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: samratsam_19@rediffmail.com/samrat_19@indiatimes.com

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This article is not submitted elsewhere, is unpublished and as well as original.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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