Advanced Consumer Behaviour - Essay Example

Consumer Behavior Towards Private Label Products (Store brands) Table of Contents 0 Introduction……………………………………………………………….. 2 2.0 Private Labels…………………………………………………………….. 2 2.1 Own Reflections on Private Labels Products…………….………. 4 2.2 Trends in the Market……………………………………………… 4 3.0 Consumer Behaviour Theory…………………………………………….. 5 4.0 Buying Behaviour in terms of Private Labels……………………………. 7 5.0 Implications For Marketers………………………………………………. 9 6.0 Conclusions………………………………………………………………. 10 References…………………………………………………………………….. 12 Appendix A…………………………………………………………………… 15 1.0 Introduction The globalization effect as well as the intense competition in virtually every segment of the market in all industries have brought about a new era in conducting business. The markets are crowded and there is indeed an abundant number of products, lines and categories that actually bombard consumers on a daily basis. Consumers are constantly faced with several options in their purchase decisions; a fact that consequently complicates their buying behavior. In that sense, buyers are confronted with an extremely wide selection of products/goods and services that eventually offer alternative solutions to the needs and wants of each individual. This market situation is evident in every industry on a global basis and apparently is under great research in order to conclude upon the fundamentals of the consumer behavior. Consumer behavior as defined by Luna and Gupta (2001) is the ongoing study that explores the reasoning behind the buying decision process. In more details, consumer behavior is a systematic approach that attempts to identify patterns that analyze the following questions: what consumers buy, why they buy the specific product, when they buy and how they buy. (Foxall, 1993) It is more than clear that the essence that underlines the issue in account lies in explaining and eventually predicting the purchase actions of individuals within specific markets and given products or services. Therefore, consumer behavior is directly associated with the overall buying decision processes that people exhibit. 2.0 Private Labels Although academic background on the exact definition of private label products does not explicitly state a single or widely accepted term, for simplicity reasons and convenience building we provide a rather general description, which indicates that Private label goods are product brands that carry or suggest the retailer’s name (Sheinin and Wagner, 2003). In other words, as defined by Hernstein and Tifferet (2007), retail brands are indeed consumer products produced by or on behalf of, distributors and eventually sold under the distributor’s own name or trademark through its own outlet. A third proximity approach to providing an accurate and full description in just few words is the one given by Sethuraman and Cole (1999), describing them as general brands owned, controlled and sold exclusively by retail outlets. All three contextual terms highlight the key issues in retail brand development; the process, the product range and the unique product availability (Burt, 2000). Today, private label goods have emerged into significant players in the overall scheme of product competition. Academics argue that consumers steadily show less interest in manufacturer brands, while their attitude towards store brands has become positive mainly due to the upgraded featured quality. (Verhoef et al., 2002) On the other hand, retailers have actually invaded the various product sectors in order to increase their market share as a continuous result of the new business paradigm. The AC NIELSEN Research conducted in 2003 aimed at exploring the development process and the actual growth of store brands around the world. Examining and investigating the current situation in 36 countries globally in Europe, Asia, North and Latin America the findings and conclusions indicate rather interesting results. The global market share of private labels amounts to an estimated 15% with an increasing rate of approximately 4%. This clearly implies a steady though prominent growth rate, characterized by a constant up-warding trend. (Appendix A) 2.1 Own Reflections on Private label Products Private label products appear to be penetrating the grocery market at a fast pace. More and more consumers are actually shifting their demand into store brands, in an attempt to reduce household expenses on the one hand, but obtain quality goods at the same time on the other hand. Virtually every product category in FMCG (Fast moving consumer goods) entails products and goods that bare the name of the retailer (super markets mainly), a fact that evidently offers the consumers numerous alternative choices in deciding and eventually selecting the specific brands. I believe that this trend towards private labels is greatly attributed to the fact that individuals are given the opportunity to increase their consumption basket by literally spending relatively low amounts in products that would otherwise cost considerably more. In other words, store brands provide consumers with an alternative option to experience equal to manufacturers’ brands quality goods at lower prices. This fact alone is a significant factor that underlines the overall tastes and preferences with regards to buying behaviour. In addition to that, consumers become more and more educated upon issues related to products and quality and thus, are in the position to realize that private labels do feature high specifications of production and manufacturing. Therefore, they are aware that the low cost of such goods ultimately reflects the low marketing and promotional expenses. Consumers purchase the product; not the package, the brand or its associated image, but the good itself. 2.2 Trends in the Market Pauwels and Shrinivasan (2003) suggest that there are primary three major areas in which consumers are benefited by the existence of private labels and therefore direct their buying behaviour towards them. 1. Wide selection of product base. The development of store brands provides alternative solutions to customers in deciding upon a purchase by equating or weighing the variables price and quality. Own labels offer product variety that by all means constitutes a significant advantage on the buyers account. 2. Reduction in the national brands’ prices. The increased and intense competition posed by the development of store brands, naturally causes a general re-consideration of charges and pricing strategies. Big manufacturers and producers of fast moving consumer goods are actually threatened by the growth of private labels and consequently reduce their nominal value as a response to on-going rivals. 3. Convenience building within the outlet stores. Consumers faced with a wide range of product categories and brands within a single supermarket or chain store, are credited with the development of an easy-purchase process that allows for establishment of customer loyalty. (Steenkamp and Dekimpe, 1997) 3.0 Consumer Behaviour Theory The literature upon consumer behaviour and the essentials that highlight the importance of predicting the purchase intent on the part of individuals offers a variety of views and approaches by theorists and practitioners. Nevertheless, there is a rather general and widely accepted approach that relates consumer behaviour to six basic stages that eventually formulate the entire model. These stages are: problem recognition; the consumer identifies the need and realizes the desire to proceed to a purchase activity information search; the consumer focuses on retrieving information about the availability of different choices with regards to products in order to satisfy the need evaluation of alternatives; the consumer assesses the different options that are provided in order to evaluate the best alternative choice purchase decision; at this stage the individual concludes upon the specific product/service that is going to be purchased actual purchase; this stage is different from the previous one in the sense that in many cases the actual purchase is not the selected one (time lapse etc) post purchase evaluation; the consumer evaluates and assesses the products that are purchased. This stage mainly deals with the satisfaction or dissatisfaction levels that are expressed on the part of buyers. (Kotler, 1997) Given this framework of processes that translate into the overall consumer behaviour, there are generic factors that evidently have a strong impact on the buying decision making. These factors are actually divided into three major categories: the personal factors, the psychological and the social ones. (Christy et al., 2003) The personal factors relate to the individual characteristics (such as age, sex etc) that eventually trigger the need to buy. The psychological factors indicate the drives and motives that underline the buying decision, where as the social ones are linked with the lifestyle and the overall status of consumers. First of all, different consumers have obviously different needs and thus different buying behaviour. This behaviour is more or less shaped by the various internal and external characteristics (influences) that gradually formulate the decision making process when it comes to a purchase action (Hernstein and Tifferet 2007). Consumers are dealing with a wide product and brand variety in their attempt to conclude and decide upon their final choice. The various factors that affect prospective buyers are going to be analyzed in an order that transcends from the general ones (mentioned above) to the specific issues that highlight their overall buying behaviour. Personal factors are considered to be the individual characteristics of each respective potential buyer. That is the demographic factors that define all people separately and distinctively. The age, the sex, the average income all play an important role in determining the products/services that are eventually going to be included in the purchase activity (Kotler, 1997). Additionally, psychological factors have to do with the self-actualization theory that translates the satisfaction of different needs as a means of accomplishing self-fulfillment (Herstein and Tifferet, 2007). Therefore, on the basis of achieving the specific goal, consumers are shaping their decision process. Finally, with regards to the social factors, individuals are greatly influenced by different social groups in which they belong to and by opinion leaders and reference groups that gradually impact their buying behaviour (Livesey and Lenon, 1987) 4.0 Buying Behaviour in terms of Private Labels The consumption of private labels and the general trend of buyers’ preferences towards purchasing such products have clearly raised questions as to which factors are actually influencing individuals in exhibiting the specific behaviour. Hernstein and Tifferet (2007) indicate that the demographics are the first and foremost important factors that eventually affect the way buyers perceive private labels and gradually shape their overall decision making process. In more details, they suggest that the family size, the income and the educational level contribute to the consumers’ choice over store brands; the larger the size of the family the more the preference towards high quality, lower price consumer goods. In addition, lower income greatly emphasizes the need to address to more cost-efficient solutions to buying behaviour. Baltas (2003) argues that the degree of involvement in purchase decisions significantly affects the choices of consumers over particular product brands. To further credit and support this argument, Kwon et al. (2008) state that every day grocery consumption features basically low involvement on the part of buyers, thus the preference over particular brands is greatly weakened and the individuals eventually spend little time in the decision making process. Likewise, in low-involvement purchase actions, consumers perceive few differences between brands and thus, they consider the price factor as more important in their choice criteria. Reduced quality differences between private labels and national brands is also a significant attribute that increases the buyers’ preference over the first ones. (Gamliel and Hernstein, 2007) The investment in both technology and “know-how” on the retailers account in order to deliver value for money products, has normally eliminated the gap between established producers’ brands and private labels with regards to perceived quality. Store brands in many cases are reported to feature equal or better quality than their major competitors; a fact that simply underlines the shift in the perception of store brands in consumers’ minds (Baltas, 2003). Likewise, Burt (2000) argues that private brands have ultimately evolved from a lower quality product alternative at low price in the 1980s to a true quality brand alternative. This filled gap between the quality differences has been well received by the potential buyers who on the basis of price sensitivity are willing to purchase more and more own labels. 5.0 Implications for Marketers Store brands enhance profitability through promoting and stimulating customer loyalty (Baltas, 2003). Retailers offer consumers a wide range of national well known and established brands; a range that in the past used to from the source of competitive advantage in each outlet – as well as alternative brand choices that comprise quality features and rather approachable prices. Meeting the customers’ needs and expectations with regards to the ‘value for money’ can effectively foster willingness to repeat purchases; which acts as a fundamental actor for brand and store loyalty. Additionally, effective and integrated marketing application of store brands can create a base clientele and make the entire chain less vulnerable to price pressures or aggressive attacks by the competition (Burt, 2000) The merits of store brands to the retailing sector, nonetheless, in terms of profitability do not underline only the financial benefits per se. Successful private labels actually provide retailers with the prospects of investing even more on this “marketing mechanism”. Companies in the onset of gaining profits and managing to establish their own branded goods in the market, are diversifying into related business as well. Thus, expanding the branding strategy to various product categories gives retailers the chance to formulate and develop more complete product lines that broaden the assortment of store brands. (Pauwels and Shrinivasan, 2003). This penetration of retail stores and supermarkets to other than fast moving consumer goods (FMCGs) clearly sets prosperous grounds for further growth and boost in sales as “a high retail image enhances evaluation of store brands, because consumers expect to find high quality brands in the retailer’s assortment” (Sheinin and Wagner, 2003) Likewise, store brands marketed by a well structured and effective communication strategy can enhance higher revenues and consequently greater earnings for the retailing corporation. Supermarkets do tend to display their private label products in the most advantageous spots within their outlets. This clearly creates a significant advancement in deploying a promotional technique so as to manage frontal view of their goods, in an attempt to attract potential buyers. After all, marketers place priority to the availability/display of store brands at the expense of manufacturers’ brands (Gamliel and Hernstein, 2007). Conclusions The evolution and the emerging power throughout the years of the store brands existence has undoubtedly offered great opportunities for business expansion on the one hand and alternative choices for customers on the other hand. Individuals, although reluctant in the beginning, have come to support and eventually strengthen the industry by showing on-going preference and trust on private brands. Today, private labels throughout the world constitute a significant product market that features relatively low prices for good quality characteristics. On a global basis the store brands are presenting constant increases in sales, credited by the acceptance and the satisfaction of buyers committing in corresponding purchase actions. Private labels currently are not offering alternative cheap items but mostly competent products that contribute to the variety of choices offered to the consumers. Marketers should take into consideration these trends in the overall market as there is much room for further development and growth. Store brands offer efficient production and manufacturing, while at the same time maintaining low levels of marketing and promotional costs; this fact combined with a general shift in consumers preferences and tastes clearly poses a significant opportunity for corporations around the globe. References AC Nielsen (2003). The Power of Private Label – A Review of Growth Trends Around the World. Retrieved on September 30, 2008 Baltas, G. (2003). A Combined Segmentation and Demand Model for Store Brands. European Journal of Marketing. Vol. 37, No 10 pp. 1499-1513 Burt, S. (2000). The Strategic Role of Retail Brands in British Grocery Retailing. European Journal of Marketing. Vol. 34, No. 8 pp. 875-890 Christy, M. K., Cheung, C. M. K., Zhu L., Kwong, T., Chan, G. W. W. and Limayem, M. (2003). Online Consumer Behaviour: A Review and Agenda for Future Research. Presented at the16th Bled e-Commerce Conference. City University, pp. 194 - 218 Foxall, G. R. (1993). Consumer Behaviour as an Evolutionary Process. European Journal of Marketing. Vol. 28, No. 7, pp. 46 – 57 Gamliel, E., and Hernstein, R. (2007) The Effect of Framing on Willingness to Buy Private Brands. Journal of Consumer Marketing. Vol. 24, No. 6, pp. 334 - 339 Hernstein, R., and Tifferet, S. (2007) An Investigation of the New Generic Consumer. Journal of Consumer Marketing. Vol. 24, No. 3, pp. 133 – 141 Kotler, P. (1997). Marketing Management: Analysis, Planning, Implementation and Control. (9th ed) Prentice Hall. New York Kwon, K.N., Lee, M.H., and Kwon, Y.J. (2008) The Effect of Perceived Product Characteristics on Private Brand Purchases. Vol. 25, No. 2, pp. 105 - 114 Livesey, F., and Lenon, P. (1987) Factors Affecting Consumers’ Choice Between Manufacturer Brands and Retailer Own Brands. European Journal of Marketing. Vol. 12, No. 2, pp. 158 - 170 Luna, D. and Gupta, S. F. (2001). An Integrative Framework for Cross-Cultural Consumer Behaviour. International Marketing Review. Vol. 18, No. 1, pp. 45 – 69 Pauwels, K. and Shrinivasan, S. (2003). Who Benefits from Store Brand Entry. Marketing Science. Vol. 23, Issue 3 pp. 364-391 Sethuraman, R. and Cole, C. (1999). Factors Influencing the Price Premiums that Consumers Pay for National Brands over Store Brands. Journal of Product and Brand Management. Vol. 8, No. 4 pp. 340-351 Sheinin, D.A., and Wagner, J. (2003) Pricing Store Brands Across Categories and Retailers. Journal of Product & Brand Management. Vol. 12 No. 4 pp. 201-219 Steenkamp, J.E.M. and Dekimpe, M.G. (1997). The Increasing Power of Store Brands: Building loyalty and market share. Long Range Planning. Vol. 30 No. 6 pp. 917-930 Verhoef, P.C, Nijssen, E.J. and Sloot, L.M. (2002). Strategic Reactions of National Brand Manufacturers Towards Private Labels: An empirical study in Netherlands. European Journal of Marketing. Vol. 36 No. 11/12 pp. 1309-1326 Appendix A Global Private Label Shares and Growth Rates by Product Area (Based on Value Sales) Product Area Private Label Share PrivateLabel Growth 1 Refrigerated Food 32% 9% 2 Paper, Plastic & Wraps (PPW) 31% 2% 3 Frozen Food 25% 3% 4 Pet Food 21% 11% 5 Shelf-Stable Food 19% 5% 6 Diapers & Feminine Hygiene 14% -1% 7 Health Care 14% 3% 8 Non-Alcoholic Beverages 12% 3% 9 Home Care 10% 2% 10 Snacks & Confectionery 9% 8% 11 Alcoholic Beverages 6% 3% 12 Personal Care 5% 3% 13 Cosmetics 2% 23% 14 Baby Food 2% 13% Source: ACNielsen Study 2003 < http://th.nielsen.com> Read More