New Products: The Antidote to Private Label Growth?

Abstract

As private labels (PLs) continue to grow in power and market share, product innovation has become one of the strongest weapons in the national brand (NB) manufacturer's arsenal. In this article, the author assesses when and to what extent new products change NBs' market position. To address this question, more than 300 NB and PL introductions are analyzed using a multibreak model that quantifies the impact of product introductions on own share, rival NB and PL share, and category sales. Drawing on empirical generalizations, the author finds that products introduced by leading NBs, standard PLs, and premium PLs are more likely to increase category sales than products introduced by follower NBs or economy PLs. New products introduced by leader and follower NBs more often boost own share. Thus, new products help prevent the decline of NB shares. With respect to competitive impact, new products affect rival shares, with the exception of those launched by economy PLs. Still, NBs tend to hurt rival NBs more often than PLs, and only the leading NB is likely to steal share from all three PL tiers. Moreover, standard PLs tend to be harmed less often by rival new products, unless introduced by the leading NB. Overall, PLs are more likely to be affected by a NB that maintains a large price gap and offers new products with new intrinsic or usage benefits. To fight economy PLs successfully, however, NBs must maintain a smaller price gap, while offering products that focus less on intrinsic and usage benefits.