Could co-op advertising be a manufacturer's counterstrategy to store brands?

We propose a model to study the decision of a private level introduction for a retailer and its effects on the manufacturer. We investigate whether the manufacturer can counter the harmful effects of this introduction, if any, by implementing a cooperative advertising program. Our model accounts for prices and for local advertising undertaken by the retailer for the national brand. We show that the private label introduction is profit-improving for the retailer and the channel although it could harm the manufacturer's profits. However, for a specific range of the retailer's advertising efficiency and of the price competition intensity, the manufacturer could profit from the private label introduction. Our findings suggest also that the co-op plan is an efficient counterstrategy for the manufacturer and the retailer would accept its implementation only if the national brand competes strongly with the private label. (c) 2006 Elsevier Inc. All rights reserved.