Private label positioning: Quality versus feature differentiation from the national brand

This paper investigates the retailer's problem of positioning her private label against two national brands in terms of both product quality and product features. Using a demand function derived from consumer utility, we show that the private label's best positioning strategy depends on the nature of the national brands’ competition and its own quality. When the national brands are differentiated, a high quality private label should position closer to a stronger national brand, and a low quality private label should position closer to a weaker national brand. When the national brands are undifferentiated, the private label should differentiate from both national brands.     

Private labels ain’t bona fide! Perceived authenticity and willingness to pay a price premium for national brands over private labels

Abstract

As private labels are consolidating their gains in national markets, a conventional recommendation to national brand manufacturers would most likely be to invest more in marketing in order to increase the perceived quality gap between national brands and private labels. It is assumed that the quality gap would boost consumer willingness to pay a price premium for national brands over private labels. Differing from this conventional approach, the current study focuses on the perceived authenticity gap between national brands and private labels, to explore whether and how this factor influences the effect of marketing and manufacturing variables on willingness to pay. This relationship is relevant in milieus where consumers might take brand authenticity rather than quality perceptions to guide their brand evaluations. The current study finds that the perceived authenticity gap mediates the effect of only some particular conventional marketing tools on willingness to pay. The study suggests that national brand managers should take the presence of private labels in the national markets as an opportunity to exploit the dynamics of authenticity evaluations, rather than as a threat.     

Consumer attitudes and loyalty towards private brands

Private or store brands improve the efficiency of consumer decision making by offering equivalent quality products at lower prices. The present study evaluated consumer attitudes towards private brands with the goal of understanding their appeal in order to enhance efforts to convince more consumers to buy them. We used three samples (ns = 279, 245 and 305) of US consumers to compare attitudes of buyers of private and national brands in three product categories: orange juice, cereal and bottled water. The results show that private label buyers (23% of orange juice, 6.5% of cereal and 14% of bottled water buyers) consider brands themselves to be less important and private brands to offer better performance than do national brand buyers. When asked about specific brands, national brand buyers tended to be price insensitive towards national brands, and private label buyers price insensitive towards store brands. In addition, the national brand buyers saw some of the national brands to be more relevant to their lifestyles and needs, but the private label buyers saw the private labels the same way. Being relevant to consumers' lives appears to influence brand selection. Besides touting lower prices, private brand promotions might stress the equivalent performance of private labels and create promotions showing how these brands can be relevant to consumers' lifestyles and needs.     

A Positive Theory of Private Label: A Strategic Role of Private Label in a Duopoly National-Brand Market

This article offers an economic rationale for national brands to provide private labels to their retailers. We build a game-theoretic model that analyzes the interactions among two national brand manufacturers and one common retailer. In an interesting strategic role, the private label mitigates the promotion competition between the two national brands and provides benefits for all three members in the channel. Our analysis shows that offering a private label can be a credible commitment from a national brand manufacturer that it will not engage in promotions and decrease the incentive of the national brand rival to engage in promotions. In this way, we attempt to provide a reason for why national brand manufacturers provide retailers with private labels in practice. In addition, we discuss the optimal quality level of private labels.     

The value of private label brands to U.S. consumers: An objective and subjective assessment

This study investigates the value of private label brands to consumers using two approaches: First, subjective evaluations of the perceived relationships between price and quality for private label (PL) brand and national brand (NB) products based on survey responses; and second, objective measures of price and quality for PLs and NBs widely available in the U.S. Price was generally perceived to be a signal of quality for NBs, but not for PLs, an indication that consumers' knowledge may not have kept pace with quality improvement in PLs. Objective estimation of the quality gap potentially existing between PLs and NBs determined that the “quality premium” of NBs observed in the past has largely disappeared. Consumers, notwithstanding, sought a lower purchase price for PLs. In turn, the higher price they were willing to pay for NBs accorded with estimates of the actual “price premium” associated with NBs.     

The moderating effect of average wage and number of stores on private label market share: A hierarchical linear model analysis

Existing research on private label market share is primarily in the context of the Western market. The Chinese market context research is scarce, although private labels are developing rapidly in the past several years. This study investigates how the average wage and number of stores affect the Chinese market's private label market share. More importantly, this paper examines the moderating effect of the average wage and the number of stores on the relationship between the private label market share and product assortment as well as the relationship between the private label market share and pricing. Data collected from a Chinese supply chain dyad is analyzed to study category management using hierarchical linear models. The results reveal that the average wage and the number of stores positively affect the private label market share. Furthermore, the average wage enhances the negative effect of the number of brands, weakens the negative effect of the private label price, weakens the positive effect of national brand price. Meanwhile, the number of stores enhances the positive effect of the SKU proliferation of private label, enhances the negative effects of the number of brands, and enhances the negative effect of the private label price. This study contributes to category management. Furthermore, the findings will be valuable to domestic and international grocery marketers and retailers operating private labels in China.     

Defensive strategy against a private label: Building brand premium for retailer cooperation

We build a game-theoretic model of price competition between a national brand manufacturer and a retailer that also sells its private label. In particular, we examine a national brand's strategy of building brand premium in the context of channel coordination. The importance of national brand's brand equity has been well-documented in many empirical and behavioral studies. We reinforce the argument that building brand premium should be the first line of defense for a national brand instead of aggressively cutting wholesale price. Not only does the national brand manufacturer benefit from it, but also the retailer who sells both the national brand and its own private label has less incentive to promote the latter. Therefore, it can induce retailer cooperation, which is essential for a successful strategy in a distribution channel.     

Bridge,Focus, Attack,or Stimulate: Retail Category Management Strategies with a Store Brand

We investigate a monopolist retailer's category management strategy where the main strategic decisions are how to horizontally position a store brand relative to the incumbent national brands and how to price the store and national brands for retail category profit maximization. We analyze a market composed of two consumer segments with differing tastes and heterogeneity with respect to willingness to pay and a product category consisting of two competing national brands and one store brand. We find that contrary to the existing literature, it is not always optimal for a retailer to position its store brand against the leading national brand; instead there are many situations where it is best to position the store brand close to the weaker national brand or to position it in the “middle” so it appeals to both national brands' target segments. In the process we identify four distinct category management strategies that a retailer can use with a store brand. In three of these the optimal store brand price is the brand's monopoly price, while in the remaining one strategy the price is lower. We also suggest an easy to implement means for a retailer to determine which strategy is best to use, depending on the particular competitive environment present before the introduction of the store brand and the relative quality of the store brand. We find that the store brand entry is most beneficial to the retailer when the national brands are moderately differentiated. Finally we show that introducing a store brand not only allows the retailer to garner a higher share of the channel profits through higher retail margins, but also often provides the retailer the benefit of increases in national brand unit sales as well as incremental sales from the store brand. JEL Classification: M310     

Consumers’ choice of private label considering reference price and moderating effect

Retailers frequently place private labels (PLs) next to the top-moving sales national brands (NBs) and utilize comparative pricing that is related to the national brands. There is thus always an external reference price between the private labels and the national brands. In this study, two categories of products were selected, and a hierarchical non-linear model used to study the impact of external reference prices on consumers’ choice of private labels. In addition, the effects of package size and average disposable income (ADI) were introduced into the analysis for the relationship between external reference price and consumers’ choice of private label. The findings show an inverted U-shaped curve between consumers’ choice of private labels and the external reference price discrepancy. Consumers in areas with high ADI are more likely to buy private labels. Package size and ADI have different direct and moderating effects on two categories of products. This study contributes to reference dependence theory and category management.     

The development of a consumer value proposition of private label brands and the application thereof in a South African retail context

Private Label Brands are of strategic importance to retailers worldwide. However, there is a dearth of knowledge, particularly in emerging markets, as to the manner in which consumers cognitively assess these brands. At the heart of the issue is a gap in knowledge as to how consumers formulate a value proposition in their minds and the effect of loyalty to existing brands. This paper assumes a positivist, hypothetico-deductive approach by attempting to address the question: What are the key drivers of perceived value of private label branded breakfast cereals, taking price, perceived risk and perceived quality into account? Moreover, the study considers how various attributes of brand image contribute to the perception of brands and the extent to which loyalty to established national brands inhibits purchasing intent of private label merchandise. A conceptual model was developed, and tested by means of Partial Least Squares path analysis, using a sample of 482 respondents. The outcome reflects that consumers take cognisance of value through price, risk and quality cues, but that loyalty to existing brands has a minimal effect in the final stage of the model. Moreover, both in- and out-of-store influences were found to play a significant role in the determination of product quality. Retailers therefore possess a number of levers at their disposal to influence perceived value, most notably price, product quality and the perceived risk portfolio, as well as packaging, shelf placement, store environmental factors, etcetera.     

Do private labels increase retailer bargaining power?

Like any new product, private label entry increases competition within a category leading to downward pressure on both wholesale and retail prices. But, given the higher margins for private labels and potential bargaining benefits for retailers, they have incentives to help private labels gain market share. The paper addresses two questions: First, do private labels enhance a retailer’s bargaining power with respect to manufacturers? Second, given the higher profitability and potential increase in bargaining power, does the retailer strategically set retail prices to favor and strengthen the private label? We find support for the “bargaining power” hypothesis, but qualified support for the “strategic retailer pricing” hypothesis. Retailers gain bargaining power through lower wholesale prices on imitated national brands. But the gain is greater in niche categories than in mass categories, suggesting that niche national brands with limited “pull” power lose greater bargaining power. In terms of strategic pricing, the retailer, on initially introducing the private label, strategically sets prices to help private labels gain market share in high volume mass market categories. But retail prices revert to the category profit maximizing price after a year when the private label gains a stable market share.     

Store Brand Quality and Retailer’s Product Line Design

This study analyzes a retailer’s store brand quality decision in vertically differentiated product categories. We analyze a game theoretic model composed of one or two national brand manufacturers and a retailer, who strategically chooses the quality level(s) of its store brand(s) relative to the well-established national brand position(s) to maximize its category profit. Our analysis reveals that the nature of a retailer’s store brand quality positioning is quite different from the manufacturer’s national brand positioning decision, and that the best position for a store brand is not “as close to a national brand as possible” as previous studies suggest. Instead, the optimal quality position of each store brand is remarkably sensitive to the distribution of consumers’ willingness-to-pay. In particular, the relative proportions of quality sensitive consumers and price sensitive consumers determine the balance of three key strategic forces — the market expansion force, the retail margin force, and the consumer profitability force, leading to different optimal product line designs for store brands across different category environments. Interestingly, against multiple incumbent national brands, the retailer’s optimal product line design includes a store brand positioned at the highest quality level in the category only if most consumers are moderately quality conscious. We also analyze the implications of national brands’ brand equity for retailers’ store brand strategy.     

Private Label Vendor Selection in a Supply Chain: Quality and Clientele Effects

We model a supply chain consisting of a national brand manufacturer and an independent manufacturer, both of whom are potential suppliers of store brand to a single retailer. The retailer serves two customer segments—a quality sensitive segment (high type) and a price sensitive (low type) segment. The retailer serves these two segments by targeting the national and store brands to the quality and price sensitive segments, respectively. When the national brand manufacturer supplies the store brand he internalizes the effect of store brand quality on the national brand's retail prices. This leads the national brand manufacturer to choose a lower store brand quality than the independent manufacturer. This decrease in store brand quality has the benefit of increased revenues from the high type customers along with an associated cost of decreased revenues from the low type customers. Thus, when the benefit outweighs the cost the retailer chooses the national brand manufacturer to supply the store brand. We show that the retailer will choose the national brand manufacturer to supply the store brand when (a) the size of the high type customer segment is large relative to the low type customer segment, (b) the valuations of the high type customer segment is large relative to the low type customer segment, and (c) the retailer's margin requirement on the store brand is not very high. Overall, these results suggest that retailers who serve a bigger sized quality (price) sensitive clientele would have the national brand (independent) manufacturer supply the store brand.     

中国拥有知名品牌的战略意义和政策取向

随着中国经济发展阶段的变化,品牌消费的时代已经到来,市场竞争的焦点正在由单一的产品价格竞争转向包括质量、技术、服务、诚信、文化等在内的品牌竞争。拥有知名品牌是中央的战略要求和“十一五”发展的重要目标,这对增强自主创新能力和提高国际竞争力等具有重要意义。改革开放20多年来,中国自主品牌没有与中国经济一同发展起来,或许是中国发展的最大缺憾之一。中国要走品牌发展之路,打造品牌大国乃至品牌强国,必须形成统一有效、覆盖全国的品牌战略工作机制和政策支持体系。     

Supplier inferences to enhance private label perceptions

In large part due to the expertise of many manufacturer brands that are private label suppliers, the objective quality gap between private labels and leading manufacturer brands is small-to-none in many cases. The current research examines how consumer beliefs about the manufacturer brand origins of private labels may enhance their subjective appeal, by testing the effectiveness of two retailer-controlled tactics that create specification similarity and sourcing inferences regarding private labels, and the degree to which these inferences close perceptual gaps between private labels and targeted manufacture brands. Both the private label copycat packaging and invitation to compare to the manufacturer brand tactics are found to create such inferences and significantly narrow perceptual gaps, while enhancing retailer attitude.     

Price recall: Brand and store type differences

Price is among the most important choice criteria for customers, whose price knowledge is often surprisingly inaccurate. This study aims at providing new insights into differences in price recall across brands and store types, and their potential effect on marketing efficiency and customers’ store choice. Towards this aim, we analyze the price recall of consumers for 51 food items by a random-effects panel estimation employing a survey with 715 participants. Our results show that customers recall national brand prices better than private labels, almost irrespectively of the store type; consumers overestimate store brand prices in both store types; the effect, however, is much higher for the convenience store. These outcomes have consequences for the marketing strategy: despite a price-matching guarantee for the store brands in the convenience store, the price image is still in favor of the discounter. This result raises doubts on the effectiveness of the price-matching guarantee, at least in this context. The everyday low price strategy of the discounter seems to pay off in terms of the price image. Though both stores charge the exact same prices for their store brands, prices at the discounter are on average perceived to be significantly lower.     

How Do Price Perceptions of Different Brand Types Affect Shopping Value and Store Loyalty?

This research investigates the relationships among price perceptions for different brand types (national brands, standard store brands, regional store brands, organic store brands), shopping value dimensions (quality, price, social, and emotion value), and store loyalty (retention and word of mouth (WOM)). A comprehensive model depicts determinants of customer store loyalty. Using structural equation modeling, the model test includes 671 consumers intercepted during shopping trips. The data analysis yields several surprising results. In particular, low product price perceptions do not necessarily signal negative store quality evaluations. Shopping value dimensions influence store retention loyalty and WOM behavior differently. Furthermore, different brand types exert distinct effects on the value creation process. Favorable prices for national and standard store brands have comparable positive effects on store price value and emotional value creation; appealing prices of regional store brands instead reduce the emotional value of the store, and low prices for organic store brand products significantly increase social value creation.     

The Buying of Private Brands and Manufacturer Brands in Grocery Retailing: A Comparative Study of Buying Processes in the UK,Sweden and Italy

Private brands in grocery retailing have evolved from a way to compete on price by selling low quality products at a low price, into a brand category in their own right, with a wide range of positioning options open to retailers. The buying and selling of private brands means that retailers' add new activities and processes to those that are traditionally associated with retailing. This paper compares the buying processes for manufacturer brands and private brands across three European countries in an attempt to analyse how the extension of the buying process inherent in private brand ranges, and the organisational contexts within which these processes operate impact upon complexity in the retail buying process     

Prices Paid in Grocery Markets: Searching Across Stores and Brands

Using a large sample of prices paid for 21 homogeneous grocery products available in several brands in each of 16 markets, we simulate the search behavior of a consumer following different shopping strategies using as many as four supermarkets. We find that price search can lead to substantial savings. Brand switching can generate savings at least as large as visiting multiple stores to find the lowest price for a single brand. Buying a private label is usually a better way to save than any amount of search for low prices on national brands. A case study in a small metropolitan area grocery market yields results substantially the same as the simulation results.     

The Future of Private Labels: Towards a Smart Private Label Strategy

Modern day store brands (SB) or private labels (PL), now also popularly called private brands, are brands generally owned and marketed by retailers. They have been active on the market for about 70 years. Over this time span, these brands have evolved from generic, cheap, low-quality economy or budget private labels to lower-priced-than-national brand but acceptable-quality value or standard private labels. Over time, retailers extended the value proposition to the consumer segment seeking higher quality by offering premium private labels. This strategy, called the tiered-private label, comprises offering economy PL to the price-sensitive but not quality sensitive consumers, standard PL to mainstream consumers seeking acceptable quality at lower prices, and premium PL to the quality-sensitive segment seeking value. Over the last 40 years (1980–2020), these versions of private labels have witnessed substantial growth around the world, though the growth is said to be tapering in recent times.As retailers chart the future strategy for their private labels in 2020 and beyond, a pertinent question they face is: Should they continue to offer value or even tiered PL with the same formula that brought them success in the past, or should they morph and adopt new strategies in keeping with current market trends? We support adopting a new strategy that we call the smart PL strategy. The value PL strategy and its manifestation as the tiered PL strategy cater to different consumer segments but focus primarily on price and quality as attributes of choice. In the current marketplace, consumers care not only about price and quality, but also about sustainability, ethics, social responsibility, image, so forth, perhaps more so than earlier generations. They are also more tech-savvy in using digital tools for search and purchase. Retailers, on their part, are now endowed with rich, extensive data that they can tap into to understand customers’ diverse needs, and they are able to harness technology for developing the right product and communication. Thus, the smart PL strategy is a strategy by which retailers can leverage data and technology to market private labels that meet diverse customer needs and achieve greater retail differentiation, store loyalty, margins, and profits. This thought piece provides a road map for developing such a smart PL strategy and directions for future research.