Pricing store brands across categories and retailers
| Date | 01 July 2003 |
| Pages | 201-219 |
| Published date | 01 July 2003 |
| DOI | https://doi.org/10.1108/10610420310485023 |
| Author | Daniel A. Sheinin,Janet Wagner |
| Subject Matter | Marketing |
Pricing store brands across
categories and retailers
Daniel A. Sheinin
College of Business Administration, University of Rhode Island,
Kingston, Rhode Island, USA
Janet Wagner
R.H. Smith School of Business, University of Maryland,
College Park, Maryland, USA
Keywords Retailing, Brands, Pricing, Stores and supermarkets, Risk management,
Management strategy
Abstract As sales of store brands increase, retailers are shifting their store branding
strategies by raising store brand prices, extending their store brand assortments to high-
risk categories, and marketing store brands in high retail image formats. The purpose of
the research is to explore the effects of these changes on consumers' judgments of store
brands. The conceptual framework is derived from pricing, prospect, and information
processing theories. It is tested in two experiments. The study finds that consumers' use of
price information varies by decision-making context. In particular, price-based effects for
store brands are moderated by the contextual factors of category risk and retail image.
Store brands are private label brands that bear or suggest the name of a
retailer. Examples include Safeway food products, Radio Shack computers,
and CVS over-the-counter drugs. Among consumers, store brands have high
levels of awareness. In a recent national survey, 91 percent of consumers
reported being familiar with store brands, and 83 percent reported having
purchased them (PLMA, 2001). Among retailers, store brand strategies are
popular, because of their potential for sales growth. During the past ten
years, sales of store brands have grown at a pace outstripping that of national
brands (PLMA, 2001).
Until recently, most store brands were of lower quality than national brands.
They were also priced below competing national brands, restricted to low-
risk categories, and marketed primarily by mass merchandisers,
supermarkets, and chain drugstores. However, retailers are beginning to
implement changes in their store branding strategies (Gold and Gold, 1999;
Lee, 2001). First, they are introducing higher quality store brands, many of
which are priced close to or even at parity with competing national brands
(Quelch and Harding, 1996; Aaker, 1996; Narasimhan and Dunne, 1999;
PLMA, 2001). Second, they are broadening their assortments of store brands
to include higher-risk categories, such as consumer electronics, fashion
goods, and domestics (Reda, 1995; Quelch and Harding, 1996; Savage,
2000; White, 1998). Finally, high image retailers, such as Bloomingdale's
and Macy's, which once built their assortments around high status national
brands, are now leveraging and reinforcing their retail images by introducing
their own store brands (Aaker, 1996; Berner, 1997).
Despite these shifts in store branding strategy, we know of no research
examining the effects of higher prices, higher category risk, and higher
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The authors thank Gabriel J. Biehal for reviewing earlier versions of this paper.
Lower quality
JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 4 2003, pp. 201-219, #MCB UP LIMITED, 1061-0421, DOI 10.1108/10610420310485023 201
An executive summary for
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image retailers on how consumers evaluate store brands. Research on store
brands indicates that consumers perceive them to be low in quality and low
in price, relative to competing national brands (Richardson et al., 1994).
Consumers who favor store brands tend to be price sensitive (Raju et al.,
1995) and value conscious (Burton et al., 1998). In buying store brands,
consumers report they are inclined to be risk averse, preferring store brands
in low-risk categories to those in high-risk categories (Batra and Sinha,
2000). However, as retailers change their store brand strategies, it is
important to explore how these changes affect consumers' judgments. Store
brands offer retailers higher profit margins than national brands (Lee, 2001).
They are also believed to build consumer loyalty to retailers (PLMA, 2001).
Consequently, understanding how changes in store branding programs affect
customer judgments of store brands is an important and timely research
topic.
The purpose of our research is to examine the effect of price on how
consumers judge store brands, and explore the moderating effects of
category risk and retail image on these judgments. We report the results of
two studies designed to address those questions. In Study 1, we study the
effects of price and category risk on store brand judgments ± perceived
quality, attitude, and purchase intention ± in the context of an existing lower
image retailer. In Study 2, we replicate and extend Study 1. We test the
effects of price, category risk, and retail image on store brand judgments,
manipulating retail image in the context of a hypothetical retailer. After
reporting the results of the two studies, we discuss their implications for store
branding strategy.
Conceptual framework
Price has a dual effect on consumer decision making (Monroe, 1990; Monroe
and Krishnan, 1985; Rao and Monroe, 1988). First, price is a cue to
perceived quality, an effect that is generally positive (Dawar and Parker,
1994; Rao and Monroe, 1988; Ratchford and Gupta, 1990). While the price-
perceived quality relationship holds across most categories (Lichtenstein and
Burton, 1989; Monroe and Krishnan, 1985; Peterson and Wilson, 1985), its
strength may be reduced by non-price cues (Zeithaml, 1988). Second, price
is an indicator of financial sacrifice, an effect that is also generally positive
(Monroe and Venkatesan, 1969). When consumers evaluate products, they
trade-off priced-based perceptions of quality and sacrifice (Dodds et al.,
1991; Monroe and Krishnan, 1985; Zeithaml, 1988). To evaluate products
positively, consumers must perceive that they are gaining benefits that
exceed concomitant sacrifices (Monroe, 1990; Zeithaml, 1988).
Decision-making context
How consumers use price information in evaluating products is influenced
by decision-making context (Monroe, 1990). When consumers evaluate store
brands, two key contextual factors that should moderate price effects are
category risk and retail image.
Category risk. Category risk is the uncertainty consumers perceive in
purchasing a particular type of product. Sources of such uncertainty include
financial loss, social disapproval, and poor performance (Shimp and
Bearden, 1982). When consumers perceive that decisions are risky, they
engage in uncertainty-reducing strategies, such as processing more
information. Such decisions are complex processes in which consumers
make inferences from, and integrate information on, multiple product
Research
Uncertainty-reducing
strategies
202 JOURNAL OF PRODUCT & BRAND MANAGEMENT, VOL. 12 NO. 4 2003
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