Operation Management Of Store Brand In The Presence Of Consumer Confusion

With the booming development of the retail industry,store brand products are becoming an effective tool for retailers in managing product categories,the manufacturer-retailer relationship,and consumer store loyalty.To strengthen the competitiveness of SBs,retailers often engage in "free-riding" behavior to package products to resemble related national brand products in features such as product name,size,color,shape,graphics,and wrapping material.Despite the advantages for retailers in building a positive association with NBs without commensurate investments,lookalike packaging creates a substantial challenge for consumers who tend to identify brands relying on visual cues to effectively distinguish and evaluate SBs,thus resulting in consumer confusion.Prior research has provided diversified insights into understanding how consumers infer the quality preference of products in the presence of confusion though,it is confirmed that consumer confusion can affect consumer utility and thus influence their purchasing behavior.Therefore,it is necessary to explore the impact of consumer confusion on store brand operation management.This paper aims to explore operation strategies related to lookalike-packaged store brand and corresponding consumer confusion.The existence of consumer confusion can lead to uncertain changes in consumer utility and purchasing behavior,and the impact of confusion on both manufacturer and retailer’s profits is also uncertain.A number of crucial decisions such as store brand products’ introduction,sourcing,and shelf layout are seriously affected by consumer confusion.Taking these factors into consideration,we focus on three research questions:(1)Store brand products introduction and corresponding market segmentation strategies from the perspective of consumer confusion;(2)National brand manufacturers’ supply strategy in the presence of consumer confusion caused by store branded lookalike packaging;and(3)Shelf design for store brand products and national brand products in the presence of consumer confusion.Based on a solid real-life background,we build theoretical models to characterize the interplay between manufacturer and retailer in the presence of consumer confusion.The main conclusions of this paper are as follows:(1)First,we present a model for exploring the NB manufacturer’s wholesale price decision,the retailer’s SB introduction and market segmentation strategies,considering consumer confusion.Consumers differ in their quality preferences for products and are classified into two groups:deliberate and confused,depending on whether they have precise quality preferences of the SB.We find that the retailer chooses to introduce the SB only when the quality preference difference between high-and low-end consumers is moderate.When the SB is offered,the retailer may not always benefit from targeting low-end consumers with the SB only;a mixed strategy by attracting low-end(high-end)consumers to the national(store)brand product can bring higher profit.Examining the effect of consumer confusion,we find that it may bring a win-win,lose-lose,or winlose situation for the manufacturer and retailer.That is,consumer confusion may be beneficial to both supply chain members.(2)Second,we propose a game-theoretical model to examine the manufacturer’s supply strategy and the retailer’s store-branded lookalike packaging strategy.The manufacturer moves first and decides whether to supply the SB product to the retailer.Depending on the manufacturer’s supply offering decision and the wholesale contract,the retailer determines the packaging regime for the SB.It should be noted that the retailer does not have an option of lookalike packaging if the SB product is produced by the manufacturer.Alternatively,she can produce SB in-house and decide whether to choose lookalike packaging for SB.We find that the manufacturer chooses to supply an SB product to the retailer when the unit production cost of supply is low or the unit production-in-house cost is high,which induces the retailer to choose lookalike packaging when both the NB’s unit price of quality and production-in-house cost are low.Consumer confusion may bring a win-win situation for the manufacturer and retailer,which stimulates the manufacturer to lower the incentive to supply.In addition,the proportion of confused consumers brings a non-monotone effect on the profitability of the retailer and manufacturer.(3)Third,by observing the negative correlation between the level of consumer confusion and the distance between NB and SB products on the shelf,this paper models the decision-making of their location and attention,taking consumer confusion into account.We find that the decision made by retailers regarding the shelf layout of two products is primarily based on travel cost.When the travel cost is low,the retailer is likely to display the two products in the same location.Conversely,when the travel cost is high,the retailer may opt to display the two products in distant locations.These findings are counterintuitive but offer valuable insights for retailers in their decisionmaking processes.Furthermore,they underscore the importance of collaboration between retailers and manufacturers to enhance profitability.The presence of consumer confusion can also increase the likelihood of retailers displaying the two products in the same location,thus presenting opportunities to boost profits for both the retailer and the manufacturer.The conclusions drawn in this paper are robust and can contribute to both theory and practice.This is the first paper involving consumer confusion in operation management.Taking into account the uncertain impact of consumer confusion,consumers are characterized by perceiving themselves as an "average consumers".Additionally,the paper identifies the conditions under which consumer confusion can benefit both manufacturer and retailer,providing insights for both parties to engage in"confusion marketing" in practice.