An Empirical Analysis of the Determinants of Retail Margins: The Role of Store-Brand Share

Abstract

The authors develop and test a model of the key determinants of margins that retailers earn on national brands and store brands. They particularly focus on the impact of store-brand share on percentage margin, dollar margin per unit, and total dollar margin of the retailer. The authors find not only that percentage retail margins on store brands are higher than on national brands but also that high store-brand share enables retailers to earn higher percentage margins on national brands. However, the dollar margin per unit may be smaller for store brands because of their lower retail price. Furthermore, heavy store-brand users contribute much less to the total dollar profit of the retailer than do light store-brand users. The authors conclude that it is important for retailers to retain a balance between store brands and national brands to attract and retain the most profitable customers.