Offering value and capturing surplus: A strategy for private label sales in a new customer loyalty building scenario |
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Affiliation: | 1. College of Business, San Francisco State University, 1600 Holloway Ave., San Francisco, CA 94132, United States;2. QUT Business School, Queensland University of Technology, 2 George Street, PO Box 2434, Brisbane, Queensland 4001, Australia;1. Università Cattolica del Sacro Cuore, sede di Piacenza Facoltà di Economia e Giurisprudenza, Dipartimento di Scienze Economiche e Sociali Italy;2. Università degli Studi di Parma Dipartimento di Economia Italy;1. IESEG School of Management, Catholic University of Lille, 3 rue de la Digue, 59000 Lille, France;2. NEOMA Business School, 59 rue Pierre Taittinger, 51100 Reims, France;1. Marketing Department, Concordia University, 1455 De Maisonneuve Blv. W., Montreal, QC H3G 1M8, Canada;2. Concordia University Research Chair in Consumer Research, Marketing Department, Concordia University, 1455 De Maisonneuve Blv. W., Montreal, QC H3G 1M8, Canada;1. KU Leuven, Naamsestraat 69, 3000 Leuven, Belgium;2. Tilburg University, Warandelaan 2, 5000 LE Tilburg, The Netherlands;1. UCP- Católica Lisbon School of Business & Economics, Palma de Cima, 1649-023 Lisboa, Portugal;2. ISEG- Lisbon School of Economics & Management, Universidade de Lisboa, Rua do Quelhas, 6, 1249-078 Lisboa, Portugal |
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Abstract: | 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. |
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Keywords: | Private label Retailing Diapers Quality perceptions Pricing Brand management |
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