Impact of In-Store Promotion and Spillover Effect on Private Label Introduction

Abstract

In this paper, the authors investigate the impact of in-store promotion and its spillover effect on private label introductions. Studying different retail supply chain scenarios in which the retailer carrying a national brand may introduce its own private label product and promote either the national brand or the private label inside the store, they find the in-store promotion on one product has a positive spillover effect on the other product. Without in-store promotion and spillover effect, the conventional wisdom indicates that, in a retail supply chain, the national brand manufacturer will be negatively affected by the introduction of a private label product. With in-store promotion and spillover effect, however, the national brand manufacturer can actually benefit from the private label introduction. When the spillover from national brand to private label is high, the retailer prefers to promote the national brand product. When the spillover from private label to national brand is high, promoting the private label product can also benefit the national brand manufacturer. With a symmetric spillover rate, the national brand manufacturer can still benefit from the private label introduction, as long as the retailer promotes the national brand product, the horizontal competition is not intense, or the private label product quality is sufficiently low.