Premium private label buyers versus standard private label buyers. A profile of the premium private label buyer

The strategic role of private labels for retailers Bachelor Thesis Marketing

Supervisor:

Drs. Anne ter Braak

Student :

Karin van Prooijen

ANR:

707221

Study Program:

Pre-Master Marketing Management

Word count:

6.447

Bachelor Thesis Karin van Prooijen Abstract Premium private labels are appearing in an ever increasing number of categories. More and more retailers are introducing this new kind of private label. This paper gives a good insight, based on existing marketing literature, on how the premium private label buyer looks like in terms of the following demographics: age, family size, education level, income. Also there is investigated if other demographic factors influence premium private label buying. A comparison between the standard private label buyer and the premium private label buyer in terms of these demographics is made. The main differences between the two types of buyers are found on income and family size. Also the moderating effect of consumer category involvement is investigated. Consumer category involvement will strengthen or weaken the positive or negative effects of consumer demographics on premium private label buying.

Key words: Private label, premium privatel label, buyer demographics, consumer category involvement.

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Bachelor Thesis Karin van Prooijen Table of Contents Abstract

.................................................................................................................................. 2

Chapter 1

Introduction ............................................................................................................ 4

1.1 1.2 1.3 1.4 1.5 1.6

Problem Background ................................................................................................ 4 Problem statement and research questions ............................................................... 5 Theoretical framework ............................................................................................. 6 Managerial Relevance .............................................................................................. 7 Academic Relevance ................................................................................................ 8 Structure of the thesis ............................................................................................... 8

Chapter 2

Standard private label buyers ............................................................................... 9

2.1 2.2 2.3

Private label .............................................................................................................. 9 Standard private label buyers ................................................................................. 10 Conclusion .............................................................................................................. 12

Chapter 3

Premium private labels ........................................................................................ 13

3.1 3.2 3.3 3.4

Premium private label ............................................................................................ 13 Types of premium private labels ............................................................................ 13 Advantages and disadvantages of premium private label ...................................... 14 Conclusion .............................................................................................................. 15

Chapter 4

Premium private label buyers ............................................................................. 16

4.1 4.2

Demographics of premium private label buyers .................................................... 16 Conclusion .............................................................................................................. 17

Chapter 5

The influence of consumer category involvement ............................................. 18

5.1 5.2 5.3 5.4 5.5 5.6 5.7 Chapter 6

Definition of consumer category involvement ....................................................... 18 Moderating effect on age........................................................................................ 18 Moderating on family size...................................................................................... 19 Moderating effect on education level ..................................................................... 19 Moderating effect on income ................................................................................. 20 Moderating effect on gender .................................................................................. 20 Conclusion .............................................................................................................. 21 Conclusions, limitations and recommendations ................................................ 22

6.1 6.2 6.3 6.4

Conclusion .............................................................................................................. 22 Limitations ............................................................................................................. 23 Managerial recommendation .................................................................................. 23 Suggestions for further research ............................................................................. 24

References

................................................................................................................................ 25

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Bachelor Thesis Karin van Prooijen Chapter 1 Introduction In this chapter the background of the problem, the problem statement and the research questions will be discussed. Followed by the conceptual model. In paragraph 1.4 and 1.5 the relevance of this study is explained. The last part of this chapter describes the structure of this study. 1.1

Problem Background

Private labels (hereafter denoted as PLs) are taking over the fast moving consumer good industry. Every major retailer has an equivalent private label (Kumar and Steenkamp 2007). Worldwide the PL share of consumer packaged goods was 14% in 2000. It is expected that this share will grow to 22 percent by the end of 2010 (Kumar and Steenkamp 2007). The twelve biggest retailers in the world have PL shares between 10 percent (Costco) and 95 percent (Aldi). All retailers, big or small, wish to increase their share of PLs (Kumar and Steenkamp 2007). The growth of PL shares in retailers’ stores has been going on for a while. Already in 1994 research showed an increase in the sales of PLs (Nandan and Dickinson 1994). In 77 out of 250 supermarket product categories PLs have a higher unit market share than the top national brands (hereafter denoted as NBs) (Qeulch and Harding 1996). In 2006 the share of PLs in Dutch supermarkets has grown from 21.4 percent to 22.7 percent (AC Nielsen 2007). The PLs in Dutch supermarkets are growing even faster than the A-brands (IRI 2010). The increase in PL market share partly reflects retailers’ recognition that PLs represent an important strategic asset for the firm (Richardson, Jain and Dick 1996) and that supermarkets are trying to find new or better ways to extend their PL sales. A new trend in supermarkets is the introduction of premium private labels (hereafter denoted as PPL). At first a PPL sounds like a contradicted combination but that is no longer the case (Dunne and Narasimhan 1999). PPLs are at the top end of the market, and deliver high quality, equal to premium-quality NBs (Geyskens, Gielens and Gijsbrechts 2010). The rise of premium products are creating a favourable climate for PL growth and is an important factor for the private label business in general (Harrison 1999). To stimulate the increase of PPL sales, it is essential to know what kind of profile the buyer has. By segmenting buyers on their similarities the retailer can offer a market offering that can be positively differentiated from the competition (Kotler, Keller, Brady, Goodman and Hanson 2009). If you know how the PPL buyer differs from PL buyers, you can approach them in a different way. 4

Bachelor Thesis Karin van Prooijen The degree of category involvement might also be an important factor in consumer targeting. The level of involvement is widely recognized as relevant factor to the advertising industry (Ray 1982). Depending on their level of involvement buyers differ in the extent of their decision making process and their search for information (Laurent and Kapferer 1985). The level of consumer involvement with the category or product can help to explain why certain buyers buy PLs and even why they do so in some categories and not in others (Miquel, Caplliure and Aldas-Manzano 2002). The goal of this study is to give insights in the demographic factors that influence PPL purchase and the moderating effect of consumer category involvement on this direct relation. 1.2

Problem statement and research questions

To what extent do premium private label buyers differ from standard private label buyers from a demographic perspective and how is premium private label buying moderated by consumer category involvement?

Research questions To answer the problem statement different sub-questions are developed: 1. How are private label buyers defined in terms of demographics? 2. How can premium private labels be defined? 3. How to define premium private label buyers in terms of demographics? 4. How does consumer involvement in the category moderate the relationship between the demographic factors and premium private label buying?

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Bachelor Thesis Karin van Prooijen

1.3

Theoretical framework

The problem statement, as described in paragraph 1.2 is shown in a conceptual model below in figure 1.1. Age

Family size Premium private label buying

Education level

Income

Consumer category involvement

Independent variables

Figure 1.1

Buyer demographics

This conceptual model includes different buyer demographics. Richardson et al. (1996) used the following buyer demographics to define standard PL buyers. The conceptual model of this research is preliminary. The framework will be adapted if other demographic factors that influence PPL buying are found.

Age Age can be a factor that has influence on who buys the PPLs and who does not. Older people have more experience doing grocery shopping than younger people. Also older people have a better developed choice processes in brand choice. Younger people might rely more on brand name or price (Richardson et al. 1996).

Family size Bigger families have more people to feed and thereby have, regardless of income or education, less money to spend per person on groceries. This can be a reason why people buy standard or

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Bachelor Thesis Karin van Prooijen economy PLs (Richardson et al. 1996). It also can be a reason why people do not buy PPLs. PPLs are more luxurious and thereby are more expensive than standard/economy PLs.

Education level Higher education level can be correlated with a higher income. But also higher education can mean that people can better judge the value of the product and their ingredients (Richardson et al. 1996).

Income PPLs are known to be more expensive than other PLs and will sometimes be the highest priced product in the category (Kumar and Steenkamp 2007). For this reason it can be expected that people with a higher income buy more PPLs because they can better afford it than low-income buyers (Richardson et al. 1996).

Dependent variable

Premium Private Label Buying

PPLs are PLs that have the same or better quality as NBs. PPLs are priced close to or higher than the brand leader (Kumar and Steenkamp 2007). The dependent variable is the explanation of who the PPL buyers are. With a profile of the PPL buyer, a comparison can be made with the standard PL buyers.

Moderator

Consumer category involvement

The main effect of demographic variables on PPL buying can be moderated by consumer category involvement. Involvement is a complex variable defined by multiple facets: perceived importance of the product, perceived risk, probability of a mispurchase, sign value of the product class and hedonic value of the product class (Laurent and Kapferer 1985). Each facet plays an important role in the decision making process when buying a product. This research will investigate which demographic factor is influenced by the moderator consumer category involvement. 1.4

Managerial Relevance

Knowing who buys your products and what their degree of involvement is when buying the product gives retailers the information they need to target the right possible buyer or extend the 7

Bachelor Thesis Karin van Prooijen spending of current buyers. Retailers depend for their survival on the degree to which they are able to adapt to, and participate in their surroundings, as well as on their understanding of the market with the purpose of better adjusting their offer to the existing demand (Miquel et al. 2002). By finding out in which way the buyer of PPLs differs from buyers of standard PLs, retailers will have more information to fulfil the needs of the buyers. For manufacturers of NBs it is also relevant to know who buys the PPLs and how they differ from other PL buyers. If PPL buyers have the same buyer demographics as NB buyers, NB manufacturers faces great competition. On the other hand the growth of PPLs offers a big opportunity for the manufacturers as well. Because PPLs provide higher quality, retailers will look beyond price when they choose suppliers. They seek manufacturers with proven expertise and sophisticated production processes (Dunne and Narashiman 1999). So if the manufactures know what the profile of the PPL buyer is they can focus on developing new and improved products to offer the retailer. 1.5

Academic Relevance

Extensive research and literature is to be found on PLs and on how to describe the PL buyer in terms of demographics (Richardson et al. 1996; Sethuraman and Cole 1999). As referred to before there is a new kind of private label, the premium private label. Only little research is done on the demographics that describe the PPL buyer (Geyskens et al. 2010). Also the moderating effect of consumer category involvement on PPL buying is not widely known. By combining the literature on PLs/PL buyers, consumer category involvement and the little information known on PPLs, there is a niche filled in the literature on PPLs. 1.6

Structure of the thesis

The second chapter will explain what a PL is and who their buyers are. The three tiers of PLs will also be described. The third chapter gives an extensive explanation on PPLs. The fourth chapter will give an insight on who the PPL buyers are. In chapter five the influence of consumer category involvement on PPL buyers will be discussed. In chapter six the conclusions of this research will be given, followed by suggestions for future research. Finally the limitations of this research will be listed and how companies can use this research.

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Bachelor Thesis Karin van Prooijen

Chapter 2 Standard private label buyers This chapter will first give an insight on what PLs are. Followed by a profile of the standard PL buyer. 2.1

Private label

There are different types of private labels described in literature. Wileman and Jary (1997) suggest five different stages of PLs matching the stages of maturity and power of the PL. These stages are: generics PL, cheap PL, re-engineered low-cost PL, par quality PL and leadership PL. Ailawadi and Keller (2004) described four tiers of PLs. From low quality, no-name generics to cheap, medium quality own labels to somewhat less expensive comparable quality private labels to premium quality, high valued private labels that are not priced lower than NBs. More recently Geyskens et al. (2010) suggests that the three-tiered PL portfolio strategies gaining more interest around the world. More retailers are introducing the three-tiered PL strategy. This strategy means that there are more PLs of different quality and price levels in the same product category. The three tiers of this strategy consist of an economy PL, standard PL and a premium PL. An economy PL is of lower quality and price than other products in the same category (Ailawadi, Neslin and Gedenk 2001). The product name includes most of the time words like “value”, “budget” or “saver”. The packaging design of the economy PL is in most cases not very attractive (Bischoff 2006). The standard PL is of medium quality and a little less expensive. This tier adopts the design of the NB in the same category. In most cases it also tastes a lot like the NB (Bischoff 2006). The PPL is a PL that has the same or better quality than NBs and is at the top end of the market (Geyskens et al. 2010). The PPL will be discussed more extensively in paragraph 3.1. In figure 2.1 on the next page the positioning of the different PLs in relation to the different NBs is shown.

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Bachelor Thesis Karin van Prooijen

Quality

Premium Private Labels

Premium-Quality National Brands

Mid

Standard Private Labels

Standard- Quality National Brands

Low

Economy Private Labels

Top

Figure 2.1 Geyskens, Gielens &

Gijsbrechts (2010) Private Labels

National Brands

2.2 Standard private label buyers To outline a profile of a standard PL buyer different buyer demographics will be examined.

Age One demographic factor that can describe the PL buyer is age. Omar (1996) found that the PL buyers are most of the time younger buyers. Baltas (2003) and Burton, Lichtenstein and Netemeyer (1998) could not find evidence to conclude that age had influence on PL proneness. In contradiction Sethuraman and Cole (1999) found that younger buyers are willing to pay a larger price premium for NBs than older buyers. Dick, Jain and Richardson (1995) found that younger buyers tend to avoid PLs. Younger shoppers may rely on other product features when selecting brands than older shoppers. The older, so the more experienced shoppers may have developed the expertise needed to evaluate products on other features such as quality and ingredients and consider PLs as good alternatives to NBs (Richardson et al. 1996). Following from the information that is found on age and PL buying the next hypothesis can be conducted: H1: Older people are more willing to buy PLs than younger people.

Family size Another demographic factor that can influence PL buying is family size. Although Geyskens et al. (2010) and Baltas (2003) could not find a relationship between household size and PL buying tendency there are others that did found a relationship. According to Richardson et al. (1996) the

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Bachelor Thesis Karin van Prooijen family size does influence PL buying. The greater the family size the higher the PL proneness. When a family has more members the income of the family has to be divided by more people. A result can be that the family buys the “cheaper” PL product. Omar (1996) supported this finding. Dick et al. (1995) also found that buyers of smaller household avoid PLs. According to AC Nielsen (2006) PLs own a greater market share (33 percent) of purchase within larger households. Followed from these findings the next hypothesis can be conducted: H2: The greater the family size the greater the willingness to buy PLs.

Education level The third demographic factor that might influence PPL buying is the education level of the buyer. Martínez and Montaner (2008) found results that the higher the study level of the buyer, the lower the PL proneness. Ailawadi and Keller (2004) suggest that PL buyers are better educated than people that do not buy PLs. People with a better education level are more PL prone than people with a lower education level (Baltas and Argouslidis 2007). The promise of good quality at reasonable prices leads to a “smart buy” impression that may motivate educated individuals to choose PLs (Baltas and Argouslidis 2007). Burton et al. (1998) found the same results while doing research among shoppers: the higher the education the more PL prone. Better educated individuals might be more able to process ingredient or other information regarding intrinsic product attributes (Richardson et al. 1996). Followed from these finding the next hypothesis can be conducted: H3: Higher educated people are more willing to buy PLs than lower educated people.

Income The fourth demographic factor that might influence PL buying is the income of the buyer. Baltas and Argouslidis (2007) found that people with a higher income are more PL prone than people with a lower income. Another finding in contradiction to this is that the middle-income households are willing to pay smaller price premiums than either the higher income or lower income households (Sethuraman and Cole, 1999). This is also what Ailawadi and Keller (2004) found. They suggest that PL buyers have a middle-income. Burton et al. (1998) and Dick et al. (1998) suggest that lower family income is associated with higher PL purchases. Richardson et

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Bachelor Thesis Karin van Prooijen al. (1996) found that the more affluent households income the lower propensity to buy private labels. Followed from these findings hypothesis four can be conducted: H4: People with lower incomes are more willing to buy PLs than people with higher incomes.

Other demographic factors There are more demographics to describe the PL buyer. Gender can be a good demographic to describe the PL buyer also. Omar (1998) found that it is more likely that female purchase PLs. Burton et al. (1998) did not found a relation between gender and PL purchase. In contradiction to that Sethuraman and Cole (1999) found that females are more likely to pay a price premium for products than males. Females therefore might be less price-sensitive and thus less likely to purchase PLs than males. Geykens et al. (2010) found that the PL buying tendency in the U.K. is higher among males than females also. Followed from these findings the fifth hypothesis can be conducted: H5: Males are more likely to purchase PLs than females.

2.3

Conclusion

To conclude, this chapter came up with the following findings. In paragraph 2.1 a description of PLs is given. For retailers the three tier strategy is the most common one to position their PLs in relation to themselves and NBs. This strategy means that there are more PLs of different quality and price levels in the same product category. The three tiers of this strategy consist of an economy PL, standard PL and a premium PL. From the findings in paragraph 2.2 the profile of the PL buyer can be created. Overall the PL buyer can be described as an older buyer in comparison to none PL buyers. The PL buyer has a bigger family than the people that do not buy PLs. The PL buyer is well educated and has a lower income than the people that do not buy PLs. Also males are more likely to purchase PLs than females.

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Bachelor Thesis Karin van Prooijen Chapter 3

Premium private labels

In this chapter the PPL will be explained. After that the different types of PPLs will be discussed. In the last paragraph the advantages and disadvantages of PPLs will be examined. 3.1 Premium private label A PPL is a PL that has the same or better quality in comparison to NBs and is more expensive than economy or standard PLs. A PPL is at the top end of the market (Geyskens et al. 2010). The PPLs are superior in price and quality to the other PLs. Compared with leading NBs they are priced lower but advertised as being of superior quality (Kumar and Steenkamp 2007). Figure 2.1 in the previous chapter shows where the PPL stands in relation to the other PLs. The biggest difference between PLs and PPLs is that the retailer will not try to copy the quality or the packing of the NB. The retailer wants to differentiate on quality in comparison with NB quality (Kumar and Steenkamp 2007). Nowadays PPL have enough appeal for buyers that they are leading in creating completely new categories (Dunne and Narasimhan 1999). In paragraph 3.2 examples of new categories created by retailers will be given. 3.2

Types of premium private labels

As described in paragraph 3.1 the PPL competes with NBs on quality. There are also PPLs that compete on quality and on other product attributes like the way they are manufactured. AC Nielsen (2006) found that retailers are expanding their focus on different buyer needs like organic and healthy products. Ethical PPLs are PLs that consist of fair-trade products, organic products, healthy products, eco-friendly/natural products and sustainable products. According to Planet Retail (2009) these new way of positioning the PPLs is a hot issue in the retail branch. For instance the Dutch retailer Albert Heijn has launched PPL “AH Puur&Eerlijk” in May 2009. This is a range with ecological, biological, fair-trade and sustainable products across categories. Festive PPLs are products that are only available in stores during a specific season like Christmas or Easter (De Jong 2007). Festive products could also be introduced for a specific date or event (Key and Park 1997). The belief was when developing the festive products that buyers have different preferences during the year (De Jong 2007). To fulfill these specific needs from the buyer, retailers came up with the festive products. An example of festive PLs are the

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Bachelor Thesis Karin van Prooijen “Speciaal voor de feestdagen” products from the Dutch retailer Albert Heijn. These products are available during Christmas and Easter holiday. Another opportunity for retailers is to develop PPLs that offer products from the region. These products are called regional products (De Jong 2007). These very specific PPLs contain ingredients from the near region. 3.3 Advantages and disadvantages of premium private label Introducing a new PPL in a category might give the retailer some advantages and some disadvantages.

Disadvantages One disadvantage of the introduction of a new PPL is that the new introduced product cannibalizes the other products in the same category. The introduction of a PPL takes market share from the current PLs away (Geyskens et al. 2010). Also NBs have value for retailers. More PPLs means less shelf space for NBs. Retailers cannot afford to remove those NBs that consumers expect to be widely distributed. When a store does not have those NBs consumers may switch stores. Even if retailers can make more profit per unit on PPLs, those products just do not have the traffic-building power of NBs (Quelch and Harding 1996). Another disadvantage of the introduction of a PPL are the extra costs for warehousing and distribution when the range of PLs is expanded (Quelch and Harding 1996).

Advantages Introducing a PPL has also some advantages. Due to the high prices at which the PPLs are sold, margins on these products should be very large comparing to leading NBs (Kumar and Steenkamp 2007; Steiner 2004). Compared with NB manufacturers the retailer does not have to spend budget on advertising, retail promotions and maintaining a sales force (Kumar and Steenkamp 2007). The high quality of the PPLs can have positive influence on the image of other PLs and on the image of the store (Kumar and Steenkamp 2007). The new introduced PPLs have nowadays the power to create completely new categories (Dunne and Narasimhan 1999) that can lead to extending their profits. Another advantage is that retailers with large PL sales are more able to bargain with manufactures for a lower price on their PLs and on the leading NBs (Steiner

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Bachelor Thesis Karin van Prooijen 2004). Also the less shelf space for NBs as mentioned under disadvantages could be an advantage in the bargaining position against NB manufactures. 3.4 Conclusion To conclude this chapter came up with the following findings. In paragraph 3.1 there is found that PPLs are PLs at the top end of the market (Geyskens et al. 2010) and that PPLs are superior in price and quality to the other PLs (Kumar and Steenkamp 2007). In paragraph 3.2 there is found that there are several kinds of PPLs: ethical PPLs, festive PPLs and region PPLs. In paragraph 3.3 there is found that the main advantages for the retailer of having a PPL are financial and image advantages. The main disadvantage is the cannibalization of other PLs by the PPL.

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Bachelor Thesis Karin van Prooijen

Chapter 4

Premium private label buyers

In this chapter the buyer demographics age, family size, education level, income and gender that help to outline a profile of the PPL buyer are discussed. 4.1 Age

Demographics of premium private label buyers

The older the buyer is, the more willing the buyer is to buy PLs (Dick et al. 1995; Sethuraman and Cole 1999). One reason for the increase of willingness to buy a PL when the buyer gets older is that the buyer is more experienced with shopping and therefore can better judge the quality of the product (Richardson et al. 1996). The PPL are of better quality than standard or economy PLs as seen in figure 2.1 (Geyskens et al. 2010). The more experienced buyer will be able to evaluate the quality of PPL in a good manner. Therefore age positively effects PPL buying and can the next hypothesis be conducted: H6: Older buyers are more willing to buy PPLs than younger buyers.

Family size Family size is positively influenced by standard PL buying (Richardson et al. 1996; Omar 1996; Dick et al. 1995). The main reason is that when a family has more members the income of the family has to be divided by more people (Richardson et al. 1996). This is mainly an economic reason. The prices of PPLs are higher than standard PLs and in some categories even higher than the NBs (Kumar and Steenkamp 2007). For this reason families with more members are less likely to purchase PPLs and the next hypothesis can be conducted: H7: The greater the family household the lower the willingness to buy PPLs.

Education level A buyer with a higher education is more likely to purchase regular PLs (Burton et al. 1998; Baltas and Argouslidis 2007; Ailawadi and Keller 2004). The higher educated buyer is in a better position to judge the quality of the products (Richardson et al. 1996). The main attribute where PPLs differ from PLs is quality (Kumar and Steenkamp 2007). If this knowledge is taking into account it is reasonable to conclude that higher education not only have a positive influence on

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Bachelor Thesis Karin van Prooijen PL buying but also has a positive influence on PPL buying. Following from this statement the next hypothesis can be conducted: H8: The higher the education level of the buyer the greater the willingness to buy PPLs.

Income A higher income of a buyer negatively influences PL buying (Richardson et al. 1996; Dick et al. 1998; Burton et al.1998). PLs are often cheaper than NBs (Kumar and Steenkamp 2007). Therefore buyers with a higher income are better able to buy the more expensive NBs. The PPLs often have a higher price level than other PLs and claim to be of better quality than NBs (Kumar and Steenkamp 2007). Therefore it is plausible that people with a higher income are more willing to buy PPLs. Following from this statement the next hypothesis can be conducted: H9: Buyers with higher incomes are more willing to buy PPLs than buyers with lower incomes. Gender Males are more likely to purchase PLs than females (Sethuraman and Cole 1999; Geykens et al. 2010). The main reason why males are more likely to purchase PLs is because females are less price sensitive (Sethuraman and Cole 1999). Due to the fact that PPLs are more expensive than other PLs (Kumar and Steenkamp 2007) it is plausible that the willingness of males to purchase PPLs is less than the willingness to buy PLs. Females are more likely to pay a price premium for products (Sethuraman and Cole 1999). Following from this statement the next hypothesis can be conducted. H10: Females are more likely to purchase PPLs than males. 4.2 Conclusion To conclude, this chapter came up with the following findings. In paragraph 4.1 there is found that PPL buyers are older than other PL buyers. The greater the family size of the buyer, the lower the willingness to buy PPLs. There is also found that higher educated buyers have greater willingness to buy PPLs. Also buyers with higher incomes are more willing to buy PPLs than buyers with lower incomes. The last finding in relation to PPL buying is that females are more likely to purchase PPLs than males.

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Bachelor Thesis Karin van Prooijen Chapter 5 The influence of consumer category involvement This chapter will first give a description of the concept consumer category involvement. After that the moderating effect of consumer category involvement will be investigated. Each demographic factor will be described separately. 5.1 Definition of consumer category involvement As mentioned in the introduction knowing how involved a buyer is when buying a product can help getting an insight in why people buy a certain product in a certain product category. The variable involvement is complex and can be defined by multiple facets: perceived importance of the product, perceived risk, probability of a mispurchase, sign value of the product class and hedonic value of the product class (Laurent and Kapferer 1985). The degree of involvement also expresses the degree of which buyers are interested in information about a certain product category and are motivated to learn about it (Zaichkowsky 1985). The buyer is willing to learn more about the product category because the knowledge of the product category decreases the risk of a mispurchase (Puccinelli, Goodstein, Grewal, Price, Raghubir and Stewart 2009). Also buyers are more involved when the risk of a mispurchase is higher (Laurent and Kapferer 1985). For PLs is found that the risk associated with buying a PL is significantly higher than that of buying a NB alternative (Richardson et al. 1996). Assumed is that due to the higher quality of PPLs (Kumar and Steenkamp 2007) the risk will decrease when buying a PPL. So in categories where the buyer is highly involved it is more likely to purchase a PPL. 5.2

Moderating effect on age

In chapter four a positive relation between age and PPL buying is found. When a consumer is highly involved in a category the positive effect of age on PPL buying is weaker. This is caused by the effect of high involvement. When people are involved with a certain product category they are already more informed and motivated to learn about the different products, the products attributes and the ingredients (Zaichkowsky 1985). Also the risk is greater in high involved categories so the buyer will choose for quality more easily. In this sense the age of a buyer becomes less important. The moderating effect of consumer category involvement is graphical shown below in figure 5.1.

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Bachelor Thesis Karin van Prooijen + Age

Premium private label buying

Consumer category involvement

Figure 5.1

5.3 Moderating on family size Family size has a negative influence on PPL buying. The greater the family size the less money to spend per person on household products (Richardson et al. 1996). One of the reasons is that PPL are more expensive than other PLs (Kumar and Steenkamp 2007). This effect gets weaker in high involvement categories. High involvement products are products where people have higher risks when purchasing the product. For this reason they might be willing to buy PPL because they are more secure of the quality. So the negative effect on PPL buying of the family size is weaker in high involvement categories.

-

Family size

-

Premium private label buying

Consumer category involvement

Figure 5.2

5.4 Moderating effect on education level Education level has a positive effect on PPL buying. The higher the education of the buyer the more willing the buyer is to purchase PPL. This positive effect gets stronger when the buyer is high involved. When a buyer is higher educated the buyer is in a better position to judge the quality of the product (Baltas and Argouslidis 2007; Richardson et al. 1996). So if a buyer is even more involved with the category this effect gets stronger. The buyer category involvement is positively moderated to the effect that education level has on PPL buying.

Education level

+ +

Premium private label buying

Consumer category involvement

Figure 5.3

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Bachelor Thesis Karin van Prooijen

5.5 Moderating effect on income Income is positively related to PPL buying. As found in chapter four the higher the income the more willing the buyer is to buy PPLs. This positive effect gets even stronger when the involvement of the buyer is high. The main reason why people with a higher income are more willing to buy PPLs is because they are financial more able to buy these products due to the fact that these products are more expensive than other PLs (Kumar and Steenkamp 2007). When the involvement in a category is higher, the more affluent buyers will even pay less attention to the price of the PPLs. So the positive effect on PPL buying of buyers with a higher income is stronger in high involvement categories.

Income

+ +

Premium private label buying

Consumer category involvement

Figure 5.4

Moderating effect on gender 5.6 Females are more likely to purchase PPLs because they are found to be less price sensitive than males (Sethuraman and Cole 1999). In high involvement categories the price of the product plays a less important role due to the higher risk that plays a greater role in high involvement categories. With this information it can be concluded that the positive effect of gender on premium private label buying gets stronger in high involvement categories.

Gender

+ +

Premium private label buying

Consumer category involvement

Figure 5.5

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Bachelor Thesis Karin van Prooijen

5.7

Conclusion

Taking consumer category involvement into account when investigating the consumer demographics that have influence on PPL buying the following conclusions can be made. The moderator makes the positive effect on age on PPL buying weaker (stronger) in high (low) involvement categories. The positive effect from the demographic factors: education level, income and gender, on PPL buying gets stronger (weaker) in high (low) involvement categories. The negative effect of family size on PPL buying is weaker (stronger) in high (low) involvement categories. With these findings the next hypothesis can be conducted: H11: Consumer category involvement has stronger (weaker) effect on premium private label buying in high (low) involvement categories.

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Bachelor Thesis Karin van Prooijen

Chapter 6

Conclusions, limitations and recommendations

6.1 Conclusion This study came up with findings that are useful to answer the problem statement formulated at the beginning of the study: To what extent do premium private label buyers differ from standard private label buyers from a demographic perspective and how is premium private label buying moderated by consumer category involvement? The demographic factors education level and age have positively influences PL buying as well as PPL buying. Income has a positive influence on PL buying in lower income classes. In higher income classes it has a positive effect on PPL buying. For the demographic factor family size there is found that a bigger family size has a positive influence on PL buying and a negative influence on PPL buying. Gender influences PL buying as well as PPL buying. Only for PPL it is more likely that it is bougt by females. PLs are more likely to be bought by males. Al factors that have influence on PPL buying are moderated by consumer category involvement. Which means that the positive (negative) effect of the demographic factors on PPL buying are stronger (weaker) in high (low) involvement categories. After this study the conceptual model drawn in chapter one is adapted with regard to the findings in this study. Below in figure 6.1 the adapted conceptual model is drawn.

Concluded conceptual model Income

+ Family size

Education level

Age

Premium private label buying

+ + +

Gender

Consumer category involvement

Figure 6.1

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6.2

Limitations This study has mainly focused on the buyer demographics age, family size, income,

education level and gender. Their might be more demographic factors that also have influence on PPL buying. Another demographic factor that might influence PPL buying is in which social class the consumer stands (Murphy 1978). Geyskens et al. (2010) found that people from a lower social class in the U.K. have a higher PL buying tendency. In this study only the moderator involvement was taken into account. There might be other variables of influence on the demographics of buyers on PPL buying. For example the price sensitivity of the buyer could play a moderating role in the decision-making process of the buyer of PPLs (Quelch and Harding 1996). The different types of PPLs as described in chapter three were not taken into account. If the different levels of PPLs were added to the research other demographic factors might describe the PPL buyer. For instance somebody who is committed to nature might buy biologic products because of his believes and is not dependent on income, education level, family size and age. Some literature used in this study came from papers that are quite old. It might be the case that the findings in this study would have been different if more recent literature had been available. The two demographic factors income and education level might be correlated with each other. Higher education might automatically lead to higher income. The possible correlation of those demographic factors is not taken into account in this study. Al though evidence shows that buyer demographics influence the buying behavior of PLs Burger and Scott (1972) found that demographic factors are no good predictors for PL buying and that PL buyers are spread across all socio-economic groups. Burger and Scott (1972) found this on PLs, so this might be also the case in PPL buying. 6.3 Managerial recommendation The conclusions emanating from this study are useful for retailers, NB manufactures and PPL manufactures. For retailers that already have a PPL or are thinking about adding a new tier in their offer of PLs know after reading this study which demographic factors are relevant to describe the buyer of PPLs. With this information the retailer should target PPL buyers more effective and expand the sales from current buyers. The retailer can also use this information to effective target the non-PPL buyers in extensive marketing campaigns in attempt to make them 23

Bachelor Thesis Karin van Prooijen buy PPLs in the future. The retailer should be aware that involvement influences these demographic factors as well. The NB manufacturer should use the findings from this study to find if their target group is the same as the buyers of PPLs. If this is the case NB manufactures should extensively promote their NB for this specific group in attempt to make them buy their NB. Also they might know better after reading this study if the PPL is a threat to their own NB. If this is the case they can take action and make sure that their current buyers do not switch to a PPL. Especially in high involved categories the PPL can be a threat to NBs. For the manufactures of PPL this study might be useful as well. With the information that came from this study they can focus more easily on the needs of this specific group of buyers. If the manufactures know the needs of the PPL buyers they can develop more products that fulfill the needs of this group. With these new developed products that they can offer to the retailers they can expand their sales. Also they can adjust the current PPLs so these products fulfill the needs of the PPL buyer even more than before. 6.4

Suggestions for further research

In regard of the limitations, new research opportunities arise which might contribute to improving the line of research undertaken in the field of PPL buying. The model used in this research can be expanded with other demographic factors such as the social class of the buyer. Also other moderators can be added to the model such as price sensitivity. Also the PPL can be split into the three different types of PPLs: ethical PPL, festive PPl and region PPL. For future research it is suggested to investigate the model in this study through empirical research. The relations found in this study can be tested for true significance. Also the possible correlated effect of income and education level can be taken ino account. This would be a great significant contribution to the current literature on PPL buying.

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Geyskens, Inge, Katrijn Gielens and Els Gijsbrechts (2010), “Proliferating Private Label Portfolios: How Introducing Economy and Premium Private Labels Influences Brand Choice” Article postprint: Journal of Marketing Research.

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Bachelor Thesis Karin van Prooijen Other AC Nielsen, Consumer insights Europe 29-09-2006. AC Nielsen, Retail Trends, Supermarkt groeit 01-03-2007. IRI Persbericht, Matige omzetgroei bij A-merken 25-02-2010.

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