Managing brand competition with consumer fairness concern via manufacturer incentive

Abstract

The introduction of store brands not only brings greater pressure to the upstream manufacturers, but also induces consumers to pay growing attention to transaction fairness when choosing among different brands. In this work, we study how a national brand manufacturer can adopt direct consumer incentive to defer a retailer’s store brand entry in the presence of consumer fairness concern. Using a Stackelberg game model, we analyze the market entry strategy of the retailer and the incentive strategy of the manufacturer, and investigate how the consumer fairness concern affects the firms’ strategies and performances. Our results show that consumer fairness behavior in transactions has a negative effect on the retailer’s profit, and leads the retailer to lower retail prices of both brands. The incentive provided by the manufacturer can alleviate consumers’ fairness concern for the national brand, and under certain conditions, it can effectively discourage the retailer from building her own brand. We further show that our main results still hold when we take into consideration the incentive frequency in the selling period and when consumers are fairness-concerned about the national brand manufacturer.