Estimating Consumer Perceived Value Distances between Private Label and Proprietary Brands: The Conjoint Analysis Approach

Transcription

1 ISNN Social Research / Socialiniai tyrimai Nr. 2 (10), Estimating Consumer Perceived Value Distances between Private Label and Proprietary Brands: The Conjoint Analysis Approach Kristina Maikštėnienė, Viltė Auruškevičienė ISM University of Management and Economics Introduction Private label is a general definition of a brand owned not by a manufacturer or producer, but by a retailer or supplier who gets its goods made by a contract manufacturer under its own label. Lithuanian grocery retailers continue to push more and more private label products into different categories of the marketplace, because they represent high margins and profitability with relatively little marketing effort. However, the speed at which private labels still penetrate world-wide markets leaves many theorists wonder with a following question: to what extent consumer s mind still holds the original concept of a private label, as that which competes with their proprietary counterparts only by means of a price-value proposition (as defined by Mullick-Kanwar, 2004). This question is of special interest, as in most mature markets worldwide private labels are not anymore the low price point products in respective categories, as they used to be decades ago. They have spread along the vertical spectrum of categories price range and, in fact, often top their category with images that put into shade even some proprietary brands. However, in younger markets, such as Lithuania, where the era of private labels started more recently with emergence of local retailing giants, the perceptual implementation of vertical value structure in the consumer s mind has yet to be clarified. The aim of the article is to gain understanding of the relative value that Lithuanian consumers assign to the private-label brands in relation to the proprietary (original manufacturer) brands. Research objectives: 1. Reveal the historical role of private labels in grocery price competition. 2. Substantiate the method of conjoint analysis, as most appropriate method to measure relative importance of brand attributes. 3. By performing conjoint (quantitative) research, estimate the value distances that Lithuanian category - involved consumers assign to a private label brand in a typical fast moving consumer goods category. 4. Discuss the value of a private label brand in relation to proprietary brand, in terms of utility elements of important category and consumption attributes. Research methods: literature review, general review, conjoint analysis. Research results. Our research results confirm shifting role of a private label in intra-category (within-category) price competition. Literature and general review reveals the development of a private label from a low-price alternative to a fully fledged brand of its own, comparable to many horizontally extended proprietary brands in terms of its image richness and value proposition. The quantitative method of conjoint analysis proves to be the appropriate method to single out the brand type effects in order to estimate them in terms of other values. The empirical study with conjoint analysis determines ranks importance of the private label brand in terms of other attributes. Results indicate that, in the eyes of Lithuanian consumer, private label brand has already become closer to the proprietary brand than to its no-name counterpart. These findings imply that the threat of private labels shouldn t be underestimated by proprietary brands sold in Lithuania. Private labels have acquired brand attributes of their own. Proprietary brand owners should be seriously rethinking their brand strategies towards more profound differentiation and probably towards employing horizontal extension strategies. Empirical research findings also have practical significance for both private-label and proprietary (manufacturer s own) brand marketers, as they indicate the relative distances that consumers place on various branding regimes. Private labels and their historical role in grocery price competition Traditional marketing has historically focused on branded grocery products in which firms sought to develop customer loyalties for their brand (Yelkur, 2000). Commodity categories, such as flour, sugar, 67

2 milk, salt, water, had been for many decades available as private store products under no brand name. Private labels had begun to emerge as alternatives to the brand name products and for several decades played a very determined role in intra-category (within-category) price competition in many markets worldwide. Being positioned as the lower priced alternative to the proprietary brands, private label brands often carried the image of inferior quality. They grew by providing consumers lower priced options in a category. In mid-nineties, analysts have noted that changes in private label brands advertising, packaging, sales promotion, and product improvement strategies started to move private labels closer to manufacturer brand status (Halstead & Ward, 1995). Supermarkets started to aggressively participate in promotional activities in parity with brand manufacturers. Strategic reactions of original manufacturers, often referred to as national brands, in a traditional low-price private label environment have been discussed by various authors (Verhoef, Nijssen, Sloot, 2002, Dune, Narasimhan, 1999, Quelch, Harding, 1996, among few others). These possible reactions, or six options, are best summarized by Hoch (1996), as represented in Figure 1: Figure 1. Six strategic private-label fighting options for a proprietary (national) brand Source: Hoch, (1996). In this model, producing premium private labels is seen as one of the alternatives for proprietary brand manufacturer the fact that can be taken as an argument for the relatively empty space in up-price private label area. Indeed, many authors spot an evolution from private labels offering the consumer a lower quality product alternative for a lower price, to retail brands offering a true quality brand alternative, reflecting the application of a clear marketing approach in their retail environment (Burt, 2000, Wulf, Odekerken-Schroeder et al., 2005). In Lithuania, the growth of private labels has been triggered in late-nineties by supermarket concentration and their growing bargaining power over suppliers. Consumers responded favorably to high quality standards and low cost of the very first private labels. In early 2000, as retail sector further consolidated producing new sources of economies of scale, private labels have moved from a value offering to a key part of retailers differentiation strategies. While price was the basic proposition on which Lithuanian consumers initially favored private labels, they lately have begun to create and capture customer s mindshare for quality and benefit positioning in addition to lower prices. In fact, according to the latest news (Verbienė, 2007), the largest Lithuanian retailers are about to launch their private labels in the upscale part of the market. Despite a widespread interest that private labels continue to generate from both manufacturer and retailer side, there has been surprisingly little research that addresses the issue of the increasingly intense competitive interactions between private labels and proprietary brands (Cotterill, Putsis et al, 2000). 68

3 Conjoint Analysis According to Weiner (2000), consumers make selection of products based on anticipated satisfaction with that product, i.e., a subjective expectation or likelihood of enjoying the product. Most traditional research techniques in assessing consumer preferences tend to treat each attribute independently and provide little useful information how consumers are likely to make tradeoffs in their buying decisions. These traditional methods fail to account for the contribution of individual attributes or components from reactions to the entire mixture or total concept. Conjoint technique is a decompositional method that estimates the structure of a consumer s preferences (i.e., estimates preference parameters such as part-worths, importance weights, ideal points), given his or her overall evaluations of a set of alternatives that are pre-specified in terms of levels of different attributes (Green and Srinivasan, 1990). Conjoint analysis most realistically models day-to-day consumer decisions and is especially useful when one wants to predict consumer behavior in a multiattribute decision context (Carroll and Green, 1995, Green et al, 2001). Conjoint analysis in other terms is known as a trade-off analysis. The advantage of this method is that it asks the respondents to make choices between product alternatives defined by a unique set of product attributes in a real-life way i.e., by internal trade-off of the attributes against each other. The virtue of conjoint analysis is that it produces two important results. First, utility of each attribute level - a numerical expression of the value that consumers place in an attribute level, with lower utility indicating less value, and higher utility representing more value. Second, importance of each attribute, which can also be manually calculated as the difference between the lowest and highest utilities across the levels of attributes. Empirical Methodology Choice of a full-profile conjoint approach. We chose the multiple factor full-concept (or full-profile) conjoint approach for this study. This approach is preferred over the alternative two-factor-at-a-time tradeoff approach, as it is considered more realistic, ecologically valid because all factors are considered at the same time (SPSS, 2005). In a full-profile approach, the respondents are asked to rank or score a set of profiles according to their preference, and on each profile, all factors of interest are represented with a different combination of factor levels. Choice of a product category for testing. We selected cola (soft drink) product category for empirical testing, for several reasons. Soft drink attributes can be categorized as experience rather than search attributes. We needed a category where consumers tend to rely more on extrinsic signs, such as brand name (e.g., branding type), observable physical quality (e.g., drink temperature), promotional (e.g., promotional prize, price discount) or convenience (e.g., acquisition availability) attributes. Then, soft drink category (and cola in particular) as a product category is by no doubts well known to consumers. Finally, in this category, there is a definite clearly dominant ethical brand within a market of reference. Choice of a private label brand for testing. We have chosen MAXIMA as private label (store) brand for testing, as it exercises a value proposition of a classical store brand. As read on brand s internet page: The concept of goods bearing the MAXIMA private label is to offer the same quality as the market leader for that group of goods, only at a lower price ( Second, no less important criterion was that tested private label s package design in this category should straightforwardly resemble ethical (leading manufacturer) brand design, with retailer brand logo on them covering no more than half of packaging area (so that retailer brand borrows the identity and is not dominant). In this article, we purposefully choose to analyze only the case of category involved consumers. They are of our primary interest, because of deeper category knowledge and higher propensity to discern between different physical features of products and can be best informers about the brand differences. Screening for category involvement has been performed with a help of a standardized questionnaire. A literature review and above mentioned category considerations helped us select five variables that respondents would consider while evaluating product alternatives. As Cheng, Chen et al. (2007) generalize, quality and price perceptions are the two frequently compared consumer perceptions between proprietary and private label brands. In particular, we choose a brand name (branding type), observable physical quality (drink temperature), promotional (promotional prize, price discount) and convenience (acquisition availability) attributes. Theses factors with their respective levels are listed in Table 1. 69

4 Factors and Factor Levels Used Table 1 Branding type Price discount Promotional prize Factors External physical attribute Acquisition availability Source: Conjoint analysis output. Results Factor levels No-name unidentified name Cola Private label MAXIMA Cola Proprietary brand Coca-Cola No discount 0,50 LTL off regular bottle price No promotional prize 1 extra bottle under every 2nd cap 5 extra bottles under every 10th cap Cold (optimal physical Warm (sub-optimal physical Different Product Profiles and Total Utilities By the virtue of conjoint design, we were able to reduce the total number of testable profiles from 72 ( = 72). The SPSS generated a parsimonious orthogonal array of 16 profiles, where each card s profile is represented by a different combination of factor levels. Table 2 illustrates the 16 cards used in this study. Table 2 Profile no. Branding type Price discount Promotional prize External physical attribute 70 Acquisition availability Proprietary No discount 5 extra bottles under Warm (sub-optimal physical 1 brand every 10th cap No-name 0.50 LTL off No promotional prize Cold (optimal physical At an outlet within 2 regular Proprietary 0.50 LTL off No promotional prize Cold (optimal physical 3 brand regular Proprietary No discount 1 extra bottle under Cold (optimal physical 4 brand every 2nd cap No-name No discount 1 extra bottle under Warm (sub-optimal physical 5 every 2nd cap No-name 0.50 LTL off 1 extra bottle under Warm (sub-optimal physical 6 regular every 2nd cap Proprietary 0.50 LTL off No promotional prize Warm (sub-optimal physical 7 brand regular No-name 0.50 LTL off 5 extra bottles under Cold (optimal physical 8 regular every 10th cap Private No discount No promotional prize Warm (sub-optimal physical 9 label No-name 0.50 LTL off No promotional prize Warm (sub-optimal physical 10 regular Private 0.50 LTL off 1 extra bottle under Cold (optimal physical 11 label regular every 2nd cap No-name No discount No promotional prize Cold (optimal physical 12 No-name No discount 5 extra bottles under Cold (optimal physical 13 every 10th cap No-name No discount No promotional prize Warm (sub-optimal physical 14 Private 0.50 LTL off 5 extra bottles under Warm (sub-optimal physical 15 label regular every 10th cap Private No discount No promotional prize Cold (optimal physical 16 label * Rank values indicate most preferred (1) to least preferred (16) profiles Source: Conjoint analysis output. Total utility Rank*

5 Summary of Group Statistics The data for the study were collected via personal interviews, initially screening the respondents for category involvement criteria. There has been a balanced ratio of respondents in terms of gender, household income and age, with these demographic parameters corresponding close to national average. In total 89 respondents have sorted the profiles, and there were 86 valid responses. Sample size considerations for conjoint analysis are different from those for traditional market research surveys, and samples of less than 100 respondents are considered to be normal. Table 2 also provides total utility for each card, or product combination, as estimated by conjoint analyzer. The cards are ranked by using their total utilities i.e., card number 3 is ranked the first, card number 11 the second, card number 4 the third, etc. The overall numerical results of the conjoint analysis are shown in Table 3. Table 3 Factors Importance Factor levels Part-worths Branding type 31.59% Price discount 1.74% Promotional prize 23.48% External physical attribute 23.47% Acquisition availability 19.73% Source: Conjoint analysis output. From these results, it is apparent that branding type is the most important factor when choosing the Cola variant, as it accounts for the 31.59% of the decisions. But one has to be careful to when generalizing this finding, as it applies to the particular value difference between the no-name and proprietary brand. This value difference is significantly higher than importance of 0.5 LTL price discount. This finding can be only explained by two factors: first, category involved consumers tend not to react to small price discounts (are less price sensitive); second, tested unit was 2L Cola bottle, and a 50 cent discount is too small percentage-wise for a consumer to influence his / her decision significantly. While other factor differences are more or less self-explanatory from the utility number alone, the Branding type differences are at the center of our attention. The key finding is that the value distance between the typical private label and proprietary brand ( utility points) proves to be smaller than the same distance between no-name and private label ( utility points), which is in line with the described industry trends. Conclusions Consumers have exhibited a rapid shift in mindset about the roles and requirements for private label brands. Thinking about private labels as the brands No-name Private label Proprietary brand No discount LTL off regular bottle price No promotional prize extra bottle under every 2nd cap extra bottles under every 10th cap Cold (optimal physical Warm (sub-optimal physical of lowest price and lowest value does not last any more. Literature and general review reveals the development of a private label from a low-price alternative to a brand of its own, comparative to many horizontally extended proprietary brands in terms of its image richness and value proposition. The quantitative method of conjoint analysis is instrumental in helping to isolate the brand type effects within total value system of a consumer. Empirical conjoint analysis findings suggest that Lithuanian private label (retailer) brands now embody the attitude closer to the proprietary brand than that of no-name, MAXIMA private label being one typical example. These findings imply that the threat of private labels shouldn t be underestimated by proprietary brands sold in Lithuania. Private labels have acquired brand attributes of their own. The findings also have practical significance for both private-label and proprietary (manufacturer s own) brand marketers, as they indicate the relative distances that consumers place on various branding regimes. Brand owners should seriously rethink their brand strategies towards more profound differentiation and probably towards employing horizontal extension strategies. New reality of private label thinking also requires that retailers consider an arsenal of often-overlooked business and branding tools to further success. Private labels have clearly acquired strong differentiated brand attributes of their own.

6 Reference Mullick-Kanwar, M. (2004). The Evolution of Private Label Branding. Brandchannel, May 9th. Yelkur, R. (2000). Consumer Perceptions of Generic Products: a Mexican Study. Journal of Product and Brand Management, Vol. 9, No. 7, pp Halstead, D., Ward, C. B. (1995). Assessing the Vulnerability of Private Label Brands. Journal of Product and Brand Management, Vol. 4, No. 3, pp Verhoef, P. C., Nijssen, E. J., Sloot, L. M. (2002). Strategic Reactions of National Brand Manufacturers Towards Private Labels. European Journal of Marketing, Vol. 36, No. 11 / 12, pp Dune, D., Narasimhan, C. (1999). The New Appeal of Private Labels. Harvard Business Review, Vol. 77, No. 3, pp Quelch, J. A., Harding, D. (1996). Brands Versus Private Labels: Fighting to Win, Harvard Business Review, Vol. 74, No. 1, pp Hoch, S. J. (1996). How Should National Brands Think About Private Labels. Sloan Management Review, Vol. 37, No. 2, pp Burt, S. (2000). The Strategic Role of Retail Brands in British Grocery Retailing, European Journal of Marketing, Vol. 34, No. 8, pp Wulf, K., Odekerken-Schroeder, G., Goedertier, F., Van Ossel, G. (2005). Consumer Perceptions of Store Brands Versus National Brands. Journal of Consumer Marketing. Vol. 22, No. 4, pp Verbienė I. (2007 October 5). Nebenori konkuruoti su savimi. Verslo žinios, p Cotterill, R. W., Putsis, W. P., Jr., Dhar, R. (2000). Assessing the Competitive Interaction Between Private Labels and National Brands. Journal of Business, Vol. 73, No. 1, pp Weiner, B. (2000). Attributional Thoughts About Consumer Behavior. Journal of Consumer Research, Vol. 27, No. 3, pp Green, P. E., Srinivasan, V. (1990). Conjoint Analysis in Marketing: New Developments with Implications for Research and Practice. Journal of Marketing, Vol. 54, October, pp Carroll, J. D., Green, P. E. (1995). Psychometric Methods in Marketing Research: Part I: Conjoint Analysis. Journal of Marketing Research, Vol. 32, pp Green, P. E., Krieger, A. M., Wind, Y. (2001). Thirty Years of Conjoint Analysis: Reflections and Prospects. Interfaces. Vol. 31, pp SPSS Conjoint 14.0 Manual (2005). Link: maxima.lt/en/about-company/the-way-maxima-is/private-labels/ [accessed 2007 September 3] Cheng, J. M.-S., Chen, L. S.-L., Lin, J. Y.-C., Wang, E. S.-T. (2007). Do Consumers Perceive Differences Among National Brands, International Private Labels and Local Private Labels? Journal of Product and Brand Management. Vol. 16, No. 6, pp K. Maikštėnienė, V. Auruškevičienė Evaluating Perceived Value Distances Between Generic, Private Label and Original Manufacturer Brands: The Case of Category - Involved Consumers Summary The aim of the article is to gain understanding of the relative value that Lithuanian consumers assign to the private-label brands in relation to the proprietary (original manufacturer) brands. This aim is achieved by revealing the historical role of private labels in grocery price competition, substantiating choice of conjoint analysis method, employing this method to estimate the value distances that Lithuanian category-involved consumers assign to a private label brand in a typical fast moving consumer goods category and, finally, discussing the value of a private label brand in relation to proprietary brand. Empirical research results confirm shifting role of a private label in intra-category (within-category) price competition. The empirical study results indicate that, in the eyes of Lithuanian consumer, private label brand has already become closer to the proprietary brand than to its no-name counterpart. These findings imply that the threat of private labels shouldn t be underestimated by proprietary brands sold in Lithuania. Private labels have acquired brand attributes of their own. Proprietary brand owners should seriously rethink their brand strategies towards more profound differentiation and probably towards employing horizontal extension strategies. Empirical research findings have practical significance for both private-label and proprietary (manufacturer s own) brand marketers, as they indicate the relative distances that consumers place on various branding regimes. Key words: private labels, proprietary brands, perceived value, conjoint analysis. 72