Journal of Retailing and Consumer Services ∎ (∎∎∎∎) ∎∎∎–∎∎∎

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Journal of Retailing and Consumer Services

journal homepage: www.elsevier.com/locate/jretconser

Effects of pricing strategies and product quality on private label

and national brand performance
Rainer Olbrich, Hans Christian Jansen n, Michael Hundt
University of Hagen, Universitätsstr. 11, 58097 Hagen, Germany

art ic l e i nf o a b s t r a c t

Using product test ratings and panel data from more than 35,000 participating households in Germany,
Keywords: this study addresses the impacts of price, quality, and promotion shares on the market shares of different
Pricing products, including national brands and private labels, as well as food and non-food products. The results
Quality of a path analysis reveal important differences across the four segments, as well as insights regarding the
National brand use of everyday low price and high–low retail pricing strategies. The findings also lead to key implica-
Private label tions for manufacturers and retailers.
EDLP & 2016 Elsevier Ltd. All rights reserved.
HiLo

1. Introduction literature. Even as retail market conditions continue to change

In the German consumer goods market, concentration and
crowding at the retail level has proceeded steadily over time,
leading to greater sales consolidation among a few, large retailers
(Anders, 2008; Olbrich and Grewe, 2013; Weiss and Wittkopp,
2005). The underlying concentration process parallels several de-
velopments related to price, product, and product range policies
(Lamm, 1981; Olbrich and Grewe, 2009, 2013; Olbrich et al., 2009).
For example, regarding the ranges of products, some retailers have
chosen to adopt dual roles, offering their own products and ser-
vices (i.e., private labels), often at a lower price than comparable
national brands (Méndez et al., 2008; Olbrich and Grewe, 2009),
rather than solely distributing goods produced by the branded
goods industry. The resulting proliferation of private labels invokes
strong price competition (Connor and Peterson, 1992; Olbrich and
Grewe, 2013; Olbrich et al., 2009, 2014).
This study investigates the impact of price, pricing strategy, and
product quality on the overall market share of a particular product,
in an effort to answer two key research questions:
RQ1:What impacts do product price, pricing strategy, and
product quality have on the market shares of different product and
brand types?
RQ2:What differences arise between national brands and pri-
vate labels? Between food and non-food products?
We address these questions in the dynamic German retailing
sector and thereby make several substantive contributions to
n
Corresponding author.
E-mail addresses: Rainer.Olbrich@fernuni-hagen.de (R. Olbrich),
Hans.Jansen@FernUni-Hagen.de (H.C. Jansen),
Michael.Hundt@fernuni-hagen.de (M. Hundt).
rapidly, current marketing literature lacks an up-to-date analysis
that relies on actual purchasing data or product quality informa-
tion (Anders, 2008; Groeppel, 1993; Machek, 2012). We seek to
close this gap by analyzing the determinants of market share ac-
cording to German panel data that reflect reports by more than
35,000 households. In addition, we account for product quality
information as one possible determinant of market share. Instead
of surveys or experiments, which are common in prior research,
we investigate actual purchasing behavior using a broad, re-
presentative database. In so doing, we address potential differ-
ences across expressed attitudes, intentions, and behavior (Belk,
1985). Furthermore, we differentiate between national brands and
private labels at the product level (brand type) and between food
and non-food products at the commodity group level (product
type). Thus, we are able to highlight differences among the four
segments.
To reach these insights, we start with a foundation in research
that shows that consumers tend to link the perceived quality of
private labels with their view of the retailer. Private-label product
quality thus is particularly important for defining the retail brand
and establishing store attractiveness, and retailers seek sufficiently
high quality to avoid negative carryover from their private label to
their retail brand (Olbrich and Jansen, 2014; Vahie and Paswan,
2006). Unlike prices, product quality is difficult to change and
cannot be adjusted quickly. For national brands, product quality
also has the critical task of justifying any price premium and en-
suring a competitive advantage (Steenkamp et al., 2010).
Yet the prevalence of private labels continues to increase, in
turn creating greater price competition between private labels and
corresponding national brands, as well as among the various pri-
vate labels offered by different retailers (Blattberg and Wisniewski,

http://dx.doi.org/10.1016/j.jretconser.2016.01.012
0969-6989/& 2016 Elsevier Ltd. All rights reserved.

Please cite this article as: Olbrich, R., et al., Effects of pricing strategies and product quality on private label and national brand
performance. Journal of Retailing and Consumer Services (2016), http://dx.doi.org/10.1016/j.jretconser.2016.01.012i
2 R. Olbrich et al. / Journal of Retailing and Consumer Services ∎ (∎∎∎∎) ∎∎∎–∎∎∎
1989; Olbrich and Grewe, 2013). Therefore, retailers actively seek
different pricing strategies to establish unique profiles (Ellickson
and Misra, 2008). For example, a retailer that adopts a high–low
(HiLo) promotion strategy tries to stimulate customer demand
through time-limited price promotions. Price-based special offers
aim to attract consumers to the store while also signaling price
competency for the assortment. In contrast, a retailer with an
everyday low price (EDLP) strategy largely eliminates price pro-
motions and offers products for a consistently low, non-varying
price (Pechtl, 2004).
All these competitive factors—prices, price strategies, and pro-
duct quality decisions—also depend on the product type, such as
whether the offering is a food or a non-food product (Böhm et al.,
2007; Olbrich and Jansen, 2014). Food invokes habituated pur-
chasing behavior; consumers generally use non-food products for
longer periods. Non-food products also are associated with greater
expenses, perceived purchase risk, and involvement in the deci-
sion process. Accordingly, retailers can and should strategically
adjust several factors to succeed in competitive retail environ-
ments: their pricing policies (price levels and pricing strategy), the
quality of the products in their assortment, and considerations of
the differences between national brands and private labels, as well
as between food and non-food products. To highlight the necessity
of such considerations, Fig. 1 details the notable revenue shares of
private labels of food products in several countries (METRO AG,
2015). For example, in Germany, private labels enjoy an average
market share of 34.5 percent.
In general, market share represents an important economic
figure for decision makers (Buzzell et al., 1975), because it reflects
the firm's own position in relation to competitors’. In this sense,
market share provides an indicator of the likely long-term success
of a company. The cutthroat competition in the consumer goods
sector also has moved market share into a central position as a
Switzerland
Spain
Great Britain
Germany
Portugal
Belgium
Austria
France
Netherlands
Denmark
Sweden
Hungary
Poland
Finnland
Slovakia
Norway
Czech Republic
Italy
0% 10%
Fig. 1. Revenue Share of Private Labels in 2014.
Please cite this article as: Olbrich, R., et al., Effects of pricing strategies and product quality on private label and national brand
performance. Journal of Retailing and Consumer Services (2016), http://dx.doi.org/10.1016/j.jretconser.2016.01.012i
target outcome for many companies. Yet empirical literature often
fails to measure market share or its underlying consumer beha-
viors and focuses instead on preferences, purchase intentions, or
queries to proxy for recent and current purchasing behavior,
generally due to a lack of available data (e.g., Anselmsson and Jo-
hansson, 2009; Sinha and Batra, 1999; Walsh and Mitchell, 2010).
Yet actual retail market conditions, including intensified compe-
tition among retailers competing for market share by offering
national brands and private labels in food and non-food sectors,
indicates the powerful need to identify the primary determinants
of market share.
From our empirical findings, we also derive managerial im-
plications for manufacturers and retailers. In particular, the results of
our multigroup path analysis reveal the impacts of price, pricing
strategy, and product quality on market shares. By calculating critical
ratios for differences, we compare both brand and product types and
find that in the food sector, a higher price results in a lower market
share for both national brands and private labels, whereas in the
non-food sector, the reverse is true. For all four segments, higher
product quality leads to more market share. However, for the pricing
strategy, the results are more controversial. That is, for national
brands, a HiLo pricing strategy seems appropriate, because it in-
creases market share for both food and non-food products. For
private labels though, an EDLP pricing strategy is preferable; the
increased use of price campaigns for private labels goes hand-in-
hand with reductions in their market share.
In the next section, we present the theoretical background on
pricing strategies and product quality, from which we derive
several propositions regarding food/non-food national brands/
private labels. After outlining the data and method for our em-
pirical study, we discuss the results and present managerial im-
plications for manufacturers and retailers, while also noting some
limitations of our study.
44.5%
42.0%
41.4%
34.5%
32.9%
31.3%
28.5%
27.4%
27.2%
25.4%
25.2%
25.2%
24.3%
23.6%
22.7%
22.7%
22.4%
17.6%
20% 30% 40% 50%
 R. Olbrich et al. / Journal of Retailing and Consumer Services ∎ (∎∎∎∎) ∎∎∎–∎∎∎
2. Literature overview
2.1. Pricing strategies
In retailing, an ideal pricing strategy reflects a well-informed
choice between offering relatively stable prices across a wide range
of products or emphasizing deep and frequent discounts on a smaller
set of goods (Ellickson and Misra, 2008). The first strategy implies
everyday low pricing (EDLP), whereas the second refers to promo-
tional pricing (HiLo), such that the two strategies represent a con-
tinuum (Ailawadi and Keller, 2004; Hoch et al., 1994). When they use
EDLP, retailers quote a fixed, low price for every time period and
avoid price promotions, and they target consumers who are not
willing to expend substantial time or effort to find the best prices
(e.g., visiting different stores, looking for coupons). With a HiLo ap-
proach, retailers instead use frequent promotional prices to attract
consumers who actively search for attractive prices for individual
products. However, their normal product prices tend to be higher
than those in EDLP stores (Ghose et al., 2005).
By adopting a position according to these strategic pricing
poles, retailers try to influence consumers’ store choices and
purchasing behavior (Ailawadi and Keller, 2004). Bell and Lattin
(1998) show that large basket shoppers prefer EDLP stores,
whereas small basket shoppers tend toward HiLo stores (see also
Pechtl, 2004). The former shoppers are more sensitive to prices
across many categories, because they purchase in many product
categories and lack the flexibility to take advantage of occasional
price deals. Therefore, large basket shoppers seek lower prices for
their complete basket by purchasing in EDLP stores. Small basket
shoppers instead can take advantage of price variations for single
products over time. By purchasing products when they are on sale,
they lower their overall basket price, even if the average prices in
the HiLo stores they prefer are comparatively high. Ho et al. (1998)
also show that the average prices in HiLo stores are comparatively
higher, but the average purchase quantities are lower. Therefore, a
HiLo pricing strategy increases purchasing frequency, whereas an
EDLP approach decreases it. Furthermore, EDLP generates higher
revenue per unit of time than HiLo. Such findings help explain why
both pricing strategies can coexist in practice.
Hoch et al. (1994) also examine the impact of category-level
price changes on sales responses, using field experiments in 26
product categories sold by an 86-store grocery chain. Its inelastic
response to changes in everyday prices makes an EDLP format
generally inappropriate for increasing purchase quantity. In this
sense, the HiLo format outperforms the EDLP format in terms of
profitability. However, Ghose et al. (2005) note that manufacturers
that face constant demand can better match their production level
to market demand when they supply independent EDLP stores. In
contrast, the supply to HiLo stores fluctuates with demand, which
in turn varies in response to changing prices. To cover such fluc-
tuating demands, retailers must carry deep and expensive in-
ventories. Finally, Gauri et al. (2008) argue that improved service
features, higher income neighborhoods, populous neighborhoods,
and distance to competition are elements more associated with
HiLo than with EDLP pricing strategies. Accordingly, Ellickson and
Misra (2008) suggest that EDLP is usually aimed at lower income
consumers with larger families.
As these examples show, prior literature mainly discusses pri-
cing strategies in relation to the stores themselves and consumers’
store choices (e.g., Bell and Lattin, 1998; Gauri et al., 2008; Ho
et al., 1998). However, Bolton and Shankar (2003) show that pri-
cing strategies often reflect the brand rather than the store level,
such that several strategies might coexist within a single store.
Shankar and Bolton (2004) also argue that retailers’ pricing stra-
tegies and tactics depend on upstream (e.g., manufacturer/brand,
category) and downstream (customer) factors.
Please cite this article as: Olbrich, R., et al., Effects of pricing strategies and product quality on private label and national brand
performance. Journal of Retailing and Consumer Services (2016), http://dx.doi.org/10.1016/j.jretconser.2016.01.012i
3
Few studies combine pricing strategy with brand type though.
In an EDLP setting, the price differences between national and
private-label brands is more visible for consumers, but the per-
formance of private labels remains unclear. Dhar and Hoch (1997)
offer ambivalent results, in which EDLP benefits private labels only
in categories with lower quality, though retailers’ promotional
activities can enhance private-label shares. Furthermore, Pechtl
(2004): 230 points out that EDLP-prone consumers exhibit greater
brand preferences than HiLo-prone shoppers, possibly due to their
higher risk awareness, which “implies that EDLP programs should
use national brands and not private or virtually unknown labels.”
For this investigation, we examine the impact of pricing stra-
tegies on market share by differentiating both between private
labels and national brands and between food and non-food pro-
ducts. This distinction leads to differentiated insights about the
impacts of pricing strategies on performance in individual product
segments.
2.2. Product quality
During the 1930s, comparative product tests were established
in the United States. Nelson (1970), in distinguishing between
experience and search goods and between durable and non-dur-
able goods, suggests that test ratings are more applicable to pur-
chase decisions involving experience rather than search goods and
for durable rather than non-durable goods. Marquardt and
McGann (1975) also underline the importance of test ratings for
consumer well-being but caution that heavily advertised products
tend to earn unusually high proportions of top quality ratings.
They also establish that it is less likely that consumers will pur-
chase products with poor test ratings.
Especially when they consider new products, consumers may
sense a purchase risk, due to their lack of experience. Many of
them are risk averse, such that negative information and poor
product quality have strong impacts on consumers’ decision-
making processes (Kahneman and Tversky, 1979). As Mizerski
(1982) points out, unfavorable ratings have significantly stronger
effects on product performance and purchasing behavior than do
favorable product ratings. In this context, negative product per-
formance exerts a greater impact on consumers’ decision not to
buy a product (Shen and Wyer, 2008).
However, product tests can change the scope and structure of
consumers’ information processing (Kaas and Tölle, 1981), in that
they enable consumers to use test ratings before purchasing a
product, which also prompts them to rely more on other in-
formation sources, such as the advice of store clerks. Therefore,
test ratings influence not just purchasing behavior but also social
impact levels. For example, poor product quality may lead to in-
creased customer churn rates or direct dissent, in the form of
negative word of mouth or complaints.
Previous research also investigates the effect of product quality
on key outcomes, such as revenue or sales volume. The most
discussed studies in this context are based on the PIMS database
(Buzzell and Gale, 1987). In general, studies find that product
quality has a strong impact on business success, as represented by
market share, among other key variables. In an interview study,
Fritz et al. (1984) find that 82 percent of interviewed retailers
reported diminished sales volumes subsequent to the publication
of a poor test rating, leading to revenue decreases of 15–27 per-
cent. Nineteen percent of interviewed manufacturers indicated a
significant drop in revenue due to poor product quality, and 92
percent of all interviewed stores and mail-order companies
eliminated products that scored poorly on the tests from their
assortments, though this level was only 33 percent among spe-
cialized retail stores. In another survey, Hilger et al. (1984) find
that 40 percent of the interviewed department stores lowered the
4 R. Olbrich et al. / Journal of Retailing and Consumer Services ∎ (∎∎∎∎) ∎∎∎–∎∎∎
prices of products that earned poor quality ratings. Jin and Leslie
(2003) also uncover altered consumer behavior and shifts in de-
mand away from poor providers toward good providers. In a res-
taurant setting, they observe that demand increases at restaurants
with good hygiene reviews but decreases for providers that receive
poor hygiene reviews.
Objective quality has a greater impact on perceived quality
than subjective expertise or familiarity (Cordell, 1997), though
quality perceptions also depend on consumers’ knowledge. Simi-
larly, Moussa and Touzani (2008) highlight that quality informa-
tion can reduce asymmetric information, such that consumers can
better judge product quality, leading them to develop stronger
intentions to buy. Publicity relates to product quality perceptions
too (Dean, 2004). Ahluwalia et al. (2000) argue that commitment
influences consumer behaviors in response to negative publicity;
Reinstein and Snyder (2005) find that negative reviews have sig-
nificant negative effects on revenue. Simonsohn (2011) further
asserts that expert advice sways consumer demand, though the
link is difficult to uncover, because expert recommendations may
correlate with other information consumers hold.
3. Propositions
Fig. 2 presents our research framework, with which we analyze
the impact of product price, promotion share, and product quality
on the market share of corresponding products. We adopt a
multigroup methodology to account for the moderating effects of
both product type and brand type. To estimate the impacts of
these independent variables on market share, we derive our pro-
positions on the basis of prior literature.
Our in-depth literature review reveals that product quality
positively influences the market shares of both food and non-food
products, as well as private labels and national brands (Garvin,
1984; Hoch and Banerji, 1993). If the quality of a product is poor, it
loses attractiveness and its market share decreases, independent
of product or brand type. In addition to lowered consumer de-
mand, retailers react to poorly performing products in ways that
likely decrease their market share further, such as by delisting
poor quality private labels and national brands (Olbrich et al.,
2016). Therefore, in all cases, higher quality should result in
greater market share.
Price promotions also are independent of the food versus non-
food product type, suitable for any products that are well known
to the customer and widely available. For retailers, well-known,
ubiquitous national brands are appealing targets for price pro-
motions, because they can attract customers to stores (Ailawadi
et al., 2001). In this context, price promotions represent the re-
tailer's effort to define its brand in the competitive environment
(Olbrich et al., 2014). We use promotion share, defined as all sales
at promotional prices divided by total sales (at normal and
Product Price
Promotion Share Market Share
Product Quality
Fig. 2. Conceptual Framework.
Please cite this article as: Olbrich, R., et al., Effects of pricing strategies and product quality on private label and national brand
performance. Journal of Retailing and Consumer Services (2016), http://dx.doi.org/10.1016/j.jretconser.2016.01.012i
promotional prices), as an indicator of price promotions. A high
promotion share signals a frequent use of price promotions (i.e.,
HiLo pricing strategy) and a low promotion share signals an EDLP
pricing strategy (Ellickson and Misra, 2008). We predict that a high
promotion share attracts customers and ultimately results in
higher market share for the corresponding, promoted national
brands.
However, for private labels, a high promotion share may lead to
low market shares (Dhar and Hoch, 1997), for both food and non-
food products. Price promotions of private labels likely represent a
strategic effort to dispose of poorly selling products. In addition,
customers that choose to buy private labels generally seek non-
varying prices, to reduce the effort involved in comparing prices
(Olbrich and Grewe, 2009; Ortmeyer et al., 1991). Retailers ac-
cordingly use private labels to signal their pricing competency and
increase the attractiveness of their stores (Olbrich and Jansen,
2014). Therefore, private labels should be offered at a low, non-
varying price, which results in a low promotion share for these
products.
We assume that price has a negative impact on market share: A
higher price decreases the market share of the corresponding
product (Dhar and Hoch, 1997). However, this relationship may
exhibit varying strengths for segments of food/non-food national
brands/private labels. For food products, previous studies show
that consumers’ price consciousness drives purchases of private
labels (e.g., Anselmsson and Johansson, 2009; Baltas, 1997; Burger
and Schott, 1972; Hsu and Lai, 2008; Lin et al., 2009; Olbrich et al.,
2014; Sinha and Batra, 1999). Their low prices provide an incentive
for consumers to buy private labels instead of national brands. For
national brands, price still is important, but its impact on con-
sumers’ buying decision is weaker than that for private labels.
Therefore, the impact of the price of private-label food products on
their market share should be greater than the impact for national
brand foods.
For national brands, we also predict a different relationship
between price and market share. Non-food products generally are
used for longer than food products (e.g., a bottle of detergent is
used for more time than a carton of milk). The usage patterns
suggest non-food products may be adopted in conjunction with
more expensive, previous purchases, such as detergent used to
watch an expensive shirt. Therefore, consumers’ involvement in
this purchase process should be higher (Laurent and Kapferer,
1985; Rothschild, 1979). Perceived purchase risks also tend to be
lower when prices are higher, because consumers assume a linear
relationship between price and quality (Olbrich and Jansen, 2014).
Accordingly, we anticipate that for non-food products, price has a
smaller impact on market share than it does for food products.
Noting the conventional wisdom about the price–quality re-
lationship, we even predict that a higher price may result in a
higher market share for some non-food national brands.
4. Data and method
We gained access to a German consumer panel with purchase
data about products bought by approximately 35,000 households
between 2006 and 2011. The data set consists of 1,473,070 records,
each representing one product bought by one household on one
day. For this study, we selected as focal products roasted coffee
(1,187,996 records) and detergent powders (285,074 records). We
chose these product categories according to the availability of test
ratings and to account for differences between food and non-food
products as explanatory factors for distinct purchasing behaviors
(Böhm et al., 2007; Olbrich and Jansen, 2014). The panel's re-
presentative character enables us to calculate market shares,
promotion shares, and prices for each product.
 R. Olbrich et al. / Journal of Retailing and Consumer Services ∎ (∎∎∎∎) ∎∎∎–∎∎∎ 5

Table 1 products  72 months). However, the market introduction of a few

Distribution of national brand and private label sales.
Product type National brand
Food 78.95%
Non-Food 43.44%
Both roasted coffee as a food and detergent powder as a non-
food product are designated for daily use. However, the con-
sumption of coffee should induce less risk than the use of de-
tergent powders. If coffee tastes poor, it is the only damage the
consumer will suffer. In contrast, laundry needs to be cleaned both
well and gently, to preserve long-term use of clothing. Thus, the
purchase process of detergent powders likely differs from the
purchase process for coffee, characterized by not only higher in-
volvement but also a greater need for quality.
Our database covers 35,303 households. With regard to the
demographics of the panel sample, most households have no
children (81.16%) or one child (10.41%) under the age of 14. They
are relatively evenly split among households that consist of one
person (35.33%), two persons (35.99%), or more (28.68%). Many
households earn net income between 1,250 € and 1,499 € (10.21%)
or between 2,000 € and 2,249 € (10.58%). Table 1 presents the
distribution of private labels and national brands. For food pro-
ducts, national brands dominate. For non-food products, private
labels outnumber national brands. Thus, we find differences in the
distribution of food versus non-food products, as well as between
private labels and national brands.
To measure product quality, we supplemented the consumer
panel data with test ratings published by Stiftung Warentest (Sti-
Wa), in three issues of its magazine between 2009 and 2010. StiWa
performs impartial and objective product tests. To ensure non-
alignment, it conducts independent test planning, does not accept
advertisements in its publications, and relies on anonymous pur-
chases of test samples. We could match 56 tested products with
data from the consumer panel. The products earned average
market shares of 28.96 percent for non-food and 47.40 percent for
food products, in terms of their sales volume within their com-
modity groups.
To address our research questions, we aggregated the data set
monthly for each product. The observation period covers the years
2006 to 2011, so the resulting data set consists of a maximum of 72
records for each product; each record includes the price, promo-
tion share, product quality, and market share of one product in one
month. For example, for food national brands, we analyzed 19
products that could have provided a maximum of 1,368 cases ( ¼19
products was later than the start of our observation, so we ob-
tained 1,139 observations for our database (see Table 2). This ap-
Private label
proach enabled us to avoid imbalances across different products or
21.05% commodity groups. In calculating the quality and price measures,
56.56% we considered them relative to the average quality or price in the
commodity group for the selected products for each month. In
addition, we distinguished between national brands and private
labels.
Our path analysis, based on a multigroup methodology, used an
asymptotically distribution-free estimator to estimate the impact
of the price, promotion share, and product quality simultaneously
on the market share of the corresponding product, even as we
differentiated between food and non-food products and between
national brands and private labels. Finally, we calculated critical
ratios for differences to compare the four segments. These z-values
represent differences across estimates, divided by an estimate of
the standard error of the difference.
5. Results and discussion
To determine the impacts of prices, pricing strategies, and
product quality, we measured the market share of each product
according to the sales volume represented in the German house-
hold panel data, while differentiating between national brands
and private labels and between food and non-food products. Ta-
ble 2 contains the descriptive statistics for our aggregated data set,
including the number of cases (N), minimum and maximum va-
lues, means, and standard deviations for product price, product
quality, promotion share, and market share, separated by brand
and product type.
Using national brand food products as an example, our analysis
featured 1,139 cases. Each case described the four focal variables
for one product in one month. Thus product price was relative to
the commodity group, and with an average price of 100 percent
for all food products (private labels and national brands), the
minimum price of a national brand was 46 percent and the
maximum was 173 percent. On average, national brands were
slightly more expensive (102.3%), and the standard deviation in
product prices was .23846. (The statistics for the other variables in
Table 2 reflect similar approaches.) For product quality, a higher
value represented better quality, such that values greater than
1 represented better-than-average quality.
In Table 3 we present the results of the path analysis, which
highlights the impact of the independent variables on market
share. All paths were highly significant. The explained variance

Table 2
Descriptive statistics.

Brand type Product type Variable N Minimum Maximum Mean Standard deviation

National brand Food Product price 1139 .46 1.73 1.0230 .23846
Product quality .81 1.71 .9958 .21209
Promotion share .00 1.00 .4771 .30947
Market share .00 .18 .0235 .03249
Non-Food Product price 570 .70 2.03 1.4418 .23508
Product quality .92 1.14 1.0110 .07894
Promotion share .00 1.00 .3741 .20119
Market share .01 .07 .0158 .00949
Private label Food Product price 785 .62 1.46 .8783 .18585
Product quality .77 1.80 1.0061 .29007
Promotion share .00 1.00 .1153 .22683
Market share .00 .06 .0093 .01321
Non-Food Product price 1096 .72 1.36 .8839 .06355
Product quality .93 1.20 .9943 .04859
Promotion share .00 1.00 .0392 .10767
Market share .01 .10 .0108 .01706

Please cite this article as: Olbrich, R., et al., Effects of pricing strategies and product quality on private label and national brand
performance. Journal of Retailing and Consumer Services (2016), http://dx.doi.org/10.1016/j.jretconser.2016.01.012i
6 R. Olbrich et al. / Journal of Retailing and Consumer Services ∎ (∎∎∎∎) ∎∎∎–∎∎∎

Table 3 labels generally adopt an entry price level, such that their prices
Impacts of product price, promotion share, and product quality on market share. tend to be similar, gaining a competitive advantage solely by ad-
justing prices is difficult. In turn, product quality had a stronger
Brand type Product Impact on market share
type impact on the market share of private labels than that of national
Product Promotion Product brands (food: z¼ 8.035, po .001; non-food: z¼8.835, p o.001).
price share quality Finally, the test ratings by the independent organization StiWa
raised consumers’ acceptance of private labels, by communicating
National Food  .098nnn .464nnn .228nnn
brand Non-Food .270nnn .323nnn .197nn
their product quality.
Overall  .097nnn .469nnn .226nnn In conclusion, both brand type and product type moderate the
Private label Food  .395nnn  .250nnn .336nnn relationships of the independent variables product price, promo-
Non-Food  .067nn  .091nnn .397nnn tion share, and product quality with the dependent variable
Overall  .225nnn  .175nnn .246nnn
market share.
Overall Food  .177nnn .410nnn .213nnn
Non-Food .098nnn .079nnn .353nnn

nn
p o.01. 6. Implications
nnn
p o.001.

The results of this study have several important implications

(R2) of market share was .34 for food national brands, .32 for food
private labels, .40 for non-food national brands, and .18 for non-
food private labels. Therefore, for all four segments, the explained
variance in market share is quite substantial.
A higher price led to a lower market share for food (standar-
dized estimate b ¼ .177, po .001), across both national brands
(b¼  .098, p o.001) and private labels (b ¼ .395, po .001).
However, the market share of private-label food was affected to a
significantly greater degree (critical ratio z ¼ 3.832, p o.001). For
the non-food product though, a higher price could lead to in-
creased market shares (b¼.098, p o.001). Among private labels,
the predicted negative relationship between price and market
share emerged but was weak (b ¼ .067, p o.01); for national
brands, market share actually increased with a higher price
(b¼ .270, p o.001). This finding contrasts with traditional market
theory, according to which sales decline after price increases. It
also confirms that consumers take price–quality relationships into
consideration, likely to reduce their quality uncertainty and pur-
chase risk, so higher prices help increase market shares. Thus,
higher prices were significantly more detrimental to the market
shares of food (b¼  .177, po .001) than non-food (b ¼.098,
p o.001; z¼ 14.771, p o.001); a low price also was more important
for private labels (b¼  .225, p o.001) than for national brands
(b¼  .097, po .001) as a means to increase market shares
(z ¼ 8.210, p o.001). We posit that for private labels, competition
is not based primarily on product innovation or product diversi-
fication. Rather, for the generally homogeneous products in our
data set, price represents a key competitive factor.
The promotion share indicates retailers’ pricing strategies, in
that EDLP is characterized by relatively steady prices and the ab-
sence of price promotions (i.e., promotion share close to zero),
whereas a HiLo pricing strategy features the frequent use of price
promotions and a higher promotion share. Our results showed
that a higher promotion share increased the market share for
national brands (b¼.469, po .001), whether the products were
food (b¼ .464, p o.001) or non-food (b¼.323, p o.001). We found
a different relationship for private labels though (b ¼  .175,
p o.001; z ¼  30.312, po .001): A higher promotion share re-
sulted in a lower market share for both food (b ¼ .250, p o.001)
and non-food (b¼  .091, p o.001) products. Thus, successful
products (in terms of market share) were priced using a EDLP
pricing strategy if they were private labels but a HiLo pricing
strategy if they were national brands.
Across all four conditions, higher quality resulted in a higher
market share. The effect was slightly stronger for private labels
(food: b ¼.336, p o.001; non-food: b¼ .397, p o.001) than for na-
tional brands (food: b ¼.228, p o.001; non-food: b¼.197, p o.01).
That is, in the competition among private labels, both price and
quality (“good and cheap”) drove market shares. Because private
for manufacturers and retailers. The market share performance of
national brands does not depend as heavily on the price as it does
on promotion share and product quality. For manufacturers of
non-food products, a higher price even may lead to higher market
shares. Such findings are appealing for manufacturers, which often
have limited influence over the prices that customers see, because
retailers in Germany possess substantial pricing autonomy (Ol-
brich and Buhr, 2004; Olbrich and Grewe, 2013; Olbrich et al.,
2014). Therefore, instead of focusing on prices, manufacturers
should consider increased uses of price promotions, which often
are passed directly on to customers, such that they give the retailer
an incentive to promote their product. This strategic move in-
directly increases price promotions and may have a positive in-
fluence on the market share of the corresponding product. As
Shankar and Bolton (2004): 45 point out, manufacturers that try to
establish “higher relative brand prices at the retail level could
distribute primarily through stores that are less price consistent,
more promotion intensive, and more price-promotion co-
ordinated.” However, because frequent price promotions can da-
mage the image of the national brand, they demand some caution
(Grewal et al., 1998; Olbrich and Grewe, 2013). In addition, man-
ufacturers must make product quality a priority. It is critical to
distinguish a manufacturer’s national brands from competitive
private labels, to appeal to quality-oriented customers (Nenycz-
Thiel and Romaniuk, 2014). We recommend that manufacturers
focus on price promotions and product quality, instead of a low
price, to compete with private-label options.
For retailers, we highlight the need to differentiate between
national brands and private labels. The primary goal of any retailer
is to increase not the market share of a singular product but the
overall purchases in the store that ultimately increase store-level
revenues and profit. In this effort, the implications of this study are
fourfold.
First, retailers frequently use private labels to attract customers
and bind them to the store. Especially for products that consumers
buy frequently, private-label versions have powerful impacts on the
retailer's pricing competence image. To gain competitive ad-
vantages with these offerings, retailers should apply low prices to
their private labels (i.e., entry-level price). Because low prices are
easy for competitors to copy, often in less than one business day,
retailers also must keep product quality in mind; this competitive
advantage cannot be imitated readily. That is, retailers need to find
a way to establish a low, market-oriented price and high quality for
their private labels, offering products that are capable of satisfying
the basic needs of customers. Therefore, implementing an EDLP
pricing strategy aimed at this target market should increase market
shares and help sustain performance in a competitive environment.
Second, for the national brands they carry, retailers should rely
on price promotions and adopt a HiLo strategy. National brands

Please cite this article as: Olbrich, R., et al., Effects of pricing strategies and product quality on private label and national brand
performance. Journal of Retailing and Consumer Services (2016), http://dx.doi.org/10.1016/j.jretconser.2016.01.012i
 R. Olbrich et al. / Journal of Retailing and Consumer Services ∎ (∎∎∎∎) ∎∎∎–∎∎∎
tend to be better known than private labels, so price promotions
on these familiar products may increase store attractiveness. To
avoid negative carryover effects to the retail brand, retailers should
avoid including poor quality products, with low test ratings, in
their price promotions (Jansen et al., 2014). However, other than
these price promotions, national brands do not need to be priced
low. The harmful impact of higher prices on market shares is ra-
ther weak, and in some cases, a higher price even can increase
market shares. Furthermore, retailers might use high-priced na-
tional brands to signal the attractiveness of their low-priced, pri-
vate-label alternatives (i.e., umbrella pricing).
7. Limitations and further research
Several limitations of our study offer opportunities for additional
research. For example, information about the households that
contribute these data could offer an interesting extension. By taking
household information into account, further research could draw
insights about different buyer types (e.g., smart shoppers), accord-
ing to their sociodemographic and psychographic attributes, and
thereby lead to a deeper understanding of ways to address different
buyer types. In certain circumstances, household net income could
be a promising topic for further analysis (Olbrich et al., 2014).
Our data were limited to sales; we hope additional research
takes profits into consideration too. Profits are a key determinant,
and increased market shares do not necessarily produce higher
profits. A loss of market share may be acceptable if overall profits
still rise. However, information about profits tends to be protected
carefully by retailers and is difficult to access.
Finally, this research did not address a wide range of com-
modity groups or different products. Additional research should
investigate other food and non-food products, including higher
priced products that tend to induce consumer involvement (e.g.,
alcoholic beverages, personal care products).
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Please cite this article as: Olbrich, R., et al., Effects of pricing strategies and product quality on private label and national brand
performance. Journal of Retailing and Consumer Services (2016), http://dx.doi.org/10.1016/j.jretconser.2016.01.012i