National Brands Fight Private Labels Term Paper

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" (Sinha and Batra, 1999)

Sinha and Batra state that "most researchers now content that a generalized price -- quality relationship does not exist" although the "degree to which a higher price implies higher quality" has been examined and as well has been the "topic of considerable research in marketing." (1999) Therefore for the purpose of this study this antecedent relating to price consciousness will not be a variable in understanding the questions posed in this study.

Sirha and Batra (1999) state that this inference "is widely accepted as being context-specific, moderated by situational characteristic such as the extensiveness of a consumer's cognitive schemes and his/her product class knowledge" and cite the work of Peterson and Wilson (1985). Therefore, it can be understood that while the consumer might believe that a higher price being paid obtains the same equal receipt of quality in some categorical purchases but yet not in others. Each consumer is required to make trade-offs relating to price-quality factors and the category might well impact the consumer's decision to make certain trade-offs or alternatively the category might serve to dissuade the trade-off in which quality is reduced due to a reduction in price for that product.

The first hypothesis stated by Sinha and Batra is: "All else being equal, consumers will be more price consciousness in product categories where they perceive a lower perceived price -- quality association." (2008) the second hypothesis stated is: "All else being equal, consumers will be more price consciousness in product categories where they perceive greater risk" and Hypothesis Two a is stated as: "All else being equal, the negative effect of a consumer's perceived price -- quality association in a category on his or her category price consciousness will be moderated by his or her perceptions of category risk, being stronger as category risk increases and weaker as risk decreases." (Sinha and Batra, 1999) Other stated hypotheses in the study of Sinha and Batra (1999) are the following:

Hypothesis 3: All else being equal, consumers will be more price consciousness in product categories where they perceive price unfairness by national brands.

Hypothesis 4. All else being equal, the degree of a consumer's category price consciousness will positively affect his or her purchase of PLBs in that category

Hypothesis 5. All else being equal, a consumer's perceived category risk will have a negative effect on his or her private label purchase.

Hypothesis 6. All else being equal, a consumer's perceived price -- quality association will have a negative effect on his or her PLB purchases.

Hypothesis 6A. All else being equal, the direct _negative. Effect of a consumer's perceived price -- quality association in a category on his or her PLB purchases will be moderated by his or her perceptions of category risk, being stronger as category risk increases and weaker as risk decreases.

Hypothesis 7. All else being equal, perceived price unfairness will have a positive effect on PLB purchases in a category.

Sinha and Batra report in their findings that their study served to highlight the "…role of perceived quality" and the roles of "consumer's perceptual factors concerning prices, a perspective that is missing from the literature." (1999) Additionally they report having "studied these effects using data from several product categories, explicitly modeling the perceived differences in these categories on dimensions of category risk." (Sinha and Batra, 1999)

The results of the study reported by Sinha and Batra (1999) are of the nature which support "…several of the hypothesized antecedents" and specifically stated in the findings are "that consumers are less price conscious in categories where perceived risk is deemed to be high" and that this finding is "consistent with previous research" however it is stated to be demonstrated "at the category level utilizing data from multiple categories with explicit modeling of perceptions of category risk." (Sinha and Batra, 1999)

Stated as a second result that is interesting is the fact that the perceptions of consumers regarding national brand pricing unfairness within specific categories of products results in consumers becoming more price conscious in those very categories. Sinha and Batra relate that previous studies in the area of consumer behavior and economic psychology has failed to account for the "significant role of perceived price fairness/unfairness on consumer price consciousness" and that this finding appears to make the provision of "empirical support to the 'dual-entitlement theory of Kahneman et al. (1986) which stipulates that community standards of fairness act as a constraint to a firm's quest for profits, and price increases that result not from increases in costs but from higher profit motive and/or market dominance are judged as being unfair and subsequently 'punished' by consumers." (Sinha and Batra, 1999)

Additionally resulting from the study of Sinha and Batra (1999) is the finding that a "consumer's category price consciousness is a highly significant predictor of his/her purchase of PLBs." (Sinha and Batra, 1999) This appears to support the claims of Stern (1997) relating to increasing price consciousness is the reason for recent growth in PLB sales and that PLBs have made quality improvements recently. Sinha and Batra state that they have "…observed a significant negative effect of category price -- quality association on PLB purchases -H6., demonstrating that individuals with such category-specific "price -- quality schemas" tend to gravitate toward more expensive national brands." (1999)

Even more important according to Sinha and Batra is that this primary effect is found to be "…significantly moderated by the degree of perceived category risk." In regards to Hypothesis 6A it is stated that "the significant negative interaction term indicate that as perceived category risk increases, consumers with price-quality schemas increasingly shy away from PLBs. This is an important finding, as it implies that the role of perceived price -- quality association on PLB purchase is significantly stronger in risky categories." (Sinha and Batra, 1999)

The work of Ailawadi, Pauwels and Steenkamp (2008) entitled; "Private-Label Use and Store Loyalty" reports a study in which an "econometric model" of the relationship existing between a "household's private-label (PL)share its behavioral store loyalty" is developed. This model is one that not only includes "major drivers of these two behaviors" but as well includes "controls for simultaneity and nonlinearity in the relationship between them." Of Ailawadi, Pauwels and Steenkamp relate that private labels (PLs) in the consumer packaged goods industry have experienced a worldwide surge in availability and market share in recent years." (2008) Additionally related is the fact that PLs presently account "for one of every five items sold everyday in U.S. supermarkets, drug chains and mass merchandisers, and the market share in Western Europe is even larger." (Ailawadi, Pauwels and Steenkamp, 2008) in fact, the conclusion recently stated by Planet Retail (2007) is noted in the work of Ailawadi, Pauwels and Steenkamp which predicts that PLs are "…set for accelerated growth, with the majority of the world's leading grocers increasing their own label penetration." (2008)

Stated as the primary reasons that there is a desire among retailers to grow their private labels are those as follows:

(1) higher retail margins on PL;

(2) negotiating leverage with national brand (NB) manufacturers; and (3) higher consumer store loyalty." (Ailawadi, Pauwels and Steenkamp, 2008)

The first two reasons are stated to be supported in the literature and cited is the work of Ailawadi and Harlam (2004), Hoch and Banerji (1993), Narasimham and Wilcox (1998), Pauwels and Srinivasan (2004). Of Ailawadi, Pauwels and Steenkamp state that the focus of their study is on reason number three or 'higher consumer store loyalty'.

The work of Richardson, Jain and Dick (1996) entitled: "Household Store Brand Proneness: A Framework" states that "store brands help retailers increase store traffic and customer loyalty by offering exclusive lines under labels not found in competing stores" and according to Ailawadi, Pauwels and Steenkamp "conventional wisdom maintains that PL use is associated with higher store loyalty." Accordingly it is stated by the Private Label Manufacturers Association (2007) website that "retailers use store brands to increase business as well as to win the loyalty of their customers." (Ailawadi, Pauwels and Steenkamp, 2008) There is stated to be a mixed review of the empirical evidence on the subject however for example "on the one hand, a positive correlation between PL use and store loyalty has been observed in some studies" including those of Ailawadi, Neslin and Gedenk (2001), Kumar and Steenkamp (2007). The analytical model proposed by Corstjens and Lal (2000) is stated to provide support to the ability of PLs in building store loyalty. Additionally, it is reported by Sudhir and Talukdar (2004) support, although indirectly for PLs' "store differentiating ability." (Ailawadi, Pauwels and Steenkamp, 2008)

While customers may fail to differentiate "between different retailers' PLs; that is, PL users may be loyal to PL products in general, not to the PL or a particular retailer" according to the research of Richardson (1997) therefore, there is some difficulty in understanding "how…[continue]

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