A Study on Pricing Strategies Followed by Successful Retailers

A Study on Pricing Strategies Followed by Successful Retailers


Abstract

A number of studies have looked at demand and cost-based reasons for store brands' fast development and success. However, there has been little empirical research on the retailer's strategic involvement in supporting store brand success. In this article, we look at a retailer's pricing behaviour in the ready-to-eat (RTE) morning cereal sector to see whether and how store brands are strategically favoured.
The following is our main finding: Following the launch of the store brand, the retailer penalises national brands that it imitates (and therefore faces more competition) by imposing higher margins. It, on the other hand, favours national brands that it did not copy (and therefore face less competition) by charging lower margins. As a result, some national brands gain from the store brand launch, which may seem counterintuitive.

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Introduction

This body of knowledge, on the other hand, ignores the retailer's position as a strategic actor who may help store brands succeed. According to Hoch et al. (2000), the store brand's continuous rise over the past ten years may be due to the retailer's influence over not just the store brand's marketing mix but also the marketing mix variables of its rival national brands. The strategic importance of the retailer in the development of store brands has been recognised or theoretically explored in many studies.

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Conclusion

The strategic conduct of the retailer in allowing the brand's success was examined in this study. We looked at how a retailer's pricing behaviour alters when they add store brands. We account for changes in demand and cost circumstances as a result of the store brand launch, and we continue to spot strategic pricing by the retailer that favours store brands. To examine deviations from the category profit maximising pricing, we adopt the techniques of Berry, Levinsohn, and Pakes (1995) and Nevo (2001), but loosen the Bertrand behaviour assumptions employed in these works.

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