Retail research lands marketing professor in exclusive program

Dr. Woochoel Shin was named to Marketing Science Institute’s Young Scholar Program, a biennial program that “brings together some of the most promising scholars in marketing and closely related fields whose recent work suggests they are potential leaders of the ‘next generation’ of marketing academics.”

The 2017 class includes 34 of the brightest marketing minds, who have received their doctorate within the past three to seven years. The by-invitation-only event, which encourages research collaboration and engagement among the honorees, begins today in Park City, Utah.

Dr. Shin’s recent research has focused on store brands, and the impact it’s having in the retail industry.

 

Why does this research interest you?
Store brands are an important phenomenon. Store brands used to account for 10 to 15 percent of total market sales. Now it’s almost one-quarter. It’s even more in the European markets where 40 percent are store brands.

Store brands also have changed the manufacturer-retailer relationship. By offering store brands, retailers can command a greater share of profits from the sales of national brands. Given this advantage, many retailers recently started offer multi-tier store brands. However, the extant models of store brands could not explain this new phenomenon, because they ignore an important aspect of the store brand: differentiation in quality. My research uses a vertical differentiation model to explain the multi-tier store brand phenomenon.

 

What are multi-tier store brands?
Typically, a retailer carries multiple national brands in a category. Likewise, the retailer could offer multiple store brands in the same category. Look at a retailer like Target with Archer Farms and Market Pantry. They are different brands of Target in different quality tiers. That’s multi-tier store brand.

Store brands used to be only on the lower end of the product line, but now they’re starting to serve those in the mid-tier and upper-tier with much higher quality. Even though people may still perceive store brand as a lower quality option, in reality, store brand quality might be higher than national brand quality.

 

Can the manufacturer deter the entry of multi-tier store brands?
If you are the manufacturer, you may want to stop retailers from introducing multiple store brands. What I found is they cannot do this. The reason is because when you produce an additional store brand, the market expands. Even if the manufacturer wants to discourage retailers with a side payment, the side payment is not big enough compared to additional sales the retailer could make.

The manufacturer may try to crowd out store brands by introducing additional national brands. But unless fixed cost is prohibitively high, the retailer can always introduce more store brands, because each additional store brand could further expand the market.

 

Why would the retailer serve multiple quality tiers?
The alternative for the retailer is to serve one tier with multiple store brands and have them cannibalize themselves. By serving multiple tiers, the retailer can avoid cannibalization, but it has to compete against national brands in all quality tiers.

It turns out that the optimal strategy for the retailer is to serve all the different quality tiers instead of only a small segment of the market. That’s because retailers have final pricing power of all the products it carries in its stores. So it can always choose the price to its advantage in its competition against national brands. So it’s more profitable to serve different quality tiers than one tier with multiple brands. That’s the rationale behind the multi-tier store brands.

 

How does the growth of store brands impact consumers?
You have more variety. You don’t just have the national brands. You have the competing store brands at all quality tiers. At the same time, store brands have a cheaper price than national brands so you have some benefits in terms of the prices.

Some people may not perceive the store brand as high quality as the national brands. But, in fact, they are. One of the challenges for retailers is to persuade consumers—especially high-quality segment consumers—to buy into the store brands. Now you’re seeing some of the changes in the consumer’s minds toward store brands.

 

About Woochoel Shin
• His most recent article “Multi-Tier Store Brands and Channel Profits” appeared in the Journal of Marketing Research.
• Online marketing and advertising are also among Dr. Shin’s research interests. He’s published articles on keyword search advertising in Marketing Science and Management Science.
• Dr. Shin earned his Ph.D. in Marketing from Duke University in 2010.
• Dr. Shin is the fourth Warrington scholar to be named to MSI’s Young Scholar Program joining Aner Sela (2015), Deb Mitra (2009), and Michael Lewis (2007).