Tuesday, September 16, 2014

Experts Buy Private Label

Bart J. Bronnenberg, Jean-Pierre Dubé, Matthew Gentzkow, and Jesse M. Shapiro recently published a working paper titled, "Do Pharmacists Buy Bayer?  Informed Shoppers and the Brand Premium?"  Here's an excerpt from the abstract of their paper:

In a detailed case study of headache remedies we find that more informed consumers are less likely to pay extra to buy national brands, with pharmacists choosing them over store brands only 9 percent of the time, compared to 26 percent of the time for the average consumer. In a similar case study of pantry staples such as salt and sugar, we show that chefs devote 12 percentage points less of their purchases to national brands than demographically similar non-chefs.

Private label products certainly have taken a much larger share in many categories over the past decade.  Nevertheless, the scholars still found this "brand premium" effect, particularly for non-experts.  As private label products continue to rise in quality and availability though, we should expect more people to act like the informed consumers in this study.  Consider, for instance, the success of firms such as Trader Joe's and Aldi, both able to persuade consumers that private label products can deliver solid quality.  


Andy Kaufman, PMP said...

So, Michael, in what situations do you buy private label vs. brand name?


Unknown said...

In response to Andy Kaufman: private labels tend to sell products just as good, as national brand names. The only situations I can think of where I would take a national brand over private is if the private does not offer the same product. Another reason is if the quality or even the recipe of the national brand is far superior in terms of taste, quality, or even, in the rare case of having the national brand priced lower in cost.