The Impact of Private Label Products on Manufacturers’ Innovation

The rise of private label products has become a key concern of national brand manufacturers. Although research suggests that innovation is one way that manufacturers can potentially compete with private labels, it is unclear to what extent the private labels threat results in increased national brand innovation. Threat-rigidity theory predicts that managers behave rigidly and avoid risky actions under threatening environmental changes that are difficult to control. This study argues that private labels pose a control-reducing threat to manufacturers, leading manufacturers to behave rigidly and avoid taking risks. Specifically, this study finds that private labels reduce the innovativeness of manufacturers’ new products by reducing their emphasis on explorative innovation. This effect is stronger when retailers intensify the innovativeness of private label brands. These findings contribute to the private label literature by showing how manufacturers respond to private label products in terms of explorative innovation.