Symposium on Innovations, Competition and Institutions in Trade and at the Prins Bertil Seminar on Evolutionary Economics and Empirical Research. I wish to express my gratitude both for the opportunity to presentmy work at these occasions and for the many constructive comments and reactions. In 1995 and 1996 I worked withStaffan Hulten on two MTC Research Reports on daily goods retailing. This work was a startingpoint for my work in this empirical field and knowledge gained in those studies was also useful in this thesis, especially with respect to the chapter on the all-channel. The financial support for those studies from Svensk Servicehandel, Livsmedelsekonomiska Samarbetsniimnden and Stiftelsen Lantbruksforskning, is gratefully acknowledged, as well as the importantcontribution ofMTC acting as a link between research and industry. Financial support from Tore Browaldhs och Jan Wallanders Stiftelser in an earlier stage of my work is also gratefully acknowledged. The D-section at the Stockholm School of Economics has provided a supportive and stimulating environment to work in. For this I would like to thank my colleagues: Per Andersson, Gunnar Alexandersson, Karolina Brodin, Olle Hammarkvist, Susanne Hertz, C F Helgesson, Michael Kaplan, Karl Oskar Kallsner, Dimitrios Ioannidis, Anders Liljenberg, Anders Lundgren, Bengt Molleryd, Lena Nordenlow, Ivan Stehota, Kristoffer Strandqvist, Magnus Soderlund, Bertil Thomgren, Mats Vilgon. A special thanks to Susanne Ostlund, as a friend and as acolleague. Rune Castenas is-truly a doctorate student'sbest friend, not only for being a wizard of doctorate studentfinancing, but also for his interest and encouragement. Ann-Charlotte Edgren has been very helpful in practical matters. I am also very grateful to George Cook, who not only checked myEnglishwriting butalso offered helpfulsuggestions and ideas "beyond the call ofduty". My parents and my sister Karin have cheered me onwhen courage faltered, as have many thoughtful friends - thank you! Finally, I would like to thank Sten Nyberg for ideas, inspiration and support. Stockholm in August, 1998. Anna Nyberg Contents PARTI Chapter1. Background and purpose 1 Introduction 1 Evolutionary economics 2 Some earlier studies of distribution innovations 3 Research objective 5 Delimitations 6 Method and limitations of method chosen. 6 Sources 9 KeyConcepts 10 Structure of the study 12 Chapter2.TheDistributionChannel 14 Introduction 14 Distribution channels - brief history of thought. 14 The microeconomics approach. 14 Some key concepts of the behavioural approaches to distribution channels 21 Bringing economic and behavioural explanations together 30 A typology of change in distribution channels 38 Areas ofchange 39 Characteristics and characterisations of change 41 Chapter3.Evolutionin Industrial Systems. 44 Introduction 44 Foundations of evolutionary theory in biology 45 Three primary forces ofbiological evolution 46 Comparing genetic to cultural evolution processes. 47 The forces of cultural evolution 48 Comparing cultural evolution to evolution in economic systems. 52 Evolution in the Economy and Technological Innovation 53 Innovations - sources, content and magnitude 54 Selection round 1 - innovation - actor match 59 Insiders and outsiders 59 Modular or interdependent systems 62 Effectsoffirm sizeand ofdegreeof vertical integration on innovation adoption 62 Selection round 2 - actor selection and market outcomes. 64 Dominant design and isomorphism 66 Collateral assets 68 Mobilising the assets of others 70 Path-dependence and lock-ins 70 Chapter4. EvolutioninDistributionChannels. 72 Introduction 72 The unit of analysis 72 Innovations in distribution channels - sources, content and magnitude 74 Selection round 1 - innovation to actor match 78 Position in the channel 79 Modular or interdependent systems 81 Effects offirm size and ofdegree of vertical integration on innovation adoption 82 Selection round 2 - actor selection and market outcomes. 84 Dominant design 85 Collateral assets 87 Mobilising the assets of others 88 Path dependence and lock-in 89 Active opposition to the success of an innovation. 91 PART II Chapter5. Introduction ofthe Self-serviceFormatin Swedish GroceryRetailing 95 Introduction 95 The self-service innovation defined 96 Antecedents of self-service 97 Background to Swedish introduction 99 First successful introduction of self-service 102 Reasons for KFS and other consumer cooperative societies to maintain uniform prices 104