What Makes Consumers Willing to Pay a Price Premium for National Brands over Private Labels?

TLDR

The growing sales of private labels pose significant challenges for national brands worldwide. The study investigates whether consumers still pay a price premium for national brands over private labels. Using survey data from 22,623 respondents across 23 countries and 63 product categories, the authors examine how marketing and manufacturing factors, mediated by perceived quality differences, influence the price premium consumers are willing to pay for national brands. Results show willingness to pay declines as private labels mature, suggesting that in mature PL markets national brands must focus on manufacturing fundamentals, while in developing PL markets marketing plays a stronger role.

Abstract

The growing sales of private labels (PLs) pose significant challenges for national brands (NBs) around the world. A major question is whether consumers continue to be willing to pay a price premium for NBs over PLs. Using consumer survey data from 22,623 respondents from 23 countries in Asia, Europe, and the Americas across, on average, 63 consumer packaged goods categories per country, this article studies how marketing and manufacturing factors affect the price premium a consumer is willing to pay for an NB over a PL. These effects are mediated by consumer perceptions of the quality of NBs in relation to PLs. Although the results do not bode well for NBs in the sense that willingness to pay decreases as PLs mature, the authors offer several managerial recommendations to counter this trend. In countries in which PLs are more mature, the route to success is to go back to manufacturing basics. In PL development countries, there is a stronger role for marketing to enhance the willingness to pay for NBs.