Store-brand introduction and production arrangement in the presence of multiple retailers

Abstract

Store brands play an increasingly important role in retailing business, leading more and more retailers to introduce store brands. Abundant research focuses on competition between store brands and national brands and counterstrategies that national-brand manufacturers can take to counter store-brand introduction. A little research studies the store-brand production issue, however, all under single-retailer scenarios. To approach the real world, we employ game theory to model interaction between a national-brand manufacturer and multiple locally monopolist retailers, one of whom has capability and motivation to introduce a store brand. Five Stackelberg games are build and solved to investigate: how the presence of the non-store-brand retailers affects the store-brand retailer's decision on and profitability in the store-brand introduction; how the store-brand retailer should arrange store-brand production; whether there is a win-win situation where both the store-brand retailer and the national-brand manufacturerare better off with the latter producing the store brand. Accordingly, our study offers a novel rationale for why so many, especially leading, national-brand manufacturers are involved in the store-brand production. Some useful managerial suggestions are proposed on the store-brand introduction and production arrangement. Article published by EDP Sciences c EDP Sciences, ROADEF, SMAI 2020 R. CHENG ET AL.almost exclusively concentrate on producing SBs; the major retailers and wholesalers who operate their own manufacturing plants and provide SBs for their own stores [27]. Empirically, it is shown that NB manufacturers producing their counterpart retailers' SBs is prevalent in the real world. More than half of US NB manufacturers of consumer packaged goods produce SBs as well and provide more than 60% of SBs [18,29]. Then, the question is why NB manufacturers are willing to supply SBs for their retailers, although SBs compete with their own NBs head-to-head, and why the retailer would accept it on the other side. This important question has also been highlighted by Sethuraman and Raju [33] and Sethuraman [32] recently. In the literature, the typical motives for NB manufacturers' involvement in this practice include utilizing excess production capacity [29,38], strengthening bargaining power on NB [3], buffering competition from follower brands [10], and cultivating a better relation with SB retailers [20,39]. In addition, Wang and Wu [40] analytically show that all supply chain members are better off with SB being produced by one of the two competing NB manufacturers, which can mitigate promotional competition between them. When the two competing NB manufacturers are differentiated in product quality, Lewin et al. [19] reveal that the high-quality NB manufacturer supplying the premium SB and the low-quality NB manufacturer supplying the copycat SB can make all game players better off. Bergès and Bouamra-Mechemache [2] show that when the NB manufacturers have production efficiency advantage and excess capacit...

Strategic introduction of private brand in the online retail platform

“…The contemporary market for private brands, also known as store brands, has proliferated markedly in the past two decades [7]. In 2021, private brand products reached a record $199 billion in sales, accounting for 17.7% of total retail sales [35].…”

A stackelberg differential game theoretic approach for analyzing coordination strategies in a supply chain with retailer’s premium store brand

“…Designing supply chain contracts (i.e., Revenue-Sharing, Two-Part Tariff, Profit-Sharing, etc.) for coordination between manufacturers and retailers is a new topic that has attracted the attention of researchers (Cheng et al, 2020 ; Fang et al, 2013 ; Huo, 2021 ; Li et al, 2018 ).…”

Strategic Competition Between Private Labels and National Brands in a Vertically Linked Market

“…Retailers are using three different production arrangements for PL products (Berges-Sennou, 2006), i.e., own the production facility; outsource PL products from local markets (Kumar and Steenkamp, 2007), and NB manufacturers produce PL products for retailers (Al-Monawer et al, 2021;Cheng et al, 2020;Chen et al, 2010). Economic literature shows that introducing PL products affects horizontal and vertical competition (Lessassy and Jolibert, 2020;Xia and Li, 2015;Berges and Mechemache, 2011).…”

“…The previous literature on competition and production arrangement can be classified into two different streams. The first stream of studies assumes both a particular type of production arrangement of PL and a competitive interaction (leader/follower) between PL and NB manufacturer (Cheng et al, 2020;Ru et al, 2015;Meza and Sudhir, 2010;Karray and Herran, 2009;Wu and Wang, 2005). The second stream of the literature assumes a particular type of production arrangement of PL products, but they tested various competitive interactions (Cotterill and Putsis, 2001).…”