The role of dual purpose in retailer’s store brand introduction and quality strategies within a supply chain

Abstract

To address stakeholders’ interests, firms increasingly adopt a dual-purpose agenda, typically involving the pursuit of profits and consumer surplus (CS). This study considers a supply chain dynamic involving a retailer and a national brand (NB) manufacturer, both potentially pursuing dual purposes, to investigate how their dual-purpose nature influences the introduction and quality strategies of the retailer’s store brand (SB). Our findings show that only the retailer pursuing CS has no impact on SB quality. However, if the NB manufacturer pursues CS, SB quality declines irrespective of the retailer’s stance. Interestingly, the for-profit retailer experiences reduced profits from SB introduction when also pursuing CS and expressing a high interest in it. Conversely, SB introduction enhances the dual-purpose manufacturer’s utility when its interest in CS is relatively high. The introduction of SB may lead to unintended price and payoff implications, with the manufacturer’s profit and the wholesale price exhibiting non-monotonic relationships with its interest in CS. Consequently, compared to the for-profit scenario, this may elevate the wholesale price, exacerbating the double marginalization effect. Additionally, when the retailer pursues CS, supply chain profit may increase because of the mitigated double marginalization effect, resulting from an unconventional reduction in retail markup rather than wholesale price. Our findings suggest that manufacturers pursuing CS could strategically alleviate profit losses stemming from retailers’ SB introduction. However, retailers should exercise caution when simultaneously introducing a SB and pursuing CS from a profitability standpoint.