Journal of the Korean Operations Research and Management Science Society (한국경영과학회지)

The Korean Operations Research and Management Science Society (한국경영과학회)
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Retailer's Store Brand Product Line Design and Product Assortment Decision in the Vertically Differentiated Product Category

수직적으로 차별화된 제품 카테고리 내에서 소매상의 스토어 브랜드 제품군 디자인 및 제품구색에 대한 의사결정

  • 정환 (중앙대학교 경영경제대학)
  • Received : 2011.04.20
  • Accepted : 2011.08.22
  • Published : 2011.09.30
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Abstract

The increased availability of store brand suppliers now provides retailers with opportunities to create their own lines of vertically differentiated multiple store brands within a product category. As the number of store brands increase, the retailer's shelf space becomes more crowded, which may force the retailer to consider dropping some national brands from its assortment. Despite these trends, the problem of product line design in a vertically differentiated product category has been analyzed mainly from a manufacturer's perspective in the marketing literature and it is not known to what extent the findings of the existing product line design literature provide applicable strategic guidelines for the new problem faced by retailers. In this study, we address this deficiency in the literature and conduct an in-depth study of the retailer's strategic design of a line of store brands and its assortment decision within the context of retail category management. We analyze the retailer's decision about not only how to design a line of store brands but also which national brand to drop from its assortment. The results of our analysis are as follows. First, if the retailer has to drop one of national brands from its assortment, it is the best for the retailer to drop the low-quality national brand rather than the high-quality national brand. Second, the retailer has to position the high-quality store brand relatively close to the high-quality national brand, remained on its shelf, in terms of quality so as to maximize the size of retail margin from the national brand. On the other hand, the retailer should set the quality of the low-quality store brand at a lower level than that of the low-quality national brand to increase the total category demand by attracting more price sensitive consumers. By doing so, the retailer can also minimize cannibalization between two store brands. Lastly, our analysis shows that the introduction of a line of store brands improves consumer welfare by increasing real values of all products on the shelf.

Keywords

References

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