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Bridge, Focus, Attack, or Stimulate: Retail Category Management Strategies with a Store Brand

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  • Rex Du
  • Eunkyu Lee
  • Richard Staelin
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    Abstract

    We investigate a monopolist retailer's category management strategy where the main strategic decisions are how to horizontally position a store brand relative to the incumbent national brands and how to price the store and national brands for retail category profit maximization. We analyze a market composed of two consumer segments with differing tastes and heterogeneity with respect to willingness to pay and a product category consisting of two competing national brands and one store brand. We find that contrary to the existing literature, it is not always optimal for a retailer to position its store brand against the leading national brand; instead there are many situations where it is best to position the store brand close to the weaker national brand or to position it in the “middle” so it appeals to both national brands' target segments. In the process we identify four distinct category management strategies that a retailer can use with a store brand. In three of these the optimal store brand price is the brand's monopoly price, while in the remaining one strategy the price is lower. We also suggest an easy to implement means for a retailer to determine which strategy is best to use, depending on the particular competitive environment present before the introduction of the store brand and the relative quality of the store brand. We find that the store brand entry is most beneficial to the retailer when the national brands are moderately differentiated. Finally we show that introducing a store brand not only allows the retailer to garner a higher share of the channel profits through higher retail margins, but also often provides the retailer the benefit of increases in national brand unit sales as well as incremental sales from the store brand. Copyright Springer Science + Business Media, Inc. 2005

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    File URL: http://hdl.handle.net/10.1007/s11129-005-2779-8
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    Bibliographic Info

    Article provided by Springer in its journal Quantitative Marketing and Economics.

    Volume (Year): 3 (2005)
    Issue (Month): 4 (December)
    Pages: 393-418

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    Handle: RePEc:kap:qmktec:v:3:y:2005:i:4:p:393-418

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    Web page: http://www.springerlink.com/link.asp?id=111240

    Related research

    Keywords: store brands; retailing; category management; positioning; channel strategy; game theory; strategic pricing;

    References

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    1. Narasimhan, Chakravarthi & Wilcox, Ronald T, 1998. "Private Labels and the Channel Relationship: A Cross-Category Analysis," The Journal of Business, University of Chicago Press, vol. 71(4), pages 573-600, October.
    2. Timothy W. McGuire & Richard Staelin, 1983. "An Industry Equilibrium Analysis of Downstream Vertical Integration," Marketing Science, INFORMS, INFORMS, vol. 2(2), pages 161-191.
    3. Connor, John M & Peterson, Everett B, 1992. "Market-Structure Determinants of National Brand-Private Label Price Differences of Manufactured Food Products," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 157-71, June.
    4. Jagmohan S. Raju & Raj Sethuraman & Sanjay K. Dhar, 1995. "The Introduction and Performance of Store Brands," Management Science, INFORMS, INFORMS, vol. 41(6), pages 957-978, June.
    5. Preyas S. Desai, 2001. "Quality Segmentation in Spatial Markets: When Does Cannibalization Affect Product Line Design?," Marketing Science, INFORMS, INFORMS, vol. 20(3), pages 265-283, August.
    6. Mark B. Vandenbosch & Charles B. Weinberg, 1995. "Product and Price Competition in a Two-Dimensional Vertical Differentiation Model," Marketing Science, INFORMS, INFORMS, vol. 14(2), pages 224-249.
    7. Mills, David E, 1995. "Why Retailers Sell Private Labels," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 509-28, Fall.
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    Cited by:
    1. Choi, Sungchul & Fredj, Karima, 2013. "Price competition and store competition: Store brands vs. national brand," European Journal of Operational Research, Elsevier, Elsevier, vol. 225(1), pages 166-178.
    2. Raphael Thomadsen, 2007. "Product Positioning and Competition: The Role of Location in the Fast Food Industry," Marketing Science, INFORMS, INFORMS, vol. 26(6), pages 792-804, 11-12.

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