WHEN DO PRIVATE LABELS SUCCEED

PRIVATE LABELS OR STORE BRANDS ARE AN IMPORTANT SOURCE OF PROFITS FOR RETAILERS AND A FORMIDABLE SOURCE OF COMPETITION FOR NATIONAL BRAND manufacturers. Market share of private labels, however, varies dramatically across categories. The authors propose and test a framework to explain this variation in order to understand the determinants of private label success in the U.S. supermarket industry. They find that private labels perform better in large categories offering high margins. Private labels also do better when competing against fewer national manufacturers who spend less on national advertising. Surprisingly, high quality is much more important than lower price.