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Title of the Paper: Understanding Customers’ Buying Preferences of Private-Label Brands
– A study on the UK Retailers
Author’s Name: Samrat Chakraborty
Designation: Lecturer, DSMS College, Durgapur (West Bengal)
Brief Profile: Presently working at Durgapur Society of Management Science (DSMS) as a Lecturer in
the area of Marketing at both undergraduate and post graduate levels. The areas of interest
are – Principles of Marketing, Consumer Behavior, Sales & Distribution Management.
Hold a Master’s degree in Marketing from Leicester University, UK and PGDBM from
Asia-Pacific Institute of Management, New Delhi. Prior to joining the academics, have an
industrial experience of over 5 years in the field of Sales & Marketing in various Indian
companies. Have attended several national-level seminars and conferences.
Mobile: 09874373288
Email: [email protected]/[email protected]
Declaration:
This article is not submitted elsewhere, is unpublished and as well as original. This article has been writ-
ten on based on the M.Sc. Dissertation project work which was carried on June – August, 2006.
Abstract
There has been a general increase in the penetration of private-label brands across Europe as retailers
have been using these goods to increase their gross margins, offer value for money to consumers and
build their company brand. The UK has emerges as the leader in European retailing sector from lower
quality goods to higher quality own brands that compete directly with the premium ones. Studies have
revealed that perceptions play an important role in customers’ buying decision-making process and
subsequently their buying preferences for any particular brands. Research studies have showed that in
spite of doing well in the retail market in recent years, customers still possess negative perceptions about
the private-label brands and have tendency to avoid them. This exploratory study tries to explore the
opinions/views of the top retailers of UK regarding the customers’ perceptions about their private-label
brands. To do so this study which is based on qualitative research methodology focuses on a series of in-
depth interviews of the store-managers of some selected retailers of UK in order to meet the research
objectives. The findings indicate that even after gaining success in retail market these brands do not have
favourable brand-image among the customers like the premium brands and are not preferred by majority
of customers.
Keywords: private-label brands, retail, retailing, customers’ preferences, brands, brand-positioning,
brand-awareness.
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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 and popularity of retailing in the 19th century was the main reason for the growth of this
new concept (Charnatony & McDonald, 2003). Due to the rise of private-label brands, branding in retail
sector took a new shape and significance (Gilbert, 2002). This became increasingly apparent in recent
years when the modern retailers have launched a wide product range of these goods; improved their
quality standards, offering at reasonable prices, implementing effective promotional strategies and using
larger distribution networks.
United Kingdom has been one of the most advanced and concentrated retail market with a total retail
sales-value of over £285 billion in 2009 (Source: British Retail Consortium Annual Review, 2010).
The retail sector generates 8% of the total GDP of the country and is set to increase in size by 1.5%
annually - taking its value to about £312 billion by the end of 2015. Moreover UK is also the leading
private-label market among the big European nations with market share of 45% (Figure – 1).
Figure - 1: Private Label Market in Europe 2009
Country Volume Share % Value Share %
United Kingdom 45.4 43.5
Belgium 34.7 27.4
Germany 33.2 26.0
France 22.1 19.1
The Netherlands 20.6 18.4
Spain 20.5 14.8
Italy 17.1 15.5
Source: PLMA Yearbook, 2010
The retail market of UK is extremely popular in selling private-label goods and these goods are widely
available in major retail stores/supermarkets across the country. The top retail stores have about 40-50 %
of their total sales coming from these private-label brands (Figure – 2).
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Figure – 2: Retail Sales of Private-Label Brands
Top Retailers of UK Private-label shares (%)
1. Tesco 50
2. Sainsbury’ 50
3. Morrisons 44
4. ASDA 49
5. Somerfield 36
6. Waitrose 52
Source: Data Monitor, 2010
Private-label goods were initially introduced in the grocery market by some early retailers as cheaper
alternatives of premium ones. Major UK retailers sell approximately 40% of their packaged grocery sales
under their own brands. In the last couple of years these goods have gradually expanded their presence
across all product categories ranging from clothing, electronics, health, footwear, beauty, over-the-
counter (OTC) medicine, etc. and presently the leading groceries are offering a range of these products
under their own private-label brands.
Literature review
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 erratic and therefore more
unpredictable, making the study much more complicated (Blois, 2000). Perceptions play an important role
in customer buying decision-making process. Customers do posses perceptions (+ve/-ve) about certain
brands available in market on the basis of factors like price, quality, taste, promotion, packaging, etc. If
the customers are satisfied with the product performances of any specific brand, they will prefer it
otherwise not. In today’s world of limitless choices and wide variety of purchase options available, brand
preferences may change in course of buying process further influencing them in switching a brand
(Assael, 1998).
Private-label brands – Success Story4
Private-label brands are brands owned, controlled and sold exclusively by the retailers. According to
Steenkamp & Dekimpe, (1997) the increasing popularity of the retail sector in some developed countries
in the 19th century saw a rise of departmental stores and super-market chains; that further gave birth to the
concept of private-label brands. In the beginning these products were introduced in the grocery section
with much cheaper prices compare to branded products but they were not so popular among customers
due to their inferior product qualities. But the poor economic conditions in many countries in the mid 19 th
century change the market scenario. The price-conscious customers subsequently went for these low-
priced goods causing a rise in the demand of these goods. In recent years a considerable improvement in
quality, taste, packaging, promotion, etc have made the customers more attracted towards them. Moreover
exclusive deals and variety of product innovations by the modern retailers have made these items as
profitable ones (Quelch & Harding, 1996).
Researchers have shown various reasons behind the success stories which are as follows:
Raju, Sethuraman & Dhar, (1995) mentioned that these brands do have a higher gross margin
opportunity to retailers than the premium ones. Although they are typically priced much lower than
premium brands, but lower marketing costs compensate for lower prices allowing them to enjoy
higher overall gross margin (Mason, Mayer & Ezell, 1994).
Hoch & Banerjee, (1993) pointed out that the retailers often advertise the premium brands to attract
the customers to their stores and subsequently sell their own brands (generally placed along with
premium ones) to them.
Retailers often use their own 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).
These brands enable the retailers to get better deals from manufacturers in the form of lower
wholesale prices on premium brands (Mills, 1995).
Grewal et al., (1998), Richardson, Dick & Jain, (1994), Sayman, Hoch & Raju, (2002) stated that
retailers can build distinctive store-image with the help of their respective private-labels.
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Moreover private-labels with strong and exclusive images can develop effective store-loyalty among
the customers resulting in more store traffic (Levy & Weitz, 2001).
Private-level versus Premium Brands
(a) Characteristics
Though the private-label brands are doing extremely well in all product categories with increasing sales
growth over the years and are achieving much higher levels of penetration in retail markets but in spite of
their phenomenal success, majority of customers still do not prefer in buying them (Corstjens & Lal,
2000). Some of the early research studies on this topic have pointed out as -
These brands are judged inferior to premium brands on variety of characteristics such as inferior
quality, bad taste, low-priced, dull packaging, improper labelling, etc (Rao & Monroe, 1989).
Cunningham, Hardy & Imperia, (1982) suggested that customers do believe that these brands lack
strong brand image, less or not advertised, weak positioning strategies and consist of poor product
ingredients.
Edgecliff, (2001) pointed out that both price and quality are the two important factors in choosing
private-labels and there is a direct relation between them. Consumers always use this “price-quality”
formula to calculate the brand differences in course of their buying decision making process.
Generally they do make quality judgements on the basis of price rather than other products attributes
and have a perception that low-priced products are of inferior in quality compare to the high-priced
branded goods (Batra & Sinha, 2000).
Although the quality varies by the retailers but the taste is nonetheless inferior to premium brands
(Steenkamp, Batra & Alden, 2003). Studies reveal that these brands are generally seen as cheaper
alternatives of premium ones meant for the price-conscious customers (Riezobos, 2003).
(b) Awareness-Level
A brand is of no meaning unless the customers are aware of it. In today’s highly competitive business
environment and a clutter of products available in the market, achieving superior brand awareness is a big
challenge for all marketers. The top retailers in UK have well advertising budget but they usually focus
more on their respective store-promotions rather than focussing on their own brands. Hence majority of 6
the customers are not aware of these brands as they are hardly advertised. According to Ailawadi, Neslin
& Gedenk, (2001) the retailers mainly communicate to their customers on a continuous basis through the
store atmosphere and generally use two types of store-promotions to attract the customers – in-store and
out-of-store promotions. The first type includes store displays, in-store specials (bonus packs, family
offers, reduction on multiple purchase, store-reduction, etc) that are encountered in stores and used
opportunistically or passively whereas the second type includes coupons, rebates, premiums and other
short-term incentives, which are actively considered before customer goes shopping.
(c) Positioning Strategies
As the market competition in retail sector is getting tougher day-by-day retailers have taken a “value for
money” approach in marketing their brands (Morgenson, 1991). The retailers do sell their brands much of
low-price compare to the premium ones in order to attract more customers (Figure – 3).
Figure – 3: Price-Differences: Private-Label versus Premium Brands
Retailers’ BrandsPrice Differences compared to
premium brands average (%)
1. Tesco – True Value 80
2. Sainsbury’s – Basics 70
3. Morrisons – Bettabuy 70
4. ASDA – Smart Price 70
5. Somerfield – Simply 75
6. Waitrose 24
Source: Data Monitor, 2010
They feel that by offering the goods at cheaper prices will make them to penetrate into every market
segments easily and can capture a high market-share. Though this strategy may work for some small and
new retailers but this might become a bane for them in the long run. Studies by Dhar & Hoch, (1997);
Hoch, (1996), found that quality-oriented strategies are more viable than value-oriented strategies for
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private-label success. Retailers should realize that without the combination of both price and quality, they
won’t be able to make their brands successful in long run.
Research Objective
The purpose of this research study is to explore the general perceptions of the customers about the
private-label brands and subsequently their buying preferences of these brands. To meet the main research
objective, the following other areas have been explored as well, such as:
Role of various product attributes in choosing the private-label brands
Importance of price and quality in influencing customers’ brand preference
Understanding the customers’ awareness-level of these brands and promotional effectiveness
Positioning strategies adopted by the retailers for these brands
Research Methodology
In order to meet the objective of this research study, qualitative research methodology was chosen as a
method of research as it enables the respondents to reflect upon or to express their views/opinions to gain
additional insights based on research questions. Qualitative in-depth interview was used to collect the
required information (views/opinions) in order to meet the research objectives. The information was
collected by conducting a series of in-depth interviews of the store-managers of the selected retail stores.
This method was used as a procedure as it fit perfectly into the qualitative methodology by not limiting
respondents to a fixed set of replies and by careful probing, it enables interviewer to get a more accurate
picture of respondents’ true opinion on any particular issue. The length of interviews varied depending on
the depth and time each respondent was able to allocate to this session. The interviews were unstructured
in nature and the researcher used several open-ended questions. The four top retail stores were selected as
all these retailers do manufacture and sell their own private-label brands in their respective stores. The
store managers of these retail stores were chosen as respondents for interview-purpose (Table – 1).
Thus the total sample size is four.
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Table – 1: Details of the Respondents
Retailers Store-Managers Age Gender Work Experience
Morrisons
Sainsbury’s
ASDA
Somerfield
Chris Hill
Lisa Swanwick
Ian Walsh
Romeo Doras
42
39
40
34
Male
Female
Male
Male
17 years
18 years
15 years
18 years
The in-depth interviews of the respondents, those had been conducted were recorded. All the tapes were
transcribed; each transcript was analysed line-by-line for areas of discussion and then coded. Once all the
transcripts had been coded, they were analysed using content analysis because it enables the interpretation
of texts only in the light of coding frame based on a theoretical selection based on research purpose.
Limitations
The study undertaken was subject to a number of limitations which are as follows -
Time and access constraints did not allow the researcher to study a larger sample of retailers.
Interviews were conducted only in the Leicester City and not in the other cities of UK.
Discussion
The following section aims at carrying out an analysis largely driven and structured around respondents’
discussions; outlines the major outcomes that emerged from analysis of collected information
(views/opinions) from the series of four in-depth interviews of the store-managers.
All the respondents were agreed that price and quality are the most important factors in making the
private-label brands popular in the retail market. They claimed that the quality-standard of these brands
have improved a lot in recent years and even almost same level as the premium ones. Customers
nowadays prefer these goods that results in considerable growth in their sales volume. They stated that
retailers are constantly trying to maintain the quality standard of their goods like premium ones but when
asked about their own preferences of buying these goods for their own household purposes; surprisingly
all of them preferred the premium ones and were reluctant to buy their own brands. When respondents
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were pressed on this point, interestingly the claims made by them regarding their own brands were totally
contradictory. On one hand they were appreciating the quality-standard of their own goods but on the
other hand they were trying to play safe/avoid these goods when asked about their buying preferences. It
seems that all respondents were more comfortable with the higher-priced premium goods. This proves the
point that in spite of having much higher prices compare to the private-labels, premium brands do occupy
a higher market-share because of their quality-standards. The premium brands do not compromise on the
quality-standards which make the different from the private-labels. As a result customers do posses a
positive perception about them and prefer these brands undoubtedly. In short, customers do not want to
compromise on the quality point only because of cheaper-prices (Batra & Sinha, 2000).
It has already been mentioned that customers generally choose the private-label brands because of their
low prices. Though it has not been responded by the respondents regarding the direct relationship
between choosing these products and demographic factors, but one respondent indirectly mentioned that
there is a link with customers’ income-level and choosing private-label brands. They revealed that these
goods are generally popular in less affluent areas of the country because people living in such areas
belong to lower-income section of the society and thus cannot afford to buy premium ones whereas
people with higher incomes are less price-conscious (also quality-conscious) and have a tendency to
avoid these products. This is similar to the finding mentioned by Riezobos (2003) that the private-labels
are generally seen as cheaper alternatives of premium ones meant only for certain section of the society.
Moreover these customers are less brand loyal (brand switchers) and do not care for any particular brand
preference. Furthermore they are also not loyal to any store or retailer and have a tendency to hop from
one retail-store to other in search of their preferred goods.
The prices of these products are found to be much lesser compare to the premium ones. This vast price-
gap has created a negative perception in customers’ minds. When the respondents were asked regarding
this low-price strategy, they indirectly agreed to this point mentioning that this strategy has helped them
in capturing a huge market-share. They further informed that generally pricing of a product depends on
the ingredients that are used for making it. Since these products are mainly manufactured and sold to less-
affluent section of the society, the retailers cannot increase the prices in fear of losing the market-share 10
(not only to premium ones but among themselves also). So to keep their production-costs low, they
cannot afford to use superior product-ingredients resulting in compromising on product-quality, which is
similar to the finding by Steenkamp et.al (2003). This further proves that though the private-label brands
have increased their quality-standard and might be selling successfully along with premium brands but
still are nonetheless inferior to premium ones.
The retailers are nowadays using various promotional tools in promoting their brands. The respondents
replied that retailers do advertise in Newspapers, Electronic media (radio and television). But such types
of promotions are very less and are generally carried out during festive seasons. The objectives of such
promotions are mainly for store-promotions rather than individual products due to constraint in
promotional budget. Moreover it is not possible to promote each and every product because of wide
variety of product-categories but retailers do provide information in their company websites. They added
that a lot of store promotions are done throughout the year to attract the customers. This saves a lot of
advertising expenses and creates a sort of store-loyalty among the customers. This finding again proves
that retailers do not go for large-scale advertisements like the manufacturers and mainly communicate to
their customers through store atmosphere (Ailawadi, Neslin & Gedenk, 2001). In the in-store-promotions
retailers use tools like offering bonus packs, family packs, premiums, special discounted offers, etc to the
customers.
When asked about the awareness level of their brands, they informed that people are very much aware of
these products and they do sell a lot of them to the customers and there is a huge demand in the market.
They agreed that though these products are not popular like their premium counterparts but are known to
the customers those who visit their stores regularly. Moreover constant sales promotion of these brands
has made them popular to a certain section (less-affluent) of the society, also responsible for doing the
word-of-mouth promotion in increasing the customer awareness-level.
Conclusion
The conclusions drawn are only said to represent a particular version of reality that has been constructed
on the basis of qualitative research study. As such although findings and conclusions may not provide
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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 perceptions that customers have about products are crucial in their
buying decision making process. This research findings show that the premium brands do occupy a
prominent position in customers’ minds that results in customers’ preferences in buying them whereas
customers possess negative perceptions about the private-labels and generally try to avoid in buying them.
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