The Impact of "One-Stop Shopping" on Competitive Store Brand Strategy

Abstract

In this paper, we investigate how retailer competition and asymmetry affect store brand strategy when some of the consumers are one-stop shoppers. We find that when the intensity of competition between retailers is low, store brands can be used to shield consumers loyal to the national brand from price sensitive one-stop shoppers. When the intensity of competition is high, the above price discrimination motive is absent, and store brands may be introduced to extract rents from one-stop shoppers only if the margin from them is large enough. The above results imply that national brand prices may rise after the introduction of store brands and, therefore, national brand manufacturers may benefit from retailers' use of store brands. This benefit is even higher if national brand manufacturers supply store brands, and they might have the incentive to supply them cheaper than other fringe manufacturers. Furthermore, even though retailers introduce store brands due to the existence of one-stop shoppers, the profitability of introducing them can have an inverted-U relationship with the fraction of one-stop shoppers in the market. Moreover, in the case of asymmetric retailers, we find the surprising result that a retailer with a larger fraction of one-stop shoppers is less likely to introduce store brands. Our results explain many observations reported in other empirical studies and industry publications.

Keywords: private label strategy, retail competition, distribution channels, game theory

JEL Classification: M31