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Who Benefits from Store Brand Entry?

Assistant Professor, Tuck School of Business at Dartmouth, Hanover, New Hampshire 03755
Assistant Professor, The A. Gary Anderson School of Management, University of California, Riverside, California 92521
koen.h.pauwels{at}dartmouth.edu
shuba.srinivasan{at}ucr.edu

Store brand entry has become a key issue in marketing as it may structurally change the performance of and the interactions among all market players. Based on their multivariate time-series analysis, the authors demonstrate permanent performance effects of store brand entry, typically benefiting the retailer, the consumers, and premium-brand manufacturers, while harming second-tier brand manufacturers. For the retailer, they consistently find two beneficial effects of store brand entry: high unit margins on the store brand itself and higher unit margins on the national brands. This increase in unit margins implies that the retailer strengthens its bargaining position vis-à-vis national brand manufacturers. However, store brand entry only rarely yields category expansion and does not create store traffic or revenue benefits. Second, consumers do not obtain lower prices on all national brands, only on some second-tier brands. However, they benefit from enlarged product assortment and intensified promotional activity that lowers average price paid for two out of four categories. For the manufacturers, store brand entry is typically beneficial for premium-price national brands, but not for second-tier national brands. Often, premium brands experience lower long-term price sensitivity and higher revenues, whereas second-tier brands experience higher long-term price sensitivity and lower revenues.

Key Words: structural change; manufacturers versus retailers; store brand entry; unit root tests; vector-autoregressive models; long-term price elasticity
History: Received: July 15, 2003;

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