Does private-label production by national-brand manufacturers create discounter goodwill?

Abstract

Discounters have a private-label dominated assortment where national brands have only limited shelf access. These limited spots are in high demand with national-brand manufacturers.We examine whether private-label production by leading national-brand manufacturers for two important discounters (one hard and one soft) creates discounter goodwill. We estimate a selection model on a sample of 450 manufacturer-category combinations from two leading discounters (Aldi in Germany and Mercadona in Spain), and show that private-label production is indeed rewarded: national-brand manufacturers involved in such practice have a higher likelihood of procuring shelf presence for their brands. Moreover, while powerful manufacturers are intrinsically more likely to obtain shelf presence with soft discounters, manufacturers with lower power can compensate this by producing private labels. No such dependence on power exists for the hard discounter.However, not all national-brand manufacturers are equally likely to produce private labels for discounters. We find that national-brand manufacturers are less likely to do so when they experience more sales growth, when it is more difficult to produce high-quality products in the category, when they invest more advertising support into their brands, and when they introduce more innovations. Moreover, a higher price differential relative to the discounter's private labels makes national-brand manufacturers less likely to engage in private-label production for hard discounters.

Manufacturer's retailer dependence: A private branding perspective

“…Our study results also suggest that private brand products may be one of the reasons behind the power shift from manufacturers to retailers (Braak et al, 2013;Dawar & Stornelli, 2013). As consolidation in retailing has occurred and big retailers have increased their market presence in recent years, the number of manufacturer's supplying points to retailers has decreased.…”

“…Although there are several major retailers with private brand involvement in the market, the sample in the study came from the manufacturers supplying private brand products to the same retailer in Korea. Given that most manufactures want to keep their involvement in private brand confidential (Braak et al, 2013), it is quite challenging to collect information through random sampling, and this study relied on the cooperation of one major Korean retailer to collect the data. Readers are advised to interpret the results with this in mind.…”

“…Other manufacturers recognize this approach as an opportunity to create strategic partnerships with retailers and take a stable market position by producing private brand goods ahead of competitors. More private brand suppliers recognize relational benefits, such as goodwill and product innovations, through collaboration with retailers (Braak, Deleersnyder, Geyskens, & Dekimpe, 2013;European Commission, 2013;Philipsen & Kolind, 2012). Dedicated private brand product manufacturers who make only private brand products routinely obtain consumer insights and ideas for product innovation through their collaboration with retailers (Braak, 2011;Philipsen & Kolind, 2012).…”

Store-Brand Production Arrangement Based on the Game Theory

“…In addition, some other studies also provide interesting insights into this SB production issue. Empirically, Littman [11] and Ter Braak et al [12] show that, by supplying SBs for retailers, NB manufacturers can cultivate a better relationship with their retailers. Wu and Wang [13] reveal that a NB manufacturer supplying SB can mitigate promotional competition with another NB manufacturer.…”

Private Labels and Retail: A Bibliometric Study on Empirical Researches

“…The use of the private label strategy has gained prominence in the world, becoming increasingly important for retail (Braak, Deleersnyder, Geyskens, & Dekimpe, 2013;Braak, Geyskens, & Dekimpe, 2014;Miquel-Romero, Caplliure-Giner, & Adame-Sánchez, 2014).…”