Review of Industrial Organization 24: 195–218, 2004.
© 2004 Kluwer Academic Publishers. Printed in the Netherlands.
Store Brands: Who Buys Them and What Happens
to Retail Prices When They Are Introduced?
and PRADEEP K. CHINTAGUNTA
Singapore Management University, School of Business, 469 Bukit Timah Road, Singapore 259756
University of Chicago, GSB
Abstract. In this paper we study store brand demand behavior by examining a panel of household
level and store-level data in ﬁve stores located in a competing market area. We seek to address three
fundamental questions from this data. First, is there a link between store loyalty and brand loyalty?
Second, does store loyalty raise store brand choice probabilities? Third, if a store brand is introduced
into a category, what happens to the retail prices of the incumbent brands in the category? We ﬁnd
that store loyalty is negatively associated with brand loyalty, and that store loyalty increases the
likelihood of a store brand purchase in a given category. We ﬁnd mixed evidence on how the retailer
changes prices of incumbent brands when it introduces a store brand to the category. Category level
market structure measures are used to help identify under what conditions the category prices fall or
rise. A number of robustness checks are used to help validate our ﬁndings.
Key words: Loyalty, market power, retail competition, store brands
A store brand can be a strategic tool used by retailers to generate greater market
power in a category vis-à-vis its channel partners (Scott-Morton and Zettelmeyer,
2001; Chintagunta et al., 2002). The presence of a store brand can also have an
effect on the ability for the store to compete against rival stores. How does a retailer
make money from the store brand? Who buys the store brand? What happens to
prices of other brands in a category when the retailer adopts a store brand in a
category? The goal of this research is to provide some empirical results that can
help answer these questions, and to suggest some new perspectives on why retailers
may carry store brands, based on the proﬁts they generate from selected groups of
In this paper we study how a retailer can make money by introducing a store
brand. In other words, we want to show that store brands can be used to attract
customers, to make more marketing proﬁts (Chen et al., 1999) from attracted cus-
tomers, or to generate greater marketing proﬁts from loyal customers. We proceed
with this study by asking three key questions. First, what is the association between
store loyalty and brand loyalty? That is, does strong store loyalty behavior translate