Could co-op advertising be a manufacturer's counterstrategy to store brands?

Abstract

We propose a model to study the decision of a private level introduction for a retailer and its effects on the manufacturer. We investigate whether the manufacturer can counter the harmful effects of this introduction, if any, by implementing a cooperative advertising program. Our model accounts for prices and for local advertising undertaken by the retailer for the national brand. We show that the private label introduction is profit-improving for the retailer and the channel although it could harm the manufacturer's profits. However, for a specific range of the retailer's advertising efficiency and of the price competition intensity, the manufacturer could profit from the private label introduction. Our findings suggest also that the co-op plan is an efficient counterstrategy for the manufacturer and the retailer would accept its implementation only if the national brand competes strongly with the private label.