M A R K E T I N G S C I E N C E I N S T I T U T E

Reports
Creating a Market Orientation: A Longitudinal, Multifirm,
Grounded Analysis of Cultural Transformation (06-107)
Gary F. Gebhardt, Gregory S. Carpenter, and John F. Sherry, Jr.

Private-Label Marketing Strategies in Packaged Goods:

Management Beliefs and Research Insights (06-108)
Raj Sethuraman

Win-Win Strategies at Discount Stores (06-109)

Barbara Deleersnyder, Marnik G. Dekimpe, Jan-Benedict E. M.
Steenkamp, and Oliver Koll

Product Innovations, Advertising Spending, and Stock

Returns (06-110)
Shuba Srinivasan, Koen Pauwels, Jorge Silva-Risso, and
Dominique M. Hanssens

What Drives Word-of-Mouth? The Roles of Product Originality

and Usefulness (06-111)
Sarit Moldovan, Jacob Goldenberg, and Amitava Chattopadhyay
2 0 0 6
Lifetime Value Prediction at Early Customer Relationship
W O R K I N G
P A P E R
Stages (06-112)
S E R I E S Florian v. Wangenheim

I S S U E T W O

N O. 0 6 -0 0 2
 M A R K E T I N G S C I E N C E I N S T I T U T E

Reports
Executive Director The Marketing Science Working Paper Series Classroom use
Dominique Hanssens Institute supports academic The articles that appear in Upon written request, MSI
research for the development— MSI Reports have not under- working papers may be copied
Research Director and practical translation—of gone a formal academic for one-time classroom use free
Ross Rizley leading-edge marketing review. They are released as of charge. Please contact MSI
knowledge on issues of impor- part of the MSI Working to obtain permission.
Editorial Director tance to business performance. Paper Series, and are distrib-
Susan Keane
Topics are identified by the uted for the benefit of MSI Search for publications
Board of Trustees, which re- corporate and academic See the searchable publications
presents MSI member corpo- members and the general database at www.msi.org.
Publication Design
rations and the academic public.
Laughlin/Winkler Design community. MSI supports aca- Submissions
demic studies on these issues Subscriptions MSI will consider a paper for
and disseminates findings Annual subscriptions to MSI inclusion in MSI Reports, even
through conferences and Reports can be placed online if the research was not origi-
workshops, as well as through at www.msi.org. Questions nally supported by MSI, if the
its publications series. regarding subscriptions may paper deals with a priority
be directed to pubs@msi.org. subject, represents a signifi-
Marketing Science Institute cant advance over existing
1000 Massachusetts Avenue Single reports literature, and has not been
Cambridge, MA Articles in MSI Reports are widely disseminated else-
02138-5396 available in downloadable where. Only submissions from
(PDF) format at www.msi.org. faculty members or doctoral
Phone: 617.491.2060 students working with faculty
Fax: 617.491.2065 Past reports advisors will be considered.
www.msi.org MSI working papers published “MSI Working Paper
before 2003 are available as Guidelines” and “MSI 2004-
MSI Reports (ISSN 1545- individual hard-copy reports; 2006 Research Priorities” are
5041) is published quarterly many are also available in available in the Research
by the Marketing Science downloadable (PDF) format. section of www.msi.org.
Institute. It is not to be repro- To order, go to www.msi.org.
duced or published, in any Publication announcements
form or by any means, elec- Corporate members To sign up to receive MSI’s
tronic or mechanical, without MSI member company electronic newsletter, go to
written permission. personnel receive all MSI www.msi.org.
reports (PDF and print
2 0 0 6 The views expressed here are versions) free of charge. Change of address
those of the authors. Send old and new address to
Academic members pubs@msi.org.
W O R K I N G MSI Reports © 2006 Academics may qualify for
Marketing Science Institute free access to PDF (download-
P A P E R
All rights reserved. able) versions of MSI reports
S E R I E S and for special rates on other
MSI print publications. For
more information and to
I S S U E T W O
apply, go to “Qualify for
academic membership” on
N O. 0 6 - 0 0 2 www.msi.org.
 W o r k i n g P a p e r

Private-Label Marketing Strategies

in Packaged Goods: Management
Beliefs and Research Insights
Raj Sethuraman

What’s the best way to market private labels? This review

analyzes 11 common management beliefs, and compares them to
the findings of 56 academic studies. What emerges are some
surprising contradictions to conventional wisdom.

Report Summary research negates other common beliefs about

Retailers must answer a number of questions store brand consumers, however—for example,
when considering how to market a private label. that store brand consumers are poorly educated,
Retailers’ focus on maximizing private-label have low incomes, and are not very quality
sales, combined with the traditional view of pri- sensitive.
Raj Sethuraman is vate labels as low-priced competitors to national
Associate Professor of brands, have led them to embrace certain beliefs Insights from academic research also help refine
Marketing, Marilyn and and practices for selling their private labels. some beliefs. For example, while conventional
Leo Corrigan Endowed wisdom states that retailers should introduce
Professor and Ford Academic research conducted over the last 40 store brands in commodity products with high
Research Fellow at the years has examined those traditional beliefs levels of price competition, marketing research
Cox School of Business, about private-label marketing practice. In some suggests that this decision depends on the type
Southern Methodist cases, the studies have validated them; in other of price competition. If the price competition
University. cases, the studies have refined them, called between the national brand and the store brand
them into question, or even contradicted them. is high, it is more profitable to introduce a store
In this paper, Raj Sethuraman examines 11 brand; however, if the price competition among
common management beliefs and, drawing on a national brands is high, then it may not be prof-
review of 56 academic studies, looks at the mar- itable to introduce a store brand.
keting literature’s insights into those same beliefs.
Similarly, while common belief holds that retailers
Among the common beliefs that marketing should always position their store brands close
research supports are the belief that it is good to to the national brands, academic literature spec-
introduce a private label into a high-dollar- ifies the market conditions when positioning a
volume category and the belief that store brand store brand close to the national brand is prof-
customers are price sensitive. Marketing itable, and when it may not be profitable. ■

W O R K I N G P A P E R S E R I E S 27
Introduction help of scanner data, and analytical research
which employs mathematical models to under-
Private labels, or store brands, have become a stand the competition between national brands
force to reckon with in the United States. and store brand and prescribe “optimal”
Dollar sales of private labels in grocery products marketing strategies. In some cases, these
grew at an average annual rate of over 7% from studies have validated common beliefs about
1996 to 2004, nearly twice the growth rate of private-label marketing; in other cases, they
national brands. As a result, the dollar share of have refined, questioned, or negated some of
private labels grew from about 14% in 1996 the traditional beliefs.
to about 16% in 2004. The unit volume market
share in the United States is about 20% The purpose of this research is to state the com-
(ACNielsen 2003). mon management beliefs about private-label
marketing strategies in packaged goods and
The growth of private labels has spawned a wide point out what refinements on those beliefs
range of academic and managerial literature on academic research has to offer. This discussion,
store brands. A casual online subject search re- I hope, will lead to development of better, more
veals several hundred practitioner articles, most profit-oriented private-label strategies.
of them focused on how well private labels are Through this process, I also hope to highlight
doing or what private-label marketers can do to the usefulness of academic research for
increase sales. Part of the reason for equating marketing practice, in the context of private-
sales with success may be the implicit belief that label marketing.
increasing sales of private labels automatically
leads to increased profits. For example, in an Figure 1 is a visual representation of the frame-
address to the Private Label Manufacturers work I use to present these common beliefs and
association, Hoyt and Company noted that the academic insights. First, the retailer must decide
average retailer’s margin from private labels is whether to introduce a store brand or not. In
about 34% compared to the margin of 24% that conjunction with the introduction decision, the
retailers obtain from national brands retailer also decides which consumers to target
(http:// www.hoytnet.com/presentations.htm- with the store brand. If the retailer decides to
Private Label Profitability). introduce a store brand, the next decision is how
to position the store brand for the selected
This belief in the importance of maximizing target market and what price and promotion
private-label sales, combined with the tradi- strategy to adopt.
tional view of private labels as low-priced
competitors of national brands, is the founda- Retailers will make a better decision regarding
tion for retailers’ other beliefs and consequent whether or not to introduce a store brand if they
sales practices relating to private labels—what I understand what marketplace factors are con-
call common management beliefs regarding ducive to store brand introduction. There are
private labels. several factors that may influence store brand
introduction. In this report, I discuss four cate-
On the academic research front, there has been gory characteristics that have been the focus of
a significant growth in research on private academic research.
labels, especially since the 1980s. These studies
include behavioral and survey-based research The retailer’s next step, deciding on how to pos-
focused on identifying the characteristics of the ition the store brand, depends on what types of
store brand consumers, empirical research that consumers are likely to purchase private labels.
estimates the effect of marketing actions on There are several demographic, social, and psy-
national brand and private-label sales with the chological characteristics that determine con-

M A R K E T I N G S C I E N C E I N S T I T U T E 28
Figure 1
Framework for Presenting Common Beliefs and Academic Insights
NB = national brand; SB = store brand

Category Characteristics Consumer Characteristics

Price competition Price sensitivity

Dollar revenue Quality sensitivity

SB SB SB purchase
introduction targeting propensity
dollar
Number revenue
of NB Income

SB share (potential) Education

SB positioning SB pricing SB promotions

sumers’ propensity to purchase private labels. In not advertised in public media such as local or
this paper, I discuss four consumer characteris- national television. It is therefore natural to
tics that academic research has examined. assume that private labels will do well in pro-
duct categories in which consumers purchase
In the pages that follow, I first cover academic predominantly based on (lower) price and are
insights that deal with the introduction of store not influenced by advertising. Managers and
brands and then examine insights that deal with researchers have taken this traditional wisdom
store brand targeting. Validations and refine- regarding private labels to mean that store
ments related to store brand pricing, position- brands should be sold in commodity products
ing, and promotion strategies follow, and I con- for which there is little differentiation among
clude by summarizing the academic insights and brands in a category (Stern 1966; U.S. National
suggesting some directions for future research. Food Marketing Commission 1966). These
categories are characterized by high consumer
price sensitivity. Hence, the common belief
Insights on Factors Influencing Store (CB) is that:
Brand Introduction
CB-1: It is good to introduce store brands in
For each of the 11 pairs of influencing factors commodity products characterized by high
and targets of influence discussed below, I first levels of price competition among brands.
present the common management belief and
then the insights that academic research has Insights from Academic Research. Raju,
contributed. Sethuraman, and Dhar (1995a) address this
issue and provide useful insights. They use a
1. Price competition → Store brand game-theoretic model to study optimal (prof-
introduction itable) store brand introduction. Rather than
Common Management Belief. Store brands investigate just private-label sales or profits,
generally sell on the basis of low price and are they consider changes to total category profits

W O R K I N G P A P E R S E R I E S 29
for the retailer (profits from both national cross-price sensitivity among national brands is
brand and store brand) as a result of store brand not high.
introduction.
2. Category size → Store brand introduction
Raju, Sethuraman, and Dhar (1995a) find that Common Management Belief. While the gross
higher cross-price sensitivity (a measure of price margin on sales in grocery products is about
competition) between national brands and the 25%, the net margin (after incorporating fixed
store brand makes store brand introduction costs) can be as low as 1%. Therefore, retailers
more profitable. This finding is consistent with would like to obtain higher total profits by in-
CB-1: if national-brand consumers are likely to creasing their dollar revenues. They reason that
switch to the private label because of its lower the introduction of store brands will have a
price, then it is reasonable to introduce a store greater beneficial effect on the business if the
brand. However, Raju, Sethuraman, and Dhar store brands are introduced in high-volume
(1995a) note that there is one other measure of categories, and so:
price competition that must be considered
when introducing a private label, and the effect CB-2: It is good to introduce store brands in
of that measure runs in the opposite direction. high-dollar-volume categories.
It is this: if the cross-price sensitivity among
national brands in the category is high, retailers Insights from Academic Research. No opti-
may find it less profitable to introduce a store mization model has explicitly analyzed category
brand. This is because when the price competi- size (say, G in total dollar revenue). Raju,
tion among national brands is high, the average Sethuraman, and Dhar (1995a) point out that
national-brand retail price decreases, which in as category size increases, equilibrium prices are
turn depresses the price and retail margins for unaffected but equilibrium quantities of both
the store brand, resulting in a smaller total cate- national brands and the store brand increase by
gory profits for the retailer. For example, if a factor of G, resulting in the following:
Coke and Pepsi fight intensely on the basis of
price, there may be little room for a store brand
[Incremental profits from store brand
to enter the market and be profitable.
introduction with category size (G)] = f(G) *
[Incremental profits from store brand
Raju, Sethuraman, and Dhar (1995a) find em-
introduction with category size (1)], (1)
pirical evidence to support their theory. The
implication for retailers is that they should take
into account not only the price competition where f is an increasing monotonic function.
between national brands and the store brand, Thus, category sales act simply as a scale factor
but also the price competition among national when computing profitability. If the incre-
brands. In other words, even when dealing with mental profit from store brand introduction is
price-sensitive “commodity” products, if there positive, then the higher the category sales, the
are already established national brands com- greater the profits. However, if the incremental
peting intensely on price, it may be better for profit is negative, then losses will increase as
the retailer not to introduce a store brand, but category sales increase. The model by Raju,
rather to exploit the benefits of the manufac- Sethuraman, and Dhar (1995a) does not con-
turers’ price competition. Hence, I state the sider the fixed cost of store brand introduction.
following academic insight (AI): Morton and Zettelmeyer (2004) argue that, for
the same private-label market share, the larger
AI-1: It is good to introduce private labels when the revenues in a category, the larger the absol-
the cross-price sensitivity between national ute revenues from the store brand available to
brands and the store brand is high, but the offset the fixed cost of the store brand’s intro-

M A R K E T I N G S C I E N C E I N S T I T U T E 30
duction, and therefore the greater the benefit is large.Though not explicitly modeling the num-
from introducing a store brand. ber of national brands, Morton and Zettelmeyer
(2004) argue that more manufacturers actively
Raju, Sethuraman, and Dhar (1995a) and producing national brands indicates fewer
Morton and Zettelmeyer (2004) both find a barriers to entry, which means the retailer can
positive relationship between category sales and more easily find a manufacturer for its brand.
store brand introduction using market-level
data. Based on these findings, I state the follow- Using market-level data on 426 grocery prod-
ing academic insight: ucts, Raju, Sethuraman, and Dhar (1995a) find
that the likelihood of store brand introduction
AI-2: When conditions are conducive to store is higher in categories in which there are a large
brand introduction, the higher the category number of national brands. Using similar
sales, the greater the retailer’s profit incentive to market-level data, Morton and Zettelmeyer
introduce a store brand. (2004) also generally find a positive relationship
between number of national brands and the
3. Number of national brands → Store likelihood of store brand introduction. Based on
brand introduction this evidence from academic research,
Common Management Belief. It is commonly
believed that there is no place for a store brand AI-3: Store brands are often introduced in cate-
when there are already a large number of na- gories in which there are a large number of na-
tional brands. Accordingly, Schmalensee (1978) tional brands. This action may be driven by in-
argues that preemptive product differentiation cremental profit considerations or ease of entry.
and proliferation by incumbents in a market can
deter a store brand entrant. The share of a store 4. Potential store brand market share →
brand would be lower in a proliferated market, Store brand introduction
and the resulting lower production efficiency is Common Management Belief. In general,
an obstacle to store brand entry. management believes that if it is likely that the
private label will gain a high market share, the
CB-3: It is bad to introduce store brands in environment is conducive to store brand entry.
categories in which there are already a large As stated in the introduction section, managers
number of national brands. often equate private-label penetration (market
share) with profitability, assuming that the
Insights from Academic Research. Raju, higher the private-label share, the greater the
Sethuraman, and Dhar (1995a) show through retailer profits. Therefore:
analytical modeling that the common belief
need not be true. In fact, retailers may find it CB-4: It is good to introduce store brands in
more profitable to introduce a store brand in those categories in which the store brand is
categories with a large number of national likely to obtain high market share.
brands, because although the introduction of a
store brand decreases the retailer’s profits on the Insights from Academic Research. Academic
national brands in equilibrium, when the num- research points out that CB-4 need not always
ber of national brands is large to begin with, the hold. For example, as stated in AI-3, categories
introduction of an additional (store) brand does with several national brands can be more con-
not have as large a negative impact on the pro- ducive to store brand introduction than cate-
fits the retailer makes from the national brands. gories with fewer national brands, but in such
In other words, it is easy to “sneak in” a store categories, store brand market share will be
brand without affecting the profits of the exist- lower. In other words, there may be instances in
ing brands when the number of existing brands which it would be profitable to introduce a store

W O R K I N G P A P E R S E R I E S 31
brand even if it does not gain a significant mar- graphic characteristics directly or indirectly to
ket share. There may also be instances in which store brand proneness. Table 1 summarizes the
store brands gain a significant market share, but findings from these studies. The data related to
are not profitable. Ailawadi and Harlam (2004) price sensitivity are in column 3.
conclude that high store brand share may be
detrimental to category dollar profits for the re- There is ample evidence in the literature that,
tailer and recommend a proper balance between consistent with conventional belief, private-
national brands and store brands. label consumers are price sensitive. In my litera-
ture review, 18 of 19 studies that discuss this
AI-4: A profitable private-label introduction aspect found that price is an important compo-
strategy need not necessarily correlate with nent in private-label sales. A 1990 Gallup
obtaining high market share. survey also found that 74% of consumers inter-
viewed cite price as a very important factor in
private-label purchase. However, there is little
Private-label Segmentation and evidence on the relative price sensitivity of store
Targeting Strategy brand and national-brand consumers.

Which types of consumers should the store AI-5: Price tends to be an important criterion
brand target? To begin with, retailers should for store brand consumers in making brand
aim for those consumers who would be most choice decisions.
willing to purchase store brands. This leads one
to ask, Which consumers are those? Below I 6. Quality sensitivity → Store brand
discuss four consumer characteristics that have proneness
been the focus of academic research. Common Management Belief. The traditional
view that store brands are meant to cater to
5. Price sensitivity → Store brand proneness those consumers who desire low prices, even if
Common Management Belief. Store brands it means giving up on quality to some extent,
have traditionally been viewed as lower-priced, suggests the following:
lower-quality alternatives to national brands.
Hence, people who do not want to pay a high CB-6: Store brand consumers are not very
price for the national brand, or who cannot quality sensitive.
afford to pay the high price, will buy the store
brand. The common view holds that: Insights from Academic Research. Table 1
(column 4) summarizes the findings from
CB-5: Store brand consumers are very price various studies that discuss the relationship
sensitive (or more price sensitive than national- between private-label proneness/purchases and
brand consumers). quality sensitivity. Contrary to the traditional
view, private-label consumers are, in fact, quality
Insights from Academic Research. Identifying sensitive. Fourteen out of 16 studies in the liter-
the characteristics of store brand consumers is ature review find a strong positive relationship
one of the oldest research topics in the area of between quality or quality consistency of store
private labels, dating back to the mid-sixties brands and private-label proneness or private-
(e.g., Frank and Boyd 1965; Myers 1967). label purchases. In fact, there is reasonable
Through an online subject search and a review evidence indicating that quality may be of equal
of articles in major marketing journals, I identi- or greater importance than price in influencing
fied 26 studies published during 1965-2004 private-label purchase. For example, in a 1990
that related certain psychographic and demo- Gallup survey, 83% of consumers interviewed

M A R K E T I N G S C I E N C E I N S T I T U T E 32
Table 1
Studies Identifying Store Brand Consumers
(+ = Positive relationship; – = Negative relationship; 0 = No relationship; ? = Ambiguous relationship)

CB-5 CB-6 CB-7 CB-8

Price sensitivity Quality sensitivity Income Education
Expected Sign (+) (–) (–) (–)
1 Ailawadi, Neslin, and Gedenk (2001) + – – ?
2 Batra and Sinha (2000) + +
3 Bellizzi et al. (1981) + +
4 Burger and Schott (1972) + 0 +
5 Burton et al. (1998) + – +
6 Coe (1971) +
7 Corstjens and Lal (2000) +
8 Cotterill, Putsis, and Dhar (2000) + 0
9 Cunningham, Hardy, and Imperia (1982) + 0 +
10 Dhar and Hoch (1997) + + – 0
11 Erdem, Zhao, and Valenzuela (2004) + +
12 Fitzell (1992) + + +
13 U.S. National Food Marketing Commission (1966) + + +
14 Frank (1967) 0 +
15 Frank and Boyd (1965) – +
16 Hoch (1996) + – +
17 Hoch and Banerji (1993) 0 +
18 Hoch and Lodish (2001) +
19 Morton and Zettelmeyer (2004) + 0 0
20 Murphy (1978) +
21 Myers (1967) + + 0 +
22 Richardson, Dick, and Jain (1994) + +
23 Richardson, Jain, and Dick (1996) + + – 0
24 Rothe and Lamont (1973) + + – -
25 Sethuraman (2000) + ? +
26 Sethuraman and Cole (1999) + + ? 0
Totals + / – / 0 or ? 18 / 0 / 1 14 / 1 / 1 4/7/7 9/1/5

cited quality as a very important factor in pri- ceived value for money in influencing con-
vate-label purchase, while only 74% stated that sumers’ propensity to purchase store brands.
price was important (Fitzell 1992). Erdem, Zhao, and Valenzuela (2004) find that
quality uncertainty is the key determinant of
Additionally, evidence from cross-category differences in store brand market share across
analysis suggests that quality explains more of countries, more important than price sensitivity.
the variation in private-label shares than price Corstjens and Lal (2000) recommend the intro-
does (e.g., Dhar and Hoch 1997; Hoch and duction of high-quality private labels by retail-
Banerji 1993; Sethuraman 1992). Similarly, in a ers even if there is no margin advantage for the
comprehensive study of store brand proneness store brand, because quality private labels in-
Richardson, Jain, and Dick (1996) find that crease store loyalty. Based on these findings, I
perceived quality is more important than per- offer the following refinement.

W O R K I N G P A P E R S E R I E S 33
AI-6: By and large, quality is an important ambiguous relationships, and 4 studies showed
criterion for store brand consumers when the opposite—that is, low-income consumers
choosing among brands. (It may be even more are less likely to purchase private labels than
important than price.) middle-income consumers. Coe (1971) offers a
detailed explanation for this reversal based on
Of course, many private-label marketers have follow-up interviews: (1) lower-income respon-
realized the importance of quality in selling dents had less education than middle-income
their brands and have taken steps to raise the respondents and hence equated price with
quality of their store brands to be on par with quality, (2) they felt they could trust name
the quality of national brands. For instance, the brands more, (3) they did not know the extent
Private Label Manufacturers Association’s offi- of the price differential between national and
cial website states the following: “Private label store brands, and (4) they trusted advertising
items consist of the same or better ingredients more as a source of information. Relatedly, the
than the manufacturer brands, and because the U.S. National Food Marketing Commission
retailer’s name or symbol is on the package, the (1966) observed that higher-income consumers
consumer is assured that the product meets the understood the private-label concept better
retailer’s quality standards and specifications” than lower-income consumers. Fitzell (1992)
(Private Label Manufacturers Association, also laments that the very consumers for whom
http://www.plmainternational.com/plt/pltEn.h private labels would make the most sense are
tml). Consistent with these claims, a recent more loyal to national brands because of their
study by Meyers Research Center for the Private lack of knowledge about store brands and the
Label Manufacturers Association reports that imagery associated with name brands.
by a 51% to 49% margin, consumers say they
prefer the taste of private-label items over their Sethuraman and Cole (1999) find a relation-
national brand counterparts in 12 popular gro- ship that may explain these divergent findings.
cery items (PL Buyer 2005). An August 2005 They find that the relationship is nonmonot-
Consumer Reports study that tested 65 products onic. In particular, middle-income consumers
finds that many store brands are at least as good appear to be the most receptive to private labels.
as national brands. Low-income consumers are less receptive for
the reasons stated above; high-income consumers
7. Annual household income → Store brand are less receptive because they can afford to buy
proneness the national brands at a higher price. Myers
Common Management Belief. Because store (1967), who conducted one of the earliest com-
brands are viewed as lower-priced, lower-quality prehensive studies on profiling private-brand
alternatives to national brands, it is a logical buyers, finds that middle-class housewives are
next step to believe that store brands are intended the strongest acceptors of private labels. Bellizzi
to serve the needs of a relatively lower-income et al. (1981) observe that private labels don’t do
segment of the population (Fitzell 1992). The very well among low-income consumers. All
common belief is that: this evidence shows that middle-income con-
sumers are more likely to purchase private labels
CB-7: Store brand consumers have lower than low-income consumers. Based on these
incomes than national-brand consumers. observations, I offer the following insight:

Insights from Academic Research. Empirical AI-7. Store brand consumers generally belong
evidence is mixed. Only 7 out of 18 studies I to neither low-income nor high-income fami-
reviewed (see column 5 of Table 1) supported lies; they tend to be from middle-income
this economic view; 7 studies indicated null or households.

M A R K E T I N G S C I E N C E I N S T I T U T E 34
8. Education → Store brand proneness basis for segmenting the market, the collective
Common Management Belief. The belief that knowledge gained from past research can be
store brands cater to the low-income segment exploited for developing targeting strategies.
also leads to the inference that they are likely to First, store brand managers should target the
be less educated. middle-income, educated consumers, since
those consumers appear more prone to purchas-
CB-8: Store brand consumers are less educated ing private labels. Second, store brand market-
than national-brand consumers. ers may also consider attracting the low-income
consumers by educating them about store brand
Insights from Academic Research. Nine out of quality and making them aware of the price
the 15 studies I reviewed indicated a significant differentials. This targeting would not only in-
positive relationship between education and crease private-label market share but can also
store brand purchase. More-educated consumers increase overall consumer welfare.
are likely to be more informed about quality
(Hoch 1996), more confident about their evalu- A few studies have investigated the relationship
ative abilities, less brand loyal (Cunningham, between store brand usage and nondemo-
Hardy, and Imperia 1982), and perceive little graphic variables, especially psychographic and
quality difference between national and store personality characteristics. For example, store
brands (Sethuraman 2000). Hence, academic brand consumers tend to be less impulsive,
research negates the stereotypical view that smart shoppers (Burton et al. 1998), are slightly
store brand consumers have lower incomes and more variety seeking (Ailawadi, Neslin, and
are less educated. Gedenk 2001), and tend to be enthusiastic,
sensitive, and submissive (Myers 1967). How-
AI-8: Store brand consumers are, on average, ever, these individual studies are few and differ
more educated than national-brand consumers. considerably in the variables they investigate,
limiting our ability to obtain meaningful, gen-
By and large, private-label consumers tend to eralizable insights.
be middle-income, educated, older consumers
with large families. However, these socioeco-
nomic variables account for only 4%-5% of the Private-Label Marketing Strategies
variation in private-label purchases (Dhar and
Hoch 1997; Frank 1967). Ailawadi, Neslin, 9. Store brand introduction → Store brand
and Gedenk (2001), however, point out that positioning
although the direct effect of demographics on Common Management Belief. In the context
store brand usage may be weak, they have sign- of competition between national brands and
ificant indirect effects through their relationships store brands, store brand positioning is broadly
with psychographic variables such as price con- conceptualized as the extent of similarity to the
sciousness, which influence store brand purchase. national brand. Retailers attempt to position
their store brand close to the national brand in
The modest explanatory power of demographic at least four ways: by reducing the perceived
variables has led some researchers to conclude quality gap between the national brand and the
that private and national brands are consumed store brand, by imitating national-brand pack-
by households with virtually the same demo- aging, by placing the store brand on the shelf
graphic characteristics (Frank 1967). The di- next to the national brand, and by using shelf
lemma then for the store brand marketer is talkers with “compare and save” or similar
whether demographic variables can be used as slogans. The central question for retailers is:
the bases for segmentation and targeting. My Should the store brand be positioned close to
view is that while they cannot form the primary the national brand or not?

W O R K I N G P A P E R S E R I E S 35
There is a general tendency among grocery re- retailers’ behavior tend to be consistent with
tailers to want to increase the sales and market AI-9b and AI-9c. In particular, when store
share of private labels at the expense of national brands do target a particular national brand, in
brands by positioning the store brand close to 80% of the cases, the targeted brand is the
the national brand (Luhnow and Terhune 2003; leading brand, consistent with AI-9b. They also
Private Label Manufacturers Association 2006). find that the likelihood of targeting a national
brand is greater when the national brand has
CB-9: Cost permitting, it is good to position higher market share, consistent with AI-9b.
the store brand close to the national brands. However, interestingly, in both these studies,
store brands targeted a particular national brand
Insights from Academic Research. Academic in only about 30% of the categories. Why
research supports and further strengthens the might retailers fail to target a particular national
conventional wisdom. Several researchers (e.g., brand? One obvious reason might be cost.
Mills 1995; Morton and Zettelmeyer 2004; While in theory it may be appropriate to posi-
Raju, Sethuraman, and Dhar 1995a; Sayman, tion close to the national brands, in practice, it
Hoch, and Raju 2002) unanimously suggest may be cost prohibitive to do so. There may be
that retailers would be better off (obtain higher other reasons as well, such as retailer reluctance
category profits) if they position their store or implicit agreements with manufacturers. But
brands close to the national brands. Sayman, could there be market-driven reasons for not
Hoch, and Raju (2002), in particular, further positioning close to the national brands?
strengthen this assertion. They show that if
there are two symmetric national brands, it is Sethuraman (2003) alludes to two specific mar-
better to position close to one of them than to ket conditions under which positioning a store
stay in the middle. If the national brands are not brand close to the national brand may not be
symmetric, i.e., they have different market beneficial for the retailer. Using a parsimonious
shares, then it is profitable for the store brand to game-theoretic model that incorporates na-
go after the national brand with the larger share. tional-brand advertising, he shows that the con-
In fact, the larger the share of the national ventional view probably holds for most mature
brand, the more profitable it is to mimic it. grocery products: for those products, a store
Based on these findings, I offer the following brand predominantly obtains its sales through
academic insights: brand switching from national brands, and
national-brand advertising has little impact in
AI-9a: If there are two symmetric (broadly expanding category demand. However, posi-
equivalent) national brands, it is more profitable tioning a store brand to compete intensely with
to position the store brand close to one of them the national brand is not necessarily beneficial
than to position in the middle. to the retailer if the store brand can gain a sign-
ificant portion of the market that is not served
AI-9b: If national brands have different market by the national brand. The intuition for this
shares, it is better to position the store brand result is fairly obvious and relates to the notion
against the national brand that has the larger of segmentation. If there is a sizable group of
market share. consumers who cannot afford the national
brand, but are willing to purchase the store brand
AI-9c: The greater the national-brand market at lower prices, the retailer may find it more
share, the more profitable it is for the retailer to worthwhile to cater to this price-sensitive seg-
position the store brand against it. ment than to pursue the national-brand con-
sumers. In this context, Ailawadi and Harlam
Findings from Sayman, Hoch, and Raju (2002) (2004) advance the idea of a balanced mix of
and Sethuraman (2003) indicate that many national brands and store brands.

M A R K E T I N G S C I E N C E I N S T I T U T E 36
Second, retailers may be better off not position- CB-10: It is good to charge a low price for the
ing the store brand close to the national brand if store brand and to maintain a large price differ-
the manufacturer can expand category demand ential between national brands and the store
through advertising or other nonprice market- brand.
ing investments. This would be the case for pro-
ducts in the early stage of the life cycle; for Empirical evidence supports the existence of
those products, marketing would promote pur- this pricing behavior. Using extensive in-store
chase of the product by increasing awareness experiments in analgesics and other product
and educating consumers. The same holds for categories, Hoch and Lodish (2001) found that
hedonistic products, for which advertising can store brand analgesics were priced 45% lower
increase perceived consumption pleasure and than national brands when a 30% price differ-
induce consumers to purchase. By positioning ential appeared to yield more category profits.
the store brand close to the national brand, the Sethuraman and Cole (1999) estimated the
retailer would force the national-brand manu- reservation price differential distribution for
facturer to focus on price reduction and dis- 130 consumers across 20 grocery product cate-
courage the manufacturer from investing in gories in one market. From this data, they
category-demand-enhancing activities, an action derived the optimal price differential by
that could be detrimental to both the manufac- assuming different relative costs of national
turer and the retailer in a growing market. brands and the store brand. In general, the
Based on these results, I have the following actual price differential was higher than what
refinements: would be predicted by the model. Using new
industrial organization models, Meza and
Positioning a store brand close to the national Sudhir (2002) also show that retailers tend to
brand may not be profitable for the retailer behave nonoptimally, especially when it comes
to pricing the national brand that the store
AI-9d: if the national-brand manufacturer can brand is imitating. In particular, they tend to
significantly expand category demand through increase the price of the national brand and
investments in nonprice marketing activities maintain a high price differential between that
such as advertising, and/or brand and their own store brand (also see
Pauwels and Srinivasan 2004). The reason for
AI-9e: if the store brand can garner a signifi- overpricing the national brand may be the
cant portion of the market with low-reserva- retailers’ focus on increasing private-label share
tion-price consumers who cannot afford to as opposed to profits (Chintagunta 2002).
purchase the national brand.
Insights from Academic Research. A recur-
10. Store brand introduction → Store brand ring theme in most academic research, based on
pricing category profitability considerations, is to point
Common Management Belief. What price to out that a large price gap between national
charge for the store brand? Because the store brands and the store brand is not necessarily
brand is generally a follower, pricing decisions desirable. In addition, a number of theoretical
have focused on what price differential to studies have shown that when retailers close the
maintain between national brands and the store quality gap between national brands and the
brand. The private-label sales maximization store brand, as they have attempted to do in
objective and the notion that the purpose of recent times, they can obtain higher profits by
private labels is to wean consumers away also reducing the price gap (Mills 1995; Raju,
from the national brands leads to the follow- Sethuraman, and Dhar 1995b; Sayman, Hoch,
ing belief: and Raju 2002; Sethuraman 2003).

W O R K I N G P A P E R S E R I E S 37
Does this mean that when consumers perceive CB-11: Store brands should be price promoted
very little quality differential between national less frequently than top-tier national brands.
brands and the store brand, the price differen-
tial can be reduced to near zero? Managerial Insights from Academic Research. The pre-
literature has opined that if the price differential dominant view from academic research appears
is small, then consumers will not purchase the to support the common opinion that store brands
store brand because they will not see its value should be less extensively promoted than
(e.g., Donegan 1989). Recent empirical evid- national brands. In the competition between
ence supports this viewpoint. Sethuraman the “strong” (national) brands and the “weak”
(2000) and Applebaum, Gerstner, and Naik (store) brands, consumers can be categorized
(2002) have found that even if consumers per- into three broad segments:
ceive that national and store brands are physi-
cally identical, they are willing to pay, on ave- 1. Loyal segment (national brand)—those who
rage, about a 20%-30% price premium for would always purchase only the national brand
national brands. This reputation economy has so long as its price is below their reservation
also been documented in the economics litera- price for the brand.
ture (Steiner 2002). Based on these findings, I
have the following refinements: 2. Brand-switching segment—those who switch
brands depending on the price differential
AI-10a: When a store brand is positioned to be between national and store brands.
similar to national brands, it is profitable for the
retailer to reduce the price differential between 3. Price shoppers—those who always purchase
it and the national brands. the lower-priced brand.

AI-10b: However, the price differential cannot The loyal segment for the store brand is assumed
be too low as consumers will pay a premium for to be negligible. Many analytical researchers
national brands even if they perceive the store study price promotions by incorporating the
brand to be equivalent. above segments. Four published papers are per-
tinent in this context.Their model structure and
11. Store brand introduction → Store brand results are compared in Table 2.
price promotions
Common Management Belief. Observation in There are three conclusions that can be gleaned
supermarkets and statistics from scanner data from these studies. The first is that the presence
(e.g., Rao 1991; Sethuraman 1996) indicate of a store brand with less brand loyalty can
that store brands are generally price promoted trigger price promotions (trade deals) by the
less frequently than the top-tier national brands. national brands (Lal 1990). Second, three of the
This practice makes sense at the outset. Store four papers (all but Raju, Srinivasan, and Lal
brands are already sold at a lower regular price 1990) state that the weak store brand promotes
and are catering to the more price-sensitive con- less often than the strong (premium) national
sumers. One can understand retailers deciding brands, or does not engage in price discounting
that there is, therefore, less need to further at all. All papers indicate that the store brand’s
reduce the price on a temporary basis. National- discount is less than the national brands’ dis-
brand manufacturers, on the other hand, have counts. Sivakumar (1997) and Ailawadi, Neslin,
an incentive to occasionally reach out to this and Gedenk (2001) also recommend the use of
price-sensitive segment by lowering their price, EDLP (everyday low pricing) for the store brands.
and hence have a greater incentive to price pro-
mote. The conventional wisdom, therefore, is: Another major source of support for the recom-
mendation that private labels should price pro-

M A R K E T I N G S C I E N C E I N S T I T U T E 38
Table 2
Comparisons of Price Promotion Models

Study Studies
Characteristics Narasimhan (1988) Lal (1990) Raju, Srinivasan, and Lal Rao (1991)
(1990)
Competition 1 strong brand 2 national brands 1 strong brand 1 national brand
1 weak brand 1 local (store) brand 1 weak brand 1 private label
Retailers No retailer Single retailer No retailer No retailer
Segments considered Loyal segment and Loyal segment and Loyals, who can be Switching segment and
switchers switching segment switched with a certain price shopper segment
price differential
Cost structure Cost of manufacturing Equal and set to zero Equal and set to zero Equal and set to zero
strong and weak brand
equal and set to zero
Game structure Single-period, profit-maxi- Infinite-period, model- Single-period, profit-maxi- Single-period, sequential
mizing model maximizing; discounted mizing model decision: first regular price,
profits then promotion
Key equilibrium result The premium-priced brand If the switching segment is The weak store brand National brands promote
will offer a higher discount large and discount rate not promotes more often than with some probability of
and promote more often. high, the two national the strong national brand attracting the price shop-
The (store) brand with the brands offer trade deals in but offers a smaller price pers. Private labels do not
least pulling power should alternate periods. The discount. promote.
charge a low regular price private label does not
and not discount at all. discount.

mote less comes from the concept of the asym- the asymmetry does not always favor the high-
metric price-tier effect introduced by Blattberg priced national brand. The direction of asym-
and Wisniewski (1989). The asymmetric price- metry depends on the price-quality positioning
tier effect states that when the high-price- (Bronnenberg and Wathieu 1996), the measure
tier/high-quality (national) brands cut prices, used, that is, cross-price elasticity or absolute
consumers of the low-price-tier/low-quality cross-price effect (Sethuraman, Srinivasan, and
(store) brands switch up to the high-priced Kim 1999), the distribution of the reservation
brand. However, when the low-priced/low- price differential (Sivakumar 1995), the nature
quality (store) brands discount, few national- of the category, that is, promotion intensive or
brand consumers will switch to the low-quality not (Lemon and Winer 1993), the nature of the
store brand. The strategic implication is that choice set (Heath et al. 2000), the nature of
retailers should probably not promote their segment targeted (Ailawadi, Neslin, and
private labels because they will not significantly Gedenk 2001), and the presence of
affect national-brand sales. Early studies pro- feature/display (Lemon and Nowlis 2002). The
vided support for the notion of asymmetry in implication is that each retailer may need to
price promotion effect (e.g., Allenby and Rossi assess the nature of the asymmetry in its partic-
1991; Hardie, Johnson, and Fader 1993; ular product market and make appropriate price
Sethuraman 1992). promotion decisions.

Recent research has refined the notion of the Two empirical-generalization studies (Sethuraman
asymmetric price-tier effect and has shown that and Srinivasan 2002; Sethuraman, Srinivasan,

W O R K I N G P A P E R S E R I E S 39
and Kim 1999) provide some specific guidelines evidence indicating that display/feature promo-
with respect to private-label price promotions. tions by national brands affect private-label
First, the two studies show that when making share and vice versa (Cotterill, Putsis, and Dhar
price promotion decisions, absolute cross-price 2000). Lemon and Nowlis (2002) find that the
effect (change in unit sales of a brand for $1.00 combined effects of display/feature promotions
change in the price of a competing brand), and are greater for the low-tier (store) brands than
not cross-price elasticity (percentage change in for the high-tier (national) brands. Private-label
sales of a brand for 1% change in the price of a consumers are less influenced by nonprice deals
competing brand), is the appropriate measure of such as gifts and prizes (Burton et al. 1998).
cross-price effect. Most prior empirical studies However, the research on nonprice promotions
have considered elasticities only. Second, price is too limited to draw any meaningful recom-
differences have little influence over asymmetry mendations.
in absolute cross-price effects. What strongly
influences asymmetry in absolute cross-price
effects is differences in brand market share. In Conclusion
particular, for the same absolute price discount,
lower-share brands take away more sales from The main objective of this paper is to commu-
higher-share brands than vice-versa. This result nicate to store brand managers the insights that
is intuitive: a lower-share brand has a larger have been obtained from academic research
pool of consumers to attract through discounts conducted over the last 40 years that might
than a higher-share brand. enable them to develop better private-label
marketing strategies. The appendix table
Based on all of the above (mixed) findings, I summarizes the common management beliefs
state the following refinements from academic about private-label marketing and the related
research: insights arising from academic research.

AI-11a: In most cases, private labels should be I believe this summary and the related discus-
price promoted less extensively than national sion can be useful to national-brand managers
brands. as well in determining the appropriate market-
ing strategy for their brands. For example, among
AI-11b: However, there may be cases in which the insights listed is the fact that consumers will
AI-11a does not apply. Such cases include cate- pay an image premium for national brands even
gories that are highly promotion intensive and when they perceive the store brand to be of
markets in which national brands have very equivalent quality (AI-10b). National-brand
high market shares. managers should find ways to maintain and
enhance this image premium.
AI-11c: Other things being equal, private labels
with small market share should engage in price This paper should also be useful to academic
discounts more than private labels with large researchers in several ways. First, it presents
market share. many important articles on private-label strat-
egy and shows how these publications are linked
AI-11d: The price promotion decision should and translated in terms of marketing strategies.
involve consideration of absolute cross- and Second, this paper also points to potential
own-price effects rather than price elasticities. directions for future research on private-label
marketing strategies. For example, the biggest
Nonprice promotions include in-store promo- lacuna, I believe, is the current lack, in the aca-
tions such as displays and features, as well as demic literature, of clear and specific guidelines
coupons, free samples, and gifts. There is some for private-label price and nonprice promotion

M A R K E T I N G S C I E N C E I N S T I T U T E 40
 strategies. More analytical models, focused identifying whether certain common manage-
empirical analysis, and decision support systems ment beliefs about private-label marketing
may be needed to address this gap in the litera- strategies are supported by the findings of aca-
ture. Also, I should note that my recommenda- demic research or not. There are many other
tions only pertain to grocery products marketed issues related to the private-label phenomenon
in the United States. More research is needed in that I do not cover, including determining
other durable goods categories, such as apparel optimal reactions of national brands to private-
and appliances, and on private-label marketing label introduction, sourcing of private labels,
in other parts of the world. and the relationship between channel power
and private-label share, among others. These
It should be pointed out that the literature review issues warrant further research. ■
I offer in this study is specifically focused on

Appendix
A Summary of Common Beliefs (CB) and Academic Insights (AI) Regarding Private-Label Marketing Strategies

Strategy Type Common Management Beliefs Nature of change Insights from Academic Research

Introduction CB-1: It is good to introduce store Partly supported AI-1: It is good to introduce private labels when the cross-
brands in commodity products charac- and partly price sensitivity between national brands and the store brand is
terized by high levels of price competi- negated high, but the cross-price sensitivity among national brands is
tion among brands. not high.

CB-2: It is good to introduce store Conditionally AI-2: When conditions are conducive to store brand introduc-
brands in high-dollar-volume categories. validated tion, the higher the category sales, the greater the retailer’s
profit incentive to introduce a store brand.

CB-3: It is bad to introduce store brands Negated AI-3: Store brands are often introduced in categories in which
in categories in which there are already a there are a large number of national brands. This action may
large number of national brands. be driven by incremental profit considerations or ease of entry.

CB-4: It is good to introduce store brands Supported with AI-4: A profitable private-label introduction strategy need not
in those categories in which the store caution necessarily correlate with obtaining high market share.
brand is likely to obtain high market share.

Segmentation CB-5: Store brand consumers are very Validated AI-5: Price tends to be an important criterion for store brand
and Targeting price sensitive (or more price sensitive consumers in making brand choice decisions.
than national-brand consumers).

CB-6: Store brand consumers are not Negated AI-6: By and large, quality is an important criterion for store
very quality sensitive. brand consumers when choosing among brands. (It may be
even more important than price.)

CB-7: Store brand consumers have lower Negated AI-7: Store brand consumers generally belong to neither low-
incomes than national-brand consumers. income nor high-income families; they tend to be from
middle-income households.

CB-8: Store brand consumers are less Negated AI-8: Store brand consumers are, on average, more educated
educated than national-brand than national-brand consumers.
consumers.

Positioning CB-9: Cost permitting, it is good to Strengthened AI-9a: If there are two symmetric (broadly equivalent)
Strategy position the store brand close to the national brands, it is more profitable to position the store
national brands. brand close to one of them than to position in the middle.

W O R K I N G P A P E R S E R I E S 41
 Supported and AI-9b: If national brands have different market shares, it is better
refined to position against the national brand that has the larger market
share.
Supported and AI-9c: The greater the national-brand market share, the more
refined profitable it is for the retailer to position the store brand against it.

Positioning a store brand close to the national brand may not be

profitable for the retailer
Conditionally AI-9d: if the national-brand manufacturer can significantly
negated expand category demand through investments in nonprice
marketing activities such as advertising, and/or
Conditionally AI-9e: if the store brand can garner a significant portion of the
negated market with low-reservation-price consumers who cannot afford
to purchase the national brand.

Pricing Strategy CB-10: It is good to charge a low price Conditionally AI-10a: When a store brand is positioned to be similar to national
for the store brand and to maintain a negated brands, it is profitable for the retailer to reduce the price differen-
large price differential between tial between it and the national brands.
national brands and the store brand. Additional AI-10b: However, the price differential cannot be too low as
insight consumers will pay a premium for national brands even if they
perceive the store brand to be equivalent.

Promotion CB-11: Store brands should be price Supported AI-11a: In most cases, private labels should be price promoted
Strategy promoted less frequently than top-tier less extensively than national brands.
national brands. Conditionally AI-11b: However, there may be cases in which AI-11a does not
negated apply. Such cases include categories that are highly promotion
intensive and markets in which national brands have very high
market shares.
Conditionally AI-11c: Other things being equal, private labels with small
negated market share should engage in price discounts more than private
labels with large market share.
Relevant AI-11d: The price promotion decision should involve considera-
insight tion of absolute cross- and own-price effects rather than price
elasticities.

References Level Factors Moderating the Success of Private Label

Brands.” Journal of Retailing 76 (2), 175–91.
ACNielsen (2003), Consumer and Market Trend Report.
Schaumburg, Ill.: ACNielsen. Bellizzi, Joseph A., John R. Hamilton, Harry F.
Krueckeberg, and Warren S. Martin (1981), “Consumer
Ailawadi, Kusum L., and Bari Harlam (2004), “An Perceptions of National, Private, and Generic Brands.”
Empirical Analysis of the Determinants of Retail Journal of Retailing 57 (4), 56–71.
Margins: The Role of Store Brand Share.” Journal of
Marketing 68 ( January), 47–65. Blattberg, Robert C., and Kenneth J. Wisniewski (1989),
“Price-Induced Patterns of Competition.” Marketing
__________ , Scott A. Neslin, and Karen Gedenk (2001), Science 8 (Fall), 291–309.
“Pursuing the Value-Conscious Consumer: Store Brands
versus National Brand Promotions.” Journal of Marketing Bronnenberg, Bart, and Luc Wathieu (1996),
65 ( January), 71–89. “Asymmetric Promotion Effects and Brand Positioning.”
Marketing Science 15 (Fall), 379–94.
Allenby, Greg M., and Peter E. Rossi (1991), “Quality
Perceptions and Asymmetric Switching between Brands.” Burger, Philip C., and Barbara Schott (1972), “Can
Marketing Science 10 (Summer), 185–204. Private Brand Buyers Be Identified?” Journal of Marketing
Research 9 (2), 219–22.
Applebaum, Eidan, Eitan Gerstner, and Prasad Naik
(2002), “The Effects of Expert Quality Evaluations versus Burton, Scot, Donald R. Lichtenstein, Richard G.
Brand Name on Price Premiums.” Davis, Calif.: Netemeyer, and Judith A. Garretson (1998), “A Scale for
University of California, Davis, Working Paper. Measuring Attitude toward Private Label Products and an
Examination of Its Psychological and Behavioral Correlates.”
Batra, Rajeev, and Indrajit Sinha (2000), “Consumer- Journal of Academy of Marketing Science 26 (4), 293–306.

M A R K E T I N G S C I E N C E I N S T I T U T E 42
Chintagunta, Pradeep K. (2002), “Investigating Category __________ , and Shumeet Banerji (1993), “When Do
Pricing Behavior at a Retail Chain.” Journal of Marketing Private Labels Succeed?” Sloan Management Review 34
Research 34 (2), 141–54. (Summer), 57–67.

Coe, Barbara D. (1971), “Private versus National __________ , and Leonard M. Lodish (2001), “Store
Preference among Lower- and Middle-Income Brands and Category Management.” Philadelphia, Penn.:
Consumers.” Journal of Retailing 47 (3), 61–72. University of Pennsylvania, Wharton School, Working
Paper.
Corstjens, Marcel, and Rajiv Lal (2000), “Building Store
Loyalty through Store Brands.” Journal of Marketing Lal, Rajiv (1990), “Manufacturer Trade Deals and Retail
Research 37 (3), 281–91. Price Promotions.” Journal of Marketing Research 27 (4),
428–44.
Cotterill, Ronald W., William P. Putsis, Jr., and Ravi Dhar
(2000), “Assessing the Competitive Interaction between Lemon, Katherine N., and Stephen M. Nowlis (2002),
Private Labels and National Brands.” Journal of Business 73 “Developing Synergies between Promotions and Brands
(1), 109–37. in Different Price-Quality Tiers.” Journal of Marketing
Research 39 (2), 171–85.
Cunningham, Isabella C. M., Andrew P. Hardy, and
Giovanna Imperia (1982), “Generic Brands versus __________ , and Russell S. Winer (1993), “Evaluating
National Brands and Store Brands: A Comparison of Consumers’ Responses to Private Label Price Promotions
Consumers’ Preferences and Perceptions.” Journal of Utilizing Brand-Loyalty Based Segmentation.” Berkeley,
Advertising Research 22 (5), 25–32. Calif.: University of California, Berkeley, Haas School of
Business, Working Paper.
Dhar, Sanjay K., and Stephen J. Hoch (1997), “Why Store
Brand Penetration Varies by Retailer.” Marketing Science Luhnow, David, and Chad Terhune (2003), “A Low-
16 (Summer), 208–27. Budget Cola Shakes up Markets South of the Border.”
Wall Street Journal (October 27), A1, A8.
Donegan, Priscilla (1989), “Private Label Is Alive and
Well.” Progressive Grocer (February), 61–7. Meza, Sergio, and K. Sudhir (2002), “In Favor or Out of
Favor? Effects of Store Brand Introduction on Retailer
Erdem, Tülin, Ying Zhao, and Ala Valenzuela (2004), Pricing of National Brands.” New York, N.Y.: New York
“Performance of Store Brands: A Cross-Country Analysis University, Working Paper.
of Consumer Store Brand Preferences, Perceptions, and
Risk.” Journal of Marketing Research 41 (1), 86–100. Mills, David E. (1995), “Why Retailers Sell Private
Labels.” Journal of Economics and Management Strategy 4
Fitzell, Phillip B. (1992), Private Label Marketing in the (3) 509–28.
1990s: The Evolution of Price Labels into Global Brands.
New York, N.Y.: Global Book Productions. Morton, Fiona S., and Florian Zettelmeyer (2004), “The
Strategic Positioning of Store Brands in Retailer-
Frank, Ronald E. (1967), “Correlates of Buying Behavior Manufacturer Negotiations.” Review of Industrial
for Grocery Products.” Journal of Marketing 31 (October), Organization 24 (2), 161–94.
48–53.
Murphy, Patrick E. (1978), “The Effect of Social Class on
__________ , and Harper W. Boyd (1965), “Are Private- Brand and Price Consciousness for Supermarket
Brand Prone Grocery Customers Really Different?” Products.” Journal of Retailing 54 (2), 33–42.
Journal of Advertising Research 5 (4), 27–35.
Myers, John G. (1967), “Determinants of Private Brand
Hardie, Bruce, Eric Johnson, and Peter Fader (1993), Attitude.” Journal of Marketing Research 4 (1), 73–81.
“Modeling Loss Aversion and Reference Dependence
Effects on Brand Choice.” Marketing Science 12 (Fall), Narasimhan, Chakravarthi (1988), “Competitive
378–94. Promotional Strategies.” Journal of Business 61 (4),
427–50.
Heath, Timothy B., Gangseong Ryu, Subimal Chatterjee,
Michael McCarthy, David Mothersbaugh, Sandra Pauwels, Koen, and Shuba Srinivasan (2004), “Who
Milberg, and Gary Gaeth (2000), “Asymmetric Benefits from Store Brand Entry?” Marketing Science 23
Competition in Choice and the Leveraging of (Summer), 364–90.
Competitive Disadvantages.” Journal of Consumer Research
27 (3), 291–308. PL Buyer (2005), “Private Eye: Consumers Prefer Private
Label in Taste Tests.” Retrieved February 17, 2006, from
Hoch, Stephen J. (1996), “How Should National Brands http://www.privatelabelbuyer.com/content.php?s=PB/200
Think about Private Labels?” Sloan Management Review 5/07&p=3.
37 (Winter), 89–102.

W O R K I N G P A P E R S E R I E S 43
Private Label Manufacturers Association (2006), “Private __________ (1996), “A Model of How Discounting
Label Today: Growth and Success.” Retrieved February High-Priced Brands Affects the Sales of Low-Priced
17, 2006, from http://www.plmainternational. com/ plt/ Brands.” Journal of Marketing Research 33 (4), 399–409.
pltEn.html.
__________ (2000), “What Makes Consumers Pay More
Raju, Jagmohan S., Raj Sethuraman, and Sanjay K. Dhar for National Brands Than for Store Brands: Image or
(1995a), “The Introduction and Performance of Store Quality?” Cambridge, Mass.: Marketing Science Institute,
Brands.” Management Science 41 (6), 957–78. Report No. 00-110.

__________ , __________ , and __________ (1995b), __________ (2003), “Positioning Store Brands against
“National Brand–Store Brand Price Differential and Store National Brands: To Get Close or Keep a Distance.”
Brand Market Share.” Pricing Strategy and Practice 3 (2), Dallas, Tex.: Southern Methodist University, Working
17–24. Paper.

__________ , V. Srinivasan, and Rajiv Lal (1990), “The __________ , and Catherine A. Cole (1999), “Factors
Effects of Brand Loyalty on Competitive Price Influencing the Price Premiums that Consumers Pay for
Promotional Strategies.” Management Science 36 (3), National Brands over Store Brands.” Journal of Product and
276–304. Brand Management 8 (4), 340–51.

Rao, Ram C. (1991), “Pricing and Promotions in __________ , and V. Srinivasan (2002), “The Asymmetric
Asymmetric Duopolies.” Marketing Science 10 (Spring), Share Effect: An Empirical Generalization on Cross-
131–44. Price Effects.” Journal of Marketing Research 39 (3),
379–86.
Richardson, Paul S., Alan S. Dick, and Arun K. Jain
(1994), “Extrinsic and Intrinsic Cue Effects on __________ , __________ , and Doyle Kim (1999),
Perceptions of Store Brand Quality.” Journal of Marketing “Asymmetric and Neighborhood Cross-Price Effects:
58 (October), 28–36. Some Empirical Generalizations.” Marketing Science 18
(Winter), 23–41.
__________ , Arun K. Jain, and Alan Dick (1996),
“Household Store Brand Proneness: A Framework.” Sivakumar, K. (1995), “Quality-Tier Competition and
Journal of Retailing 72 (2), 159–85. Optimal Pricing.” Journal of Business Research 33 ( July),
251–60.
Rothe, James T., and Lawrence M. Lamont (1973),
“Purchase Behavior and Brand Choice Determinants for __________ (1997), “Asymmetric Quality Tier
National and Private Brand Appliances.” Journal of Competition: An Alternative Explanation.” Cambridge,
Retailing 49 (3), 31–46. Mass.: Marketing Science Institute, Report No. 97–115.

Sayman, Serdar, Stephen J. Hoch, and Jagmohan S. Raju Steiner, Robert L. (2002), “The Nature and Benefits of
(2002), “Positioning Store Brands.” Marketing Science 21 National Brand/Private Label Competition.” Atlanta,
(Fall), 378–97. Ga.: Paper presented at the annual meeting of the
American Economic Association.
Schmalensee, Richard (1978), “Entry Deterrence in the
Ready-to-Eat Breakfast Cereal Industry.” Bell Journal of Stern, Louis W. (1966), “The New World of Private
Economics 9 (2), 305–27. Brands.” California Management Review 8 (3), 43-50.

Sethuraman, Raj (1992), “The Effect of Marketplace U.S. National Food Marketing Commission (1966),
Factors on Private Label Penetration in Grocery Report of the U.S. National Food Marketing Commission,
Products.” Cambridge, Mass.: Marketing Science Technical Study No. 10 ( June).
Institute, Report No. 92–128.

Report No. 06-108

“Private-Label Marketing Strategies in Packaged Goods:
Management Beliefs and Research Insights” © 2006 Raj
Sethuraman; Report Summary © 2006 Marketing Science
Institute

M A R K E T I N G S C I E N C E I N S T I T U T E 44