The Role of Private Brands in Assortments. Literature Review and Empirical Study

Inhalt

List of abbreviations

List of tables

List of figures

1 Introduction to the role of private brands in assortments
1.1 Introduction
1.2 Research question and method
1.3 Paper structure

2 Private brands in literature
2.1 Definition
2.2 Development
2.3 Aims

3 Role of private brands in assortments
3.1 Definition of assortment
3.2 Positioning of private brands in assortments
3.3 Future trends of private brands

4 Case study: Peek & Cloppenburg
4.1 Methodology
4.2 The department store
4.3 Private brand assortment
4.4 Analysis of assortment policy

5 Conclusion & foresight

6 Discussion & evaluation of results

Reference list

List of abbreviations

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List of tables

Table 1: Definitions of private brands in literature (Berentzen, 2009, pp. 30-32)

Table 2: Different private label classifications (Ahlert, Kenning, & Schneider, 2000, p. 34)

Table 3: Aims of private labels (Berentzen, 2009) (Dumke, 1996, p. 96)

Table 4: P&C private brand classification (reffering to Cloppenburg, 2012)

List of figures

Figure 1: Methodical procedure (own source)

Figure 2: Pressure on weak brands by private labels (Esch, 2010, p. 550)

Figure 3: Relevance and attainment of different private label aims (Ahlert, Kenning, & Schneider, 2000, p. 67)

Figure 4: Decision making when positioning private labels in whole assortment (Dumke, 1996, p. 135)

Figure 5: Price range matrix (own source)

Figure 6: Style-price matrix of private brands’ competitive environment (own source)

Figure 7: Floorplan P&C Store Stuttgart men's department (own source)

Figure 8: SWOT analysis based on P&C store check results (own source)

1 Introduction to the role of private brands in assortments

1.1 Introduction

Presently, private brands attract as much attention as only a few managerial practices have experienced before. Where once branded products led the way, today private label share is growing. Since today’s industry is affected by pricing, advertising, merchandising and product selection, private brands revolutionized the market, imposed fundamental changes in the retail sector and gained important market share. Especially during the economic recession people had to find ways to most effectively overcome this period of financial hardship. Consumers are more open to new ideas to an extent that one ever dared to imagine.

Whilst higher margins and the creation of points-of-differentiation are the most favorable drivers that led the way for a retailer’s private brand creation, oftentimes the success of these brands is questionable. The introduction of private labels requires a well-conceived concept and strategy which oftentimes fails to appear. Notwithstanding, the importance of private brands continues in taking on greater significance.

Professional management can be identified in cases of successful implementation of such brands as well as the additional drivers of own sourcing and the ability to quickly adapt and realize customers’ needs and desires.

It is time to conduct a detailed investigation of these aforementioned assumptions in order to conclude with a declaration of the role of private brands in assortments. In this connection, the present research paper concentrates on the fashion sector, sets its focal point on the warehouse, which is defined as a large retail store organized into various departments of merchandise and not allowing for discount formats and e-commerce.

1.2 Research question and method

The paper aims to gain a profound understanding of the role of private brands in assortments. In detail, the relevance of private brands in assortments in literature and references to the reality in a retailer’s business are central aspects of this research project. Since private brands continue to be an important strategic tool for corporations, the paper addresses the specific research question:

Which role do private brands play in the retailers’ assortment?

The decision was taken to use a qualitative method in form of a literature review and a case study for empirical evidence for a juxtaposition of critical academic theory with experiences of daily business in reality. A systematic and method-based approach with a flexible view will moreover ensure to either prove or refute various literature findings and case study outcomes in order to analyze results and to draw a final conclusion.

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Figure 1: Methodical procedure (own source)

The literature review of this seminar paper is based on the results of perusing different sources ranging from books to online databases to find appropriate academic material. Additionally, reference lists of eligible scientific research papers served as basis for studies in greater depth. A preliminary literature review in general resulted in the establishment of the paper outline, followed by a specified research for the individual chapters. The use of search key words helped to define the scope of the research question while reviewing the current breadth of professional and academic research literature. The following terms served as key words: private brand, national brand, private label, store brand, product assortment, private fashion brand, assortment policy.

The further course of action represented the empirical analysis in the form of a case study concerning the international fashion department store Peek & Cloppenburg and an associated store check. Both the literature review and the empirical evidence frame the basis of a critical reflection, discussion and evaluation of the results. A summary of the methodical proceeding can be found at the side.

1.3 Paper structure

The paper commences with the definition of private brands in literature before it specializes to its development and concludes with the aims. Next embedded in the paper is the chapter concerning private brands in assortments with its positioning in the assortment context and expected future trends. The chapter is followed by a section dealing with the case study Peek & Cloppenburg and serves as empirical evidence. Conclusions and foresights are offered to review all gained experiences and to sum up the outcomes of this research paper. A subsequential discussion and evaluation of the results corresponds to this case study chapter and concludes with a comparison between literature findings and empirical evidence.

2 Private brands in literature

2.1 Definition

By virtue of the successful application of brands in different market environments, reality shows a multiplicity of different brand appearances. Manufacturers’ and private brands are specific forms of branded goods (Müller-Hagedorn, 2009, p. 429). Their main difference lies in the ownership of the brand (Bruhn, 2012, p. 544). Whereas manufacturers’ brands can be regarded as merchandise produced and marketed by a merchant (Hu & Chuang, 2009, p. 129), the private brand is owned by the retailer (Müller-Hagedorn, 1998, p. 43) (Dumke, 1996, p. 19) (Ahlert, Kenning, & Schneider, 2000, p. 3).

The literature presents different definitions of private brands and does not hold a consistent meaning. In the Anglo-Saxon literature and practice the termini “private brand”, “own brand”, “own label”, “distributors’ brand”, “private label”, “retailer brand” and “house brand” are predominant (Dumke, 1996, p. 19) (Martos-Partal, 2012, p. 696) (Cohen, 2007, p. 24). This paper does not differentiate between the above named terminologies.

Based on the German researcher Berentzen (2009), the following table chronologically summarizes different authors giving a definition and naming constitutive characteristics of private labels:

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Table 1: Definitions of private brands in literature (Berentzen, 2009, pp. 30-32)

Due to a continuous change of the basic retail conditions in the past decades, the question arises whether the definitions of private labels in scientific literature are still contemporary and suitable for the present research paper. The table and literature findings prove that none of the characteristics are regarded in a constitutive manner of the different authors.

In most of the literature private labels are defined as brands owned by retailers (Esch, 2010, p. 537) (Dumke, 1996, p. 18) (Kaapke, 2005, p. 143) (Parrish, 2010, p. 546) (Müller-Hagedorn, 1998, p. 43) (Ahlert, Kenning, & Schneider, 2000, p. 3). An enhancement of this definition is given by Burns & Bryant (2007, p. 155), quoting Lewis (1995, p. 3) who limits the distribution of the private labels in own retailer stores only. The same approach is pursued by Abril & Martos-Partal (2013, p. 337) and Dumke (1996, p. 18). Another enhancement can be found in the field of dispositioning (Bruhn, 2012) (Haller, 2008, p. 224), marketing (Burns & Bryant, 2007, p. 155), sourcing and controlling of the brand (Keller, 2013, p. 2010).

Deducted from the above named literature findings the definition of “private brand” used in this article will be:

A brand owned and marketed by the retailer who distributes its products solely in own stores.

Considering that in practice private labels feature various characteristics, a division of different product classes is reasonable. In the course of a positioning decision the aspiration level of each private brand is determined. On the basis of the cognition levels price and quality, three positioning levels can be differentiated (Bruhn, 2012, p. 545) (Mattmüller & Tunder, 2004, p. 964) (Liebmann, Zentes, & Swoboda, 2008, pp. 509-510):

Generics

Copycats

Premium private labels

Generics are characterized by low prices and simultaneously guarantee product quality. Besides they show simple packaging, no specific branding and are typically unadvertised. Taking an example from practice, the private labels Jake’s and Montego of the department store Peek & Cloppenburg can be considered as generics. Other terminologies used instead of generics are house brands, no-names, white products or bargain (Haller, 2008, p. 225) (Dumke, 1996, p. 21).

Copycats, also known as me-too products, imitate manufacturer brands in purchase relevant appearance aspects to share in their success. With regards to the present smart-shopping trend, these products can be seen as an “intelligent alternative” to national brands. In terms of quality copycats are marked by an equal standard compared to manufacturer brands, even though they are offered at a lower price. Christian Berg of Peek & Cloppenburg can be regarded as a typical example in practice for copycats (Esch, 2010, pp. 552-553) (Ahlert, Kenning, & Schneider, 2000, p. 34).

Premium Private Labels attempt to match or exceed the product quality standard of the national brand. They are perceived as value-added products with image-forming characteristics (Consuegra, 2006, pp. 144-147) (Bruhn, 2012, p. 546).

An additional differentiation of those private label types is made by Bruhn (Bruhn, 2012, p. 547). He distinguishes between retailer types which are named: discounter, supermarket, hypermarket and warehouse / department store. This paper concentrates on the warehouse which is defined as a large retail store organized into various departments of merchandise. With focus on the depth and width of the assortment, the goal of satisfying the consumers’ needs with the help of one-stop-shopping is pursued. Compared to the other store types, a higher price level is present. With regards to the following case study, Peek & Cloppenburg is classified as department store as well. The table below summarizes the classification according to Ahlert et. al.:

Table 2: Different private label classifications (Ahlert, Kenning, & Schneider, 2000, p. 34)

2.2 Development

While branded products previously led the way, private labels continue to grow their market share year after year. Historically, private label retailers appreciated that it was important to tout certain category and product benefits to entice consumers to purchase.

Since 1869, the retailer Sainsbury’s sells private labels in Great Britain. The retailers’ Co-op in France, A&P in the USA, Marks and Spencer in the UK and Albert Heijn in The Netherlands carry their private labels in their assortments since the beginning of the 20th century.

It was in the 1920s when the private brands achieved a first important breakthrough because retailers noticed a margin decrease of the manufacturer brands and hence began considering taking over the financing for the manufacturers advertising campaigns. They introduced their own labels but neither success nor significant market share gain materialized. In the 1930s large retailers made use of private labels and expanded them until the end of 1940s / beginning of the 1950s. This development continued to increase to the extent where 80% of the American retailers in a survey conducted in 1966 state having a share of private labels in their assortments (Berentzen, 2009, pp. 35-36).

“The recession of the 1970s saw the successful introduction of low-cost, basic quality, and minimally packaged generic products that appealed to bargain-seeking consumers” (Keller, 2013, p. 210).

A pioneer in this area is the French enterprise Carrefour which introduced generics in 1976. Shortly afterwards, it became obvious that the generics weaken the profitability of the retailers and are contrary to their aimed quality image. For this reason Carrefour stopped selling generics and concentrated more on private labels of higher quality, such as copycats (Berentzen, 2009, pp. 35-36). Other retailers around the world noticed in the 1990s that consumers were willing to spend more money on products of higher quality; the retailers, therefore, created a third generation of own brands in the form of premium private labels (Consuegra, 2006, pp. 144-145). ”The evolution of store brands – from a focus on price in the late 1970s and early 1980s towards a stronger quality orientation and innovation efforts in recent years – has created a wide variety of store brand profiles” (Geyskens, Gielens, & Gijsbrechts 2010, Huang & Huddleston 2009, Kumar & Steenkamp 2007, Laaksonen & Reynolds 1994, Bellizi, Krueckeberg, Hamilton, & Martin 1981, Cunningham, Hardy, & Imperia 1982, Dick, Jain, & Richardson 1995, Dunne & Narasimhan 1999, Zimmerman, Kesmodel, & Jargon 2007, cit. Martos-Partal, 2012, p. 696).

The above portrayed evolution is mirrored in the scientific literature in the form of a multi-level classification. Ahlert, Kenning & Schneider explain the evolution of private labels by means of the beforehand named positioning levels generics, copycats and premium private labels. Their establishment was created in sequential manner. Nowadays reality reflects a simultaneous existence of all three private label generations. Currently, the prevailing part of the private brands can be categorized into the second generation (Ahlert, Kenning, & Schneider, 2000, pp. 34-36).

Dumke (1996, p. 35) started his classification in an unequal manner in comparison to Ahlert, Kenning & Schneider (2000, pp. 34-36). He makes use of a five step scheme starting already in the 1950s. His first two steps can be regarded as pre-generations before his scheme and that of Ahlert et al. start with the classification of generics. A four step classification can be found in the scientific research literature of German Professor for marketing and service management Haller (2008, p. 226) (Consuegra, 2006). A very detailed and systematic listing of the private label historical trends from 1840 until 2005 is served in the research paper of Chimhundu (2011), Professor for Management and Marketing at the University of Southern Queensland in Australia.

As the above detailed development illustrates, the importance of private labels has increased in the past decades. Whereas in 1975 12% of all products in Germany were private labels, the market share of private brands rose up to 37,6% in 2011 (Bruhn, 2012, p. 548). The growth of private labels leads to the consequence that manufacturers’ weak brands are financially pressured and eventually replaced by private labels (Esch, 2010, pp. 549-550).

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Figure 2: Pressure on weak brands by private labels (Esch, 2010, p. 550)

2.3 Aims

A continuous growth of the private label market share in the past decades implies that their commercialization is linked to great advantages. Due to a variety of aims, a structured differentiation into the categories of internal business, customer, competition and manufacturers’ aims is advisable (compare table 3).

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Table 3: Aims of private labels (Berentzen, 2009) (Dumke, 1996, p. 96)

To begin with, internal corporate aims intend to improve margins, increase sales and both adjust and endorse the assortment. Empirical studies identified increased margins as the most often named aim of private label policies (Dumke, 1996, p. 97) (Ahlert, Kenning, & Schneider, 2000, p. 43) (Esch, 2010, p. 555). The high value of the margin aim can be explained by the low net profit margin in general. The typical mark-up pricing in the retailer textile business differs between a mark-up of approximately 125% for manufacturer brands and about 160% for private labels (Ahlert, Kenning, & Schneider, 2000, p. 44).

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