CONSUMER PERCEPTIONS OF PRIVATE LABEL BRANDS IN CHINA COMPARED WITH THE UK
In China there are fewer studies of private label brands (PLB’s) that take up less market share than generic brands and national brands. However, there is a successful development of PLB’s in the UK. Therefore, this thesis aims to explore the difference of consumer perceptions on PLB’s between China and the UK with national brands as a standard.
The literature review will review theories like brand equity/image, PLB’s and double jeopardy; PLB’s development compared with national brands in China and the UK; the influencing factors of consumer purchase behaviour and previous researches of consumers’ perceptions about PLB’s in China and the UK. The main objective of this part is to ascertain the difference of consumer’s perceptions between PLB’s and national brands in the UK.
Primary research will take the form of a non probability convenience sampling method to randomly select 200 members of the public from two shopping malls of Xidan and Wangfujing and several large-scale supermarkets in Beijing. Questionnaires will be used for data collection, and data is analysed by Snap statistical programme.
The finding shows that there is a significant difference of PLB’s perception between China and the UK. Before the evaluation of brand image, the awareness of PLB’s in China is understood and just less than half of respondents know the own-label biscuits. With reference to the literature reviewed on consumer perception in the UK, it can get the result that Chinese PLB’s are perceived lower than British PLB’s on the all attributes except “cheap” and “good value”.
Chapter 1: Introduction
1.1 The topic of research
The aim of this thesis is to better investigate how private label brands (PLB’s) are perceived by consumers in China, and compare it with the UK’s.
1.2 Principle research question
To understand how Chinese consumers’ perceptions of private label brands differ from the UK’s.
1.3 Overall research objective
The primary purpose for this research is to discover the main difference of consumers’ assessment of private label brands between China and the UK. This thesis will explore if there are significant differences between Chinese consumers’ evaluation on PLB’s and the UK’s, and analyse the relevant factors that cause the distinctness of consumers’ evaluation roundly on the basis of prior research in this subject scope.
1.4 Individual research objectives
In order to achieve the principle objective of this study, it will intend to fulfil the following objectives:
- To identify the actual development of PLB’s in China and the UK
- To establish the influence factors of consumer purchase behaviour in China and the UK
- To determine consumers’ perception of PLB’s and national brands in the UK
- To determine consumers’ perception of Chinese PLB’s and national brands
- To ascertain the different brand perceptions of PLB’s in China and the UK
1.5 Report Structure
This thesis contains eight chapters. Chapter2 to 4 are based on a literature review about theories and relevant knowledge of marketing background. Chapter2 outlines the theories about branding, and then chapter3 introduces the private label brands and their development in the UK and China. Chapter4 refers to consumer perception of PLB’s review between two countries based on analysing the determining factors of purchase. The research method is explained in chapter5 with some specific designing scheme. The results of surveying Chinese biscuit category is presented, interpreted and analysed in chapter6, and discussed relating with the UK’s market of literature review in chapter7 before conclusion and recommendations are given in chapter8.
Chapter 2: Branding
Chapter 2 introduces the definition of branding with its importance in the retail market, and moves to realize “brand image” and “brand equity” as well as the shift between them. In addition, the Double Jeopardy (DJ) Effect is identified finally. The aim of this thesis is to evaluate Chinese consumers’ perceptions of private label brands (PLB’s) in comparison to UK’s. Therefore, it is necessary to understand the background knowledge about “brand” first.
2.1 The conception of branding
A brand was defined as “a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors” (p.404, Kotler, 2000).
Aaker (1996) indicated that brand was used for suppliers to reflect the consumers’ purchase information and make communicate with customers easier, so that it is helpful to build a long-term relationship of belief between buyers and sellers.
Wileman and Jary (1997) had realized that retail branding was playing an important role in the modern retail market gradually. Managers and executives also perceived that retail branding could be used to increase benefits as a strong vehicle in the competitive retail industry (Carpenter, et al. 2005). The reason is that the relationship between a product and consumers is personified by the brand name (organization’s name) on the product itself, like Microsoft and Nescafe (de Chernatony and McDonald, 2003).
The difference between a brand and a commodity is shown below in figure1, which describes the process of decline from brand to commodity. Following the disappearance of brand characteristic, a reduction in the differentiation of price and product/image is demanded to achieve the likeness of product offerings in the particular category. Thus the “added values” is the main difference between a brand and a commodity. The result proved the strong power of added values in the blind (brand cancelled) and open (brand revealed) test of Coke and Pepsi preference (de Chernatony and McDonald, 2003).
2.2 Brand image
Brand image is explained as the integrated effect of brand associations (Biel, 1992). Also, Faircloth et al. (2001) cited Engel et al. (1993) as claiming that brand image refers to consumers’ perceptions of brand tangible and intangible association. Keller (1993) stated that brand image, a part of brand knowledge, belongs to the perceptions about a brand that is reflected by the brand’s attribute, benefit, and attitude association in the memory of consumers. Besides, consumer’s brand image is derived from the accumulative effects of marketing mix actions of companies (Roth, 1994).
Wulf el al. (2005) has argued that image is one prerequisite for the presence of brand equity. Brand image in the consumers’ memory network that is decisive to make decision, provides preferred brand reminding and evaluation (Holden, 1992), and so it can contributes the positive effect on brand equity (Yoo et al. 2000).
Furthermore, Winchester and Fletcher (2000) argued that measuring brand image was one of the most important research projects undertaken by a company, because it could help firms to understand their products’ perceptions in consumers’ memory.
For example, retailers have the cheaper brand image than the manufacturers in most of consumers’ memory. Also, they suggest that consumers consider retailer brands as “me too” products compared with manufacture brands (IGD, 2003). Thus it demonstrates that retailers are trying hard to build up a strong image for their own brands to shoppers. The enhancement of brand image will be beneficial to drive the sales, brand equity and increase the gross margin of private label products (Quelch and Harding, 1996). Therefore, brand image is an important determinant of consumers’ perception about private label brands.
2.3 Brand equity
Brand equity, like the concept of brand, has been identified as having multiple meanings. For instances, people have debated the concept of brand equity both in the accounting and marketing literature for several years (Wool, 2000). The original concept of brand equity is the added value that a brand name offers to the fundamental product (Quelch and Harding, 1996; Wulf el al 2005). Wood (2000) also cited Feldwick (1996) as claiming a classification of different meanings of brand equity as:
“- the total value of a brand as a separable asset – when it is sold, or included on a balance sheet;
- a measure of the strength of consumers’ attachment to a brand;
- a description of the associations and beliefs the consumer has about the brand.” (p. 662, Wood, 2000)
According to the statement of Wood (2000), brand equity rests on financial accounting no longer, but extends to the measure of brand strength (brand loyalty) and the description of brand image.
Additionally, Aaker (1996) identified the major asset categories of brand equity to include brand name awareness, brand loyalty, perceived quality and brand associations (brand image). It reflected the value supplied by a product or service to a firm and/or customers in the various different ways. If the name and symbol of the brand change, the assets or liabilities will be affected and even lost due to the link between both sides. To brand awareness, the strength of a brand’s presence is mentioned in the consumers’ minds, ranging from recognition to recall to “top of mind” to domination. Recognition is more important than others due to the perception obtained from the past exposure. Also, recall can be a deciding factor of the purchasing of products.
Otherwise, Chou (2002) also insisted on two categories of definition of brand equity—the customer-based and financial brand equity. The customer-based one is defined as the different effect of brand knowledge on consumers’ response to the purchase of brand (Keller, 1993; Lassar, et al. 1995), and the financial one refers to the intangible asset of the value of brand name to the firm (Chou, 2002).
Through understanding the multiple concepts of brand equity, it can deduce that brand equity has attracted more attention in the marketing literature over the last decade, because it reflects if a brand would be repurchased by consumers. As Shapiro (1982) has demonstrated, certain brand equity offered genial value even though the appearance of products is uncertain. Nowadays Broniarczyk and Gershoff (2003) still emphasise the importance of brand equity; also, as one of the most valuable assets, it should be maximised to manage brands for the company (Keller and Lehmann, 2003). High brand equity can increase the opportunity on consumer choice of a common sales promotion (Simonson et al., 1994) and reduce the negative debates of consumers for a price increase (Campbell, 1999), because consumers lean to buy the brand more than the real product. Consequently, brand equity is also a factor to evaluate consumers’ perception of own brands.
2.4 The Double Jeopardy Effect
In recent years, more authors (Sharp et al. 2002; Ehrenberg and Goodhardt, 2002) have been interested in understanding, developing and reinforcing the concept of Double Jeopardy (DJ), which represents a natural constraint on customer loyalty, which cannot be increased by marketing inputs much or for long unless a significant benefit increases the brand’s penetration (Ehrenberg and Goodhardt, 2002). The DJ effect is that “small share brands have fewer customers, but these customers buy the brand less often than the larger brands get bought by their customers” (p. 17, Sharp et al. 2002). A conceptual model of the DJ effect is showed in the figure2, which illustrates if a small firm would have higher turnover of their customer base if they lost the same number of customers as a large firm.
The DJ effect is fit for the discussion of national brands and PLB’s. Bigger brand will be known by more customers, and have more opportunities to be purchased and receive more responses than smaller brand. It will be an essential theory to support the last result of investigation about the comparison between own labels and national labels.
Chapter 3: Private Label Brands
This chapter attempts to understand private-label brands, their development in UK and China and the reason for focusing on them. National brands will be also mentioned as the scale for the validity of comparison between Chinese and UK’s own labels.
3.1 The definition of private label brands
“Retailer brands are designed to provide consumers with an alternative to manufacturer brands, to build customer loyalty to a retailer or improve margins.” (p.11, IGD, 2003)
They are particular to a definite retailer, and may have a same or different name of the retailer but exclude other retailers’ name (IGD, 2003). The terms “own label” and “own brand” are always used together; also private label, retail brands or distributor brands are in common used (Fernie and Pierrel, 1996).
Own brands can help retailers reduce the direct impact of price competition, since retailers carry their own brands instead of national brands that are sold in the most of the stores (Carpenter, et al. 2005). Furthermore, according to IGD (2003) study, doing own brands can provide competitively priced products, increased profitability and loyalty due to the special store, establishes store image, drives innovation and targets specific consumer groups.
3.2 The development of PLB’s in UK
Based on more previous researches about UK’s PLB’s, it will specify them as the base to compare with Chinese growing PLB’s.
3.2.1 The history of development
The generation of own brands in the UK can date back to the end of the nineteenth century (Key Note Market Review, 2001). Until mid-1960s, manufacturers perceived that the development of store brands could be a direct threat for them (Ogbonna and Wilkinson, 1998). After that, own brands rose to penetrate into grocery markets gradually (Fernie and Pierrel, 1996), because supermarket had to implement a new strategy under the tough economic crisis (Ogbonna and Wilkinson, 1998).
The growth of own labels in the UK had been rapid during 1980s, and slowing down in the 1990s (Laaksonen, 1994). After 1980, the UK’s retailing had a big metamorphosis to change their own-label products from previous low-price/low-quality/poor-packaging to current high quality, competitive price and good packaging (Burt and Davis, 1999; Key Note Market Review, 2001). Especially from 1990, more retailers began to provide own brand lines in stores and penetrated towards the grocery field (Veloutsou et al., 2004), and even innovated in product categories to be consistent with branded-products, such as the expansion from grocery to clothing (Quelch and Harding, 1996). Fernie and Pierrel (1996) illuminated that Marks & Spencer, Sainsbury’s, Tesco and Safeway had developed their own brands, which competed successfully with other brands in the UK. Otherwise, there were more private labels on the shelves of supermarkets than ever before (Quelch and Harding, 1996). The main reasons for growth of own-label products include lower pricing (60%-85% of branded products), improved quality and higher profits for retailers (Ashley, 1998).
Through the review of historical evolvement of PLB’s, the current bloom of PLB’s development in UK that is built on the basis of constant change can be seen. Also, it can be a good explanation for the condition, in which customers choose more own brands of supermarket rather than manufactures’ brands.
3.2.2 Current development
At present, private label brands have taken up a significant share of nearly 29% in the UK food market. It is expected to increase further in 2009. Especially since 2008, own label has been gaining popularity following accelerating economic downturn. As consumers have begun to feel the pitch, so they have bought own-label products instead of branded products to save money. Thus the competition between own-labels and brands is reinforced. There is the highest own-label consumption in the FMCG sectors, like milk and frozen vegetables, or some products without emotional appeal. However, manufacturer brands still account for the majority of sales in the most of grocery categories (Mintel, 2009). Table1 shows the share of brands and own-labels in the following different categories.
From this table, it can see that own label is the most dominant in the category of ready meals; and it has the least share in the crisp category. Also, more share own labels account for, more increasing opportunities they have.
In addition, UK’s supermarkets recognise that consumers have a wide range of product needs, so they segment the market by providing the brands that cater for the best, healthy, valuable, kids’ and organic requirements as table2 shows.
3.2.3 The feature of development
The development of PLB’s, a competitive strategy adopted by retailers, is necessary for them within the current retail market of high competition in the UK (Carpenter et al. 2005).
Own brands are developing fast and winning a better share of the food market with definite advantage in the supermarket product ranges, because retailers can offer their private label products with high-quality and low-price (Wulf et al., 2005). Also, own-brand products exceeding 40% of market share have expanded their presence across markets—from low-priced, value-for-money items to the premium and lifestyle arenas so as to cater for consumers concern about healthy eating (Drewer, P. 2006). Therefore, it can fetch up the limitation of national brands that segment the market less, and target desired consumers more narrowly. For instance, figure3 shows Sainsbury’s Be Good to Yourself range of lower fat which is one kind of “healthier” own-label ranges; and Asda’s value (Smartprice), healthy (Good for You) and Premium (Extra Special).
Furthermore, the feature difference of own brands has been gradually shortened from national brands in terms of aspects such as packaging, size, and label (Choi and Coughlan, 2006). In figure4, Sainsbury instant coffee products are taken as an example of private labels with reduced feature differentiation as national labels inside FMCG sector.
Some of the UK’s retailers such as Sainsbury’s and Tesco have set up own brands focusing on quality and taste due to more consumers’ regards on flavour and aroma. Production methods have become diversified, and manufacturers have been found around the world to get various products with exotic flavours. For instance, the recipes of multiple ready-meal foods are derived from characteristic foods of different countries, like Waitrose chicken chow mein, which is developed from Chinese stir-fried noodles. Thus it is common for retailers to compete by developing premium own brands (Fenn, 2007), yet the majority of retailers changed their attention from premium ranges to the promotion of value ranges in 2008 (Mintel, 2009).
3.2.4 Marketing support
The increase of own-label products is supported by the gradually concentrated nature of the retail market. Retailers control own brand marketing, which has obtained higher promotional support than national brands since there are better space and location for private labels on supermarket shelves (Cataluna et al. 2006). Retailers have got bargaining power in the market and more confidence to invest in their own brands, which bring higher profits than generic brands (Fenn, 2007). In addition, own-label food and drink has been supported strongly in the competitive market, although the main retailers began to promote the potential of saving money on PLB’s purchase in 2008 and early 2009. For example, own-label brands are promoted principally in the main retailers like Morrisons. Marks & Spencer also spent a third of its total budget on M&S brands in 2008 (Mintel, 2009). Table3 shows the market support on foods in the form of media advertising expenditure.
Generally, an increasing trend is shown for the retailers’ spending on foods in this table. However, depending on the retailers’ spending share, it can ascertain that branded manufacturers are still the biggest spenders on advertising for food and drink. They use the “Reassurance” and “tradition” as the key themes of promotion to fight against PLB’s (Mintel, 2009).
3.2.5 The biscuit category
Own-label biscuits take up a fifth of the UK market, where it has remained the share stably over previous 5 years. The biscuits category has increased substantially since 2002, although there is an unhealthy high sugar content in the most biscuits. The benefits can be obtained from defying all advice of nutrition, because consumers regard biscuits as a reward for their efforts on healthy eating most of the time. Moreover, the development of biscuit market is likely to be influenced by three key factors: requirement for healthy foods, indulgent products and convenient products. The indulgent demand can benefits the branded biscuits, as consumers believe premium-branded products more than PLB’s (Kidd, ed. 2007). Figure5 shows the UK biscuits market shares in 2007.
From this figure, it can see own labels account for more share than any one manufacturer brand, but it is less than the total share of main large manufacturers.
In short, UK’s PLB’s market has been described and compared with manufacturers’ brands specifically, so that it can be as the firm foundation for the later comparison with Chinese PLB’s market.
3.3 The development of PLB’s in China
Private label in China is still in an emergent stage, where many retailers had increased the place of own label development in 2004, but most do not have their own brands until they have greater scale in the market. According to IGD’s estimation, own brand only takes up 2% of sales at Wal-mart and less than 6% at Carrefour, which is the strongest retailer in China. Although the foreign retailers have a long history to sell private label brands, this is a big challenge for them to sell in China, where own brand is a new concept for the Chinese consumers. They just believe the value and quality of local branded products. Thus retailers need to prove their own products are not only cheaper, but also provide better value to consumers (IGD, 2005b). Auchan, Carrefour and Wal-mart will be chosen as the example of private label development, because they have wider range of own label products than others.
“Pouce”, “Auchan” and “First Price” ranges were introduced by Auchan in 2003. And they were developed across both food and non-food categories by the end of 2004. In Carrefour, own labels can be found in most categories, especially strong in non-food. Its private label brands include “Great Value”, “Equate” and “Kid’s Connection”. Wal-mart is developing their own brands including “Simply Basic”, “Equate” and “Great Value” in China, where the quantity is more limited than other developed international markets (IGD, 2005b). But actually, most of supermarkets usually just focus on the value with low price, and use the name of supermarket as their own brands’ name to attract consumers’ attention, such as “Ito-yokado”, “Dia%” and “Tesco”.
3.4 Why the focus on PLB’s
Veloutsou et al (2004) indicated that all grocery retailers have been entangled by private brands in Great Britain in the last decade. Also, the growth of private labels is one of the most obvious successes to the retail stores (Drewer, P. 2006); own brands have been seen as the strategic weapon to provide retailers with more powers and opportunities to distinguish themselves from national brands and build store image (Juhl et al. 2006). Nevertheless, there is a completely different situation in China, where the study of PLB’s is less than the UK’s and is strongly encouraged (Song, 2007). PLB’s is undeveloped with low sales account in China, even if some foreign retailers (e.g. Carrefour, Wal-mart) have launched their own brands (IGD, 2005b). Consequently, there is a need to expose why PLB’s have little market in China, and understand the shortage of Chinese PLB’s development through comparing consumers’ different perceptions between China and the UK.
Chapter 4: Consumers’ Perception of PLB’s in China and UK
This chapter will evaluate private label brands and national brands based on a cognizance of factors determining purchase. A generality of different viewpoints about consumers’ perceptions on brands will be discussed and some factors influencing the PLB’s purchase will be presented.
4.1 Determinant of Purchase behaviour
Consumer’s purchase can be influenced by environment, personal preference and psychological factors. Customers who live in diverse regions have their own experience about private-label products (Veloutsou et al 2004). Individual consumers often choose certain brands that they know to be guaranteed due to their habits, instead of spending more time to re-evaluate the brands with different attributes when purchasing (Ehrenberg, 2004). Furthermore, consumers’ preferences are different following the change of age (IGD, 2005a). For example, young people high on the new things more than old people. From the psychological aspect, “the right customer mindset can be crucial to realizing brand equity benefits and value” (p29, Keller and Lehmann, 2003).
During the decision making process, purchase can be influenced directly by several factors. Veloutsou et al (2004) cited Omar, Burt and Sparks (1995) as claiming that many consumers always consider their products’ characteristics, quality and perceived value instead of the prices of products when consumers make purchasing decisions. However, the price cannot be excluded from factors of decisions, because most of consumers go shopping after they have a budget in mind (Hogan, 1996). Additionally, a generalized private-label attitude is discovered to influence purchase behaviour; factors include: “consumer price consciousness, price-quality perception, deal proneness, shopping attitudes, impulsiveness, brand loyalty, familiarity with store brands, reliance on extrinsic cues, tolerance for ambiguity, perceptions of store brand value, and perceived differences between store brands and national brands” (p347, Collins-Dodd and Lindley, 2003).
4.2 Consumer perception in China
Due to the limitation of consumption per capita, the market was driven by price instead of brand loyalty in China (IGD, 2005b). According to China Management Newspaper (2008) reported, it is a fact that consumers who realise the supermarket own labels account for rather low percentage of total population. Moreover, “low price” and “high quality” are the main motivations to drive consumers’ purchase. Thus national brands with better quality can attract more consumers, although they have higher price than own labels. This results from the increase of Chinese consumers’ purchase power and the improvement of living level in recent years. Moreover, PLB’s and national brands were considered as less difference on price (Chen, 2009). Thus it can be deduced that “low price” strategy of own brands in China would be successful due to less brand loyalty. However, following the improved standard of living, people would increase their demand from low price to high quality, which could be a challenge for the PLB’s.
4.3 Consumer perception in UK
4.3.1 Comparison of PLB’s with national brands
Following the quality improvement of PLB’s, Richardson (1997) found that store brands could be compared with national brands from the aspect of quality and consumers preferred to buy store brands where they usually shopped. As Quelch and Harding (1996) discovered that this was similar for consumers to perceive and judge the manufacturer and retailer brands in the orange juice private-label test, because consumers had a low involvement activity on grocery shopping.
Nevertheless, “If all retailers stock manufacturers brands, they can only differentiate on price or sales promotions; with own labels/brands, they can offer further differentiation in the market place.” (p49, Fernie and Pierrel, 1996)
They supported that own labels/brands could bring retailers more differentiation in the market place than manufacturers’ brands that just differed on price or sales promotions from each other. However, there is a different understanding based on consumers’ mind. Dick et al. (1996) considered that private labels were less famous than national brands, which have a distinct identification with a particular manufacturer. Richardson (1997) also supported the unification of store brands without the speciality of national brands.
In the research of Harris (2007), he also demonstrated a significant difference of brand image evaluation for national brands and store brands. He established that PLB’s have the advantage of “cheap” and “good value” to compare with national brands, while national brands were used more with higher quality/superiority based on attributes than store brands. However, after breaking down PLB’s into three relative positions (premium, standard and value), he discovered that premium private labels were overpriced more without better value for money than national labels; customers buy more value private labels than national labels due to their cheapness. This implicates that consumers prefer the high quality of national brands and the good value of value PLB’s at the same time. Therefore, he identified the characteristic of “worth more” regarded by consumers mostly. The brand association strengths are summarized in the following figure7 from his study.
Furthermore, his researching results (see Appendix3) will be used as the reference of British consumer perception of PLB’s to compare with China’s later.
In addition, according to Mintel research (2009), it has been a long-term trend for more consumers thinking that own labels are better than national brands.
4.3.2 Evaluation of PLB’s
To the quality/value thinking, other authors have had same ideas. Quelch and Harding (1996) predicted that consumers would choose PLB’s readily rather than the higher-priced name brand, if there were more quality PLB’s in the market. Richardson (1997) cited Richardson et al. (1994) as claiming that store brand market share could be increased by successfully communicating a quality rather than a low price strategy. Moreover, according to the IGD’s research, PLB’s have become one of the important factors for shoppers to choose the supermarket they shop in. The satisfaction of quality with lower price has attracted more consumers. The proportion of main reasons is “45% lower price, 45% better value than branded equivalent, 26% the same as branded, 24% a good reputation for own brand (IGD, 2003). Furthermore, consumers are not confused about the increasing number of own-label brands, but the segmentation is beneficial for them to choose products that are fit for themselves. The clear differentiation among brands is also the key for retailers to success (Mintel, 2006).
Chapter 5: Methodology
On the basis of the relevant literature review about the market analysis of PLB’s and national brands, especially the UK market, this has been analysed for the final discussion to compare with Chinese PLB’s. This chapter will look for the most appropriate approach to implement the needed research and achieve the objective of this thesis.
5.1 The objective of this study
Perceptual variables related to consumers’ perception are investigated in this study. It needs to finish the following objectives:
- The difference of consumer perceptions between PLB’s and national brands in the UK (achieved in literature review)
- The difference of consumer perceptions between PLB’s and national brands in China
- The difference of consumer perceptions of PLB’s in China and the UK
Based on the understanding of the UK’s markets and perceived PLB’s compared with national brands by consumers in the literature review, the Chinese situatio
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