Private labels and the channel relationship: A cross-category analysis

Retailers introduce private labels in a category not only to gain profits directly from the private label but also to use as a strategic weapon to elicit concessions from the national brand manufacturers. We show that, in certain categories, the retailer can gain better terms of trade by introducing a private label. The ability of the retailer to use the private label for this purpose is hypothesized to be inversely related to the risks consumers associate with purchasing in that category. The implications of our model are supported by data from a cross section of grocery categories.