Name Brands vs. Store Brands: The Strategic Fight Over Quality and Consistency

In Lexington’s WalMart, a 300-pill bottle of low-dose aspirin illustrates the dichotomy between name brand and store brand strategies. The generic store brand, Equate, rings up almost 74 percent less than Bayer’s low-dose bottle. When both boxes advertise the same active ingredient, it makes perfect sense to choose the store brand – and save more than $10. But not all customers will. Store brands, or those like WalMart’s Equate and Great Value, Whole Foods’ 365 Everyday Value and Target’s Archer Farms, employ a unique strategy for success by purposely ramping up marketing and production during economic downturns and targeting specific goods at specific groups. Name brands, such as Glad, Coca-Cola and Herbal Essences, rely on consistency in product quality and point-of-sale advantages.

When deciding between a name brand product and a store brand product, shoppers often perceive a trade-off. Would they rather pay more for high-quality Neutrogena face wash or pay less for CVS brand and assume a lower quality? But the decision between quality and thriftiness has become less prominent since the 90s. In recent decades, shoppers have moved away from the stigma that store brand products were of lesser value than name brand ones, allowing store brands to thrive. This success has been magnified by the recession in 2008. Store brand products that families buy regularly, like garbage bags, milk or paper towels, outperform name brands during tough economic times for obvious reasons – they cost less and the value lost is only marginal. According to Time Magazine, 93 percent of shoppers changed how they bought everyday items after the Great Recession. Though the recession brought hard times for millions of Americans, it led to a boon in the store brand market.

But as America digs itself out of the Great Recession and heads into more prosperous times, store brands will face competition from name brands as average and disposable incomes increase. In order to maintain their market share, store brands must continue to expand their breadth of products. Although this seems counterproductive, it increases consumers’ acceptance of the store brand as a whole. When shoppers see cream cheese, body lotion and pain reliever with a store brand, they tend to accept the brand at higher rates. Further, when those goods are proven high quality, customers will choose them time and again. Particularly important in proving store brand quality are medicines. As stated before, store brand aspirin products run a far lower price compared to name brand. When customers examine the back of the bottle, they see that the regulated products typically contain the same ingredients. The same goes for milk: as a regulated product, name brands and store brands must meet the same standards. If there is no difference in quality, customers looking to save a few bucks without sacrificing quality will pick the store brand. If these store brands can cement a customer base in these regulated products, they can gain a larger market share in other areas. In addition, store brands must implement another interesting strategy: marketing to men. According to Time, men are far less likely to stick to name brands, especially when buying health and beauty goods. While 74 percent of women prefer name brand beauty products, only 56 percent of men prefer to buy based on name brand.

In order to remain competitive, name brand product lines should treat their store brand competition just as they would another name brand. Since the gap in quality is shrinking, name brands must remain consistent in both product and brand quality. Since name brands already have what appears to be a running start based solely on quality perception, they must not lag in product excellence. Additionally, name brands are often perceived as better based on marketing. As CBS puts it, “In general, brand-name products are better than generic products. Or at least their marketing is.” And marketing works. According to the Harvard Business Review, name brand products sell better than store brand in the United States because of precise television marketing. In European markets with regulated television advertising, name brands are unable to reach the high level of advertising American brands reach and store brands often sell more. In addition, the quality assurance implement by name brands puts it ahead of store brands at the point of purchase. If a customer is in a hurry at the supermarket and does not have time to compare two types of shampoo but wants quality, he or she is more likely to choose the name brand, assuming it will be better quality.

There exist multiple advantages and disadvantages for both name and store brands, perhaps too many to detail in a short blog post. One interesting facet of brand strategy – that will hopefully appear in the comments section below – is the decision on behalf of name brand production facilities to produce store brand products. This does not always work out and can be toxic for the name brand. Further, the use of sales and promotions as a strategic plan can also affect name and store brands.

Sources:

http://www.cbsnews.com/news/generic-vs-brand-name-is-there-really-a-difference/

https://hbr.org/1996/01/brands-versus-private-labels-fighting-to-win

Brand Names Just Don’t Mean as Much Anymore

http://www.walmart.com/search/?query=aspirin

9 thoughts on “Name Brands vs. Store Brands: The Strategic Fight Over Quality and Consistency

  1. Great point about the store brand/name brand dichotomy. What blows my mind about this whole relationship is that often times store brands are produced by the companies (with the same processes) as name brands. Store brands are thus marketed to consumers simply based on price differentiation, as often times quality is literally the same. I guess this is where a conversation about licensing goods might also be pertinent to strategy discussion? It also begs questions about tradeoffs these suppliers make when producing store brands – do companies like ConAgra, which produces Walmart’s Great Value peanut butter and Peter Pan peanut butter, turn more profits by making the Great Value brand even though it cuts into their profits from Peter Pan sales that Great Value takes away?

    Sources:
    http://www.consumeraffairs.com/news/dont-confuse-store-brands-with-generics-083013.html

    • Sometimes that the same firm produces both is obvious from identical packaging, where the label differs but the shape of both is sufficiently different from other brands of the same good to be unlikely to be a coincidence.

      There are a couple Kroger private brands [PB is industry jargon] where I actually like the Kroger one better, for example natural peanut butter. I didn’t notice it the last time I bought coffee, but their store brand was also good, in part because it sold well and was always fresher than the (often much) more expensive branded coffee that I tried: coffee has a short shelf life, after 10 days flavor starts fading.

  2. So can we understand this better if we believe there are multiple types of consumers?

    If PBs gain “brand equity” with an association with better/good quality, then won’t stores face the temptation to raise their PB prices? We should then observe different relative PB versus name brand prices in markets where stores have a lot of competition and ones where they have little. Look in EconPapers and EconLit – that would be a neat followup blog topic.

  3. I have always found this a very interesting concept and you have done a great job looking at the trends of when store brands tend to succeed. I would curious to see, however, if these store brands could continue their increase in sales after the recent economic downturn is finished. I think that if they also invested in advertising and focused on their quality as well as the price differentiation, their profits would not be as susceptible to changes in the economy.

    • Interesting thought Kelly, upon doing some digging I found that Kroger is planning to continue and improve upon its already successful private label. To put some numbers behind Kroger’s success, their private label business is approaching $20 billion annually that includes their $1 billion Simple Truth label formed only two years ago. Moving forward, Kroger is going to retire their “Value” label that reminds customers of older and poorer quality store brand products in exchange for new label names. P$$t (Psst) will be used for canned vegetables and spices, Check This Out will be used for paper towels and detergents, and Heritage Farm for products like eggs and bacon. It will be interesting to see if they continue to have success as they revamp their store brand products and labels.

      Sources:
      http://www.cincinnati.com/story/money/2014/09/20/kroger-using-house-brands-power-growth/15955797/

  4. Tide (the laundry detergent) serves as an extreme example to show how important having a well regarded brand name can be. Tide detergent usually costs around 50% more than any other liquid laundry detergent, but (in terms of volume) still sells twice us much as it’s closest competitor, Gain. That is brand loyalty – and it’s resulted in Tide leading the laundry detergent market, with 30% market share.

    All this has lead to Tide becoming a favorite item for crews of thieves to steal from stores and warehouses. The article below explains this rather absurd and unexpected phenomenon:
    http://nymag.com/news/features/tide-detergent-drugs-2013-1/

    • We see certain brands’ names became substitutes for the actual goods (such as Coke, Tide, and iPod), which are closely related to the amount of investments in publicity. Although the economy has been recovering from the downturn, as the post suggests, brands like Kroger and Kirkland (Costco) have been consistently improving their qualities. These PB’s future strategies against name brands would be an interesting one to observe.
      I have seen soaps and detergents being locked in a Walgreens in New York a few years back. What makes this phenomena so fascinating is that it is counter intuitive since I thought most thieves cared more about the item’s real value but in fact it is all about the ubiquity.

  5. The article mentioned that the consumption of generic store brands increases in periods of recession. This suggests that consumers regard these as inferior goods, where demand rises when income falls. This is an interesting insight, as the article also stated that these goods are often identical or close to the name brand product. This does not appear to be good news for name-brand medication producers, who seem to be heavily reliant on image. To keep their market share, these companies must continue to spend massive amounts in marketing to sustain their image.

    • For prescription medicines, generics are often available at a fraction the cost. Now I’ve heard a variety of strategies used to promote this, but part is that it may be a 3rd party paying – an insurance plan – and because doctors care about patient satisfaction (they’re perceived as providing better care if they prescribe a name brand, “I want to be really safe on this…”).

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