The impact of product packaging on consumers’ value perception

Table of contents

Disclaimer

Acknowledgment

Abstract

List of figures

1. Introduction
1.1. Arrangement of the dissertation
1.2. The German trade and retailer brand environment
1.3. Research problem
1.4. Purpose of the research
1.5. Research questions
1.6. Limitations of the research

2. Literature review
2.1. Arrangement of the chapter
2.2. The Importance of packaging in the food segment
2.2.1. Packaging in the marketing mix
2.2.1.1. Building a brand with packaging
2.2.1.2. Packaging as pricing criterion
2.2.1.3. Importance of packaging in-store (shelf impact)
2.2.1.4. Gaining competitive advantage from packaging
2.2.2. Regulatory aspects of food packaging
2.3. Consumers and the purchase decision in the food segment
2.3.1. Influence of packaging on consumer expectations
2.3.2. What drives the purchase decision in-store
2.4. Retailer Brands and the shopper in the food segment
2.4.1. Why do consumers buy retailer brands?
2.4.2. Recent trends in Retailer Brands – Moving from value brands to multi-tier offerings
2.5. Conclusions from the literature review

3. Research methodology
3.1. Arrangement of the chapter
3.2. Research approach
3.3. Level of the research
3.4. Population and sample size
3.5. Data collection
3.6. Data analysis
3.7. Data presentation
3.8. Ethics
3.9. Reliability, validity and generalization

4. Quantitative analysis results and discussion
4.1. Arrangement of the chapter
4.2. Participants profile
4.3. Analysis strategy
4.4. Analysis of survey results for ham
4.4.1. Descriptive statistics for ham
4.4.2. Exploration of research questions for ham
4.4.3. Conclusions from analysis of the ham survey results
4.5. Analysis of survey results for cheese
4.5.1. Descriptive statistics for cheese
4.5.2. Exploration of research questions for cheese
4.5.3. Conclusions from analysis of the cheese survey results
4.6. Analysis of survey results for jam
4.6.1. Descriptive statistics for jam
4.6.2. Exploration of research questions for jam
4.6.3. Conclusions from analysis of the jam survey results
4.7. Analysis of survey results for ice cream
4.7.1. Descriptive statistics for ice cream
4.7.2. Exploration of research questions for ice cream
4.7.3. Conclusions from analysis of the ice cream survey results
4.8. Result summary and overall conclusions

5. Conclusions and recommendations
5.1. Arrangement of the chapter
5.2. Conclusions
5.2.1. Conclusions for research question 1 – confirmed by literature review and analysis
5.2.2. Conclusions for research question 2 – confirmed by literature review, but not analysis
5.2.3. Conclusions for research question 3 – confirmed by analysis
5.3. Recommendations for retailers
5.4. Recommendations for further research

6. Bibliography

7. Appendix
7.1. Survey data results tables
7.2. Online survey as run on http://www.lamapoll.de (German)
7.3. Online survey translation to English

List of figures

Figure 1: Value market share development German trade based on GFK (2012)

Figure 2: German retailer ranking according to food turnover based on Lebensmittelzeitung (2013)

Figure 3: Overview of retailer brands and respective tiers at national retailer Rewe

Figure 4: Generations of retailer brands based on Berentzen, J.B. (2010)

Figure 5: Distribution of survey replies

Figure 6: Gender distribution in the sample

Figure 7: Age distribution in the sample

Figure 8: Net income distribution in the sample

Figure 9: Household size distribution in the sample

Figure 10: Shopping behaviour distribution in the sample

Figure 11: Overview of ham products included in the survey

Figure 12: Willingness to pay and packaging scores for ham

Figure 13: Previous purchase for ham

Figure 14: Summary of regression outcomes for packaging and price premium for ham

Figure 15: Summary of regression outcomes for packaging and willingness to pay for ham

Figure 16: Impact of demographics on willingness to pay for Tier 1 ham (ANOVA results)

Figure 17: Overview of cheese products included in the survey

Figure 18: Willingness to pay and packaging scores for cheese

Figure 19: Previous purchase for cheese

Figure 20: Summary of regression outcomes for packaging and price premium for cheese

Figure 21: Summary of regression outcomes for packaging and willingness to pay for cheese

Figure 22: Impact of demographics on willingness to pay for Tier 1 cheese (ANOVA results)

Figure 23: Overview of jam products included in the survey

Figure 24: Willingness to pay and packaging scores for jam

Figure 25: Previous purchase for jam

Figure 26: Summary of regression outcomes for packaging and price premium for jam

Figure 27: Summary of regression outcomes for packaging and willingness to pay for jam

Figure 28: Impact of demographics on willingness to pay for Tier 1 jam (ANOVA results)

Figure 29: Overview of ice cream products included in the survey

Figure 30: Willingness to pay and packaging scores for ice cream

Figure 31: Previous purchase for ice cream

Figure 32: Summary of regression outcomes for packaging and price premium for ice cream

Figure 33: Summary of regression outcomes for packaging and willingness to pay for ice cream

Figure 34: Impact of demographics on willingness to pay for Tier 1 ice cream (ANOVA results)

Figure 35: Comparison of price premium in-store and mean survey results

Figure 36: Summary of research questions analysis results

Figure 37: Frequency table for gender distribution in the sample

Figure 38: Frequency table for age distribution in the sample

Figure 39: Frequency table for net income distribution in the sample

Figure 40: Frequency table for household size distribution in the sample

Figure 41: Frequency table for self-descriptor of shopping behaviour in the sample

Figure 42: Willingness to pay descriptive statistics for ham

Figure 43: Price premium descriptive statistics for ham

Figure 44: Packaging score descriptive statistics for ham

Figure 45: Purchase frequency table for ham

Figure 46: Summary of one-way ANOVA tests for willingness to pay for ham

Figure 47: Willingness to pay descriptive statistics for cheese

Figure 48: Price premium descriptive statistics for cheese

Figure 49: Packaging score descriptive statistics for cheese

Figure 50: Purchase frequency table for cheese

Figure 51: Summary of one-way ANOVA tests for willingness to pay for cheese

Figure 52: Willingness to pay descriptive statistics for jam

Figure 53: Price premium descriptive statistics for jam

Figure 54: Packaging score descriptive statistics for jam

Figure 55: Purchase frequency table for jam

Figure 56: Summary of one-way ANOVA tests for willingness to pay for jam

Figure 57: Willingness to pay descriptive statistics for ice cream

Figure 58: Price premium descriptive statistics for ice cream

Figure 59: Packaging score descriptive statistics for ice cream

Figure 60: Purchase frequency table for ice cream

Figure 61: Summary of one-way ANOVA tests for willingness to pay for ice cream

Figure 62: Comparison of research question 1 results between all participants and no previous purchase participants

1. Introduction

1.1. Arrangement of the dissertation

The dissertation is arranged into five chapters. Chapter 1 (Introduction) will provide an overview of the German trade and retailer brand environment and its development over the past five years. Based on this the research problem, hypothesis and questions are posed as well as the potential limitations of the research. Following, chapter 2 (Literature review) will discuss the existing literature on the role of packaging, the consumer purchase decision and the role and development of retailer brands. Chapter 3 (Research methodology) lays out the methods of analysis used in the paper and identifies methodological limitations and issues. The selected analysis approach requires quantitative data collection which is described. Further, any ethical limitations as well as the reliability, validity and potential for generalization of the findings are discussed. Chapter 4 (Quantitative analysis results and discussion) presents the analytical results of the collected data and presents the key findings and conclusions from the survey data. Lastly, chapter 5 (Conclusions and recommendations) provides a summary of the findings and conclusions of the previous chapters and places them in context, as well as recommendations for retailers as well as areas for future research.

1.2. The German trade and retailer brand environment

In the past years retailer brands have continued their share growth in the German trade environment and marked in 2012 a new record high value market share of 37,9% (+3,2 ppts. vs. 5yrs. ago and +0,8 ppts. vs. 2011). Whilst the low cost retailer brands, or also so called value retailer brands, stagnated at around 25% market share, the growth is coming from the mid and high tier retailer brands which have grown by +3,9 ppts. versus five years ago. This growth has been mainly delivered at the expense of non-market leading branded products in a category. Market leader brands are showing stable market shares.

Figure 1: Value market share development German trade based on GFK (2012)

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The sales in the German food segment are dominated by four key retailers who account for 69% of the total food segment turnover based on the top 30 retailer sales. The number one and two Edeka group and Rewe group offer both: i) the traditional supermarket stores as well as ii) discounter stores (e.g. Netto by Edeka, Penny by Rewe). Both sell branded products as well as retailer brands, however the amount of products and brands is limited at discounter stores. Importantly, hard discounter Aldi represents with 12% a channel which so far was not open for branded products and hence limited to mainly low cost retailer brands, until recent in/out activities starting in 2013.

Figure 2: German retailer ranking according to food turnover based on Lebensmittelzeitung (2013)

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Consumers already associate especially the long-time existing value retailer brands such as ja! (Rewe), Gut & Günstig (Edeka) or also Tip (Real/Metro) with the respective retailer chains (Berentzen, J.B. 2010). However, given their classification as mainly value brands they represent a segment which not necessarily stands for quality. In order to overcome this, retailers started to widen the portfolio of retailer brands introducing mid and high tier retailer brands. Kumar, N., Steenkamp, J.B. (2007) identified two types of mid and high tier retailer brands: premium lite retailer brands (rather mid-tier) and premium price retailer brands (high tier). Especially the latter pursues a quality leadership over branded products which should also justify a premium pricing, whilst premium lite retailer brands aim for the same quality but a cheaper price than national brands. Figure 3 below illustrates the lineup of retailer brand tiers at national retailer Rewe, who offers a fairly complete three tier retailer brand offering across key categories.

Figure 3: Overview of retailer brands and respective tiers at national retailer Rewe

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An example from the UK where this differentiation is already well developed is Tesco, with Tesco Everyday Value (value tier), Tesco Brand (mid-tier) and Tesco Finest (premium tier). Especially the mid-tier (premium lite) category is also already well developed in Germany, with most national retailers, excluding hard discounters (like Aldi), carrying a low and mid-tier product which also has an effect on consumer quality perception.

For example, the ARD (2013) has conducted a consumer test with orange juice. The same orange juice was used for all samples, but the packages shown were from four different retailers (national retailers Rewe and Edeka, discounters Aldi and Lidl) and partially in the case of Rewe and Edeka the mid-tier brand. Despite being the same orange juice the consumers voted Rewe and Edeka as the best tasting ones. In more formal terms, the packaging of a product acts as one of the elements in the consumer’s quality and price cognition, which is referencing the willingness to pay more for a given product (Brunso, K., et al. 2002). Also, consumers tend to rely on packaging when they make the in-store decision ( Silayoi, P., Speece, M. 2004) which however is also related to the total brand perception. Ultimately, price influences the perception of quality of a product, but perception of quality (e.g. through packaging) also influences willingness to pay the price (Imram, N. 1999). Given the increased importance of tier 1 retailer brands (premium) for retailers, the intention of this dissertation is to further investigate the relationship between willingness to pay higher pricing and packaging in the grocery segment.

1.3. Research problem

In the past two decades retailer brands have been growing mainly behind the value retailer brands. However, growth rates have stalled since mid-2000 and retailers can only continue to grow their retailer brand market share by expanding their retailer brands also in higher class tiers. Given the higher price levels they effectively compete with branded products and need to deliver a high quality impression to justify the pricing. The literature suggests that packaging and pricing are strongly correlated and that as such retailers might be able to sustain a price premium for their tier 1 retailer brands behind a qualitative strong packaging. The quality perception might be influenced by underlying demographics such as age, gender or shopping behaviour.

1.4. Purpose of the research

The purpose of this research is to use an analysis-led approach to identify the effect of packaging on the price elasticity i.e. what the consumer is willing to pay for the product. This will be evaluated in the context of differently tiered retailer brands and respective branded products in various food categories.

1.5. Research questions

The main underlying research question is if retailers can succeed in demanding a price premium for their premium tier retailer brands behind premium packaging. The research question will be explored using a quantitative analysis approach. In order to approach the research question in more depth the following sub-research questions will be explored:

1. Are consumers willing to pay a price premium for retailer brand Tier 1 products compared to branded and retailer brands Tier 2 / Tier 3 products based on the packaging appeal?
2. Do current retailer brand tier 1 premium priced products justify their price premium based on the packaging impression?
3. Are there demographic specifications such as gender, age, household size, household income or shopping behaviour influencing the willingness to pay a premium price?

1.6. Limitations of the research

Provided the given limitations of this dissertation, this study only covers four grocery categories with retailer brands of one specific retailer. Hence, the generalization to the total food industry might be limited. Further, there may be limitations such as cultural aspects that might affect the findings in one way or another. This research is specific to the German shopper and its cultural, social and political context. Given that this could be a potential determinant of how acceptable the findings of this research are globally, this is a significant limitation on the possible generalization of results. The research approach is retrospective as it is based on products available in-market. However, there is no actual sales data available to compare the true in-market results of the products and hence the research relies on a consumer survey only.

2. Literature review

2.1. Arrangement of the chapter

This chapter provides an overview of the existing literature with key focus on the role of packaging, the consumer purchase decision and the role of retailer brands. The literature review is structured in three parts. The first part is investigating the role of packaging in the food segment and especially its relation to pricing, shelf impact and gaining a competitive advantage. Following the drivers of the purchase decision in the food segment are reviewed. Lastly, the chapter is then concluded with a review of the role of retailer of brands and recent trends leading to multi-tier retailer brand offerings.

2.2. The Importance of packaging in the food segment

The core principle of this research is that packaging is an important factor of the food merchandising business. The first section of the literature review evaluates the role of packaging in the marketing mix and where it serves to create a competitive advantage. Following, the regulatory requirements for food packaging, including materials and information that must be included are reviewed. This acknowledges both the functional and the brand-building role of packaging in food merchandising.

2.2.1. Packaging in the marketing mix

The marketing mix is a loose framework of marketing strategies and attributes that is used as a working set of guidelines for a given product (Drewniany, B.L., Jewler, A.J. 2011). It is often conceptualized as the ‘4Ps’ (Product, Price, Placement and Promotion), which are aspects of the marketing offer that are perceived by the consumer (Drewniany, B.L., Jewler, A.J. 2011). Packaging plays a particular role in the marketing mix, including brand building, offering price cues and providing shelf impact. This, if done in a consumer relevant way, should result in a competitive advantage from the packaging choice. This will be evaluated in the following detailed review.

2.2.1.1. Building a brand with packaging

One of the most important things to understand about packaging is the fact that it is one of the most visible representations of the product and brand. The brand can be defined as the set of associations that are generated by the product’s physical attributes (like trademarks, symbols and packaging), including quality associations, social associations, sensory or emotional associations and previous brand experience (Drewniany, B.L., Jewler, A.J. 2011). The brand is the fundamental aspect of how the product is presented to consumers and how consumers recognize their potential experience with the brand (Drewniany, B.L., Jewler, A.J. 2011). Thus, it is particularly important to understand how the packaging of a product contributes to the development of the brand.

Branding is intended as a mean of product differentiation (Grimes, A., Doole, I. 1998). Generally, product differentiation between closely related consumer products is considered to be relatively meaningless, since it does not refer to functional qualities or differences between products. However, Grimes, A., Doole, I. (1998) noted that previous research by Carpenter et al. (1994) had shown that consumers actually value the seemingly meaningless differentiation through packaging. A highly effective form of differentiation is the inclusion of pictures of the product on the package, which serves as a resource to communicate brand equity (Underwood, R.L, Klein, N.M. 2002). According to Underwood, R.L, Klein, N.M. (2002) product pictures serve a number of purposes, they set consumer expectations for the brand, help them define the brand as a brand and improve assessment of the brand’s suitability to meet consumer needs. Thus, in a way, pictures of the product itself (even though this may not serve to differentiate the product) can result in improved brand recognition for food products (Underwood, R.L, Klein, N.M. 2002).

It is important to evaluate the impact of packaging for the specific target market, since the meaning assigned to packaging attributes can be variable. For example, one study that explored different perceptions of international brands in the UK and Taiwan found that the impact of color choices was very different between these two cultural contexts (Grimes, A., Doole, I. 1998). These differences in color perceptions resulted in differences in brand equity perceptions for brands such as Pepsi and Marlboro (Grimes, A., Doole, I. 1998). Thus, while packaging is important to branding, the meaning of packaging is neither consistent nor reliable across cultural boundaries. Furthermore, food products are commonly characterized by low product involvement and low brand loyalty (Grunert, K.G., et al. 1996). This means that the power of the brand itself is relatively low and cannot be relied upon to generate significant increased sales (Grunert, K.G., et al. 1996).

2.2.1.2. Packaging as pricing criterion

In the current literature packaging also serves as a criterion for consumers to determine whether the price is appropriate. Whilst the food quality remains a key criterion, the judgments are also driven by two other factors, i) information on the food packaging and ii) previous brand or product experience (Steenkamp, J.E.M., Van Trijp, H.C.M. 1996). In more formal terms, the packaging of a product acts as one of the elements in the consumer’s price cognition, which is related to the willingness to pay for a given product (Brunso, K., et al. 2002). Some of the factors in consumer choice that may be communicated by the product packaging in order to influence price include hedonic and sensory elements (perceptions of taste of the product), quality, convenience and health (Brunso, K., et al. 2002). This means that it is particularly important for the new customer to have a positive impression of the brand’s quality through its packaging in order to justify its price.

There are various aspects of packaging that influence the price that consumers are willing to pay. For example, some consumers are willing to pay more for functional, natural, or healthy products. However, still some are unwilling to pay a price premium for these products (Steenkamp, J.E.M., Van Trijp, H.C.M. 1996). The price of the product and the packaging may also set certain sensory expectations (Deliza, R., MacFie, H. 1996). For example, products that have a higher price, accompanied by packages that imply a special sensory experience (such as a luxurious or rare product), may actually encourage purchase, while products that promised this experience without the accompanying higher price may not have such a strong impact (Deliza, R., MacFie, H. 1996). Thus, the choice of packaging and price should be congruent in order to support an understanding of the premium product as being ‘worth’ the higher price. It is important to note that not all consumers want the cheapest possible products. Hence, fitting the price and packaging expectations congruently together can offer positive benefits even for a product that is not targeting cost leadership (Drewniany, B.L., Jewler, A.J. 2011). Ultimately, price influences the perception of quality of a product, but perception of quality (e.g. through packaging) also influence willingness to pay (Imram, N. 1999).

There are a number of different ways to communicate the price directly via packaging. One such possibility is a price flash, where the price is displayed prominently on the packaging (Rettie, R., Brewer, C. 2000). This is often done when a product is offered at a special price and when placed on the left has a moderate positive impact on recall of the product and price (Rettie, R., Brewer, C. 2000). This type of direct display may not be the most effective, but it does have the advantage of increasing the consumer awareness of the product’s price. Other approaches, including shelf labeling, are also factors in regulatory management, discussed below.

2.2.1.3. Importance of packaging in-store (shelf impact)

The importance of the packaging of a given product in-store is that it serves to distinguish very similar products from each other (Rundh, B. 2009). So-called shelf impact refers to the ability of the product to stand out from competing products displayed nearby and is primarily driven by the colors, shapes and other characteristics of the product packaging (Klimchuk, M.R., Krasovec, S.A. 2013). However, simply being different is insufficient to effectively provide shelf impact; instead the products need to be different in a way that makes them appealing to the consumer (Klimchuk, M.R., Krasovec, S.A. 2013). Ultimately, as Klimchuk, M.R., Krasovec, S.A. (2013) note, the consumer will come to select a preferred product based on its color and packaging shape. Hence, controlling this aspect of the packaging and making it as appealing as possible is an important part of the product mix.

A number of studies have shown that choice of products is largely dependent on easily identifiable and positive aspects of the product, such as product packaging. A study in preschoolers suggests that packaging choice is to some extent individualistic and driven by favorite colors and personal preferences (Marshall, D. et al. 2006). However, other studies have shown that the importance of color is much more consistent for adult consumers. In particular, adult consumers have undergone associative learning processes that have cemented consistent color meanings and implications (Grossman, R.P., Wisenblit, J.W. 1999). This means that as adults, consumers are no longer driven by idiosyncratic personal preferences, but instead have more consistent responses informed by culture and previous experience (Grossman, R.P., Wisenblit, J.W. 1999). Of course, this does mean that color associations are culturally variable, as shown by the study of UK and Taiwan consumers and their color associations (Grimes, A., Doole, I. 1998). However, it is generally the case that by using color perceptions and associations within a culture, packaging can represent various aspects of the product in an immediate fashion.

The graphics and colors used on packaging may be even more important for shelf impact than the verbiage (Bone, P.F., France, K. 2001). Bone, P.F., France, K. (2001) suggested that vividness and confirmation bias associated with colors and images on packaging have a much stronger impact on consumer choice in the store than wording on the package, which may not be absorbed under conditions of rapid selection. Their study found that even when specific verbal information was offered on the package (such as mitigation of health claims), images and colors resulted in a different understanding of the value of the product than the verbiage offered (Bone, P.F., France, K. 2001). This study suggests that, although verbiage is important, in terms of immediate impact on the consumer in the store, packaging colors and graphics are far more relevant (Bone, P.F., France, K. 2001).

2.2.1.4. Gaining competitive advantage from packaging

The ultimate question for marketers is, whether packaging actually represents a competitive advantage. Competitive advantage can be defined briefly as a characteristic or resource of the product that is valuable, rare, inimitable and non-substitutable (Drewniany, B.L., Jewler, A.J. 2011). Most importantly, the competitive advantage increases the sales of the products. In consumer-led food product development, in which market-oriented firms identify needs from consumers themselves and seek to meet them (Costa, A.I.A., Jongen, W.M.F. 2006), packaging may be particularly important because it illustrates the precise needs that are being met by the product (Grunert, K.G. et al. 1996).

Packaging is an important element of competitive advantage because it is fundamental to consumer acceptance of the food product, influencing perceptions of safety, quality and sensory aspects of the food contained within it (Imram, N. 1999). The package offers competitive advantage because it is a primary mechanism for communication to consumers about these aspects of the product, as well as how it may be best used, how it is differentiated from competitors and what benefits the consumer may gain from its use (Nancarrow, G. et al. 1998). These communications are not just surrounding sensory experience. For example, communications about health on food packaging may play into social discourses on healthy eating and dietary needs, making the product either more or less desirable to a certain group of people (Bech-Larsen, T., Scholderer, J. 2007; Chrsyochou, P., et al. 2010). Packaging can allow for functional foods (or those that are marketed as serving a further purpose than general nutrition or sensory aspects of the eating experience) to communicate and differentiate themselves from others based on these refined characteristics, although care must be taken not to make unsupportable or illegal claims (Bech-Larsen, T., Scholderer, J. 2007). This offers a potentially large benefit for the marketer of such foods in developing consumer desire for its products.

In addition to its selling role, packaging also plays a logistical role in maintaining competitive advantage (Rundh, B. 2005). For example, packaging can extend the shelf life of products or make them more easily traceable, making them more appealing to retailers as well as consumers (Dainelli, D. et al. 2008; Rundh, B. 2005). Packaging also encourages interaction between the consumer and the product; by looking at and reading packages, the consumer becomes aware of the product and its potential benefits (Rundh, B. 2009). This offers a potential significant competitive advantage for the firm that can encourage this interaction. There are some tricks that can be used in this case. For example, by placing non-verbal information (images) on the left and verbal information on the right, package designers can create situations where consumers can accommodate both types of information more rapidly (Rettie, R., Brewer, C. 2000). These types of design aspects of the package can generate competitive advantage by making them stand out more from competitors and improving consumer understanding.

2.2.2. Regulatory aspects of food packaging

In addition to its marketing information, food packaging plays a number of other roles. For example, it protects and preserves food, provides tamper protection and indicates food waste reduction (Marsh, K., Bugusu, B. 2007). Many of these roles are enhanced by the choice of material (such as metal, plastics, or paperboard); however, the choice of material can also lead to excessive packaging, which creates a waste problem and can cause disposal difficulties (Marsh, K., Bugusu, B. 2007). This makes functional characteristics and solid waste disposal a key area of packaging regulation, although the precise regulations vary by jurisdiction. For example, many states and countries have bottle deposit rules, which encourage post-consumer recycling (Marsh, K., Bugusu, B. 2007). Others limit the types of materials that can be used in packaging, in order to control the amount of hard to recycle packaging that ends up in landfills (Marsh, K., Bugusu, B. 2007).

Difference in regulatory regimes mean that packages sometimes must be redesigned multiple times for international markets (Heckman, J.H. 2005). Heckman, J.H. (2005) compares food packaging content regulation in the United States and European Union, citing a number of differences in these regulatory regimes. He notes that there are similar requirements for testing of materials, although toxicity thresholds and specific tests used may differ (Heckman, J.H. 2005). Thus, there may be differences in whether a given packaging material is allowed in the US and EU (Heckman, J.H. 2005)

New types of packaging also pose a regulatory challenge. Active and intelligent food packaging, which is a novel type of packaging that reacts environmentally to extend the life of food and directly indicate freshness using a monitoring system, also poses a regulatory challenge (Dainelli, D. et al. 2008). This type of packaging may use nanotechnology to prolong shelf life of products, while intelligent labels may indicate freshness (Dainelli, D. et al. 2008). These would clearly be positive factors for marketing, but the regulatory implications of this type of packaging have not yet been fully resolved.

A further regulatory issue in food packaging is required information. For example, nutritional information has been required on most food packages sold in the United States since 1990 (Underwood, R.L., Ozanne, J.L. 1998). Nutritional labeling is also required in the EU (Cheftel, J.C. 2005). There are also other regulatory package labeling requirements, including size and volume requirements (Underwood, R.L., Ozanne, J.L. 1998). Other verbal claims on packaging that may be regulated include nutritional and origin claims (such as ‘organic’ and ‘low-fat’), allergens or potential allergens, suitability for special diets and ingredient information (Cheftel, J.C. 2005). Overall, the regulatory environment (which may vary depending on the market) means that use of packaging materials and information may be constrained.

2.3. Consumers and the purchase decision in the food segment

While product packaging is particularly important in the marketing mix, the most important point is the role of packaging in the formation of consumer expectations and its ultimate role in the decision to purchase a given product. Thus, understanding consumer expectations and packaging’s role in their formation, as well as understanding the actual purchase decision, is fundamental in understanding how packaging influences the actual purchase decision.

2.3.1. Influence of packaging on consumer expectations

There have been a number of studies done on how packaging influences consumer expectations of a given product. These studies generally show that the choice of wording, images and colors on product packaging set sensory and other expectations for the product.

The images included on food packaging serve as one factor in setting consumer expectations. A study on orange juice cartons revealed that the choice of image actually influenced the consumer’s sensory assessment of the product (Mizutani, N., et al. 2010). Mizutani, N., et al. (2010) used four different sets of images to represent orange juice with different pleasantness and congruence characteristics. They then performed a taste test (using the same orange juice) to determine the effects on taste. The authors found that pleasant packaging images resulted in perceptions that the juice was fresher and more palatable, while those with pleasant congruent images were also rated as having a better aroma (Mizutani, N., et al. 2010). This study strongly suggests that package imagery can generate consumer perceptions and expectations of the sensory experience of the product.

There is also evidence that the shape and color of packaging will play a role in setting consumer expectations. One study found that packaging resulted in sensory perception differences, although these differences were modulated by the individual’s sensitivity to design (Becker, L., et al. 2011). Becker, L., et al. (2011) studied the perception of ‘tough’ yogurt containers (as indicated by different curvatures and coloration of the container) and its effect on consumer expectations of taste. They found that the designs that were bolder did result in a difference in taste expectations and experience by consumers (Becker, L., et al. 2011). A second study on milk desserts also found that the shape and color of the packaging was a relevant aspect of the consumer expectation (Ares, G., Deliza, L. 2010). Ares, G., Deliza, L. (2010) designed six packages with varying shapes and coloration for the same milk dessert and then asked consumers to rate them based on expectations of liking and sensory expectations. They found that consumers associated different packaging colors with different flavors; for example, cream was associated with dulce de leche (sweet, delicious), while black was associated with bitter chocolate (disgusting, interesting) (Ares, G., Deliza, L. 2010). Shape was also important, with square packages being viewed more positively and round packages being viewed as runny or disgusting (Ares, G., Deliza, L. 2010). This study provides direct evidence that the choice of packaging will influence the consumer’s expectation of the product. A third study of Cheddar cheese packaging also showed that package attributes, including color, shape and wording, influenced the sensory perception of the contents (Murray, J.M., Delahunty, C.M. 2000).

Volume perceptions related to the shape of the packaging are also a potential factor in setting consumer expectations (Raghubir, P., Krishna, A. 1999). Raghubir, P., Krishna, A. (1999) tested seven different packaging configurations with different shape and height characteristics, in order to determine the effect on consumer perceptions and expectations. They found that the height of the product packaging was the simplest heuristic used by consumers to guess at the total volume of the package (Raghubir, P., Krishna, A. 1999). Furthermore, they also found that perceived value was influenced by height, with reduced height being associated with reduced perceived consumption (Raghubir, P., Krishna, A. 1999). Overall, they indicated that the height and perceived volume of the packaging influenced perceived consumption and satisfaction with the product, even though in all cases consumers had access to containers of the same absolute volume (Raghubir, P., Krishna, A. 1999). Thus, shape of the container is not just an aesthetic perception, but also related to the functional value and potential satisfaction experienced by the consumer.

Sometimes, packaging choices may set up contradictory consumer expectations. For example, a study of health claims on packaging in Nordic countries found that the presence of a health claim tended to reduce consumer expectations of other characteristics, like naturalness and taste (Lahteenmaki, L. et al. 2010). This study also suggested that health claims do not necessarily increase perceptions of the healthiness of the product, even though it may negatively impact other perceptions (Lahteenmaki, L. et al. 2010). Thus, marketers need to choose their packaging claims carefully in order to prevent conflict between claims reducing the power of the primary claim.

2.3.2. What drives the purchase decision in-store

While packaging clearly influences consumer expectations of the product, this does not fully explain how consumers make decisions in-store. There have been a number of approaches to answer this question.

One study of milk desserts focused on product involvement and attitude to packaging characteristics as a driver of the in-store purchase decision (Ares, G. et al. 2010). Ares, G., et al. (2010) found that product involvement (or the extent to which a consumer will think about a purchase) was a factor in determining how a consumer will assess willingness to purchase. The authors used a series of different packages for chocolate milk desserts, varying between hedonic and functional attributes and with different package shapes, colors, brands and pictures (Ares, G. et al. 2010). They compared perception pairs such as useless/useful and mundane/fascinating to determine how interested the individuals were in the product; additionally they assessed the importance of the functional claim of high levels of anti-oxidants (Ares, G. et al. 2010). The authors found that willingness to purchase the product was driven both by high involvement (or the extent to which the purchase was interesting or important) and the personal importance of the anti-oxidant claim (Ares, G. et al. 2010). Thus, the packaging and its claims is a clear factor in the in-store purchase decision.

It is not only involvement that contributes to in-store purchasing decisions. A study of packaging influences on in-store decision making found that time pressure also played a role in the decision process (Silayoi, P., Speece, M. 2004). Silayoi, P., Speece, M. (2004) concluded that consumers relied on packaging cues in order to make in-store decisions, especially when they were hurried and did not have much involvement with the purchase decision. The consumers in their focus groups suggested that package wording was important, but also that complicated package wording could actually impede decision making in-store, especially in environments when they were rushed (Silayoi, P., Speece, M. 2004). This suggests that, once again involvement is key, but also that consumer resources like time and attention play a role in determining the outcomes of the purchase decision.

Finally, environmental cues and the in-store experience can influence the purchase decision (Bellizzi, J.A., Hite, R.E. 1992). Bellizzi, J.A., Hite, R.E. (1992) tested two simulated retail environments, one primarily blue (denoting calmness and coolness) and one primarily red (denoting tenseness and negativity). They found that the blue environment resulted in more immediate purchases and fewer postponements than the red environment (Bellizzi, J.A., Hite, R.E. 1992). This is a very basic finding about the importance of the store environment on the purchase, but it points to a very important aspect that needs to be understood. Not all purchasing factors are under the control of the marketer. Uncontrolled environmental factors need to be taken into account when considering the consumer purchase decision.

2.4. Retailer Brands and the shopper in the food segment

The final focus of this literature review is an exploration of why consumers buy retailer brands. Retailer or private label brand products are produced by the retailer for in-store sales, hence they may have a distinct brand identity from the store (Grunert, K.G. et al. 1996). The actual supply chain for retailer branded products is often similar to (or even identical to) national branded products, though retailer policies on quality and consistency of goods may vary (Grunert, K.G. et al. 1996).

Most of the examples of packaging design that are held out as positively influencing consumer decision making are from large-scale international brands, which are marketed to a wide range of individuals and markets. However, retailer brands are not widely marketed and may not have as much marketing support or multi-faceted development behind them. In this section, the consumer motivations for purchase of retailer brands and a recent movement away from the value brand paradigm of the retailer brand are discussed as a mean of understanding better the increasing complexity within this sector.

2.4.1. Why do consumers buy retailer brands?

There have been a number of studies why consumers buy retailer or private label brands. While many of these studies focus on price (and related issues), other aspects of the brand choice include perceptions of quality and brand loyalty. It should be noted that packaging, while it is seen as an area for improvement by retailers, is not necessarily viewed as a strength or determining feature in the selection of products, unlike for national brands (Garrettson, J.A. et al. 2002). However, this does not necessarily indicate that packaging is unimportant.

One study focused on the choice of retailer brands as a risk assessment exercise (Batra, R., Sinha, I. 2000). The authors posited that the selection of retailer brands was associated with a certain amount of risk and found that the willingness to purchase was increased when there was a reduction in perceived risk (Batra, R., Sinha, I. 2000). The authors found that purchase of retailer brands was more commonly associated with products that had high ‘search’ characteristics (or need for information that could be imparted on the product package) (Batra, R., Sinha, I. 2000). This reduced the uncertainty about consumption, particularly for the initial purchase and made consumers more willing to purchase (Batra, R., Sinha, I. 2000).

In addition to information and risk, several studies have addressed the role of price in the selection of retailer and private label brands. Batra, R., Sinha, I. (2000) found that price was actually a concern for the selection of both private label and national brands. In earlier research, the authors had found that price was a significant determinant of the choice of private label brands (Sinha, I., Batra, R. 1999). This was particularly true in two categories of goods (which may or may not overlap). The first category of goods was goods with a relatively low risk profile, or where the consumer was not in serious doubt about the potential quality of the private label product (Sinha, I., Batra, R. 1999). The second category of goods was where there was a high degree of perceived unfairness in the price of the national brand, which increased consumer resistance to the national brand and willingness to seek alternatives (Sinha, I., Batra, R. 1999). Obviously, not every potential retailer branded product might fall into these categories, but a large number of such products will be relevant. A second study indicates that external factors like business cycles (recessions) may increase the attractiveness of private label goods, because falling incomes mean that the price differentials between private label and national brands become much more relevant to consumers (Lamey, I., et al. 2007). Furthermore, these switches are ‘sticky,’ in that consumers change readily to store brands during recession, but may not change as rapidly back to national brands following economic recovery (Lamey, I., et al. 2007). Thus, the set of price-related circumstances that influence consumers to buy retailer brands includes both perceptions of price unfairness and relative consumer income.

A third category of influences on the choice of retailer brands is retailer-related characteristics, including perceived quality, store aesthetics and store loyalty. DelVecchio, D. (2001) study indicated that consumers that imbued brands with more symbolic meaning were more likely to consider private brands more effectively, but only when these private brands were competing in categories of goods that were largely private in nature. In categories of goods that had a high level of existing branding and national brand competition, the private brand may not be considered to be as strongly quality-driven and may not have the brand recognition power associated with national brands (DelVecchio, D. 2001). Thus, perceived quality and its power depends on the characteristics of the market as well as the product. The aesthetic nature of the store itself also influences the perception of quality of the associated store brand (Richardson, P., et al. 1996). In particular, retail environments that were more positive aesthetically (cleaner, less crowded and more harmonious colors) were associated with stronger acceptance of their retailer brands (Richardson, P., et al. 1996). A third aspect of private label use is existing store loyalty, or the extent to which consumers choose to shop at a given store (Ailawadi, K.L., et al. 2008). Ailawadi, K.L., et al. (2008) found that higher levels of private label use were associated with increased store loyalty and vice versa, suggesting a strong relationship between these two areas. Looking back to Batra, R., Sinha, I. (2000) framework for use of private labels, it is possible that the increased in-store loyalty reduces perceived risk for private label goods and increases the experience information available about the private label, which significantly reduces the barrier to purchase a private label.

2.4.2. Recent trends in Retailer Brands – Moving from value brands to multi-tier offerings

Although private label brands have traditionally inhabited the value section of the supermarket, there have been a number of trends that have been moving retailers away from this segment only and into multi-tier offerings. One factor in this revision of the position of retailer brands is the recognition that they offer potential competitive advantage and category profitability, particularly in categories that are not heavily targeted by national brands (Pepe, M.S., et al. 2012). This offers an incentive to retailers to develop multiple positions in the market and meet multiple market needs (Pepe, M.S., et al. 2012). Pepe, M.S., et al. (2012) found that category profitability was not strongly affected by private-label focus in the outcomes of one supermarket, but still observed that developing a strong private label brand strategy was one of the ways in which supermarkets could increase overall profitability. One of the major trends in expanding retail brands has been the development of multi-tier offerings, which allow consumers to select preferred levels of quality and price as well as variety (Lincoln, K., Thomassen, L. 2009). Berentzen, J.B. (2010) identified four generations of retailer brands, which have evolved over the past decades.

Figure 4: Generations of retailer brands based on Berentzen, J.B. (2010)

illustration not visible in this excerpt

For example, UK supermarket chain Tesco’s private label goods are collectively the largest consumer brand in the world; however, this growth is not driven by a single monolithic brand, but instead by a number of variations of quality and price (Lincoln, K., Thomassen, L. 2009). These products range from the Tesco value range (which offers a limited selection basic packaging and basic quality goods) to Tesco Finest (which has more sophisticated packaging, higher-quality ingredients and luxury products and recipes) (Lincoln, K., Thomassen, L. 2009). In some cases, retailer brands are generally higher-level; for example, US supermarket Trader Joe’s offers primarily own-brand gourmet products, none of which are positioned as basic or value goods (Abraham, S. 2005). This trend is not being followed by all retailers that offer private label brands, especially those in the cost leader position. For example, German hard discounter Aldi still pursues a cost leader private brand strategy, offering a basic selection of goods at a single quality (Lincoln, K., Thomassen, L. 2009). Overall, however, large retailers (e.g. Rewe or Edeka in Germany) are moving toward the use of multi-tier brands that represent different levels of performance, perceived quality and price in order to capture more of the consumer market. This is considered to be one of the main areas for development of retail brands (Lincoln, K., Thomassen, L. 2009).

2.5. Conclusions from the literature review

Importantly, the review of the current literature confirms the validity of the research question as they build upon the existing understanding in the literature, but as such have not been penetrated in great detail.

The current literature confirms a strong link of packaging within overall brand equity, but also that it is one part of consumer’s price cognition.

There is a clear indication that brand building and brand perception is to some extend linked to the packaging as pointed out by Drewniany, B.L., Jewler, A.J. (2011). With regards to a possible impact of packaging on willingness to pay / pricing Brunso, K., et al. (2002) confirm this in their work and indicate packaging as one of the elements in the consumer’s price cognition. Deliza, R., MacFie, H. (1996) show that packaging and price are in close relationship as a product with a luxurious packaging and a high price is more successful than even a luxurious product with a low price. Ultimately, price influences the perception of the quality of a product, but perception of quality (e.g. through packaging) also influence willingness to pay (Imram, N. 1999). In summary, the literature confirms that there is a strong relationship between pricing and packaging.

Packaging acts as key enabler for product differentiation and creates consumer expectations

Besides the general relationship of packaging and price the literature identifies packaging as a key enabler for differentiation. The shelf impact of a packaging in-store heavily relies on the colors, shapes and other characteristics of the product packaging (Klimchuk, M.R., Krasovec, S.A. 2013 and Bone, P.F., France, K. 2001) and serves as a consumer relevant mean of differentitation according to Carpenter et al. (1994). Further, the study conducted by Mizutani, N., et al. (2010) concludes that package imagery can generate consumer perceptions and expectations of the sensory experience of the product. Hence, in summary it is valid to conclude that the current literature supports the theory of packaging to support the respective pricing strategy (tier level).

Retailer brands still have to overcome a consumer perceived barrier of risk which might be overcome by pricing, retailer image or being a low risk product.

The key barrier retailer brands have to overcome is the amount of perceived risk by the consumer when buying a retailer brand (Batra, R., Sinha, I. 2000). In total there are three main categories why people buy retailer brands:

1) Low risk products don’t provide the burden of risk (Batra, R., Sinha, I. 2000)
2) Too high price premium between national brand and retailer brand (Batra, R., Sinha, I. 2000)
3) Strong quality perception of the retailer selling the retailer brand ( Richardson, P., et al. 1996)

Once consumers switched to a retailer brand, even if e.g. for monetary/value reasons solely during recession, they may not change as rapidly back to national brands (Lamey, I., et al. 2007) if not dissatisfied with the product as such.

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