Should national brand manufacturers produce private labels?

Abstract

Purpose

The purpose of this paper is to examine the question, “should national brand manufacturers produce private labels?”. Anecdotal evidence shows that though this is a common question for managers in different industries and countries, managers and companies react differently to it. As such, there are national brand manufacturers that produce private labels and others whose policy is to produce only branded products.

Design/methodology/approach

This paper examines this question through the construction of a model, focusing especially on the effects of producing private labels on manufacturers' profits when their provision may affect both the consumers' perception of the quality of the private label and the national brand manufacturer's costs.

Findings

The analysis allows for different degrees of competition in the retail market, and for linear and non‐linear pricing.

Practical implications

An important novel practical implication of these results is that national brand manufacturer' gains from producing private labels are increasing with the concentration of the retail market. Another implication derived from our model is that national brand manufacturers should be more enthusiastic about producing private labels when independent manufacturers may produce a good whose perceived quality is closer to that of the national brand.

Originality/value

The results presented in this paper may help managers to identify key variables that may affect the profitability of producing private labels.

Citation

Tarziján, J. (2007), "Should national brand manufacturers produce private labels?", Journal of Modelling in Management, Vol. 2 No. 1, pp. 56-70. https://doi.org/10.1108/17465660710733059