Date of Original Version

10-2002

Type

Working Paper

Rights Management

All Rights Reserved

Abstract or Description

Previous research has shown that most consumer packaged goods markets are in long-run competitive equilibrium. In most categories, a given brand’s market share is stationary, showing remarkable stability over long time horizons (10 years). This empirical generalization has been attributed to consumer inertia and to competitive reaction elasticities that lead to offsetting marketing spending which nullify attempts by one brand to take unilateral action to increase share. We find a clear exception to this rule — during the period 1987-94 the retailer’s private label consistently showed positive market share evolution. In 225 consumer packaged goods categories, private labels trended upward 86% of the time. The trend persisted even after controlling for marketing spending by both national and store brands. We consider the viability of alternative explanations including changes in consumer and national brand behavior and find that none of them can adequately account for the trend in private label share. We offer an analytical explanation and empirical support for why private labels can grow even though national brands shares are relatively stable. We argue that the retailer is in the best position to opportunistically appropriate different sources of category growth because not only does it control it own marketing spending, it also exerts some influence over the ultimate marketplace spending of their national brand competitors.

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