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Private Label Sourcing Negotiation: Premium PL from Dual Brander

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Advances in National Brand and Private Label Marketing

Part of the book series: Springer Proceedings in Business and Economics ((SPBE))

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Abstract

As private labels become proliferated, retailers are introducing premium PLs that replace marginal national brands. We examine a special case of tiered private label sourcing, in which a premium PL is supplied by the manufacturer of the corresponding NB (dual brander), and an economy PL is supplied by a dedicated PL supplier. In our model, the NB’s wholesale and retail prices are determined by the traditional bilateral Nash game. However, the premium PL’s wholesale price is determined through a profit-sharing negotiation between the channel members. From an equilibrium-negotiation solution, we derive profit implications of NB’s brand equity, the retailer’s reputation, and the intrinsic quality of the NB. Interestingly, even if the retails holds a strong negotiation power, we find it optimal for the retailer leave some chips on the table for the NB manufacturer.

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Notes

  1. 1.

    Private Label Manufacturers Association 2015 (http://plma.com/storeBrands/facts2015.html).

  2. 2.

    In reality, a retailer may carry more brands in a product line such as a premium-tier and a 2nd-tier NBs as well as standard-tier (imitation) PLs. However, in order to focus on the effect of a dual branding manufacturer, this paper chooses the most parsimonious representation of the market. Building and examining a more comprehensive model with multiple-tier NBs and PLs and various strategic scenarios would be a fruitful future extension.

  3. 3.

    At equilibrium, the optimal strategy for the highest quality product (NB) is to adjust its wholesale price such that the resulting demand stays constant.

  4. 4.

    The results in #4 and #5 are due to the property of a uniform distribution of individual willingness to pay per unit quality parameter θ.

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Author information

Authors and Affiliations

  1. Rutgers Business School – Newark & New Brunswick, Piscataway Township, NJ, USA

    S. Chan Choi

Authors
  1. S. Chan Choi
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Correspondence to S. Chan Choi .

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Editors and Affiliations

  1. Department of Business Administration, University of Granada, Granada, Spain

    Francisco J. Martínez-López

  2. Department of Economics and Business, University of Almería, Almería, Spain

    Juan Carlos Gázquez-Abad

  3. Kellog School of Management, Northwestern University, Evanston, Illinois, USA

    Alexander Chernev

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Chan Choi, S. (2018). Private Label Sourcing Negotiation: Premium PL from Dual Brander. In: Martínez-López, F., Gázquez-Abad, J., Chernev, A. (eds) Advances in National Brand and Private Label Marketing. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-92084-9_15

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