Why Do Leading Brand Manufacturers Supply Private Labels?
SMC Affiliated Work
School of Economics and Business Administration
Journal of Business & Industrial Marketing
Emerald Group Publishing Limited
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.
Generics, Brands, Retailing, Game theory, Competitive strategy
Business | Economics | Marketing
J. Tomas Gomez‐Arias, Laurentino Bello‐Acebron, (2008) "Why do leading brand manufacturers supply private labels?", Journal of Business & Industrial Marketing, Vol. 23 Issue: 4, pp.273-278, https://doi.org/10.1108/08858620810865852
Gomez-Arias, J. Tomas and Bello‐Acebron, Laurentino. Why Do Leading Brand Manufacturers Supply Private Labels? (2008). Journal of Business & Industrial Marketing. Emerald Group Publishing Limited. 23 (4), 273-278. 10.1108/08858620810865852 [article]. https://digitalcommons.stmarys-ca.edu/school-economics-business-faculty-works/473