National brand manufacturers’ supply strategy in the presence of retailers’ store-branded lookalike packaging and consumer confusion about quality preference

Abstract

Supplying store brands (SBs) to retailers is a strategic decision for national brand (NB) manufacturers in response to the prevalence of retailers introducing SBs. This study proposes a game-theoretical model to examine the manufacturer’s supply strategy when facing the retailer’s store-branded product, which could have lookalike packaging that confuses consumers about their quality preferences regarding the SB and NB. We find that the manufacturer will supply an SB product to the retailer when the unit production cost of supply is low or the unit production-in-house cost is high, which induces the retailer to choose lookalike packaging when both the NB’s unit price of quality and production-in-house cost are low. Consumer confusion may bring a win–win situation for the manufacturer and retailer, which stimulates the manufacturer to lower the incentive to supply. In addition, the proportion of confused consumers brings a non-monotone effect on the profitability of the retailer and manufacturer. Extending the main model to the cases: (1) the consumer confusion from just being about the SB to being about both products; (2) the SB quality is endogenized; (3) the manufacturer can decide whether to accept the lookalike packaging; (4) the quality of SB exceeds NB, we find that the retailer’s decision of lookalike packaging and the manufacturer’s strategy of supply offering remain qualitatively unchanged, and our results are robust. These findings provide theoretical predictions and useful insights regarding the impacts of consumer confusion derived from lookalike packaging in a two-echelon supply chain.