The value of store brand customization: consider demand learning and preference matching

Abstract

Purpose

This study examined the reciprocal influence of demand learning and preference matching in the context of store brand customization. The demand-learning effect refers to the collection of market demand information through production, based on pre-order demands, enabling retailers to accurately predict and allocate product quantities, thus improving inventory management. The preference-matching effect involves engaging consumers in the production and design processes of store brands to align fully with their preferences, thereby increasing the purchase impact of store brand products and promoting consumption.

Design/methodology/approach

We employ game-theoretic models to analyze a two-echelon supply chain consisting of a manufacturer and a retailer. The retailer offers both national brands, manufactured by the supplier and in-house store brands. To enhance their competitive edge, the retailer can adopt a customized strategy targeting the store brand to attract a wider consumer base.

Findings

The analysis reveals that, under low commission fees, the manufacturer consistently opts for high production quantities, irrespective of the level of demand uncertainty. However, when the perceived value of a store brand is low and demand uncertainty is either low or high, the retailer should choose a minimal or zero production quantity. The decision-making process is influenced by the customization process, wherein the effects of demand learning and preference matching occasionally mutually reinforce each other. Specifically, when the perceived value of a store brand is low, or the product cost is high, along with high customization costs, the interplay between demand learning and preference matching becomes mutually inhibiting. Consequently, the significance of store brand customization diminishes.

Originality/value

This study enhances the current body of knowledge by providing a deeper understanding of the theoretical value of store brand customization. In addition, it offers valuable decision-making support to enterprises by assisting them in selecting appropriate inventory and customization strategies.