Couponing Strategies in Competition Between a National Brand and a Private Label Product

[Display omitted] •We study coupon strategy in competition between brand name and generic products.•We find both horizontal and vertical differentiation affect coupon strategies.•With large HD, brand name products get a large manufacturer coupon.•With large VD, manufacturer coupon are high and retailer brand name coupons low.•Private label coupon is only impacted by difference in consumer willingness to pay. This paper explores the couponing strategies when a national brand competes with a store brand by discussing three different kinds of coupons: manufacturers’ coupons, retailers’ national brand coupons, and retailers’ private label coupons. We show that the positioning of the private label product in terms of quality and feature differentiation from the national brand play an important role in determining the face value of the manufacturer's coupon and retailer's national brand coupon. In particular, a larger degree of feature differentiation drives the manufacturer to increase its coupon value, and the retailer responds by decreasing the value of its own coupon for the brand name product. In contrast, with an increase in private label quality, the couponing strategies taken by the manufacturer and the retailer depend on which segment of consumers is in the market for the private label product. Additionally, the retailer's private label coupon value is only impacted by the difference in consumers’ willingness to pay but not by private label positioning. Empirical results on the effect of feature differentiation on national brand and private label coupon values are consistent with our theoretical predictions.