While 75% of U.S. respondents agreed with the statement, “Private labels are a good alternative to name brands” (Nielsen 2014 survey), U.S. consumers routinely pay a large price premium for national brands. In this report, Bart Bronnenberg, Jean-Pierre Dubé, and Robert Sanders explored this discrepancy between consumers’ low propensity to buy private labels, in practice, and their stated perceptions that private label quality is often comparable to national brands.
To investigate whether there is a CPG information barrier and whether it can be overcome, they conducted a field study that treats consumers with information about their subjective preferences for national brands and comparable private-label food products. In cooperation with a large, midwestern supermarket chain, they conducted a series of in-store blind taste tests that matched the chain’s private label products against the leading national brand competitors in several CPG categories.
In a survey administered during the taste test, subjects self-report very high expectations about the relative quality of the private labels relative to national brands. However, they predict a relatively low probability of choosing them in a blinded test. Surprisingly, however, an overwhelming majority systematically chooses the private label in the blinded test.”
Surprisingly, an overwhelming majority systematically chose the private label in the blinded test. During the week after the intervention, the tested private label product market shares increased by 15 share points, on top of a base share of eight share points. However, the effect diminishes to eight share points during the second to the fourth week after the test, and to two share points during the subsequent four months after the test. Using a structural model of demand, the authors find that participation in the blind taste test increases the preference for private label brands but decreases the preference for national brands.
These findings are consistent with consumers’ learning and then gradually forgetting about the quality information from the blind taste test. While the findings suggest that firms can change consumer demand for private labels, a single usage experience may be insufficient to generate a lasting effect.