۱- Introduction

۲- Literature and hypotheses

۳- Methods

۴- Results

۵- Discussion

۶- Conclusion

References

Abstract

Private branding, a retail trend whereby products made by unaffiliated manufacturers are sold under the private brands owned by retailers, has coincided with another trend known as foreign sourcing, whereby retailers outsource products from foreign manufacturers. Prior studies have tended to treat private branding and foreign sourcing as two separate trends without paying much attention to their coincidence. In this paper, we take a transaction cost approach to explore why the two retail trends coincide and whether there is a causality direction between them. Focusing on the manufacturer-retailer relationship, we point out that a special case of asset specificity (i.e., brand specificity) can drive up the costs of intra-channel transactions in foreign sourcing, in that private branding serves to neutralize the transaction cost disadvantage of foreign manufacturers and preserve their production cost advantage. Empirical data drawn from a multi-product/single-retailer sample confirm this transaction cost view and reveal a clear causality direction between the two retail trends. Both scholars and managers can derive useful insights from the conceptual framework and empirical evidence presented in this paper.

Introduction

Private brand products are made by unaffiliated manufacturers but sold under the private brands owned by retailers (Fitzell, 1982, 1992; Kumar & Steenkamp, 2007). Since its rise in the 1970s, private branding has become widespread in the retail industry. In the United States, for instance, over 60% of shoppers fill about half of their grocery carts with private brand items (Store brands decisions, 2012). National retail chains such as Target and Whole Foods have introduced private brands in many product categories (Intelligence Node, 2017). The rise of private branding has attracted the attention of marketing researchers, who tend to treat it as a store-level tactic for retailers to reach certain market segments (Ailawadi, Pauwels, & Steenkamp, 2008; Kamakura & Russell, 1989; Steenkamp & Dekimpe, 1997). Simultaneously, the last four decades have seen the hollowing out of U.S. manufacturing sectors, in that retail chains have increasingly moved from domestic to foreign suppliers to fill their store shelves (Doh, 2005; Li, Murray, & Scott, 2000; Raa & Wolff, 2001). The practice of foreign sourcing can be handily explained through trade theories at the country level—that is, retailers are expected to source more from foreign suppliers because the United States is losing comparative advantages to foreign countries (Melvin, 1985; Ruffin, 1990). The problem is that the decision to use foreign sourcing is not made at the country level. Instead, it is a cost-cutting decision made at the product level. This product-level decision varies substantially across retail chains, in that some choose to source a product internationally; others elect to do so domestically. Yet, the choice between domestic and foreign sourcing has not been analyzed at the firm level in the trade literature.