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Contents lists available at ScienceDirect
Journal of Retailing and Consumer Services
journal homepage: www.elsevier.com/locate/jretconser
The effect of information exposure of contract manufacturing practice on
consumers' perceived risk, perceived quality, and intention to purchase
private label brand
⁎
Fathony Rahmana, , Primidya K.M. Soesilob
a
School of Business and Economics, Universitas Prasetiya Mulya, Jakarta, Indonesia
b
Business Management & Marketing Program, Management Department, BINUS Business School International Undergraduate Program, Bina Nusantara University,
Jakarta, Indonesia
1. Introduction
The private label industry is a growing industry with the largest
market for food and beverages in North America and Europe. In the
developing countries, private labels have also been getting popularity
despite the low penetration rate (Collins and Bone, 2008). Private label
products were once perceived as low price version of national brands
which would sacrifice quality for cheaper price. Today, private label
brands (PLB) are more connected with customer trends and no longer
associated with low price and low quality (Nielsen Global Private Label
Report, 2014). In fact, there are tiers in the world of private labels that
distinguish the premium and the low-end private labels. Despite such
progress, the majority of mainstream consumers still perceive the low
price benefit of private labels, especially when the economy is not in its
best shape.
According to Datamonitor (2008), an international company pro-
viding market intelligence and data analysis, reported that consumers
traded down their consumption behavior by switching from their fa-
vorite national brands to private label brands, as response to the de-
clining economic condition. According to a report of Global Market
Trends 2018 by the Euromonitor, respondents aged between 30 and 44
years old (those with young children) were more likely to increase their
purchase of private label brands at 16%, signaling that they were
seeking ways to make their money more well-spent (Euromonitor,
2013). This highlights that consumers still view private labels as less
expensive substitutes to national brands. While one may suggest that
the trading down to private label happens only in the recession, the
latest report by IRI still finds the consumers are still turning to private
labels, even in the stable economy – especially for the Millenials (IRI,
2017).
Private label products are defined by The PLMA (Private Label
Manufacturers' Association) as “all merchandise sold under a retailer's
brand, which can carry the retailer's own name or a name created ex-
clusively by that retailer. In some cases, a retailer may belong to a
wholesale group that owns the brands that are available only to the
⁎
Corresponding author.
E-mail addresses: fathony.rahman@pmbs.ac.id (F. Rahman), pmiranda@binus.edu (P.K.M. Soesilo).
https://doi.org/10.1016/j.jretconser.2018.01.010
Received 18 September 2017; Received in revised form 16 December 2017; Accepted 21 January 2018
‹(OVHYLHU/WG$OOULJKWVUHVHUYHG
7
members of the group.” The manufacturers of private label may fall into
one of the four categories: (1) large national brand manufacturers, (2)
small manufacturers specializing in certain product lines, (3) major
retailers and wholesalers who own manufacturing facility, and (4) re-
gional brand manufacturers who manufacture private label products for
exclusive markets.
National brand manufacturers would normally use their skills and
excess production capacity to produce private label products. This
practice – known as contract manufacturing – is believed to be able to
reduce risks and provide opportunity to maintain high level of pro-
duction for the manufacturers (Department of Agriculture and Agri-
Food Canada, 2010). Contract manufacturing is nothing new to pro-
ducers, wholesalers, retailers, or those who are familiar with the retail
industry. From the perspective of customers, however, this practice may
not yet gain popularity and therefore, customers may not be aware of
the existence of contract manufacturing practices. Not until recently
that information on contract manufacturing practices by national brand
manufacturers has been shared and discussed openly in the media,
more specifically on the Internet; thus, making it no longer secret to the
public. Contract manufacturing that involves national brand manu-
facturers producing the same product to be sold under private label
brand has been kept in the shade from customers’ view. Information
exposure of this issue to public may trigger various responses. There-
fore, this paper aims to examine consumers' reaction following an ex-
posure of information about contract manufacturing practices by na-
tional brand manufacturers in producing private label products that are
still perceived by most consumers as lower price option to the national
brands.
2. Literature review
Originally, private labels were positioned as alternative options to
national brands that provide good value for money or low price. The
low-price advantage has been the major selling point and therefore,
private labels in themselves serve as cues to evoke perception of value
F. Rahman, P.K.M. Soesilo
(Zeithaml, 1988). In other words, a product can be perceived as low
price simply because it carries a private label brand (PLB). Despite re-
cent developments of private label brands being positioned as organic,
premium, and "healthier" than they were once thought of, and are
priced not cheaper than the leading national brands (NB) (Richardson,
1997; Tarnowski, 2005), the mainstream consumers seem to continue
associating private label brands with cheaper version of the leading
national brands. Research findings still demonstrate that, in general,
consumers still perceive differences between private label brands and
national brands on dimensions such as price, quality, value, perceived
risk, and trust, even at subcategory level (Nenycz-Thiel and Romaniuk,
2009).
Perceived quality is defined as the “consumer's judgment about a
product's overall excellence or superiority” (Zeithaml, 1988). With re-
spect to perceived quality, when a consumer views a brand to be of
better quality, the attitude toward that brand is expected to be higher.
Numerous research suggest that there are significant differences with
regards to perceived quality between private label brands and national
brands, demonstrating that consumers place higher evaluation towards
product quality of national brands than that of private label brands
(Bellizzi et al., 1981; Hawes et al., 1982; Richardson et al., 1994). This
is evident in the fact that the improvement of packaging design and
product quality of store brand products in the UK contributed to the
high market share of private label brands (Wells et al., 2007).
Private label brand buying has been greatly affected by a number of
consumer factors such as perceived risk and attitude (Batra and Sinha,
2000; Dunn et al., 1986; Richardson et al., 1996). Some of the first
studies examining the effect of brand on perceived risk always compare
generic and national brands (Bearden and Mason, 1978; Reindenbach
et al., 1983). All findings lead to a conclusion that generic brands are
perceived to bear more risks national brands. Dunn et al. (1986) added
store brands (or private label brands) into the comparison between
generic and national brands and found that, while store brand was still
perceived to be of better quality than generic brands, they were still
seen as inferior and riskier than the national brands. Later research by
Dick et al. (1995) and Richardson et al. (1996) also investigated the
effect of brand on perceived risk by making comparison between store
and national brands and produced similar findings. Some research
dated back two decades ago found that, compared to national brands,
consumers regarded private label brands as having highest risk on
performance, but lowest risk on financial measures (Dunn et al., 1986).
Decades later, research findings still showed that the consumers still
expected private label brands to entitle lower quality than that of na-
tional brands (Dick et al., 1995; De Wulf et al., 2005; Cheng et al.,
2007). Making a wrong purchase decision is an important risk factor as
private label brands are seen by consumers as being inferior to national
brands on aspects such as reliability, prestige, and quality attributes
(Bellizzi et al., 1981). Thus, in the effort of reducing the risk factor,
national brand is believed to provide a much safer choice in many
purchasing and consumption situations (Baltas, 1997). In general,
consumers still perceive national brand as superior in all aspects com-
pared to the PLBs.
The production of private label brands may be contract manu-
factured by the national brand manufacturers, which utilize their excess
production capacity to generate more revenues. Although it is an or-
dinary practice in the retail industry, contract manufacturing by na-
tional brand manufacturers has been hidden from the public. This is
true as private-label production by national brand manufacturers is of
great managerial interest but lacking empirical research, which can be
attributed to the secrecy about the question of which national brand
manufacturers produce private label brands (Sayman and Raju, 2007;
Sethuraman, 2009; Sethurman and Raju, 2012; Braak et al., 2013). This
secrecy may also be attributed to the national brands’ concern about
their image, consumer perception and/or competitive advantage. The
Internet serves as a media from which information on contract manu-
facturing is openly discussed and made available to the public.

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Exposure to such information may alter consumers' attitude towards
both the private label brands and national brands.
Consumers are active individuals who process information in their
decision-making process. Unfortunately, often times, consumers are
faced with information asymmetry while the very basic ingredient for
consumer decision making is information. Information asymmetry oc-
curs when “different people know different things”, which suggests that
the distribution of information is asymmetrical to the public (Stiglitz,
2002). A type of information that highlights the importance of asym-
metry is information about quality. Asymmetrical information becomes
critical when consumers are not aware of the characteristics of a certain
brand (e.g. private label brand). Signaling theory reduces this in-
formation asymmetry between parties (Spence, 2002). In his previous
study, Spence (1973) used labor market to model the signaling function
of education. The lack of information that potential employers have on
job candidates encourages employers to use education level as signals
of quality of the job candidates; thus reducing the information asym-
metry.
The analogy can be made in the context of contract manufacturing
by national brands manufacturers to produce private label brands. The
exposure of information on such manufacturing practice to the public
will allow consumers to use it as a signal to determine the private label
brand's quality. Thus, when consumers find out that a private label
brand (perceived to be cheap and of low quality) is made by manu-
facturers of a national brand (perceived to be of better quality and
higher price), drawing upon signaling theory, they may infer that the
private label brand is not that different from the national brand in terms
of quality or product performance as they both share the same manu-
facturing facility in the production process.
The signaling theory has been used extensively in marketing and
consumer research (Kirmani and Rao, 2000). Consumers used certain
indicators to evaluate unobserved quality of a product or service. Ser-
ving as signals to consumers, these indicators range from brand names
to advertising expenditures. Brand names can be used to communicate
unobserved quality because sellers of branded products are assumed to
have invested heavily on advertising, packaging, and product design to
build brand equity (Erdem and Swait, 1998). Some correlational studies
also confirm that product quality is affected by brand names (Erdem
and Swait, 1998), providing general support for signaling predictions in
the case of low-priced consumer goods (Rotfeld and Rotzoll, 1976).
Therefore, we propose the following hypotheses:
H1. Contract manufacturing information exposure has significant effect
on consumers' perceived quality toward the private label brand; in that
when consumers know that a private label brand is manufactured by a
national brand manufacturer, their perception of the private label's
quality would be higher than when they do not know.
H2. Contract manufacturing information exposure has significant effect
on consumers' perceived risk toward the private label brand; in that
consumers' perceived risk toward private label brand is lower when the
consumers know that a private label brand is manufactured by a
national brand manufacturer than when the consumers do not know.
It seems to be a common sense that when a consumer perceives a
brand to be risky, their likelihood to purchase the brand would de-
crease. Most previous studies supported the notion and concluded that
perceived risk had a negative effect on attitude, that is, the higher the
perceived risk of private label brands, the lower the attitude toward the
private label brands. The greater the perceived risk associated with
private label brands, the lower the consumer likelihood to buy the
private label brands (Erdem et al., 2004; Richardson et al., 1996).
Consumers will not prefer private label brands if the level of perceived
risk toward private label brands is high, and thus, they will turn to
national brands as less risky choice (Narasimhan and Wilcox, 1998).
National brands are perceived as less risky because as a result of large
advertising campaigns, national brands have developed strong brand
F. Rahman, P.K.M. Soesilo
reputation and prestige (Aaker, 1996; Kirmani and Wright, 1989).
These strong brand reputation and prestige signal a degree of security
against risks perceived by consumers (Mieres et al., 2006). It is logical
to conjure that as consumers learn that the manufacturers of a private
label brand are the same manufacturers that produce national brand,
they would perceive less risk on the private label brand and thus, would
be more likely to purchase the private label brand. Therefore, we pro-
pose the following hypothesis:
H3. Contract manufacturing information exposure has significant effect
on consumers' purchase intention toward private label brand; in that
consumers would express higher purchase intention when they know
that a private label brand is manufactured by a national brand
manufacturer than when the consumers do not know.
Using the Information Integration Theory (IIT) as theoretical foun-
dation, we also conjecture that consumers may alter their view towards
the private label's quality after learning that the manufacturers of the
private labels are the same manufacturers of leading national brands.
According to the Information Integration Theory, attitudes and per-
ceptions can be formed and changed by mixing and combining new
information with the existing thoughts, or ideas, or attitudes (Anderson,
1971, 1981). IIT states that when a new information is acquired by
consumers, the newly acquired information would influence consumers’
attitudes. However, it is important to note that according to IIT, each
relevant piece of information has two qualities: value and weight. Value
refers to evaluation of that bit of information (i.e. whether favorable or
unfavorable); while weight refers to the perceived importance of that
information to consumers as receivers of information. Therefore, when
consumers learn that manufacturer of a private label brand is also the
manufacturer of national brand (favorable value) and that information
is perceived important to consumers (weight), then this information
inclines consumers to form a more favorable attitude or perception
toward the private label brand, if previously they have an unfavorable
or perception. On contrary, when consumers miss this important in-
formation, their attitude or perception may remain the same and do not
go through any changes. Thus, when consumers are exposed to in-
formation about contract manufacturing practice by national brands for
private label brands, consumers perceived quality toward the private
labels will improve after they integrate this information into their ex-
isting thoughts. Similarly, when consumers are not exposed to this in-
formation, their existing perception of private label brand's quality will
not improve. This theory leads us to propose the following hypotheses:
H4a. For consumers who are exposed to information about contract
manufacturing done by a national brand manufacturer for a private
label, consumers' perception toward the private label's quality will be
significantly higher after acquiring this information than before getting
this information. Conversely,
H4b. For consumers who are not exposed to information about contract
manufacturing done by a national brand manufacturer for a private
label, consumers' perception toward the private label will not change.
3. Studies and methods
3.1. Study 1
Study 1 was conducted to examine whether being exposed to con-
tract manufacturing information would make consumers to have dif-
ferent evaluation toward the private label brand. Study 1 tested the
effect of contract manufacturing information exposure on consumers'
perceived quality of, perceived risk of, and purchase intention toward
the private label.
3.1.1. Design and participants
We employed a scenario-based experimental research design in

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study 1. A single-factor (Information Exposure: Yes vs. No), between-
subjects design was used to test our hypotheses. One hundred ten
participants (55% male; 45% female) participated in our study. The
experiment was conducted online, using Qualtrics as the survey data
collection tool.
Using Amazon Mechanical Turk (AMT), participants were drawn
from all states in the U.S. and were paid through online transfer right
after they completed the survey. Minimum sample size was determined
using statistical rules of thumb that stated that if ANOVA was used as
statistical analysis, a minimum of 30 participants per cell (i.e. per
group) should lead to about 80% power (Cohen, 1988). This research
allows 55 participants per cell – totaling to 110 participants for both the
experimental and control group.
3.1.2. Procedure
We conducted the experiment online using Amazon Mechanical
Turk to recruit participants. In total, 110 participants were randomly
assigned to one of the two conditions: information exposure (experi-
mental) group and no information exposure (control) group. First,
participants were presented an image of a shampoo with design that
resembles Head and Shoulders, but the actual brand printed on was
Walmart. Along with the image, a description about Walmart launching
a new shampoo (as depicted by the image) and the product's ingredients
was also presented. Participants in both group saw the same exact
image and description. They were told to visually examine the product
and provide their responses to questions on perceived quality. Measures
of perceived quality was adapted from Jo (2007), in which perceived
quality was measured by a set of 5-items questions that ask participants
to evaluate perceived quality appearance, perceived reliability ap-
pearance, perceived proper functionality, and quality features, using 7-
points semantic differential scale (with 1 represents an unfavorable
evaluation and 7 represents a favorable evaluation).
After measuring perceived quality (pre-measure), for participants in
the experimental group, they were then presented a short article that
reports contract manufacturing practices by national brand manu-
facturers. Participants were told that the article was taken from a ma-
gazine and they were asked to read it carefully to check for any
grammar and punctuations errors. The article describes the nature of
contract manufacturing, that is, a practice in which manufacturers of
national brands also manufacture products which would be labelled
exclusively for contracting stores. This information should imply a
thought to participants that the makers of national brands and private
label brands are actually the same producer. Participants in the control
group were presented an article that covers an unrelated topic to con-
tract manufacturing – that is, trending hairstyle, instead. They were
also asked to read the article carefully to look for errors.
After being exposed to these two different articles, both groups were
presented a visual image of the previously depicted shampoo and were
asked to re-examine the image again. Afterwards, they were then asked
to evaluate the perceived quality (post-measure) of the shampoo using
the same measure, except that the scale being used was slightly dif-
ferent. Thus, instead of using a 7-point semantic differential scale as in
the pre-measure, the post-measure used 7-points Likert scale (1 =
strongly disagree; 7 = strongly agree). Items, however, were essentially
measuring the same dimensions (i.e. perceived quality appearance,
perceived reliability appearance, perceived proper functionality, and
quality features).
Following post-measure of perceived quality, participants were
prompted to rate their perceived risk toward using the shampoo.
Perceived risk was measured by 7-points Likert scale of 5-items.
Measure of perceived risk was adapted from Cox and Cox (2001) and
Cox et al. (2006). Purchase intention was measured shortly after per-
ceived risk measure, using 2-items of 7-points semantic differential
scale (1 = “I definitely would not use (buy) the product”; 7 = “I de-
finitely would use (buy) the product”). Finally, after some demographic
questions, participants were debriefed, thanked, and paid for their
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participation.

3.1.3. Results
To test our hypotheses, we ran two different statistical analyses. A
multiple, one-way ANOVA was used to test H1, H2, and H3; while
Paired-Samples t-Test was used to test both H4a and H4b.
Support was found for H1 as the ANOVA results showed significant
effect of information of contract manufacturing practice on consumers
perceived quality toward the private label brand (F(1109) = 13.32,
p < .01). Consumers express higher perceived quality evaluation to-
ward the private label brand when they are aware that the private label
is manufactured by national brand manufacturer (Minfo_exposure = 5.18;
SD = .89) than when they are not aware of it (Mno info exposure = 4.51; Fig. 2. Consumers' perceived risk toward private label brands.

SD = 1.01).
The ANOVA results also showed that information exposure of con-
tract manufacturing practice has significant effect on consumers’ per-
ceived risk toward private label brands (F(1109) = 10.05, p < .01).
This means that consumers perceived higher risk toward private label
brand (Mno info exposure = 3.55; SD = 1.107) when they are not exposed
to information of contract manufacturing by national brand manu-
facturer, than when they are exposed to the information (Minfo_exposure
= 2.85; SD = 1.21). Therefore, H2 is supported.
Information exposure of contract manufacturing practice also has a
significant effect on consumers’ purchase intention toward the private
label brand (F(1109) = 11.12, p < .01). This finding demonstrates that
consumers would be more likely to purchase the private label brand
when they know that the private label brand is manufactured by na-
tional brand manufacturer (Minfo_exposure = 4.93; SD = 1.42), than Fig. 3. Consumers' purchase intention toward private label brand.

when they are not aware that the private label is manufactured by
national brand manufacturer (Mno info exposure = 4.00; SD = 1.45).
Thus, there is a support for H3. Results are depicted in Figs. 1–3.
To test H4a and H4b, we ran a Paired-Samples T-test. To test H4a,
we only selected cases of participants who were exposed to information
about contract manufacturing. The T-test revealed that there is a sig-
nificant difference between consumers' perceived quality before and
after information exposure (t(53) = 2.893, p < .01), in which con-
sumers expressed higher evaluation of perceived quality toward the
private label brand after information exposure (Mpost = 5.2, SD = .89)
than before information exposure (Mpre = 4.9; SD = 1.1). The increase
in perceived quality indicates that consumers change their perception
toward the private label's quality after getting a new information about
it. Therefore, H4a is supported.
To test H4b, we only selected cases in which participants were not
exposed to the information. The Paired-Samples T-test revealed that
there is no significant difference between consumers’ perceived quality
before and after information exposure (t(55) = 1.475, p = .146), in
which the evaluation of perceived quality toward the private label
brand remains the same. Therefore, H4b is supported.
Fig. 1. Consumers' perceived quality toward private label brand.
3.2. Study 2
Study 2 aims to corroborate the result of study 1 by examining
whether type of product moderates the effect of contract manufacturing
information exposure on consumer responses. Typically, product type
can be categorized along two key characteristics: (1) utilitarian vs.
hedonic, and (2) high-risk vs. low-risk (Kushwaha and Shankar, 2013).
In this paper, we chose to use high- vs. low-risk product as product
categorization.
Our definition of high-risk (vs. low-risk) product follows Kushwaha
and Shankar (2013) by referring to the perceived risk of a product, that
is “customers' (overall) perceptions of uncertainty and adverse con-
sequences of buying a good (or service)” (Dowling and Staelin, 1994;
Bart et al., 2005). Perceived risk of a product can be measured along
five dimensions: functional, financial, safety, psychological, and social
(Jacoby and Kaplan, 1972). While computers, cars, and other high-
priced items are usually considered high-risk, personal care products
(such as shampoo, moisturizer, medicines, etc.) can be categorized as
high-risk products as their use may yield uncertainty on the safety of
the product to the users. This is in line with recent FDA disclosure in
response to to Senator Dianne Fenstein's (D-California) questions in
2016, in which the agency made it clear it lacks the necessary authority
to ensure the safety of personal care products (https://private.label.
brand.feinstein.senate.gov). Therefore, it is not an overstatement to say
that personal care products are considered high risk following the FDA
disclosure.
In study 1, we used shampoo as the stimuli to test the effect of
contract manufacturing information exposure on consumer responses.
The decision of using shampoo as stimuli is simply because shampoo
was rated as the most frequently used product in personal care ac-
cording to our pre-test study. In study 2, we treated shampoo as high-
risk products, while paper towel was treated as low-risk products, fol-
lowing our stimuli development test. We would like to see if the effect
only works on high-risk product as we suspect. This is because high-risk
products are often associated with higher level of involvement or


F. Rahman, P.K.M. Soesilo
importance to consumers (Dillard and Johnson, 2015). Thus, any de-
cisions made to this type of product might significantly affect con-
sumers' reactions. We included low-risk product category as control
group as we expect to see no effect on this group.
Therefore, we propose the following hypotheses:
H5a. Type of product moderates the effect of information exposure on
perceived quality in which, in the case of high risk products, consumers'
perception toward the quality of private label brand is significantly
higher when they are exposed to contract manufacturing information
than when they are not; no significant difference is found in the case of
low risk products
H5b. Type of product moderates the effect of information exposure on
perceived risk, in which, in the case of high risk products, consumers'
perceived risk toward the private label brand is significantly lower
when they are exposed to contract manufacturing information than
when they are not; no significant difference is found in the case of low
risk products
H5c. Type of product moderates the effect of information exposure on
purchase intention, in which, in the case of high risk products,
consumers' purchase intention toward the private label brand is
significantly higher when they are exposed to contract manufacturing
information than when they are not; no significant difference is found
in the case of low risk products
3.2.1. Design and participants
To accomplish this objective, we treated product type as a moder-
ating variable and designed a 2 (Product type: high risk (e.g. hair care)
vs. low risk (e.g. paper towel)) × 2 (Information exposure: yes vs. no),
full-factorial, between-subjects design. Similar to study 1, we ran it
online using Amazon Mechanical Turk, drawing samples from U.S.
consumers. A total of 120 respondents (42% male vs. 58% female) were
randomly assigned to any of the four conditions using Qualtrics’ ran-
domization feature.
3.2.2. Procedure
The main procedure is completely similar to study 1 except that we
ran a pretest for this study to determine the matching stimuli to re-
present high- vs. low-risk products. We ran a pretest by providing a list
of different products (e.g. shampoo, soap, paper towel, plastic con-
tainer). Later, we asked respondents to rate how risky the products
were on a 6-points scale (1 = not risky; 6 = very risky). We found that
paper towel was rated as the least risky product while shampoo was
considered the most risky one among all four products (M paper towel =
1.7 vs. M shampoo = 5.3, p < .001). Based on this pretest findings, we
used paper towel as the stimuli for low-risk product condition.
Procedures in this study were pretty much similar to study 1. While
in the high-risk product condition participants were exposed to
shampoo, in the low-risk product condition, participants were exposed
to paper towel. In the low-risk product condition, we showed subjects
an image of paper towel with design that resembles Bounty, but the
actual brand printed on was Walmart's private label brand: Great Value.
A short passage was also presented along with the image, describing
Walmart's recent move to launch a new paper towel (as depicted by the
image). The description also specified the product features such as
absorbent capacity, perforated paper towel to customize the size, etc.
Participants in both groups saw the same exact image and description.
They were told to visually examine the product and provide their re-
sponses to questions of perceived quality. The following steps were si-
milar to study 1, in which participants were exposed to either in-
formation about contract manufacturing by Procter & Gamble (P&G) in
several different product categories including household products, such
as paper towel (information exposure condition), or information about
the trending hairstyle (no information exposure condition). Later,
participants were presented an image of Walmart's Great Value paper

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towel again and then provide their evaluation on the dependent mea-
sures with the same scales used in study 1. Participant were later
thanked and debriefed.
3.2.3. Results
The dependent measures of perceived quality, perceived risk, and
purchase intention toward private label brand were submitted to a 2
(Information exposure: yes vs. no) × 2 (product type: high risk vs. low
risk) analysis of variance (ANOVA).
The two-way ANOVA results revealed that product type had a
moderation effect on the relationship between information exposure
and perceived quality of private label brand as confirmed by the in-
teraction effect (F(1116) = 5.228; p < .05). The findings showed that,
in the context of high-risk products, consumers who are exposed to
information of contract manufacturing demonstrate significantly higher
evaluation toward the quality of private label brand than consumers
who are not exposed (M info = 3.98 vs M no info = 3.15; F(1116) =
7.344, p < .01). As expected, in the case of low-risk products, no sig-
nificant difference is found between consumers who were exposed to
and who were not exposed to information on contract manufacturing
(M info = 3.13 vs. M no info = 2.97; F(1116) = .294, p = .589).
ANOVA results also revealed a moderation effect in the relationship
between information exposure and perceived risk of private label brand
as demonstrated by significant interaction effect (F(1116) = 4.146;
p < .05). Findings revealed that, in the case of high-risk product, con-
sumers who are exposed to the information evaluate perceived risk
toward private label brand as significantly lower than consumers who
are not exposed to the information (M info = 3.1 vs. M no info = 3.9; F
(1116) = 6.208, p < .05). Again, no significant difference is confirmed
in the case of low-risk products (M info = 3.187 vs. M no info = 3.06; F
(1116) = .151, p = .699).
Finally, type of product is found to moderate the relationship be-
tween information exposure and purchase intention toward private
label brand (F(1116) = 9.448; p < .01). Consumers who are exposed to
information of contract manufacturing seem to demonstrate higher
purchase intention than consumers who are not exposed to the in-
formation in the case of high-risk products (M info = 3.95 vs. 3.07; F
(1116) = 17.547, p < .01); no significant difference is found in low-
risk products context (M info = 2.933 vs. M no info = 2.967; F(1116)
= .025, p = .875). Therefore, overall we found support for H5a, H5b,
and H5c. Results are depicted in Figs. 4–6.
3.3. Study 3
Study 3 aims to examine if contract manufacturing practices would
have an impact as well on the national brand side. The first two studies
confirmed that contract manufacturing practices have positive impact
on the private label brand, in that consumers tend to perceive lower risk
and higher quality perception when they learn that the makers of the
private label brands are also the makers of national brands.
Fig. 4. Effect on perceived quality toward private label brand.
F. Rahman, P.K.M. Soesilo
Fig. 5. Effect on perceived risk toward private label brand.
Fig. 6. Effect on purchase intention toward private label brand.
As shortly described in the introduction section of this paper, con-
tract manufacturing practices have been kept in the shadow for the risk
of jeopardizing the national brands' image. Despite the motivation of
national brand manufacturers to nurture better relationship with re-
tailers in their willingness to produce private label products, the
variability of willingness is quite substantial. For example, Dole and
Kraft are two national brands that are keen to pursue this venue; while
Coca Cola and Heineken clearly stated their intention to stay away from
private label production (Braak et al., 2013). A concern of staking their
brand image emerges as one of the reasons not to take part of this
practice (De Jong and Lusted, 2007). This signals that contract manu-
facturing by national brand manufacturers may have an adverse impact
on consumers’ attitude toward the national brand itself.
Consumers can develop strong emotional attachment to brands.
Attachment theory states that the degree of emotional attachment one
has to an object determines the nature of his or her interaction with the
object (Bowlby, 1979). In interpersonal relationship, an individual who
has strong attachment to another individual or object will be more
likely to be committed, invest in, and make sacrifice for the other in-
dividual or object (Bowlby, 1980; Hazan and Shaver, 1994). An analogy
can be made for consumers' relationship with brands, in which con-
sumers' emotional attachments to a brand can predict their brand loy-
alty and their willingness to pay a price premium (Thomson et al.,
2005).
Consumers tend to have more emotional attachment towards na-
tional brands and along with satisfaction; they contribute to the habit of
purchasing a particular national brand (Lim and Razzaque, 1997).
Consumers also develop trust in the national brand simply because of
the brands' proven product quality as consumers place higher evalua-
tion towards the product quality of national brands than private label
brands (Nenycz-Thiel and Romaniuk, 2009). Not only that, consumers
become loyal toward a particular national brand because they perceive
some unique value in the brand, which may be derived from either
greater trust in the brand or from a more favorable experience in

-RXUQDORI5HWDLOLQJDQG&RQVXPHU6HUYLFHV²
consuming the brand (Chaudhuri and Holbrook, 2001). Thus, when
consumers find out the secret that their favorite national brand has
been producing similar (if not exactly the same) quality products for
their substitutes, they may perceive that their favorite national brand
does not have the 'uniqueness' and 'exclusivity' once it used to have. As
consequences, consumers may build a different attitude and lose at-
tachment to the national brands.
However, type of product may play a role in that it moderates the
impact in a way that the effect is significant in the case of high-risk
products, but not in low-risk products. Again, this is because high-risk
products tend to be associated with higher level of involvement or
importance to consumers.
Thus, we propose the following hypothesis:
H6a. In the case of high-risk product, consumers’ attitude toward
national brand is significantly less favorable when consumers are
exposed to contract manufacturing information than when they are
not; however, no difference is expected to be found when the product is
a low-risk product.
H6b. In the case of high-risk product, consumers demonstrate
significantly higher likelihood to switch to private label brands when
they are exposed to contract manufacturing information then when
they are not, no difference is expected to be found in the case low-risk
products.
3.3.1. Design and participants
We recruited participants from the Amazon Mechanical Turk and
employed a 2 (information exposure: yes vs. no) X 2 (product type: high
risk (shampoo) vs. low risk (paper towel)), full factorial design. One
hundred and twenty eight respondents (49% female; 51% male), based
in the U.S., were recruited with an exchange of financial reward.
3.3.2. Procedure
In study 3, participants were randomly assigned to any of the four
conditions. First, participants were randomly assigned to either a high-
risk product condition or low-risk product condition. In both condi-
tions, participants were either exposed to a passage about contract
manufacturing (information exposure condition) or a passage about a
business history, trend, and competition (no information exposure
condition). In the information exposure condition, a passage that re-
sembles a newspaper article reporting a common practice by national
brand manufacturers, such as Procter and Gamble, known to produce
Bounty paper towel (low-risk product) or Head and Shoulder shampoo
(high-risk product), to utilize its excess capacity to manufacture paper
towels (low-risk product) or shampoo (high-risk product) to be sold
under private labels (such as WalMart's Great Value brand) – a practice
commonly called, contract manufacturing. In the no information ex-
posure condition, instead of reading a passage about contract manu-
facturing, participants were exposed to a passage that described Procter
and Gamble's company history, businesses, and competition. The pas-
sage also presented a short paragraph describing competitive moves by
many private label brands recently; no single information about con-
tract manufacturing practice was presented, however.
Afterwards, participants were asked to provide their ratings on
perceived attitude toward the national brand (based on trustworthi-
ness) and intention to switch to private label brand. Attitude toward
national brand (trustworthiness) was measured by 7-items questions
that were adapted from Erdem and Swait (2004) and Erdem et al.,
(2004), using a 7-point Likert scale. An example of question item is
“This brand delivers what it promises”; “This brand has a name you can
trust”, etc. (1 = strongly disagree; 7 = strongly agree). Intention to
switch was adapted from Bansal et al. (2005), using a 3-items, 7-points
semantic differential, with question such as “Please rate the probability
that you would switch from this national brand to a private label brand
in the next 2 months” (1 = unlikely, 7 = likely; 1 = improbable, 7 =
F. Rahman, P.K.M. Soesilo
probable; 1 = no chance, 7 = certain). After completing the dependent
measures, participants completed the demographic section of the
questionnaire, were thanked and debriefed.
3.3.3. Result
The dependent measures of attitude toward the national brand and
intention to switch to private label brand were submitted to a 2
(Information exposure: yes vs. no) × 2 (product type: high risk vs. low
risk) analysis of variance (ANOVA). The two-way ANOVA results re-
vealed that product type had a significant moderation effect on the
relationship between information exposure and attitude toward na-
tional brand (F(1124) = 7.282, p < .01). Findings revealed that in the
case of high-risk products, consumers who were exposed to information
on contract manufacturing by national brand manufacturers demon-
strated significantly less favorable attitude toward the national brand
than those who were not exposed to the information (M info exposure
= 4.013 vs. M no info exposure = 4.938; F(1124) = 16.582, p < .01).
As expected, no significant difference was found in the case of low-risk
product (M info exposure = 4.103 vs M no info exposure = 4.161; F
(1124) = .065, p = .799). Therefore, we found support for H6a.
On likelihood to switch to private label brand, however, we did not
find support for H6b, despite the significant moderating effect of type of
product. The two-way ANOVA results showed that product type sig-
nificantly moderated the relationship between information exposure
and likelihood to switch to private label brand (F(1124) = 6.636,
p < .05). Findings showed that, in the case of low risk products, con-
sumers who were exposed to information on contract manufacturing by
national brands manufacturers expressed significantly higher likelihood
to switch to private label brand than those who were not exposed to the
information (M info exposure = 4.656 vs. M no info exposure = 4.031;
F(1124) = 7.106, p < .01). There was no significant difference be-
tween those who were exposed and not exposed to the information in
the case of high-risk product (M info exposure = 4.021 vs. M no info
exposure = 4.250; F(1124) = .955, p = .330), which was on the
contrary to our prediction. Results are depicted in Figs. 7 and 8.
4. Discussions and implications
The objective of our studies is to see whether information exposure
of contract manufacturing practices by national brand manufacturers
for private label brands affects consumers' responses toward the private
label and the national brand. Through a series of three studies we de-
monstrated that both private label and national brand received changes
of consumers' evaluation and behavioral intention.
In study 1, we examined how consumers would perceive quality and
risk of a private label brand after learning that a national brand man-
ufacturer might also be the manufacturer for private label brands. We
found that consumers expressed more favorable evaluation toward the
quality of a private label brand after they knew who the manufacturer
of the private label was. As revealed by the results, the exposure of
Fig. 7. Effect on attitude toward national brand.

-RXUQDORI5HWDLOLQJDQG&RQVXPHU6HUYLFHV²
Fig. 8. Effect on likelihood to switch to private label brand.
information about contract manufacturing practices by national brand
manufacturers has a significant effect on the way consumers perceive
risk associated with the private label. Consumers were found to per-
ceive lower risk attached to the private label when they are exposed to
information about contract manufacturing. Clearly, newly acquired
knowledge that the manufacturer of a private label may also be the
manufacturer of a leading national brand puts consumers' mind at ease
as superiority of the national brand is perceived to be transferred to the
private label brand. Consequently, consumers perceive less risk in
choosing the private label. Consumers also demonstrate higher like-
lihood to purchase a private label when they learn that the maker of
their chosen private label may actually be the same producer of some
leading national brands. All three constructs: perceived quality, per-
ceived risk, and purchase intention, are coherent. Using signaling
theory as our base for argument, we successfully showed that, in-
formation about contract manufacturing by a national brand manu-
facturer, in fact, sent signals to consumers that the quality of the pro-
duced private label is (almost) similar to the national brand's quality;
thus, lowering perceived risk attached to the private label; thus in-
creasing perceived quality of and purchase intention toward the private
label brand.
In study 2, we introduced type of product as a moderating variable.
We successfully showed that type of product significantly moderated
the impact of information exposure on perceived quality, perceived
risk, and purchase intention towards the private label brand. Learning a
new information that the manufacturer of a private label is the same
manufacturer of a national brand improves consumers’ evaluation to-
ward the product quality of, perceived risk of and purchase intention
towards the private label, but only in the case of high-risk products.
High-risk products are products bearing risks to consumers, on aspects
such as functional, financial, safety, psychological, and social. High-risk
products are also associated with higher level of involvement, which
can be translated as higher importance to consumers. Therefore, when
consumers are encountered with private label brand of high risk pro-
ducts, they want to seek more assurance of quality of the private label
brand. Knowing that there is a chance the manufacturer might be the
same manufacturer who makes products for a national brand would
build more confidence in consumers to purchase the private label
brand. Thus, in the case of high risk products, consumers are more
likely to demonstrate higher perceived quality and purchase intention
towards the private label brand after knowing this information. The
result is, however, different in the case of low risk products.
Information about contract manufacturing does not seem to affect
consumers for low risk products. Purchase intention toward private
label brand of low risk products does not change, even after consumers
find out that the manufacturer of both national and private label brand
is actually the same manufacturer. Their intention to purchase private
label brand of low risk products remains the same whether or not they
know who the manufacturers are. This might be due to the fact that low
risk products are products to which consumers have low involvement
F. Rahman, P.K.M. Soesilo
with, which can mean two things: (1) consumers attribute less im-
portance to the products, and (2) consumers do not see major sacrifice
in terms of price. In low-involvement situation, consumers operate a
habitual buying when they perceive that a product is not as important
and is priced low enough to them. When they purchase by habit (which
sometimes can be misunderstood as expression of loyalty), information
such as contract manufacturing by national brand manufacturers does
not bring any effect on their evaluation toward the private label.
In study 3, we examined the effect of the contract manufacturing
information on the national brand; thus shifting the perspective from
consumers' evaluation towards private label to evaluation towards the
national brand. We found that the effect of contract manufacturing
information on consumers’ responses were moderated by the type of
product involved. When consumers are exposed to contract manu-
facturing information, their attitude toward the national brand was less
favorable than when they were not exposed to, particularly for high risk
product, such as shampoo. As consumers see high risk product as
bringing more importance to the consumers, they may put more emo-
tional attachment and trust to the national brand than to the private
labels. This means that, consumers may be felt more betrayed when
they found out that the national brand actually manufactures the same
product for private labels. Therefore, knowing this information, their
evaluation towards the national brand is consequently affected, which
results in less favorable attitude. On the contrary, we found that atti-
tude toward the national brand for low risk product such as paper towel
remained the same. Again, this can be due to the less significance of
product importance attributed by the consumers to the low-risk pro-
duct; thus, they have indifferent emotional attachment to the product.
On the ground of likelihood, we found contradictory results. At first,
we hypothesized that, as consumers placed less favorable attitude to-
wards the national brand of high risk products, they would be more
likely to switch to private label, after assuming that the quality of the
private label might be similar to the national brand. Findings showed
different results, however, in that, consumers did not express higher
intention to switch from national brand to the private label brand for
high risk products after learning about contract manufacturing in-
formation. Whether or not they are exposed to contract manufacturing
by the national brand manufacturer, they both indicate indifference
(mean score at middle point) in likelihood to switch from the national
brand to the private label brand. On the contrary, for low risk products
such as paper towel, consumers expressed significantly higher intention
to switch to private label brand. Despite the indifference point in the
high-risk product's case, this is certainly an evidence that national
brands of high risk products still enjoy the privilege of having stronger
position in the mind of consumers, regardless the fact that consumers
may have felt betrayed by the national brands’ contract manufacturing
action. As indicated by the results, consumers seem to be unsure whe-
ther to switch of not, as might be the case in the low risk products
otherwise. This might be an indication that consumers perceive the
action to switch to private label brand for high risk products is still
risky.
In this discussion, it is important to highlight the difference between
constructs used in study 2 and study 3. In study 2, we measured pur-
chase intention toward private label brand, whereas in study 3, we
measured likelihood to switch from national brand to private label
brand. The former assumes that consumers are presented facts about
contract manufacturing practice in their evaluation toward a private
label brand, in the absence of national brand alternatives. The latter
assumes that, consumers make evaluation in the presence of national
brand alternatives as reference or as brands that they have been using.
In the case of high risk products, consumers seem to be unsure whether
they should switch or not, indicating that they still consider national
brand as safer bet than private label brand. Therefore, even if they feel
betrayed to some extent, they are still unsure whether the decision to
switch would be a good decision. In the case of low risk products,
however, the significant increase in likelihood to switch from a national

-RXUQDORI5HWDLOLQJDQG&RQVXPHU6HUYLFHV²
brand to a private label brand might be driven by the motivation to
retaliate as consumers feel betrayed by the national brand's decision to
contract manufacturing. The retaliation to switch to private a label
brand only goes as long as the risk attributed to the product is perceived
low and less involving.
The implications of these findings can be discussed further from the
perspective of high-risk vs. low-risk product category. In high-risk
product category, as findings show that consumers are likely to de-
monstrate higher intention to purchase private label brand, the contract
manufacturing practices somewhat pose a threat to the national brand.
Initially, the main motivation for national brand manufacturers to
provide contract manufacturing for private label brands is to utilize
excess production capacity that can cover incurring costs due to the
unutilized resources. Therefore, to the national brand, contract manu-
facturing seems to present two sides of a coin, in that while they receive
benefits from utilization of excess capacity to produce products for
private label brands, at the same time, they also create potential threats
to their own original brand. However, for consumers who have been
using national brands in their consumption of high risk products, de-
spite the resulting less favorable attitude toward the national brand
after knowing the brand is also making the private label version, con-
sumers are still unsure whether they are ready to assume risk by
switching to the private label brand. Thus, in this particular situation,
national brands in the high risk product category are still enjoying the
superior position over the private label brands. For the national brands,
strengthening brand equity then becomes critical to keep their existing
customers. For the private label brands, contract manufacturing by
national brands provides more of opportunities in attracting non-users
of a certain national brand, in that purchase intention toward private
label brands increased, as result of higher perceived quality and lower
perceived risk. Private label brands, thus, need to highlight this fact in
order to build their customer base.
From the perspective of low risk product category, contract manu-
facturing poses more of a threat to the national brands, as consumers of
national brands are more willing to retaliate by switching to the private
label brands; making private label brands enjoy the benefit of contract
manufacturing, once again. All in all, private label brands are benefited
by contract manufacturing in both product categories.
In general, we suggest that both national and private label brands
should build strong reputation. Strong reputation is needed to achieve
positive brand equity as it commands long term success of a business.
While some would argue that the future, long term success of a business
is determined by the power of its distribution channel, this finding
actually proves that brand equity still commands. Our findings prove
that the superiority of national brands is viewed as permeating to their
manufacturing capability. Consumers perceive that manufacturers of
the national brands must have unchallenged capability in producing
high quality products. Therefore, knowing that these manufacturers
also manufacture private label brands’ products, consumers gain more
confidence in choosing private labels as indicated by less perceived risk,
higher perceived quality, and higher purchase intention toward the
contract-manufactured private labels.
While some consumers still view private labels as inferior to na-
tional brands, this should not discourage private labels to establish their
brand equity. Evidence suggests that the inferior view toward private
label brands can change after knowing that the makers of the private
label brands might be the same manufacturers for some leading na-
tional brands. Private labels can also change their fate through con-
tinuous effort in building strong brand image and reputation as well.
Some private label brands have actually enjoyed good reputation.
Whole Foods’ 365 and Trader Joe's store brand are two good examples
of successful private labels. While one can argue that the nature of their
retailing concept, which is unique and different from the majority re-
tailers, might drive the success behind these private labels, they have
proven to succeed in establishing strong brand reputation. These pri-
vate label brands have a very strong customer base as indicated by their
F. Rahman, P.K.M. Soesilo
loyalty and preference for the brands.
As for the national brands, to mitigate the threat of customers'
switching intention to private label brand, national brand owners must
launch campaigns that emphasize better technology applied in produ-
cing their own brands. It is important for national brands to maintain
distinctive features of their products from the unbranded products the
produce for some private label brands. However, the decision to pro-
duce for private label brands must also be evaluated from the per-
spective of cost advantages as well. When a national brand manu-
facturer does not enjoy cost advantage from contract manufacturing,
cannibalization effect from private label brands would occur; thus,
contract manufacturing should be avoided (Tarzijan, 2007). However,
when cost advantages are enjoyed by national brand manufacturers, the
decision to make products for private label brands should be pursued
with enthusiasm. The reason is that the national brand owners are fa-
cing competition not only from the private label brands, but also from
other national brands. Thus, to preempt the competitive pressure from
other national brands, it would be more convenient for the national
brand manufacturers to produce leading private label brands. More-
over, as the retail market concentration in some countries has
strengthened retailers’ bargaining position against national brands,
production of private label brands by national brands is a good way to
increase efficiencies, especially when economies of scale from produ-
cing both goods can be achieved.
5. Limitations and future research
This research has some limitations. First, data was only collected
from the United States. More diverse data source should be utilized in
next research to confirm whether the findings are generalizable. Nielsen
reported that private labels struggle to gain consumer trust in Asia and
the Middle East, where consumers are fiercely brand loyal (Nielsen
Report, November, 2014). Therefore, potential future research is
available to see if the effect would be way much stronger in Asia and
Middle East market, since consumers put their trust more on national
brands.
Second, this research was conducted using a scenario-based ex-
periment. While scenario-based experiment is sufficient to yield effects,
participants of scenario-based experiment provide responses through
self-reported measures. Self-reported measures have been criticized for
potential demand characteristics, that is, an experimental artifact
where participants interpret the purpose of the experiment and thus
modify their responses according to their interpretation. This limitation
provides potential future research by conducting a field or quasi ex-
perimental research that uses behavioral measures, such as participants’
real purchase behavior (as a substitute to purchase intention). While
this may be costlier, external validity may be achieved. Thus our cur-
rent research can set as an embarking point that has confirmed an in-
ternal validity, to continue with field experiment to confirm external
validity.
Third, we only used one type of contract manufacturing, that is,
contract manufacturing in which manufacturers of national brand uti-
lize their excess capacity to manufacture the same product to be sold
and distributed exclusively by retailers, under the retailer's store brand.
Different types of contract manufacturing are available to be tested in
future research. Lastly, our research uses shampoo product as research
object. While our pilot study showed that shampoo was considered as
risky product, some other product categories, such as OTC drugs may be
perceived as riskier than shampoo. An interesting future research is
available in the context of OTC drugs (or other product category) since
it shares higher perceived risk.
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