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Journal of Retailing and Consumer Services 15 (2008) 144–155

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Expert quality evaluation and price of store vs. manufacturer brands:An analysis of the Spanish mass market

Jose Luis Mendez, Javier Oubina, Natalia Rubio�

Business Studies Faculty, Department of Finance and Marketing Research, Autonoma University of Madrid, Ctra. de Colmenar Km. 14.5,

Campus de Cantoblanco, Madrid 28049, Spain

Abstract

This study compares manufacturer and store brands in terms of their objective quality as well as their price differentials for products in

the food and drink, personal hygiene and home cleaning markets over the period 1989–2004. The results of descriptive and multivariate

techniques suggest a positive evolution in the quality of store brands. We do not find differences in objective quality between

manufacturer and store brands. But we do discern differences in the objective quality of store brands with respect to national and local

manufacturer brands for a limited range of product categories. Specifically, quality is significantly higher for manufacturer brands

(especially national ones) in technologically more complex categories. With regard to price, the differences favor store brands. Approval

of a store’s own brand is higher when the average prices for the category are lower. Furthermore, higher price differentials do not always

increase the market share of a store brand. These findings have interesting implications for manufacturers and retailers in the

management of their brand portfolio.

r 2007 Elsevier Ltd. All rights reserved.

Keywords: Store brands; Objective quality; Retail trade

1. Introduction

The marketing concept of store brands emerged in GreatBritain in the second half of the nineteenth century,starting with the Sainsbury house brand in 1869. Thisstrategy was subsequently adopted by other grocers inseveral European countries, including the Dutch firmAlbert Heijn in 1895 and the French Coop in 1923. Thesethree retailers stand out as initiators of this marketingstrategy. In 1995, store brands (also known as privatelabels or retailer brands) represented 54% and 41% of salesby the European chains of Sainsbury and Tesco, respec-tively, but barely 15% of supermarket sales in the USA(Quelch and Harding, 1996). Store brands predominate inEuropean markets (Switzerland, Great Britain, France,and Belgium). Essentially, the varying geographical pene-

e front matter r 2007 Elsevier Ltd. All rights reserved.

tconser.2007.11.003

ing author. Tel.: +34914973542/3551/3567;

8725.

esses: jose.mendez@uam.es (J.L. Mendez),

uam.es (J. Oubina), natalia.rubio@uam.es (N. Rubio).

tration of private labels reflects the degree of retailconcentration in their markets. For instance, the five mainretailers in France and Great Britain explain 65% and62%, respectively, of food sales in 1994, while the five mainretailers in the USA account for 20% (Hoch, 1996).European markets have a smaller number of manufac-

turer brands (also known as name brands or supplierbrands) per category and less variety (sizes, flavors,formats, etc.) than the US market (Hoch, 1996). Thesecharacteristics, i.e., the range and variety of name brands,together with the degree of concentration of the retailmarkets reduce competition among manufacturers. There-by, they present opportunities for the promotion of storebrands in these markets.The differences sketched above arise from the commer-

cial structures prevailing in each country. In addition, thestore brand market share is also differentiated according tothe type of establishment or product category. With respectto type, establishments with more floor space, a morevaried assortment, and a wider range of non-foodmerchandise gain a greater market share for their own

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brands across the board (Carroll et al., 1994). Finally,looking at the various product lines offered by distributors,the better performing private labels are in categories whereconsumers are particularly price-conscious (Raju et al.,1995a, b).

According to data compiled by ACNielsen, Spain nowranks fourth in store brand market share (out of 38countries in Europe, North America, the Asian Pacific,Emerging Markets, and Latin America). And out of the 10countries where private labels are most highly developed,Spain is the only one that ranks among the top 10 in own-brand growth (16%). Table 1 shows the market share ofstore brands, the price differential between name brandsand own brands, and the retail concentration of the 10countries most developed in terms of store brands.

In this paper, we investigate two of the most obviouscriteria that distinguish store brands from manufacturerbrands, namely objective quality and price.

The quality of the two types of brands has traditionallybeen studied by comparing their perceived quality (Bellizziet al., 1981; Richardson et al., 1994; Davies and Brito,2004). These studies have approached the perception of theintrinsic attributes of brands through evaluations byconsumers. In contrast to this market-oriented approach,this paper analyzes quality from a strictly product-orientedperspective, using evaluations by experts. Because ourstudy covers such a wide range of brands, we could achievea more significant representation of categories thanobtained in previous research.

Various studies show that by narrowing the quality gapbetween manufacturer and store brands, the retailer canenhance both its brand image and customer loyalty(Corstjens and Lal, 2000). The private label not onlyaffects the image of the establishment but also enablescustomers to differentiate between retailers (Semeijn et al.,2004).

The growing attention among retailers to the quality oftheir own brands began in products where there is someemotional benefit in addition to the economic benefit

Table 1

Store brand market share, price differential between manufacturer brands and

markets

Country Region Store brand ma

(in value) (%)

Switzerland Europe 45

Germany Europe 30

Great Britain Europe 28

Spain Europe 26

Belgium Europe 25

France Europe 24

The Netherlands Europe 22

Canada North America 19

Denmark Europe 17

United States North America 16

Source: AC Nielsen (2005).

derived from lower price (regardless of whether the lowerprice is obtained by purchasing a retailer brand or bybuying a supplier brand on sale). This emotional benefithas been generally rooted in the customer’s experience withname brands (Ailawadi et al., 2001).However, an emotional benefit can also been achieved

through the purchase of store brands. Retailers provideincreasing quality for their store brands and they allocate agrowing marketing effort to their own brands. The lattercan be seen in the segmentation of the private label market(Seok, 2001), the merchandising policy applied to thesebrands (Hoch, 1996), the presence of these brands in newcategories (Dunne and Narasimhan, 1999), and the activemerchandising of these brands (Richardson et al., 1994).Such strategies make it possible to add emotional benefit tothe economic benefits derived from the price differentialbetween the two brands. The outcome is an emotionalbenefit like that already assumed for name brands(Halstead and Ward, 1995).A good example of this phenomenon is a product,

chocolate cookies, sold by Loblaws under the brand namePresident’s Choice. Already a strong brand in Canada, ithas expanded beyond the Loblaws supermarkets into 15US supermarket chains. This product, which is made withbutter and 40% chocolate, has captured the leadingCanadian position from Nabisco’s cookies, Chips Ahoy,which are made with margarine and 19% chocolate(Dunne and Narasimhan, 1999).As for price, it has been argued that private label

products cost less than manufacturer brands (Shapiro,1993; Richardson et al., 1994; Halstead and Ward, 1995;Apelbaum et al., 2003). Moreover, some authors have saidthat greater price differentials between manufacturer andstore brands favor the store brand market share (Dhar andHoch, 1997; Raju et al., 1995a, b; Cotterill et al., 2000). Inthis paper, we look at pricing from some other angles.First, we analyze the price differential between manufac-turer and store brands. We then investigate variousproduct categories to determine whether store brands have

store brands, and retail concentration of the most developed store brand

rket share Price differential (%) Retail concentration

(CR5) (%)

27 86

46 65

36 65

44 60

45 80

40 81

26 64

27 62

27 89

28 36

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a different market response to the price differential. On thisbasis, we consider whether retailers apply smaller pricedifferentials for price categories that have a greater storebrand market share.

In the next section, we review the most relevant academicliterature on quality and price of manufacturer and storebrands. We then describe the methodology we used in ourresearch and summarize the main results. Finally, we drawsome conclusions, note the limitations of this study, and setforth some lines for future research.

2. Literature review

2.1. Store brand quality

The marketing literature establishes two standards forproduct quality. The first is subjective, or quality asperceived by the consumer. It is understood as theintangible inducements with which companies imbue theirproducts to distinguish them from other products. The aimis to ensure that their product will be perceived byconsumers in a particular way. The second standard isreal or objective quality, which can be quantified andverified from a technical point of view. Its main feature isthe value of the materials added to the production processthat fulfill the quality standards previously established.Objective quality determines the actual positioning of theproduct.

The way consumers use, evaluate, and rank a product’sattributes serves as a frame of reference for investi-gating perceived quality. Specifically, this framework hasbeen used to identify which factors determine the percep-tion of quality in products, both manufacturer and storebrands. It has also been used to study the nature of thisinfluence.

Diverse classifications of these attributes have beenproposed in the literature. Cox (1967) and Dick et al.(1990) classify them as a function of their predictive valueand confidence value. Lutz (1986) distinguishes betweensearch and experience attributes, according to the momentof purchase or consumption.

Zeithaml (1988) defines perceived quality as the con-sumer’s evaluation of a product’s overall excellence. Thisevaluation is based on the information provided by theproduct’s attributes (intrinsic and extrinsic). The impor-tance of attributes as informative inputs in the evaluationprocess lies in their combination with situational andpersonal factors. Because of this combination, a product isnot perceived in the same way by all consumers.

Finally, Kotler (2006) refers to the concept of perceivedor subjective quality, couching it in terms of the satisfac-tion of needs. Thereby, the notion of quality embraces allof the aspects and characteristics of a product and servicewhich are related to its capacity to satisfy the consumers’needs, be they expressed or latent.

The empirical evidence suggests that consumers tend touse the product’s attributes, both intrinsic and extrinsic, in

evaluating quality (Zeithaml, 1988; Lichtenstein andBurton, 1989; Kopalle and Lehmann, 1995).On the one hand, Cox (1967) points out three conditions

under which intrinsic attributes—such as taste, texture, orperformance—are more important. They predominate inthe evaluation of quality when something is consumed(attributes of experience). They also predominate in pre-purchase situations for specific products in which theintrinsic attributes become search attributes. And theintrinsic attributes take precedence when they have a highpredictive value.On the other hand, Sawyer et al. (1979) emphasize the

importance of extrinsic attributes such as brand image orpackaging. Extrinsic attributes take on greater importancefor consumers as indicators of quality in initial pre-purchase situations where intrinsic attributes cannot beevaluated directly. They also take precedence when the costof searching for information requires a great sacrifice.Similarly, they prevail when it is hard to assess objectivequality before using or consuming the product. Extrinsicattributes are more important when the consumer has littleexperience with the product but also when he or she lacksthe knowledge and means to evaluate the intrinsicattributes effectively.With respect to the quality of store brands, the first

studies on this topic showed that manufacturer brandswere assigned higher levels of perceived quality than storebrands (Bellizzi et al., 1981).Richardson et al. (1994) analyzed five categories of

products of mass consumption. They found that anunfavorable perception of quality in store brand productscould be explained to a great extent by the intrinsicdeficiencies of these products as compared to manufacturerbrands.However, a different view emerges from more recent

studies, like those by Quelch and Harding (1996), Dunneand Narasimhan (1999), and Apelbaum et al. (2003). Theyindicate that the objective quality differential betweensupplier and retailer brands is decreasing; in fact, thequality of some store brands is even superior.Along these lines, Davies and Brito (2004) performed

blind tests, presenting consumers four categories of foodproducts. Most of the consumers in the study samplereported that they usually purchased a name brand in theproduct category under evaluation. Yet, only a smallproportion of these consumers chose the name brand in theblind test. And very few of those who did chose the namebrand once they knew the price at which the product wasselling to the public. Apparently in many cases, thebrand image is the only explanation for the premiumpaid by consumers when they purchase a manufacturerbrand. These authors have data on objective qualityfor only one product category, namely hand dishwashingdetergent (based on evaluations performed by the BritishConsumers Association). In this category, they observethat the consumer did not pay extra just for the sakeof the image. They point out that the leading brand

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contained a patented chemical that provided better perfor-mance in use.

In summary, it can generally be expected that nosignificant differences will be found in the objective qualityof manufacturer and store brands.

2.2. Price differential between manufacturer and store

brands

Burton et al. (1998) point out that increases in the storebrand market share have generally been linked to the price.Consumers with a positive attitude towards private labels areextremely price-conscious and tend to focus on paying lowprices, thereby minimizing other brand evaluation factors.

Not only do price-conscious consumers show a positiveattitude towards store brands but also the consumers areeven more predisposed to purchase them. The reason isthat they are aware of the benefit and value these brandsoffer relative to the cost incurred (Burton et al., 1998).

Empirical studies based on consumer surveys among theSpanish and European public (Secodip International, 1992;Dympanel-Aecoc, 1995) demonstrate that consumers con-sider store brands to be more economical than manufac-turer brands. The low-price policy for private labels isconsistent with the results obtained by several empiricalstudies. These show that there are generally significantdifferences in price levels between name brands and privatelabels in favor of the latter.

Several studies demonstrate that the higher the pricedifferential between manufacturer and store brands, thegreater is a store brand’s market share (Connor andPeterson, 1992; Dhar and Hoch, 1997; Cotterill et al.,2000). The private label gains market share becauseconsumers then have a greater incentive to switch brands.

Though expecting to find a positive relationship betweenthe price differential and the store brand market share,Raju and Dhar (1991), Sethuraman (1992), and Mills(1995) discovered a negative and unexpected relationshipbetween both variables. Raju et al. (1995b) maintain thatthe negative sign found in these studies could be due to theanalysis of the relationship at an intercategory level. Thisexplanation concurs with the results obtained by Cotterillet al. (2000). They investigated how the price differentialbetween manufacturer and store brands influenced themarket share of the latter at an intracategory level,covering six product lines.

Therefore, the positive sign expected between the pricedifferential and the store brand market share is obtainedwhen the analysis is performed individually for a productcategory over several years. In contrast, an analysis of thiseffect for several product categories over just 1 year couldnot reflect the expected relationship. This leads to thefollowing hypothesis:

H1. At an intracategory level, the price differentialbetween manufacturer and store brands positively affectsthe store brand market share.

At an intercategory level, Dhar and Hoch (1997) andRaju et al. (1995a) observe that the price differentialbetween manufacturer and store brands varies as afunction of the market share of the latter. These authorsfind that the price differential is smaller in categories wherethe private label has a higher share of the market.Specifically, this applies to price-elastic categories (Dharand Hoch, 1997) or to categories with low cross-priceelasticity between manufacturer brands and high cross-price elasticity between manufacturer and store brands(Raju et al., 1995a).In contrast, retailers increase the price differential of

their own brands with respect to the supplier brands forcategories in which the store brand has a lower marketshare. These are price-inelastic categories (Dhar and Hoch,1997) or categories with high cross-price elasticity betweenmanufacturer brands and low cross-price elasticity betweenmanufacturer and store brands (Raju et al., 1995a)Based on the foregoing, we can formulate the following

hypothesis:

H2. At an intercategory level, the higher the store brandmarket share, the lower is the price differential betweenmanufacturer and store brands.

3. Methodology

The information used to obtain the proposed objectiveswas derived from the ‘‘OCU Compra Maestra’’, a periodicreview prepared by the Spanish OCU (Consumers andUsers Organization). The OCU is part of a wider Europeanconsumer group, CONSEUR, with branches in Belgium,Italy, Portugal, and France. CONSEUR is an indepen-dently financed organization whose budget comes frommembership fees and the sale of its publications. It carriesno advertisements paid for by manufacturers or retailers,or by any political or economic interest groups.This source analyzes the quality of a wide variety of

products on the Spanish market (food and drink, personalhygiene, home cleaning, appliances, toys, medical services,etc.). In the present study, we limit the range to food anddrink, personal hygiene and home cleaning. The OCUprovides a technical analysis of the composition of themost representative brands for each category, specifyingthe label, etc. Appraisals are carried out by experts(chemists and nutritionists who have been accredited bythe Spanish Ministry of Food and Health to perform theseanalyses).For example, in the category of fresh and frozen pizza,

the OCU evaluates the ingredients (percentage of cheese,ham, mushrooms), nutritional quality (kcal/100 g, caloriebalance, saturated fats, cholesterol, salt), hygiene, labeling,and conservation process (refrigeration and freezing). Inthe category of diapers, the OCU includes absorptioncapacity (daytime and nighttime), protection againstmoisture, dimensions and structure of the diaper, adhesivesand labeling. Finally, for bathroom cleaners, as an example

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of products in the home cleaning category, the OCUanalyzes the aggressiveness of the product with respect tothe bathroom materials, its corrosive power, elimination ofsoap deposits, and its irritation of the skin. The analysesare performed under the best light and temperatureconditions.

The product categories examined have one variable incommon. This is the overall appraisal made by the expertsonce all of the technical characteristics for every brand inthe category have been evaluated. Our study uses theirappraisal as a proxy variable to measure objective quality(‘‘OBJECTIVE QUALITY’’ variable).

The intrinsic attributes and the overall appraisal areexpressed on a nine-point semantic scale ranging from9 ¼ excellent to 1 ¼ very bad. No weights were assigned tothe intrinsic attributes analyzed in the overall brandappraisal.

A total of 90 categories of food and drink products and28 categories of personal hygiene and home cleaningproducts (104 and 43 in total, in different years) wereanalyzed in the period from 1989 to 2004. We studied 1339food and drink brands, of which 936 are supplier brandsand 403 retailer brands. For personal hygiene and homecleaning products, we analyzed 561 brands: 377 supplierand 184 retailer brands. The OCU works with nationalmanufacturer brands that are marketed throughout theSpanish territory and local manufacturer brands that areonly marketed in certain regions. It also works withtraditional store brands (not premium or generic brands)belonging to all kinds of commercial formats (hypermar-kets, supermarkets, and discount stores).

Obviously, the quality analyses differ according to theproduct category, as explained earlier. In cases where thecategory has been analyzed over different periods of time,the attributes analyzed were identical.

Price information was obtained from ACNielsen. Weworked with three variables: the average price for thecategory ‘‘CATEGORY PRICE’’, the price differentialbetween manufacturer and store brands ‘‘PRICE DIF-FERENTIAL’’, and the store brand market share‘‘SBMS’’.

We used this information source to test our hypotheses(H1 and H2). It allowed us to determine simultaneously theaverage price for the category, the price differential, andthe market share. The variable ‘‘CATEGORY PRICE’’ ismeasured as the average price for the category, consideringmanufacturer and store brands in each of the commercialformats in which the category is marketed. This variable isspecified at the measure of 1 kilo or 1Liter. For productssuch as feminine hygiene and diapers, it was aggregated fora 10-unit base.

The variable ‘‘PRICE DIFFERENTIAL’’ is measuredas the ratio between the difference in the average price forthe manufacturer brand and the average price for the storebrand, with respect to the average price for the manufac-turer brand. Finally, the store brand market share‘‘SBMS’’ is considered as the ratio of sales volume of the

store brand vs. the total sales volume of the category in themarket. Both variables are obtained for each productcategory in the analysis.As in the previous information source, OCU Compra

Maestra, we included information from the categories offood and drink, personal hygiene and home cleaning forthe Spanish market. Specifically, we worked with 31categories of food and drink and 24 of personal hygieneand home cleaning in the period 1994–2004. Thesecategories have been used by ACNielsen since it beganperforming and publishing its analyses of store brands.Since 2000, though, ACNielsen has supplemented theanalysis with new categories.To evaluate the quality and price of store brands and to

test the hypotheses, we used variance, correlation, andlinear regression techniques. The computer package used toprocess the information was SPSS 14.0.

4. Results on the quality of store and manufacturer brands

In order to observe the differences between the objectivequality of manufacturer and store brands, we performed ananalysis of variance. Table 2 presents the group of productsfor which we obtained statistically significant differences inobjective quality between manufacturer and store brands.For manufacturer brands, we distinguished betweenprestigious brands (national manufacturer brands) andless-differentiated brands (local manufacturer brands) todiscern the differences between the two. Further, the tableincorporates a longitudinal study for those productcategories in which we observed significant differences insome year and have information for other years. Thelongitudinal analysis was performed to ascertain variationsin quality between the manufacturer and store brands.First, we wish to point out that, of the 90 food and drink

categories and the 28 personal hygiene and home cleaningcategories covered in the study, we found statisticallysignificant differences in objective quality between manu-facturer brands (national or local) and store brands infavor of the store brand (nine food and drink categoriesand four personal hygiene and home cleaning categories).These significant differences are mainly related to localmanufacturer brands (nine food and drink categories andthree personal hygiene and home cleaning categories). Incontrast, in eight food and drink categories and in sixpersonal hygiene and home cleaning categories, we foundstatistically significant differences in objective qualitybetween manufacturer brands (national or local) and storebrands in favor of the manufacturer brands. In contrast tothe previous case, this effect is due mainly to comparisonwith national manufacturer brands (six food and drinkcategories and six personal hygiene and home cleaningcategories).The table shows the evolution of the objective quality

differential between manufacturer brands (national andlocal) and store brands in categories for which in some yearsignificant differences were obtained in objective quality

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Table 2

Objective quality (OBJECTIVE QUALITY) between manufacturer and store brands, by product category

Category SB NMB F-Snedecor LMB F-Snedecor

Food and drink

Quality of the store brand superior to the quality of the manufacturer brands (national, local)

Dried dog food (97) 7.33 6.44 1.379 5.14 8.464��

Maria cookies (95) 5.80 4.89 1.010 4.00 3.488�

Non-dairy ice cream (98) 6.60 6.50 0.042 5.33 15.545���

Frozen green beans (97) 6.75 6.17 12.444���

Chocolate milk pack (94) 6.50 5.40 1.516 5.00 8.333��

Honey (94) 5.25 4.67 1.084 3.27 15.640���

Frankfurt sausages (93) 5.00 4.20 0.672 3.25 11.200���

Quality of the store brand inferior to the quality of the manufacturer brand (national, local)

Frozen fish in breadcrumbs (99) 4.20 6.20 8.333�� 5.00 0.444

Frozen pizza (02) 5.33 5.67 0.389 6.40 6.160��

Orange drinks (99) 2.00 4.33 4.375�

Whisky (92) 5.00 6.78 20.000��� 5.43 0.831

Evolution of the objective quality differential in favor of store brands

Whole pasteurized and homogenized milk (92) 5.80 6.56 5.877�� 6.00 0.406

Whole pasteurized and homogenized milk (01) 6.00 5.44 0.841 5.40 1.554

Petit Suisse (93) 5.25 5.25 0.000 7.00 9.800��

Petit Suisse (97) 6.50 6.00 1.800 5.00 3.000

Sliced cheese (91) 5.50 6.14 5.098�� 6.00 0.444

Sliced cheese (00) 4.00 4.20 0.563

Mayonnaise (92) 5.00 6.00 7.778�� 6.00 7.778��

Mayonnaise (98) 5.20 5.20 0.000 2.83 5.817��

Evolution of the objective quality differential in favor of manufacturer brands (national, local)

Orange juice (93) 4.67 2.38 10.188��� 3.00 7.353��

Orange juice (97) 3.89 4.29 0.144 3.00 0.536

Personal hygiene and home cleaning

Quality of the store brand superior to the quality of the manufacturer brands (national, local)

Toothpaste (95) 7.00 5.21 3.032� 4.46 6.537��

Quality of the store brand inferior to the quality of the manufacturer brands (national, local)

Window cleaner (97) 2.40 6.00 4.821� 2.71 0.055

Fabric softener (03) 6.20 7.25 3.090� 7.00 0.444

Evolution of the objective quality differential in favor of store brands

Household cleaning fluid (91) 6.00 6.00 5.00

Household cleaning fluid (97) 4.40 4.75 0.032 5.00 0.187

Household cleaning fluid (04) 6.00 3.83 3.288� 3.00 3.214

Diapers (94) 5.40 6.67 6.028�� 6.00 1.088

Diapers (98) 6.50 5.83 1.463 0.694

Automatic dishwasher detergent (93) 6.00 9.00 5.400� 8.00 3.556

Automatic dishwasher detergent (97) 5.00 5.00 0.000 5.00 0.000

Automatic dishwasher detergent (02) 5.00 4.80 0.227 5.00 0.000

Feminine hygiene (92) 5.29 5.20 0.065 5.00 18.778���

Feminine hygiene (98) 6.83 6.67 0.200 5.00 16.608���

Evolution of the objective quality differential in favor of manufacturer brands (national)

Laundry detergent (95) 4.80 4.78 0.000 4.00 0.357

Laundry detergent (96) 5.17 5.38 0.167 5.00 0.057

Laundry detergent (98) 5.75 6.00 0.714 4.60 2.068

Laundry detergent (02) 5.50 5.38 0.074 3.80 4.961��

Laundry detergent (03) 5.75 6.17 0.390 5.00 0.259

SB: store brand; NMB: national manufacturer brand; LMB: local manufacturer brand.�10% significance level.��5% significance level.���1% significance level.

J.L. Mendez et al. / Journal of Retailing and Consumer Services 15 (2008) 144–155 149

between the manufacturer brands (national or local) andthe store brands. This analysis was possible in categoriesfor which we have information from several years.

Although the number of categories is not high, we doobserve a generally favorable evolution in the differentialof objective quality. This development is in favor of store

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brands in both the food and drink and the personal hygieneand home cleaning markets.

The differences in objective quality between the manu-facturer and store brands can be explained by thetechnology required and the ingredients of the productcategory.

Several authors (e.g., Hoch and Banerji, 1993) indicatethat some categories have a low level of technologicalelaboration. In these categories, store brands achieve aquality similar to that of the manufacturer brands. In othercategories, the elaboration is more sophisticated, andmanufacturers compete actively through continued andexpensive investments in technological innovation. Thismakes it more likely that store brand quality will be lowerin these categories.

Our study shows that, in the categories with low-technology production, store brands attain levels of qualitysimilar to those of the national manufacturer brands. Thisapplies to dried dog food, Maria cookies, frozen greenbeans, and honey in the food and drink categories; and itapplies to household cleaning fluid and feminine hygieneproducts in the home cleaning and personal hygienecategories. In contrast, there are technologically morecomplex categories in which the manufacturers (especiallynational ones) maintain a strong R&D investment. Theseare frozen fish in breadcrumbs, frozen pizza, orange drinks,and whisky in the food and drink categories; and these arewindow cleaner, fabric softener, and laundry detergent inthe personal hygiene and home cleaning categories. Inthese categories, the quality of manufacturer brands issignificantly superior.

Spain has a high rate of retail concentration, which isessential in negotiations between retailers and manufac-turers. Taking this into account, it is reasonable that themanufacturer and store brands have similar objectivequality levels. Distributors have strengthened their nego-tiating position with respect to the manufacturers. Thelatter are forced in many cases to meet the qualitystandards set by the distributors, and these are gettingstiffer. Therefore, dependence of manufacturers is anotherfactor that should be taken into account. Along with therelative degree of technological simplicity of the specificproduct categories, this dependency relation probablyhelps explain the narrowing objective quality gap betweenmanufacturer and store brands.

In fact, Spain has undergone a period of intensiveentrepreneurial concentration in the retail sector of massconsumption products. The degree of concentrationreaches significant levels when analyzed in the appropriategeographical context. The market share of the four (CR-4)and eight (CR-8) main retailers was up to 33.8 and 46.6,respectively, in 1995. And in 2004, these indicators ofconcentration were up to 54.0 and 72.7, respectively. At thesame time, vertical integration has occurred in the channelthrough the association of various retailers in largeshopping centers. This process helps them improvetheir negotiating position with respect to manufacturers.

Likewise, the retailers implement differentiation strategiesby launching different product formats under differentcommercial labels. Such diversification enables them togain more control of demand. The last development thathas enhanced the power of the distributors is undoubtedlythe incorporation of new information technologies in retailmanagement. This has enabled them to handle moreefficiently a large quantity of information derived fromthe customers (Cruz et al., 2001).

5. Results on the price differential between manufacturer

and store brands

Table 3 presents the price differentials between manu-facturer and store brands. It distinguishes between the foodand drink market and the personal hygiene and homecleaning market. We see that store brands command lowerprices than manufacturer brands for all of the yearsconsidered. The differentials show some slightly higherfigures in the personal hygiene and home cleaning sector.The average value there is 37.26, as opposed to the foodand drink market with an average of 34.63. In both cases,we see a clear tendency towards growth.In addition to the overall analysis, we performed a

partial analysis by product category. For each yearanalyzed, Table 3 shows the five categories with the highestand lowest price differentials in food and drink, personalhygiene and home cleaning. We identified only threeproduct categories (mussels, asparagus, and insecticides)in which the average price for the store brands is higherthan the average price for the manufacturer brands in someof the years analyzed. In the rest of the cases, the pricedifferentials are positive.The data show that categories with a certain social and

emotional benefit (liquors, whisky, ready-to-serve desserts,shower gel, deodorant, and shampoo) and those with ahigher differentiation of manufacturer brands (margarine,dry pasta, herbal teas, broths, sliced bread, floor cleaningliquid, automatic dishwasher detergent, feminine hygiene,razor blades, toothpaste, and air fresheners) exhibit ahigher price differential between manufacturer and storebrands.In contrast, the price differentials are lower in product

categories where the degree of potential differentiation isslight or in those where the use of the product has abasically functional purpose. These categories includemussels, asparagus, tinned pineapple, liquid milk, freshtomato sauce, insecticides, toilet paper, napkins, cellulosetowels, pads and wipes, paper towels, domestic gloves,aluminum foil, and disposable diapers.Sethuraman and Cole (1997, 1999) identified important

aspects of management that influence the quantity ormagnitude of the price premium that consumers will payfor food products of a manufacturer brand with respect tothe store brand. Their results show that the differential inperceived quality explains approximately 12% of thevariation in the price premiums, both between consumers

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Table 3

Price differentials between manufacturer and store brands (1994–2004)

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Mean (standard deviation) price differentials

Food and drink (31

categories)

27.8 (13.1) 28.6 (13.3) 29.2 (13.9) 31.5 (12.7) 33.3 (12.3) 35.5 (13.1) 35.8 (12.7) 37.1 (12.7) 38.8 (11.7) 41.2 (11.1) 42.2 (11.2)

Personal hygiene and

home cleaning (24

categories)

30.4 (18.2) 29.1 (20.5) 30.9 (22.1) 34.6 (20.2) 38.3 (17.8) 39.3 (17.4) 39.5 (16.4) 40.6 (17.8) 42.2 (17.3) 41.2 (17.7) 43.7 (16.9)

Lowest price differentials

Food and drink

Tinned mussels �5.1 7.4 9.8 14.7 13.9 7 4.4 16.1 22

Tinned white

asparagus

0.1 �3.3 �5.1 2.6 9.9 20.5 14.7 15.9 14.3 19 19.4

Tinned pineapple 11.4 14.5 13.8 15.6 19.0 23.5 25.3 25.8 26.6

Milk 12.7 13.0 14.0 16.4 18.5 20.1 21.4 25.8 26.5

Tinned natural

tomato

16.2 19.0 27 29.6

Roasted coffee 15.1

Olive oil 6.4 9.7 11.5 9.1 14.7 15.7 18.6 20.1 18.3

Tinned tuna 21.2 23.7

Yogurt 23.5

Personal hygiene and home cleaning

Insecticide �2.1 �5.0 �9.5 �6.3

Toilet paper 5 3.5 2.3 8.4 9.8 10.7 8.6 7.8 7.9 6.9 12

Napkins 6.9 3.0 2.1 10.4 18.5 17.2 18.8 16.9 19 20.4 31.5

Paper tissues 10.4 4.7 25.6 19.3 21.8 22.6

Dust pads and wipes 11.1

Paper towels 4.9 2.9 7.6 11.4 10 8.1 7.5 10.7 9.7 13.9

Domestic gloves 2.7 13.1 13.4 20.0 19.7

Aluminum foil 19.9 19.3 21.8 23.0

Diapers 16.7 17.7 17.1

Highest price differentials

Food and drink

Margarine 41.4 42.6 46.8 50.6 51.9 54.9 58 59.6 60.3

Packet soups 41.7

Liquors 43.1 45.3 45.7 50.5 46.5 50.9 51.8 52.9 54.5 54.1 55.3

Dry pasta 43.5 43.8 46.3 46.1 54.4 53.9 55.5 53.4 54.6 55.9

Herbal teas 48.8 53.1 53.6 57.7 57.5 57.2 49.9

Whisky 49.5 49.0

Broths 44.1 45.3 49.9 54.1 55.1 56.6 56.1 58 60.3

Ready-to-serve

desserts

42.8 50.1

Frozen vegetables 52.8

Sliced bread 51.3 54.7 57.6

Personal hygiene and home cleaning

Floor washer 45.7 53.5 56.3 60 58.5 58.6 58.7

Shower gel 53.6 48.6

Automatic

dishwasher detergent

55.3 55.5 54.8 58.1 57.3 58.4 62.7 65.5 59.3 62.8

Feminine hygiene 57.8 54.7 58.1 65.0 65.3

Razor blades 61.6 64.9 66.3 68.4 71.4 73.8 74.1 75.3 74.6 75.9 77.3

Toothpaste 49.8 50.0 51.9 56.8 52.9

Air freshener 58.5 60.4 68.9 61.8 55.4

Deodorant 56 54.5 52.5 54.9 55.5

Shampoo 62.8 66.2 68.2 68.2

Bleach 60.3

J.L. Mendez et al. / Journal of Retailing and Consumer Services 15 (2008) 144–155 151

and between product categories. At the same time, thisvariable exerted the strongest influence on these pricepremiums. These authors analyzed the quality and the

price premiums as perceived by consumers. Our study,conversely, analyzed the technical quality evaluated byexperts as well as the real sales price to the public.

ARTICLE IN PRESSJ.L. Mendez et al. / Journal of Retailing and Consumer Services 15 (2008) 144–155152

In order to test hypothesis H1, we performed anintracategory analysis. The purpose was to study theinfluence of the price differential on the store brand marketshare, presumably due to the negative and unexpectedrelationship found in numerous studies and explained bythe general practice of performing intercategory analysis(Raju et al., 1995b; Cotterill et al., 2000). We performeda regression for each category in which the dependentvariable is the natural logarithm of the store brandmarket share and the independent variable is the pricedifferential between manufacturer and store brands.Table 4 shows the results, classified according to thedegree of influence of price differentials on the marketshare of the store brands.

In most of the categories analyzed, we observe asignificant positive sign for the price differential and themarket share (H1). Therefore, an increase in the pricedifferential between a manufacturer and a store brand in acategory may be said to encourage the acquisition of storebrands. The relationship is negative in only five categories(ready-to-serve meals, liquors, shower gel, laundry deter-gent, and feminine hygiene); however, in no case was thisnegative relationship found to be statistically significant.

In particular, we find a group of products with nostatistically significant positive relationship. It includes thefollowing: high functional risk categories such as laundrydetergent, toothpaste, and diapers; categories that repre-sent some emotional risk (shower gel and ready-to-servemeals) and social purchase behavior (liquors and whisky);and categories where the level of brand differentiation istoo low (paper towels, paper tissues, scouring pads, andherbal teas).

We observe important differences between the categoriesof food and drink, personal hygiene and home cleaning.Thus, when the influence of the price differential upon thestore brand market share is high, we find 48.38% for thefood and drink categories vs. 29.16% for those of personalhygiene and home cleaning. When the influence of the pricedifferential is moderate, the percentages are more similar:29.0% in food and drink and 20.83% in personal hygieneand home cleaning. Finally, when the influence of the pricedifferential is low or non-significant, the degree of influenceon market share is inverted: 22.58% in food and drink and50.0% in personal hygiene and home cleaning.

Even though the price differential generally encouragesthe acquisition of store brands in mass consumer products,the results reveal that store brand market response to theretail price policy depends on the product category.

Each product category has an average price differentialwhose magnitude can be influenced by the market responseto store brands for that category. The results (see Table 5)indicate that the retailer applies lower price differentials tothose categories with a better response on store brands(H2). Likewise, categories with a higher store brand marketshare have lower average prices. This implies that less-differentiated categories probably have a high replaceabil-ity between manufacturer and store brands and therefore

that there is strong price competition between both types ofbrands.Clearly, categories with different levels of brand

differentiation or competition among supplier and retailerbrands achieve different levels of store brand market share.In categories with considerable store brand market share,the retailer reduces the price differential between thesupplier brands and their own brands. This occurs eitherbecause the retailer increases the prices of its own brands togive them a quality perception similar to that of thesupplier brands and/or because the manufacturer promotesits brands as a way of defending them against the loss ofmarket share in favor of store brands.

6. Conclusions

This research presents a descriptive analysis of thequality and price differentials between manufacturerbrands and store brands. The results enable us to inferthe different strategies followed by manufacturers andretailers for their brands. The importance of both aspects,price and quality, lies in their role as features thatconsumers take into account when acquiring a brand.As for objective quality, we did obtain statistically

significant differences in the objective quality of storebrands as compared to national and local manufacturerbrands, but only for a small number of categories(20.34%). In these cases, the private label was mainlyfavored over local manufacturer brands, but its positionwas jeopardized by national manufacturer brands. How-ever, in most of the cases where we obtained informationfor several years, the evolution of the objective qualitydifferential between national manufacturer brands andstore brands favored the latter.The results show that, on the one hand, store brands

occupy an intermediate position between local manufac-turer brands of inferior quality and national manufacturerbrands of higher quality. On the other hand, store brandsshow a clear evolution in their quality. Even if their qualitywas low when introduced into the market, the store brandshave been increasing their quality levels over the years.Some of the studies reviewed here indicate that retailers

have negotiated objective quality levels for their ownbrands similar to those of the national manufacturerbrands in a large number of product categories. In thepresent study, we observe that in product categories withsimpler technology, store brands achieve levels of qualitysimilar to those of national manufacturer brands. Yet, incategories with more complex production technologies,national manufacturer brands continue to maintain sig-nificantly superior quality.The second attribute studied was price. The results of

our study generally agree with the literature in finding pricedifferentials that favor store brands. Clearly, the maindistinguishing feature of a private label is price. As theanalysis of objective quality has revealed, most categorieshave similar objective quality levels for manufacturer and

ARTIC

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PRES

S

Table 4

Effect of the price differential between manufacturer and store brands on the store brand market share: intracategory analysis 1994–2004

Category Constant b F-Snedecor Adjusted R2 Category Constant b F-Snedecor Adjusted R2

High influence of price differential on the store brand market share (0.70padjusted R2p0.99) Medium influence of price differential on the store brand market share (0.30padjusted R2p0.70)

Food and drink Food and drink

Rice 2.425 (54.79)��� 0.033 (24.33)��� 591.96��� 0.983 Packet soups �2.487 (�2.448)�� 0.106 (4.882)��� 23.837��� 0.695

Tinned natural

tomato

2.501 (45.803)��� 0.053 (21.669)��� 469.562��� 0.979 Margarine 0.630 (1.350) 0.045 (4.864)��� 23.658��� 0.694

Broths 0.008 (0.063) 0.053 (21.156)��� 447.594��� 0.978 Jam 1.496 (3.464)��� 0.052 (4.824)��� 23.27��� 0.690

Legumes 2.456 (24.405)��� 0.038 (11.886)��� 141.277��� 0.933 Tinned mussels 2.767 (30.714)��� 0.025 (4.804)��� 23.075��� 0.688

Tinned pineapple 2.827 (31.758)��� 0.046 (11.136)��� 124.014��� 0.925 Mayonnaise 0.546 (0.985) 0.068 (4.349)��� 18.915��� 0.642

Instant coffee 2.487 (37.376)��� 0.022 (10.804)��� 116.733��� 0.920 Ready-to-serve

desserts

�0.788 (�0.924) 0.086 (4.311)��� 18.582��� 0.637

Roasted coffee 1.847 (15.802)��� 0.046 (10.038)��� 100.762��� 0.909 Pasta 1.789 (4.304)��� 0.035 (4.262)��� 18.164��� 0.632

Maria cookies 1.213 (6.223)��� 0.042 (9.141)��� 83.556��� 0.892 Corn 0.172 (0.192) 0.103 (3.943)��� 15.548��� 0.593

Tinned tuna 1.323 (5.871)��� 0.069 (8.147)��� 66.369��� 0.867 Sliced bread 2.065 (5.334)��� 0.028 (3.339)��� 11.15��� 0.504

Fruit juice 1.289 (4.945)��� 0.079 (8.053)��� 64.853��� 0.865 Personal hygiene and home cleaning

Mineral water 0.306 (1.007) 0.054 (6.969)��� 48.572��� 0.826 Domestic gloves 3.257 (15.481)��� 0.056 (2.150)� 4.621� 0.266

Tinned white

asparagus

3.233 (60.532)��� 0.027 (6.789)��� 46.095��� 0.818 Deodorant 1.713 (1.957)� 0.029 (1.935)� 3.744� 0.215

Milk 2.299 (17.39)��� 0.044 (6.632)��� 43.982��� 0.811 Aluminum foil 3.857 (5.920)��� �0.016 (�1.360) 1.835 0.077

Chocolate bars 0.395 (0.964) 0.081 (6.268)��� 39.288��� 0.793 Spare mops 1.923 (1.957)� 0.025 (1.066) 1.137 0.014

Frozen vegetables 0.799 (1.802)� 0.070 (6.157)��� 37.913��� 0.787 Dust pads and

wipes

3.348 (18.971)��� 0.008 (1.051) 1.105 0.010

Personal hygiene and home cleaning Low or non-significant influence of price differential on the store brand market share (0.00padjusted

R2p0.30)

Shampoo 1.623 (23.231)��� 0.018 (12.678)��� 160.73��� 0.941 Food and drink

Fabric softener 0.799 (2.652)�� 0.061 (8.885)��� 78.946��� 0.886 Brandy �8.747 (�1.710) 0.284 (2.142)� 4.587� 0.264

Insecticide 2.069 (21.439)��� 0.023 (7.920)��� 62.724��� 0.861 Non-significant influence: olive oil, herbal teas, yogurt, whisky, ready-to-serve meals, liquors

Napkins 3.096 (37.208)��� 0.037 (7.587)��� 57.558��� 0.850 Personal hygiene and home cleaning

Razor blades �0.431 (�0.95) 0.046 (7.266)��� 52.8��� 0.838 Toilet paper 3.257 (15.481)��� 0.056 (2.15)� 4.621� 0.266

Bleach 2.028 (10.881)��� 0.029 (6.677)��� 44.583��� 0.813 Automatic

dishwasher

detergent

1.713 (1.957)� 0.029 (1.935)� 3.744� 0.215

Floor washer 1.025 (2.682)�� 0.045 (6.362)��� 40.478��� 0.798 Non-significant influence: feminine hygiene, scouring pads, paper tissues, air freshener, toothpaste, paper

towels, hand dishwashing detergent, diapers, shower gel, laundry detergent

Student’s t in parentheses.�10% significance level.��5% significance level.���1% significance level.

J.L

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ARTICLE IN PRESS

Table 5

Relationship of the store brand market share to the price differential between manufacturer and store brands and to the category’s average price:

intercategory analysis 1994–2004

PRICE DIFFERENTIAL ¼ f (SBMS) Relation between SBMS and CATEGORY PRICE

Year Constant bSBMS b_

SBMSF-Snedecor R2 Pearson correlation

1994 41.414 (10.823)��� �0.663 (�2.972)��� �0.384 8.834��� 0.131 �0.222�

1995 43.032 (9.605)��� �0.720 (�2.973)��� �0.384 8.836��� 0.131 �0.278��

1996 45.317 (8.973)��� �0.646 (�2.821)��� �0.367 7.956��� 0.118 �0.312��

1997 47.599 (10.303)��� �0.559 (�2.980)��� �0.385 8.882��� 0.132 �0.299��

1998 50.080 (11.383)��� �0.573 (�3.299)��� �0.419 10.880��� 0.160 �0.308��

1999 50.381 (10.431)��� �0.472 (�2.673)��� �0.351 7.145��� 0.106 �0.311��

2000 51.961 (11.822)��� �0.474 (�3.247)��� �0.414 10.541��� 0.155 �0.306��

2001 54.486 (11.231)��� �0.487 (�3.304)��� �0.420 10.913��� 0.160 �0.290��

2002 58.740 (13.178)��� �0.527 (�4.210)��� �0.508 17.727��� 0.243 �0.334���

2003 59.810 (12.768)��� �0.497 (�4.063)��� �0.494 16.505��� 0.230 �0.362���

2004 59.421 (12.788)��� �0.405 (�3.617)��� �0.452 13.081��� 0.189 �0.421���

b_: standardized coefficient; Student’s t in parentheses.�10% significance level.��5% significance level.���1% significance level.

J.L. Mendez et al. / Journal of Retailing and Consumer Services 15 (2008) 144–155154

store brands. Therefore, a lower price could be decisive fora customer’s first acquisition of store brands. Once the firstacquisition has been achieved, it is more probable that theconsumer will repeatedly purchase these brands on thegrounds of experience.

It is worth pointing out a certain ‘‘hairpin effect’’ in theprice positioning of store brands. They are usually situatedbetween two alternatives. One is a leading nationalmanufacturer brand with high prestige in the category.The other is a local manufacturer brand with an excellentprice. As the cheapest purchase option in the category, thislocal brand is directed to the segment of consumers moreconcerned about price. According to the ‘‘prospect theory’’of Kaheneman and Tversky (1979), the intermediatepositioning of store brands favors their choice by reducingthe perceived risk of their purchase. Its position gives thisbrand a beneficial reference price, which is highest when itsquality is very similar to that of the national manufacturerbrand. All of this fits the positioning in value or price/quality ratio that the store brand currently enjoys.

The price analysis performed in this study reveals that anincrease in the price differential between manufacturer andstore brands does not always favor the store brand marketshare. Thus, in categories with a strong emotional or socialcomponent (e.g., feminine hygiene and alcoholic drinks),increases in price differentials do not have statisticallysignificant effects on the store brand market share. Forthese categories, it is necessary to investigate the differ-ential threshold from which the consumer is likely to infer alow quality for store brands.

Finally, we observe that categories in which store brandsgained a larger market share (e.g., cellulose derivatives) donot need high price differentials to motivate purchase. Thisis probably because lower differentials evoke the sameresponse. In these categories, it is possible that the

consumer is conscious of the slight quality differencesand of the comparative advantage of store brands in regardto price.

7. Limitations and further research

As in any research, this study suffers from certainconstraints. The first is the absence of extrinsic attributes:the research is based on secondary sources that do notincorporate them. Despite this drawback, the material hada valuable advantage. It allowed us to measure theperception of intrinsic attributes by different experts usingseveral criteria in their assessments. The source we usedincorporates detailed analyses for a large number ofproduct categories. Moreover, each category covers var-ious national and local manufacturer brands and storebrands, so that a wide range of brands is represented.The second limitation of this study is the diversity of the

experts. The same ones cannot be used consistently, as theyvary with the category of the products analyzed. Further,the material does not provide information on all of thecategories analyzed in the years covered here. Theinformation on the evolution of quality has thus beenlimited to one subgroup of the categories studied. All ofthese limitations must be taken into account to understandthe framework in which the analysis was performed.The information on price differentials and the store

brand market share was obtained in aggregate form byproduct category. In future research, it would be interest-ing to compile disaggregated information at the retailerlevel. Doing so would allow us to include the different pricepolicies of distributors according to their typology and thecharacteristics of their store brands.Finally, another direction for research would be to

determine how store brands might affect the competitive

ARTICLE IN PRESSJ.L. Mendez et al. / Journal of Retailing and Consumer Services 15 (2008) 144–155 155

structures of the industrial sector. In addition, experi-mental studies with consumers could shed light on thecomparative intensity with which the perception of intrinsicand extrinsic attributes acts in the choice of different typesof manufacturer and store brands.

Acknowledgment

The authors gratefully acknowledge support from theSpanish Ministry of Science and Education through theproject SEJ2005-06105/ECON ‘‘Gestion de las promo-ciones y de las marcas de distribuidor para un desarrolloeficiente de la estrategia de marketing del minorista’’.

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