This leads to a topic issue. Consider a retailer who decides to introduce (or increase
the share of) its private labels. The question we seek to address regards the
implications of this decision for retailer’ s assortment. Retailers face a complicated
choice in this regard. To make room for their store brands at the point of sale, they
have to readjust their assortments delisting some manufacturer brands. Retailers have
to choose which brands to delist. Retailers typically offer an heterogeneous
assortment of manufacturer brands, with brand of different strength and degree of
brand loyalty and equity. Strong brands enjoy higher perceived quality, brand
preference, and brand awareness than do weak brands. That enables retailers to
charge higher prices for stronger brands (Keller 2002; Aillawadi, Lehman, and Neslin
2003, Sloot and Verhoef (2004).
But the strength of a brand not only affect retailer’ s pricing policy but also does
matter for delisting decisions. Consumers react differently to a delisting of a high-
equity brand than they do to a delisting of a low- equity brand. Consumers of high-
equity brands tend to be more committed to their brand which makes a negative
reaction to a brand delisting more likely (Sloot and Verhoef, 2004).
3.3 The Framework
In the following analysis, we incorporate retailers’ delisting decisions into a two- stage
model. We consider a two- stage framework where a common retailer sells multiple
brands produced by different manufacturers. There are N manufacturers and each one
offers one or more brands so that the total number of brands is M > N. It is assumed
that advertising as well as R&D expenditures have a positive impact on brand equity
and loyalty. Brands are asymmetric and there is a metric allowing a ranking of brands
by brand loyalty. This brand rank is shown on the horizontal axis. To keep the
analysis as simple as possible, we assume that manufacturers do not compete in
prices in the retail stage. Each manufacturer is assumed to decide advertising and R&D
level while wholesale price for its brand is negotiated with the retailer. The retailer sets
the retail prices.
issue is still absolutely underresearched. For a first attempt to modelling a retailer’ s
delisting decisions, see Scott Morton and Zettelmeyer (2004).
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