Private Label Sourcing Negotiation: Premium PL from Dual Brander

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.