BY RICHA MARIA & KAVYA MITTAL, FOURTH & THIRD- YEAR STUDENTS AT RGNUL, PATIALA
INTRODUCTION
Post-pandemic, with 71% more people shopping in-person than before, the experiential retail market is a fundamental transition from a traditional market where consumers are immersed in a deeply curated sensory experience to drive loyalty. Unlike traditional retail, which focuses on product distribution and price competition, experiential retail prioritises environments where the shopping experience itself becomes the primary product offering. A prime example would be IKEA’s stores, where customers navigate impressive room setups to experience the product in consonance with realistic settings while relishing food courts and engaging with interactive displays. This differs drastically from conventional furniture retailers, primarily showcasing inventory with ‘please don’t sit on samples’ stickers, even though they might be competitive in price with the former.
From an antitrust lens, the advent of experiential retail raises crucial questions regarding low substitutability, as consumers engaging with these experiences cannot easily switch to the traditional retail market. Often, consumers spend more when they interact with the unique services that a store offers, with 80% of customers likely to make a purchase if a brand serves a personalised experience. Given these novel considerations, the authors propose that accurate competition assessment requires establishing experiential retail as a distinct relevant product market since traditional market definitions may inadequately capture the unique competitive dynamics at play. By proposing a balancing test, the authors attempt to carve a way forward for the Competition Commission of India (‘CCI’) for its future analysis.
THE INDIAN PERSPECTIVE: STATUTORY FOUNDATIONS
Section 2(t) of the Competition Act, 2002 (‘Act’) defines the relevant product market as comprising products or services that are interchangeable or substitutable by consumers due to their characteristics, price and intended use. The parameters for delineating the relevant product market are enshrined within Section 19(7) of the Act; notably, the inclusion of consumer preferences indicates that non-price attributes are contemplated within the statute. Scholarly analysis identifies experiential retail’s four defining themes: brand worlds, fluidity, exceptional experiences, and novel value creation, which limit substitutability with traditional retail, and thereby support market differentiation under Section 19(7)’s consumer preference parameters. Thus, the authors propose that experiential retail should be recognised as a distinct relevant product market differentiated by customer preferences such as ambience, accessories, service and brand value, which could play a significant role in consumer choices.
Building upon this foundation, competition regulators often employ the small but significant non-transitory increase in price (‘SSNIP’) test to assess the precise relevant market. According to this test, if a 5% to 10% price increase does not affect the demand, then that product would be considered as having no substitutes, and if the increase leads to consumers shifting their preferences to other similar products, then the relevant product market can be wider. In order to evaluate experiential retail against the SSNIP test, the CCI would have to examine whether a 5% increase in the price by the experiential retailer diverts demand to other experiential outlets or whether such a change to non-experiential outlets is minimal. The experiential outlet may qualify as a distinct relevant product market where consumer diversion is primarily limited to other experiential outlets rather than conventional retail formats.
CCI’S ANALYSIS IN INDIA
While the CCI has not explicitly categorised experiential retail as a separate relevant product market, its orders demonstrate a willingness to differentiate between separate relevant product markets for the same products on the basis of non-price criteria. In Sh. Ravi Beriwala and Lexus Motors and Ors., the CCI recognised that myriad factors influence the choice of purchase of a particular type of car, such as budget, convenience, accessories, comfort, brand name, facilities, features, looks, etc., which makes it a different class altogether. On this basis, the relevant product market was adjudged to be high-end luxury cars. Similarly, in Belaire Owner’s Association v. DLF Limited the relevant product market was identified as “services provided by developers for construction of high end residential buildings” as consumers were prepared to pay a premium for the extra performance. By analogy, while experiential retailers sell the ‘same’ product as mass outlets, features such as ambience, curated quality, branding and premium services cannot be replicated by mass outlets. Clearly, the CCI itself has accepted luxury as a distinct class due to factors such as budget, convenience, accessories, brand name, facilities, features and looks, which can also be features of experiential retail. Empirical evidence likewise suggests that consumers are more likely to pay more for experience, highlighting the willingness to pay a premium for non-price attributes, which reinforces the recognition of experiential retail as its own relevant product market.
GLOBAL PERSPECTIVES ON MARKET SEGREGATION
Competition authorities across the globe have steadily begun to acknowledge that the restricted traditional market definitions do not adequately cater to the augmenting complexities in the antitrust regime. The European Union’s nuanced approach in revising the Market Definition Notice explicitly recognises that competitive parameters extend beyond merely price and encompass the ‘image conveyed’, which is the entire experience of the consumer with the product, and is relevant to be judged as a comparative parameter, furthering the argument of establishing experiential retail as a distinct relevant market.
The European Court of Justice’s ruling in Coty Germany GmbH v Parfümerie Akzente GmbH confirms that goods acquire value from curated experiences beyond mere functional utility. The segmentation of the luxury goods from mass products was justified, as it is based on the “aura of luxury” or the total intrinsic experience provided by the former. Thus, this precedent runs beyond luxury goods to any retail faction where experiential elements determine consumer choice.
In a similar vein, antitrust law has evolved parallelly in the United States to recognise market segmentation based on experience. The courts routinely rely on Brown Shoe factors to delineate relevant markets, which include recognition of the submarket as a separate economic entity and the product’s peculiar characteristics, among others. Federal Trade Commission v. Tapestry-Capri Holdings went a step ahead in establishing experiential market as a distinct relevant product market by recognising market segmentation on the basis of the experiential attributes and lifestyle positioning rather than pure functionality. Here, the accessible luxury handbag market was held to be a separate relevant product market, as it curated a distinct experience from mass-market and true luxury goods.
However, this approach is not unprecedented. In United States v. Gillette Co., in order to segregate a sub-market out of a larger market, it was held that the relevant market must extend to recognise only those products which actually compete with each other and not superficially. This supports our argument of establishing an experiential market distinctly since mass products do not actually come at par with the products of the experiential segment, as they are coupled with certain additional characteristics and sensory experiences.
Thus, the global perspectives on segregating goods for their premium experiences from mass products support the reasoning that market segmentation should be based on experiential attributes as well, rather than pure functionality.
THE WAY FORWARD AND IMPLICATIONS
The inclusion of experiential retail as a separate relevant product market and a non-price factor in antitrust analysis can have profound implications for investor decision-making, competitive assessment and retail strategizing. Experiential retail would also reshape investment priorities, where immersive brand environments drive higher rents and longer leases but also offer stronger customer engagement and generate ancillary revenue streams.
Experiential retail as a separate relevant market would better enable antitrust authorities to detect anti-competitive conduct, even in cases where price competition remains unaffected. It will ensure that the market power of experiential retail brands is not understated by including irrelevant competitors in market share denominators, on the basis of mere functional substitutability. This would further augment investments in ambience, service quality, customer experience, and ensure brand differentiation and quality competition receive appropriate weight in regulatory analysis.
A key caution in recognising experiential retail as a separate product market is the risk of an overly broad ambit, which is why the authors recommend a balancing test. For this, the experience aspect should be the primary driver for consumers buying the product, and not merely a tertiary consideration. As per a study, a pleasant store experience is a primary factor in driving recurring customer visits, which means that the CCI must also consider quantitative aspects such as measuring the loyalty of a consumer to a product, a willingness to pay a premium price for the experience and an evaluation of consumer feedback that focuses on the ambience and brand value. Brand loyalty can be gauged through the number of returning customers compared with others in the relevant product market. When applying the SSNIP test, the CCI should ascertain whether the product demonstrates little to no alternative substitutes to non-experiential formats. If these criteria are satisfied, regulators can delineate a separate experiential market for competition assessments; if the conditions are not met, a broader relevant product market definition should be adopted instead of misclassifying the market power.
Thus, the recognition of these competitive relationships ensures that regulatory analysis focuses on relevant competitive dynamics rather than theoretical substitution possibilities that rarely occur in practice. Hence, this would encourage continued innovation in customer experience delivery, ultimately enhancing consumer welfare through improved service and choice.
CONCLUSION
To conclude, the advent of the digital era has precipitated an unprecedented transformation in the traditional market structures, which requires antitrust authorities to recalibrate their approach in tune with market realities. This article argues that experiential retail should be evaluated as a distinct competitive space where non-price factors assume precedence in delineating the relevant product market since consumers are increasingly shifting towards valuing ambience, premium service and brand value, which limits substitution to mass outlets. Taking a leaf from foreign jurisprudence and a detailed study of CCI orders, the authors demonstrate that regulators are increasingly willing to recognise non-price attributes in defining markets. Moving forward, it would be interesting to witness in the future the CCI’s approach towards defining experiential retail as a distinct relevant product market. Such explicit recognition of experiential retail would not only safeguard consumer welfare, as it would lead to more accurate competition analysis, but also align Indian competition law with the emerging global pr
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