Optimal retail pricing of a store brand

Abstract

Purpose

This paper seeks to provide a practical methodology for a retailer's pricing decisions for a store brand in relation to the corresponding national brand's price.

Design/methodology/approach

Demand functions for the national and store brands are derived by mixing two consumer heterogeneity distributions: reservation price and quality‐price trade‐off. Unlike the existing theoretical models, a flexible gamma distribution is employed for practicality. A numerical approach is proposed for finding an optimal price for the store brand.

Findings

The proposed methodology is flexible and computationally straightforward, and is based on economic models. Instead of deriving generalized theories, however, a numerical approach using survey data is developed for more practicality.

Practical implications

The proposed methodology allows managers to find the optimal price for a store brand using survey data.

Originality/value

The proposed methodology overcomes the limitations of the existing methodologies, i.e. the discontinuous nature of the conjoint analysis‐based approach and the theoretical nature of the economic model approach.

Citation

Chan Choi, S. (2008), "Optimal retail pricing of a store brand", Journal of Product & Brand Management, Vol. 17 No. 2, pp. 108-114. https://doi.org/10.1108/10610420810864711