Determinants of store brand choice: a behavioral analysis
| Date | 01 October 1997 |
| DOI | https://doi.org/10.1108/10610429710179480 |
| Published date | 01 October 1997 |
| Pages | 315-324 |
| Author | George Baltas |
| Subject Matter | Marketing |
Introduction
In recent years consumer goods markets, and frequently bought categories in
particular, witnessed an increasing presence of private label products. Own
label products are defined as consumer products produced by, or on behalf
of, retailers and sold under the retailers’ own name or trade mark through
their own outlets.
This extensively discussed and documented trend in both practitioner and
academic oriented literature, characterizes most western economies in
Europe and North America. In the UK, own-label grocery products have
risen their market share by an average of nearly 1 percent yearly, from 22
percent in 1977 to the current 39 percent. There appears to be an upsurge
within this trend as in the past six years alone the private-label market share
has grow by 8 percent.
Most own labels are not actually produced by the retailer. Manufacturers
may elect to produce own-label products for retailers in order to achieve
scale economies in production and distribution, utilization of excess
capacity, sales increase without marketing cost, as well as price
discrimination because of image differentiation between branded and
private-label products. Originally, private labels were only produced when
capacity allowed it. Increasingly, entire factories are dedicated to production
of private label products. Nevertheless, it appears that most own-label
suppliers are small regional players not coincidentally playing on the major
manufacturers’ field (Hoch, 1996).
The producer of private-label products acts like the perfectly competitive
firm of economic theory. The supplier faces a fixed and typically very tight
product specification and a fixed price with no returns for innovation or
differentiation. Therefore attention is concentrated in cost minimization.
The most obvious benefit to consumers afforded by own brands is lower
prices. On average, private labels are 10-30 percent cheaper than national
brands in grocery product classes. Lower self prices for the consumer and
better gross margins for the retailer clearly require a considerably lower
supply price, compared with equivalent manufacturer brands. As discussed
above, the power of large retailers to demand terms based on suppliers’
marginal costs and tight product specification are main contributory factors.
Similarly, lower advertising and promotion cost and quality differences
contribute to the formation of a lower supply price for own-label. In fact,
own-labels tend not to receive any advertising support other than corporate
where general benefits associated with the retailer are promoted. This means
that the retailer is able to charge a significantly lower price and often make a
higher profit margin.
Determinants of store brand
choice: a behavioral analysis
George Baltas
An executive summary
for managers and
executives can be found
at the end of this article
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 6 NO. 5, 1997 pp. 315-324 © MCB UNIVERSITY PRESS, 1061-0421 315
Private label
products
Cost
minimization
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