The Effect of Business-Cycle Fluctuations on Private-Label Share: What Has Marketing Conduct Got to Do with It?

Lien Lamey, Barbara Deleersnyder, Jan-Benedict E.M. Steenkamp, & Marnik G. Dekimpe
Journal of Marketing
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This study investigates whether, and to what extent, marketing conduct varies over the business cycle and how this contributes to the growing popularity of private labels. To address this, the authors examine a unique data set that combines a broad set of seven marketing-mix instruments with private-label share, using data covering two decades for 106 consumer packaged goods categories in the United States. This study offers useful recommendations for retailers, whose observed practice of supporting their own labels in contractions helps this contraction-enhanced private-label popularity even further. Contractions offer a golden opportunity for retailers to boost the share of their own brands. By judiciously using the right strategies, they can enhance private-label share even more, both during the contraction and afterward. Given that promotional support for private labels is more countercyclical than promotional support given to national brands, retailers are right “on target.” Private labels shift their promotional resources to that period in the business cycle when consumers are most susceptible to their lure. Moreover, temporary broadening the price gap (i.e., decreasing the private-label prices and/or increasing national-brand prices) in their stores during contractions could even further convince consumers to switch to their store-brand alternatives.

The results also show that national-brand manufacturers are partially responsible for how much contractions helped strengthen their fiercest enemy, the private labels. Therefore, the authors recommend that national-brand manufacturers pursue particular strategies to limit the extent of their losses to private labels. First, national brands are found to delay launching new products until the economy expands again, which is justified for incremental innovations. However, major innovations are needed to limit private-label growth. Second, the prevailing practice to let advertising budgets swing with the business cycle also contributes to the erosion of the market share of national brands. Thus, when the economy winds down, manufacturers should try to maintain their current spending or even raise advertising if that is financially feasible. Third, the authors observe that in contractions, national-brand promotional activity (i.e., temporary price reductions, feature activity and display activity) declines relative to private-label promotional activity, just when brands need it the most. This results in an increase in private-label share in contractions, which leaves permanent scars on national-brand performance. Finally, the national-brand price premium over private labels is, on average, insensitive to economic ups and downs. Still, temporary decreasing regular price for the national brands in contractions helps prevent consumers from switching to the private labels during contractions. Thus, the authors do not argue that national brands should just spend more on marketing in bad times. Rather, they recommend that national brands reallocate some marketing investments from good times to bad times. By spending not more but rather more smartly, national brands can be more effective in fighting private labels for the same marketing budget. A countercyclical strategy is associated with greater success in fighting the enemy you love to hate.

Lien Lamey (1980) is Assistant Professor in Marketing and Marketing Management Coordinator at Lessius University College (Belgium) and research fellow at the KULeuven (Belgium). She obtained a PhD in Applied Economics at the KULeuven in September 2008 (dissertation title “The Private-Label Nightmare: Can National Brands Ever Wake Up?”). With her doctoral research, she was the winner of the 2009 EMAC McKinsey Marketing Dissertation Award and received an honorable mention in the 2005 Alden G. Clayton Doctoral Dissertation Proposal Competition issued by the Marketing Science Institute as well as an honorable mention in the 2005 ZIBS Doctoral Dissertation Competition issued by the Zyman Institute of Brand Science. Her current research interests focus on private labels, innovation success, and managerial and consumer behavior in economic up- and downturns. Her work has been published in Journal of Marketing. In 2007, one of her studies was finalist of the 2007 Marketing Science Institute/H. Paul Root Award.

Barbara Deleersnyder (1977) is currently working as Associate Professor of Marketing at Tilburg University, the Netherlands. She obtained her PhD in 2003 from the Catholic University Leuven (Belgium), after which she joined the Erasmus University in Rotterdam (the Netherlands). Since 2008, she has been a faculty member at Tilburg University. Her research involves studies in the area of Internet distribution, grocery retailing, the impact from general economic conditions on consumer and company behavior, and the demand for consumer durables. Her studies have appeared in major marketing journals such as Journal of Marketing Research, Journal of Marketing, Quantitative Marketing & Economics, and International Journal of Research in Marketing. In 2002, one of her studies won the Best Paper Award at International Journal of Research in Marketing. Since 2009, she has also been a member of the editorial review board of International Journal of Research in Marketing.

Jan-Benedict E.M. Steenkamp is C. Knox Massey Distinguished Professor of Marketing and Marketing Area Chair in the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. His work has been published in journals such as Academy of Management Journal, Harvard Business Review, International Journal of Research in Marketing, Journal of Consumer Research, Journal of Marketing, Journal of Marketing Research, Marketing Science, and Psychometrika. He is an area editor at Journal of Marketing and an associate editor at Journal of Marketing Research, and he serves on the editorial boards of International Journal of Research in Marketing, Journal of Consumer Research, and Marketing Science. He has been editor of International Journal of Research in Marketing. His most recent book is Private Label Strategy: How to Meet the Store Brand Challenge (with Nirmalya Kumar), published by Harvard Business School Press. More than 15,000 copies have already been sold, and it has been translated in simpler and complex Chinese, Portuguese, and Polish, with translation right sold for Russian and Spanish. He has received a Doctor Mercaturae Honoris Causa from Aarhus University (Denmark) and the Hendrik Muller Prize for the social and behavioral sciences awarded by the Royal Netherlands Academy of Sciences. Individual articles have won the O’Dell award, Little award, Bass award, IJRM award, AMA Global Marketing SIG Excellence in Research award (twice), and the AMA Services Marketing SIG award.

Marnik G. Dekimpe (PhD, University of California, Los Angeles) is Research Professor at Tilburg University (The Netherlands) and Professor of Marketing at Catholic University Leuven (Belgium). His work has been published in Marketing Science, Management Science, Journal of Marketing Research, Journal of Marketing, International Journal of Research in Marketing, and Journal of Econometrics, among others. He has won best-paper awards at Marketing Science (1995, 2001), Journal of Marketing Research (1999), International Journal of Research in Marketing (1997, 2001, 2002), and Technological Forecasting and Social Change (2000). He is currently the editor of International Journal of Research in Marketing and an Academic Trustee with the Marketing Science Institute and with AiMark. He also serves on the editorial board of Marketing Science, Journal of Marketing, Journal of Marketing Research, Journal of the Academy of Marketing Science, Marketing Letters, Review of Marketing Science, and Journal of Interactive Marketing.

Journal of Marketing, Volume 76, Number 1, January 2012
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Author Bio:

Lien Lamey, Barbara Deleersnyder, Jan-Benedict E.M. Steenkamp, & Marnik G. Dekimpe
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