Analysis on the influence of retailer's introduction of store brand under manufacturer's product line strategy

Abstract

<p style='text-indent:20px;'>As the introduction of store brand (SB) by retailers becomes more common, national brand manufacturers (NBM) in the market often respond with a product line strategy. Then how should retailers decide their product lines under the situation that NBM adopt product line strategy? Under the manufacturer's product line strategy, this paper compares and analyzes three competitive strategies for retailers to introduce high-end SB, low-end SB and SB product line. The results show that: First, no matter what kind of competition strategy the retailer adopts, (1) the introduction of SB occupies the market share of NB; (2) the retailer gains the highest unit income from the high-end products of NB manufacturers. Second, the relationship between production cost and encroachment effects directly affects the retailer's choice of optimal competitive strategy and the manufacturer's preference for its competitive strategy choice. Finally, from the perspective of profit maximization, the optimal choice for retailers is the product line competition strategy, but this strategy is not obvious compared with the high-end competition strategy. Therefore, when retailers introduce product lines, if they are effectively threatened by national brand manufacturers (for example, NBM refuses to provide national brands to retailers), retailers may choose the suboptimal strategy, that is, to introduce store brand high-end products. When the high-end products of store brands are better than the low-end products of national brands and the production cost of products is relatively high, this strategy just meets the expectations of national brand manufacturers for retailers to introduce strategies.</p>