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Thursday, February 20, 2020

Misconceptions About Store Brands by Selima Ben Mrad * [111]

National or manufacturer brands have been for a while the choice of consumers and a signal for quality. Consumers usually trust manufacturers’ brands and associate them with a certain level of quality. However, this is not the case for store brands. US consumers still lack the knowledge about private label and avoid buying them unless the product does not generate any risk. Private-label brand success is strongest in commodity driven, high-purchase categories and products where consumers perceive very little differentiation (Nielsen 2014) . While store brands or private label market share keeps growing in many European countries, this is not the case in the United States. Indeed, the market share in several European countries is more than 30% with UK , Spain, and Switzerland having the highest market share among European countries. (PLMA’s International Private Label, 2017). The United States private label market share has been lower than its counterparts in Europe and it is only lately that this trend has been changing.  Today, the market share of store brands has reached nearly 25% of unit sales in the U.S. and is expanding faster than national brands (PLMA 2017).
So What is Private Brand or Store Brand?

Private brand is any brand that comprises the retailers’ name or any name created by the retailer (PLMA 2017). Target, Walmart, CVS Pharmacy, and Walgreens market their own brands. For instance, Target has a store brand “Up & Up” in their household product line that is much diversified. Some retailers, such as Walmart, see private label as part of the road to their future success. Indeed, Doug McMillon, president and CEO of Walmart, when speaking at the Bank of America Merrill Lynch 2017 Consumer & Retail Technology Conference in New York, stated that “The widespread availability of name-brand products online will compress the margins of private brands over time.” He also added that "having a private brand from a margin mix point of view has always been important, but it is even more important now.”  Therefore, it is important to educate customers about private brands. Indeed there are some misconceptions about store brands:

1. They are of  lower quality than manufacturer brands
2. They are manufactured by the retailer
3. There is only one category of store brands
4. They have low prices
5. They generate high risk
The truth about store brands is that they are indeed similar to manufacturers’ brands and sometimes even of better quality. Here are some clarifications about store brands:
Who Manufactures Store Brands?

According to PLMA (2017), there are different ways that store brands are manufactured. They can be produced by:

• Large manufacturers who produce both their own brands and private label products.
• Small and medium size manufacturers that specialize in particular product lines and concentrate on producing private label almost exclusively.
• Major retailers and wholesalers that operate their own manufacturing plants and provide private label products for their own stores.
Categories of Store Brands

Private label brands are classified into generic brands, standard brands or copycat brands or flagship brands, premium brands, and value innovators.

1. Generic brands are usually cheap, inferior products. Usually they do not carry the name of the retailer on the package , but simply the name of the product, such as ‘milk’ or ‘butter’, in plain script . They usually use very cheap packaging .
2. Copycats or flagship brands or standard brands. They usually carry the name of the retailer and tend to copy the main manufacturer within that category, they have packaging and price points very similar to the main manufacturer.
3. Premium store brands are usually of higher quality than the manufacturer brand  and compete directly against the manufacturer’s  brand. Kumar and Steenkamp (2007) define two types of premium brands: the premium private label which is exclusive, higher in price, and superior in quality to competing brands; and the premium-lite store brand which is promoted as being equal or better in quality to the competing brands, while being cheaper.
4. The fourth category is value innovators which consists mainly of retailers reducing costs and processes to simplify the production and marketing of product ranges, so that a good quality product can be offered at very low prices. They are usually limited in number.
Benefits of Store Brands

Store brands provide retailers with several key benefits. It gives them exclusivity to offer their customers special products, which make consumers loyal to them. In addition, store brands create a unique brand image and generate more retailer brand recall and recognition. Finally, store brands increase retailers’ revenues and have higher profit margins.
Attitude Towards Store Brands

The positive or negative attitude towards store brands has been attributed to several causes. Consumers evaluate store brands based on price/value of those brands, the products’ attributes, on the perceived risk and on their own self-perception (smart shopper). Consumers who buy store brands realize that when they are indeed purchasing store brands they are paying for certain “marketing” practices for  manufacturers’ brands, which is not the case of retailers' brands.
References:

Hamstra M (20017) “Walmart CEO cites growing importance of private label Store brands seen as driver of margins, loyalty” www://www.supermarketnews.com/walmart/walmart-ceo-cites-growing-importance-private-label
Kumar, N  and J.B  E.M. Steenkamp, ‘Private Label Strategy’, Harvard Business School Press, 2007.
Nielsen (2014) https://www.nielsen.com/content/dam/nielsenglobal/kr/docs/global-report/2014/Nielsen%20Global%20Private%20Label%20Report%20November%202014.pdf
PLMA (2017) ; http://www.plmainternational.com/in

* Selima Ben Mrad, Ph.D., is an Associate Professor of Marketing at Nova Southeastern University. She can be reached at: sbenmrad@nova.edu


11 comments:

  1. Interesting read. I know that some private brands are actually manufactured at the same location/factory as brand names. For example, I had a friend who interned at a garbage bag manufacturing plant where they made both "Glad" and the generic Publix version. Is it a misconception that the private labels are inferior quality.

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  2. By Silvia Hernandez: I became familiar with private brands not long ago. This is an impressive concept that has changed the way we shop. I used to buy only manufacturer brands because I associated these brands with poor quality, leaving little or no room for any other option in my shopping cart. I had the belief that retailers were trying to make more revenue by introducing low quality products on their shelves.

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  3. I did not know that some manufacturers that produce private brands also produce store brands. That is interesting and it shows that both types of products would be of similar quality. This proves some of the misconceptions of store brands being of lower quality and high-risk wrong. In the past couple of years, I have seen the popularity of store brand products grow, especially from stores like Publix and Whole Foods, whose store brand products ensure quality and are more affordable compared to their private brand counterparts.

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  4. When I was in middle and high school I remember being embarrassed about being seen in stores while purchasing store brand products. The people that I went to school with viewed them as low quality products that only those who struggled financially purchased. The negative attitudes and inaccurate assumptions about store brand products are so interesting to think back on after reading this article. There is so much variance in the different qualities, prices, and names/labels on the products. I had no idea about all of the benefits of store brands, but it makes perfect sense now that I reflect on this article. 

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  5. Before reading this I was under the impressoin that store brands were indeed of lower quality than name brands, although I now know that in some cases its just the opposite. I think its an important thing to know as a consumer, since I am usually buying things based on the lowest price, and know now that Im not neccessarily sacrificing quality for a lower price when buying a store brand.

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  6. It is interesting that the Europe has a bigger percentage than the United States with the market for private label market share. 

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  7. This was a very interesting read; I think that the perception of store brands has changed over time, but because in some cases they are, they are still viewed as inferior. Those who use store brands are occasionally ostracized, especially in elementary and middle school.

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  8. When I go out shopping I buy a lot store brand and its interesting to learn that the store brands are not inferior quality to the name brand products. I was buying these products with the misconception that they are a cheaper alternative with only a slightly lowered quality compared to the other brands, it is reassuring to learn that the store brands are often of higher quality and still cheaper that the other brands.

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  9. When I go out shopping I buy a lot store brand and its interesting to learn that the store brands are not inferior quality to the name brand products. I was buying these products with the misconception that they are a cheaper alternative with only a slightly lowered quality compared to the other brands, it is reassuring to learn that the store brands are often of higher quality and still cheaper that the other brands.

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  10. Misconceptions are very common when it comes to branding and advertising. There are things companies will do to change or influence the way you think and act which is very interesting. These examples in this article really make you think about what else is out there.

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  11. I am so glad that I came across this blog. I always thought of store brands as cheap and low quality, however I now know that this is just a misconception of store brands. Since I am a college student and I am on a "college student" budget I always purchase store brand items, but it is nice to know that the things that I purchase are not low quality just because they are store brand.

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