Impact of Category-Specific Demand Environment on Store Brand Quality Positioning: Empirical Evidence

Abstract

Motivated by the growth of store brands and the widespread practice of offering a line of multiple store brands at different quality positions within a product category, Chung and Lee (2017) analyze a game theoretic model and discover the impact of the category-specific demand environment on the retailer’s optimal design of store brand product lines. In particular, their analysis shows that the optimal quality positioning of store brands against established national brands is remarkably sensitive to the distribution of consumers’ willingness-to-pay for quality. If the category has a sufficiently large proportion of consumers showing low willingness-to-pay for quality, the retailer should, they conclude, leave the top tier national brand at the highest quality alternative in the category, and position one store brand between the national brands, while offering the other store brand at the lowest point in price and quality within the category, following the “NB1 (top tier national brand) > SB1 (top tier store brand) > NB2 (low tier national brand) > SB2 (low tier store brand)” interlaced pattern. For the opposite situation of a large proportion of consumers exhibiting high degrees of quality sensitivity, their analysis recommends a different strategy following the “NB1 > SB1 > SB2 > NB2” pattern. On the other hand, if the distribution has the majority of the consumers concentrated around medium degrees of willingness-to-pay for quality, their analysis prescribes a high-tier store brand to be positioned at the top quality item in the category, resulting in the “SB1 > NB1 > SB2 > NB2” pattern.