Date Added: Nov 2009
Private labels, also called store brands or distributor brands, have changed the retail industry during the last three decades. Consumer data shows strong growth of private label market share, and in countries like Germany or Spain, the penetration of private labels is above 30% of total retail sales. This paper analyses the channel dynamics in a category where a private label is introduced. The authors focus on the impact of the supply chain. While private label introduction helps the retailer reduce manufacturer brand's price, the authors find that it does not always improve the total profits of the supply chain. Generally, the supply chain benefits from this introduction only when cross-elasticities are small, i.e., competitive interactions are weak. With the model, the authors formulate the general conditions under which retailers should consider introducing private labels.