Why Do Leading Brand Manufacturers Supply Private Labels?

SMC Author

J. Tomas Gomez-Arias

SMC Affiliated Work

1

Status

Faculty

School

School of Economics and Business Administration

Department

Marketing

Document Type

Article

Publication Date

2008

Publication / Conference / Sponsorship

Journal of Business & Industrial Marketing

Publisher/Venue

Emerald Group Publishing Limited

Description/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' 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.

Keywords

Generics, Brands, Retailing, Game theory, Competitive strategy

Scholarly

yes

DOI

10.1108/08858620810865852

Volume

23

Issue

4

First Page

273

Last Page

278

Disciplines

Business | Economics | Marketing

Original Citation

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

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