Private labels and manufacturer counterstrategies

Abstract

Private label marketing is a device retailers use to appropriate some of the profits latent in the vertical structures they share with manufacturers of well-known brands. This paper explores several counterstrategies used by manufacturers to blunt the force of retailers' private label programmes so that manufacturers can appropriate some of those latent profits themselves. Among the counterstrategies examined are measures to widen the quality gap between the manufacturer's brand and the private label substitute, introducing 'fighting brands' to displace private labels on retailers' shelves, various nonlinear pricing measures, and coupon programmes. Some of these measures work better than others in terms of increasing the manufacturer's profit and stemming the diversion of profits to the retailer. Any measure that increases the manufacturer's profits also improves the overall performance of the market.

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