Title: Why do leading brand manufacturers supply private labels?
Abstract:Purpose Private labels are gaining increasing importance in many industries. While there are obvious benefits for retailers to embrace private labels, the standard explanations for manufacturers' invo...Purpose Private labels are gaining increasing importance in many industries. While there are obvious benefits for retailers to embrace private labels, the standard explanations for manufacturers' involvement (idle capacity, buffer against follower brands, retailer's conditions) do not explain it completely. This paper seeks to provide an additional explanation. Design/methodology/approach An economic model of vertical differentiation is proposed. Findings The model shows that, once the retailer has decided to introduce the private label, and depending on the quality positioning chosen by the retailer, both manufacturers find situations where they are better off by not supplying the store brand and allowing the other manufacturer to produce the private label, but also situations where they prefer to produce the private label. Also, it is shown that retailers will choose the high‐quality manufacturer for its premium store brand, and the low‐quality manufacturer otherwise, and this decision is not based on the set of skills possessed by each manufacturing company. Originality/value The model contributes to explaining why private label supply is becoming so pervasive among all kinds of manufacturers under a variety of circumstances.Read More
Publication Year: 2008
Publication Date: 2008-04-11
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 51
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