Destination discount: a sensible road for national brands?

Abstract

Purpose This paper aims to study the consequences of listing national brands in discounters. Is the discount channel a promising outlet for manufacturer brands? Is it an effective means to attract new buyers? Which combination of brand and discount destination at which price is best suited for this strategic move? Design/methodology/approach Based on a unique dataset (tracking grocery purchase behavior for a representative sample of German households) and employing both descriptive and multivariate statistical techniques, the authors examine the outcome for 134 national brands introduced in six discount chains in Germany between January 2003 and July 2004. Findings Both the manufacturer and discounter are able to grow their total performance in excess of the market following the introduction for the majority of the brands. Hence, potential cannibalization is more than offset by incremental revenues. It is found that, on average, close to 80 per cent of national brands' sales at a discounter is from new brand buyers. Discounters typically benefit less, as only 29 percent of brand sales are from new category buyers at their store. Practical implications Including manufacturer brands into a discount assortment will benefit both the manufacturers and the discounters. Examination of the substantial cross‐brand differences reveals that manufacturers and discounters attract more new customers with brands for which market penetration is still modest. Also, discounters gain more from adding branded offerings in underperforming categories, and benefit from brands that enjoy higher customer loyalty. Finally, national‐brand prices should be set carefully at discounters. It is advised to maintain their price premium even at a discounter. Originality/value Discounters are the fastest growing grocery format in Europe. Lately, many discounters add national brands to their private‐label dominated assortment, a move widely discussed in media with substantial implications for grocery channel management. This study provides a comprehensive evaluation of that trend.

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