The Research On Chinese Retailer Private Brand Decision Making Behavior

As retailers grow in size and its supply chain capabilities, the way in which retailers work with manufacturers is changing fundamentally, manufacturers start to plan their activities around retailer's purchase orders. Perhaps the most obvious example of such change lies in the development of the retailer's private brand product. It is very common for international retailers to adopt private brand business strategy. According to a survey conducted in 35 countries and regions by AC Nelson in 2005, private brand sales now accounts for 17% of the total retail sales, Switzerland ranked number 1 with private brand penetration rate exceeding 45%.In China, retailers have just begun with their private brand strategy, many are unfamiliar with the concept. With the development of the market economy in China, the competition in the retail industry intensifies. An understanding of how to continuously innovate and position themselves in the new retail landscape has become an urgent need. More and more retailer has paid attention to private brand strategy. Realizing the importance of private brand, many retailers have been trying, and the growth of private brand is accelerating. The presence of private brand products broke the traditional model of retailer– selling only manufacturer brand products, given retailer the opportunities to play a more active role in the commercial world.With the rapid growth of private brand, there were quite a lot of research done in this field by the Chinese academic world. After some extensive literature research, there seem to be quite some limitation in theoretic study of private brand in China, this is in sharp contrast to the rapid growth and potential of private brand practice in China, and cannot offer practical guidance to Chinese retailers'private brand decision making.Although private brands are growing rapidly, it is not for every retailer. Even if the retailer is strong enough to adopt private brand strategy, not all product categories are suitable for private brand development. Once a decision is made to develop private brand in a specific product category, retailer also has to find the right supplier, and set the appropriate strategy of quality, packaging, pricing, and after sale service. In the series of decisions to be made, the difficulty to judge the interaction among retailer, manufacturer and consumer adds uncertainty, this is also the focus of this current research.This paper seeks to use the theory of economics, marketing and game theory, coupled with the practical experience that the author has, to study the private brand related issues, especially in the area of private brand decision making behavior. This paper, adopting the approach of theoretical analysis followed by empirical research, examines private brand investment behavior and the relevant consumer behavior in Chinese market condition, summaries the Chinese retailer private brand theory, reveals the current state of Chinese private brand development, analyze the main factors affecting the private brand development in China, predicts the direction for Chinese retailer private brand development.In the area of Chinese retailer private brand decision making behavior, this paper, for the first time, uses asymmetric duopoly real options game theory model along with Nash game equilibrium model, to study the relationship between manufacturer and retailers and between two independent retailers in the retailer private brand strategy implementation. The result suggests that whether or not a retailer chooses to develop private brand (in a particular product category), mainly depends on the brand attractiveness of the manufacturer brand and the brand attractiveness of the retailer's private brand , as well as the cost of the private brand product and its quality. The stronger the relative brand attractiveness of the private brand product; the better the private brand product quality and the lower the private brand product cost, the more likely the retailers would opt to develop private brand products, and vice versa.This paper also examines the investment decision behavior of two retailers with asymmetric competitive position, in uncertain market conditions. The study reveals that there are three types of equilibrium strategies in the game between the two retailers: preemptive, sequential, and simultaneous, the threshold conditional of each equilibrium were also elaborated.Subsequently, this paper attempts to establish an index system for the core factor in private brand decision making– brand attractiveness, to quantify it so that it can be used in the private brand decision making process. Through brand attractiveness index system, the retailer is able to assess the brand attractiveness of various manufacturer's brands, its own private brand product brand attractiveness, and those of its competitors, while making private brand related decisions. This will enable the retailer to identify which product categories are suitable for private brand development, the proportion of the private brand product, as well as the timing of the private brand development investment. The findings of this paper are used in an empirical study– in a men's underwear project at a local retailer, a survey was conducted to determine the brand attractiveness index, which was used in private brand decision. A follow up study using the actual sales figure proved the effectiveness of the main research result of this paper. The result indicates that the result of this paper's study offers practical guidance to the Chinese retailer's private brand practiceThis paper attempts to have in depth study in both Chinese retailer private brand theory innovation and practical guidance. This paper, for the first time, focuses its research on Chinese retailer's private brand decision behavior, opening new frontier in retailer private brand theoretic research. This paper, also for the first time, used mathematical model to study the decision making of retailer private brand, offered new clue to the retailer private brand theoretic research. This paper also touched on some critical issues faced by Chinese retailers in their private brand strategy setting, the result of the study will, hopefully, influence the way Chinese retailers approach private brand strategy.This dissertation is divided into ten chapters:Chapter one is the introduction of the research topic and its contribution to knowledge, the main research topics are also presented in this chapter.Chapter two is the summary of the literature search, a study of the current research results of both English and Chinese literatures. Through these studies, the research focus and priorities were determined.Chapter three discusses about retailer private brand theory, it talks about the concept of private brand, the reason of private brand emergence and development, the benefits and potential risk of developing private brand products, the pre-conditions for developing private brand.Chapter four qualitatively analyze the factors affecting consumer's buying decision of private brand.Chapter five is the theoretical study of retailer private brand decision making model, employing the Nash equilibrium to study the retailer private brand decision making behaviour.Chapter six discusses the decision making model among Chinese retailers, using a real options game theory model.Chapter seven is the introduction of Chinese retail industry consumer brand attractive index, the first attempt to quantify this core factor in private brand investment decision making process.Chapter eight discusses about the retailer private brand decision making process.Chapter nine talks about the opportunities, challenges and the solutions for the Chinese retailer in their attempt to develop private brand.Chapter ten is a summary of the whole paper and discussed its limitations and future research priorities.