Download Private-Label Brands – A Literature Review Samrat Chakraborty

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Private-Label Brands – A Literature Review
Samrat Chakraborty*
Abstract
The birth of private-label brands is a major landmark in the history of retailing. The rapid growth in
retail industry has increased the presence of these brands across all the product categories in the market.
They have gained much popularity in last couple of decades with rising market-share and sales-figure.
At present they are giving a tough competition to the national brands in terms of price, quality,
distribution, promotion, packaging, etc. In short, they have moved from their original status of lowpriced, low-quality goods to premium superior items. On the other hand, some research studies have
indicated that still majority of the customers do possess negative perceptions about these brands and do
not have favorable brand-image in the market like national brands. This exploratory study has tried to
explore various findings made by the earlier researchers on private-label brands regarding the factors
behind their success in the market, customers’ perceptions towards them, branding and positioning
strategies, etc. Simultaneously, this paper has also tried to reveal factors for unpopularity of these brands
among customers and certain reasons for lacking behind the national brands in the market
Keywords: private-label brands, retail, positioning, customers’ perceptions, etc
*Samrat Chakraborty , Assistant Professor, Department of Business Administration, DSMS
College, Durgapur M: +91- , Email:[email protected]
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Introduction
The birth of retailer’s own private-label brands is a major landmark in the history of retailing. The
changing nature of retailing environment and increasing popularity in the retail sector in early 19th
century in the US and Europe saw a tremendous rise to a number of departmental stores and supermarket chains; that eventually gave birth to the concept of private-label goods (Steenkamp & Dekimpe,
1997). In their book Kumar & Steenkamp (2007), have defined store brands to be any brand that is
owned by the retailer/distributor and is sold only in its own outlets.
Definition: Private-label brands are those products which are fully owned, controlled and sold
exclusively by the retailers (also known as own-label brands, dealer’s store brands or retailer’s brands).
Over the few decades these brands have become popular and profitable marketing strategy in the retail
sector of US and European markets. The market report shows that these brands are the top sellers in
many product categories sold in the supermarkets. According to a study conducted by Private-Label
Marketing Association (PLMA) in 2000 revealed that 71% of the US shoppers prefer to buy these
brands. In the last couple of years these goods have gradually expanded their presence across all the
product categories ranging from clothing, electronics, health, footwear, beauty, over-the-counter (OTC)
medicine, etc. At present the entire leading groceries are offering a wide range of products under their
own private-label brands. In between 2006 - 2009, the market-share of these brands was almost 74% in
product categories like personal care, household goods, food items, beverages, etc (sales figures of these
brands represent 20% of grocery stores and 18% of super markets). A report published by Brandweek
Magazine mentioned that private-label sales has grown up at a much faster pace than that of branded
ones, 64% versus 30% (Reyes, 2006). Furthermore, these brands are 31% cheaper compare to their
national counterparts. Simultaneously, the European retail market is one of the most matured privatelabel markets in the world with shoppers buying nearly same amount of private brands as national
brands. A report published by Symphony IRI, a market-research company, shows that the total marketshare of private-labels sold per year is almost 30% of total goods sold by the retailers across the
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European market. Among the European nations UK, Spain and Germany continue to sell more privatelabel brands than any other European country with a market share of 49.2%, 40.4% and 37.7%
respectively. Initially these private-label brands were introduced in the market by the retailers with much
cheaper prices compare to the branded goods, i.e., they used to compete with national brands by means
of a price-value proposition. Moreover they were not so popular among the general customers due to
their inferior product qualities but the early retailers continued to push more and more products into
different product categories because they represented higher margins and promise of profitability to the
retailers with less marketing efforts. The poor economic conditions in many western nations in 1930s &
1940s (American Recession, World War – II, etc) made customers more price-conscious and forced
them to purchase these products. However in recent years the picture has changed and transformed these
private-label brands into serious contenders. They have shifted away from competing against each other
just on price and instead emphasized on both quality and performance. This became increasingly
apparent in retail stores with much wider product ranges, higher quality standards, reasonable prices,
proper advertising strategies and effective distribution network.
In spite of rising popularity of these brands with lower prices, quality guarantees, huge promotional
activities, large distribution networks, etc, customers still continue to prefer national brands over private
ones as majority of customers do posses negative attitudes towards these goods. Generally most
customers try to avoid these private-label brands and opt for the branded goods.
Objective of this Study
The purpose of this present paper is to explore the general perceptions of the customers about privatelabel brands and subsequently their behavior towards them. The study of customer perception is not an
easy task for marketing experts because in this ever changing competitive market environment as
customers are gradually becoming more erratic and therefore more unpredictable, making the study
much more complicated. Perceptions play an important role in customer buying decision-making
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process and the customers do posses perceptions (+ve/-ve) about certain brands available in market on
the basis of certain factors. This present paper aims to understand the various factors in behind the
popularity of the private-label brands as well as the customers’ perception towards these brands. This
present paper is fully conceptual in nature and the author has tried to review the past literature works of
the earlier marketing scholars in order to meet the above said objective. The reason behind this is to
explore the different factors behind in choosing these brands by the customers. Subsequently this paper
also tries to find out various factors of not choosing/avoiding these brands by the customers made out
from the findings of research studies that will provide clear picture about different aspects about these
brands. Moreover it will help the author to find out other unexplored areas of private-label brands that
has to be researched in future.
Literature Review
As the worldwide market-share of private-label brands increase, the importance of research related to
them increases. According to Hyman, Kopf & Lee (2009), previous literature reviews – none published
since 2004, which is before roughly 45% of published empirical and theoretical studies – were either
written for a general business audience or summarised a small subset of scholarly literature.
A review of earlier research studies related to the private-label brands have helped to reveal some of the
interesting findings. Some of the research studies indicated that the private-brands are no longer seen as
cheaper-priced and poor-quality products by modern customers. The massive revolution in the retail
sector in the last couple of decades has changed the old concept and transformed these private-label
brands into serious market place contenders. They are gaining popularity along with national brands and
have taken a major market share from many of the national brands. There has been a tremendous sales
growth in recent years and experts feel that the figure will rise up in near future with a much faster pace
(Zimmerman, 1998).
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 Private-label brands – Success Story
One reason for this growth in market share is that retail chains are increasingly extending their range of
products sold under the private-label tags from the basic products to more sophisticated ones (Lee,
2004). An interesting fact reveals that their growth has been highly uneven across various product
categories. A report indicates that private brands are also top sellers in many product categories sold in
the supermarkets (Quelch & Harding, 1996). Also they offer high margins in some of the product
categories where they compete against fewer national brands and spend less on promotional activities.
With the rise of large, well-organized retail chains, these brands have emerged as a key weapon in the
battle waged between retailers and manufacturers over channel control and consumer loyalty. Research
on this topic shows other reasons also behind the growth of popularity of private brands among retailers.
 High Gross Margin
First, private brands have a higher gross margin opportunity than national brands (Lewison, 1994; Raju,
Sethruaman & Dhar, 1995). Although they are typically priced much lower than national brands
(Ailawadi, Neslin & Gedenk, 2001; Mason, Mayer & Ezell, 1994), lower marketing costs compensate
for the lower prices allow them to enjoy higher overall gross margins than national brands. Hoch &
Banerjee (1993) found that retailers often advertise the national brands to attract consumers to stores and
sell private-label brands (generally low-priced) to the price-sensitive segment.
 Low Price
Secondly, retailers use these private-label brands as bargaining tools for asking manufacturers for better
trading terms such as cheaper prices, more promotional items, quicker deliveries, etc (Ailawadi, Borin &
Farris, 1995; Chintagunta, Bonfrer & Song, 2002; Narasimhan & Wilcox, 1998). In his research Mills
(1995) noted that private brands enable retailers to get better deals from manufacturers in the form of
lower wholesale prices on national brands. It has been found that the top retailers have always set the
prices of these brands 10-15% lower than those charge by national brands (Grewal & Levy, 2009).
 Store Image
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Thirdly, retailers can build distinctive store image with their private brands (Grewal et al., 1998;
Richardson, Dick & Jain, 1994; Sayman, Hoch & Raju, 2000).
 Store Loyalty
Fourthly, private brands with strong and exclusive image can develop store loyalty and store traffic
(Levy & Weitz, 2001). Researchers (Morgenson, 1991; Karolefski, 1990; Lenchek, 1990) believe that
rise of private brands will continue because retailers are now providing acceptable quality products at
reasonable prices and customers are giving less importance to big brand names.
 Positioning
According to Roach (1995), the modern-day retailers have realized that they cannot simply rely on
national brands to draw customers into their stores. They have started to diversify their offerings beyond
customer-expectations, enabling them to compete more effectively in existing product categories and
foray into new/different product categories that have traditionally been dominated by national brand
players. The private brands have moved from their original status as low-priced, value-for-money, lowquality items into premium and life style arenas. Most of the big retailers have taken a “value for
money” orientation in the marketing of their private brands rather than competing with national brands
on the basis of quality (Halstead & Ward, 1995). By taking a value for money orientation, retailers hope
to instill the purchase of these products not only from those consumers who perceive that store brands
are lower priced but of relatively good quality but also from those customers who perceive that private
brands are lower priced goods and of relatively poor quality as long as savings associated with the price
differential provides adequate compensation for purchase. It seems that private brand marketing appears
to be shifting from its usual low-cost strategy to a national brand marketing strategy. A recent study by
Dhar & Hoch, 1997; Hoch, 1996 found that quality-oriented strategies are more viable than valueoriented strategies for the success of private brands in the long run.
 Other Factors
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Moreover the modern-day retailers are becoming more professional in managing their own brands. In
order to capture a greater portion of the private-label market, the retailers are expanding their offerings,
improving quality, introducing attractive packaging, expanding their distribution networks as well as
customer-oriented sales promotion of their brands (Sullivan, 2005).
As the retail market becomes more and more concentrated, the retailers are investing in establishing
their own brands that have clearly become a more instrumental priority for today’s retailers. In many
instances, private labels have surpassed a national brand’s capacity to deliver on visibility, consumer
interest, involvement and appeal. Simultaneously improvements in quality, taste, packaging, etc to some
extent have also made the customers attracted to them (Edgecliffe, 2001). In recent times various
exclusive deals and variety of product innovations have made these items much popular in the retail
market. Some retailers have also raised the prices of their private-label items since the price gap between
private and national brands was a huge difference that have created a negative perception amongst the
customers regarding the quality of the products.
 Private-label brands – Still a Customers’ No
Simultaneously some of the research studies conducted by the eminent scholars have revealed different
findings regarding the viability of the private-label brands. Previous researches made on customers’
attitude and perception on private brands showed that customers rate them below the national brands on
basis of certain factors like price, taste, quality, appearance, packaging, promotion, etc (Shapiro, 1993).
 Price
A survey conducted by Private Label Manufacturers Association (PLMA), USA in 1991 reveals various
reasons of buying private-label brands by the customers. Most of them prefer to buy them because of
low-price factor. According to Roth (1995), an important aspect that relates to human consumption is
customers’ income-pattern. When income is limited, the price-conscious customers buy goods just to
satisfy their most basic functional needs rather than fulfilling hedonic needs. Previous research has also
shown that customers’ level of price-consciousness rises with lower incomes and is higher among the
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deal-prone customers who believe less in price-quality associations (Blois, 2000). These price-sensitive
customers generally lack knowledge about different perceived risks involved, less brand-loyal, tend to
save money, more attracted to the store-promotional offers and care less about the product-quality.
People with higher incomes are less price-conscious and are more likely to buy private-label brands. In
other way, these brands are meant only for price-sensitive segment of the society and budget-conscious
customers, especially in difficult economic times when people seek ways to reduce their expenditures.
However, when economy picks up, these customers again go back to buy national brands.
 Quality
According to Faria (1979) price and quality are the two most important characteristics for purchase of
any product and there is a direct link between them. Apart from price, quality is another major
determinant in customer purchase decisions (Hoch & Banerji, 1993; Sethuraman, 1992). Research
confirms that quality is the most important factor that drives customers towards national brands (Holt,
Quelch & Taylor, 2003). Customers do make quality judgements on basis of price rather than physical
product-attributes. They have a common perception that low-priced products are of inferior in quality
because they are generally made up of poor product ingredients and thus lack the required quality-level
(Batra & Sinha, 2000). The study conducted by Rubel (1995) also concluded that in case of private-label
brands both the price and quality are the major purchasing parameters but if the quality offered is same
for both private and national brands, then at that moment price becomes the key factor. While the
quality-level do varies from retailer-to-retailer, they were nonetheless generally inferior to
manufacturers’ brands (Steenkamp, Batra & Alden, 2003).
 Perceived Risks
Researches also showed that perceived risk is a crucial factor in purchasing private-brands (Richardson,
Jain & Dick, 1996). As Narasimhan & Wilcox (1998) mention customers prefer national brands to
private-brands if the level of perceived risk in buying those products is high. Thus, purchasing of baby
foods or skin-care goods should clearly be seen as more risky than purchasing of cleaning liquids and
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groceries. In addition, purchases that expose customers to social ridicule can also be high risk, even if
they are of low monetary value.
 Promotion
There are also differences in promotional strategies between the retailers and manufacturers. Several
studies (Allenby & Rossi, 1991; Bronnenberg & Wathieu, 1996) have shown that the promotions of
national brands yield more sales than store brands because national brands can easily attract customers
through frequent advertising and promotional exposures. Generally they use different sales promotion
tactics instead of going large-scale advertisements because of limited promotional budgets.
 Positioning
Positioning is the marketing term that is used to describe the view a customer has regarding the image of
a particular offering. While national brands manufacturers position their products to maximize profits
from their own products, retailers focus on maximizing profits from both store brands and national
brands (Sayman, Hoch & Raju, 2002). Chernatony & McDonald (1992) noted that some of the privatebrands are just the imitation or have strong resembles of national brands. The strategy behind this is to
target the leading national brands to decrease their demand and to capture the market share. Omar
(1999) suggested that this tendency to introduce imitated products will not lead to clear positioning but it
is important for retailers to identify a particular and relevant positioning strategy.
Main Findings
 The Price & Quality are the most important factors in choosing the private-label brands.
 The customers do avoid low-priced private-label brands because of their inferior quality.
 The private-label brands are popular among the lower-income section of the society.
 The price-gap between a private-label and a national-label brand is often found to be huge which has
created a negative perception in the customers’ minds.
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 Due to budget constraint, the private-label brands are not promoted in a large scale like the national
brands and hence the brand awareness is less.
 The private-label brands are generally promoted through in-store promotions.
 A lot of in-store promotional activities have created a certain store-loyal customers who have
become regular purchasers of these private-label brands.
 The packaging of the private-label brands often resemble to those of the national brands.
 Nowadays the private-label brands have positioned themselves as premium brands by adapting
“value for money” strategy.
 The private-label brands have extended their presence across various product categories.
 In recent years the private-label brands have improved their quality-label, packaging, taste, etc to
match with national brands.
 The retailers are trying to improve the brand-image of the private-label brands to capture more
market and are giving tough competition to the national brands.
Conclusion
The conclusions drawn are only said to represent a particular version of reality that has been constructed
on the basis of analysis/interpretation of the earlier research findings. As such although findings and
conclusions may not provide general guidelines or insights for the development of a theory, they
represent a manifestation of customers’ preferences in buying the private-label brands. Products are
often purchased or avoided not for their functional qualities but because of how they impact the buyer’s
psychological status. The attitudes and perceptions that customers have about products are crucial in
their buying decision making process. It can be concluded that the premium brands have built their
brand-images over the years on the foundation of high level of customer-loyalty, occupying a prominent
position in customers’ minds whereas private-label brands possess negative attitudes & unfavourable
perceptions and there is a general tendency among the customers to avoid them. Though the retailers sell
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a lot of these products to the customers but still people those who are affluent prefer to buy the national
brands because of their high standards and do not want to compromise on that.
Limitation
This present study is just an exploratory in nature and is based on earlier research findings made by the
marketing scholars.
Scope for Further Research
Even though the objective of this research study seems to have been met, it can be argued that the
conclusion should not be regarded as final one as because this study represents a highly contextualized
study largely based previous research studies. Though the findings cannot suggest final conclusions; but
they can be used for proposition of further research considerations.
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