MODELING CONSUMER ATTITUDES

TOWARDS PRIVATE LABELS:

AN EXPLORATORY STUDY

Dr Amit Mittal
Associate Professor Maharishi Markandeshwar University,Ambala

Ruchi Mittal
Sr Lecturer , Maharaja Agrasen Institute of Mgmnt. & Technology
Jagadhri

Article No: 172 ISSN 0974 – 9497

Year: May 2009 Volume 3, Issue 2/4

Abstract: The financials of retail firms are very sensitive to margins on the brands
they sell. One way of ensuring better margins on merchandise sold is by offering store
brands also known as private labels (PLs). In addition to better margins, PLs also give
retailers greater control over the supply chain; negotiating leverage with national brand
(NB) manufacturers; opportunities for niche marketing; opportunities for launching new
innovative products; and a platform for building store loyalty. However managing PLs is
a very complicated & strategically very critical function. PLs need to be managed very
professionally. This paper poses, and seeks answers, to two research questions- what are
the salient attributes on which consumers evaluate both private labels (PLs) and national
brands (NBs)?; and what are the attitudes of consumers towards PLs and NBs ?

Key words: Private labels, national brands, adequacy-importance model

Introduction labels, can also be defined as “any

As observed globally, a critical area of
interest to retailers is the consumer
attitudes towards store brands and its
relationship with customer satisfaction
and store loyalty. Store brands or Private
Labels-or simply PLs-are defined as the
“products owned and branded by the
organizations whose primary objective is
distribution rather than production”
(Schutte, 1969). PLs, also called own-
products over which a retailer [has]
exercised total sourcing and market
control” (Mintel, 2005a, b). According
to the Private Label Manufacturers’
Association (PLMA), “[Private label]
products encompass all merchandise
sold under a retailer’s brand. That brand
can be the retailer’s own name or a name
created exclusively by that retailer. In
some cases, a retailer may belong to a
wholesale group that owns the brands
that are available only to the members of
the group.’’ This suggests two things.
First, it is the retailer who owns and
controls the brand, whereas this was
traditionally the role of the producer.
Second, the retailer has exclusive rights
over the product. This means that
different retailers do not sell identical
PLs, which is not the case when retailers
sell name-brands. Thus, the development
of PLs does not only alter the
relationship between producers and
retailers, but also affects competition
between retailers because PLs become
an additional way of differentiating
between retailers (Berges-Sennou,
Bontems, and Requillart 2004).
With the rise of national advertising,
manufacturers' brands or national brands
(NBs) became widely recognized by
consumers who elected their preferred
brands and became loyal to them. Over
time, manufacturers could exercise
greater influence over the final demand
for their products and secured a better
bargaining position when dealing with
retailers (Grant 1987). Retailers saw
their margins drastically reduced, and
their power to determine the prices to
consumers depreciated (Borden 1967).
In the food retailing industry,
supermarket chains were no longer able
to compete, solely, on the basis of price.
A way found by retailers to beat
competition was through the
establishment of PL (Chernatony 1989).
PLs constitute an example of how
supermarket chains started to incorporate
functions traditionally held by
manufacturers, such as: product
distribution , packaging, advertising, and
product development (PLs). PLs enable
supermarket chains to face
manufacturers' dominance over the final
demand for products (Grant 1987). The
two main advantages derived from the
adoption of PLs by retailers are: bigger
margins, and increased store loyalty
(Fontenelle 1996).
Private Labels in the International
Context
According to the Private Label
Manufacturers Association, in the
United Kingdom, private label brands
account for 40-44 per cent of sales; in
the United States, private label brands
range between 10 and 20 per cent of
sales depending on the retail format and
product category. In the US, private
label brands are growing much faster
than national brands. Between 1997 and
2002, private label consumer goods grew
38 per cent, compared with the 19 per
cent growth of national brand products
(Saitz 2004). In Europe, private labels
are big business. The share of some of
the major retalers is as follows: ALDI’s
private brands account for 95 per cent
sales; Lidl, 80 per cent; Sainsbury, 60
per cent; Tesco, 40 per cent; Wal-Mart
in Europe, 40 per cent; and Carrefour, 33
per cent (Stanley 2002).
In the USA and Europe, private label
brands have been investigated in several
research studies, many of which
explored demographic characteristics of
consumers who buy PL brands. Logic
would tend to suggest that low cost
products should appeal to those with low
incomes, which was reported by Frank
and Boyd (1965). However, they also
found that consumers with higher
educations are more prone to use PL
brands, implying that they are more
sophisticated and perhaps believe that
most brands offer similar levels of
quality. This has been reported in other
studies as well (Burger and Schott 1972)
(Cunningham et al. 1982). Richardson et
al. (1996) reviewed the various issues
previously studied for over 30 years.
Key areas reviewed included
demographics, personality, and
information processing approaches to
understanding PL usage.
To be a competitive and trusted
alternative, store brands must be
perceived to be an attractive alternative
(substitute) to manufacturer brands. The
fact that more than 50 percent of US
manufacturers of branded consumer
package goods make store brands and
private labels as well may not be
enough. Research has shown that
identical products sold under different
brand names will be perceived
differently by consumers. Prior research
has found that store brands contribute to
greater store differentiation rather than
to greater price sensitivity in the market.
Other researchers conclude that it is
important for retailers to retain a balance
between store brands and national
brands to attract and retain the most
profitable customers. National brands
are traffic builders and a reduction of
national brand choices may make a store
less attractive to profitable
customers.Their work went on to explore
intrinsic and extrinsic cue reliance and
intolerance of ambiguity. Burton et al.
(1998) explored attitudes towards PL
while Batra and Sinha (2000) explored
perceived risk of categories as well as
the issue of gaining information through
search versus experience.
Panel data has been examined to study
the purchase habits of private label
brands, and they were found to behave
just like manufacturers’ brands – the
buyer of one brand also buys other
brands. Ehrenberg and Kennedy (2000)
would likely explain that there are no
specific segments, as the users of one
brand also use other brands and that
there are no differences between the
users of one brand and another in the
same category. If this is true, we
wouldn’t find any major differences
between those who have tried private
label and those who have not. The
question remains – what factors lead to
trial of PL?
As the PL work to date has been
conducted in Western societies, one
issue that has not been explored is that of
collectivism and materialism. Hofstede
(1980) found that Thailand was one of
the most collectivist cultures of all the
countries he studied. Whereas
individualistic cultures often exhibit
more cognitive problem solving (such as
comparing labels or prices), collectivist
cultures tend to put the feelings of the
group first (Triandis 1995). This tends to
lead to more reliance on well-known,
accepted brands that offer lower levels
of social risk. Products which
communicate status are valued for their
expressive ability, and attitudes towards
such products will be formed less on the
individual’s personal beliefs but strongly
on the overall image of the product
communicated by the brand and the
opinions of important referent others.
This visible use of brands links to the
importance of ‘face’ and the use of
known brand names for external or
‘conspicuous’ consumption. Materialism
is not an easy construct to define, but
work done by Belk (1985) investigated
personality traits (such as possessiveness
and envy), while Richins & Dawson
(1992) looked at materialism as a value
orientation, such as acquisition in the
pursuit of happiness and possession
defined success. When meshed with a
collectivist culture, material possessions
offer social benefits, adding credibility
to one’s image or enhancing ‘face’. The
concept of face has been used as an
explanation for the heavy consumption
of luxury goods by Asians (Wong and
Ahuvia 1998), and is an important
element of Thai culture (Komin 1991;
Wongtada, Leekulthanit, and Singpakdi
1997). Also there are those who believe
that famous brands offer higher quality,
and that products with higher prices have
higher quality. This research was
conducted to learn more about the issues
related to the use of PL products, and to
explore whether attitudes regarding the
importance of brands, collectivism and
materialism will be barriers towards the
acceptance of PL products.
Academic and commercial interest in
store brands has been increasing in
recent years (Burt, 2000; Horowitz,
2000; Semeijn et al., 2004; Veloutsou et
al., 2004). For example, private label
ranks sixth among the top ten issues
considered critically important by
retailers, according to a recent survey by
Nielsen. About 90 per cent of retailers
considered private label as such, as did
81 per cent of manufacturers (Nielsen,
2005).
Growing sales of private label consumer
packaged goods is a large and global
phenomenon. Another international
study by Nielsen in 36 countries finds
that consumers spend 15 per cent of total
value sales on store brands, but with
widespread diversity across markets.
Growth rates for store brands outpace
those of manufacturers in nearly two-
thirds of the countries studied. Store
brands will continue to grow as retailers
become more sophisticated marketers
and continue to expand to new markets.
Retailers will also continue to build on
the power of private label by offering
even more higher quality products.
Manufacturers of branded products will
see store brands as a growing
competitive threat in the global
marketplace. Europe in particular is the
region with the largest private label
share of total retail sales at 22 per cent.
In Europe, the market share of store
brands creates oligopolistic conditions in
supermarket product categories of
countries such as the UK, Belgium,
France, Germany, Spain, and
Switzerland (Nielsen, 2003). For retail
chains, the development of store brands
is viewed as a strategy for improving
store image and profitability (Quelch
and Harding, 1996). In particular, due to
low-marketing expenditures and supply
prices, retailers can make higher margins
on store brands while retaining
competitive consumer prices (Broadbent,
1994; Corstjens et al., 1995). For
example, the retailer’s buying price for
private label products might be up to 25
per cent lower than comparable
manufacturer-branded products (KPMG,
2004). In addition, since store brands are
exclusively distributed products, the
retailer avoids direct price competition,
enhances store differentiation, and
creates traffic (Davies, 1990). Strong
store brand lines also strengthen the
retailer’s bargaining power and overall
position in the distribution channel (Patti
and Fisl, 1982).
Private Labels in the Indian Context
In India retailing has just begun to take
off (see the next section for the Indian
retail market structure). A visit to any
organized sector retail store confirms
that PLs are an important part of the
retailer’s strategy. All retailers offer a
variety of food & grocery categories
with their PLs. However, in the Indian
context PLs are in the danger of facing
the ‘Double Jeopardy’ effect. Double
Jeopardy is an empirical generalization
(Goodhardt, Ehrenberg and Chatfield
1984) that explains that small brands
suffer twice – they have fewer customers
and these customers buy the brand less
often (Ehrenberg, Goodhardt and
Barwise, 1990). This pattern has been
observed in a variety of markets, in a
variety of conditions (different lengths
of time, different points in time) and in
various contexts (Pare, Dawes and
Driesener 2006). The advantages of
having successful PLs is strategic. They
provide the same benefits to retailers in
India that they provide, or are supposed
to, in other international markets:
(1) higher retail margins on PL;
(2) Greater control on supply chain;
(3) negotiating leverage with
national brand (NB)
manufacturers;
(4) Opportunities for niche
marketing;
(5) Opportunities for launching new
innovative products; and
(6) Building store loyalty.
The Indian Retail Market
Traditionally, the Indian market has been
traditionally unorganized with small
grocery stores (a.k.a Kiranas) dotting the
retail landscape. The level of penetration
by organized players still remains low
especially in the largest retail segment of
food & grocery. According to the Indian
Retail Report (2007) that bases its report
on private final consumption expenditure
data from CSO, National Accounts
Statistics 2006 and year round feedback
from the industry, the Indian Retail
market is estimated to be worth
Rs.1,036,000 crore in 2006. Organized
Retailing has increased its share from
three percent in 2004 to 4.6 percent and
is valued at Rs.47,500 crores. The food
& grocery segment is worth around Rs
642, 200 crores with just 0.8 per cent
penetration by the organized segment.
But the retail structure in India is set to
change. The Indian retail market is
undergoing a period of transition. In line
with what is happening globally, the
market is also characterized by increased
competition, changes in consumer
personal incomes, technological
advancements and an increasing variety
of product choices. Major global players
such as Wal-Mart, Metro, Shoprite have
already set shop with others such as
Carrefour, Royal Ahold etc. in advanced
stages of entry. Large Indian
conglomerates such as Reliance, Bharti,
Aditya Birla and Future have already
made huge investments in the retail
sector. All major cities in the country
today have a presence of organized retail
players, especially in the food & grocery
and the apparel segments.
Research Methodology
Research Questions
The objectives of this research are two-
fold:
(1) What are the salient attributes on
which consumers evaluate both
private labels (PLs) and national
brands (NBs) ?; and
(2) What are the attitudes of
consumers towards PLs and NBs
?;
Conceptual Background: Brands
attributes & Multi-attribute models
Drawing from past studies, various used. Here we will use the “Adequacy-
attributes have been identified to assess Importance” model which also happens
the consumer evaluations of PLs. Table to be one of the most widely used model
1 gives a review of the studies from appearing in consumer behavior research
which the following PL attributes have (Cohen, Fishbein and Ahtola (1972).
been included: This “Adequacy-Importance” model can
1. Quality be described as follows:
2. Price
3. Risk Ą= ∑ P* D;
4. Freshness Where-
5. Packaging Ą= an individual’s attitude toward the
6. Healthy brands;
7. Prestigious P= importance of attribute (dimension)
8. Brand image for the person;
D= individual’s evaluation of brands
To assess the consumer evaluation of w.r.t the corresponding attribute
PLs the multi-attribute model will be (dimension).

Table 1: A review of prior PL attribute research.

Factors Study
quality, price, trust, availability of alternatives, Dolekoglu et al. (2008)
attractive packaging, frequent advertising, sales
promotions, imitations, well-known, healthy,
availability, brand image, prestige, freshness and habits.
Packaging Wells, Farley, Armstrong
(2007)
Perceived Risk Batra & Sinha (2000);
Bettman, 1973; Dunn et al.,
(1986); Richardson, Jain, &
Dick (1996); Shannon and
Mandhachitara (2005)
Price Consciousness, Price-Quality association Batra and Sinha 2000
Advertising-Pricing Karray and Martin-Herran
(2008)
Price, Quality, Risk perception Ashokkumar and Gopal (2009)
Price and Quality Ailawadi, Pauwels and
Steenkamp (2008)

The Survey Instrument important, the following questions were

The 8 brand attributes identified will be
fit into the model. For measuring the
importance (This is ‘P’ in the
“Adequacy-Importance” model)
accorded to each of the eight brand-
attributes on a 5 point category scale
where 1= least important and 5= most
asked:
• I believe that the quality that
I should get when I buy a
product is…
• I believe that the price I pay
for goods should give me
value for money is…
 • I believe that it is …that the
products i buy are risk-free
• I believe that buying fresh
goods is…
• I believe that good quality
packaging of goods is…
• I believe that buying healthy
goods is…
• I believe that it is… that the
goods are buy are prestigious
• I believe that buying goods
with a very good brand image
is…
The individual brand-attribute question
will then be multiplied with a
corresponding question evaluating the
degree of presence of the attribute in
both PLs & NBs (national brands).
These questions measuring ‘D’ in the
“Adequacy-Importance” model were
rated on a 5 point Likert type scale
where 1= strongly disagree and 5=
strongly agree.:
• I believe that the store brands
available in this store have
excellent quality…
• I believe that the store brands
available in this store are
excellent value-for-money…
• I believe that the store brands
available in this store are not
risky to buy…
• I believe that store brands
available in this are fresh…
• I believe that store brands
available in this store have
excellent packaging…
• I believe that the store brands
available in this store are
healthy…
• I believe that the store brands
available in this store are
prestigious…
• I believe that the store brands
available in this store have an
excellent image…
The same questions will be asked by
replacing “store brands” with
“national brands”.
Sampling Design and Data Collection
145 shoppers were contacted to respond
to the survey questionnaire. Only
shoppers for grocery and food products
were included in the study. 96 complete
and correct questionnaires were received
giving a conversion rate of 66 per cent.
The respondents were contacted outside
organized sector retail stores in
Chandigarh, Panchkula (Haryana) and
Yamunanagar (Haryana). A team of
trained MBA students administered the
questionnaires. Only those individuals
were requested to fill the questionnaires
that stated that they shopped for food
and grocery at least twice a month from
organized sector retail stores. The names
of well-known organized sector stores
were listed to enable them to respond to
this qualifying question.
Data Analysis
Attitude towards PLs for the 96
respondents will be calculated as per the
following:
Ąpl = P1* Dpl1+ P2*Dpl2+
P3*Dpl3…P96*Dpl96.
Where-
Ąpl= an individual’s attitude toward the
PL;
P= importance of attribute (dimension)
for the person;
Dpl= individual’s evaluation of PL w.r.t
the corresponding attribute (dimension).
This calculation is given in Table 2. For
attitude towards national brands for all
96 respondents the same formula will Ąnb= an individual’s attitude toward the
become: national brands;
P= importance of attribute (dimension)
Ąnb = P1* Dnb1+ P2*Dnb2+ for the person;
P3*Dnb3…P96*Dnb96. Dnb= individual’s evaluation of
Where- national brands w.r.t the corresponding
attribute (dimension).
These calculations will be done for all 8
attributes.

Table 2: Test of significant difference between attitudes towards PL vs NB

Brand Attribute Attitude towards PLs Attitude towards NBs t-test for equality of
N=96 Ąpl- mean (std.dev.) Ąnb- mean (std.dev.) means; df: 94
Quality 12.3(1.34) 16.9(1.21) -17.84*
Price 17.2(1.11) 15.6(2.34) 6.06*
Risk 13.4(2.45) 16.6(1.28) -40.01*
Freshness 13.2(1.80) 13.4(1.98) -1.37
Packaging 12.4(1.13) 14.7(1.79) -104.07*
Healthy 14.2(.98) 13.9(1.12) 1.97
Prestigious 12.1(.34) 13.6(1.34) 10.64*
Image 11.2(1.65) 12.9(1.20) 8.17*

The t-test values denoted by asterix (*) • PL>NB (PLs perceived better
convey that there the difference in means than NBs): Price
is statistically significant at the 5% • PL=NB (PLs and NB perceived
significance level (calculated t-value to be the same): Health &
greater than 2.0). Freshness.

Discussions & Managerial Within brand-type, the top three

Implications
The data analysis of consumer attitudes
towards PLs & NBs (Table 2) shows that
there was a perceived difference
between PLs & NBs on the attributes of
quality, price, risk, packaging,
prestigious and image. However, there
was no perceived difference on the
attributes of freshness and health. This
could be due to the sustained efforts on
in-store promotions of PLs. On all other
factors, the comparison between PLs &
NBs is as follows:
• NB>PL (NBs perceived to be
better than PLs): Quality, Risk,
Packaging, Prestige & Image.
attributes for NBs are quality, price and
packaging, and for PLs they are price,
health and risk.
The results of this study are not very
different from the results obtained in
other retail markets. Perception of
quality is an important element relating
to private-label brand use; if all brands
in a category are seen as sharing a
similar quality, then private-label brand
use is often observed to increase
(Richardson et al.1994). But as proven
in this study and other global studies,
one constant finding of private-label
research had been that quality is more
important than price to shoppers (Hoch
and Banerji 1993; Sethuraman 1992).
Support for this belief was challenged,
however, by Ailawadi et al.(2001).
Burton et al. (1998) pointed out that the
danger for a retailer using low prices
alone with which to compete is that
some consumers may use price as a
proxy for quality. Richardson et
al.(1994) found that private-label brands
were considered by shoppers to be
inferior in quality terms to national
brands.
It is also important to recognize the role
of the quality of the store brand.
Previous research has proven that if the
higher quality of the store brand results
in an increase in the fraction of
consumers that perceives the store brand
to be of acceptable quality, profits to the
stores increase with increases in the
quality of the store brand (Corstjens and
Lal 2000).
Richardson et al.(1994) also investigated
extrinsic cue reliance and found that
those shoppers who judged products by
brand, price or packaging were less
likely to buy private-label brand
groceries. With parameters such as
quality and price in play, the question of
risk becomes particularly relevant. Batra
and Sinha (2000) noted that when the
consequences of a purchase mistake are
high or quality variability is
considerable, then interest in private-
label groceries is likely to drop.
Narasimhan and Wilcox (1998) argue
that consumers will be less motivated to
purchase private-label groceries if the
level of perceived risk in that category is
high. The search-versus-experience
nature of the product is also important,
in that if the product requires actual trial
(such as taste), then interest in private-
label brands drops (Erdem & Swait
1998). Still, Burton et al. (1998) found
that grocery shoppers being risk averse
did not significantly impact on their
attitude towards a private-label brand
(Shannon and Mandhachitara 2005).
Conclusions
Literature review on store brands
indicate that consumers' perceived
quality and reliance on the extrinsic
attributes have shown to be among the
most relevant variables in explaining
store brand purchase decisions (Mieres,
Martin, & Gutierrez, 2006). It has been
well accepted in the field of marketing
that improved understanding of customer
perceptions is crucial for marketers for
successful customer satisfaction
(Birtwistle, Clarke, & Freathy, 1999). To
this end, to manage retail brands
successfully, marketers have to leam
more about customer needs and desires
and study their perceptions of quality
(Dolekoglu et al. 2008). This research
shows that even in an emerging market
like India, where perceptions towards
PLs should have taken more time to be
established, NBs are definitely
considered to be superior vis-à-vis PLs.
According to Chavadi & Kokatnur
(2008) in a study conducted by A C
Nielsen in 2005, on private labels in
India, it was found that 56% of the
respondents believed that private labels
are good alternatives to national brands.
The study also highlighted that 62% of
the respondents feel that private labels
are good value for money. But, almost
four years later, PLs do not seem to have
lived up to their expectations.
The customer has really not much
interest in the success of PLs. Customers
want good brands irrespective of their
ownership, origin or sponsor. However,
the success of PLs is important to
retailers and could be a critical part of
their strategy in terms of competition,
sourcing, supply chain management,
positioning, profitability and expansion.
Development of acceptable- and sought
after- PLs will take time, effort and
strategic vision on the part of retailers.
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