Effects of multitier private labels on marketing national brands

DOIhttps://doi.org/10.1108/JPBM-10-2017-1623
Pages391-407
Date13 May 2019
Published date13 May 2019
AuthorM. Tolga Akcura,Ian Clark Sinapuelas,Hui-Ming Deanna Wang
Subject MatterMarketing,Product management,Brand management/equity
Effects of multitier private labels on marketing
national brands
M. Tolga Akcura
Ozyegin University, Istanbul, Turkey, and
Ian Clark Sinapuelas and Hui-Ming Deanna Wang
College of Business, Department of Marketing, San Francisco State University, San Francisco, California, USA
Abstract
Purpose This paper aims to understand empirically how shares of standard and premium private label (PL) products affect a retailers marketing
mix decisions toward national brands (NBs).
Design/methodology/approach Using a comprehensive store-level data set covering 52 categories and 130 stores of two retailer chains during
2003-2009, this paper examines how shares of standard and premium PLs affect retailer marketing strate gies for NB retail prices, promotions and
product assortments. The empirical analysis uses a simultaneous equations model estimated by the generalized method of moments approach and
controls for endogeneity between PL shares and NB decisions and potential confounding variables including consumer, manufacturer and retailer
factors.
Findings Standard PL shares are associated positively with NB retail prices and negatively with NB promotions and assortments. In contrast,
premium PL shares are associated positively with NB retail prices, promotions and assortments.
Research limitations/implications The results indicate that retailers make strategic NB decisions through multitier PLs. Specically, the evidence
suggests that retailers use standard and premium PLs differently in promotion and assortment decisions toward NBs. NB manufacturers need to be
cognizant of the increasing marketing power of retailers through their multitier PLs.
Originality/value Prior research has mainly focused on the role of PLs as a strategic weapon to gain power in the channel and its impact on NB
pricing decisions in a single PL context. After accounting for potential confounding factors (retailer, consumer and manufacturer) and endogeneity,
the authors nd empirical evidence that retailers appear to leverage standard and premium PLs differently in some marketing mix decisions toward
NB. In particular, the results reveal PL performance to be a determinant of retailer NB assortment decisions.
Keywords Promotions, Pricing, Private labels, Product assortment
Paper type Research paper
1. Introduction
According to the Private Label Manufacturers Association and
industry reports, supermarkets consistently use their private
labels (PLs) to reassert themselves competitively in their
geographic markets in the past decade(IRI Times, 2009;Kroger
Gains Ground, 2015). There is anecdotal evidence that PLs
drive retailer success (Forbes, 2013). According to a Nielsen
report, PL average dollar shares across the world are growing
(Nielsen, 2013). Retailers are movingaway from a standard tier
to a multitier PL portfolio (Geyskens et al.,2018). A multitier
PL portfolio includes economy and/or premium variants in
addition to the standard PL. Premium PLs are positioned to
compete directly with top quality national brands (NBs)
(Geyskens et al., 2010). The changing environment in which
NBs and multitier PLs compete necessitates an updated
understandingabout PLsvalue to retailers.
Compared to other marketing mix elements retailers use,
PLs are powerful strategic tools (Koschate-Fischer et al.,2014;
Narasimhan and Wilcox, 1998). Unlike other strategic tools
such as lowering prices, increasing advertising or increasing
service levels, which can be easily replicated by competitors
with similar resources,PLs are unique and can provide a source
of sustainable competitive advantage to a retailer. PLs help
retailers better differentiate from competing retailers thereby
increasing consumer inertia and store loyalty (Corstjens and
Lal, 2000). In addition, PLsprovide retailers bargaining power
against NB manufacturers (Pauwels and Srinivasan, 2004;
Sethuraman, 2003) leading to lower manufacturer wholesale
prices and higher retailer prot margins(Ailawadi and Harlam,
2004;Meza and Sudhir,2010).
To date, empirical studies establish the benets accruing
from PLs in capturing customer value and in strategic actions
against manufacturers. Extant literature (Hyman et al.,2010
and Muruganantham and Priyadharshini, 2017 for a review)
examines determinants of PL performance among consumers
(Coelho do Vale and Verga Matos, 2015;Marques dos Santos
et al., 2016;Pepe et al., 2011;Rubio et al., 2015;Rubio et al.,
The current issue and full text archive of this journal is available on
Emerald Insight at: www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
28/3 (2019) 391407
© Emerald Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/JPBM-10-2017-1623]
Received 23 October 2017
Revised 19 April 2018
6 September 2018
21 November 2018
Accepted 26 November 2018
391
2017), across product categories (Hoch and Banerji, 1993;
Raju et al., 1995), and across retailers (Dharand Hoch, 1997).
Sethuraman and Gielens (2014) nd generalized effects of
consumer, product-market, retailer, and manufacturer related
factors on PL shares.
In contrast, there is a paucity of research investigating PLs
inuence on retailersmarketing mix decisions for NBs sold in
their stores. With the exception of price related effects
(Ailawadi and Harlam, 2004;Cotterill and Putsis, 2000), the
impact of PL shares on NB marketing mix remains largely
unexplored, especially from the retailers perspective. Even
fewer studies concurrentlyanalyze these factors and their inter-
connections which when ignored leads to spurious inferences
regarding the causal relationships between PL share and
retailer NB marketing decisions. Finally, ndings from studies
on retailersstrategic behavior are limited, somewhat
inconclusive and obtained from a single-tier PL setting only
(Meza and Sudhir,2010).
Retailers have the powerto setthe marketing mix for PLs and
NBs sold at their stores (Meza and Sudhir,2010). The role and
value of PLs in this decision context is complex. Retailers can
use PLs to manage both inter-store competition (with other
retailers carrying similar NB assortments) and intra-store
competition (betweenNBs and PLs). While retailers may favor
their PLs over NBs by making NBs less attractive, doing so
engenders adverse effects on retailerscompetitive draws. Take
a retailers product assortment for example. Consumers could
incur a brand substitution cost when their preferred NBs are
not available at a store (Campo et al., 2000). The substitution
cost could induce consumerstore switching behavior leading to
fewer store visits and lower sales. From a protability
standpoint, high standardPL shareslower store protability, as
PLs primarily serve price sensitive consumers (Ailawadi and
Harlam, 2004). Thus, it is necessary for retailers to retain a
balance between PLs and NBs when deciding the marketing
mix for their NBs. Additionally, a multitier PL portfoliobrings
added complexity to a retailers trade-off decisions. Using PL
quality as another important strategic lever, retailers can gain
greater power in intra-store competition with NBs. There is a
growing stream of literatureon multitier PLs, but they focus on
the determinants of premium PL entry and/or PL multiquality
decisions (Amaldossand Shin, 2015;Chung and Lee, 2017;ter
Braak et al.,2014). The effects of multitier PLs in retailers
marketing strategies towardNB remain an importantempirical
question.
The main objective of this research is to empirically
investigate whether and how shares of standard and premium
PLs inuence a retailers NB marketing activities in a
multitiered PL setting. Using a comprehensive store-level data
set from two retail chains across52 product categories and 130
stores from 2003 to 2009, we utilize a simultaneous equation
model to address the reverse causality between PL shares and
retailer decisions regarding NB pricing, promotion, and
assortment decisions.
Our study contributes to the marketing literature in several
ways. First, by investigating the impacts of standard and
premium PL shares on retailer NB price, promotion, and
assortment decisions, we provide an updatedunderstanding of
the multitier PLsstrategic roles. By separately considering the
strategic roles of standard and premium PLs and NBs in inter-
and intra-store competition, our study empirically
demonstrates the differential effects of a retailers multitier PL
portfolio on its NB marketing mix strategies. Our study
illustrates how retailers can use a multitier PL approach in
conjunction with their NB marketing activities when
competing against other retailers and transacting with NB
manufacturers. Second, we offer unique insights on PL-NB
competition with respect to a non-price variable. Specically,
this research responds to the scholarlycall for more research on
the interactionsbetween NBs and PLs in a retailers assortment
(Mantrala et al., 2009). Consideringthat assortment is a more
important predictor of consumer store choice decision than
price (Briesch et al.,2009), our research adds important
insights to this literature. Third, our empirical analysis differs
from a methodology perspective. Because PL shares and NB
marketing variables are jointly determined and endogenous in
nature, scholars stress the need of using rigorous estimation
approaches to address simultaneity and reverse causality
(Sethuraman and Gielens, 2014). Using a simultaneous
equations system, our empirical analyses explicitly tackle these
issues and control for the temporal order in the causal
relationship. Our estimates are robust because we control for
the potential confounding effects of consumer, retailer, and
manufacturer factors on both PL shares and NB decisions.
Finally, the empirical analysis is conducted in a multitier PL-
NB competitive setting, which enables us to add unique
insights about the effects of PLs on retailer NB decisions in a
broader context.
2. Conceptual framework and hypotheses
Our hypotheses build on the current understanding of retailer
actions and motivations during the process of optimizing the
marketing mix for NBs and PLs. Because retailers have the
power to set the marketing mix for NBs sold at their stores
(Meza and Sudhir, 2010), they create an optimal marketing
mix (assortment, price and promotion) to maximize category
revenues and prots. In setting these decisions, retailers
consider intra-store competition (between NBs and PLs) and
inter-store competition (between an NB in their store and the
same NB in other retailersstores). As PLs deliver higher
retailer margins than NBs, it is in the retailersinterest that
consumers choose PLs over NBs. However, NBs are trafc
builders due to the marketing campaigns behind them. More
importantly, NBs provide context for PLs when consumers
evaluate the PLsvalue propositions.Some customers may nd
that PLs offer the desired value, whereas others may nd that
NBs fulll their needs. When consumers seeking NBs do not
nd them at a certain retailer, there is a signicant chance that
they:
switch to a different brand;
delay purchase; or
switch to a different store (Mantrala et al., 2009).
Thus, while retailers may wish to carry only PLs (over NBs)
due to their higher margins, this is infeasible due to the NBs
ability to draw customers, provide context for its PLs, and
retain customers who would otherwise switch to competing
retailers.
In deciding whether to foster inter-store or intra-store
competition, retailers consider their PLspower. PLs derive
Effects of multitier private labels
M. Tolga Akcura, Ian Clark Sinapuelas and Hui-Ming Deanna Wang
Journal of Product & Brand Management
Volume 28 · Number 3 · 2019 · 391407
392

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT