The Introduction and Performance of Store Brands

TLDR

The study develops an analytical framework to identify product‑category characteristics that favor store‑brand introduction and to examine market factors explaining store‑brand share variation across categories. The authors compare the model’s predictions with data from 426 grocery product categories. The model predicts that store‑brand introduction raises retailer profits when national brands are cross‑price insensitive to each other but highly sensitive to the store brand, and that store‑brand share is higher under these conditions; it also predicts larger profit gains when many national brands exist, even though share is lower, and the data confirm these predictions.

Abstract

We present an analytical framework for understanding what makes a product category more conducive for store brand introduction. We also investigate market characteristics that help explain differences in store brand market share across product categories. Our findings suggest that the introduction of a store brand is likely to increase retailer's profits in a product category if the cross-price sensitivity among national brands is low and the cross-price sensitivity between the national brands and the store brand is high. Our model predicts that the store brand share would also be greater under these conditions. In addition, we find that the introduction of a store brand is more likely to lead to an increase in category profits if the category consists of a large number of national brands—even though the store brand market share is expected to be lower when there are a large number of national brands. We compare the key predictions of our model with data on 426 grocery product categories. The data are consistent with the predictions of the model.