“Many store brands are designed this way,” says Eunkyu Lee, associate professor of marketing. “That’s why so
many store brands of cola come in red cans. They are emulating Coke.”
The reasoning behind this strategy is that a lower-priced store brand that looks, smells, feels, or tastes similar can take a large number of customers away from the leading national brand and potentially pressure the national brand manufacturer to lower its wholesale price to defend market share, which increases store
profitability.
However, new research by Lee indicates that retailers have a broader range of strategies for introducing store brands that go well beyond merely “emulating Tide.”
“Emulating Tide is too simple to be effective in all situations,” Lee says. “We’re finding that to really compete with national brands, gain a larger customer base, and increase profitability, retailers have a more diverse arsenal of strategies at their disposal.”
Lee’s research led to the definition of four distinct strategies that are each effective in their own way for vying for customers
with a national brand:
• ‘Focus’—the existing national brands are highly differentiated in the market, allowing for the store brand to position itself as closely as possible to one of the brands, thereby not competing at all with the others;
• ‘Bridge’—national brands are not very highly differentiated, so the store brand is able to position itself in the middle, putting both national brands under competitive pressure;
• ‘Attack’—national brands are in direct competition and the main purpose of the store brand is to take away customers; and
• ‘Stimulate’—the store brand entry makes the national brands react by reducing their prices, intensifying price
competition between the national brands as they defend their market share. |
“The ‘Stimulate’ straategy is a subtle one,” Lee says. “The national brands are forced to lower their wholesale prices, benefiting the retailer who makes more profit, though few customers might actually switch to the store brand. Choosing the
most effective strategy out of these four alternatives depends on specific market conditions.”
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In particular, when choosing the optimal store brand strategy, retailers are advised to pay close attention to market conditions such as how strong the quality of the store brand is and the degree of differentiation between the competing national brands.
Lee does not limit his findings to only the retail grocery business. “The share of store brands is growing by leaps and
bounds throughout the retail industry,” he says. “Sears has long been successfully marketing Kenmore appliances and Craftsman power tools. Best Buy is now selling its own store brand computers. JC Penney’s Arizona Jeans and Cherokee brand by Target are other recent examples.”
Lee’s research was based on data collected from Dominick’s, a grocery retail chain that operates more than 100 stores in the Chicago area. Based on the data analysis findings, the study develops a mathematical model to further explore the effectiveness of various store brand strategies. The research was published as “Bridge, Focus, Attack, or Stimulate: Retail Category Management Strategies with a Store Brand” in Quantitative Marketing and Economics (edited by R. Lal, Harvard University and P. Rossi,
University of Chicago), and was co-written with Rex Du from the University of Georgia and Richard Staelin from Duke University.
In future research, Lee plans to examine how retailers are experimenting with developing multiple lines of store brand
products of varying quality levels, the criteria for setting the quality levels of those products, and the strategy for bringing those products to market.
Eunkyu Lee is an associate professor of marketing in the Department of Marketing. He earned a Ph.D. in marketing from Duke University. Lee’s primary research interests include marketing channel structure strategy, consumer survey methodology, strategic utilization of store brand in retailing, managing price competition, and channel contracting in the movie industry. His teaching interests include marketing management, distribution channel management, and marketing strategy.
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