Couponing Strategies in Competition between a National Brand and a Private Label Product

Abstract

This paper explores the couponing strategies in competition between a national brand name product and a private label product by discussing three different kinds of coupons: manufacturers' coupons, retailers' national brand coupons, and retailers' private label coupons. We show that the positioning of the private label product in terms of quality (vertical differentiation) and feature differentiation from the national brand (horizontal differentiation) play an important role in determining the manufacturer's coupon and retailer's national brand coupon. In particular, a larger degree of feature differentiation drives the manufacturer to increase its coupon value, and the retailer responds by decreasing the value of its own coupon for the brand name product. In contrast, with an increase in private label quality, the couponing strategies taken by the manufacturer and the retailer depend on which segment of consumers is in the market for the private label product. Additionally, the retailer's private label coupon value is only impacted by the difference in consumers' willingness to pay but not by private label positioning. Empirical results on the effect of feature differentiation on national brand and private label coupon values are consistent with our theoretical predictions.