On manufacturers complementing the traditional retail channel with a direct online channel

With the explosion of the Internet and the reach that it affords, many manufacturers have complemented their existing retail channels with an online channel, which allows them to sell directly to their consumers. Interestingly, there is a significant variation within product categories in manufacturer's use of the Internet as a direct distribution channel. The main objective of this study is to examine the strategic forces that may influence the manufacturer's decision to complement the retail channel with a direct online channel. In particular, we are interested in answering the following questions:

1. Why is it that in some markets only a few firms find it optimal to complement their retail channels with a direct Internet channel while other firms do not?
2. What strategic role (if any), does the direct Internet channel serve and how do market characteristics impact this role?

To address these issues we develop a model with a single strategic manufacturer serving a market through a single strategic retailer. In addition to the focal manufacturer's product the retailer carries products of competing manufacturers. Consumers in this market are one of two types. They are either brand loyal or store loyal. The retailer sets the retail price and the level of retail support, which impact the demand for the manufacturer's product. The retailer's decisions in turn depend on the wholesale price as well as the Internet price of the product if the manufacturer decides to complement the retail channel with an online channel. Our analysis reveals that the optimality of complementing the retail channel with an online channel and the role served by the latter depends critically upon the level of support that the retailer allocates to the manufacturer's product in the absence of the online channel. The level of support allocated by the retailer, in the absence of the online channel, depends upon the retail margins on the manufacturer's product relative to that on rival products in the product category. When the size of the brand loyal segment is small relative to the size of the store loyal segment then in the absence of the online channel, the manufacturer can lower wholesale price and enhance retail support, especially when the retail margins on the rival products are low. In contrast, when the size of the loyal segment is large and the retail margins on rival products are high the manufacturer will find it more profitable to charge a high wholesale price even if that induces the retailer to extend low levels of support. If the manufacturer decides to complement the retail channel with an online channel, some consumers who would have purchased from the retailer might prefer to purchase online. Our analysis reveals that when consumers' sensitivity to price differences across the competing channels exceeds a certain threshold it is not optimal for the manufacturer to complement the retail channel with an online channel. However, this price sensitivity threshold itself depends upon product/market characteristics, suggesting that manufacturers seeking to complement their retail channels with an online channel should look beyond the nature of threat the online channel poses to the retail channel in devising their optimal distribution strategies. When the retail margins on rival products are sufficiently small, complementing the retail channel with an online channel when optimal allows the manufacturer to price discriminate and enhance profits. In contrast when retail margins on rival products are sufficiently high, complementing the retail channel with an online channel serves to enhance retail support. We also identify market conditions under which profits of both the manufacturer and the retailer are greater with the online channel than that without it. This is particularly interesting since the online channel competes with the retail channel.     

Optimal generic and brand advertising efforts in a decentralized supply chain considering customer surplus

While the previous researches of advertising efforts decisions focus on only the firms' profit target, no literature introduces corporation social responsibility target into advertising efforts decisions of a supply chain (SC). To fill this gap, we consider a two-stage SC with a manufacturer and a retailer where the SC members consider the customer surplus. Both the retailer and the manufacturer can invest in generic advertising efforts to influence and increase the products' sales volumes. This paper investigates the following four scenarios: (1) The retailer cares the customer surplus (Model I); (2) The manufacturer cares the customer surplus (Model II); (3) Both the retailer and the manufacturer care the customer surplus (Model III); (4) We then extend the model III to the case that the manufacturer invests in both the generic and brand advertising efforts (Model IV). The objective of this paper is to determine the optimal retail price, the optimal advertising efforts, and the optimal profits of SC members, and find the influence of customer concern level on the SC performance. Finally, numerical examples are conducted to investigate the influence of the customer concern levels of the retailer or the manufacturer on the profits of the SC members and the entire SC. We also study the joint impacts of the customer concern levels of the retailer and the manufacturer on the SC performance. We find that the SC obtains the highest profits when the retailer's customer concern level and the manufacturer's customer concern level are relatively high, and the best cooperative strategy for the retailer and the manufacturer is that they improve customer concern level simultaneously.     

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

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. JEL Classification: M310     

Brand and quality effects on introduction of store brand products

This paper considers a supply chain with a single manufacturer selling a national brand product via a single retailer. The retailer has the option to introduce a product under his own brand into the market with the same functionality as the national brand product. We simultaneously consider the consumer bases of the national brand and store brand along with consumers' willingness to pay for quality and the supply chain control (centralized vs. decentralized). By analyzing the game-theoretic models, we offer managerial insights about the influences of brands' consumer bases on the quality and pricing decisions of the retailer, and on the manufacturer's willingness-to-collaborate when the retailer introduces the store brand product. We find that, although it is usually easier for the retailer to introduce a product under a store brand with a large consumer base, doing so with manufacturers of well established national brands can be difficult, when the retailer often has to greatly mark down his store brand product's quality and price. We also find that a store brand product with a small consumer base shall be launched only when the supply chain is switched to a centralized control and when the manufacturer's national brand has a large consumer base. These important findings offer guidance to both national brand manufacturers and retail store managers regarding the launch of store brand products.     

Pricing coordination of a dual-channel supply chain considering offline in-sale service

With the rapid development of e-commerce, the problem of pricing conflicts between online and offline channels has become increasingly prominent. And the in-sale service has become an important factor influencing consumers' purchase decisions. To study the impact of in-sale service, this paper establishes a dual-channel supply chain model considering offline in-sale service. Using Stackelberg's game theory and backward induction, it solves the optimal pricing of supply chain members and makes comparisons in both cooperative and non-cooperative situations. Finally, it coordinates the supply chain through a two-part tariff contract. The results show that (1) The optimal wholesale price and offline retail price are positively correlated with in-sale service quality. And the opposite of the optimal online direct selling price. (2) With the quality of in-sale service improving, the retailer's profit will increase and then decrease but the manufacturer's profit will always decrease under non-cooperation. The total profit of the supply chain will rise and then fall under cooperation. (3) The two-part tariff coordination maximizes profits with the manufacturer reducing the wholesale price and the retailer paying a transfer cost. (4) Cooperative decision is better than the non-cooperative decision in terms of the supply chain as a whole.     

The effects of store brand loyalty on store loyalty: evidence from the Spanish market

This article studies the impact of retailers' store brands on store performance. Specifically, we analyze the extent to which store brands contribute to store loyalty. On the one hand, a positive relationship between customers' familiarity with and loyalty to the retailer's own brand and customers' loyalty to the retailer should result from the potential of the store brand to differentiate the retailer. On the other hand, an negative relationship between customers' familiarity with and loyalty to the retailer's own brand and customers' loyalty to the retailer may result from store brands' association with more price-sensitive customers, who have a higher propensity to buy at different stores that offer the best bargain. The empirical analysis, conducted with a sample of customers of leading retailers in the Spanish detergent market, shows no relationship between store brand loyalty and loyalty to the retailer. Although the purchase of store brands relates positively to higher loyalty to the retailer, this relationship deteriorates with the degree of exclusivity of store brands within the customer's shopping basket.     

Retailers’ Price Positioning and the Motivational Profiling of Store‐Brand Shoppers: The Case of Spain

In recent years, retailers have worked to advance store‐brand strategies, leading to greater success and higher congruence with the retailer's positioning. In this new competitive context, this research aims to characterize store‐brand shoppers in terms of motivation and benefits sought, as well as analyze, on the basis of congruence theory, the moderating role of a retailer's price positioning on store‐brand shopper characterizations. The empirical study combines survey and household panel information related to leading retailers in Spain; the findings reveal that store‐brand shoppers are motivated by their price sensitivity, whereas they are less sensitive to service quality and name brands. However, the retailer's price positioning exerts a moderating effect on shopper profiles: In less price‐oriented retail chains, store‐brand purchases seem motivated less by price and more by quality, brand awareness, and brand reputation.     

Online channel strategies under different offline channel power structures

This study explores the manufacturer's marketing and pricing strategies for online channel under different offline channel power structures. Through these strategies, the manufacturer sells products through an offline retailer and an e-tailer. The manufacturer decides the cooperation mode with the e-tailer by the reselling or the agency selling mode and the pricing strategy on the basis of the power structures, i.e., vertical Nash structure (VN), manufacturer Stackelberg structure (MS), and retailer Stackelberg structure (RS). We find the manufacturer selects the online agency selling mode when the commission rate is less than the given threshold. As long as the commission rate is more than another threshold, the manufacturer selects the online reselling mode under the VN structure; however, the manufacturer selects the online agency selling mode under the other two structures. As well, the offline wholesale price is higher under the MS structure than those under the VN and RS structures. When the manufacturer selects the online agency selling mode, the offline retail price is highest under the MS structure, and the online retail price is highest under the VN structure. Meanwhile, consumers can always obtain a higher surplus in the online agency selling mode under all offline power structures.     

Retail services and firm profit in a dual-channel market

With the rapid development of the Internet, many manufacturers nowadays use online technology to engage in direct sales. The mix of retailing with a direct channel adds a new dimension of competition and complementarity to a product's distribution channels. Our model focuses on the strategic role played by the retail services in a dual-channel competitive market. The manufacturer uses a direct channel as an effective tool to motivate the retailer to improve its retail services and profits from it. While operated by the manufacturer to motivate retailer to perform more effectively from the manufacturer's perspective, the direct channel may not always be detrimental to the retailer because the retailer can obtain a lower wholesale price from the manufacturer and a higher sales volume from the improved retail services. In our research, our results suggest that the improved retail services effectively alleviate the channel competition and conflict and improve the supply chain performance in a competitive market.     

How category characteristics affect the number of store brands offered by the retailer: a model and empirical analysis

Our research examines why retailers offer, not one, but multiple store brands in some product categories. More specifically, we are interested in how certain product category characteristics affect the number of store brands. We model a product category consisting of two incumbent national brands that may differ in strength. The retailer may introduce one or two store brands depending on which maximizes category profits. Our analysis suggests that the retailer is likely to carry two store brands in categories where (i) the national brands are similar in strength; and (ii) the price sensitivity between the national brands is low. Interestingly, the conditions that support the introduction of more than one store brand are quite different than the conditions that would facilitate the introduction of additional national brands. We provide empirical evidence that support our model-based predictions.     

Strategic Role of Retailer Bundling in a Distribution Channel

We study retailer bundling in a distribution channel when the manufacturer for one bundled product can strategically set the wholesale price. We show that the retailer can use a bundling option as a strategic leverage to extract concessions from the manufacturer in form of a lower wholesale price. This finding contributes a novel rationale for retailer bundling to the bundling literature. Whenever the bundling option causes this concession-extraction effect, the retailer always benefits from the lower wholesale price. The manufacturer, nevertheless, does not necessarily suffer because bundling can lead to a higher consumer demand. We also show that the manufacturer's marginal production cost plays a critical role in driving the retailer's bundling decision, concession extraction behavior and consequently the total channel profit.     

Store Brand Quality and Retailer’s Product Line Design

This study analyzes a retailer’s store brand quality decision in vertically differentiated product categories. We analyze a game theoretic model composed of one or two national brand manufacturers and a retailer, who strategically chooses the quality level(s) of its store brand(s) relative to the well-established national brand position(s) to maximize its category profit. Our analysis reveals that the nature of a retailer’s store brand quality positioning is quite different from the manufacturer’s national brand positioning decision, and that the best position for a store brand is not “as close to a national brand as possible” as previous studies suggest. Instead, the optimal quality position of each store brand is remarkably sensitive to the distribution of consumers’ willingness-to-pay. In particular, the relative proportions of quality sensitive consumers and price sensitive consumers determine the balance of three key strategic forces — the market expansion force, the retail margin force, and the consumer profitability force, leading to different optimal product line designs for store brands across different category environments. Interestingly, against multiple incumbent national brands, the retailer’s optimal product line design includes a store brand positioned at the highest quality level in the category only if most consumers are moderately quality conscious. We also analyze the implications of national brands’ brand equity for retailers’ store brand strategy.     

Effect of Store Brand Introduction on Channel Price Leadership: An Empirical Investigation

In this study, we conduct an empirical investigation of the impact of store brand introductions on the price leadership relations in a distribution channel between a retailer and national brand manufacturers. We analyze a multi-product category retail database from a major grocery chain, which captures both a period before and a period after the introduction of a store brand in each product category. By applying the time series approach to this data set, we show that store brand introductions frequently lead to price leadership changes, generally in a more favorable direction for the retailer than for the national brand manufacturer, evidenced by either the decay of the manufacturers’ price leadership or the rise of the retailer’s price leadership. However, such a change is not universal but tends to be concentrated among a certain quality tier of national brands, which is not always the low-tier, but sometimes the top-tier despite the low-price low-quality position of the store brand. The patterns detected in the data suggest that these changes are likely to reflect the retailer’s strategic effort to reshape the price leadership environment in a product category aided by the enhanced bargaining power and managerial sophistication that accompanied the store brand introductions.     

The Retailer's Perspective on the Link Between Logistical Resources and Perceived Customer Loyalty to Manufacturer Brands

The objective of this study was to investigate the relationships between logistics and brand‐related resources, and assess their impact on the retailer's perceptions of customer loyalty to manufacturer brands. On the basis of theoretical underpinnings of the resource‐based view, this study explores the relationships among four main variables: (1) variety of collaborative logistics technologies shared between retailers and manufacturers, (2) manufacturer's logistics operations quality provided to retailers, (3) retailer's brand differentiation orientation, and (4) retailer's perceptions of customers loyalty to manufacturer brands. An online survey was conducted on 313 senior marketing and supply chain managers from retailer firms. The results of the structural equation analysis support a mediated relationship between logistical resources and perceived loyalty to manufacturer brands. The retailers believe that shared logistics technologies enable manufacturers and retailers to offer higher levels of availability and visibility of preferred brands to their end‐user customers. In turn, the end‐users become more confident with their decisions to repurchase the same brand offerings.     

Integrative effects of firms' price and endorsement strategies on consumers' loyalty intention

This research examines the effects of price and brand endorsement that are adopted by firms from a consumer-based viewpoint, and provides practical brand management discussions as a reference for both manufacturer brands and retail store brands. According to the findings, manufacturer brands support high prices and boost those vivid impressions which are helpful in engendering consumer loyalty intention. Without a careful evaluation process, a brand-endorsing strategy may prove detrimental to the manufacturer. Retail store brands follow distinct pricing policies and carry out brand-endorsed strategies. Price/endorsement stimuli influence consumer brand loyalty through the partial mediating effect of brand impression. Manufacturers and retailers could define appropriate price premiums on products with a potential for a manufacturer–retailer brand co-branding as identified by market research, thus increasing the sales of both.     

Decomposing the effect of advertising: What happens in the retail channel?

The diverging interests of manufacturers and retailers famously give rise to the double marginalization problem but have consequences far beyond pricing. Advertising is another marketing instrument that is under the control of the manufacturer but its ultimate effect on consumer demand also depends on retailers’ pricing decisions. We decompose the effect of advertising in the channel and highlight an additional route through which advertising affects sales, namely via the changes in the retail price that a strategic retailer makes in response to changes in demand following manufacturer advertising. The total demand effect of advertising thus comprises the direct effects of advertising on market shares, and the indirect effects coming through adjustments that the retailer makes to the in-store prices of all the brands in a given product category in response to the shifted demand due to advertising. We match advertising data for four different categories (both food and non-food) to store-level scanner panel data, which also include information on wholesale prices. Controlling for wholesale prices, we establish in a reduced-form model that the retailer reacts to manufacturer advertising by changing retail prices instead of simply imposing a constant markup on the wholesale price. To further explore the role of the strategic response of the retailer in a systematic fashion and quantify the effects derived in the decomposition, we estimate a discrete-choice model of demand and determine the magnitude of the direct and indirect effects. We find that the indirect effect of advertising through retailer prices is about half the size of the direct effect, and thus substantively affects advertising effectiveness.     

An integrated retailer image and brand equity framework: Re-examining,extending, and restructuring retailer brand equity

Retailers are amongst the world's strongest brands, but little is known about retailer brand equity. In spite of their extensive use, we argue that current operational models are too abstract for understanding the uniqueness of the retail industry and too simplistic to understand the interrelationships among the dimensions in the retailer brand equity building process. This study contributes to the existing and largely generic retailer equity frameworks in three ways: first, by incorporating retail specific dimensions from the retailer image literature; second, by re-examining and developing the structures and relationships between the dimensions of retailer equity by testing alternative structures commonly used in the more general brand equity literature; and finally by creating a short and parsimonious scale for assessing retailer brandequity in different contexts. Three alternative models are compared and tested on six brands in both convenience and shopping goods categories, ranging from discount to middle range price levels. The outcome is an operational framework supporting the main building blocks of the conceptual brand resonance model presented in Keller (2001) with seven dimensions structured in a four-step sequence as awareness → pricing policy, customer service, product quality, physical store → retailer trust → retailer loyalty, thereby describing retailer brand equity as a four-step process. The extended, although parsimonious, 17-item retailer equity scale can be used by academics as well as practitioners to examine the underlying values of retailer brands and has the potential to incorporate additional dimensions and attributes to investigate specific retail contexts without creating lengthy questionnaires.     

The fight between store brands and national brands—What's the score?

In the Western world market shares for store brands have increased across all product categories. The competitive position of store brands compared to national brands may depend on the product category and a retail chain's overall brand assortment strategy. In order to investigate these possible chain and category effects we have selected five chains with different store brand strategies and three product categories that differ with respect to the number of strong national brands in a category. The results we report focus on the competitive position of store brands compared to national brands from a consumer point of view. We find that store brands are in a weak competitive position compared to national brands independent of category and retail chain brand assortment strategy.     

How retailer and competitor decisions drive the long-term effectiveness of manufacturer promotions for fast moving consumer goods

While both retailer and competitor decisions contribute to long-term promotional effectiveness, their separate impact has yet to be evaluated. For 75 brands in 25 categories, the author finds that the long-term retailer pass-through of promotions is 65 percent, yielding a long-run wholesale promotional elasticity of 1.78 before competitive response. However, competitors partially match the wholesale price reduction by 15 percent, which decreases promotional elasticity by 10 percent. The range of retailer and competitor response across the analyzed cases is very wide, and is affected by category and brand characteristics. As to the former, large categories yield stronger retailer response, while concentrated categories yield stronger competitor response. As to the latter, smaller brands face a fourfold disadvantage compared to leading brands: they obtain lower retail pass-through, lower retail support, and lower benefits from competing brand's promotions, while their promotions generate higher benefits to competitors. Interestingly, the mid-1990s move from off-invoice allowances towards scan-back deals only partially improves their promotional effectiveness compared to that of leading brands.     

The Impacts of Retail Promotions on the Demand for Orange Juice: A Study of a Retail Chain

This study examined the impacts of retail promotions on the demand for five brands of orange juices for a retail chain (referred to as Retailer X) and its competitors using the Rotterdam model. Results show that the combination of feature ads and displays had the largest impacts on retail revenue among the four promotional tactics considered, whereas temporary price reductions had no advertising impacts on retail revenue. Results also show that when Retailer X promotes an orange juice (OJ) brand using any of the tactics, a larger portion of the increased demand for the promoted brand comes from reduced demand for other brands of OJ in the same store or chain.A smaller portion comes from the decreased demand in Retailer X's competing stores in the same trading area.