The Impact of Consumers’ Reference Dependency on Store-Brand Introduction

What is it about?

Facing the retailer’s store-brand (SB) entry, there exists reference dependency, which means consumers’ perceived gains or losses when they compare the price or quality of products before purchasing. To explore the impacts of consumers’ reference dependency on SB entry, we construct a game-theoretic model that includes a manufacturer and a retailer. Considering the consumer’s reference quality dependency (RQD), we find that the SB introduction will not harm the manufacturer’s profit, and the SB entry will produce a win-win situation. Furthermore, when considering the consumer’s reference price dependency (RPD), we find that the effect of the psychological gain or psychological loss from the RPD, which is determined by the acceptance of the SB product and the cost of the national-brand (NB) product, will hurt the profit of the manufacturer. However, it is worth noting that when consumers’ acceptance of the SB product is low and the production cost of the NB product is low, the manufacturer still has the possibility of making a profit. Our results highlight the importance of understanding consumers’ reference dependency for firms’ effective production and pricing strategies.

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Photo by Brett Wharton on Unsplash

Photo by Brett Wharton on Unsplash

Why is it important?

Our results highlight the importance of understanding consumers’ reference dependency for firms’ effective production and pricing strategies.

Perspectives