Two University of Iowa researchers recently
discovered a new way retailers can increase sales
of company brand products: promote competing
national brand products with store coupons and
simultaneously use in-store price incentives to
promote company brands.
Research showed
surprising growth of market share of company
brands under these conditions. Here's the story.
Company brands and national brands fiercely
compete in the marketplace, with company
brands usually priced below the nationals.
Because of increasing price consciousness among
shoppers, company brands have been increasing
market share in recent years.
National brand
manufacturers fight this decline of their market
share with coupons which reduce the price advantage of company brands.
These national brand coupons, issued by the manufacturer, also reduce the in-store influence of retailers since consumers typically make their purchase decisions before they enter the store. But national brand manufacturers aren't the only ones who can issue coupons. Stores can issue their own coupons on company brands and on national brands. Raj Sethuraman and John Millelstaedt studied these different types of coupon promotions and looked for effects on market share.
National brand manufacturers are are right, the researchers discovered, about defending against private labels incursion into their market share. Manufacturer-issued coupons do increase their market share and reduce private label share. And the same approach does not work for store brands.
How could this be true?
Consumers who use coupons are more price conscious than shoppers who ignore coupons, so they are more receptive to the price advantage of company brands. Store coupons for national brands attract these price conscious consumers from other stores, where they regularly shop, to buy a national brand cheaper than they can get it at any other store. Yet when they arrive at the store to make their purchase, they are influenced by in-store promotions tailored to their price consciousness, so they switch again to the company brand. Having "discovered" this company brand, the retailer not only has a new customer, but also a larger market share for the company brand. And since the margin on company brands is usually superior to that of national brands, this new customer is also more profitable for the retailer.
Sethuraman and Millelstaedt conducted this study in the grocery industry, examining 480 product categories, so these findings are particularly relevant for grocers. But merchants in other retail settings could also use these discoveries if they carry company brands and competing national brands in the products they offer for sale.
This research is good news for retailers, but it is not good news for national brand manufacturers currently fighting to maintain market share against competing private labels. Once retailers begin to use this tactic to their advantage, manufacturers can be expected to take increasingly strong actions to limit retailers' ability to coupon their national brands. Of course, manufacturers may never figure out why their market share is declining while their retail outlets appear to be sacrificing to promote their products. AHHH . . . The advantage of superior research information!!!
Reference: Sethuraman, Raj and John Millelstaedt (1992) Coupons and Private Labels: A Cross-Category Analysis of Grocery Products. Psychology and Marketing, 9 (6), 487-500.
Customer Psychology, by James Larsen, Ph.D.
Increasing Sales of Company Brands
A store couponing tactic that increases market share.
Keywords: couponing strategies, coupon, national brand, company brand
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