Aggressive or partnership strategy: Which choice is better for the national brand?

Following the increasing popularity of private brands, national brands׳ manufacturers are using many strategies either to counter the threat of these brands or to collaborate with retailers. We investigate the benefit of using national brand׳s advertising (the aggressive strategy) that hurts the private label׳s demand over using national brand׳s revenue sharing (the partnership strategy) that fosters collaboration between the retailer and the national brand׳s manufacturer. We compare each strategy to the benchmark case where none of these strategies is used and where both brands (national and private brands) are offered through a unique retailer. We find that when the national brand׳s revenue sharing is implemented, the manufacturer and the whole chain are gaining compared to the benchmark case but the retailer is always losing. Thus, a profit sharing mechanism is needed to split the increased profit and achieve a Pareto result for all channel members. Furthermore, although the strategy of national brand׳s advertising is always beneficial to the manufacturer, it is not beneficial to the whole channel when the private label has low differentiation. Finally, the retailer could benefit from national brand׳s advertising depending on the private label׳s concept and other factors.