National Brand's Response to Store Brands: Throw in the Towel or Fight Back?

Posted: 29 Oct 2013 Last revised: 15 Jun 2017

See all articles by Sherif Nasser

Sherif Nasser

Cornell University

Danko Turcic

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management

Chakravarthi Narasimhan

Washington University in St. Louis - John M. Olin Business School

Date Written: 2013

Abstract

Nearly a quarter of all products purchased in U.S. supermarkets and drug stores are store brands (SBs). Although the presence of SBs benefits both consumers and retailers, it is a threat to the dominance of the incumbent national brand manufacturers (NBMs). When considering the potential threat of an SB, an NBM generally pursues one of three strategies: accommodate, displace, or buffer. Under the accommodation strategy, the NBM repositions the products in his existing product line. Under the displacement strategy, the NBM elects to supply the SB to preempt the entry of the SB supplier. Under the buffering strategy, the NBM adds a defender product, which competes with his own product offering and the new SB. Using a game-theoretic model, we consider a market where consumers are heterogeneous in their valuation of product quality and analyze an NBM's response to an SB threat. We focus on two important drivers: the NBM's ability to differentiate on the quality dimensions and his cost advantage over the outside supplier of SB. To completely characterize the NBM's response, we consider two regimes. In the first regime, the NBM is a monopolist producer. In the second regime, the retailer has the added option of procuring an SB product from an independent, nonstrategic SB manufacturer. By comparing the results from both regimes, we develop a descriptive theory that clarifies the incentives of the NBM to accommodate, displace, or buffer. In doing this, we determine how the NBM's whole product portfolio should be designed, i.e., the positioning (quality levels) and prices of all its offerings.

Keywords: product line design, store brands, distribution channels, game theory

Suggested Citation

Nasser, Sherif and Turcic, Danko and Narasimhan, Chakravarthi, National Brand's Response to Store Brands: Throw in the Towel or Fight Back? (2013). Marketing Science, Vol. 32, No. 4, 2013; pp. 591-608; DOI: 10.1287/mksc.2013.0788, Available at SSRN: https://ssrn.com/abstract=2329525

Sherif Nasser (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

Danko Turcic

University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management ( email )

Riverside, CA 92521
United States

Chakravarthi Narasimhan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive, Campus Box 1133
Olin School of Business
St. Louis, MO 63130-4899
United States
314-935-6313 (Phone)
314-935-6359 (Fax)

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