Manufacturing for overseas private labels: A win–win strategy for retailers and producers

Abstract

The study discusses the use of private labels, both for retailers and manufacturers, within the context of international markets. It is proposed that agreements between manufacturers and retailers from different markets may solve or mitigate some abiding frictions and serve the interest of both parties. Using data collected through 101 in-depth interviews among marketing managers, qualitative and quantitative procedures were used to explore producers' attitudes and behaviour in regard to agreements to manufacturing for overseas retailers' private labels. The study revealed that lower transaction costs, quicker penetration into new markets and retailers' reputations among customers are the dominant motivators while short-term strategy, appropriate mainly for grocery items, increases dependency on retailers and deters manufactures from contracting with overseas retailers' private labels. The study also found that gaps exist between manufacturers' perceptions and actual behaviour, mediated particularly by firm size and product categories. The findings, which reflect observed practice, are interpreted through theoretical propositions related to earlier studies. Managerial implications are provided.

Manufacturer's retailer dependence: A private branding perspective

“…In addition, many studies in the literature have suggested that national brand manufacturers and market leaders refrain from producing private brands for economic-financial (unsatisfactory profitability), competitive (cannibalization), and relational (poor guarantee of contract duration) reasons (Gómez & Benito, 2008;Timmor, 2007). For manufacturers, instead of completely ignoring the potential, they should identify and carefully evaluate private brand opportunities in terms of market and product characteristics, and then find ways to collaborate with retailers to increase sales growth and improve profitability (Scaff et al, 2011).…”

“…When private brands were first introduced, manufacturers did not view them as a threat to their own national brands because many consumers were skeptical of the quality of private branded products given their lower cost. Manufacturers did not view private branded products as an attractive alternative to national brands because their production often created negative effects on the value perception of their own national brands and profitability (Timmor, 2007).…”