The Consumer-Welfare Effects of National-Brand Introductions at Hard Discounters
Didi Lin
Barbara Deleersnyder
Marnik G. Dekimpe
Inge Geyskens*
January 2013
Didi Lin is a doctoral candidate in Marketing, Tilburg University, Warandelaan 2, 5000 LE
Tilburg, the Netherlands. Tel: +31-13-466 82 79. E-mail: P.Lin@uvt.nl. Barbara
Deleersnyder is Associate Professor of Marketing, Tilburg University, Warandelaan 2, 5000
LE Tilburg, the Netherlands. Tel: +31-13-466 82 52. E-mail: B.Deleersnyder@uvt.nl. Inge
Geyskens is Professor of Marketing, Tilburg University, Warandelaan 2, 5000 LE Tilburg,
the Netherlands. Tel: +31-13-466 80 83. E-mail: I.Geyskens@uvt.nl. Marnik G. Dekimpe is
Research Professor of Marketing and CentER Fellow, Tilburg University, Warandelaan 2,
5000 LE Tilburg, the Netherlands, and Professor of Marketing, Catholic University Leuven,
Belgium. Tel: +31-13-466 30 22. E-mail: M.G.Dekimpe@uvt.nl.
The Consumer-Welfare Effects of National-Brand Introductions at Hard Discounters
Private-label (PL) dominated hard discounters constitute one of the fastest growing retail
formats in many Western economies, and have contributed considerably to the continued share
growth of PLs in European grocery retailing. This increasing dominance of PLs starts to raise
concerns among policy makers in that it may restrict in-store inter-brand competition by
limiting national-brand (NB) availability, which could make consumers worse off. Given their
scanty store assortment, this concern applies especially to the hard-discount format.
Recently, however, several leading discounters have moved away from their exclusive PL
focus, and have started to add a select set of NBs to their assortment. Hard discounter Lidl, a
leading discount retailer in Europe, was at the forefront of this trend. The strategic choice of
opening positions for NBs at its stores is seen by many industry observers as a key reason why
it has grown faster than many of its discount competitors (Steenkamp and Kumar 2009).1
These NB slots are in high demand, and NB manufacturers as Nestlé, PepsiCo, and P&G are
all eager to get their NBs listed on the hard discounters’ shelves. Indeed, the sizeable market
share of the hard-discount format causes NB manufacturers to miss out on a large part of the
market when they are not included in the discounters’ assortment.
This study examines the consumer-welfare implications of NB introductions in hard
discounters’ PL-dominated assortments. We aim to uncover whether consumers indeed benefit
from being able to also buy NBs in the discount format (= impact on variety), and/or whether
such a NB listing will affect the prices of established offerings (= impact on prices), at the
discounter and/or at competing retailers. In line with Hausman and Leonard (2002)2 and
Brynjolfsson, Hu and Smith (2003)3, we express in monetary terms the consumer-welfare
effect of NB introductions in hard discounters’ assortments, where we further divide the total
welfare effect into a price effect and a variety effect. For this purpose, we model the changes in
consumer expenditures and changes in grocery prices following the introduction of 18 NBs
across different grocery categories at the German discounter Lidl between 2003 and 2009. By
comparing the expenditures that consumers would save (positive welfare effect) or that
consumers would require additionally (negative welfare effect) to reach the same utility level
when the NB becomes available at the store, we are able to infer how consumers are affected
by this strategic assortment decision.
Our results show that introducing NBs at the hard discounters benefits consumers by
having additional variety in an otherwise limited assortment. Unfortunately, this enhanced
variety effect is often overshadowed by a negative price evolution on established offerings
after the NB introduction at Lidl. Indeed, the addition of a NB at discounter Lidl seems to
reduce the pressure on prices of comparable offers at other German retailers, which is harmful
to consumers. Hence, NB introductions at hard discounters are not necessarily welfareenhancing. Interestingly, the relative size of the variety-enhancing and/or deteriorating price
effect is found to vary systematically with a number of category- and NB-specific
characteristics.
Given the growing concerns of policy makers that consumer choice may become too
restricted in PL-dominated assortments, we provide insights how a strategic selection of
categories and NBs may allow hard discounters to allay these concerns with minimal
adjustments to their basic business model.
Steenkamp, J-B.E.M. & Nirmalya K. (2009), “Don’t Be Undersold,” Harvard Business Review, 87 (12), 90-95.
Hausman, J.A. & G.K. Leonard (2002), “The Competitive Effects of a New Product Introduction: A Case
Study,” The Journal of Industrial Economics, 50 (3), 237-263.
3 Brynjolfsson, E., Y. Hu, & M.D. Smith (2003), “Consumer Surplus in the Digital Economy: Estimating the
Value of Increased Product Variety at Online Booksellers,” Management Science, 49 (11), 1580-1596.
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