A game theoretic approach for analyzing the competition between national and store brands by considering store loyalty

Abstract

This study considers a supply chain with a National Brand (NB) manufacturer and a retailer under three scenarios. In the first scenario, the retailer sells both the NB product and its own the Generic Store Brand product (GSB), in the second scenario, he introduces its own the Premium Store Brand product (PSB), and in the third scenario, he introduces both GSB and PSB products. NB loyalty and PSB loyalty are both modeled based on customer satisfaction and quality. But the model of NB loyalty particular emphasizes the role of innovation and advertising. We assumed that there is a non-monotonic (an inverted U-shaped) relationship between the loyalty to the GSB product and Store Loyalty and a positive linear relationship between the loyalty to the PSB product and Store Loyalty. A Stackelberg game theoretic model with two cases for the leader (Stackelberg-Manufacturer and Stackelberg-Retailer) is provided to solve the problem. Finally, numerical analysis and managerial implications are presented. The results indicate that: 1) The NB manufacturer considers the PSB product as a threat, and tries to increase customers' satisfaction and loyalties to the NB product by the increase in innovation and advertising; 2) The retailer competes with the NB manufacturer by positioning the quality of the PSB near the quality of the NB, but at a lower price to increase customers’ satisfaction and loyalties to the PSB; 3) When customers loyalty to the store increases (store loyalty), their loyalties to SB products increases too; 4) Customers loyalty to SB products (both GSB and PSB) plays a greater role in building store loyalty than customers loyalty to the NB product; 5) It is more profitable for the retailer to introduce both GSB and PSB products simultaneously, and also be the leader of the game.