Premium store brand: Product development collaboration between retailers and national brand manufacturers

Abstract

Premium store brands (PSBs), a type of store brand (SB) that effectively matches customer preferences and thus differs horizontally from national brands (NBs), have become increasingly popular. This study focuses on the strategic introduction of a PSB through collaboration between a retailer and a national brand manufacturer (NBM). To understand their strategic interactions when introducing PSBs, we employ a game-theory model based on Hotelling's linear city model. Our results indicate that coordination between a retailer and an NBM in providing a PSB can be difficult, and thus, their collaboration does not necessarily benefit either party. Nevertheless, we show that if SBs have a relatively high value and therefore, face intense competition from NBs, then both channel members can benefit from developing and introducing a PSB to complement the NB. Our results also show that introducing multiple PSBs increases the possibility of successful collaborations. These results are consistent with the empirical observations of SB suppliers in actual markets, in which major NBMs often refuse to produce an SB, though are likely to supply PSBs that effectively match consumers' needs.