Sustainable Decision Making for Store Brand Product

Abstract

We investigate a multi-brands sustainable channel coordination problem where a national brand manufacturer sells a product through two local retailers competing against their own store brand product, respectively. We shows how the retailers strategically optimize the price and quality of private brands given the customer tastes and the production costs of the store brands in order to make their store brands sustainable. We identify two underlying strategic forces; a competitive force, and a quality force. First, we find that retailers have an incentive to position their store brand far away from the national brand in order to maximize monopolistic power. This strategic force attenuate the incentives for customer to switch to other retailer’s store brands. One the other hand, we show that the retailers prefer increasing the store brand’s quality to get more profit margin when the production cost is relatively high as well.

Is it rational for a large-retailer to sell an own-brand product similar to the branded product of a large manufacturer? A Vertical Product Differentiation Model

“…According to our knowledge, two papers have been published in the last three years based on a product differentiation framework: Chakraborty (2018) and Choi et al (2018). Chakraborty developed quantitative research to understand under what conditions the retailer acts as either a firm rival or a customer of a national brand.…”

“…He argues that when premium brand prices go up, retailer owned brands appear to offer better value. Choi et al (2018) constructed a multi-brand model under the assumption that there are two retailers competing through their own brands, which also sell a common national brand. This result found using theoretical model is that the retailer chooses the quality of its own brand products above the national brand when they interact on the shelves.…”