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A Positive Theory of Private Label: A Strategic Role of Private Label in a Duopoly National-Brand Market

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  • Chi-Cheng Wu
  • Chih-Jen Wang

Abstract

This article offers an economic rationale for national brands to provide private labels to their retailers. We build a game-theoretic model that analyzes the interactions among two national brand manufacturers and one common retailer. In an interesting strategic role, the private label mitigates the promotion competition between the two national brands and provides benefits for all three members in the channel. Our analysis shows that offering a private label can be a credible commitment from a national brand manufacturer that it will not engage in promotions and decrease the incentive of the national brand rival to engage in promotions. In this way, we attempt to provide a reason for why national brand manufacturers provide retailers with private labels in practice. In addition, we discuss the optimal quality level of private labels. Copyright Springer Science + Business Media, Inc. 2005

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  • Chi-Cheng Wu & Chih-Jen Wang, 2005. "A Positive Theory of Private Label: A Strategic Role of Private Label in a Duopoly National-Brand Market," Marketing Letters, Springer, vol. 16(2), pages 143-161, April.
    • Handle: RePEc:kap:mktlet:v:16:y:2005:i:2:p:143-161
    DOI: 10.1007/s11002-005-3266-4
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    3. Li, Guo & Zhang, Xuefeng & Chiu, Su-Mei & Liu, Mengqi & Sethi, Suresh P., 2019. "Online market entry and channel sharing strategy with direct selling diseconomies in the sharing economy era," International Journal of Production Economics, Elsevier, vol. 218(C), pages 135-147.
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    6. Pasirayi, Simbarashe & Richards, Timothy J., 2023. "Assessing the impact of manufacturer power on private label market share in an equilibrium framework," Journal of Business Research, Elsevier, vol. 154(C).
    7. Cheng, Rong & Duan, Yongrui & Zhang, Jianguang & Ke, Hua, 2021. "Impacts of store-brand introduction on a multiple-echelon supply chain," European Journal of Operational Research, Elsevier, vol. 292(2), pages 652-662.
    8. Raj Sethuraman, 2009. "Assessing the External Validity of Analytical Results from National Brand and Store Brand Competition Models," Marketing Science, INFORMS, vol. 28(4), pages 759-781, 07-08.
    9. Johansen, Bjørn Olav, 2012. "Private Labels, Rent Shifting And Consumer Welfare," Working Papers in Economics 02/12, University of Bergen, Department of Economics.
    10. Georgios TSEKOUROPOULOS & Dimitrios THEOCHARIS & Christos SARMANIOTIS, 2019. "Consumer Behaviour and Factors Affecting the Selection of Green Private Label Products in Greek Retail Market," International Conference on Economic Sciences and Business Administration, Spiru Haret University, vol. 5(1), pages 204-213, November.
    11. ter Braak, Anne & Deleersnyder, Barbara & Geyskens, Inge & Dekimpe, Marnik G., 2013. "Does private-label production by national-brand manufacturers create discounter goodwill?," International Journal of Research in Marketing, Elsevier, vol. 30(4), pages 343-357.
    12. Wu, Lifang & Yang, Wei & Wu, Jessica, 2021. "Private label management: A literature review," Journal of Business Research, Elsevier, vol. 125(C), pages 368-384.
    13. Pritha Ghosh & Subrata Saha & Shamindra Nath Sanyal & Swati Mukherjee, 2021. "Positioning of private label brands of men’s apparel against national brands," Journal of Marketing Analytics, Palgrave Macmillan, vol. 9(3), pages 210-227, September.
    14. Anders, Sven M. & Ahmad, Waseem, 2011. "Private Label and National Brand Pricing and Promotional Strategies in Health Differentiated Product Categories: Canadian Evidence," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114223, European Association of Agricultural Economists.
    15. Fabio Caldieraro, 2016. "The Role of Brand Image and Product Characteristics on Firms’ Entry and OEM Decisions," Management Science, INFORMS, vol. 62(11), pages 3327-3350, November.
    16. Hara, Reiya & Matsubayashi, Nobuo, 2017. "Premium store brand: Product development collaboration between retailers and national brand manufacturers," International Journal of Production Economics, Elsevier, vol. 185(C), pages 128-138.
    17. Jin, Yannan & Wu, Xiaole & Hu, Qiying, 2017. "Interaction between channel strategy and store brand decisions," European Journal of Operational Research, Elsevier, vol. 256(3), pages 911-923.
    18. Xiao, Yujie & Niu, Wenju & Zhang, Lianmin & Xue, Weili, 2023. "Store brand introduction in a dual-channel supply chain: The roles of quality differentiation and power structure," Omega, Elsevier, vol. 116(C).
    19. Groznik, Ana & Heese, H. Sebastian, 2010. "Supply chain interactions due to store-brand introductions: The impact of retail competition," European Journal of Operational Research, Elsevier, vol. 203(3), pages 575-582, June.

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