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Private labels are becoming more sophisticated, spanning many price-quality tiers and categories. As such, private label branding is evolving and retailers have to pay greater attention to factors that affect private label perceptions. One of such factors is the value-for-money perception of the supermarket, which is important both in terms of its competitiveness and the private labels it carries. The aim of this paper is to examine the relationship between value-for-money perceptions of a supermarket and perceptions that the private labels it offers are also value-for-money. We find a positive relationship between value-for-money perceptions of a supermarket and value-for-money perceptions of its private labels, which is stronger for private label non-users. Given that most private labels are not advertised, knowing that non-users of private labels form associations based on the store image is important for private label managers who want to grow the customer base of their private labels. For premium private labels we find that if a premium private label is the only private label in a category, it is perceived just like the traditional private label, suggesting a benefit in offering at least two tiers of private labels. Our findings provide implications for retailers in regards to their private label branding strategies.

Private labels (aka, “store brands” or “home brands”) are brands that the retailer owns and distributes selectively (Schutte, 1969). Private labels are important to retailers as they have the potential to drive store loyalty and earn higher profitability than national brands (Collins-Dodd and Lindley, 2003 and Sethuraman, 2006). Indeed, all around the world, retailers continue to invest in private labels, introducing new lines and several price quality tiers. As such private labels are becoming more sophisticated. One important consideration for retailers when introducing private labels are the factors that can affect the perceptions of the private label brand. One of such factors is the image of the retailer (Bao et al., 2011). This is because of private label restricted distribution and frequent use of retailer branding in the private label name (e.g., Woolworths Select) (Dongdae and Hyman, 2008). Therefore, the image of the retailer is likely to transfer to the image of its private label. This link between the two images is particularly important for brand equity attributes that are relevant to a retailer and a private label brand, such as value-for-money. The investigation of this link between value-for-money perception of the retailer and private labels of different tiers it offers is the focus of the paper. The perception that private labels offer value-for-money is one of the strongest links in consumer memory about private labels (Baltas et al., 1997 and Putsis and Dhar, 2001). This positioning is a major point of their competitiveness against national brands (Sethuraman, 2000). Consumers have come to expect that private labels should offer value-for-money (Dick et al., 1995, Bellizzi et al., 1981 and Cunningham et al., 1982). Indeed, the link is so strong that seeing a private label can prime a consumer to think of value-for-money as an attribute (Zeithaml, 1988). The perception that a supermarket is offering value-for-money is important for a supermarket’s success, as evidenced by the common Every Day Low Pricing (EDLP) policies, popularized by retailers such as Wal-Mart (Ellickson and Misra, 2008). This argument gains further reinforcement by ACNielsen research showing that value-for-money was the most important influencer of grocery store choice in 2008 globally (Nielsen, 2008). The importance of value-for-money positioning will most likely continue in the future; as noted by Sweeney and Soutar (2001, p. 201) ‘perceived value, a strategic imperative for producers and retailers […] will be of continuing importance into the twenty-first century.’ The possible transfer of value-for-money associations is likely to influence the choices managers make in relation to the branding and positioning of private labels within a supermarket’s portfolio. This issue is especially important as private labels continue evolving to include a new class, referred to as premium private labels. Premium private labels are different from traditional private labels, as the investment in packaging, branding and advertising for premium private label products is far greater than that for traditional private labels (Kumar and Steenkamp, 2007a). Often these premium private labels do not compete based on price, but seek to differentiate themselves on other attributes such as quality (e.g., Tesco Finest) or being organic/healthy (e.g., Sainsbury’s Healthy Living) (Kumar and Steenkamp, 2007b). For example, in the UK, Tesco Finest chocolate is the same cost, £1.09, as Lindt; a premium national brand. This higher pricing weakens the dependence on value-for-money perception for this sub-class of private labels, which might mean that the relationship between perceived supermarket value-for-money and private label value-for-money is weaker for this class of private labels. The increased sophistication of private label brands implies that retailers must pay greater attention to understanding factors that may affect perceptions of different tiers of private label brands. Therefore, the aim of this research is to examine the relationship between the consumer’s perceptions of the supermarket offering value-for-money, and the private labels of different tiers within the supermarket offering value-for-money. Additionally, this paper examines the impact of direct/non direct experience with the brand on the supermarket-private label value image relationship. The organization of this paper is as follows. The paper opens with the relevant literature, which forms the basis for the hypotheses. A description of the data sets and analysis approach follow. The next section presents the results, followed by the conclusions, implications and avenues for future research.

This study examined the relationship between how consumers perceive a supermarket and the perceptions of the private labels of different tiers. The researchers focus on value-for-money, as there are substantive bodies of research that suggest value-for-money is an attribute that is important for both supermarket and private label success. Furthermore, value-for-money is one of few attributes that can easily transfer from the supermarket to the brand, as opposed to other supermarket image attributes, such as convenience or good service. In a situation when retailers have a portfolio of private labels including premium brands, for which association with value-for-money would not be desirable, this research provides important implications for strategies that can prevent such image transfer. Results indicate that there is an interaction between the value-for-money images for the retailer and the private label. If a consumer perceives a supermarket to offer value-for-money, they will also be more likely to perceive that a private label within the supermarket offers value-for-money. This result was evident for the nine private labels tested, spanning three categories, two retailers, and both value and premium private labels. The cross sectional nature of the research means that researchers cannot provide insight into the direction of influence. While the supermarket image may influence how people perceive the private labels the supermarket holds, there is equal possibility that the presence of strong private labels could influence the perception that the supermarket offers value-for-money as well. However, the presence of a strong link between the two means that supermarkets need to consider their own individual brand positioning before designing a private label brand strategy. The findings show that the relationship between supermarket and private label value images is less consistent for premium private labels than for value private labels. While the strength of the dependence between the two images across all value private labels was very similar, results for premium private labels show a greater disparity. First, the findings show that if a premium private label is the only private label in a category, consumers may perceive this private label as value-for-money regardless of whether they perceive the supermarket as value-for-money or not. The reason for this would be the lack of a reference point for comparison to any other private label tier within the category (Raghubir, 2006). This finding suggests that if retailers introduce a premium private label to a category without any lower tier private labels present, consumers are likely to see the brand as a traditional private label. This is because of the strong categorization of private labels in consumer’s memory (Nenycz-Thiel and Romaniuk, 2009). Further, the choice of branding strategy will also have an impact on how consumers perceive private labels in relation to how they perceive the supermarket. The umbrella branding, where the name of the store is a part of the private label name, will facilitate transfer of associations from the supermarket to the store, while independent branding may prevent the transfer. This was evident for the Homebrand private label from Woolworths. Therefore, if retailers positioned on value-for-money plan to introduce a premium private label with different positioning, premium private labels should be branded with names that are independent of the retailer. Such premium private label branding strategy has proven successful in the past, with Loblaw’s line President’s Choice or Marks & Spencers’s St. Michael. Next, the results in the chocolate category show that the relationship between supermarket and private label brand images was stronger among non-users of private labels. Users of private labels were less likely to have congruity in supermarket and private label value image. Private label users have richer networks of associations about private labels and value-for-money is only one of many. Therefore, as private labels grow in market share and have more users, retailers will have to contend with a wider set of expectations from brand users. Private label users, who added these brands to their repertoire, will compare them with other brands in their repertoire that are typically national brands. These comparisons increase the importance of keeping private label quality and technology up-to-date with national brand innovations, which is something that may prove costly in the long term. As costs increase, profitability will decline unless prices rise. However, not offering value-for-money may hamper adoption of private labels by new users, as research shows that maintaining a lower price in comparison to a national brand is crucial for private label growth (Woodside and Ozcan, 2009). Therefore, while private labels currently enjoy substantive growth, they may face a challenge once they have to compete on attributes other than value-for-money. The finding that, for private label non-users, the relationship between the store image and private label image is strong provides important implications for private label managers on how to grow private labels. Nenycz-Thiel and Romaniuk (2011) find that non-users of private labels do not have major objections to buying private labels, but rather have very limited knowledge about the brands. The fact that non-users of private labels form associations about private labels based on the store the brands belong to gives retailers an avenue to build knowledge about those brands in non-user memory, in the absence of spending dollars on advertising private labels in each product category. This study includes several limitations that highlight avenues for future investigation. This study is limited to three product categories in one market. In order to develop sound generalizations, the research should extend to more food and non-food categories and countries with different retailing environments. Future research should extend to markets such as the UK, where supermarkets such as Tesco and Waitrose have considerably different positioning strategies. The focus of this paper is on value-for-money, given its importance in both supermarket image and private label brand image. However, a question arises as to whether a positive relationship is also evident for other image dimensions where potential overlap exists, such as product range or trust. Finally, the results show that premium private labels do not produce results as consistently as value private labels do. Future research should focus more on premium private labels to understand the degree to which they follow a traditional private label schema, vs. one that is distinctive for the premium private label class.