For many food marketers, the rise of private labels and ore brands has been a bane. It’s hard enough to get people to buy your product but it’s even harder when there’s a generic equivalent that’s cheaper and, arguably, of the same quality. Whether it’s saltines, soup, or soda, a good portion of the consuming public doesn’t care who makes it, as long as it’s cheap and it tastes all right. And as private labels have succeeded in some product areas, they have infiltrated others. Where will it end? In each case, it depends on how well marketers can convince consumers that their trusted, tested brand is superior to some no-name equivalent.

After conducting research to investigate how consumers say they would behave when faced with the national brand/store brand question, Raj Sethuraman and Catherine Cole have authored a report for the Marketing Science Institute, a Cambridge, Mass., organization that sponsors studies on a wide range of marketing issues. Sethuraman is assistant professor in the marketing department at the Cox School of Business, Southern Methodist University. Cole is associate professor in the marketing deparmaent at the College of Business Administration, University of Iowa.

For their report, Why Do Consumers Pay More for National Brands than for Store Brands?, Sethuraman and Cole used two consumer studies to collect data on the premiums consumers say they would pay for products in various categories.

In the first study, 203 consumers were surveyed to find out more about the relationship between perceived quality and price for national brands in 88 product categories. Using a seven-point, unbalanced scale, consumers responded to the following request: "Please indicate your opinion about the quality of private labels when compared with the quality of national brands for each product category." To gauge price differential, consumers responded to a sample scenario such as this: "In the following product categorirs, suppose the national brand price is 99 cents. At what price would you be willing to buy a private label brand instead of the national brand?" In the case of this product category, respondents could choose from prices on a scale that descended in nine-cent increments from $1.19 to 0. Other product categories used similar scales and ranges, depending on their average price.

The second study of 140 consumers identified factors other than quality that influenced the size of the price premium consumers were willing to pay, across 20 grocery products.

Sethuraman and Cole found that perceived quality is the most important variable among the ones considered, though it accounts for only about 16 percent of the variations in price premiums across consumers and product categories. The researchers found that middle-income households were willing to pay smaller price premiums than high- or low-income households. Younger consumers were willing to pay larger price premiums than older consumers. And women would pay larger price premiums than men.

Consumers seem to be most price-conscious about product categories:

  • in which the average purchase price is low;
  • which are bought more often;
  • which are staples rather than splurge items;
  • in which the price-quality relationship isn’t clear.

Enhance quality

Among its many suggestions, the report recommends thatnational brand managers work to enhance the perceived quality of their brands relative to the private label offerings and make sure consumers notice the quality by improving package design, advertising aggressively, and encouraging trial.

The influence of perceived quality depends on the product category. For commodity-type products, quality explains small amounts of the variation in price premiums. In categories where differences in perceived quality account for a large portion of the premium consumers are willing to pay for national brands, brand equity is a dominant factor. In these cases, the authors recommend brand managers increase objective quality through product improvements and then use advertising to educate consumers.

The authors caution that their findings are based on selfreported behavior, and that consumers’ intentions may not match their actual behavior. Alas, that is the subject for another study.

Why Do Consumers Pay More for National Brands than for Store Brands? (No. 97-126) is available from Marketing Science Institute.