Manufacturer's retailer dependence: A private branding perspective

Abstract

With the recent increase in the power of major retailers through consolidations, the world of brands has divided in two categories: national brands belonging to manufacturers and private brands belonging to retailers. While national brands are well studied in the literature, there is a dearth of studies on private brand phenomenon particularly from a manufacturer's point of view as opposed to that of retailers and consumers. To address this gap, we explore the antecedents and consequences of a manufacturer's private brand retailer dependence with a focus on the manufacturer's relationship with retailers. Drawing on the Resource Dependence Theory and Transaction Cost Economics, we examine various products and market characteristics as potential antecedents of a manufacturer's private brand retailer dependence while adopting private brand sales growth and returns from private brand production as outcomes using a sample of 153 South Korean manufacturers currently involved in private brand production. The results show that the private brand retailer dependence of a manufacturer leads to private brand sales growth directly and returns from private brand production indirectly through private brand sales growth, and has a negative effect on return from private brand production directly. Furthermore, product characteristics, such as product innovativeness through collaboration with retailers and search goods, and market characteristics, such as high retailer power and knowledge specificity of a retailer, increase a manufacturer's private brand retailer dependence and, therefore, private brand sales growth. The theoretical and managerial implications of the findings are discussed at the end.