Private Labels and National Brands Across Online and Offline Channels

118 Pages Posted: 9 Jun 2009

See all articles by Marta Arce-Urriza

Marta Arce-Urriza

Universidad Pública de Navarra

Javier Cebollada

Universidad Publica de Navarra; Universidad Publica de Navarra

Date Written: June 8, 2009

Abstract

This paper (Chapter 4 of a dissertation on multichannel consumer behavior) analyses the competition among private labels and national brands at the online channel while comparing it to brand competition offline. I uses a unique data set of purchase data of a sample of multichannel consumers of a grocery chain that shop interchangeably online and offline. We examine the competitive strengths of the brands present in 36 product categories across online and offline channels. The categories selected cover a wide range of products including food, beverage, hygiene items, etc. To keep the analysis manageable, we summarize the brands present in a category into three concrete brands: the private label, the reference brand and the national brand leader. The reference brand summarizes in one unique measure all brands in the market except the private label, and consequently provides a reference of the whole national brands’ market. On the other hand, the national brand leader corresponds to the national brand which is leading the market at every category. Besides, we measure the competitive strengths of these three brands by means of three dimensions: market share, conquesting power and intrinsic loyalty. To evaluate these last two dimensions the Colombo and Morrison’s (1989) model is estimated.

The key results from the chapter indicate that both the private label and national brands increase their intrinsic loyalty online, whereas just the private label increases its conquesting power and market share online. We also observe there are no significant differences in the increase of intrinsic loyalty online across the private label, the reference brand and the national brand leader. These findings indicate a general improvement of the private label’s competitive position online, overall in terms of conquesting power, what may increase retailers’ negotiating leverage at this channel.

Besides, the chapter also provides some insights about the drivers of private label’s market share, conquesting power and intrinsic loyalty’s increase at the online channel in terms of category characteristics. To examine this fact, three linear regression models are estimated. On the one hand, we find that online private label’s market share decreases for drinks, and also when the price differential among private labels and national brands increases. However, we conclude that there is no specific driver (in terms of category characteristics) which could explain why private label’s conquesting power grows online. Finally, we find that private label’s intrinsic loyalty does not increase homogeneously at the online channel across product categories. We observe that private label’s intrinsic loyalty increases online for sensory products and categories with a high level of market concentration. By contrast, we observe that private label’s intrinsic loyalty growth is weaker online for food products and categories with a general high private label’s market share. Finally, we find that private label’s intrinsic loyalty does not improve or improves less for categories in which the price gap between the private label and the rest of brands in the market is too strong. This finding supports the idea that an excessive price differential to national brands may be negative for the private label’s success.

The chapter concludes providing an analysis of the competitive position of private labels against national brands across categories. In order to do that, we use the classification proposed by Steenkamp and Dekimpe (1997) which organize the role of private labels against national brands into 4 groups: “giants”, which are at the best position in the the market, “misers”, which are at the worst position, and “fighters” and “artisans”, which are in between giants and misers. We find that the private label may compete as a giant in some categories, whereas as a miser, a fighter and an artisan in others, and that there are differences in this classification across online and offline channels. In an effort to understand at which categories the private label adopts each role, the study also evaluates the characteristics and the differences between giant, miser, fighter and artisan categories. Motivated from the results obtained in this investigation, retailers should understand the need of category level management at both channels to improve the position of private labels in the market.

These results draw a competitive environment in which retailers and producers must be more aware than ever of the business strategies their competitors follow. If online grocery purchases continue with their current steady increase, the competitive position of private labels online could improve even more. Hence, the online channel appears as a tool which can strength the fierce competition among private labels and national brands that marketing research has traditionally identified offline. On the one hand, retailers may use the online competitive advantage of private labels online in terms of conquesting power to reinforce and improve, if possible, their competitive position at this channel. On the other hand, producers shall be aware of this private labels’ advantage while determining their general strategy across online and offline channels. In this sense, producers should increase their efforts online to develop marketing strategies to retain consumers and, overall, to capture the attention of consumers from other brands.

Keywords: Store Brands, National Brands, Multichannel Retailing, Multichannel Consumer, E-commerce, Grocery Shopping

Suggested Citation

Arce-Urriza, Marta and Cebollada-Calvo, Jose-Javier and Cebollada-Calvo, Jose-Javier, Private Labels and National Brands Across Online and Offline Channels (June 8, 2009). Available at SSRN: https://ssrn.com/abstract=1416122 or http://dx.doi.org/10.2139/ssrn.1416122

Marta Arce-Urriza

Universidad Pública de Navarra ( email )

Campus Arrosadía
Pamplona, Navarra 31006
Spain

Jose-Javier Cebollada-Calvo (Contact Author)

Universidad Publica de Navarra ( email )

Campus de Arrosadia s/n
Pamplona, Navarre 31006
Spain

Universidad Publica de Navarra ( email )

Campus de Arrosadia s/n
Pamplona, Navarre 31006
Spain