Review of Industrial Organization 24: 161–194, 2004.
© 2004 Kluwer Academic Publishers. Printed in the Netherlands.
The Strategic Positioning of Store Brands in
FIONA SCOTT MORTON
and FLORIAN ZETTELMEYER
Yale School of Management and NBER (E-mail: ﬁona.firstname.lastname@example.org)
University of California, Berkeley and NBER (E-mail: ﬂorian@haas.berkeley.edu)
Abstract. Store brands are the only brands for which the retailer is responsible not only for promo-
tion, shelf placement, and pricing, but also for positioning the brand in product space. We argue that
retailers strongly value control over store brand positioning because they will be unable to source
a national brand with their desired product positioning. This is because retailers have an incentive
to position store brands as close substitutes to leading national brands – a location in product space
which other national brand manufacturers would not ﬁnd proﬁtable. We present empirical evidence
that is consistent with the results of our model.
Key words: Added value, negotiation, positioning, private labels, store brands
JEL codes: C71, C72, L11, L13, L66, L81, M31, M37
Store brands are the only brands for which the retailer is responsible not only for
promotion, shelf placement, and pricing, but also for deﬁning the very nature of
the product. In particular, retailers decide on the exact positioning of store brands
in product space. This includes the size, shape, color, lettering, and art of a store
brand’s packaging as well as precise quality and taste speciﬁcations. For national
brands, in contrast, these core strategic decisions are made by their respective
manufacturers, not by the retailer.
This paper argues that the fact that retailers control store brand positioning is
one of the key reasons that makes store brands so valuable to them. This is not
because retailers are necessarily any better than national brand manufacturers at
positioning brands – they may in fact be less skilled at identifying consumers’
preferences. Instead, we argue that retailers value control over store brand posi-
tioning because they will be unable to source a national brand with their desired
The value to retailers of controlling the positioning of their store brands arises
when retailers negotiate supply terms for national brands that they stock. Retailers