Generics: Their Impact on National and Private Brands

ABSTRACT - Generic products in supermarkets improve consumer perceptions of the quality of both national and store brands. In spite of this, however, sales of both are apparently adversely affected by the introduction of generics. The impact of generics on the market shares of national and private brands depends on such things as price spread, perceived quality differences among brands in a product class and degree of brand loyalty.

Citation:

John J. Wheatley, John S. Y. Chiu, and Douglas Allen (1982) ,"Generics: Their Impact on National and Private Brands", in NA - Advances in Consumer Research Volume 09, eds. Andrew Mitchell, Ann Abor, MI : Association for Consumer Research, Pages: 195-200.

Advances in Consumer Research Volume 9, 1982      Pages 195-200

GENERICS: THEIR IMPACT ON NATIONAL AND PRIVATE BRANDS

John J. Wheatley, University of Washington

John S. Y. Chiu, University of Washington

Douglas Allen, Universal Services, Inc.

[The authors wish to thank W. Burrows and D. Samson for their assistance in the computer analysis of the data in this experiment.]

ABSTRACT -

Generic products in supermarkets improve consumer perceptions of the quality of both national and store brands. In spite of this, however, sales of both are apparently adversely affected by the introduction of generics. The impact of generics on the market shares of national and private brands depends on such things as price spread, perceived quality differences among brands in a product class and degree of brand loyalty.

INTRODUCTION

Generic products in supermarkets continue to grow in popularity. One of the reasons for this is the strong price appeal of the generics vis-a-vis private or store brands and especially when they are compared to nationally advertised brands (Cox, 1981).

The arrival of generics has also recently been reported (Wheatley, 1981) to have had an effect on consumer perceptions of both store brands and manufacturers' brands. Wheatley examined consumer choices in six product categories and the reasons that shoppers gave for the choices that they made. However, he utilized a between subjects research design; consequently, he was unable to examine individual consumer brand switching behavior and the possible reasons for it. The research reported here involves a replication and extension of the earlier work by Wheatley utilizing a longitudinal or within subjects design. The magnitude of the price spread between the national brand and the private brands and generics was also experimentally manipulated and the effect on quality perceptions and choice behavior examined.

Influence of Brand on Quality Perceptions and Choice Behavior

The role of brand in influencing consumers' perceptions of quality has been examined more extensively in recent years than its effect on choice behavior. However, Gardner (1971) was unequivocal in stating that "brand name greatly influences perception of product quality [and] willingness to buy." Wheatley and Chiu (1977) concluded that while the influence of brand on quality perceptions was possible product specific it was a significant cue. Andrews and Valenzie (1971) also found that, at least for lower priced products, brand names influenced quality perceptions. Underlying both of the latter studies is the implicit assumption that, ceteris paribus, brand cues should also be expected to influence choice behavior.

While it appears that the extent to which brand influence quality perceptions and/or choice behavior is limited by the requirement that consumers must believe that there are differences among brands in a product class (Leavitt, 1954), this has not been demonstrated experimentally. On reason for this perhaps is that brand as a stimulus is hart to manipulate. The analytically convenient assumption that price, for example, and brand are independent variables is a bit tenuous because brand and price are usually linked elements of an internally consistent marketing mix; many brands and prices, or at least price levels, must surely be associated in consumer minds as a consequence of the marketing efforts of sellers.

Influence of Price on Quality Perceptions and Choice Behavior

Like brand, the role of price in influencing perceptions of quality has been examined in a very large number of studies but its effect on actual choice or self-reported choice has also been much more limited. With respect to the question of quality perceptions, it is generally agreed that high prices are positively correlated with high quality perceptions when it is the only cue available. There is, however, controversy regarding the effect of price as a quality cue in a multi-cue setting. The conflicting evidence on this point has been attributed to such factors as the prior product experience of the experimental subjects (Jacoby, et al., 1971), the specific types of products dealt with (Wheatley and Chiu, 1977), and the other kinds of quality cues presented and their level. With respect to cue level, Andrews and Valenzie (1971) have indicated that "the lower the price the greater the influence of brand names."

Studies that have concerned themselves with indicated choice behavior have also suggested that price is used as an implied quality cue (Leavitt, 1954; Tull, et al., 1964; Wheatley, 1981), but while this may influence choice behavior in the direction of choosing the higher priced product, higher prices also serve to constrain such behavior. Lower prices are widely assumed by economists to encourage consumers to choose such products, especially when buyers feel that the differences among alternative brands in the product class are negligible. Eskin and Baron (1977) point out that experimental studies generally support the prevailing view that higher prices inhibit sales. Businessmen also generally believe that a subset of all consumers can be characterized as being price conscious or bargain hunters.

Influence of an Expanded Choice Set on Quality Perceptions and Choice Behavior

Monroe (1979) has suggested that price perceptions of particular products are influenced by the prices of similar products. His notion of a reference price as an average of the range of prices for a product class is based on Helson's (1964) adaptation level theory. The study by Wheatley (1981), mentioned earlier, extended Monroe's proposition by demonstrating that a new brand selling at a lower price than that prevailing prior to its introduction seemed to have the effect of altering consumer perceptions of the older brands within the product category. The new low priced product (a generic) apparently had the effect of lowering the "average" or reference price of the affected product class for consumers thus making the previously low priced store brand lose its "bargain" image and become "moderately" priced. This suggests that, since price is often used as a cue to product quality, some previous national brand buyers might switch to store brands because of their enhanced quality image when generics are available.

Research Hypotheses

While Wheatley used a between subjects experimental design in his work, it is consistent with Monroe's suggestion and Helson's theory to expect that the introduction of generics should enhance the image of both private and national brands using a within subjects design. Leavitt's observation about the requirement that consumers must believe that there are differences among existing brands if a price cue is to influence perceptions of quality and subsequently choice behavior should also hold in the case of product categories into which generics are introduced.

In view of the foregoing, the following hypotheses were developed for this study:

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

HA Consumers' perceptions of the quality of private and national 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 as a result of the introduction of a generic product to a choice set.

HA1 In product categories in which consumers perceive small differences among brands the introduction of a generic to a choice set will result in a significant number of national brand users switching to the store brand.

HA2 In product categories in which consumers perceive small differences among brands, the introduction of a generic to a choice set will result in a significant number of store brand users switching to the generic product.

HA3 In product categories in which consumers believe big differences exist between national and private brands only the switch between the store brand and the generic will take place as a result of introducing a generic to the choice set.

3. H0 There will be no alteration in consumers' perceptions of the quality of a national brand as a result of increasing its price.

HA In product categories in which consumers believe big differences exist among brands, consumers' perceptions of the quality of a national brand will be enhanced as a result of increasing its price.

4. H0 There will be no differences in brand choice behavior as a result of increasing the price of the national brand.

HA There will be a significant switch away from choosing a national brand as a consequence of increasing its price.

Research Design and Procedure

The sample of subjects involved in this experiment consisted of 112 adults, all of whom were the principal food shoppers in their household. They were chosen randomly after nine areas within a large western city had been selected. Each subject was interviewed in their home or apartment on two separate occasions approximately two weeks apart. A total of 96 subjects completed both interviews.

The two products used in this study were chosen because they represented product classes about which consumers felt that there were large differences among brands (catsup) on the one hand and small differences among brands (canned tomatoes) on the other. A preliminary survey was undertaken with a separate sample of consumers in order to determine this point. Those respondents were asked to agree or disagree with the following statement:

I personally find that there is no noticeable difference in the quality of different brands of ________.

At the first interview the respondents were shown a color picture of a national brand and a store brand of either catsup or canned tomatoes with the current store prices displayed in a prominent fashion. They were asked, if they were shopping for the product and they had to choose between the two brands presented, which one they would buy. They were then asked to indicate their opinion of the quality of the two brands on a scale of 1 to 7 with 1 representing very high quality and 7 standing for very low quality. Ratings of 2, 3, 4, 5 or 6 represented intermediate judgments. At that point those subjects who had been shown the catsup were shown tomatoes, but this time the price of the tomatoes were not the actual store prices. The price of the national brand was raised above its in-store level, thus widening the price spread between the private brand and the national brand. Similarly, those respondents who had initially been shown the canned tomatoes at regular store prices were then shown the catsup at artificial prices, i.e., with the national brand at an above-store-level price. Once again the subjects were asked for their product choice and qualitY assessments.

At the second interview the whole process was repeated except that instead of being presented with just the national and private brands the respondents were shown a generic as well. Thus, the experimental design was a 2 x 2 x 2 randomized short block factorial design in which each of the subjects received 4 of 8 possible factor combinations as indicated in Figure 1. Each block consists of 4 responses from each subject (Wheatley and Chiu, 1979). This design is necessary in order to avoid the practical difficulties encountered in a randomized block factorial design in which each subject would receive all 8 factor combinations, e.g., the same brand of a product at two different price levels. It is also the kind of realistic choice situation confronting a buyer in the market place, i.e., different products at different prices rather than the same products at different prices.

FIGURE 1

The order of presenting the factor combinations was random as was the assignment of the women to the treatments.

The statistical model is hierarchical:

Y_i(j)k = m + g_i + d_i(j) + t_k + e_i(j)k

where

i = 1, 2 (groups)

(j) = 1, 2, ..., 96 (individuals tested)

k = 1, 2, ..., 8 (treatments).

Results--Quality Perceptions

The results of the experiment shown in Tables 1 and 2 indicate that consumers' perceptions of the quality of the national and private brands of both products was increased with the introduction of the generic brand to the choice set as hypothesized. This was true regardless of the price spread. The national brands were rated as being of better quality than the store brands while they in turn were perceived as being of higher quality than the generics.

TABLE 1

MEAN PRODUCT QUALITY RATINGS--TOMATOES

TABLE 2

MEAN PRODUCT QUALITY RATINGS--CATSUP

The differences in quality perceptions of just the private brands attributable to the experimental treatments are shown in Table 3. The introduction of the generic improve the quality perception of the private brand as anticipates The difference, 3.70 versus 3.28, is statistically significant as indicated by the ANOVA in Table 4. (Eight of the subjects were discarded randomly in order to balance the number of subjects for each of the factor combinations.)

TABLE 3

MEAN PRODUCT QUALITY RATINGS  -  PRIVATE BRAND

TABLE 4

FACTORIAL ANALYSIS OF VARIANCE  -  PRIVATE BRAND

There was no statistically significant difference between the two types of products nor, as a consequence of the price manipulation, was there any significant change in the perceived quality of the private brand in the two product categories.

The differences in the subjects' perceptions of the quality of the national brands due to the experimental treatments are revealed in Table 5. The introduction of the generic also enhanced the quality perception of the national brand as hypothesized. The difference, 2.28 versus 2.00, is statistically significant as indicated by the ANOVA in Table 6. However, while the difference in quality perceptions attributable to the manipulation of the price variable was in the expected direction, it was very small and not significant. Consistent with the results of the preliminary survey, the subjects in the experiment saw large differences between the quality of national brands of catsup and canned tomatoes.

TABLE 5

MEAN PRODUCT QUALITY RATINGS  -  NATIONAL BRAND

TABLE 6

FACTORIAL ANALYSIS OF VARIANCE  -  NATIONAL BRAND

Results--Choice Behavior

With respect to the question of choice behavior. Figures 2 and 3 reveal that increasing the price of the national brands of both products in the two choice alternative significantly reduced the proportion of subjects choosing them as hypothesized (X2,a < .05). In the three choice situation, the higher price for the national brand of catsup also significantly lowered the percentage of respondents picking it (a < .01); but, while the higher price of the national brand of tomatoes reduced the proportion of people selecting it, the difference was not statistically significant. The latter result may reflect the possibility that price increases in this product category do not affect choice behavior very much. This does not, however, preclude the possibility that a price decrease might influence choice significantly (Monroe, 1976).

FIGURE 2

NARROW PRICE SPREAD

FIGURE 3

WIDE PRICE SPREAD

In the case of the canned tomatoes, a product category in which consumers perceive small differences among brands and with the actual prices prevailing in the marketplace, choice behavior was much as Wheatley (1981) suggested.

However, almost one third of those who picked the nationally advertised brand over the private brand when the latter was the only alternative switched to the generic when it was made available. Thus, Hypothesis 2HA1 cannot be accepted. The predicted downward cascading effect from national brand to private brand spilled over to the generic as well. Hypothesis 2HA2 can be accepted, though. A significant proportion of those who selected the private brand of tomatoes in the two choice situation switched to the generic in the three choice alternative.

On the other hand, the national brand of catsup, with a stronger initial consumer franchise, lost very little to either the private brand or the generic in the three choice situation as Berger (1980) predicted. As hypothesized (2HA3), the switch from national brand of catsup to private brand was not significant while the switch from the store brand to the generic that took place was significant (a ' .05).

While a smaller proportion of the consumers chose the national brand of catsup at the artificially higher price, they remained very loyal when compared to the private brand catsup users when the generic became available. The national brand of canned tomatoes, with a weaker initial consumer franchise, suffered more when its price was raised vis-a-vis the store brand and experienced some further erosion in market share when generics became available.

In the case of both the national brand of catsup and the national brand of tomatoes. and regardless of price, the mean quality assessment of the "non-switchers" was found to be better than that of the "switchers" in the three alternative choice situation, as one might expect.

Perceived quality was correlated with choice behavior and a priori, appears to have some usefulness in predicting choice behavior. For example, Table 7 reveals that, using the actual prices prevailing in the marketplace, those food buyers staying with the store brand of tomatoes in the three choice situation saw a statistically significant difference between the quality of the generic brand and that of the store brand, while those persons switching from the store brand to the generic saw only a small difference.

TABLE 7

MEAN QUALITY RATINGS  -  TOMATOES--NARROW PRICE RANGE  -   THREE CHOICE ALTERNATIVE

Chi square tests also confirm the observation that when the generic brand was introduced, those consumers who initially chose the national brand in both product categories subsequently behaved differently from those who picked the private brand initially, irrespective of price. There was a somewhat greater difference in switching behavior with respect to the national and private brands of catsup than in the case of the canned tomatoes.

Limitations

Although the respondents in this study were permitted so state that they did not wish to indicate a choice, they were presented with what some of them may have felt was a forced selection process. They were presented with one national brand in each of only two product classes. A so, the experiment was carried out in just one city. Finally, the inclination to pick the national brand was probably increased due to the fact that the participants did nc: have to make an actual purchase.

CONCLUSIONS

Using a within subjects experimental design, we have demonstrated that consumers' perceptions of both national and store brands appear to be enhanced as the result of introducing generics. Some researchers have suggested that national brands in particular have been adversely affected by the introduction of generics (Murphy and Laczniak, 1979); others have indicated that generics take sales primarily from private brands (Strange, et al., 1979). However, both national and private brand shares can be expected to decline. The explanation for this paradox is that in the case of the national brands there appears to be some trading down to the private brands because of their improved quality image. This tendency increases when the price spread between the national brand and the store brand widens and when the national brand does not have a strong "consumer franchise."

In the case of store brands, some buyers switch to the generics to Lake advantage of their lower prices and because some consumers think the generics' quality isn't perceptibly different from that of the private brands. The question of how much brand share is lost by either manufacturer or store brands is very probably product specific. Existing brand shares in product classes where generics are not yet available seem to have little predictive value in terms of indicating what to expect when generics are introduced, in the absence of information about the perceived quality of the existing brands.

Manufacturers of products sold in retail food stores appear to be less than enthusiastic about the emergence of generics on their customers' shelves. On the other hand, a growing number of retailers seem to sense an opportunity to play a larger role than heretofore in the channel of distribution as a result of this development. This research suggests several reasons why retailers should be interested in generics. Problems of quality control and the behavior of costs still would have to be dealt with; but, if they can be managed successfully, stable or declining real incomes from many consumers suggest the possibility that retailers may find their customers receptive to the promotion of generic products on a larger scale than at present.

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