Battle of the Brands: Sharing Shelf Space, Sharing Information?
- As a result of their direct interaction with customers, retailers are uniquely positioned to glean consumer taste information that can be incorporated into new store-brand products.
- A study based on a game theory model shows there are scenarios in which it benefits the retailer to share product positioning insights with manufacturers of competing national-brand products.
- For the retailer, it makes sense to share information when a product feature is very popular among customers or when it’s costly to launch a store-brand product in a particular category.
Through their direct interaction with customers, retailers are uniquely positioned to glean marketing information: what consumers in a particular segment look for in a product or category; what they identify as needs; their willingness to pay for certain features; how they decide between competing products.
Retailers with their own store-brand goods can then use the insights to tailor new products to particular customer segments, says Arcan Nalca, a Smith School of Business associate professor.
Nalca offers Best Buy was a prime example. The electronics retailer noticed that national brands of portable DVDs were positioned as high-performance products but that a different need was emerging in the category: durability. After witnessing parents of young children shopping for portable DVD players time and again, Best Buy designed and introduced a spill-resistant portable DVD player with a ruggedized exterior and simplified interface. It went on to become a bestseller.
Manufacturers of national brands do their own market research before launching a new product. But it can be challenging for them to forecast demand and assess how a new product will actually perform in the market.
“Manufacturing brands can do all this market research before product launch, but still that research is limited,” says Nalca. “Even if you know you have a good product, you don’t know the scale. That’s where the dilemma comes in. You have uncertainty about how to position your product because you don’t know which features are going to be the selling features.”
Easing the Uncertainty
National brand manufacturers would certainly benefit from what retailers know about consumer tastes. Should retailers share these insights with manufacturers to help them position their name-brand products, even if they share shelf space with store brands?
The question of how a retailer’s unique position can be used to influence store brand and national brand positioning hasn’t received much attention. But it’s a question that Nalca sought to answer. Working with Tamer Boyaci (European School of Management and Technology) and Saibal Ray (McGill University), he built a game theory model and optimization models that predicted decisions made by competing firms as well as their outcomes.
At the start of the study, Nalca expected that competitive pressures between store brands and national brands would incentivize retailers to keep customer taste information private.
But that’s not what his study revealed. He discovered that sharing marketing information can benefit both the retailer and manufacturer, at least when it comes to brand positioning decisions. By carefully analyzing the popularity of product features and how much it costs them to introduce a new store-brand product, retailers can identify opportunities where they can share store-level marketing data with national brand manufacturers.
“It was exciting to see situations in which both parties can benefit from information sharing, particularly since there are competing brands,” says Nalca, “and that there may be still product variation even after the information is shared.”
When Sharing Makes Sense
Specifically, there are two scenarios in which retailers benefit from sharing customer taste information with national-brand manufacturers.
- When a product feature is very popular among customers. In this case, the retailer should launch a new store-brand product with this popular feature and share the insight with the national-brand manufacturer so that the feature can be incorporated into their positioning as well. This may mean very similar national- and store-brand products or differentiated products depending on the popularity of specific features.
- When it’s costly for the retailer to launch a store-brand product in a particular category. If the retailer isn’t in that segment, they benefit from sharing customer taste information with the national brand manufacturer. This generates additional revenue for the retailer, even if the profit margin is smaller than it would be on a store-brand product.
Retailers should avoid sharing customer taste information with national brands when:
- Different product features are about equally popular. Under this situation, the store brand and national brand are better off by differentiating from one another and targeting different customer segments.
- The national brand product feature is slightly more popular than the store brand feature. In this case, the retailer can use consumer intelligence to better position new store brand products in this category.
From the manufacturer’s perspective, these findings confirm the value in staying close to retailers and sharing knowledge, even when there are competing product lines. Doing so helps them refine product positioning and mitigate the risk associated with launching new products.
Consumers benefit from knowledge sharing as well. Either they’re offered better pricing of store or national brand products in a given market, or presented with greater choice, with the national brand and store brand product offering different features.
As this work highlights, the relationship between store brands and national brands is dynamic and complex. It’s difficult to predict how this relationship will evolve in the coming years. But one thing’s for sure: being on the frontlines with consumers offers an invaluable marketing edge.
The number one takeaway for both retailers and manufacturers, says Nalca, “is the value of the retailer’s position and how, as a manufacturer, I can collaborate with the retailer to create value from that. Retailers have this engagement that national brand manufacturers lack, but that engagement can benefit everyone.”