Author:

Keywords:

Private label, Shelf allocation, Sourcing decisions, Discounters, Channel relationships, Social Sciences, Business, Business & Economics, MANAGEMENT, ECONOMICS, INFERENCE, SELECTION, MARGINS, PREMIUM, IMPACT, POWER, 1505 Marketing, Marketing, 3506 Marketing

Abstract:

Discounters have a private-label dominated assortment where national brands have only limited shelf access. These limited spots are in high demand with national-brand manufacturers. We examine whether private-label production by leading national-brand manufacturers for two important discounters (one hard and one soft) creates discounter goodwill. We estimate a selection model on a sample of 450 manufacturer-category combinations from two leading discounters (Aldi in Germany and Mercadona in Spain), and show that private-label production is indeed rewarded: national-brand manufacturers involved in such practice have a higher likelihood of procuring shelf presence for their brands. Moreover, while powerful manufacturers are intrinsically more likely to obtain shelf presence with soft discounters, manufacturers with lower power can compensate this by producing private labels. No such dependence on power exists for the hard discounter. However, not all national-brand manufacturers are equally likely to produce private labels for discounters. We find that national-brand manufacturers are less likely to do so when they experience more sales growth, when it is more difficult to produce high-quality products in the category, when they invest more advertising support into their brands, and when they introduce more innovations. Moreover, a higher price differential relative to the discounter’s private labels makes national-brand manufacturers less likely to engage in private-label production for hard discounters.