Channel power shift and store brand introduction

The extant literature identifies the category characteristics that make a product category more suitable for introducing a store brand. However, it does not address the retailer characteristics that prompt a retailer to introduce a store brand. We investigate how the relative bargaining power of members within a distribution channel affects a retailer’s decision to introduce a store brand, motivated by anecdotal evidences. We develop a game theoretical model and show that as the retailer becomes more powerful compared to the manufacturer, the store brand becomes less appealing to the retailer. Additionally, as the retailer gains more power, the quality threshold for introducing the store brand becomes higher. Furthermore, as the power shifts from the manufacturer to the retailer in the distribution channel, the store brand’s market share and its value to the retailer decrease. We conduct an empirical analysis using six-year panel data on 31 product categories sold by 107 retailers to test the key predictions of the analytical model. The empirical results confirm our study’s analytical predictions.