Understanding premium private labels: A consumer categorisation approach

Worldwide premium private labels (PPLs) are a new and rapidly growing phenomenon. However to date, little is known about consumers' perceptions of these newer entrants relative to other brand types. Therefore it is difficult for marketers to understand the opportunities and threats created by this new generation of brands. This study examines the ways in which consumers categorise PPLs compared to more traditional value private labels (VPLs) and national brands (NBs) on the three dimensions of quality, value for money and trust. The data includes seven packaged goods categories in three countries, the United States, the United Kingdom, and Australia. The findings show that PPLs sit on a separate island, in between VPLs and NBs in consumer memory. While consumers generally view PPLs as a separate subgroup of brands, PPL are connected to other subgroups in that they are perceived to have the value characteristics of VPLs but quality characteristics of NBs. Finally, consumers with past experience with VPLs have a stronger ability to categorise PLs into distinct brand tiers.     

The battle of traditional retailers versus discounters: The role of PL tiers

For grocery retailers in Europe, intense competition from hard discount formats like Lidl and Aldi is an established part of the competitive landscape. Due to the highly competitive retail environment, traditional retailers’ private label (PL) tiers are now set to become the new battle ground in this competition. This study analyzes how PL tiers (i.e. economy, standard and premium) affect the competition between discounters and traditional retailers. We use a representative UK household panel dataset (2009–2010) for the ready-to-eat cereal and canned soup category, and estimate a demand model for the choice between national brands (NBs) and PL tiers across the top-7 UK retailers. Using our demand estimates, we conduct several counterfactual experiments that predict consumer responses to different strategies of traditional retailers and discounters in their fight for the consumer. In particular, we compare the effectiveness of three types of PLs offered by traditional retailers to fight discounters: economy PLs versus standard PLs versus premium PLs. We find that premium PLs are not very effective strategies for traditional retailers to fight with discounters. On the other hand, economy PLs manage to steal some market share from discounters, but as a downside they also cannibalize traditional retailers’ standard PLs. Standard PLs seem the most effective tool to fight with discounters, since they steal most market share from discounters (and NBs). From the point of view of the discounters, our results indicate that discounters benefit from a further increase in their NB offerings (assortment depth) as well as from a price cut in their own PLs.     

Private label line proliferation and private label tier pricing: A new dimension of competition between private labels and national brands

In this study, we explore the impact of private label (PL) proliferation and pricing on consumer demand and derive profit implications for different scenarios: (i) dropping or adding a line (kids, health or muesli) within a PL tier and (ii) changing the PL tier prices. We use a representative household panel dataset (2008–2009) for the ready to eat (RTE) cereal category of two leading U.K. grocery retailers. Our results indicate line extension/delisting within the standard and premium PL tiers cannibalize each other and also steal business from NBs for the kids, healthy and muesli lines. Overall, premium PLs seem a profit generator tier that allows some room for further brand variant introductions within this tier. However, the retailer is better off, in terms of profits, if the proliferation within the economy PL tier is downgraded. Furthermore, both the retailer and NB manufacturers gain from an economy, standard and premium PL price increase, as it leads to a demand shift to NBs accompanied by a profit lift for the retailer.     

Taking private labels upmarket: Empirical generalizations on category drivers of premium private label introductions

Premium private labels (PLs) are considered one of the hottest trends in grocery retailing. Still, retailers do not feel the need to introduce premium PLs in every category. Generalizing across approximately 150 categories for six retailers from two countries that already carry premium PLs for several years, the authors find that retailers are more likely to introduce premium PLs in categories with a higher industry PL share, and with a more proliferated assortment in terms of standard PLs. However, retailers are also aware of the risk of creating PL fatigue at high levels of standard PL proliferation. Further, premium PLs are more likely to be introduced in categories with more frequent price promotions, a longer interpurchase time, a higher need for variety, and higher functional, but lower social, risk. In addition, retailers consider category growth and the prevailing practice of their country's premium-PL pioneer when deciding in which categories to also introduce a premium PL. Finally, when NBs spend a smaller amount on advertising and NB proliferation is moderate, premium PL introductions are more likely. Importantly, while some of the earlier empirical generalizations on factors conducive to a standard PL entry still hold for a premium PL entry, new variables need to be considered as well, while other insights need to be updated to better reflect the new reality of higher-quality/higher-price premium PL introductions.     

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.     

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.     

Offering value and capturing surplus: A strategy for private label sales in a new customer loyalty building scenario

The competition between private label brand and national brands in the diaper category is investigated from the view of the private label brand manager. In this category, new customers routinely enter the category buying entry-level diaper sizes (for infants) and then progress to buy larger diaper sizes over time (as their child grows older). Thus, consumer comparisons between the private label brand and national brands are focused on single diaper sizes during any single purchase scenario. Because private label brands are known to suffer from low quality perceptions that often understate the true quality levels of private label brands, this paper advances a pricing strategy to optimize private label performance in the category. The private label brand should price significantly low for small diaper sizes (maintaining a sizeable price gap from national brand competitors). Then, in most cases, the private label brand should shrink the size of this price gap for large diaper size offerings. This strategy will successfully offer initial value to new customers, build private label brand quality perceptions and loyalty, and then capitalize on these gains through higher dollar sales in the late stages of the customer relationship. The price gap shrinking strategy is found to be generally effective, but high national brand competition and too high of an initial price gap diminish the effectiveness of the strategy.     

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.     

Uppercase Premium Effect: The Role of Brand Letter Case in Brand Premiumness

Researchers have recently begun investigating how visual elements affect brand positioning. However, little is known about the effect of brand typeface features on brand premiumness. This paper proposes and verifies that letter case affects consumers’ perceived brand premiumness. Eight experiments, including one eye-tracking experiment, reveal that consumers perceive brands that use all uppercase letters (“uppercase brands”) as more premium than those that use all lowercase letters (“lowercase brands”). We refer to this effect as the “uppercase premium effect.” This effect is induced by the perceived conspicuousness of uppercase brands, a process which in turn is moderated by the product's social visibility. The effect is reversed for consumers who prefer subtle signals (“inconspicuous consumers”) because these consumers are likely to perceive a conspicuous uppercase brand as gaudy. Whereas status-motivated consumers are more likely to choose uppercase brands due to the increased premiumness perceptions, the increment in such perceptions does not further influence the purchase decisions of consumers indifferent to expressing status. We conclude with a discussion of theoretical and practical implications and offer suggestions for further research.     

CSR: Consumer responses to the social quality of private labels

This paper investigates the responses of French consumers to the communication of the “social quality” of private labels (PL) in terms of perceived quality of the PL and intentional loyalty to the brand and the retailer. It also treats the role of some individual variables in these responses. Using experimentation with two independent groups, we show that communicating the “social quality” of the PL improves his perceived quality and the consumer′s intentional loyalty to the brand and the retailer. We also suggest through some individual variables a profile of the most sensitive consumers to the socially responsible PL.Few papers treat the relational potential of the socially responsible private label (PL) in the retailer′s strategy. This paper, through experimentation (N1=N2=400), studies this aspect on three levels: (a) consumers′ response to PL′s social quality in terms of perceived quality, (b) loyalty towards the socially responsible PL and the retailer, (c) and the role of individual variables in these responses. The findings reveal that (a) the communication of the PL′s social quality improves the perceived quality of the PL, (b) it also improves consumers′ intention of loyalty towards the PL and the retailer. It studies also (c) individual characteristics of consumers sensitive towards PL′s social quality.     

Competition for memory retrieval between private label and national brands

Perceptions of private label brands (PLBs) reside in consumer memory along with national brands (NBs). When a consumer engages in a choice situation, both PLBs and NBs rely on links to retrieval cues in consumer memory to give them a chance of purchase. This study examines the underlying competition between NBs and PLBs across different retrieval cues. The findings show that PLBs link to the same attributes as NBs and so compete with NBs for retrieval. However, while any brand typically competes most with the brands more commonly associated with any specific cue, the study finds evidence of PLB sub-categorization. That is, if a consumer elicits one PLB for a certain cue, he/she has four times the propensity to elicit other PLBs than elicit a NB for that same cue. This heightened propensity suggests that when a consumer learns that one PLB has a particular quality, the consumer generalizes that quality to other PLBs. Therefore, retailers should realize that the image of competitor retailers' PLBs affects the image of their own PLBs.     

Are they always promising? An empirical analysis of moderators influencing consumer preferences for economy and premium private labels

The identification of conditions under which premium or economy private labels are more promising from a consumer perspective is of high managerial relevance. This paper is first to analyze the moderating impact of store-, category-, and private label-characteristics on consumer preferences for premium vs. economy private labels. The results reveal that premium (economy) private labels are more preferred at high-priced (low-priced) retailers and in categories of high (low) brand relevance. However, consumers' believes whether the private label is produced by a well-known manufacturer or the retailer itself do not moderate consumer preferences for premium vs. economy private labels.     

Do Consumers Care about Ethics? Willingness to Pay for Fair‐Trade Coffee

Consumers’ buying behavior is not consistent with their positive attitude toward ethical products. In a survey of 808 Belgian respondents, the actual willingness to pay for fair‐trade coffee was measured. It was found that the average price premium that the consumers were willing to pay for a fair‐trade label was 10%. Ten percent of the sample was prepared to pay the current price premium of 27% in Belgium. Fair‐trade lovers (11%) were more idealistic, aged between 31 and 44 years and less “conventional.” Fair‐trade likers (40%) were more idealistic but sociodemographically not significantly different from the average consumer.     

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.     

Adding budget and premium private labels to standard private labels: Established empirical generalizations,emerging empirical insights,and future research

Standard private labels (PLs) have been the topic of multiple prior reviews. Having been leapfrogged by business practice, the marketing literature has only recently witnessed a surge in interest in multi-tier PL offerings. These typically include a budget and/or premium tier in addition to the omnipresent standard PL tier. This study offers a systematic review of recent empirical findings on budget and premium PLs. Our review is structured along the following four research questions: (i) why do retailers introduce budget and premium PLs, (ii) who buys budget and premium PLs, (iii) what is the nature of the competition among the different tiers and with national brands, and (iv) what are the budget and premium PL tiers’ respective success drivers? While standard PLs still generate the largest volume sales, premium PLs (which are not only characterized by a higher dollar margin but which are also most beneficial to the retailer's image) are currently driving PL growth. Budget PLs, in contrast, are hardly growing in volume share, have a lower absolute and percentage margin, and are found to be less effective in fighting discounters than initially thought. We identify some commonalities across the different tiers but also report on many differences. Various avenues for future research are presented.     

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.     

The impact of national brand introductions on hard-discounter image and share-of-wallet

Hard-discounters (HDs) such as Aldi and Lidl are increasingly introducing national brands (NBs) into their private label (PL) dominated assortments. While there is evidence that this enhances sales in the categories where such NBs are added, little is known about how it affects consumers' overall perceptions of the HD and consequently its share of the customers' wallet. Using a unique data set that combines longitudinal information on a HD's perceptions, with that chain's assortment composition, we investigate the impact of NB introductions on the chain's overall value and assortment image, and spending share.We show that introductions of NBs, in particular category leaders, may significantly contribute to a more favorable perception of the HD store. For positive value-image effects to materialize, HDs must offer these NBs at low-enough prices to maintain a reasonable price gap with the current private label offer. For the NB entry to enhance the HD's assortment perception, it must come with a sufficiently deep product line.However, there are limits to this approach. Introductions gradually lose effect as the share of NBs at the HD goes up. More importantly, ill-selected NB additions may backfire on the HD. Listing NBs that are not category-leaders, at prices too far above its private labels, deteriorates the HD's favorable value positioning — cutting into its core competitive advantage, and leading to notable reductions in share-of-wallet. We discuss the academic and managerial implications of these findings.     

Family influence on young adult's brand evaluation. An empirical analysis focused on parent–children influence in three consumer packaged goods

Throughout the years, there has been debate in the consumer research literature on how families influence their children's attitudes to brands. This paper analyses parent–young adult children influence on the creation of brand associations, perceived quality and willingness to pay a price premium. In order to fulfil these goals, an empirical analysis using a sample of 349 young adults has been conducted. Relationships have been analysed by means of structural equations models in three consumer packaged goods, and results obtained allow us to conclude that the information provided by parents may foster the creation of brand associations, it may favour young adults' positive perception of the brand's quality, and finally, it may lead young adults to be willing to pay a price premium for the brand.     

The risk of programmatic advertising: Effects of website quality on advertising effectiveness

Programmatic advertising is prevalent in online advertising. However, it offers managers limited control over the type of website where the ad appears, resulting in brand safety issues. Aware of the risk that ads may potentially display on websites of poor quality (nonpremium websites), managers have developed strategies to reduce this risk. Due to the lack of empirical insights, these strategies are based on “gut feeling” and depend on campaign type (branding versus performance) and brand type (premium versus nonpremium). Our research addresses this void and analyzes website quality effects for premium and nonpremium brands in branding and performance campaigns. Our results show that effects, indeed, vary depending on campaign and brand type, but not in ways that managers might expect. When a branding ad appears on a nonpremium website, attitudes towards the ad and the brand deteriorate, but only for premium brands. In contrast, website quality does not affect awareness for either type of brand. When a performance ad appears on a nonpremium website, it generates fewer clicks; this effect is stronger for premium brands. Overall, these findings enrich our understanding of the consequences of programmatic advertising and highlight the crucial role of website quality dependent on campaign goal and brand type.     

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.