Private Label Products - Research Paper Example

Research Proposal 1.0 Project Area Private Label products are reportedly gaining grounds over national and manufacturer’s brands over the last years and especially during the latest economic crisis that has inevitably influenced consumer spending and consumer behaviour patterns. Today consumers are more oriented towards increasing their consumption basket by maintaining relatively stable their overall spending amounts (Baltas, 2005). With special regards to the grocery sector, private labels are receiving great attention on the part of retailers and supermarket or discount stores. According to Kwon et al. (2008) the vast majority of private labels are to be found in the grocery retailing market; in details as much as 80% of the total own brands (private labels) constitute product lines such as food, beverages, hygiene and cleansing products. There is a bulk of literature that focuses on the different areas of the entire framework of private labels. The majority of studies investigate the degree in which private labels have been replacing manufacturers’ brands as well as the degree in which consumers prefer these products over the traditional national products (Verhoef et al., 2002). This project will basically deal with the benefits and the advantages that the private labels entail for the grocery retailers themselves. In search of evidence and information the author will focus on the Asda Supermarkets chains. Asda is a British supermarket chain, subsidiary of the US giant supermarket and discount store Wal Mart. Established in 1965 as an international branch of Wal Mart the company has over the years earned a special place in the UK grocery retailing market. Being the second largest network supermarket (after Tesco) Asda today enjoys increased customer satisfaction and loyalty; a fact that is evident from the on-going increasing sales volumes in the last successive years. The Headquarters of the company are located in Leeds while Asda currently maintains a network of retail stores in virtually every part of England. In 2003 the company to intensify its presence in the market acquired Sainsbury’s. Asda supermarkets are positioned as providers of high quality, low priced products. The company includes a wide product line of private labels (under the brand Asda) and has been expanding these product lines into several product categories (including food and beverages, cleansing products, clothes, apparel, papers etc). Although private labels are not the dominant products that Asda super market chains offer, they remain a significant source of competitive advantage due to the fact that customers recognize, value these goods and perceive a very good relationship between quality and prices. 2.0 Aims and Objectives The aim of the current research study is to explore and understand how Asda effectively leverages and markets private label products in order to sustain profitability and induce customer loyalty. Particularly the objectives of the project are: a. to explore how private labels offer cost advantages and scale economies to supermarket retailers b. to investigate what marketing tools and mechanisms eventually constitute private labels as promoters and enhancers of customer loyalty 3.0 Literature Review 3.1 Defining Private Labels Private label goods are products that are actually branded under the retailers’ brand name and are distinguished from manufacturers’ brands by their generic form and orientation (Sheinin and Wagner, 2003). As defined by Burt (2000), retail brands are goods that are manufactured either by the retailer or by an assigned by the retailer producer and sold under the retailers’ brand name within the retailers’ stores. A third proximity approach to providing an accurate and full description in just few words is the one given by Baltas (2005) describing them as general brands owned, controlled and sold exclusively by retail outlets. 3.2 The benefits of Private Labels on Retailers According to Richardson (1997) retailers have at their disposition a strategic and powerful tool that eventually leads to scale economies with regards to the distribution and promotion of their own brands both at the in – store level and at the overall local level. The combination of reasonable priced products that deliver promised quality – equivalent to that of national and established producer brands – with the elimination of marketing and promotion associated expenditures is the actual equilibrium upon which retailing business bases its prospects for profitability growth. More specifically, due to low expenses and supply costs, retailers can leverage higher margins on store brands, while retaining competitive consumer prices (Broadbent, 1994; Pauwels and Shrinivasan, 2003). Retailers initiate the introduction of private label products on the grounds of relatively low prices; nonetheless the need for revenues and increased sales to be generated, has signified the urge for offering high quality goods. Thus, throughout the years supermarkets and chain stores have invested in providing value for money to consumers. This fact alone poses a significant advantage on behalf of the mediators in account, as they can surely exploit the opportunities of capturing shares of the market. Additionally, Baltas (1997) states that “lower advertising and promotion cost and quality differences contribute to the formation of a lower supply price for own label…[O]wn labels tend not to require any advertising support other than corporate where general benefits associated with the retailers are promoted” (p. 318). Store brands enhance profitability through promoting and stimulating customer loyalty (Baltas, 2003; Gamliel and Hernstein, 2007; Veloutsou et al., 2004). Retailers offer consumers a wide range of national well known and established brands; a range that in the past used to from the source of competitive advantage in each outlet – as well as alternative brand choices that comprise quality features and rather approachable prices. Meeting the customers’ needs and expectations with regards to the ‘value for money’ can effectively foster willingness to repeat purchases; which acts as a fundamental actor for brand and store loyalty. Additionally, as Dick et al. (1995) suggest strategic and effective marketing of private labels gradually leads to the development of a customer base that is declined to switch to competitors in the onset of price pressures or aggressive marketing campaigns. The merits of store brands to the retailing sector, nonetheless, in terms of profitability do not underline only the financial benefits per se. Successful private labels actually provide retailers with the prospects of investing even more on this “marketing mechanism”. Companies in the onset of gaining profits and managing to establish their own branded goods in the market, are diversifying into related business as well (Pauwels and Shrinivasan, 2003). Thus, expanding the branding strategy to various product categories gives retailers the chance to formulate and develop more complete product lines that broaden the assortment of store brands (Wulf et al., 2005). This penetration of retail stores and supermarkets to other than fast moving consumer goods (FMCG) clearly sets prosperous grounds for further growth and boost in sales as “a high retail image enhances evaluation of store brands, because consumers expect to find high quality brands in the retailer’s assortment” (Sheinin and Wagner, 2003, p. 213.) Likewise, store brands marketed by a well structured and effective communication strategy can enhance higher revenues and consequently greater earnings for the retailing corporation. Supermarkets do tend to display their private label products in the most advantageous spots within their outlets (Davies and Brito, 2004; Wulf et al., 2005). This clearly creates a significant advancement in deploying a promotional technique so as to manage frontal view of their goods, in an attempt to attract potential buyers. After all, marketers place priority to the availability/display of store brands at the expense of manufacturers’ brands (Gamliel and Hernstein, 2007). The introduction and the establishment of private label products has been a vital and core variable indicating and determining the emerging power of retailers in the entire supply chain. Retailers have traditionally been the actual and physical distributors of producers’ goods. The chain stores although remain the outlets that are directly making all product assortments available to final consumers, there is a rather re-development in the whole structure (Parker and Kim, 1997). The evolution of store brands has created a new role for the retailing firms around the globe; retailers are no longer mere intermediaries between suppliers and end buyers, rather they comprise an integral part of the overall chain by selling their own branded products. Retail business encompasses activities and operations that simply comply with the channels of distribution process. Nevertheless, the incorporation of private label products provides those supermarkets or stores the ability to gain respective power in bargaining with the manufacturers and producers over prices and entire package deals. Burt (2000) argues that a fundamental trend in the private labels market is the transfer of power from the manufacturers to retailers. This can actually be easily understood given the fact that as retailers grow in size and come to control a constantly increasing proportion of shelf space and eventually sales, they exert coercive or reward power to take advantage the manufacturing excess capacity (Burt, 2000). It is therefore more than self-explanatory that channel relationships have entered a new era of doing business . Medina et al. (2004) state that private labels constitute a weapon against the “greed” of major brands, since retailers can now negotiate without jeopardizing their interests. 4.0 Methodology Before selecting an appropriate research strategy and research method for collecting the data, the researcher should discuss the philosophical perspective which will govern the research study. Collis and Hussey (2003) and Sekaran (2003) identify two major philosophical paradigms; the Interpretivism and the positivism. The current project will commit to the interpretive view of research problems. Interpretive philosophy is concerned with understanding and deepening into various phenomena and attempts to answer ‘why’ these phenomena exist. Opposite to the positivist approach which aims at describing research problems through quantitative collection of data, the interpretive view suggests that researchers are more oriented towards analyzing and explaining research problems through the use of qualitative data. The aim of the research study is to identify how private labels eventually increase profitability and efficiency in retail supermarket chains. Therefore by nature the project involves primary research that will offer the researcher the ability to collect information and data that are specific, relevant and directly stemming from the source of interest. The current project is rather explanatory and therefore qualitative research will offer comparable advantages to the researcher. Qualitative studies involve the collection of data that are not measurable, quantifiable or statistically processed (Collis and Hussey, 2003). Qualitative research investigates the rather subjective nature of research problems and focuses on studying human behaviour, human perception and attitude towards a given research subject. Furthermore, the use of qualitative data allows the researchers to analyze areas of interest instead of just depicting or describing them. The strategy that will be employed in order to collect data and information regarding the private labels and their contribution to efficiency and profitability through customer loyalty is that of case study. Sekaran (2003) states that a case study is actually an investigation of issues existing in an actual and real business setting. The case study will be implemented on Asda supermarket in UK and will involve the collection of data through in – depth interviews. Interviews are essential in both Interpretive studies and in qualitative research projects because they are not rigid (as questionnaires) and attach certain flexibility to both the researcher and the participant (Saunders et al., 2007). The interviews will be conducted with five employees of Asda on the basis of their involvement with the marketing and sales departments. The selection of the sample will be implemented by the Marketing Manager of the company due to the fact that the inquirer will not be able to assess which participants will eventually provide more accurate and credible information with regards to the research subject. The in – depth interviews will be conducted under the scope of managing to address the research objectives; for this reason there will be three fundamental areas of discussion; the contribution of private labels to customer satisfaction and loyalty, the different marketing tools used to promote private labels, and finally the degree in which private labels contribute to scale economies through providing efficiency to the retailers. As Sekaran (2006) states in-depth interviews need no predetermined questions to be developed by the researcher; rather there needs to be a clear and specified direction as to where the conversations will move. 5.0 Code of Ethics The purpose of the researcher is to generate information and eventually reach to conclusions regarding the objectives of the study. In any research design ethical considerations need to be raised and addressed. One of the most important issues in qualitative research is that it focuses on relatively small sample sizes. This would imply that confidentiality and anonymity of the participants is hard to maintain and ensure. However, the inquirer will assure both those aspects by providing and signing a Confidentiality report which will guarantee that non of the personal information of the respondents will be revealed during or after the completion of the project. Additionally, the interviews will be implemented in such a manner that no offense or any other negative disposition on the part of the participant is going to emerge. Another significant subject in terms of ethics in research studies is that of reliability of the research findings. The researcher will keep records of the interviews with the respondents in order to ensure that what the conclusions generated reflect the actual discussions with the participants. Finally, the researcher will request a written and signed consent from the participants in order to provide credibility of the information disclosed. Bibliography Baltas, G. (1997). Determinants of Store Brand Choice: A behavioral analysis. Journal of Product & Brand Management. Vol. 6 No. 5 pp. 315-324 Baltas, G. (2003). A Combined Segmentation and Demand Model for Store Brands. European Journal of Marketing. Vol. 37 No 10 pp. 1499-1513 Baltas, G. (2005), “Exploring consumer differences in food demand: a stochastic frontier approach”, British Food Journal, Vol. 107 No. 9, pp. 685-692 Broadbent, S. (1994). Diversity in Categories, Brands and Strategy. Journal of Brand Management. Vol. 2 No. 1 pp. 9-18 Burt, S. (2000). The Strategic Role of Retail Brands in British Grocery Retailing. European Journal of Marketing Vol. 34 No. 8 pp. 875-890 Collis, J. and Hussey, R. (2003). Business Research: Practical Guide for Undergraduate and Postgraduate Students (2nd ed.). New York, Palgrave Macmillan. Davies, G. and Brito, E. (2004). Price and Quality Competition between Brands and Own Brands: A value systems perspective. European Journal of Marketing Vol. 38 No. ½ pp. 30-55 Dick, A., Jain, A. and Richardson, P. (1995) Correlates of Store Brand Proneness: Some empirical observations. Journal of Product and Brand Management. Vol. 4 No. 4 pp. 15-22 Gamliel, E., and Hernstein, R. (2007) The Effect of Framing on Willingness to Buy Private Brands. Journal of Consumer Marketing. Vol. 24, No. 6, pp. 334 – 339 Kwon, K.N., Lee, M.H., and Kwon, Y.J. (2008) The Effect of Perceived Product Characteristics on Private Brand Purchases. Vol. 25, No. 2, pp. 105 - 114 Medina, O., Mendez, J.L. and Rubio, N. (2004). Price – Quality and Market Share of Consumer Goods in Spain: Retail Brands and Manufacturer Brands. International Review of Retail, Distribution and Consumer Research. Vol. 4, No. 2, pp. 199 - 222 Parker, P. and Kim, N. (1997). National Brands versus Private Labels: an empirical study of competition, advertising and collusion. European Management Journal. Vol 15 No 3 pp. 220-235 Pauwels, K. and Shrinivasan, S. (2003). Who Benefits from Store Brand Entry. Marketing Science. Vol. 23, Issue 3 pp. 364-391 Richardson, P. (1997). Are Store Brands Perceived to be Just Another Brand?. Journal of Product & Brand Management. Vol. 6 No. 6 pp. 388-404 Saunders, M.N.K., Lewis, P., and Thornhill, A. (2007). Research Methods for Business Students. (4th ed.) London, FT Prentice Hall. Sekaran, U. (2003). Research Methods for Business. A Skill Building Approach (4th ed). New York, John Wiley & Sons, Inc. Sheinin, D.A., and Wagner, J. (2003) Pricing Store Brands Across Categories and Retailers. Journal of Product & Brand Management. Vol. 12 No. 4 pp. 201-219 Veloutsou, C., Gioulistanis, E. and Moutinho, L. (2004). Own Labels Choice Criteria and Perceived Characteristics in Greece and Scotland: Factors influencing the willingness to buy. Journal of Product and Brand Management. Vol. 13 No. 4 pp.228-241 Verhoef, P.C, Nijssen, E.J. and Sloot, L.M. (2002). Strategic Reactions of National Brand Manufacturers Towards Private Labels: An empirical study in Netherlands. European Journal of Marketing. Vol. 36 No. 11/12 pp. 1309-1326 Wulf, K., Odekerken-Schroder, G. and Van Ossel, G. (2005). Consumer Perceptions of Store Brands versus National Brands. Journal of Consumer Marketing. Vol. 22 No 4 pp. 223-232 The In-depth Interviews Due to the fact that in-depth interviews are going to be employed by the researcher, the design of a structured and predetermined questionnaire is not required. In depth interviews involve discussion of topics rather than simple answers on given questions; however they need to be constructed around certain areas or subjects in order to provide a rational and logic framework for the participants (Saunders et al., 2007; Sekaran, 2006) The fundamental issues that are going to be discussed are: 1st building block: private labels and customer satisfaction a. Do you believe that private labels are able to draw upon customer satisfaction in your organization? b. How do private labels increase customer loyalty? c. Which aspects are more effective in customer loyalty? d. The lower prices charged - the perceived economic benefit on the part of customers fosters customer satisfaction and thus loyalty? e. What are the benefits of customer satisfaction and loyalty in your organization? 2nd building block: marketing tools promoting private labels a. In the absence of marketing costs due to the sale of private labels which are the most common marketing mechanisms that your company employs in order to attract customers? b. How are private labels marketed by your organization? c. Is it the marketing or the private labels themselves that eventually trigger sales volumes? 3rd building block: private labels and efficiency (scale economies) a. How do private labels enhance cost efficiency in your organization? b. What are the most important cost benefits attached to the sale and distribution of private labels? c. Why do you believe that private labels provide greater efficiency than manufacturers’ brands? It needs to be noted at this point that these are the general guidelines and the generic questions that are going to be addressed in the in – depth interviews. However as discussions with the participants progress, the researcher will reserve the right to explore other related areas as well that might come to the attention of the respondents. Read More