The Effect of Generic Products on Consumer Perceptions and Brand Choice

John J. Wheatley, University of Washington
ABSTRACT - Consumer perceptions of the quality of national and private brands are apparently altered when generics are introduced in at least some product categories. National brands sales could be hurt by the improved quality image of private brands while the private brands could be adversely affected because generics offer even greater price savings to price conscious buyers.
[ to cite ]:
John J. Wheatley (1981) ,"The Effect of Generic Products on Consumer Perceptions and Brand Choice", in NA - Advances in Consumer Research Volume 08, eds. Kent B. Monroe, Ann Abor, MI : Association for Consumer Research, Pages: 166-169.

Advances in Consumer Research Volume 8, 1981      Pages 166-169

THE EFFECT OF GENERIC PRODUCTS ON CONSUMER PERCEPTIONS AND BRAND CHOICE

John J. Wheatley, University of Washington

[The author wishes to thank his colleagues, especially K. Pectic, D. MacLachlan, R. Yalch and J. Chiu, for their helpful comments on an earlier draft of this paper.]

ABSTRACT -

Consumer perceptions of the quality of national and private brands are apparently altered when generics are introduced in at least some product categories. National brands sales could be hurt by the improved quality image of private brands while the private brands could be adversely affected because generics offer even greater price savings to price conscious buyers.

INTRODUCTION

Generic food products were first introduced into supermarkets in the United States in 1977. They are now offered to consumers in thousands of food stores and many consumers seem to have been willing to try them. They have garnered a significant 11% market share in product categories in which they are available, suggesting that many consumers are satisfied with the quality of at least some generics (Yao 1979).

While the impact of generics on both manufacturers of "national" brands and retailers or "private" brands has been acknowledged and there has been a substantial amount of discussion and publicity given this now not-so-new development in the trade press, there has been very little attention paid to this significant change in consumer behavior by academicians. Sarel and Sewall (1980) point out what does exist "provides a mostly descriptive perspective of current position and trends." The study by Murphy and Laczniak (1979) is typical. It consisted of a telephone survey of supermarket shoppers dealing with their opinions and behavior with respect to generics. Frequency of purchase, what the respondents reported they had been buying prior to purchasing generics and future buying plans were the sorts of issues examined. Strand, Harris and Hernandez (1979) using personal interviews with shoppers in a supermarket chain determined the proportion buying generics, their income levels, the reasons given for purchase or non-purchase and shopper perceptions of the quality of generics.

No research has been reported to date dealing with consumer perceptions of specific generic products or with explaining the effect on consumers' choice behavior of introducing generics into the marketplace. The purpose of this paper is to explore these two issues.

PRAGMATIC AND THEORETICAL CONSIDERATIONS

The generic food products that are being offered to consumers ail have certain characteristics in common. They are without brand names, in very plain packages with simple labels and usually sold at prices below both the national and private brands with which they compete. The price differential is typically on the order of 10%-35% below the national brands, and 10%-20% below the private brands, but sometimes it may be as much as 65% below manufacturer's brands (Strang, et al. 1979). Occasionally, however, when national and/or private brands are on sale they may be priced below generics.

It appears that many retailers have introduced generics in order to attract price conscious shoppers on the one hand while other food retailers have added them to their product mix as a defensive measure in order to keep from losing patrons to both the low overhead "box stores" and to those merchants who initiated the introduction of generics.

Notwithstanding the trade press reports that national brands in particular have been adversely affected by the introduction of generics or the expectation that generics would take sales primarily from private brands (Strang, et al. 1979), it seems logical to suppose that both national and private brands will lose market share to generic products.

While it is plausible to believe that national brand buyers are basically quality seekers and many consumers purchasing store brands are attracted by the fact that private brands usually sell at lower prices, it seems reasonable to suggest that a significant proportion of both groups would reassess their purchase decision when confronted with an expanded choice set. A theoretical basis for expecting an altered decision making process is the fact that, as Berelson and Steiner point out (1964, p. 154):

Judgments . . . are . . . made within a frame of reference established by the total range of the relevant stimuli. For example, when the total range of light varies from x to 2x, a stimulus at 2x will be considered white; but when the total range goes from 2x to 4x, 2x will be seen as black and 4x as white.

Thus, consumers' perceptions of both national and private brands could be altered by the addition of a generic product offered at a lower price.

Helson's (1964, p. 54) adaptation level theory offers a more elaborate explanation of this phenomenon. The theory postulates that individual attitudes, judgments and behavior are the result of adaptation to environmental forces. It assumes that a new stimulus is judged on the basis of what has gone before and further that a person has adapted to those prior stimuli and internalized them. However, as Helson says:

Adaptation is . . . a two way affair. Effects of stimulation [also] initiate changes within the organism. These changes adapt the organism to prevailing [emphasis added] conditions.

In other words, a consumer might be expected to alter his or her perceptions of an existing brand when confronted with "appropriate" information such as the existence of a new "brand" selling at a lower price. This new information will be assessed on the basis of the person's existing level of adaptation. (Adaptation level may be conceived as a point of perceived neutrality; it is a kind of "average" of all the relevant stimuli to which consumers have been exposed to in the past.) Thus, a new stimulus will be compared to this neutral anchor point to arrive at an assessment and simultaneously, ceteris paribus, the stimulus will push the neutral point in its own direction.

In the context of a situation in which a less expensive product is added to an existing choice set, it seams logical to expect that those individuals looking for low prices would be likely to select the generic alternative, while those seeking what they perceived to be high quality would continue to choose the national brand. However, adaptation level theory would lead to the expectation that once the private brands were under-priced by a generic alternative, the store brands should have a tendency to lose their "bargain" image and instead be viewed as "moderately" priced by some consumers. In other words, the perception of the price of the private brand would be altered; it would no longer be "cheap" and, since it has been demonstrated that price serves as a cue to perceptions of product quality (Raju 1977, Valenzi and Eldridge 1973, Wheatley and Chiu 1977), a proportion of the national brand buyers could decide to switch to the private brand because of its enhanced quality image. In addition, some previous private brand purchasers would be satisfied with the quality-price characteristics of the store brand and would remain loyal to it. Thus, the impact of generics might look something like Figure 1.

FIGURE 1

BRAND SHARES

Of course, this conceptualization of the consequences of introducing generic brands does not encompass all possible outcomes. For example, some national brand users might be inclined to try a generic product just to see what it was like while others might find themselves encouraged to do so because it represents a way of coping with an inflation induced reduction in their real incomes. Some essentially random brand switching would also take place.

Following the insightful observation by Leavitt (1954) that perceived differences among brands in a product class leads to the utilization of price as a cue to product quality, it also seems plausible to suggest that consumers who believe that there is little or no difference in quality among brands would be more likely to purchase the less expensive private brand in the two-alternative choice situation and to switch to generics when they are available. Those consumers who feel that there is quite a lot, or a great deal of difference, among brands in a particular product category on the other hand should tend to do Just the opposite.

This behavior would also be consistent with Rao's (1972) suggestion that consumers try to maximize perceived quality per unit price paid. Minimizing price for a given level of perceived quality, a strategy likely to emerge in a recession and in periods such as the late 1970's when the real incomes of many consumers have declined, would be a logical course of action for consumers who perceive the quality of generics or private brands to be essentially equal to that of national brands.

RESEARCH HYPOTHESIS

This line of reasoning led to the development of the following hypotheses:

1.  H0 - There will be no alteration in consumers' perceptions of private brands as a result of the introduction of generic products to a choice set.

HA - Consumers' perceptions of private brands will be enhanced as a result of the introduction of a generic product to a choice set.

2.  H0- There will be no differences in brand choice behavior attributable to perceived differences in quality among brands in a product class.

H"- There will be a positive correlation between the price of the brand chosen and perceived differences in quality among brands in a product class. The greater the perceived difference, the more likely the consumer is to choose a higher priced brand.

PROCEDURE

A complete list of the generic products carried by a large food chain in a Western city was obtained and six of them were selected randomly for the purpose of this investigation. Those chosen were: catsup, canned peach halves, canned pork and beans, shortening, tea bags, and canned whole tomatoes.

The six products were displayed on a table in one of the chain's stores. The actual prices at which the products were being sold in the store were indicated on each product. Every third person entering the store was intercepted and asked to participate in a survey. A total of 75 randomly assigned respondents were presented with a display of the six products which contained only the leading national and the store's private brand of each product. A second sample of 75 subjects were shown another product display that included a national, a private, and a generic "brand" of each product.

The work was carried out between 4 and 8 p.m., on a consecutive Wednesday and Thursday. The position of the various brands in the product display was rotated for both groups of respondents to avoid a position bias effect.

Each respondent was asked to indicate which one brand they would purchase in each product category and the reason for their choice. They were also asked about their perceptions of the quality of each of the brands of one of the product categories in the display.

RESULTS

The results of the choices made by the two groups are summarized in Table 1. Two significant observations may be made about the findings.

First, it would appear that the effect of generics on national and/or private brands varies and is product specific. This finding is consistent with Sarel and Sewall's (1980) observation that market shares for generics vary substantially, e.g., 27.3% for paper and plastic plates to 4.5% for canned tuna. It is also quite possible that the effect depends on the strength of the consumer franchise held by the national and/or private brands in a product category. The national brand of catsup was not much affected by the introduction of a generic alternative, but the private brand was hit very hard. On the other hand, both the national brand and the store brand were about equal contributors to the share-of-market gained by the generic brand of tea bags.

Second, notwithstanding the fact that generics seem to gain market share at the expense of both national and private brands, private brands were bigger losers overall in this sample.

The proportion of the subjects choosing the generic, when it was available, is larger than was anticipated on the basis of market share data. One possible explanation for this is that at least some food shoppers are still unaware of the availability of generics while all of the subjects in this experiment were made aware of their existence by virtue of the product display that they saw. It is also true as Cagley, et al. (1980) point out generics can average a 30% market share when they are featured by a food chain.

TABLE 1

BRAND CHOICE

One product, shortening, was selected from the group of six to deal with the two research hypothesis.

Table 2 reveals the reasons given by the respondents for choosing shortening.

TABLE 2

SELECTION REASON WHEN THE GENERIC BRAND IS OR IS NOT AVAILABLE - SHORTENING

The null hypothesis of no alteration in consumer perceptions of private brands as a result of introducing generic products can be rejected. As anticipated, the proportion of participants claiming that the private brand was selected for price reasons declined from 95.2% to 50% when the generic product became an element in the choice set. This was statistically significant at p <.01. Similarly, the proportion mentioning quality as a reason for choosing the store brand rose from 4.8% to 20%. The image of the private brand was altered; a sizeable proportion of shoppers who selected the private brand now saw them as offering quality and fewer saw them providing price savings.

Finally, the reason given for selecting the generic product was almost unanimously because of its lower price.

The subjects were asked to indicate if they felt there were any differences in quality among brands of shortening and how big these differences were. They were asked to use a 5 point scale with 1 representing no difference, 2 very little difference, 3 some difference, 4 quite a lot of difference, and 5 a great deal of difference.

It was anticipated that the beliefs held by consumers concerning quality differences among brands in a product class would affect choice behavior. If a buyer believed that the differences were small they would choose the least expensive alternative, i.e., the private brand in the two choice set and the generic in the three choice set. However, if the differences were believed to be large, such persons would be more likely to avoid the low price alternative.

The null hypothesis of no difference in brand choice behavior attributable to perceived differences in quality among brands can also be rejected, in part.

The results in Table 3 indicate, as predicted, that in the three alternative choice situations, those consumers choosing the national brand believed that the quality differences among brands of shortening was greater than the differences perceived by those choosing either the private brand or the generic. A pairwise comparison of the means revealed that the difference was large enough to be statistically significant, p <.05. While the perceived difference in brand quality between those choosing the private brand and those selecting the generic is in the expected direction, the difference between them is not statistically significant.

TABLE 3

MEAN PERCEIVED DIFFERENCES AMONG BRANDS OF SHORTENING

In the two alternative conditions the perceived quality difference between those choosing the national brand and those selecting the private brand is also significant at p <.01.

Limitations

Although the subjects in this exploratory study were allowed to indicate that they did not use the products shown to them or did not wish to indicate a purchase preference they were confronted with what some of them may have felt was a forced choice situation. They were also shown only one national brand in each product category and the experiment was conducted in a single store.

Furthermore, two different samples were used rather than a single sample of subjects.

Finally, in connection with the second alternative hypothesis, the tendency to choose the national brand was probably enhanced due to the fact that the subjects did not have to make an actual purchase.

Conclusions

The introduction of generic products into supermarkets appears to affect consumer behavior in a complex manner. Consumer perceptions of prices and the price-quality ratio or "value" of national and especially private brands can apparently be altered when generics are introduced in at least some product categories. Sales of national brands could therefore be hurt by the improved quality image of private brands while the private brands could be adversely affected because generics offer even greater price savings to price conscious buyers. In other product categories, specifically those in which consumers perceive only small quality differences among brands, it seems likely that this effect may not materialize, at least to the same extent.

Consumer's beliefs about differences in quality among brands in a product class appear to influence consumer behavior too but in a more straightforward manner. Those who perceive large differences tend to choose national brands presumably because they think that national brands are of better quality than retailer's brands or generics. (While most observers agree that there are quality differences among national, private and generic brands, there is very little objective evidence available on this point.) Those individuals perceiving smaller differences choose private brands while chose who perceive the least difference among brands tend to choose genetics.

Parenthetically, it would seem that the advertising strategy of some national brand manufacturers and retail food chains of stressing the quality of all their offering as a way of blunting the inroads of generics on their share-of-market seams unlikely to succeed with those consumers who feel that all brands in a product class are very much alike.

It is to be hoped that the results reported here will interest other researchers in pursuing this subject further. Especially useful would be an experiment confirming these findings utilizing a longitudinal, within subject design. Only in this manner can an examination of individual consumer brand switching, and the possible reasons for it, be scudded.

The introduction of generics is a significant development worthy of attention simply because of the magnitude of its effect on consumer behavior and because growing environmental pressures such as inflation serve to call these products to consumers' attention with increasing frequency. It is also of considerable significance to marketers of packaged goods. If sellers wish to exercise some degree of control over this development they must try to understand the process by which consumer attitudes and behavior are being affected by generics.

This exploratory study, planned to be the first of a series, also suggests that it is an intellectually interesting and challenging phenomenon is well.

REFERENCES

Berelson, Bernard and Steiner, Gary (1964), Human Behavior (New York: Harcourt, Brace and World, Inc.).

Cagley, J. W., Neidell, L. and Boone, L. (1980), "The Wheel of Retailing Squeaks But Turns: Generic Labeling in Supermarkets," Proceedings, Chicago, Ill. American Marketing Association.

Helson, H. (1964), Adaptation Level Theory (New York: Harper and Roy).

Leavitt, H. J. (1954), "A Note on Some Experimental Findings About the Meaning of Price," Journal of Business, 27 (July), 205-210.

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Valenzi, E. and Eldridge, L. (1973), "Effect of Price Information, Composition Differences, Expertise and Racing Scales on Product-Quality Rating," Proceedings, 81st Annual Convention, American Psychological Association, 829-30.

Wheatley, J. J. and Chui, J. (1977), "The Effects of Price, Score Image and Product and Respondent Characteristics on Perceptions of Quality," Journal of Marketing Research, XIV (May), 181-86.

Yao, M. (1979), "Generic Products Are Winning Noticeable Shares of Market From National Brands, Private Labels," Wall Street Journal, August 10, 6.

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