The impact of a store brand introduction in a supply chain with competing manufacturers: The strategic role of pricing and advertising decision timing

Abstract

This research studies the impact of a store brand’s introduction in a supply chain where a retailer offers the national brands of competing manufacturers. The focus in this paper is to study such impact given different manufacturers’ decision timing choices with regards to how they set pricing and advertising decisions. We develop a game-theoretic model that is based on consumer utility functions to represent competition between the national and store brands. We then solve six games to take into account different decision timing choices. In particular, we consider whether manufacturers decide of advertising before, after, or at the same time than pricing. Comparisons of equilibrium profits for each supply chain member before and after store brand entry under each decision timing scenario show that national brand manufacturers incur losses as a result of the retailer’s store brand when they keep their decision timing unchanged. Interestingly, however, the retailer may restrain from introducing the store brand especially if the national brand manufacturers set pricing decisions before advertising, as is the case with fixed pricing contracts, and if the level of competition between the national brands is sufficiently high. Further, manufacturers can strategically change their decision timing to either benefit from, prevent or restrict losses from the retailer’s store brand. These results provide new insights on how competitive interactions and contractual agreements in manufacturer-led supply chains can impact the success of store brands for retailers and mitigate or intensify their threat for national brands.