Evaluating the Success of the Economic and Premium Private Labels in Retailers Positioned at the Opposite Ends of the Price-Quality Axis

Introduction

Private labels are manufactured by retailers or by a supplier on behalf of retailers and are sold in the name of retailers or brands that are owned by retailers. In other words, private labels are owned and branded by retailers whose primary objective is distribution, not production. One of the most challenging problems that private labels are facing is to position against rival national brands (Choi & Coughlan, 2006). Private labels (PLs) are generally positioned at a lower price and lower quality alternatives to some well-known national brands (NBs). However, Sethuraman & Gielens (2014) highlight that PLs are not considered a good alternative to top national brands because of their being associated with lower quality. This makes it harder to increase the share of PLs in retailers’ revenue. Although store loyalty is a significant solution for increasing the share of PLs up to a particular point (Sethuraman & Gielens, 2014), the retailer aims to make the share of PLs even bigger. This necessitates thinking of alternative positioning strategies for PLs rather than value for money (Geyskens et al. 2010).

Retailers in search of increasing the share of PLs in stores have thought of diversifying PLs in terms of quality. PLs are categorized into three groups which are economic, standard, and premium regarding quality. Categorizing PLs in terms of quality and offering alternatives together are the newest trends in retailing. Economic PLs aim to be a low-price alternative to mainstream quality NBs and their target consumers are those who can buy a product if it is cheaper without paying attention to its quality. On the contrary, Premium PLs are positioned as a good alternative to top national brands with the same quality and lower price. Premium PLs are imitations of the premium-quality NBs, and they aim to achieve delivering equal quality to customers at a lower price (Geyskens et al., 2010). Premium PLs get a noticeable place on the shelves in a retailer with the attention-grabbing package design.

PLs are evaluated as an extension of the brand names of retailers (Vahie & Paswan, 2006). Retailer image is widely used as an extrinsic cue to judge PLs (Ailawadi & Keller, 2004; Collins-dodd & Lindley, 2003; Dawar & Parker, 1994; Richardson, Dick, & Jain, 1994; Vahie & Paswan, 2006) and extrinsic cues primarily drive consumers' evaluations of PLs rather than intrinsic characteristics (Richardson et al., 1994). Furthermore, Collins-dodd & Lindley (2003) found a strong relationship between consumers’ perceptions of PLs and store image. Besides, Nenycz-Thiel & Romaniuk (2012) found a positive relationship between value for money perceptions of a supermarket and value for money perceptions of its PLs. Those results indicate that perceptions and image of PLs are shaped based on the image of the retailer they are sold. It can be inferred from those results that congruence between the price-quality position of the retail store and PLs might be effective for the success of PLs since the price and quality are two important attributes shaping retailer image and PLs’ quality tier.