Private Labels (PLs), i.e. brands owned by retailers and sold exclusively in their stores, have become a strong force in Western European and North American retailing. Their average share of wallet peaks at about 45 percent in Switzerland, ranges between 20 to 30 percent in most European countries and is about 20 percent in the United States. Historically, retailers have two private label tiers. Economy PLs offer products at the lowest price in a product category and protect service-oriented retailers against losing price-sensitive consumers to discounters. Standard PLs offer similar quality as manufacturer brands at a lower price. They furthermore give the retailer leverage against manufacturer brands in pricing negotiations as manufacturers’ products are competing for precious shelf space with the retailer’s private label. As a consequence, retailers are not only customers but also competitors to manufacturer brands. On top, margins of PLs are usually higher vis-à-vis margins of manufacturer brands.
A relatively new development is the introduction of premium PLs. These premium PLs offer better quality than leading manufacturer brands and sell at a higher price than other PLs. However, their success varies dramatically with the retailer. While some retailers have large premium private label portfolios (e.g., SPAR in Austria has about 300 premium private label products) others struggle or even discontinue their premium PL program altogether.
In a series of research projects in cooperation with leading Austrian food retailers, the authors investigate the factors that encourage consumers to choose premium PLs. Surprisingly, they find that consumers buy premium PLs not because of their brand name but because these products are mostly not available from any other brand (at this quality level). The products are often unique compared to other products in their category as well as regarding their flavor. Furthermore, the authors find that celebrity co-branding, i.e. the simultaneous branding of a single product with a private label (or manufacturer brand) and a celebrity brand create brand and store loyalty. Consumers associate celebrity co-branded products with a higher quality and have a higher affection towards them. They are more likely to return to the store to repurchase.
Several retailers worldwide already apply celebrity co-branding to their premium PLs but with mixed results. In one of their projects, the scholars investigate the success drivers of celebrity co-branded products and find that celebrity co-branding for PLs requires a specific minimum assortment size to be perceived as credible by consumers. An experiment reveals that only when their assortment exceeds a certain threshold (e.g., 20 products) consumers deduce that the celebrity is truly involved and committed to the products. This increases the perceived quality of the products and ultimately purchase intent.
In a further project, the scholars investigate potential image spillover effects of a celebrity co-branding strategy. It is well-established that co-branding improves the image of the participating brand allies. In the case of PLs, this is the image of the retailer. Also, it has been shown that the retailer’s image affects the perception of his PLs. The authors combine these two research streams and show in an experiment that celebrity co-branding indeed leads to a better retailer image and increases perceptions of all other PLs in a retailer’s multi-tier private label portfolio. They suggest that premium PLs should not exclusively be evaluated on their individual sales but considered as a promotion instrument that ultimately draws consumers into the store and encourages them to buy more PL products.
References and further readings:
- Nies, Salome and Martin Natter (2012), “Does Private Label Quality Influence Consumers’ Decision on Where to Shop?” Psychology and Marketing, 29 (4), 279–292.
- Reimann, Olivier and Udo Wagner (2016), “The Potential of Co-branding as a Branding Strategy for Premium Private Labels: A Theoretical Assessment,” in Advances in National Brand and Private Label Marketing. Springer Proceedings in Business and Economics, Francisco J. Martínez-López, Juan C. Gázquez-Abad and Els Gijsbrecht, eds. Cham: Springer International Publishing, 91–94.
- Reimann, Olivier and Udo Wagner (2016), “Why Do Consumers Buy Premium Private Labels? – Some Qualitative Insights,” in Bridging Asia and the World: Global Platform for Interface between Marketing and Management. Global marketing conference proceeding: Global Alliance of Marketing & Management Associations, 58–59.
Further information about the author: Olivier Reimann