Should leading brand manufacturers supply private label brands to retailers: Calibrating the trade-offs

The consolidation of retailers across markets has considerably altered the competitive dynamics between leading brand manufacturers and retailers. The era in which brand manufacturers dictate the game to compliant retailers is long gone. Nowadays, with more equal negotiation power retailers are no longer just channel partners but rather business partners with whom to build business-to-business relationships. This has become apparent especially since retailers have developed their own private label brands (PLB) and actively seek brand manufacturers to supply them. For brand manufacturers supplying PLB may bring potential benefits but may also harm profits. Thus, this research investigates conditions under which a leading brand manufacturer would be better or worse off in terms of profitability producing PLB for retailers. Using a game theoretic model, we calibrate the trade-offs between the shelf space devoted by the retailer to the manufacturer brand and the amount of profit required from supplying the PLB necessary to counteract cannibalization and to generate profits for the manufacturer, under different levels of uncertainty regarding the availability of alternative suppliers. Calibrating these trade-offs provides brand manufacturers clear guidelines for negotiations with retailers regarding shelf space allocation and wholesale prices to be profitable supplying PLB.     

Manufacturer's retailer dependence: A private branding perspective

With the recent increase in the power of major retailers through consolidations, the world of brands has divided in two categories: national brands belonging to manufacturers and private brands belonging to retailers. While national brands are well studied in the literature, there is a dearth of studies on private brand phenomenon particularly from a manufacturer's point of view as opposed to that of retailers and consumers. To address this gap, we explore the antecedents and consequences of a manufacturer's private brand retailer dependence with a focus on the manufacturer's relationship with retailers. Drawing on the Resource Dependence Theory and Transaction Cost Economics, we examine various products and market characteristics as potential antecedents of a manufacturer's private brand retailer dependence while adopting private brand sales growth and returns from private brand production as outcomes using a sample of 153 South Korean manufacturers currently involved in private brand production. The results show that the private brand retailer dependence of a manufacturer leads to private brand sales growth directly and returns from private brand production indirectly through private brand sales growth, and has a negative effect on return from private brand production directly. Furthermore, product characteristics, such as product innovativeness through collaboration with retailers and search goods, and market characteristics, such as high retailer power and knowledge specificity of a retailer, increase a manufacturer's private brand retailer dependence and, therefore, private brand sales growth. The theoretical and managerial implications of the findings are discussed at the end.     

ASSESSING THE IMPACT OF RETAILER STORE BRAND PRESENCE ON MANUFACTURER BRANDS IN AN EQUILIBRIUM FRAMEWORK*

This article assesses the impact of retailer store brand products on manufacturer brand prices, profitability and consumer welfare in Boston's white fluid milk market. Estimates from a random coefficients logit demand model are used to specify and test a set of pricing games. Under the selected model, milk manufacturers are Stackelberg leaders to retailers, and store brand milks are procured by retailers at cost. The model is used to investigate counterfactual markets without retailer store brand milks. Counterfactual Simulation results indicate that store brands increase channel profits, retailer profits and consumer welfare, while having mixed effects on equilibrium retail prices.     

PAYING FOR LOYALTY: PRODUCT BUNDLING IN OLIGOPOLY*

In recent times, pairs of retailers such as supermarket and retail gasoline chains have offered bundled discounts to customers who buy their respective product brands. These discounts are a fixed amount off the headline prices that allied brands continue to set independently. We show that a pair of firms can profit from offering a bundled discount to the detriment of other firms and consumers whose preferences are farther removed from the bundled brands. Indeed, when both pairs of firms negotiate bundling arrangements, there are no beneficiaries and consumers simply find themselves consuming a sub‐optimal brand mix.     

Impact of loss aversion on the newsvendor game with product substitution

This paper studies a newsvendor game in which two substitutable products are sold by two different retailers (newsvendors) with loss-averse preferences. Each loss-averse retailer facing stochastic customer demand and deterministic substitution rate will make an order quantity decision to maximize his expected utility. Since product substitution causes two retailers to make decisions in a competitive environment, game theory is used to find the retailers' optimal order quantities. It is shown that under certain conditions, there exists a unique Nash equilibrium in the newsvendor game. Under a symmetry assumption, each retailer's equilibrium order quantity is decreasing in the loss aversion coefficient and increasing in the substitution rate. Further, if the effect of loss aversion on the order quantity is strong enough to dominate the effect of competition, the total inventory level of a decentralized supply chain will be lower than that of a centralized supply chain. Numerical experiments are conducted to illustrate our results.     

Transaction cost implication of private branding and empirical evidence

Branding and transaction cost economics represent two research streams that rarely cross paths in the literature. In this study, I explore the transaction cost implication of private branding, a practice whereby products supplied by unaffiliated manufacturers are sold under private brands owned by retailers. The main thesis is that private branding can preempt a special case of asset specificity called brand specificity, where retailers also invest in the marketing of an outsourced product, but subsequent reputation effects (positive or negative) are specific to the manufacturer who brands the product. Retailers, thus, will not be fully motivated to optimize their investment in product marketing unless they take over the branding right. With potential barriers to private branding being controlled, data obtained from a national chain reveal that the retailer deploys its marketing resources according to the branding status of a product, implying that private branding can deflect the transaction cost of solving the brand specificity problem. The results offer new theoretical insights into branding and transaction cost analysis. This efficiency‐based approach to private branding also provides practitioners with useful guidelines for crafting a branding strategy that will facilitate cooperation between manufacturers and retailers. Copyright © 2009 John Wiley & Sons, Ltd.     

传统品牌与网货品牌竞争下的多渠道供应链定价研究

基于传统制造商品牌的双渠道供应链,引入网货品牌的网络直销渠道,构建了两个品牌竞争下的多渠道供应链定价模型。并考虑了两条网络渠道的双重搭便车行为,通过Nash博弈得到供应链成员在分散和集中式决策下的均衡策略。研究表明各博弈方的最优定价和利润是关于渠道间及品牌间交叉价格弹性系数的增函数,且渠道竞争的影响显著于品牌竞争;两个制造商的搭便车行为与自身的最优定价和利润呈正相关,但它们的相互影响取决于直接价格弹性系数;搭便车行为对零售商是不利的。最后采用价格加成契约来协调多渠道供应链,以弥补分散决策下双重边际效应带来的损失。     

The Strategic Positioning of Store Brands in Retailer–Manufacturer Negotiations

Store brands are the only brands for which the retailer is responsible not onlyfor promotion, shelf placement, and pricing, but also for positioning the brandin product space. We argue that retailers strongly value control over store brandpositioning because they will be unable to source a national brand with theirdesired product positioning. This is because retailers have an incentive to positionstore brands as close substitutes to leading national brands – a location in productspace which other national brand manufacturers would not find profitable. We presentempirical evidence that is consistent with the results of our model.     

Can All Brands Innovate in the Same Way? A Typology of Brand Position and Innovation Effort*

Product innovation is vital to ongoing brand equity and has been responsible for revitalizing many brands, including Apple, Dunlop Volley, Mini, and Gucci. While several scholars have noted the relationship between a brand's position and the form of innovation available to a firm, surprisingly no study has sought to bridge this gap. This study aims to address this issue by, first, building a typology of the innovation practices underpinning differently positioned brands and, second, exploring the strategic and tactical implications of different brand‐related innovation efforts. In so doing, this study addresses a critical question: How do differently positioned brands organize their innovation efforts? A multiple case‐study approach was used in this paper. Cases were sampled from a number of industries and across a range of different countries with a focus on business‐to‐consumer brands. Thirty‐five interviews were conducted across 12 cases. The brands studied differed in their approach to innovation (incremental vs. radical) and in their relationship to the marketplace (market‐driven and driving markets). These two dimensions result in four alternative ways of organizing the innovation effort to effectively reinforce the brand: (1) incremental and market driven (follower brands); (2) radical and market driven (category leader brands); (3) incremental and driving market (craft‐design‐driven brands); and (4) radical and driving markets (product leader brands). For follower brands, new product success is contingent upon the quality of the firm's marketing information systems and speed to market. Category leaders seek to dominate and appeal to the mass market with bold product initiatives. Craft‐designer‐driven brands aim to maintain an aura of authenticity, downplaying the commercial realities of their innovation efforts, while product leader brands seek to reaffirm their status as industry pioneers. This research contributes to the branding and new product development literature in several ways. It illustrates that differently positioned brands require the deployment of different firm capabilities and resources and a unique organizational philosophy to achieve new product success. The findings also enrich the brand extension literature through an examination of alternate bases, beyond that of product category, by which brand fit can be established. Finally, this research demonstrates how brand positioning can pose limitations on an industry leader's ability to respond to disruptive technologies. This study identifies that failed new products or brand extensions are driven by a mismatch between desired strategy and the capabilities necessary for achieving success (suggesting brand extensions are not as low risk as previously thought). As such, managers should carefully attend to brand perceptions when developing innovation strategies, particularly in relation to brand extensions.     

OPERATING SYSTEM PRICES IN THE HOME PC MARKET*

Because the demand for OS is a derived demand revealed through the demand for PCs and because its elasticity is relatively small, the profit‐maximizing price of DOS/WIN that would result from a static equilibrium is much higher than the observed price. We investigate this assertion empirically by fitting a differentiated‐products model of the home PC market to panel data of all PC brands sold in the G7 countries over the period 1995–1999. The results confirm that the low value of the aggregate elasticity of demand for PCs is the result of differentiation and substitution among PCs.     

闭环供应链回收渠道与成本分摊机制研究

本文基于废旧产品的回收再制造,研究了零售商和制造商组成的闭环供应链。作者分别建立零售商回收和制造商回收两种模型,运用逆向归纳法求解分析不同模型对各成员利润的影响,指出成本分摊机制可以使闭环供应链达到协调。最后,选取合理的数据对结论进行验证,并就需求对价格的敏感系数及分摊比例等参数对回收率和利润值的影响做了分析。结果表明：一定条件下,制造商负责回收废旧产品要优于零售商负责回收;成本分摊契约可以提高回收率和各主体的利润值。     

Strategic information sharing between competing retailers in a supply chain with endogenous wholesale price

This paper introduces a new motivation for information sharing in decentralized supply chains—as a mechanism to achieve truthful information sharing and to reduce signaling costs. We study a two-echelon supply chain with one manufacturer selling a homogenous product to n price-setting competing retailers. Each retailer has access to private information about the potential market demand, and the retailers have an ex-ante incentive to share this information with each other and to conceal the information from the manufacturer. However, without a mechanism that induces the retailers to truthful information exchange as their strategic choice, no information can be exchanged via pure communication (cheap talk). To overcome this obstacle, two signaling games are analyzed: in the first game, information is shared truthfully among the retailers; in the second game, information is also shared truthfully with the manufacturer. We show that under some conditions sharing information with the manufacturer results in a higher profit for the retailers.     

Private Labels,National Brands and Food Prices

We study the relationships between national brand prices and the development of private labels, using home-scanned data from a consumer survey reporting purchases for 218 food products. When the impact of private label development is significant (116 cases out of 218), we observe a positive correlation (89%) between brand price and purchases of private labels. When controlling for changes in product quality, we still find a positive relation between private label development and national brand prices. Thus, the change in the national brand product characteristics only partly explains the increase in the national brand prices. Furthermore, the price reactions of national brands differ according to the type of private labels they face. Finally, we demonstrate that the development of private labels has less effect on the prices of second-tier brands than on the prices of the leading brand.      

Coordination of a supply chain with one manufacturer and multiple competing retailers under simultaneous demand and cost disruptions

This paper develops a coordination mechanism for a supply chain consisting of one manufacturer and n Cournot competing retailers when the production cost and demands are simultaneously disrupted. This differs from traditional supply chain coordination models under a static case and the case with only demand or cost disruption. The coordination mechanism with revenue sharing is considered, and the effects of production cost and demand disruptions on revenue sharing contract are discussed to investigate the optimal strategies of players with disruptions. The penalty cost is introduced explicitly to obtain the production deviation cost caused by the disruptions. In this study, it is obtained that the coordination contract considering the production deviation cost differs from that without disruption. Besides that, the disruptions may affect the order quantities, wholesale prices as well as revenue sharing contract. Then, the optimal strategies for different disruption levels under the centralized decision-making mode are proposed. Concerning the decentralized mode, the improved revenue sharing contract can be used to coordinate the decentralized decision-making supply chain effectively. Finally, the theoretical results are illustrated by conducting some numerical examples.     

Economic lot-sizing and dynamic quantity competition

We study a problem of dynamic quantity competition in continuous time with two competing retailers facing different replenishment cost structures. Retailer 1 faces fixed ordering costs and variable procurement costs and all inventory kept in stock is subject to holding costs. Retailer 2 only faces variable procurement costs. Both retailers are allowed to change their sales quantities dynamically over time. Following the structure of the economic order quantity (EOQ) model, retailer 1 places replenishment orders in batches and retailer 2 follows a just-in-time (JIT) policy. The objective of both retailers is to maximize their individual average profit anticipating the competitor's replenishment and output decisions. The problem is solved by a two-stage hierarchical optimization approach using backwards induction. The second-stage model is a differential game in output quantities between the two retailers for a given cycle length. At the first stage, the replenishment policy is determined. We prove the existence of a unique optimal solution and derive an open-loop Nash equilibrium. We show that both retailers follow contrary output strategies over the order cycle. The EOQ retailer, driven by inventory holding costs, decreases his market share whereas the output of the JIT retailer increases. Moreover, depending on the cost structure, the EOQ retailer might partially be a monopolist. At the first stage, the EOQ retailer determines the cycle length, anticipating the optimal output trajectories at the second stage.     

Ordering quantity decisions considering uncertainty in supply-chain logistics operations

This research seeks to determine the optimal order amount for a retailer given uncertainty in a supply-chain's logistics network due to unforeseeable disruption or various types of defects (e.g., shipping damage, missing parts and misplacing products). Mixture distribution models characterize problems from solitary failures and contingent events causing network to function ineffectively. The uncertainty in the number of good products successfully reaching distribution centers (DCs) and retail stores poses a challenge in deciding product-order amounts. Because the commonly used ordering plan developed for maximizing expected profits does not allow retailers to address concerns about contingencies; this research proposes two improved procedures with risk-averse characteristics towards low probability and high impact events. Several examples illustrate the impact of a DC's operation policies and model assumptions on a retailer's product-ordering plan and resulting sales profit.     

An Empirical Study of the Effect of Brand Proliferation on Private Label – National Brand Pricing Behavior

This paper investigates the competitive pricing interaction between national brand and private label food products, focusing on the effect of brand proliferation. IRI scanner data from 1991 and 1992 for 135 food product categories and 59 geographic markets are used. Empirical findings are grouped into three categories: i) price, promotion and competitive effects, ii) brand proliferation and entry deterrence, and iii) local market effects. Results indicate that both private label and national brand reaction functions are positively sloped and asymmetric. Successful private label penetration, as measured by total private label share, lowers the average price of national brands. The paper's central finding is that the impact of brand proliferation on market pricing behavior is multi-dimensional. First, an increase in the number of brands increases the ability of national brand manufacturers to raise price. Second, the effectiveness of a brand proliferation strategy depends upon the distribution of market share. The more concentrated the brand structure, the lower the market price of national brands. Thus, the net effect of brand proliferation strategies is dependent upon not only the number of brands, but upon the actual distribution of brand shares. Finally, local market conditions play only a small role in the competitive interaction between private labels and national brands.     

基于需求信息泄露的企业利润及社会效益研究

供应链中的信息对于供应链参与者的利益及供应链的绩效是有价值的,旨在对需求信息的泄露问题展开分析。给出了1个供应商2个零售商的基本模型,从供应商是否泄露零售商信息上给出了非泄露均衡和分离均衡下的零售商利润及供应商利润,并进一步从社会效益角度对2种信息保有情况展开了对比分析。研究得出:对跟随者而言,高需求下以及低需求且θ≥3下的零售商利润可以通过平均市场需求的范围进行确定;对于社会效益而言,高需求且非泄露信息下带来的社会效益总是优于分离均衡下的社会效益。     

Factors Influencing Brand Launch in a Global Marketplace

The purpose of this study is to explore the factors that influence the launch of brands into new markets in a global environment. Although multiple streams of literature exist with respect to the entry of brands into new markets and the diffusion of new brands within and across markets, the process of launching products and brands globally over time has received relatively limited attention. To address this issue, this study incorporates multiple indicators of activities that can contribute to experiential learning relevant for launching brands in a global marketplace. Market uncertainty and experiential learning provide a conceptual foundation for the development of relevant hypotheses, which are tested in the context of the global automotive industry from 1981 to 2004. A discrete time event history analysis with time‐varying independent variables is employed to estimate the effects of the independent variables on the probability of a brand being launched in a specific market. The global brand launch observations are extracted from a proprietary dataset containing the global dispersion of automotive brands including 22 countries of origin and 42 countries of brand entry. The sample yields 50,572 spells, derived from 99 companies, 173 brands, and 700 market entries. The results of this study contribute to the literature in a variety of ways. Market attractiveness positively influences the propensity of a brand to be launched into a new market. This supports the idea that potential demand conditions are an important managerial consideration in product introduction decisions. The results reveal significant effects with respect to the role of psychic distance and experiential learning. Brands are reluctant to launch into countries that are culturally and economically less similar to the home market. Yet firms tend to place a lower degree of emphasis on factors of cultural distance when launching brands into larger markets, and global experience enables companies to overcome the uncertainties associated with launching brands into international markets that are economically distant. The results also suggest that companies are more likely to introduce additional brands in markets where they already have a presence. Overall, global dispersion and geographic scope, coupled with local market knowledge facilitate the launch of brands globally. From a managerial perspective, this study suggests companies should focus on acquiring both local and global experience to facilitate the launch of products and brands in the global marketplace.     

Supply chain scheduling and coordination with dual delivery modes and inventory storage cost

We study a two-echelon supply chain scheduling problem in which a manufacturer acquires supplies from an upstream supplier and processes orders from the downstream retailers. The supply chain sells a single short-life product in a single season. We consider the scenario where the manufacturer can only accept some of the orders from the retailers due to its supplier's common production time window and its own two common production and delivery time windows. The upstream supplier processes materials and delivers the semi-finished products to the manufacturer within its time window. Then the manufacturer further processes these products to produce finished products and delivers them to the retailers within its two time windows, where one window is for production and normal delivery, and the other is for production and express delivery. Having to store the materials before processing them, the supplier incurs a storage cost, which depends on the order size and storage time. The manufacturer pays the transportation cost for delivering the finished products to the retailers. Due to double marginalization, the performance of the supply chain is sub-optimal. We model the supply chain problem as a flow shop scheduling problem with multiple common time windows. We derive some dominance properties and establish some theorems that help solve the sequencing problems for the orders and eliminate the idle time among the orders. Based on these results, we develop fast pseudo-polynomial dynamic algorithms to optimally solve the problem. We prove that the problem is NP-hard in the ordinary sense only. We develop two practically relevant and robust methods for the supply chain to achieve optimal profit-making performance through channel coordination.