The distribution power of private-label brands

Navigating Challenges and Seizing Opportunities in the Distribution Sector: The Power of Private Labels, Over the past three years, the distribution sector has faced a dynamic market landscape marked by challenges like supply chain constraints and labor costs. Despite rebounding with a 16% revenue growth post-COVID-19, new challenges such as economic uncertainty and supply chain stabilization are emerging. To safeguard profit margins and drive volume growth, industry leaders are turning to robust private-label programs. Private-label products can offer double the gross margin of national brands, with 92% of buyers planning to purchase or increase private-label volume in the coming years. Building a strong private-label program benefits distributor by expanding profit margins, driving growth, and enabling greater supply chain control. In the current climate of heightened cost-consciousness, customers are increasingly seeking private-label brands with quality comparable to national brands at a lower cost. A strategic focus on private labels emerges as a critical factor for remaining competitive and driving improvements in gross margins.

The distribution power of private-label brands, also referred to as store brands or in-house brands, is a multifaceted concept encompassing their capacity to effectively reach and penetrate the market through various distribution channels. These brands, developed and marketed by retailers under their proprietary brand names, leverage a combination of factors to establish a strong presence in the marketplace. One key determinant of distribution power is the expansive reach and presence of retailers. Large retail chains with well-established distribution networks can distribute private-label products across multiple locations, thereby increasing accessibility for consumers. The strategic placement of these products within retail spaces is equally crucial. Placing private-label items alongside or in close proximity to national brands can enhance visibility and significantly influence consumer purchasing decisions. Exclusive distribution strategies also play a pivotal role in shaping the distribution power of private-label brands. Some retailers opt to exclusively distribute their in-house products through their own stores. This exclusivity not only enhances the perceived value of the products but also creates a unique selling proposition for the retailer. The advent of e-commerce has further expanded the distribution channels available to private-label brands. Retailers can leverage their online platforms to reach a broader audience, providing consumers with the convenience of online shopping and contributing to the overall distribution power of these brands. Supply chain efficiency is another critical factor. Private-label brands often benefit from streamlined and efficient supply chains. Retailers exercise greater control over the production process, reducing costs and ensuring a consistent supply of products to meet consumer demand. The pricing strategy adopted by private-label brands also contributes significantly to their distribution power. Positioned as more cost-effective alternatives to national brands, the competitive pricing of private-label items attracts price-sensitive consumers and secures shelf space in various retail outlets.

Brand reputation and consumer trust are integral components influencing distribution power. Retailers with a strong reputation for quality and value can leverage their brand image to enhance the distribution power of their private-label products. Positive consumer perception and trust in the retailer's brand contribute to increased acceptance and adoption of private-label items. Effective marketing and promotion strategies are crucial in this regard. Retailers employ advertising, promotions, and in-store displays to highlight the value and quality of their private-label products, thereby influencing consumer perception and driving distribution. In conclusion, the distribution power of private-label brands is intricately tied to a combination of factors, including the reach and presence of retailers, in-store placement, supply chain efficiency, pricing strategy, and brand reputation. Successful private-label brands strategically leverage these factors to establish a formidable presence in the market, resonating with consumers and securing their place in the competitive retail landscape.

The establishment and management of a robust product distribution network within retail stores play a pivotal role in an organization's marketing strategy. The success of marketing initiatives, such as new product launches, promotions, and temporary price reductions, is closely tied to the existence and development of an effective distribution network. For companies, the challenge lies in providing access to a vast number of retail outlets while ensuring coverage in key stores with high sales volumes. However, the evolving bargaining power of large retailers now demands increased financial resources from manufacturers to secure product presence, limiting the scale of distribution coverage that a company can afford.

Managing an effective distribution network becomes even more intricate for multinational corporations operating in countries where market infrastructures, retail technology, and consumer habits differ significantly from North American and Western European standards, as observed in emerging markets. Expanding the retail distribution network in such environments incurs substantial costs relative to consumer-packaged goods sales. One of the primary challenges faced by multinational corporations in these markets is overseeing the proper implementation of their marketing strategies by independent distributors, given the underdeveloped retail infrastructures and logistics systems prevalent in these regions.

Research by Guissoni et al. (2021) underscores the considerable percentage of consumer-packaged goods sales that emerging markets allocate to expanding the retail distribution network. Moreover, the intricate relationship between sales/market shares and distribution, often characterized by nonlinearity and difficulty in estimation, is emphasized by Reibstein and Farris (1995), Krider et al. (2005), Krider et al. (2008), and Friberg and Sancturary (2017). Understanding this relationship, known as the velocity curve, is crucial for marketing managers as it offers insights into the bidirectional causality between market share and distribution, along with the structure of the retail distribution environment.

The global upheavals caused by the COVID-19 pandemic have added another layer of complexity to supply chain dynamics, impacting retail distribution management. Consumer behaviors, such as store and brand switching due to stock-outs, coupled with altered price sensitivity resulting from stockpiling, have become significant considerations. Government-imposed restrictions, including lockdowns, and heightened health concerns have led to changes in distribution channels and consumption patterns, such as a shift towards online shopping and increased reliance on small grocery stores.

To navigate these challenges and understand market outcomes, analytical tools are essential. The sales response model proposed in this study offers a managerial tool for evaluating and monitoring the effectiveness of a product's distribution network, in conjunction with other marketing mix elements. Based on a semiparametric version of the SCAN*PRO sales model, the analysis incorporates distribution as a nonparametric explanatory variable, providing a more nuanced understanding of the sales-distribution relationship. This approach contributes to the evolving field of semiparametric modeling in marketing, addressing gaps in the literature related to estimating nonlinear sales-distribution relationships and facilitating scenario analyses for efficient marketing resource allocation. Overall, the proposed model serves as a valuable tool for marketing managers seeking to enhance their understanding of the impact of retail distribution changes on product sales in a dynamic and complex market environment. The study illustrates the application of this model using three laundry detergent brands in The Netherlands, showcasing its practicality with commonly available retail scanning data.

Case study: brand loyalty in chocolate bar buying decisions, the study delves into the intricate relationship between consumers' brand loyalty and their purchasing decisions regarding chocolate bars, specifically examining the dynamics between manufacturer and private label brands in the context of the Hungarian market. With the growing emphasis on health awareness and the evolving nature of consumer needs, particularly in the realm of popular consumer goods like chocolate, understanding these preferences becomes paramount. The research adopts the stated choice experiment method, employing attributes such as brand (manufacturer and private label), chocolate type (milk, dark, and white), the presence of a health claim (sugar-free), and price. The multinomial logit specification is utilized for model estimations.

An additional layer to the analysis involves a hybrid model, introducing a latent variable to represent consumers' brand loyalty. This hybrid approach aims to enhance the explanatory power of the utility perceived by respondents. The findings of the study highlight a discernible preference among respondents for manufacturer brands over private label brands. Furthermore, when evaluating the type of chocolate, milk chocolate emerges as the most positively rated, followed by dark and white chocolate. Interestingly, products with a sugar-free claim receive a negative rating, possibly reflecting a complex interplay between health considerations and taste preferences.

Consistent with initial expectations, the study underscores the negative impact of price increases on utility, aligning with consumer sensitivity to pricing in their decision-making process. The exploration of brand loyalty reveals that this characteristic is more pronounced among young and highly educated respondents. Moreover, an increase in brand loyalty correlates with a heightened preference for manufacturer brand products over private label brand products.

In summary, the research sheds light on the nuanced factors influencing Hungarian consumers' choices in the chocolate bar market. The clear preference for manufacturer brands, the differential evaluations of chocolate types, the impact of health claims, and the influence of price and brand loyalty collectively contribute to a comprehensive understanding of the intricate dynamics at play in consumers' decision-making processes. This study not only provides valuable insights for chocolate manufacturers but also contributes to the broader discourse on consumer behavior in the ever-evolving landscape of the food industry.

Brand Elements and Their Dimensions: A Comprehensive Classification

In the realm of branding, understanding the constituent units that form a brand is essential for effective brand management. Brand elements, the fundamental building blocks of a brand, can be categorized into three main types: dominant elements, recessive elements, and comprehensive elements. Dominant elements focus on tangible external aspects that appeal to the sensory perceptions of consumers, such as brand name, image representation, advertising language, and packaging. On the other hand, recessive elements delve into the internal attributes of a brand, encompassing cultural connotations, spiritual symbols, and internal essence, including characteristics, interests, emotional returns, values, and personality quality.

Comprehensive elements provide a holistic view of a brand, considering both external and internal facets. Scholars propose various classifications for these elements, with Kotler et al. (2009) identifying brand characteristics, brand interests, brand personality, brand object, brand value, and brand culture. Li (2015) suggests five basic elements: brand name, brand logo, brand concept, brand connotation, and brand objectives. Liu et al. (2016) meticulously distinguish brand elements, particularly in the digital era, by introducing four elements comprising a total of 15 smaller components.

This study integrates existing literature on brand elements and proposes a classification that combines dominant and recessive elements based on consumers' overall brand cognition. Drawing from Kotler et al.'s (2009) overall brand division method, the study advocates for a comprehensive approach to brand management, emphasizing three dimensions: brand character, brand value, and brand culture. Brand character embodies the external personality of the brand, including characteristics, positioning, lifestyle, interests, image, and objectives. Brand value encompasses the interests, packaging, values, function, society, and emotion conveyed by the brand to consumers. Brand culture, representing the profound connotation of the brand, includes the brand name, image, positioning, identification, concept, and connotation. This comprehensive classification aims to guide enterprises towards more effective and holistic brand management.

Impact Factors of Consumer Purchase Intention: A Comprehensive Exploration of Brand Elements and Experience Value

Consumer purchase intention, a significant behavioral trend, encapsulates consumers' attitudes, evaluations, and other psychological activities that guide purchasing decisions within specific environments (Jing and Shang, 2017). In the quest for information in both internal and external environments, consumers, as noted by Blackwell and Miniard (2001), make decisions based on various factors. This study delves into the complex landscape of purchase intention, drawing insights from diverse dimensions such as brand elements and experience value.

Mao et al. (2020) examined the intricate relationship between consumer purchases and identity-related structures. Their findings reveal that flow experience, brand image, brand communication, brand personality, and brand identity directly or indirectly contribute to explaining purchase intention. Flow experience, in particular, emerges as a key intermediary in the path from brand communication, brand character, and brand identity to actual purchase intent. Maharani et al. (2020) proposed factors influencing the willingness to buy self-owned brand products, emphasizing the direct impact of in-store promotion, visual marketing, and in-store image on customer value and purchase intention.

Li and Zhang (2020) focused on the repurchase intention, positing that functional value, economic value, and perceived risk are crucial determinants. Tong et al. (2020) expanded the scope to customer experience, highlighting its influence not only on individual perceptions and satisfaction but also on the broader market dynamics, thanks to modern marketing environments like the Internet.

The influence of various factors extends beyond the realms of brand elements and experience value. Social responsibility (Ma, 2011; Chen, 2017), perceived value (Zhong, 2013), and consumer trust (Escobar-Rodríguez and Bonsón-Fernández, 2017) are identified as additional contributors to consumer purchase intention.

This article, building on existing literature, conducts a thorough exploration of the multifaceted landscape of consumer purchase intention. By focusing on brand elements and experience value, it aims to unravel the nuanced interplay between these factors and purchase decisions. Additionally, attention is given to demographic variables such as age, education, gender, occupation, income, and commodity type to provide a comprehensive understanding of the contextual factors shaping consumer behavior in the dynamic marketplace.

case study: Enhancing Market Competitiveness in China's Fresh Food E-Commerce: A Model Framework Analysis

In the competitive landscape of fresh food e-commerce platforms (FFEP) in China, this study aims to formulate a model framework incorporating brand knowledge, perceived value, brand trust, and purchase intention to elevate market competitiveness. Analyzing 475 questionnaires with SmartPLS software, the model framework demonstrates a robust explanatory power (R2 = 45.5%) for consumers' intentions to purchase fresh food. Results from path analysis reveal significant positive relationships among the model variables. Notably, brand image exerts the greatest influence on perceived value, perceived value significantly impacts brand trust, and brand trust holds the most substantial sway over purchase intention.

The study highlights the mediating and serial mediating effects of perceived value and brand trust on brand knowledge and purchase intention. The ongoing enhancement of cold chain logistics contributes to the quality improvement of fresh food and minimizes losses during transportation, propelling the rapid development of FFEP. With online purchases of fresh food becoming the preferred choice, the industry reached 311.74 billion yuan in 2021, indicating an 18.2% YoY growth. The Chinese online fresh food market is anticipated to reach 419.83 billion yuan by 2023, underscoring significant growth potential.

The competition within the industry has intensified, leading to a 13.2% revenue decrease among the top five online retailers of fresh food from 2018 to 2020. Dominated by Internet giants like Pinduoduo and Meituan, the FFEP development in China follows a distinctive model focused on community-based, localized, and personalized sales. While this model has accelerated industry growth, certain FFEPs faced challenges in adapting to rapid market changes, resulting in closures or acquisitions. Profitability remains achievable for a select few market leaders.

The study identifies two key challenges affecting the industry's development. Firstly, the perishable nature of fresh food increases sales costs and consumer concerns about product quality. Secondly, limited positive word-of-mouth hinders the full realization of brand effects for FFEPs. The study emphasizes the critical role of FFEPs as a bridge for consumers, who now consider the brand effect of FFEPs in addition to traditional product brands. Understanding the impact of brands on consumers' online fresh food purchases becomes pivotal for major FFEPs to effectively uphold market competitiveness. The findings offer valuable insights for theoretical and managerial practices in the dynamic landscape of fresh food e-commerce platforms.