Private Label Vendor Selection in a Supply Chain: Quality and Clientele Effects

We model a supply chain consisting of a national brand manufacturer and an independent manufacturer, both of whom are potential suppliers of store brand to a single retailer. The retailer serves two customer segments—a quality sensitive segment (high type) and a price sensitive (low type) segment. The retailer serves these two segments by targeting the national and store brands to the quality and price sensitive segments, respectively. When the national brand manufacturer supplies the store brand he internalizes the effect of store brand quality on the national brand's retail prices. This leads the national brand manufacturer to choose a lower store brand quality than the independent manufacturer. This decrease in store brand quality has the benefit of increased revenues from the high type customers along with an associated cost of decreased revenues from the low type customers. Thus, when the benefit outweighs the cost the retailer chooses the national brand manufacturer to supply the store brand. We show that the retailer will choose the national brand manufacturer to supply the store brand when (a) the size of the high type customer segment is large relative to the low type customer segment, (b) the valuations of the high type customer segment is large relative to the low type customer segment, and (c) the retailer's margin requirement on the store brand is not very high. Overall, these results suggest that retailers who serve a bigger sized quality (price) sensitive clientele would have the national brand (independent) manufacturer supply the store brand.     

How does the added new online channel impact the supporting advertising expenditure?

This research addresses the strategic effect of a newly added online channel on a manufacturer’s supportive advertising expenditure once a manufacturer opts to open an online channel to compete with its retailer. We first study the manufacturer–traditional retailer supply chain and consider three different scenarios: (1) product is less compatible with the online channel than with the traditional channel; (2) product is more compatible with the online channel than with the traditional channel; (3) product has the same compatibility with the online channel as with the traditional channel. Our results show that the added online channel significantly impacts the manufacturer’s investment in supportive advertising. Depending on the different product categories, the impact of the newly added online channel on the supportive advertising expenditure also will be different. Furthermore, we extend our model to study the manufacturer–online retailer supply chain and investigate the effect of that added online channel on the manufacturer’s supportive advertising to the online retailer. Based on our results, the manufacturer can utilize our findings to improve its decision-making when it plans to open an online channel to improve its product distribution.     

Money-back guarantee and pricing decision with retailer's store brand

This paper investigates the money-back guarantee (MBG) choice problem in the presence of store brand introduction in a two-echelon supply chain consisted of one manufacturer and one retailer. Game-theoretic models with different MBG policies regarding the national brand and the store brand are examined. We found that the MBG policy could be a strategic tool to help the retailer developing its store brand even when a fairer policy is chosen by the retailer and the store brand is considered by consumers as a low-end substitute for the national brand. The presence of MBG is beneficial to the retailer while unfavorable to the manufacturer, even though the retailer provides a fairer MBG policy, i.e., MBG for both two brands. Although the national brand has advantages over the store brand, MBG will increase the competition and cause customer shifting from the national brand to store brand and thus bring a profit loss for the manufacturer. Moreover, we have found that the manufacturer could provide coordinate contracts for the retailer to improve its performance with which a win-win outcome could be reached for both the manufacturer and the retailer.     

Information asymmetry, pricing strategy and firm's performance in the retailer- multi-channel manufacturer supply chain

In this research paper, we assume a retailer-multi-channel manufacturer (with online and traditional retail channels) supply chain where both the multi-channel manufacturer and the retailer have private information about the state of consumer demand. In this setting, we examine the effect of an information sharing strategy on both firms' performance. Our results show that the multi-channel manufacturer always benefits from an information sharing strategy. When the product is highly compatible with the online channel, information sharing becomes much more valuable to the multi-channel manufacturer. On the other hand, the retailer's performance is not impacted by an information sharing strategy. Thus, a bargaining model is utilized to implement profit sharing for the multi-channel manufacturer and retailer so that an information sharing equilibrium can be reached. Based on our results, we derive optimal market strategies and identify probable paths of future research.     

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     

Do channel members value the multiple-cooperation strategy?

When the manufacturer distributes his products through online and traditional channels, what type of innovative marketing strategy can be utilized to solve the channel conflict and improve the performances of all channel members? Our research addresses this important question by initiating a triple cooperative strategy for channel members to employ in a manufacturer – retailer dual-channel supply chain. Our results show that when the product is less compatible with online channel than with traditional channel, channel members can utilize a triple cooperative strategy to improve channel coordination and their individual performances effectively and efficiently. First, the manufacturer can utilize supportive retail sales effort as a valuable coordination mechanism to improve the performances of all channel members in the dual-channel distribution. Second, a channel coordinative price strategy can be utilized to further improve the performance of whole channel. Finally, a profit sharing mechanism is needed to create a Pareto result for both the manufacturer and the retailer. Furthermore, we extend our model to study the value of triple cooperative strategy in a manufacturer – two competitive retailers supply chain and derive the optimum marketing strategy.     

An evolutionary game theoretic model for analyzing retailers’ behavior when introducing economy and premium private labels

The significant growth of Private Labels (PLs) has led to a growing competition between National Brand (NB) manufacturers, on the one hand, and retailers, on the other; while manufacturers strive to achieve enhanced customer loyalty through such measures as innovation and advertising, retailers focus their efforts on offering high-quality products. This paper considers for the first time a supply chain consisting of one NB manufacturer and a population of retailers under two scenarios. In the first, each retailer sells NB and chooses either to introduce an Economy Private Label (EPL) or not. In the second scenario, each retailer chooses either to introduce a Premium Private Label (PPL) or not. To solve the problem, an evolutionary game is introduced and the retailers’ behavior is analyzed. Using two numerical examples, parametric analysis and managerial insights are also provided. It is found that the entire population chooses the strategy of introducing a private label (EPL or PPL) and that this strategy yields greater profits for both the manufacturer and the retailers than other strategy profiles might do. In addition, it is shown that both the retailers and the manufacturer gain more profits by introducing a PPL rather than an EPL.     

Interplays between manufacturer advertising and retailer store brand introduction: Agency vs. wholesale contracts

In retail supply chains, manufacturers' advertising for national brands and retailers' store brand introduction may relate to each other, and two types of contracts, i.e., agency contract and wholesale contract, are widely used. This paper uses game-theoretic models to investigate the strategic interaction between a manufacturer's advertising strategy and a retailer's store brand introduction strategy. We derive the equilibrium outcomes, including wholesale price, retail price, market demand, retailer's and manufacturer's profits under different contract forms. We find that when the product cost is small relative to the perceived value of the store brand, the introduction of a store brand will benefit the retailer. The retailer is more likely to introduce store brands under the wholesale contract than under the agency contract. In addition, compared with the wholesale contract, the agency contract may increase both the manufacturer's and the retailer's profits and lead to Pareto improvement for them.     

How a novel option contract helps a green product to enter a traditional product's retailing channel: A mathematical modeling approach

Multi-sourcing is a practical strategy in retail channels that allows retailers facing uncertainties to respond more effectively to consumers' needs by distributing market demand across multiple supply sources. In this respect, this research investigates a price-setting retailing channel, including two manufacturers (a traditional manufacturer and a green manufacturer) and one retailer where end-of-life products can be collected. The retailer faces an uncertain price-dependent demand and sets orders from both supply directions based on a low-cost ordering approach. The primary purpose of this study is to develop an optimal solution to allow the green product to enter the retailing channel of the non-green product. Accordingly, this research develops and compares two different contractual mechanisms from the standpoint of the green manufacturer/retailer and the supply chain (SC): (1) a penalty-based contract and (2) a modified call option contract mixed with a cost-sharing mechanism. The main contribution of the current paper is to investigate an option contract for the effective management of a closed-loop supply chain and combine it with a cost-sharing contract as a new approach. Another contribution is that the developed model considers two practical channels for collecting and returning obsolete products to the green manufacturer: (1) the retailer is responsible for collecting and returning obsolete products, and (2) collecting and returning obsolete products is outsourced to a third-party logistics provider (3PL). Eventually, the models' efficiency is verified by investigating different numerical experiments, discovering that the proposed reservation-based contract outperforms the penalty-based contract for both parties' profitability and retailing channel's improvement. Besides, the present study finds that hiring 3PL significantly increases the green manufacturer's profit compared to other scenarios.     

Interacting with strategic waiting for store brand: Online selling format selection

This paper studies the interaction of online selling format selection with store brand introduction following national brand in the presence of strategic consumers. We find that platform under reselling format prefers the high pricing strategy for national brand while the manufacturer under agency selling format prefers the low pricing strategy. Moreover, highly strategic consumers discourage the platform from introducing the store brand and manufacturer from being the end-seller of national brand. Specifically, when consumers are less strategic, the platform tends to introduce a store brand with similar quality to national brand under reselling format, and a store brand with different quality to national brand under agency selling format. The manufacturer prefers agency selling format when consumers are less strategic; otherwise, reselling format is preferred. The platform and manufacturer can achieve a “win-win” result under agency selling with store brand when consumers are less strategic. However, the reselling format enables the manufacturer to deter the platform from introducing the store brand if the platform raises the accessing fee. We further extend to consider a store brand with quality better than the national brand and show above results remain valid.     

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.     

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.     

Allocating a hybrid retailer's assortment across retail stores: Bricks-and-mortar vs online

This paper develops an IP model to determine item allocation for a hybrid retailer's store network, comprising bricks-and-mortar and online stores. Products with low carrying costs are distributed between the bricks-and-mortar stores and the online store. Products with high carrying costs can be withdrawn from the bricks-and-mortar stores and made available exclusively at the online store where the inventory carrying costs are comparatively lower. This strategy assists the hybrid retailer to not only improve the profitability of its bricks- and-mortar stores but also to retain the custom of the market segment that is loyal to the items withdrawn from the traditional stores. In this framework, the online channel complements rather than competes with traditional channels. This model is used to conduct an extensive simulation study to analyze the impact of important business factors on system profitability.     

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.     

零售商亏损诱饵策略及其竞争效应

在同一店铺中,零售商经营的所有商品之间形成了互补性的需求关系,这为零售商实施亏损诱饵策略创造了条件。零售商实施亏损诱饵策略不仅可以实现利润最大化,还可以获取竞争优势。从长期来看,亏损诱饵策略可能对零售商和制造商都具有反竞争效应。对反托拉斯当局来讲,严格区分亏损诱饵和高弹性商品、知名品牌以及销售速度较快产品的正常价格是必要的。     

Pure Components versus Pure Bundling in a Marketing Channel

This paper examines how channel interactions influence product bundling decisions by channel members. Specifically, what products or bundles should be offered, at what prices, and by which channel members, in equilibrium. To answer this, we analyze Stackelberg games between a manufacturer and retailer, with pricing and bundling as decision variables, under discrete and uniform continuous distributions of reservation prices. We find that selling pure components by both manufacturer and retailer is the equilibrium except in a narrow region of the parameter space. However, if the manufacturer can sell bundles and prevent unbundling, then such a bundling strategy is optimal in many cases. Interestingly, the channel and retailer also benefit from this strategy.     

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.     

Private label line proliferation and private label tier pricing: A new dimension of competition between private labels and national brands

In this study, we explore the impact of private label (PL) proliferation and pricing on consumer demand and derive profit implications for different scenarios: (i) dropping or adding a line (kids, health or muesli) within a PL tier and (ii) changing the PL tier prices. We use a representative household panel dataset (2008–2009) for the ready to eat (RTE) cereal category of two leading U.K. grocery retailers. Our results indicate line extension/delisting within the standard and premium PL tiers cannibalize each other and also steal business from NBs for the kids, healthy and muesli lines. Overall, premium PLs seem a profit generator tier that allows some room for further brand variant introductions within this tier. However, the retailer is better off, in terms of profits, if the proliferation within the economy PL tier is downgraded. Furthermore, both the retailer and NB manufacturers gain from an economy, standard and premium PL price increase, as it leads to a demand shift to NBs accompanied by a profit lift for the retailer.     

Win–win strategies at discount stores

An important development that contributes to store brands’ growing success in the grocery market is the increasing number of discount stores that sell predominantly own, private-label (PL) brands. To fight PLs, manufacturers of national brands (NB) feel increasingly compelled to develop better trade relations with discounters. Some discounters, for their part, are looking for opportunities to differentiate themselves, and to move beyond a pure price-based competition, by extending their assortment with attractive NBs. In this study, we determine what factors drive NB success at discount stores, and lead to positive outcomes for both the manufacturer and the discounter.     

Can a weak retailer benefit from manufacturer-dominant retailer alliance?

The paper provides a framework to help the weak retailer delineate the circumstances that allow him to benefit from an alliance between the dominant retailer and the common manufacturer. We use a game-theoretic model to determine the optimal pricing and service strategies when channel members act independently then when the dominant retailer forms an alliance with the manufacturer. We find that: (i) the alliance is formed only if the market is not strongly competitive in terms of price, (ii) differentiation in terms of price and service is beneficial to all channel members under alliance, (iii) an interaction between spillover and service effects plays a crucial role to make the weak retailer gain or lose from the alliance.