How Business Cycles Contribute to Private-Label Success: Evidence from the United States and Europe

Abstract

The growth of private labels over the past decades has been attributed to various factors. This article formally addresses the link between private-label success and economic expansions and contractions using recently developed time-series/econometric techniques. The findings confirm conventional wisdom that a country's privatelabel share increases when the economy is suffering and shrinks when the economy is flourishing. However, asymmetries are found in the extent to and speed with which private-label share changes in cyclical up-versus downturns. Consumers switch more extensively to store brands during bad economic times than they switch back to national brands in a subsequent recovery. In addition, the switch to private-label brands is faster than the opposite movement to national brands after the recession ends. Finally, not only are consumers more prone to buy private labels during economic downturns, but some keep buying them when bad economic times are long over as well, leaving permanent "scars" on national brands' performance level. The authors argue that national-brand manufacturers can mitigate the effect of an economic downturn on their shares by intensifying their marketingsupport activities in recessions. Such a proactive strategy is not often observed. On the contrary, available evidence suggests that many manufacturers exacerbate their predicament by cutting back on their marketing expenses when the economy turns sour. Most retailers invest more strongly in their private-label program when the economy deteriorates, making it even more difficult for national brands to catch up with the share lost during contractions.

Getting a Grip on the Saddle: Chasms or Cycles?

“…We construct a measure to capture economic contractions and expansions using recent marketing literature (Deleersnyder et al 2009;Deleersnyder et al 2004;Lamey et al 2007). These studies estimate business cycles by extracting the cyclical component from the gross domestic product (GDP) series using the Hodrick and Prescott (1997) filter.…”

“…However, researchers have not studied the differences between the effect of economic contractions on sales of information/ entertainment and kitchen/laundry products. Recently, researchers have shown the impact of business cycles on the sales of consumer durables (Deleersnyder et al 2004), growth of private labels (Lamey et al 2007), and role of marketing strategy (Srinivasan, Rangaswamy, and Lilien 2005). In the excitement of post-takeoff growth, managers may believe that their new product's sales will be immune to economic contractions and continue to increase.…”

“…As a result, consumers are likely to cut back on discretionary expenditures, such as purchases of consumer durables. Second, consumers may lose trust during a contraction more quickly than they gain confidence during the ensuing expansion, leading to cyclical asymmetries in the purchase of durables (Deleersnyder et al 2004;Lamey et al 2007). Third, firms engage in cyclical marketing strategies, such as cutting advertising expenditures (Deleersnyder et al 2004;Lamey et al 2007) or investments (Mascarenhas and Aaker 1989) during contractions.…”

Consumer preferences of store brands: Role of prior experiences and value consciousness

“…6 During the diffi cult economic periods like the consumers are experiencing currently, popularity of the store brands are assumed to increase 7,8 due to their low prices and reduced disposable consumer income. More recently, researchers 9 linked private brand performance to economic expansions and contractions.…”

Private labels and retail assortment planning: a differential evolution approach

“…As a result, a closer look at the role of PLs in a retailer's product portfolio is more relevant nowadays than ever before. Several academics have theorized the growing importance of PLs in periods of economic downturn (e.g., Lamey et al, 2007;Quelch and Harding, 1996;Nandan and Dickinson, 1994). For example, Quelch and Harding (1996) suggest that PL market share goes up when the economy is suffering and down in stronger economic periods.…”