MODELING CONSUMER ATTITUDES TOWARDSPRIVATELABELS:

AN EXPLORATORYSTUDY
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

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 simplyPLs-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 labels, can also be defined as “any 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 attributes have been identified to assess the consumer evaluations of PLs.
Table 1 gives a review of the studies from which the following PL attributes have been included:

1. Quality
2. Price
3. Risk
4. Freshness
5. Packaging
6. Healthy
7. Prestigious
8. Brand image

To assess the consumer evaluation of PLs the multi-attribute model will be used. Here we will use the
“Adequacy- Importance” model which also happens to be one of the most widely used model appearing in
consumer behavior research (Cohen, Fishbein and Ahtola (1972). This“Adequacy-Importance” model can
be described as follows:

Ą= ∑ P* D;

Where-
Ą= an individual’s attitude toward the brands;
P= importance of attribute (dimension) for the person;
D= individual’s evaluation of brands w.r.t the corresponding attribute (dimension).

Table 1: A review of prior PL attribute research.

Factors
Study

quality, price, trust, availability of alternatives, attractive packaging, frequent advertising, sales promotions,

imitations,
well-known,
healthy,
availability, brand image, prestige, freshness and habits.
Dolekoglu et al. (2008)
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

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

important, the following questions were

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
become:
Ąnb = P1* Dnb1+ P2*Dnb2+
P3*Dnb3…P96*Dnb96.
Where-
Ąnb= an individual’s attitude toward the
national brands;
P= importance of attribute (dimension)
for the person;
Dnb=
individual’s
evaluation

of 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
N=96
Attitude towards PLs
Ąpl- mean (std.dev.)
Attitude towards NBs
Ąnb- mean (std.dev.)
t-test for equality of
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 (*) convey that there the difference in means is statistically significant at the
5% significance level (calculated t-value greater than 2.0).

Discussions
&
Managerial
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.

•
PL>NB (PLs perceived better
than NBs): Price
•

PL=NB (PLs and NB perceived to be the same): Health & Freshness.

Within brand-type, the top three 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.
Richardsonet

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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