The effects of private label brands on national brandsales at a selected retail store in Cape Town

Nyasha Felistas ChikovoRetail Business Management DepartmentFaculty of BusinessCape Peninsula University of Technology

Acknowledgements

The researcher would like to thank the following people for their support and assistance:

• Dr V.V. Mugobo – Lecturer Research Methodology

• Mr P Venter – HOD Retail Department, Business Faculty

• All lectures and 2013 B-Tech students –Retail Department, Business Faculty

Trajectory of the presentation

Introduction of the study

• Intensity of competition in business industry has increased the importance of

branding (Goodson,2012).

• Private label brands revolution was first observed in Europe and Canada

(Dineshkumar,2012).

• Private label brands appeared in SA in 1956,when Raymond Ackerman

introduced a no-frills brand to the market (Prichard,2005).

• SA’s four major retailers have embarked on private label brands(Midgley,2009).

• Brands exist in people’s perceptions which entails that they tend to purchase

the products that they have tried and have proved to work for them(Groucutt et

al, 2004).

Background

• The unit of investigation: Retailer N , located in Cape Town CBD, in theParkade Mall.

• Food and general merchandise retailer

• Targets LSM 5- 10

• Main Competitors : Shoprite, Spar and Woolworths

• Embarked on a re-branding exercise in 2007(three-tier brand)

Statement of the Research Problem

• Private label brands were produced to reach additional market segments (Boone et al, 2013:380)………… but has that been the actual result at the store?

• Recent retail trends indicates potential cannibalization between the brands.

• Growth of private label brands alongside increasing cost of living what does the future hold for national brand sales????

Research Questions

Main Research Question:• What is the effect of private label brands on national brands sales at a

selected retail store in Cape Town?

Supporting Questions:• What are the consumer perceptions on private label brands?• What are the consumer perceptions on national label brands? • What strategies are national brands implementing to defend their high

prices in an economy that is slowly going down?• What are the benefits of purchasing private label brands?• Does each type of consumer stick to private label or national brands in all

groceries?• What strategies can be implemented to reduce potential cannibalization

between national and private label brands?

Research Objectives

Main Research Objective:• To establish the effect of private label brands on national brands sales

of a selected retail store in Cape Town CBD

Supporting Objectives:• To determine consumers’ perceptions on private label brands• To establish consumers’ perceptions on national brands• To identify strategies that are being used by national brands to defend their

high prices in economy that is slowly going down• To establish the benefits of purchasing private label brands• To find out if each type of consumer sticks to private or national brands in all

groceries• To determine strategies that can be implemented to reduce potential

cannibalization between national and private label brands

Assumptions of the study

• H1 Private label have no effect on national brand sales.

• H2 Private label brands have an effect on national brand sales.

• Hn There is no relationship between national brand sales and private label brands.

Significance of the study

• Significance to retailer N

• Significance to academia

• Significance to CPUT

• Significance to researcher

Literature Review

• A brand is a name, term, symbol or a combination of all; which is intended

to signify the goods or services of one seller or group of sellers to

differentiate them from competitors (Groucutt,2004).

• National brands are brands that are owned by large manufacturers and are

distributed on a national level (Boone,2013).

• Private label brands are brands offered by retailers and wholesalers; they

develop their own brand names and contract a manufacturer to produce the

products with those brand names(Boone ,2013).

Literature Review contd

Types of brands• National and Private label brands(Cant el al,2007).

• Individual and Family brands(Govindarajan,2007).

Why are brands important in retail?• Differentiate one’s product (Van Tongeren,2003).

• Allow consumers to form an opinion and preference (Douglas,2007).

• Strong brands add value to a business (Van Tongeren,2003).

• Strong brands enable a business to command a price premium(Clarity Marketing Ltd,2005).

Literature Review Contd

Reasons for the introduction of private label brands

• Defensive strategy by retailers against manufactures/suppliers (Onkvisit,2008).

• Create store loyalty and avoid direct competition(Cant et al ,2007).

• Target new segments(Pradhan,2009).

Effects of the introduction of private label brands

• Shift of power from manufacturers to retailers(Reinert et al ,2009).

Research Methodology

Research Philosophy

Positivism and Interpretivism Approach

A combination of objective and subjective view point, by quantifying data and interpreting to facilitate understanding.

Research Approach

Mixed Method Approach

a combination qualitative and quantitative analysis where both inductive and

deductive processes are operational at different points in time and feedback loops

facilitate maximizing strengths of both methodologies

Research Methodology Contd

Research Population and Sample

Population: All employees and consumers of retailer N

Sample size: 12 senior managers/supervisors and 150 consumers

Research Methodology Contd

Sampling Techniques

Judgmental Sampling

The selection of a sample unit depend on the researcher and it is only his/her

judgment whether a unit should be included or not(Asthana et al,2007).

Systematic Random Sampling

A probability sampling method whereby respondents are randomly selected

from a total population of the study for example start from the 20th name

and pick every 15th name after that and respondents stand an equal chance

of being chosen(Nicholls,2013).

Research Methodology Contd

Data Collection• Survey Questionnaire- 150 distributed

120 returned (80%)8 spoilt (5.33%)

112 used for data analysis (74.67%)

• Semi-structured Interviews- 12 interviews with senior managers/supervisors

Ethical Considerations and Limitations of the Study

Ethical consideration

• Informed consent• Anonymity• Confidentiality

Limitations

• Limited Financial Resources• Challenges in accessing the exact information from employees

Data Presentation and Analysis

Fig ix indicates consumer brand

Preference

9 7

96

0

20

40

60

80

100

120

National brands Private Label brands Both

National brands

Private Label brands

Both

Data Presentation and Analysis Contd

Fig x indicates reasons why consumers prefer to buy private label brands

0

10

20

30

40

50

60

70

Quality Price Prestige Familiarity

Quality

Price

Prestige

Familiarity

Data Analysis and Presentation Contd

Table xxv: What managers think are the reasons for private label brands growth

Theme Explanation

Low Disposable income The economic downturn of the country has led to low disposable

income in consumers and they have turned to savings

Price Elasticity The low – middle class consumers are highly price elastic and

are pulled by any products that have lower prices

Positioning The private label brand has been positioned well in the minds of

consumers and erased that perception of low quality

Variety of choice The three tier brand provides a variety of choice for consumers

with those who desire savings(P n P no name brand),those who

want the same level as national brands( P n P brand) and those

who desire premium quality(P n P) finest

Change Some consumers do not enjoy repetition they have moved to

private label brands for a change

Data Presentation and Analysis

Fig xiv illustrates the brand type that consumers prefer to buy in Household and other products

(This data supports the findings by Global online survey (2012), that majority of consumers started trying PLB in non-food items hence purchases of PBL are higher in those product categories)

0

10

20

30

40

50

60

70

80

Fig 4.12 NationalBrands

Fig 4.12 PrivateLabel brands

Fig 4.12 N/A

Data Presentation and Analysis

Table xxviii Survival strategies for survival of national brands

Theme Explanation

Extensive Promotions National brands are promoted by the manufacturers at national

level and consumers are well aware of them

Positioning The brands have created different images that consumers have

accepted and been loyal to over the years

Brand Loyalty Consumers who have been loyal to the national brands before the

introduction of private label brands will stick to their preferred

brands

Familiarity The national brands have created top of mind awareness such

that consumers call products by those brand names

Fear of the unknown Some consumers are highly dogmatic and are not open to change

they would rather stick to what they know

Data Presentation and Analysis

Fig xxiv consumers

who

purchase private

label brands 35%

26%

18%

10%7% 4%

Fig 4.22 Assume sales volume of private label brands is 100%,allocate the LSM levels contribution towards that sales volume

LSM 5

LSM 6

LSM 7

LSM 8

LSM 9

LSM 10

Data Presentation and Analysis

Sales performance of brands according to managers

Annual sales growth ratePrivate label brands higher than national brands

Annual sales volumeNational brands higher than the private label brands

NB:Figures could not be provided because of confidentiality Issues.

Key Findings

• Private label brands have eaten into the market of national brands. The

findings at retailer N,support the national findings on private label brands by

Nielsen (2011) that, private label brands account for 12% -15% market

share in SA which is the global average.

• Consumers do not stick to one brand in all their grocery purchases .

• Consumers have changed their negative perceptions on private label

brands .This corroborates with Jordan (2012)’s findings that, "today private

label brands are no longer seen as cheap imitations of manufactures’

brands but brands that deliver on both price and quality.”

Findings Contd

• Consumers perceive national brands to be of high quality, however Retailer

N also has a brand equivalent to the national brands in quality and pricing.

The findings support the facts raised by Wulf (2005) that consumers

perceive national brands to be superior to PBL in quality taste and reliability

however they resort to PBL because of price.

• National brands are depending on their positioning and loyalty of

consumers to fight PBL.This finding concurs with Schreijen (2011) who

propagated that manufacturer’s brands were expected to hold on to a

certain portion of their market share because they are strong brands.

Conclusion

• Retailer N’s operation at different price and quality points has made it

difficult for national brands to differentiate themselves. The conclusion

concurs with the Alliance Consulting Group(2011) in which states that,

retailer brands have redefined their game and surpassing some of the

manufacturer brands.

Conclusion Contd

• PBL have had an effect on the national brand sales especially due to the

economic downturn in the country. This is in support with Pearson

(2012,)that recessions have been key growth driver of the growth of PLB.

• There is potential for continuous growth of private label brands. This

concurs with Pearson(2012) when he states that PLB are here to stay and

as significant players in retail space.

• The study has proven H2 which stated that “Private label brands affect

sales of national brands.

Recommendations

• Retailer N should monitor consumer-drivers to the acceptance of the three-tier

brand and take note of opportunities to differentiate them from national brands.

This is based on the issue raised by Collins and Boone (2008) that success of

retailer brands depend on aligning their brands with consumer trends such a

healthy eating.

• Retailer N should continue to develop the products under the three-tier brands

to influence appeal across a broad range of consumers and align marketing mix

to the needs of the whole target market. This corroborates with

Accenture(2012) in that the rise of private label brands is attributed to retailers

making their offerings relevant to consumer needs at significant lower cost.

Recommendations Contd

• National brand manufacturers should partner with retailer N to produce

complementary national and private label brands that are in line with

consumer needs. The recommendation seconds a motion by The Accenture

2012 Store Brand Survey which highlighted that retailers and manufactures

share common goals and they need each other to survive.

• Both retailers and manufacturers should engage in research and

development for continuous innovation of new products to meet changing

consumer needs.

Direction for Future Research

• This study focused on the effects of private label brands on national brand sales

at a selected retail store in Cape Town .

Further research can be carried out on the following:

• Future of branding in the business sector of South Africa in particular corporate

branding because it has become a vital factor in the success of most

businesses in the country and the world at large.

• Benefits and challenges of branding to retailers and manufactures because it

is imperative for all parties involved to understand the benefits and challenges in

branding.

The End

Thank You