Private-label branding and willingness to pay: evidence from an auction experiment

The competitive pricing of private-label brands is a strategy used to gain a competitive advantage. Notwithstanding the introduction of many private-label brands – i.e. private-label brands with a name identical to that of a firm (own-name brands) and private-label brands with a name distinctive from that of a firm (other-name brands) – that compete with national brands, identifying equitable prices that reflect brand value remains difficult. This study aims to determine the appropriate price of private-label brands by measuring consumers’ willingness to pay. An experimental auction method measures ‘actual’ willingness to pay in a non-hypothetical setting. The study was conducted in Thailand, which has the lowest price discrepancy between national brands and private-label brands. The results show that the willingness of consumers to pay for both types of private-label brands is higher than that for un-branded products. However, there is no significant difference in the premium between own-name and other-name private-label brands. Unlike leading and second tier national brands, consumers are willing to pay a discounted price for both own-name and other-name private-label brands; for the latter, they are willing to pay a more steeply discounted price. The finding of this study regarding the amount that consumers are willing to pay for an own-name private-label brand is consistent with the current market price strategy, whereas the current market price strategy for other-name private labels is inconsistent with the amount participants are willing to pay. The study shows that to appropriately price their products in a manner that yields the highest returns, retailers must determine how much consumers are willing to pay.     

Does private-label production by national-brand manufacturers create discounter goodwill?

Discount stores have a private-label dominated assortment where national brands have only limited shelf access. These limited spots are in high demand by national-brand manufacturers. We examine whether private-label production by leading national-brand manufacturers for two important discounters (one hard and one soft) creates discounter goodwill. We estimate a selection model that is based on a sample of 450 manufacturer-category combinations from two leading discounters (Aldi in Germany and Mercadona in Spain), and we show that private-label production is indeed rewarded: national-brand manufacturers that are involved in such practices have a higher likelihood of procuring shelf presence for their brands. Moreover, while powerful manufacturers are intrinsically more likely to obtain shelf presence with soft discounters, manufacturers with less power can compensate for this by producing private labels. No such dependence on power exists for hard discounters.However, not all national-brand manufacturers are equally likely to produce private labels for discounters. We find that national-brand manufacturers are less likely to do so when: (a) they experience more sales growth, (b) it is more difficult to produce high-quality products in a specific category, (c) they invest more advertising support into their brands, and (d) they introduce more innovations. Moreover, a higher price differential relative to the discounter's private labels makes national-brand manufacturers less likely to engage in private-label production for hard discounters.     

Store brand and national brand promotion attitudes antecedents

Retailers compete against national manufacturers by launching store brands. National manufactures regularly use brand promotions to fight store brands back. The purpose of this article is to find out whether attitudes toward national brand promotions and store brands have similar or different conceptual antecedents. The study presents and tests a model of the effects of shoppers´ characteristics (price and non-price-related) on attitudes toward store brand and national brand promotions. The results support that constructs relating to price impact both store brand attitude and national brand promotion attitude, but the strength of some of these relationships differ. Other shopper characteristics like brand loyalty and store loyalty, have similar negative and positive effects, respectively. These slight differences suggest that promotions of national brands might be a good tool for fighting back store brands, but manufacturers need to design and target these promotions carefully in order to avoid head-to-head competition.     

The persistence of excess brand loyalty over multiple years

This study examines the extent to which packaged-goods brands exhibit excess loyalty over a multi-year period. Brand loyalty for 300 brands in 20 UK product categories are compared to theoretically expected loyalty levels calculated using the Dirichlet model. Results show that while many brands show excess loyalty in a particular year (31%), fewer of them (25% and 22%) exhibit excess loyalty over 2 and 3?years, respectively. Almost all the brands that do show persistent excess loyalty are private-label brands or are market-share leaders (either the biggest or the second-biggest brand in the market). Therefore, excess loyalty over multiple years is a rare occurrence for a brand unless it is a market leader or a private-label brand. The study also shows that 38% of all high-share brands have consistent excess loyalty, and 37% of all private-label brands have consistent excess loyalty. These results suggest that existing explanations in the literature as to the sources of excess loyalty need further investigation. The reason is that those explanations relate to distribution effects, which should be similar across such brands. They therefore imply that most high-share and private-label brands should exhibit excess loyalty. The study suggests several avenues for further research to identify the reasons why some high-share or private-label brands show excess loyalty and others do not.     

How to brand your private labels

Private labels have become ever-more important and are slowly turning into brands of their own. Retailers increasingly offer three-level ‘good, better, best’ private-label programs that include economy, standard, and premium private-label tier goods. For each of these tiers, retailers must decide under what name to brand their private label. They can either assign their store banner name to a private-label tier or go for a unique brand name that is separate from the retailer banner. The purpose of this article is to outline the advantages and limitations of these two branding strategies: store-banner branding versus stand-alone branding. Herein, we also provide a series of recommendations regarding when to use each brand strategy, based on characteristics of the retailer and the environment in which it operates.     

Competitive advantage,private-label brands,and category profitability

Abstract

The purpose of this study was to investigate the influence of private-label resources possessed by a supermarket retailer. Our study examines whether or not private-label products can help in the overall enhancement of product category performance. We examine the performance of a supermarket retailer in the Northeast United States that operates over 100 stores and generates a total yearly sales volume in excess of $3 billion. Data of this nature is difficult to obtain for research purposes, and this proved to be very valuable. Data obtained from the internal financial database of the supermarket was used and generated from point-of-sale information. We then developed a research model from the literature review and used structural equation modelling to analyse the data. The findings of this study indicate that a change in category private-label sales penetration and category market share had little impact on category profitability. The major implication for retailers is the necessity for category managers to focus on all brands within their respective categories and not over-emphasise a private-label brand focus.     

Gibrat's law in marketing: The case of liquor brand sales

We test the applicability of Gibrat's Law in the liquor brand market. Basically, we model annual changes in the unit sales of the top fifty liquor brands as white noise. Our results reject this model, but we do find that changes in sales are independent of starting market sales. This leads to the interpretation that brands with above average market share do not tend to gain market share, i.e., initial market share does not affect the subsequent change in market share. Furthermore, brands with above average sales do not have more stable sales than do firms with below average sales. Changes in sales appear highly positively correlated between periods, i.e., brands that gain sales in one period tend to gain sales in the next. Finally, no major liquor type or manufacturer had consistently and significantly greater or lower success across our various annual time periods.     

Drivers of the synergy between price cuts and store flyer advertising at supermarkets and discounters

Despite retailers’ intense use of both price cuts and store flyer advertising, it is still unclear whether and when it is beneficial for retailers to combine the two promotion tools at the same time as opposed to using them separately. We systematically investigate synergies between price cuts and store flyers for a broad set of 488 brands from 44 consumer packaged goods categories across six leading German retailers. We find that a clear majority of the brands benefit from positive synergies and hence, combining price cuts and store flyer advertising is recommended, especially at supermarkets. This synergy can be strong. For instance, a 15 % price cut without store flyer support at a supermarket, on average, increases sales by 11 %, and medium spending on store flyers for the brand at its regular (non-promoted) price results in a sales lift of 8 %. The combined use of both tools, however, increases sales by 52 %, much more than the sum of their separate effects (11 % + 8 % = 19 %). Yet, there is also substantial variance in the synergy, which we explain with retailer format (supermarkets versus discounters) as well as various brand and category characteristics. Our findings have important implications for the coordination of promotion activities by retailers.     

The influence of price and brand loyalty on store brands versus national brands

Abstract

This article investigates how price and brand loyalty of three frequently purchased product categories can influence the purchase decision process of store brands versus national brands. A multinomial logit model was constructed to analyse the data obtained from a consumer panel. The results confirmed that brand loyalty is the main variable which influences the purchase decision process of both national and store brands. The influence of price on the purchase decision process is product specific. There is a clear distinction between the buyer's profile of store brands and national brands. But there is no evidence of any correlation between demographic variables and national brands or store brands.     

An experimental test of brand insulation against competitor attacks: Effects of consumer heterogeneity and residual desire

Price discounts generally move consumers from lower‐quality brands to higher‐quality brands more than from higher‐quality brands to lower‐quality brands. This asymmetry can reverse, however, to favor the lower‐quality brand when improvements are made to product quality. Whether such variations exist when the goal is to retain rather than steal customers remains untested and constitutes the focus of this study. Experimental results indicate that customer retention strategies tend to favor higher‐quality brands. Higherquality brands are able to retain customers by matching the form of the lower‐quality brand's attack (price reduction or quality improvement). For lower‐quality brands, matching is effective only in the case of a price attack by a higher‐quality brand. Furthermore, higher‐quality brands are able to effectively retain customers with price reductions that are smaller than the discount offered by a lower‐quality competitor, whereas lower‐quality brands must match the magnitude of a discount by a higher‐quality brand to retain customers. The findings suggest that differences in customer retention across quality levels arise from (1) heterogeneity among consumers of different quality levels in the relative weightings of price and quality, and (2) switching decisions based on reasons that are biased toward continuing to purchase, or moving to, higher quality products. © 2008 Wiley Periodicals, Inc.     

Something Free or Something Off? A Comparative Study of the Purchase Effects of Premiums and Price Cuts

As an alternative to promotional price cuts, retailers and manufacturers often rely on non-price promotion techniques, such as premium promotions, where consumers receive a free gift with the purchase of a product. We compare the effectiveness of premiums to that of price cuts, and study moderators of this comparative premium effectiveness. We use data from a large online shopping simulation study with more than 2,000 participants to model consumers’ purchase decisions in response to premiums and price cuts. Results indicate that the impact of premiums on purchase behavior is systematically lower than that of equivalent price cuts. However, a premium’s smaller sales impact may be offset by a cost advantage. This is especially true for private label brands where the premium’s purchase effects do not differ too much from those of a price cut. We calculate how large the cost advantage has to be for a premium to be more profitable than a price cut, and show that premiums entail risks as well as opportunities, for both manufacturers and retailers.     

Do online discounts and free gifts damage brand image of service? The moderating role of promotion-proneness

The present paper outlines a study based on an experimental design that investigated the effect of online price discounts and free gifts on consumers’ evaluation of the brand, in the context of an airline. The study also analyzed whether promotion-proneness exercises a moderating effect on this relationship. It was found that discounts generate a more positive brand image than free gifts among promotion-prone users, while for less promotion-prone individuals, the opposite is true. The results will help managers to select the most appropriate online sales promotion type for reaching different consumer groups, depending on their promotion-proneness, in line with the needs and objectives of the service firm.     

Profiling prospective private-label buyers

ABSTRACT

Food retailers have had difficulties increasing their private-label sales during non-recessionary periods. Conventional research leads us to believe it would be ineffective to use traditional segmentation to target prospective private-label buyers because sociodemographics and most psychographics are not strongly linked to private-label attitudes, purchases, or willingness-to-pay. Many studies have concluded that perceived risks are associated with private-label attitudes and are limiting private-label sales. This study explores a new approach to identify potential private-label buyers. The results from an internet panel survey of 605 adults were analyzed with binary logistic regressions. Several scales, which have rarely been employed in grocery shopper studies, were used to profile those individuals who perceive more risks from buying or using private labels. The characteristics of these individuals can help retailers and private-label marketers develop appealing product offerings and target prospective private-label buyers using various marketing tactics to grow their private-label businesses.     

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.     

Linking online niche sales to offline brand conditions

With the dramatic growth in the online marketplace, online retailers are keen to understand and leverage the interplay between offline environment and online sales. This study examines the influence of offline brand conditions on online sales of niche brands. Specifically, we investigate the proximity to the leading brand's headquarters, city of origin, and the extent of its offline distribution, offline brand availability. We also examine the moderating effect of offline affinity for niche attributes, offline niche affinity. Using sales data of niche brands, we find that brand share is higher in regions closer to the city of origin and where brand availability is limited. The category sales benefit from proximity to the city of origin and increased offline brand availability. This positive impact of favorable offline brand conditions on category sales is more prominent in regions with lower niche affinity. Finally we offer managerial insights for marketing practice.     

Substitution or Promotion? The Impact of Price Discounts on Cross-Channel Sales of Digital Movies

Technology is transforming the marketing function in many ways, and this transformation is particularly apparent for information goods such as movies where digital technologies provide marketers with new distribution channels, which in turn create new opportunities for cross-channel effects. However, these digital channels also provide researchers with new opportunities to measure micro-level customer behavior to understand the impact of cross-channel effects in real-world settings.In this paper, we study cross-channel effects between movies sold in digital purchase (commonly known as Electronic Sell Through or EST) and digital rental (commonly known as Video-On-Demand or VOD) markets. We do this using a unique sales dataset from a major digital movie retailer provided by a major movie studio. Our analysis takes advantage of a 14-week field experiment that allows us to measure the impact of price discounts on own- and cross-channel sales. We use this experiment to estimate own and cross price elasticities, whether price discounts cannibalize future sales, and most importantly whether price discounts in one channel affect sales for the same product in a presumably competing channel.Our analysis indicates that digital movie consumers are highly sensitive to price promotions. However, we also find that, contrary to expectations, price promotions in a digital sales channel for a movie do not seem to cannibalize digital rentals. Indeed, our results suggest that, if anything, price promotions for digital movie sales can increase digital rentals. We explore a variety of explanations for this counterintuitive result, including the possibility that the ease of information transmission online through third-party websites, blogs, and online discussion areas may create information spillovers such that price discounts in one channel may increase product awareness in other competing sales channels. From a managerial perspective, our results suggest that cross-channel cannibalization can be reduced or even reversed in the presence of information spillovers, and that there are many new opportunities for marketers to directly measure these cross-channel effects using experimental data from online platforms.     

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     

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.     

Integrative effects of firms' price and endorsement strategies on consumers' loyalty intention

This research examines the effects of price and brand endorsement that are adopted by firms from a consumer-based viewpoint, and provides practical brand management discussions as a reference for both manufacturer brands and retail store brands. According to the findings, manufacturer brands support high prices and boost those vivid impressions which are helpful in engendering consumer loyalty intention. Without a careful evaluation process, a brand-endorsing strategy may prove detrimental to the manufacturer. Retail store brands follow distinct pricing policies and carry out brand-endorsed strategies. Price/endorsement stimuli influence consumer brand loyalty through the partial mediating effect of brand impression. Manufacturers and retailers could define appropriate price premiums on products with a potential for a manufacturer–retailer brand co-branding as identified by market research, thus increasing the sales of both.