Monopolistic

Competition, Hedonic Pricing, and Men’s Footwear

FROM WELL-HEELED TO TIP-TOED, SHOE-SHINE TO SHOE-LACE:

MONOPOLISTIC COMPETITION AND PRODUCT DIFFERENTIATION
IN MEN’S FOOTWEAR

Vishal Kumar and Satish Y. Deodhar

JEL Classification Codes: D43, L11, L67

1 Monopolistic Competition, Hedonic Pricing, and Men’s Footwear

ABSTRACT

For many decades, the only branded footwear Indians knew was Bata. After years
of economic liberalization; however, one finds many local, national, and
international firms jostling for customer attention by producing various types of
branded footwear. In fact, India has now emerged as the second largest producer
of footwear in the world. The Indian footwear market can be described today as a
stylized case of a monopolistically competitive market. In this study, we focus our
attention on men’s formal shoes which are differentiated by variations in many
attributes such as heel, toes, colour, surface, laces, buckles and brands. Invoking
hedonic price analysis and bid and offer curves of the customers and firms
respectively, shoe prices are viewed as the sum total of the valuation of each of
these attributes. The relative valuation is estimated by regressing market prices of
shoes on its binary variable attributes. Analysis shows that shoes made of leather,
shiny surface, buckles, laces, and brands carry a premium; and, differentiation
based on colour, pointed toes, high heels, and texture is not important. In a highly
competitive market, such data driven studies can provide pointers to firms in
altering existing shoe models and successfully launching newer ones.

Key Words: Monopolistic Competition, Product Differentiation, Hedonic Pricing,

Men’s footwear, India1.

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2 Vishal Kumar and Satish Y. Deodhar

INTRODUCTION

Traditionally referred as 'The Sleeping Giant' of global footwear industry, Indian

footwear industry has come a long way from being viewed as a mere low cost

supplier of leather material and footwear. Today, it has emerged as the second

largest producer of footwear in the world, next only to China. A report by

Transparency Market Research [TMR] had valued the global footwear market at

USD 185 billion in 2011 and it is expected to reach USD 211.5 billion by 2018. A lot

of this growth is predicted to take place in the Asia Pacific region with

overwhelming domination by India and China. In fact, TMR [2012] projections

show that these two emerging markets will account for more than 30 per cent of

the global revenues in 2018.

While footwear production capacity of India is only second to China in the

world, there is significant difference in the absolute size. In 2011, while China

produced more than 10 billion pairs of footwear [RNCOS, 2012]; India produced

only a little more than 2 billion pairs. Moreover, domestic footwear brands have

hardly made any impact in foreign countries. Of the 2 billion footwear pairs, only

115 million pairs were exported in 2011. Going by the projections for domestic

footwear demand, it is going to be a herculean task to strengthen and protect the

domestic industry from foreign players, especially the low-cost footwear players

from China.

One of the interesting things about Indian footwear market is the fact that

men’s footwear segment covers more than 50 per cent of the entire footwear

market in India. Within this segment, demand of formal footwear is on the rise due

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3 Monopolistic Competition, Hedonic Pricing, and Men’s Footwear

to India’s growing younger working-class population. With changing lifestyles,

evolving fashion trends, increased consumer disposable income, and rise in

organized retail, men’s formal footwear market in India is in a transformative

phase. In 2012, India allowed 100 per cent foreign direct investment [FDI] in single

brand retailing. Going by the number of retail outlets at airports and shopping malls

that carry international brands, it is evident that foreign players are gaining a

foothold among Indian consumers. Moreover, although Indian government had

mandated that 30 per cent of materials must be sourced domestically, this has not

been an impediment for foreign brands as they already procure and import more

than 30 per cent of their footwear materials from India [FU, 2012]. Therefore, gone

are the days when Bata was the only foreign manufacturer in Indian market. Today,

if there are many domestic brands including the more popular ones such as Metro,

Liberty, and Corona; there are also quite a few foreign brands such as Clarks, Aldo,

and Hush Puppies1 among others. Market for men’s formal shoes, therefore, can be

described in the language of neoclassical microeconomics as a ‘monopolistically

competitive’ market – That is, the market is intensely competitive with many firms

trying to woo the customers, and, at the same time, many firms have been

successful in creating brand loyalty among customers through product

differentiation and advertising.

While price is an important consideration in purchase decisions, Indian

consumers, especially in the young working men segment, are starting to explore

1
Hush Puppies is a branded footwear of the US firm Wolverine Worldwide Inc. For
quite some time, it has licenced Bata India to produce and market Hush Puppies
through its exclusive stores. Perhaps, foreign firms are preparing themselves for
the moment, when Indian government allows FDI in multi-brand retailing [ET,
2012]!

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4 Vishal Kumar and Satish Y. Deodhar

and experiment with various non-price factors such as trendy styles, comfort,

quality, and brand recognition. In these changing market conditions, the entry of

foreign players would certainly affect the sales of local and national footwear

brands. Therefore, it becomes imperative for the domestic manufacturers and other

stakeholders to formulate a strategy to maintain or increase their market share.

This would require a clear understanding of consumers’ preferences and the

importance they attach to various quality attributes of men’s formal shoes. Once

the consumer valuation of various shoe attributes is understood, the industry

players can enhance brand loyalty by of altering or adding features to the existing

shoe styles. Armed with new or altered features, firms can aggressively market

their shoes to increase the footfall and sales in the stores.

In the context of the above discussion, this paper attempts to identify the

consumer preferences and valuations of various quality attributes of men’s formal

footwear by applying hedonic price analysis methodology to 150 shoe models

across 18 different brands in the Indian market. The large number of shoe types as

well as brands makes this analysis fairly representative of the Indian formal

footwear market. With a total of 150 observations on prices and quality attributes,

the regression model presented in the subsequent sections adds robustness to the

analysis. In the section that immediately follows, we cover a brief review of existing

literature on hedonic price analysis and some of the key results. Section 3 describes

the methodology used in this paper for carrying out the analysis. Information on

data collection, regression results, and key inferences are provided in Section 4.

Finally, Section 5 provides concluding observations and pointers for further

research.

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5 Monopolistic Competition, Hedonic Pricing, and Men’s Footwear

2. LITERATURE REVIDEW

Hedonic price analysis methodology has been around for nearly a century

now and over the years, it has been mainly used in the field of agribusiness sector.

In the early 20th century, Waugh [1928] pioneered the work on measuring

consumers’ relative valuation of quality attributes of vegetables in Boston market.

Several decades later, in a classic paper on consumer theory, Lancaster [1966]

showed that goods are a combination of multiple characteristics and these

characteristics play a significant role in determining the consumer preferences. In

one of his most critically acclaimed papers, Rosen [1974] showed that equilibrium

price of a differentiated product is the summation of the implicit prices of the utility

bearing characteristics of that product. Using this principle, studies have been

conducted on processed food products such as wine, fruit juices, and tea. For

example, Schamel, Gabbert and Witzke [1998] did a study on wines in US market

based on sensory attributes and factors such as region of origin and wine vintage.

They found that consumers paid premium not only for sensory quality but also for

reputation of the region of origin. Similarly, Weemaes and Riethmuller [2001]

examined the fruit juice industry in Australia to measure the relative importance of

the various quality attributes of fruit juices. They found that nutrition, convenience

in usage, and product information were the main factors that commanded a price

premium. Yet another study on Indian tea by Deodhar and Intodia [2004] showed

that among various attributes of tea, aroma and colour were the most prominent

attributes valued by Indian consumers.

Of course, hedonic price analysis has not remained confined to processed

food products alone. One finds its applications for valuation of characteristics of

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6 Vishal Kumar and Satish Y. Deodhar

farmland, real estate, sportspersons, and even marriage! For example, Elad,

Clifton, and Epperson [1994] used hedonic analysis to determine the relative worth

of farmlands in the US state of Georgia by deriving implicit prices of quality

attributes of farmlands. Similarly, Tse and Love [2000] applied the hedonic

methodology to determine the consumers’ valuation of residential property in Hong

Kong market. Rastogi and Deodhar [2009] were the first to apply hedonic price

analysis to cricket players. They focused their attention on the inaugural Twenty-

20 format of the game played in the Indian Premier League [IPL] in 2008. For their

analysis, they used the IPL 2008 auction prices of cricketers and the cricketing and

non-cricketing attributes of those players. Among other results, ceteris paribus,

they showed that on an average, the auction price of an Indian player was US$

258,000 more than the auction price for non-Indian player, and non-cricketing

attributes also played an important role in determining the player price.

Interestingly, Rao [1993] conducted a study in which he estimated the rise of

dowry in India using socio-economic and demographic attributes of brides and

grooms in South Indian villages. A combination of growing population, higher

number of people in younger cohorts, and substantive difference between

marriageable age of women and men leads to surplus of women in marriage

market. They find that this demographic feature defined as ‘marriage squeeze’

results in the rise of dowry in Indian villages.

While the above mentioned studies present various interesting applications of

hedonic price analysis, no such study has been conducted on the footwear market,

either in India or in any other global market. As alluded to in the earlier section; a

combination of economic growth, changing lifestyle, and opening-up of the

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7 Monopolistic Competition, Hedonic Pricing, and Men’s Footwear

economy to rest of the world has dramatically catapulted Indian footwear market

on a high pedestal! It has turned the market into a classic example of a

monopolistically competitive market. While there are many local, national, and

international brands in the market, there is also enough scope for product

differentiation – Men’s formal shoes could be well-heeled or with no heel, they may

be tip-toed or flat toed, they could be with laces or without, they could be shiny or

matt textured, they could be black or brown coloured, and the shoes could be

branded or generic ones. Therefore, what other but an uncharacteristically ordinary

product such as footwear has emerged as an excellent candidate to carry out

hedonic price analysis! In what follows, we focus our attention on hedonic price

analysis of men’s formal footwear in the Indian market. This enables us to

measures consumers’ relative valuation of various quality attributes of men’s formal

footwear and offers clues to firms - what attributes they may alter or add to stay

ahead of competition.

3. METHODOLOGY

In this paper, we have adopted the model suggested by Rosen [1974] while

the notation terminology is taken from Schamel, Gabbert and Witzke [1998].

According to the model suggested by Rosen, in equilibrium, value of any economic

good is based on its utility bearing attributes. That is, the equilibrium market price

of any economic good turns out to be the sum total of shadow prices that a

consumer is willing to pay for its utility enhancing attributes. For example, for a

representative good Z with N attributes, the hedonic price for good Z can be

represented as:

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8 Vishal Kumar and Satish Y. Deodhar

PZ = f (Z1, …, ZK, …, ZN),

(1)

where PZ is the price of good Z and Z1, …, ZK, …ZN are the N attributes of good Z.

Moreover, the utility maximization problem can be represented as:

Max U = U (Z, X) s.t. M – PZ - X = 0,

(2)

where M represents income and X represents a composite numeraire commodity

representing all other goods. Here we make an implicit assumption that in a given

period a consumer purchases one unit of good Z. The marginal rate of substitution

(MRS) between the Kth attribute of Z and the numeraire good X is given by:

!"/!"!
𝑀𝑅𝑆 = .
!"/!"

(3)

In equilibrium when utility [U] is maximized, the MRS must be equal to the

ratio of the shadow price of the attribute ZK and the price of X. X being the

numeraire good, therefore, the following equilibrium condition emerges:

!"/!"!
𝑀𝑅𝑆 = = 𝛿𝑃! /𝛿𝑍! ,
!"/!"

(4)

where δP/δZK represents the marginal implicit price of characteristic ZK of the

product Z and would correspond to the regression coefficient of ZK in equation (1)

above. Further, we can write the utility function U as:

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9 Monopolistic Competition, Hedonic Pricing, and Men’s Footwear

U = U (M – PZ , Z1, …., ZK ,…, ZN).

(5)

Solving the above mentioned equation for PZ by keeping U* & Z-K* constant at their

optimal values as mentioned in equation [2], one can generate a bid curve B as:

B = g (ZK, Z-K*, U*).

(6)

Ceteris paribus, the bid curve B shows the maximum amount that a consumer

would be willing to pay for a unit of Z as a function of the attribute ZK. Higher the

amount of Zk in Z, higher would be the bid price B. Thus, B will be a positively

sloped function with respect to ZK. Moreover, we assume diminishing marginal

utility with respect to ZK, and, therefore, the bid curve B would be a concave

function with respect to ZK. Based on different consumers’ preferences/incomes, we

can have different bid curves BI(ZK) & BJ(ZK) for two different consumers I and J as

shown in Figure 1(a). For any such bid curve, a shift in the south-east direction

would represent higher level of welfare for the consumer.

Similarly, on the supply side, we can sketch out an offer curve C for a

representative firm with respect to the attribute ZK as follows:

C = h (ZK , Z-K*, π*).

(7)

The offer curve C of a representative firm shows the minimum price at which the

firm would be willing to sell a unit of Z as a function of ZK while keeping all other

attributes (Z-K*) and profit (π*) at the optimal level. The offer curve C is positively

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10 Vishal Kumar and Satish Y. Deodhar

sloped with respect to ZK, for additional amount of ZK can be offered only at a

higher price. Moreover, offer curve C is a convex function with respect to ZK, for it

exhibits increasing marginal cost of providing additional units of ZK. In Figure 1(b),

CR(ZK) and CS(ZK) represent offer curves for two different firms R and S. For any

offer curve, a shift in the north-western direction would be more profitable for a

firm.

Figure 2 shows that a differentiated product Z is being bought and sold at

different prices, which contains different levels of attribute ZK. In equilibrium, PIR

price is paid by consumer I to firm R for a differentiated good which contains ZKIR

level of attribute ZK. This equilibrium price and level of ZK is the result of tangency

between the bid curve BI and offer curve CR. Similar tangency condition ensures

that consumer J purchases good Z from firm S, for a price PJS and which contains

ZKJS level of attribute ZK. Of course, superscripts in the functions B and C need not

just be representing two consumers and two firms but two groups of consumers

and/or firms. In fact, we can generalize this to say that there could be many

groups of consumers and firms who trade Z at different prices and different levels

of ZK attribute in it. The relation between the locus of such equilibrium tangencies

(P and ZK) can be estimated. In fact, since there are N different attributes of Z,

such relation can be estimated between price P and all attributes (Z1, ..XK, …, ZN) of

Z. Therefore, given the market prices of each of the differentiated product Z and

varying values for its quality attributes (Z1, .., ZK, .., ZN), one can estimate

equation (1) which is described as the hedonic price equation. This hedonic price

equation may not be linear (as may appear in Figure 2). An appropriate functional

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11 Monopolistic Competition, Hedonic Pricing, and Men’s Footwear

form can be always be estimated econometrically by applying a suitable Box-Cox

transformation to the data.

Figure 1(a): Bid Curves Figure 1(b): Offer

Curves

P
P J
B
CS
R
C

BI

0 ZK 0 ZK

Figure 2: Equilibrium Hedonic Price and Quality Attribute

PJS
ZKJS

PIR
ZKIR

0 ZK

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12 Vishal Kumar and Satish Y. Deodhar

With many local, national, and international brands in men’s formal shoe

category, the industry represents a typical case of a monopolistically competitive

market. The good Z described in this section very well represents the men’s formal

shoes sold in India. These shoes can be described as a differentiated product with

varying prices and characterized by varying quality attributes. Therefore, a hedonic

price analysis can be done by regressing prices of men’s formal shoes on its various

quality attributes. We turn to the empirical estimation of this equation in the next

section.

4. DATA, REGRESSION, AND INTERPRETATION

Our paper analyses the data of 150 types of men’s shoes from 18 different

brands in the Indian market. The data were collected from various online e-

commerce websites like flipkart.com and also by visiting many shoe shops in

Ahmedabad city (between January to March 2014). All shoe prices were considered

at MRP (Maximum Retail Price) level. For our research analysis, we identified ten

key quality attributes of men’s formal shoes. These include, (1) shoe composure -

whether the shoe was made from genuine leather or otherwise; (2) colour -

whether the shoe colour was black or otherwise [mostly brown]; (3) texture -

whether the shoe texture was plain or chequered; (4) structure - whether the shoe

was tip-toed [pointed] or otherwise; (5) lace - whether the shoe had laces or

otherwise; (6) heel - whether it was high-heeled or flat; (7) surface - whether the

shoe surface was shiny or otherwise; (8) buckle - whether it had a buckle or

otherwise; (9) brand (national) - whether the shoe was from a national brand or

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13 Monopolistic Competition, Hedonic Pricing, and Men’s Footwear

otherwise, and (10) brand (International) - whether the shoe was from an

international brand or otherwise. Of course, if a shoe is neither from a national

brand nor from an international brand, it gets characterised as a locally made

generic shoe. Ceteris paribus, inclusion of the national/ international/ local brand

captures the consumer perception about identifying shoe quality that is associated

with its brand and origin.

Given the data and the above description of the variables, we regressed

prices of 150 types of shoes on its 10 quality attributes. The spectrum of the

coverage of the men’s formal shoes is quite wide – It includes 9 international

brands including Aldo, Clarks, Steve Madden, Bata etc. and 8 national brands

including Liberty, Metro among others. Each of the brands has many types of shoes

depending upon the 8 attributes mentioned above. In the model, the shoe price [P]

ranges from Rs. 550 to Rs. 9990 covering a wide cross section of men’s formal

shoes sold in Indian markets. The variables representing the quality attributes (Z1

to Z10) are all dummy variables taking value 1 or 0 depending on presence or

absence of a particular quality attribute. The Descriptive statistics of the data is

provided in Table 1 below.

Table 1: Descriptive Statistics

Variable Description Shoe Count Mean σ

P Max Retail Price (Rs.) Total = 150 3307 1923

Z1 Composure (1 if leather, Leather = 110 0.73 0.44

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14 Vishal Kumar and Satish Y. Deodhar

else 0)

Z2 Colour (1 if black, else 0) Black = 107 0.71 0.45

Z3 Texture (1 if chequered, Chequered = 0.39 0.49

else 0) 59

Z4 Structure (1 if pointed, else Pointed = 41 0.27 0.45

0)

Z5 Lace (1 if it is present, else With lace = 74 0.49 0.50

0)

Z6 Heel (1 if it is present, else With heel = 0.67 0.47

0) 101a

Z7 Surface (1 if shiny, 0 if dull) Shiny = 92 0.61 0.49

Z8 Buckle (1 if present, else 0) With Buckle = 0.15 0.36

23

Z9 = 1 if National brand, else 0 National = 63 0.42 0.49

Z10 = 1 if international brand, International = 0.49 0.50

else 0 73

a
Considered to be present if heel height is greater than or equal to 1 inch from the sole.

To choose the functional form for the hedonic price equation, a particular

Box-Cox transformation of the variables is used which fits the data best. In

particular, a transformation could use dependent and independent variables in

levels (Lin-Lin) or in logs (Log-Log) or one could be in logs and the other in levels

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15 Monopolistic Competition, Hedonic Pricing, and Men’s Footwear

(Log-Lin or Lin-Log), or both could be used by taking first differences. Of course, in

the current estimation, all independent variables (Z1 to Z10) are dummy variables

taking a value of 1 or 0. Therefore, transformations such as the Log-Log, Lin-Log,

and first-differences cannot be used. Log-Lin transformation seemed to fit the data

best which can be described by the functional form:

!"
ln 𝑃 = 𝛽! + !!! 𝛽! 𝑍! .

[8]

This function in its original exponential form is written as:

!"
P = 𝑒 [!! ! !!! !! !! ]

[9]

The above function is valid only for positive values of P, which makes sense

as (shoe) prices will always be positive. Here the coefficient βK demonstrates a

constant percentage change in P due to a unit change in the quality attribute ZK;

i.e., βK = 1/P * [dP/dZK]. Moreover, the intercept term β0 captures all other factors

that potentially could affect the shoe price and is not covered among the 10

attributes. The results of the estimation are reported in Table 2 below. Table 3

reports the econometric robustness of the estimated equation. The regression

equation produced a Multiple R2 and the Adjusted R2 of 0.77 and 0.56, respectively.

It also meets the goodness-of-fit test with F-statistics of 20.0 significant even at a

p-value of 0.0001. Also, the estimated χ2 values of B-P-G and Glejser test were not

significant at 0.05 p-value. Therefore, the null hypothesis of homoscedasticity could

not be rejected. Moreover, the independent dummy variables were tested for

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multicollinearity using Klein’s rule. All the auxiliary R2 values were lower than

overall R2 indicating absence of multicollinearity among the independent variables.

Table 2: Hedonic Price Equation (Dependent Variable: ln P)

Variable Coefficient (βK) T Statistics

(ZK)

Constant 6.37a 42.23

Z1 0.32a 3.79

Z2 - 0.04 -0.53

Z3 0.04 0.52

Z4 - 0.01 -0.07

Z5 0.16b 2.02

Z6 - 0.10 -1.31

Z7 0.28a 3.66

Z8 0.29a 2.77

Z9 1.20a 9.05

Z10 1.28a 10.12

a b
Significant at 0.01 two-tailed test, significant at 0.05 two-tailed test

Table 3: Diagnostic Tests of the Regression

1. Coefficient of Multiple R2 0.77

Determination 2
Adjusted R 0.56

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2. Overall Significance F Statistics 20.00a

3. Homoscedasticity Tests B-P-G χ2 8.07b

Glejser χ2 1.01b

4. Multicollinearity Klein’s Rulec R2Z1 = 0.18, R2Z2 = 0.09

R2Z3 = 0.11, R2Z4 = 0.12
R2Z5 = 0.30, R2Z6 = 0.18
R2Z7 = 0.17, R2Z8 = 0.22
R2Z9 = 0.11, R2Z10 = 0.05
a b
Significant at 0.01, not significant at 0.01 & 0.05, auxiliary R2s less than overall R2
c

Our analysis presents some interesting results for men’s formal footwear in

Indian markets. One of the key variables which showed major impact on the shoe

price is its composure; i.e. whether shoes are made up of leather or any other

material. Ceteris paribus, i.e. holding other things constant, our analysis indicates

that consumers are willing to pay a premium of 32 per cent for leather shoes over

non-leather shoes. On an average, this amounts to a premium of about Rs. 691.

Quite interestingly, colour of the shoe does not play a major role in deciding the

consumer perception towards its price. That is, on an average, a particular colour,

black or brown is not valued more over the other. We found colour coefficient to be

insignificant in the analysis. Perhaps, one of the reasons for this insignificance is the

fact that today, most of the shoe varieties are available in wide range of colours

and consumers are not required to pay an additional amount to choose a particular

colour over the other. We also found other attributes such as texture, structure and

heel to be insignificant in our analysis. These attributes do not seem to influence

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shoe prices. That is, whether or not the shoe texture is chequered or smooth,

whether shoes have pointed or round and square toes, and, whether they are well-

heeled does not seem to matter much in Indian markets. However, although the

coefficient of [high] heel was statistically insignificant; the coefficient itself was

negative in value. This may suggest that high heel shoes are perhaps considered to

be less formal by men’s segment in India and/or perhaps they are less comfortable

to wear.

And there were some other interesting results as well. The coefficients of

attributes related to shoe laces, shoe surface, and buckles were positive and quite

statistically significant. We find that consumers are willing to pay 16 per cent or

about Rs. 472 more for shoes with laces over slip-on [non-lace] shoes. Although

Slip-ons may seem to be convenient to use, however, men seem to consider shoes

with laces more formal than slip-ons. Also, men prefer shoes with shiny surface

over flat or matt finished ones and are willing to pay 28 per cent more for it. This

amounts to a premium of about Rs. 720. Perhaps this indicates that consumers see

value in buying shoes which do not require frequent polishing. A buckle seems to be

considered as a style symbol in luxury shoes. We find that ceteris paribus, the price

of a shoe with buckles is 29 per cent more than that of a shoe without buckles. This

29 per cent premium amounts to an absolute premium of about Rs. 939. This may

be an indication of a changing fashion trend among Indians where a shining buckle

shoe may have become a style statement and they are willing to pay more than Rs.

900 for it.

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Importantly, even after controlling for about 8 quality attributes of shoe, we

find that there is strong premium attached to the intangible attribute - brand. Both

national and international brand coefficients were highly statistically significant and

commanded about 120 per cent and 128 per cent premium over local brand. This

translates into an absolute premium of about Rs. 1002 and Rs. 1069, respectively

over locally made generic shoes. This clearly confirms that consumers are ready to

pay a huge premium for a brand which is recognized nationally or internationally,

despite controlling for the important 8 quality attributes we have incorporated in

the analysis. Moreover, with a difference of about Rs. 67, the premium difference

between an international brand and a national brand is quite insignificant. And

finally, the constant term in the hedonic price regression is also statistically very

significant. The constant term captures the influence of variables that are not

explicitly included in the hedonic price equation. These could relate to quality

attributes such as comfortable insoles, better fit to the foot, and shoes being

heavier or lighter to wear etc.

5. SUMMARY AND CONCLUDING OBSERVATIONS

Today, India and China are the world’s two leading shoe producers. While

India does export a significant volume of footwear, it is on the cusp of a retail

revolution in the domestic market. With high GDP growth rate, allowance of 100 per

cent FDI in single-brand retail, changing lifestyle, and larger share of younger

population, Indian footwear market is bound to become one of the largest in the

world in the upcoming years. Currently, men’s footwear segment covers more than

half of the entire footwear market in India and many firms including local, national

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20 Vishal Kumar and Satish Y. Deodhar

and international are competing with each other in selling differentiated shoe

brands in Indian markets. Therefore, this market can be characterized as a classic

case of a monopolistically competitive market with many firms selling many

differentiated versions of men’s formal shoes.

In such a competitive market, it becomes imperative for shoe manufacturers

and retailers to understand consumer perceptions of various quality attributes of

shoes. Understanding consumer preferences about the designs and the relative

valuation of the quality attributes would help them develop more ergonomic designs

and cater better to the taste of consumers in men’s formal footwear category.

Equilibrium price of any product is the result of the interaction between demand

and supply for that product. Different varieties of men’s formal shoes sell at

different prices at a point in time and a consumer too makes an informed choice to

pick a particular kind of shoe. This means that a consumer makes utility maximizing

choices of different quality attributes of a shoe which result in buying a particular

kind of shoe. Therefore, the equilibrium prices of different shoes can be thought of

as sum total of the relative valuations of their quality attributes. Given the market

prices of shoes and measurements of different quality attributes, a hedonic price

analysis accomplishes just that.

Our paper presented hedonic price analysis of men’s formal shoes in Indian

market. We identified 10 key variables which might have impact on shoe prices and

performed regression analysis by keeping the price as the dependent variable. The

regression equation reveals quite a few relative valuations of different quality

attributes of men’s formal shoes. Controlling for all other attributes, it is clear that

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21 Monopolistic Competition, Hedonic Pricing, and Men’s Footwear

consumers do not have any specific preference for shoes with heel or without,

shoes with pointed toes or flat ones, shoes that have plain texture or chequered,

and shoes of different colours i.e. black or brown. Therefore, no premiums are

attached to these quality attributes.

On the other hand, there are quite a few attributes that command huge

premiums. Controlling for all other quality factors, men’s formal shoes with laces

are valued more than the slip-on shoes. Perhaps shoes with laces are considered

more formal than the other. Buckle on the shoe seems to be a style statement, for

the coefficient associated with it was statistically quite significant. Moreover, shiny

shoes seem to be preferred over flat or matt finished ones indicating value attached

to saving time and efforts required for frequent polishing. Consumers also seem to

be very brand conscious. Both national and international brands command a

premium of more than Rs.1000, despite controlling for all other quality attributes.

Thus, brands seem to signal quality and it is imperative that shoe manufacturers

pay attention to brand building exercise. Another important feature is the premium

for leather shoes over shoes made from man-made-materials which suggest that

leather seems to add more formality to shoes than any other material.

In the present study, for the men’s formal shoes available in the market, we

have incorporated as many quality attributes as we could get information on.

However, there could be some factors which market prices and physical attributes

of the shoes do not reveal. Contribution of such factors gets included in the

constant term of the hedonic price equation. We do find that the constant term in

the regressed equation was quite significant. Factors such as sole material, shoe fit

JEL Classification Codes: D43, L11, L67

22 Vishal Kumar and Satish Y. Deodhar

and comfort, and shoe being light or heavy could be considered in such attributes

for which data is not available. Of course, advertising and promotions also influence

consumers’ perceptions. However, such influences get captured in the brand

dummy which we have used in our analysis.

The above results presented in the paper have important implications for

shoe manufacturers, domestic & international retailers and export houses. In fact,

when it comes to Indian consumers in men’s formal footwear segment, having a

strong brand presence pays a rich dividend. Thus, it is important for local traders

and local manufacturing hubs to expand their brand presence all over the country

to gain better market share. Given the changing fashion trends among young

working men in the emerging markets such as India, China and other Asian

countries, it becomes important for manufacturers, retailers & traders to know the

evolving fashion trends and accordingly alter or design shoes that suit the growing

consumer needs. As evident from our study, even a minor addition of Buckle in the

shoes or making the shoe surface shiny can give high returns in these emerging

markets. Another important fact among Indian consumers is the importance given

to leather shoes over non-leather shoes in formal footwear category. However, we

also found that international brands are able to charge high price even for shoes

that are not made of leather, thus clearly showing how an established and

internationally recognized brand influences consumers price and quality perception

of shoes.

We anticipate our study to act as a template or a yardstick for incumbent

firms, potential entrants, and other stakeholders of footwear business in emerging

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23 Monopolistic Competition, Hedonic Pricing, and Men’s Footwear

markets. They could work around with the various shoe attributes to develop

appropriate shoe varieties particularly suited to emerging markets of India and

other Asian countries as consumer preferences largely depend on the ten key

attributes listed in the paper. Of course, the hedonic price analysis is based on

market data of prices and physical attributes of shoes, and therefore, it is

impersonal in nature. It can be further complemented by market research

techniques such as dip-stick surveys.

JEL Classification Codes: D43, L11, L67

24 Vishal Kumar and Satish Y. Deodhar

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JEL Classification Codes: D43, L11, L67