List of figures
List of tables
1.1 Problem definition & scope of the study
1.2 Structure of the work
2. How customers evaluate products
2.1 Consumer's quality perception
2.2 Store brands vs national brands
2.3 Two tiers brands
3. The relevance of extrinsic cues
3.1.1 Customer-BasedBrand Equity
3.1.2 Measuring Customer-Based Brand Equity
3.1.3 Relation between store image and store brand image
3.2.1 Package elements
3.2.2 Individual preferences and cultural & social context
3.3.1 Factors influencing the relationship between price and quality
3.4 Country of Origin
3.4.1 Variables influencing the country of origin effect
3.4.2 Empirical research
4. Conclusion and Management implications
List of Figures
Figure 1: Market share of private labels worldwide in 2013
Figure 2: Types of retail brands
Figure 3: Results of blind and non-blind test
Figure 4: Retailer positional advantage performance
Figure 5: Example ofproductprofile
Table 1: Premium andvalue brand quality expectation
Table 2: Significance of difference in taste preferences
Table 3: Relationship between price and objective quality
Table 4: Beer prices
Table 5: Contingency table analysis
Table 6: Product and category dimensions
Table 7: Products quality perception andrelative rankings
Table 8: Local store vs. Foreign store
Table 9: Store quality perception and relative rankings
Table 10: Cheese attributes
Table 11: Experimental sample
Table 12: Importance of extrinsic and intrinsic cues on quality perception..
Table 13: Quality perception andpurchase attention
Table 14: Cheese quality perception
1.1 Problem definition and scope of the work
Store brands are products owned and sold by retailers and they are usually produced by third party1. In the last decades their market share among different food categories has increased sensibly and in countries like Switzerland and Spain their market shares exceed 50%2. However, their success is not equal worldwide and because of increasing competition, retailers have to further differentiate themselves from competitors and create a distinctive retail offer. In addition, general research shows that store brands suffer from low quality image if compared with national brands, even if their quality is not inferior3. In this regard, this work, illustrates an empirical research, conducted by De Wulf et al. (2005), that confirms this statement. Taking into consideration the fact that store brands are not characterized by inferior quality compared with national brands, it is necessary to consider their extrinsic cues rather than their intrinsic cues.
What do these terms mean? Consumers evaluating products consider several factors. These factors can be divided in two categories: intrinsic and extrinsic cues. The first ones are the attributes of the products itself and the second ones refer to factors like price, package, country of origin and brand. It is believed that customers are more familiar with extrinsic cues, this is the reason why they rely more on them than on intrinsic cues4. The focus of this thesis is on the influence that extrinsic cues have in the customers' quality perception of a product and how store brands could improve their image taking it into consideration. The perceived quality can be defined as the consumer's judgment about a product's overall excellence or superiority5. On the contrary, objective quality is the word used in literature to describe the actual excellence or superiority of the products. The customer's reliance on intrinsic or extrinsic cues depends on different factors that have to be analysed in order to give the managers the opportunity to develop appropriate marketing and sales activities. Furthermore, managers often miss the opportunity to gain market share just because they disregarded the customers’ expectations. For example, in a study conducted for General Electric, it was found that, when managers were asked about how costumers perceive quality, they indicated workmanship, performance and form as critical attributes6. However, customers listed other components as a measure of quality, such as clean appearance, ability and durability.
1.2 Structure of the work
The second chapter of this work shows the manner customers infer quality and illustrates how different variables influence the customer’s reliance on extrinsic or intrinsic cues. There is a long history of research that demonstrates that consumers frequently use extrinsic cues as an indicator of product excellence. Therefore, management’s strategy to target the most price-elastic shoppers by discounting their store brands and investing low resources on extrinsic cues like brand, package and advertisement may actually not be the right decision. Besides the work shows the characteristics and differences between store brands and national brands and as indicated previously, provides an empirical research on this regard.
The third chapter shows the importance of the extrinsic cues (Brand, Package, Price and Country of Origin) in the improvement of the customer’s quality perception of store brands. In this regard, the work shows an overview of the past literature and illustrates some empirical studies in order to provide a clearer picture of the topic.
Finally, a conclusion and management implications are provided.
2. How customers evaluate products
2.1 Customer quality perception
The way customers infer quality and their reliance on extrinsic or intrinsic cues depends on factors that have to be looked more closely into.
The customers evaluate the products usually in a comparison context and this represents their evoked set7. It means that the quality of a product is evaluated by the customer considering also its relative value among other products. It is relevant to note that this evoked set is determined by the customer and not by the company.8
The customer’s quality perception of a product depends also on the nature of the product itself9. Every product has different and specific attributes that are evaluated in different manners by the customer. It is also important to note, that the products’ attributes among the same category of products, influence the customer quality perception differently10. For example, the presence of pulp in orangejuices is seen as a sign of quality, but this is not the case of applejuices. But, taking into account more abstract attributes, it is possible to determine which of them can be indicated as important attributes demanded by the customers among a specific category11. A study conducted by Bonner and Nelson (1985), show that attributes, for example appetizing appearance, rich flavour and natural taste, were relevant across 33 product categories.12
Besides, as indicated before, customers use intrinsic and extrinsic cues in order to evaluate the quality of a product and the way they use them depends on different factors. Consumers could evaluate its quality during the point of purchase, in the supermarket for example, or at the point of consumption, for example at home13. In the first situation, the customer may rely on intrinsic attributes to evaluate the quality of a product, if they are available and evaluable, if not; he depends more on the extrinsic attributes.14 Instead, at the point of consumption, most intrinsic attributes are verifiable, therefore are more usable as a quality indicator15.When the customer does not have sufficient knowledge about a product, the intrinsic cues are not available or difficult to evaluate (for example complex products like stereo equipment), or when the analysis of the intrinsic attributes of a product requires too much effort than the customer perceives is worthwhile, the customer relies more on extrinsic attributes like warranty, package, price and brand name16. Hence, they may ignore some attributes that have a high influence on the product quality, in favour of others that contribute a few17. Additionally, research shows how extrinsic cues may strongly influence the product's quality perception, like visual clues18. For example Wansik, Park et al. (2000), found that some respondents claimed to feel differences in the taste of breakfast bars they thought to contain soy, when all the products were the same and none contained it19.
The use of extrinsic or intrinsic cues in product quality evaluation, depends also on the objective and subjective knowledge. It is possible to indicate two types of knowledge, the objective and subjective knowledge20. Regarding the first one, it is based mainly on cognitive type learning and experiences with different products and brands. In this case, the customer has the ability to focus on the relevant attributes that reflect the quality of a product21. Hence, they tend to take into consideration the intrinsic attributes rather than the extrinsic cues of a product in order to evaluate its quality. Concerning the subjective knowledge, it can be described as the customer product familiarity. It is the customer perceived ‘self-assessed’ level of knowledge about a product22. These type of customers tend to use their own limited experience to judge the quality of a product and empirical evidence show that they know much less about product than they believe23. This is the reason why they are more influenced by extrinsic cues than the expert customers are.
Another customer behaviour that influences the manner customers use intrinsic or extrinsic cues as quality indicators is the customer’s self-confidence level. ‘‘Consumer self-confidence is defined as the extent to which an individual feels capable and assured with respect to his or her marketplace decisions24 ”. A customer with a low level of selfconfidence tends to be more influenced by third opinions and extrinsic cues than a selfconfident customer does25. Nevertheless, it is necessary to also take into consideration the level of customer knowledge (objective or subjective) seen in the previous paragraph. In fact, a particular combination of type of customer knowledge (as described in the previous paragraph) and the self-confidence level, change the customer tendency to be influenced by extrinsic cues26. For example, an expert customer with an objective knowledge about a category product but with a low level of self-confidence may also be influenced by strong extrinsic cues27.
The customer’s involvement level with a specific product also influences his product’s quality evaluation. A highly involved customer evaluates the excellence of a product by analysing more narrowly the information at disposal, rather than a low involved customer who categorize the product just taking into consideration the brand28. Hence, highly involved customers, in comparison to whose are less involved, rely heavily on intrinsic cues29.
It is also important to take into consideration that the cues used as quality indicators by the customers change over time because of aspects like competition, technological progress, promotional efforts of companies, information and changing consumer tastes30. In this regard, for example, Harnes (1978, p. 17) shows the changes made by Procter & Gamble to keep Tide detergent the highest quality brand in the packaged soap category:
"Since Tide was first introduced in 1947, consumers have changed, washing machines have changed, fabrics have changed, laundry habits have changed, and competition has changed These arejust a few of the more significant changes in the household laundry market, and every one of these changes has a meaning for the performance and the marketing plans for Tide. The product which we are selling today is importantly different from the Tide product which we introduced in 1947. It is different in its cleaning performance, in sudsing characteristics, aesthetics, physical properties, packaging. In total, there have been 55 significant modifications in this one brand during its 30-year lifetime31 "
Finally, the manner customers evaluate the product's excellence depends also on the market segment which is considered. Taking into consideration the fact that the main product sold in the groceries is food, it is analysed more specifically, the different consumers segments in this domain. It is possible to categorise customers taking into account their ways of shopping for food, ways of preparing meals, eating situations and ways of weighting quality dimensions and purchasing motives for food, i.e. their food- related lifestyle32. Research on consumers' food-related lifestyle in some European and non-European countries has classified the following consumer segments33: The uninvolved food consumer, the careless food consumer, the conservative food consumer, the rational food consumer and the adventurous food consumer-
The first category of consumer does not care too much about food. He is typically single, young, has a low income and tends to live in big cities. He is not interested in cooking, in food quality and in product information and for him the most important aspect is convenience.
The careless food consumer do not care too much about food. However, contrary to the uninvolved food consumers, these consumers are attracted by novelty (if a great effort in the kitchen is not required), they are more educated and they have higher incomes.
The conservative food consumer is very interested in the taste and health aspects of products and he is not interested in convenience, because the food is prepared in the traditional way. These consumers live generally in rural areas, they have the highest average age and a low level of education and their household income is generally lower than that of the other segments.
Mostly women with families who generally do not work and live in medium-sized towns represent the rational food consumer category. These type of customers analyse a large amount of product information and they tend to plan their purchases. Self-fulfilment, recognition and security are their major purchase reasons. Their level of education and income differ from country to country.
Finally, the adventurous food consumer, demands quality and good taste in the food products. They are not interested in convenience because they are really fascinated by cooking and self-fulfilment as in the case of the rational consumer is an important aspect. Generally, young people who live in big cities and have high incomes and a high educational level represent this segment.
All the aspects analysed in this chapter are fundamental for the managers in order to understand their market segments, the attributes required by the customers and the changes that have to be made during the years. However, the next paragraph shows that generally, store brands suffer from a low quality image compared with national brands.
2.2 Store brands vs. national brands
Store brands, also called private labels brands, differ from national brands, because they are produced by or on behalf of distributors and sold under the distributor's name or trademark34. Nowadays, in many developed countries, store brands are competing with national brands35 and in all western countries, in the last decades, their market share across different food categories has risen reasonably36. As shown in figure 1, in Switzerland and Spain, market share of Store brands exceed 50% and in Germany, France, Belgium Portugal and United Kingdom it is more than 35%37. Nevertheless, it is necessary to consider different aspects. First, as Figure 1 shows, the success of private labels brands is not worldwide, but is limited to some western countries. Secondly, in
illustration not visible in this excerpt
Figure 1: Market share of private labels worldwide in2013
Source: adapted from Statista (2014).
general, research shows that private label brands suffer from a low quality image compared with national brands, even if the Private Label Manufacturers' Association has provided evidence that private label products are not inferior to manufacturer brands in terms of product quality38. National brands can claim a much more successful brand image in comparison with store brands. They are perceived by the customers as “better brands” and are seen as more reliable, trusted, higher quality, innovative, and exciting39. To the contrary, consumers view store brands as approachable and strongly associate them with value, but do not think of them as distinctive, authentic, daring, or innovative. The main reason for such a bad quality perception is not so much linked with the ingredients quality, but rather with the poor private label product image itself40. As figure 2 shows, It is possible to recognize 3 different types of retailer brands: generics, mimic brands and own brands41.
illustration not visible in this excerpt
Source: Huang and Huddleston (2009) p. 977.
Generics, indicated by researches as brand free or no-brand, came to market with the scope to provide products with the lowest possible price, saving costs in marketing, packaging and advertisement42. They have usually lower quality and image in comparison with national brands and this is the reason why they cannot compete with them43. The second type; the mimic brands, are characterized by good quality and low prices. They are the largest group of store brands and they imitate the appearance and even the name of national brands, but they are "value for money" products, so their price is lower than national brands44. Research shows that this strategy, based on mimic brands, could be successful, when a leader national brand exists with a high level of market share and brand awareness. On the other hand, when there is not a national brand leader and in the market there are different brands, it would be advisable for the retailer to differentiate his product, focusing on the demand45. Besides, sampling imitating the national brands, the retailers are not able to differentiate them from others46. In addition, sometimes the store brands look so similar to the national brands, that some manufactures take legal actions against retailers. For example, when the brand Classic Cola of the British retailer J. Sainsbury came to the market in 1994, Coca Cola company reacted angrily, claiming that the name and the appearance of this product was too similar to their brand Coca Cola47. The last type is the premium own brand. This brand is a high "value added" product, characterized by high quality and innovative design48. This type of retailer's brand, is unique and can differentiate the retailer from the others and the only one that can be considered a competitor of national brands49. In this regard, Tesco’s premium own brand, Tesco’s Finest, is one example. On the contrary of generics and mimic brands, the premium own brands can guarantee a product advantage. In fact, the focus is not on the price but on the value of the product and for the customer, quality is more important than price50. Premium store brands also improve retail image and build customer loyalty51. Retailers in UK for example, have developed their own brands, taking into consideration customers values, like healthy eating, animal welfare and environmental concerns52.
The necessity to increase the image of store brands can also be proved by the analysis of the following empirical research. The aim of the study, conducted by De Wulf et al. (2005), is to analyse if there are differences in the customer quality perception of national brands and private labels brands.
As said previously, consumers’ preferences for national brands are strong and customers perceive them as superior to store brands. National brands provides hedonic utility and quality, on the contrary store brands. In the line with this reasoning, it is hypnotised that:
H1: A national brand enjoys brand equity: its non-blind taste score will be significantly higher than its blind taste score.
The next issue addressed by the authors is; can the same reasoning be applied to store brands? As indicated previously, private labels brands are recently increasing their market share, and some retailers are even selling premium own brands. Nevertheless, consumers still generally perceive store brands as lower quality products in comparison with national brands. To the extent that consumers use extrinsic cues to judge product quality, store brands are less known than national brands and do not have a distinct identification with a specific manufacturer53. Taking all these aspects into account the second hypothesis set by the authors is the following:
H2: A store brand does not enjoy brand equity: its non-blind taste score will not be significantly higher than its blind taste score.
The product category selected was orangejuice, because of the fact that for some product categories like hard cheese, frozen vegetables, fruit juices, cleaning clothes and kitchen rolls, store brands have a market share above 50%, making this category interesting to study. The orangejuices tested were market leader Minute Maid that has a volume share of 18% and four store brands products: Delhaize brand sold by Delhaize, GB brand sold by GB/Carrefour, Cara Brand sold by Colruyt and Goldhorn brand sold by Aldi. The first one, Delhaize, is a Belgian retailer, with operations in Asia, Europe and the USA. It is one of the sixth largest food retailer in the USA and in Belgium is number two behind Carrefour. Carrefour is a French retailer that operates in neighbourhood stores, small and big supermarkets and in hypermarkets. The third one is a Belgian retailer and mainly operates supermarkets, but also convenience stores under the name Okay. The last one is Aldi, a German retailer that only offers a limited set of brands and manufacturer brands are not sold. The empirical research is based on a repeated measures design involving two within-subjects factors (blind and non-blind test of five orange juices). The dependent variable used is the taste preference for a particular orangejuice. The two different tests, blind and non-blind test, are considered very effective in order to understand brand positioning and strength. In fact, thanks to these two methods, it is possible to understand, to which extent brand associations are stronger than taste preferences.
Data were collected via mall-intercept surveys. Every fifth shopper to a large Belgian shopping mall was intercepted and interviewed in order to understand whether he/she bought and drank orange juice over the last month. If yes, people were invited to taste five different orange juices, once blind and once not (displaying the brand name next to the glass). The order of presentation of thejuices was randomized in order to balance any cross-adaptation effects. The juices were each presented in a separate glass. A subject would taste an orangejuice, then wash his/her mouth with water and then taste the next orangejuice and he/she valuated each time, on a seven-point Likert rating scale, thejuice tasted.
Figure 3: Results ofblind and non-blind tastes
illustration not visible in this excerpt
Source: De Wulf et al. (2005) p. 227.
The first hypothesis formulated by the authors was:
H1:A national brand enjoys brand equity: its non-blind taste score will be significantly higher than its blind taste score.
Analysing the data of figure 3, this hypothesis can be confirmed. In the non-blind test, the brand Minute Maid, that represents the manufacturer brand, received higher taste preferences than in the blind test.
On the contrary, analysing the results of the store brands GB, Delhaize, and Cara (Colruyt), it is not possible to identify significant differences in the blind and non-blind taste score. In the case of store brand Goldhorn (Aldi), the brand obtained a higher taste score in the non-blind taste than in the blind taste, suggesting that this brand has a negative brand equity. This allows the authors to conclude that the private labels create no perceived positive difference, lacking significant brand equity. Hence, the second hypothesis, that argues that store brands are not able to create a difference in taste preferences in the blind and non-blind tests, is confirmed.
2.3 Two-Tier Store Brands
Previously, it was indicated that in order to increase the image of store brands, it is necessary to develop a premium own brand. The method to accomplish this will be analysed in the next chapter of this work. In this paragraph, it is shown that the benefit impact of a value brand (good value for money brand) on the quality perception of a premium own brand (high quality brand). In the past, several studies have analysed the consumer behaviour regarding store brand looking aspects, but taking into consideration just one single brand for each product category. Nowadays the marketplace has changed and many retailers such as Tesco in the UK, Kroger in the US and Woolworths in Australia, sell at least two store brand products for each product category54. What are the effects of this new tendency on the customer quality perception of a store brand? More specifically, what is the influence of a store brand, on a store brand sold as premium, and vice versa?
The aim of communication is to communicate something that is not already known55. Companies tend to communicate attributes of their product that are irrelevant, but by doing it, they make them appear valuable, influencing the customer quality perception of the product56. For example, Procter & Gamble promotes its product Folger's underlying its “flaked coffee crystals” created through a “unique patented process’’, but actually, the shape of the coffee particle are irrelevant for instant coffee57. In the same way, Alberto Culver advertises its product Alberto natural silk shampoo, claiming to put silk in the shampoo bottles, making the customers believe that it has some benefits for their hair, when this is not the case58. Customers, even if they cannot really understand the benefits of these attributes, tend to believe that they must be valuable features, otherwise why would the company communicate them59 ? The same concept is valid for retailers that have more than one store brand for the same product category. In this case the customer believes that they must differ in quality, otherwise why should the company have two brands60 ?
In order to understand how the quality of a premium store brand one will be affected by the presence of a value brand and vice versa, Palmeira and Thomas (2011) conducted an empirical study and they set up 2 hypotheses.
H1: The perceived quality of a premium store brand is higher when a value store brand is also present than when a value store brand is not present.
H2: The perceived quality of a value store brand remains the same whether a premium store brand is present or not.
In order to test these hypotheses, three different situations are presented:
- In the store; only a value brand is sold.
- In the store; only a premium brand is sold.
- Both the premium and the value brand are sold in the store.
The authors constructed the description of the store brands by adapting the description used by Woolworths, the biggest Australian grocery retailer that is also selling premium store brands. The value brand was based on Woolworths Home Brand and had the following description: “Our store brand stands for everyday products at great value for money. We are continually looking at ways of providing the best quality at the lowest prices on a total range of everyday items for the household61 ”. The description of the premium store brand was adapted from Woolworths Select and read as “Our store brand line provides you with the highest quality products that are second to none. Products are sourced from specialist suppliers with particular expertise in each area to provide products that meet your expectations on quality and taste62 ”. At the study took part 90 participants, members of an online research panel of Australian residents, and they completed the survey for a payment.
The key dependent variable was the expected quality. They all read a scenario describing a store that carried one or two store brands. When both descriptions were presented together, the value store brand was named Store Brand A, and the premium store brand was called Store Brand B. The six product categories chosen (aluminium foil paper, icecream, oven baked chips, dishwasher detergent, mayonnaise, and olive oil) were selected because of the fact that they represent categories in which offering two-tier store brand was a common practice in the major retailers.
1 Cf. Zeithaml (1988) p. 17.
2 Statista (2014).
3 Cf. Richardson et al. (1994) p. 28.
4 Cf. Lee and Lou (1996) p. 22.
5 Cf. Zeithaml (1988) p. 5.
6 Cf. Morgan (1985) cited by Zeithaml (1988) p. 5.
7 Cf. Zeithaml (1988) p. 5.
8 Cf. Zeithaml (1988) p. 5.
9 Cf. Zeithaml (1988) p. 7.
10 Cf. Zeithaml (1988) p. 7.
11 Cf. Zeithaml (1988) p. 7.
12 Cf. Zeithaml (1988) p. 8.
13 Cf. Zeithaml (1988) p. 9.
14 Cf. Zeithaml (1988) p. 9.
15 Cf. Zeithaml (1988) p. 9.
16 Cf. Zeithaml (1988) p. 9.
17 Cf. Veale etal. (2006) p. 1.
18 Cf. Veale et al. (2006) p.3.
19 Cf. Wansink and Park (2002) p. 483.
20 Cf. Veale et al. (2006) p. 4.
21 Cf. Kuusela et al. (1998) cited by Veale (2006) p. 4.
22 Cf. Veale et al. (2006) p. 4.
23 Cf. Veale et al (2006) p. 4.
24 Bearden et al. (2001) p. 122.
25 Cf. Veale et al. (2006) p. 5.
26 Cf. Veale et al. (2006) p. 5.
27 Cf. Veale et al. (2006) p. 5.
28 Cf. Lee and Lou (1996) p. 23.
29 Cf. Lee and Lou (1996) p. 23.
30 Cf. Zeithaml (1988) p. 10.
31 Harnes (1978), cited by Zeithaml (1988) p. 10.
32 Cf. Brunsn et al. (2002) p. 13.
33 Cf. Brunsn et al. (2002) p. 13.
34 Cf. Huang and Huddleston (2009) p. 977.
35 Cf. Herstein und Jaffe (2007) p.13.
36 Cf. Juhl and al. (2006) p. 331.
37 Statista (2014)
38 Cf. Richardson et al. (1994) p. 28.
39 Cf. Birwadker (2011) p. 5.
40 Cf. Richardson et al. (1994) p. 28.
41 Cf. Huang and Huddleston (2009) p. 977.
42 Cf. Corstjens and Corstjens (1995) cited by Huang and Huddleston (2009) p. 977.
43 Cf. Laaksonen and Reynolds, (1994) cited by Huang and Huddleston (2009) p. 978.
44 Cf. Huang and Huddleston (2009) p. 978.
45 Cf. Richards et al. (2010) p. 183.
46 Cf. Richards et al. (2010) p. 183.
47 Cf. Huang and Huddleston (2009) p. 978.
48 Cf. Huang and Huddleston (2009) p. 978.
49 Cf. Laaksonen and Reynolds, (1994) cited by Huang and Huddleston (2009) p. 978.
50 Cf. Huang and Huddleston (2009) p. 979.
51 Cf. Huang and Huddleston (2009) p. 989.
52 Cf. Burt (2000), p. 876.
53 Cf. Dick et al. (1996) cited by De Wulf et al. (2005) p. 225.
54 Cf. PLMA (2014).
55 Cf. Palmeira and Thomas (2011) p. 540.
56 Cf. Carpenter et al. (1994) p. 339.
57 Cf. Carpenter et al. (1994) p. 339.
58 Cf. Carpenter et al. (1994) p. 339.
59 Cf. Carpenter et al. (1994) p. 341.
60 Cf. Palmeira and Thomas (2011) p. 541.
61 Palmeira and Thomas (2011) p. 542.
62 Palmeira and Thomas (2011) p. 542.
- Quote paper
- Dario Lo Turco (Author), 2015, How to Increase Grocery Store Private Labels' Quality Perception, Munich, GRIN Verlag, https://www.grin.com/document/353473