Consumer-Level Factors Moderating the Success of Private Label Brands - Essay Example

Marketing Introduction Private labels have grown extremely popular in the past two decades which has resulted in top retail stores producing and selling these brands. Private label refers to the brands that are created by the stores and are linked to a particular retail store exclusively as they share a similar brand name. Selling of private brand by manufacturers has been extensively debated in the existing literature. Many major brand manufacturers in both the U.S.A. and Europe have launched their own private brands since the late eighties with the primary objective of seeking financial benefits from selling them (Batra ansd Sinha, 2000). There has been a considerable debate in the management literature regarding the fact that whether manufacturing and selling of private brands is a viable marketing strategy or not. This paper tries to present a balanced view regarding the topic by understanding the reasons for each of the stance. Discussion The concept of private label branding has often been criticized by researchers as it is essentially copying of the original brand. The research conducted by Kumar and Steenkamp (2007) has shown that the private labels mainly copy the packaging and content of the manufacturer brands that involves minimal research and developmental costs. The research conducted by Mitchell and Kearney (2002) had shown that following the private branding strategy can create a number of legal hassles for the companies because of incidents like trademark infringement, misappropriation of profits of original brand owners. The research conducted by J. Fernie, S. Fernie and Moore (2003) has shown that national brand manufacturers often decides to produce private labels because they can accrue efficiency gain from the process and eventually the manufacturers are able to produce products of superior quality at a lower cost or similar quality products at the same cost of production. The market strategy often turns viable because the negotiation power of the retailers increase dusring the process. The research conducted by Bergès-Sennou, Bontems and Réquillart (2004) has shown that national brand manufacturers often consider the strategy of producing the private labels beneficial if they find the concentration of the retail market share favourable. The synthesis of the current literature shows that the viability of production of private label depends on difference between the national brand produced by the manufacturers and the private brands produced by them. Producing private brands by national brand manufacturers will not be a viable strategy if the product life cycles are relatively small and there is very high level of innovation by national brand manufacturers (Morris and Nightingale, 1980). Difference in quality between the two largely creates a negative impression in the minds of the consumers. Manufacturers of national brands often find it easier to fill their excess capacity by producing private labels. The higher amount of profit that can be earned by the manufacturers in producing the private labels often acts as a driving factor behind the production of these labels (Scott-Morton and Zettelmeyer, 2004). The manufacturers are often driven by idea of improving their relationship with the retailers and this causes them to produce private labels. Establishing a long-term and good relationship with the producer is one of the priorities of the manufacturers and this provides them with a competitive edge. Finally, manufacturers often use this method to attract sales from their major competitors (Dick, Jain and Richardson, 1995). Despite the benefits that can be obtained from the sale of the private labels a number of researchers are of the notion that selling of private brands is not a good strategy because selling of private brands is often related to the loss of power of the manufacturer of the national brad. Several researchers have claimed that selling of private brands often turns a product category into a commodity which is not good for the manufacturer (Verhoef, Nijssen and Sloot, 2002). Critiques of private label manufactures claim that production of private labels greatly reduces the power of the manufacturer over the consumers and makes the later highly price sensitive. Also various researchers have pointed out that the manufacturers of private label reduce the manufacturers as mere vendors who are just supplying products as puppets to powerful retailers (Cotterill, Putsis and Dahr, 2000). An interesting insight has been provided in the work that was conducted by Quelch and Harding (1996) who had shown that private label branding has the potential to cannibalize national brands and the cost generated in the process is much higher than that of the benefit that is obtained from the consumption of private labels. The research conducted by Cheng, et al. (2007) revealed a study on the perception of consumers regarding the private label and national label. Findings from their research had shown that consumers perceive national brands superior compared to private labels. Private labels are seen as inferior quality alternatives. This is mainly because national brands have greater familiarity among customers in a nation and they are perceived to employ better operational efficiency and technology in their production process (Hoch and Banerji, 1993). Researchers have also concluded that the low price that is being charged by the private brands can often be mistaken for the poor quality they provide compared to national brands (Glynn and Chen, 2009). According to the study made by Guerrero, et al. (2000), decision to purchase private labels and their perceptions towards buying the same are largely dependent on a number of factors like perceived value for money, perceived quality and perceived risk as the main factors that influence consumer decision to purchase private brands (Burton, et al., 1998). Events like recession in an economy have been often correlated with the rise in popularity of private brands. The perception of consumers towards private labels is formed on the basis of a number of factors like pricing, price to quality ratio and expectations of consumers. It has been observed that perceived risk in an important factor that adversely affects the perception of consumers towards purchase of private labels. Consumers compare the private brands to the manufacturer brands and if they found the alternative to be riskier then there is a less likelihood that will result in purchase. Works of researchers like Morton and Zettelmeyer (2004) have shown that consumers are always willing to pay a lower price for private labels compared to national labels owing to the quality difference that exists between the two. Popularity of private food labels has greatly reduced in cases where the perceived quality difference is high. The study conducted by Sinha and Batra (1999) have found that consumers have a greater tendency to buy private label foods rather than private label non-food items after consideration of the poor quality of private labels. There are numerous examples in the contemporary era where national label manufacturers are increasingly trying to promote manufacturing of private brands. For instance, Granatelli Motor Sports, a well renowned American company, was extremely successful in selling products in the automobile aftermarket. It had set up its personal private label division and the huge corporate profits obtained from this venture are influencing the company to sell more. France is another country where the selling of private labels has become highly popular and all of the major national brands like Bongrain and Nestle are producing their own private label brands (Tarziján, 2007). Heinz have broken the myth that provision of private labels reduces the power of the manufacturers as it is supplying a number of private labels to retailers where it had previously provided only major brands. It has also helped Heinz to eliminate the chances of simultaneous brand promotions especially when the retailer is promoting this product (Dunne and Narasimhan, 1999). Ralston, another manufacturer has proved the notion wrong that selling of private label by manufacturers reduces their power in front of the customers. This is because the company has been able to differentiate itself with a number of private label offerings to retailers directly and collaborates with them in product design and other attributes. Conclusion There appears to be a notion that selling of private brands can harness a negative image about the mind of consumers regarding the manufacturers that sells this brand. Selling of private brands by manufacturers has often been criticized by marketers as they tend to reduce market power and make them more vulnerable to consumers. From studying the existing literature it appears that sellers have to be extremely crucial in creating a good public image about the private label that they are selling. From the present scenario it appears that private branding is definitely profitable on the part of the manufacturers as is evidenced by their constant increase in sales. This implies collaboration of the manufacturers with suppliers will be profitable from the point of view of both. Many companies like Heinz and Granatelli Motor Sports have effectively launched private labels with great success. Economic downturns have also increased the popularity of private labels as the disposable income of the consumers has fallen after recession. Therefore, it cannot be stated that producing and selling private brands is definitely a viable option and many successful manufacturers are aggressively using this strategy. Reference List Batra, R. ansd Sinha, I., 2000. Consumer-level factors moderating the success of private label brands. Journal of retailing, 76(2), pp. 175-191. Bergès-Sennou, F., Bontems, P. and Réquillart, V., 2004. Economics of private labels: A survey of literature. 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Strategic reactions of national brand manufacturers towards private labels: an empirical study in The Netherlands. European Journal of Marketing, 36(11/12), pp. 1309-1326. Read More