Quality strategy to confront store brand encroachment

A retailer contemplating the introduction of a store brand (SB) may exploit the product quality of a national brand (NB) without bearing cost, potentially hindering the manufacturer’s efforts to promote NB quality. This study delves into the optimal decision of NB quality by the manufacturer to confront the retailer’s SB encroachment and investigates the interplay of SB encroachment and NB quality decision. The findings reveal several key insights: First, with an increase in NB quality or SB recognition, the retailer is motivated to introduce SB. Particularly, when SB recognition is notably high, the retailer positions SB as a strategic threat against the manufacturer rather than an active selling channel. Second, a high quality investment efficiency or SB recognition may dissuade the manufacturer from enhancing NB quality in anticipation of potential SB encroachment, while a low quality investment efficiency or SB recognition may incentivize its improvement. Third, SB encroachment may bring different outcomes for chain members and consumers, mainly caused by the joint influence of quality investment efficiency and SB recognition. Specifically, when quality investment efficiency and SB recognition are low, SB encroachment may result in a mutually beneficial outcome for all chain members and consumers. However, the relatively large quality investment efficiency or SB recognition can yield a lose–lose–lose outcome. Interestingly, SB recognition may have non-monotonic impacts on the profitability of both supply chain members.