Retailers procure private labels from several sources including national brand manufacturers, dedicated private label manufactures (often overseas or regional), and own manufacturing facilities.2 In the first case, the supplier utilizes its expertise and excess capacity to supply PLs. In the other two cases, the suppliers are dedicated to manufacturing PLs for single or multiple retailers. Consumers generally consider PLs as value substitutes of the corresponding national brands. As private labels become proliferated, more retailers are introducing premium PLs that oftentimes replace marginal national brands. It is natural to assume that the PL sourced from the excess capacity of the NB manufacturer is identical to the corresponding NB except for the branding and packaging. In this paper, we examine a retailer’s problem of tiered PL sourcing, in which a premium PL is supplied such a NB manufacturer (dual brander), and an economy PL is supplied by a dedicated PL supplier. We decompose the value of a product into three components: the NB’s brand equity, the retailer’s reputation, and the intrinsic quality of the NB. In this distribution channel, the NB’s wholesale and retail prices are determined by the traditional bilateral Nash game. However, the premium PL’s transfer price is determined through a profit-sharing negotiation between the channel members. Based on this game scenario, we build a model of price competition, given the quality, brand equity, and retailer reputation parameters, in order to examine strategic implications of the parameters to the equilibrium prices. In our bilateral pricing game, the NB manufacture and the retailer play a Nash pricing game, augmented by a profit sharing negotiation for the premium PL. In the negotiation process, the retailer’s negotiation power over the NB manufacture is reflected in the ratio of incremental profits from the premium PL. From an equilibrium-negotiation solution, we derive profit implications of each of the value components as well as the negotiation power of the retailer. Among several findings, the most interesting takeaway is that, even if the retailer holds a strong negotiation power, it is optimal for the retailer to leave some chips on the table for the NB manufacturer during the transfer pricing negotiation.

This study examines how advertising can be used by premium private labels to develop perceived luxuriousness and, in turn, purchase intention. The findings suggest perceived image and quality relative to regular private labels and a leading national brand as well as store-brand image congruity as key factors and support the store-type effect. Introduction Private labels (PLs) are receiving increased attention in line with their significant growth (Schnittka, 2015). Braak, Geyskens, and Dekimpe (2014) pointed out the evolving trend of more PLs offering high quality at a high price in comparison to their low-quality, low-price heritage. Among multiple tiers of PLs, PPLs exclusively aim at a premium tier of the market and try to offer the value comparable to that of top-tier NBs (Jost 2014). Acknowledging differentiated natures of PPLs, this paper analyzes what advertising strategies make consumers perceive a PPL to be luxurious and in turn, increase purchase intention. Cue utilization theory and categorization theory are used as a basis for hypotheses. Our research is an effort to shed light on adequate design of the advertising message for the successful introduction of a PPL. Theoretical Background Premium Private Label and Perceived Luxuriousness For a PPL, being able to offer outstanding value as compared to top-tier NBs is a critical issue (Geyskens, Gielens & Gijsbrechts 2010). To investigate whether a PPL is successfully positioned, we suggest the construct of perceived luxuriousness as a key variable. We define a brand's luxuriousness as its ability to satisfy multifaceted needs of consumers with its products which is not limited to functional needs (Lee, Ko, Kee & Kim, 2015), through five value dimensions (Vigneron & Johnson, 2004). Consequently, we employ the brand luxury index (BLI) to measure perceived luxuriousness (Vigneron & Johnson, 2004). Cue Utilization Theory According to cue utilization theory, when making purchases, consumers use diverse extrinsic and intrinsic cues, and make the assumption that such cues will help them make the most reasonable purchase decision (Richardson, Dick & Jain, 1994). Referring to cues, consumers decide to buy the product only if it is perceived as a better choice than the alternatives in terms of overall value that it conveys. These cues are often displayed and reinforced via advertising (Yi, 1993). Categorization Theory According to categorization theory, when exposed to advertising messages for a new brand, consumers are expected to call up information available in memory that is classified into categories (Carrillat, Harris, & Lafferty, 2010). Punj & Moon (2002) demonstrated that a successful strategy for new brands is to associate itself with a successful existing brand to be included in the consideration set while differentiating itself from other brands. Hypotheses Development Image Similarity Perceived similarity between brands and products has been discussed at various levels and scopes. It has been illustrated that shared physical attributes (Aaker & Keller, 1990) and shared abstract image (Park, Milberg & Lawson, 1991) between product lines moderate the probability of being perceived as similar by consumers. Considering the disparate positions between PPLs and RPLs, we suggested that RPLs are useful as a disparate option that may in turn emphasize the premium position of a PPL (Palmeira & Thomas, 2011). H1a. Image similarity between a PPL and a RPL, as reinforced by advertising, will have a negative effect on the perceived luxuriousness of the PPL. If a PPL can associate itself with the experiential value of a high-positioned NB, it is more likely that the PPL will be perceived as luxurious by signaling comparability (Sayman et al., 2002). H1b. Image similarity between a PPL and a NB, as reinforced by advertising, will have a positive effect on the perceived luxuriousness of the PPL. If the different positions of a RPL and a PPL are not perceived by consumers, consumers might judge the PPL as simply a similar but expensive option and would not be willing to purchase it (Huang & Huddleston, 2009). H2a. Image similarity between a PPL and a RPL, as reinforced by advertising, will have a negative effect on the purchase intention for the PPL. Closer associations between a PPL and a top-tier NB built through advertising lead to enhanced familiarity with the PPL and perceptions of reduced risks (Erdem, Zhao & Valenzuela, 2004). H2b. Image similarity between a PPL and a NB, as reinforced by advertising, will have a positive effect on the purchase intention for the PPL. Quality Superiority Perceived quality is defined by Aaker (1991) as: “the customer’s perception of the overall quality or superiority of a product or service with respect to its intended purpose, relative to alternatives”. Consumers’ abstract beliefs regarding the product’s quality can be deduced from “credence quality attributes” (Ophuis & Trijp, 1995). The quality of products is evaluated relatively, compared with alternatives. Nueno and Quelch, (1998) pointed out that there are a few characteristics shared by premium brands, and excellent quality is one of them. H3a. Quality superiority of a PPL compared to RPL, as reinforced by advertising, will have a positive effect on the perceived luxuriousness of PPL. H3b. Quality superiority of a PPL compared to NB, as reinforced by advertising, will have a positive effect on the perceived luxuriousness of PPL. According to Sethuraman, Tellis, and Briesch (2011), consumer perceptions of quality of a PL are evaluated based on quality differentials and play a dominant role when consumers make purchase decisions. Indeed, the perceived quality differential between a PL and a NB has been found to influence the share of the PL (Erdem et al., 2004). H4a. Quality superiority of a PPL compared to a RPL, as reinforced by advertising, will have a positive effect on the purchase intention of the PPL. H4b. Quality superiority of a PPL compared to a NB, as reinforced by advertising, will have a positive effect on the purchase intention of the PPL. Image Congruity between a Store and a PPL At the individual level, a generalized store image is determined by each consumer’s beliefs about retailer-specific attributes (Lee & Hyman, 2008). If the positive store image can be transferred through a number of positive associations between the store image and a PL, it will help consumers evaluate a newly encountered PL more favorably (Collins-Dodd & Lindley, 2003). As Dubois, Laurent, and Czellar (2001) demonstrated, consistent value shared between a parent brand and an extension will further strengthen the luxurious position. H5a. Image congruity between a store and a PPL will have a positive effect on the perceived luxuriousness of the PPL. Furthermore, with congruity consumers will see a brand which maintains the standards and preserve its essence as authentic and are likely to form positive responses toward a brand (Choi, Ko, Kim & Mattila, 2015). Lee and Hyman (2008) illustrated that the congruity between beliefs about a store and a PL would lead to a relatively favorable attitude toward a PL product. H5b. Image congruity between a store and a PPL will have a positive effect on the purchase intention of the PPL. Perceived Luxuriousness and Purchase Intention Sethuraman et al. (2011) illustrated that both quality and non-quality values matter in purchase decisions of a PL. For a PPL aiming at signaling an outstanding position, representations of added value are critical to form purchase intentions (Fionda & Moore, 2008). Thus: H6. Perceived luxuriousness of a PPL will have a positive effect on the purchase intention of the PPL. Store type Effect Consumers evaluate retailers differently and their subjective evaluation of the retailer is also expected to affect evaluations of products sold in the retailer (Grace and O’cass, 2005; Pappu and Quester 2008). The more upscale image and positioning of department stores are regarded to allow products they sell to be perceived as luxurious through more diverse appeals. In turn, purchase intentions are to be facilitated with ease, relatively. Proposition 1: According to store type, relative perception of luxuriousness of a PPL will be different. Proposition 2: According to store type, relative purchase intention of a PPL will be different. Methods Experiments were conducted among undergraduate-level students (aged 20-29) at a large Korean university, as they have relatively common traits and increasing experience with private labels (Trendmonitor, 2015). A total of 339 self-administered questionnaires were distributed, out of which 324 were used for analysis: 166 for department stores, 158 for hypermarkets. A purchase scenario of a cashmere sweater as well as an advertisement of the PPL sweater with information about each brand’s product (i.e. the material, the manufacturer, the distributor, and the advertisement) was given. For robust results, the experiment was conducted via two media types, online and paper. Analysis and Results Structural Model Testing We used structural equation modeling (AMOS 21) to test the proposed theoretical framework and propositions (see Figure 1). All estimates indicate an acceptable fit. Individual Hypothesis Testing The results indicate that image similarity between a PPL and a RPL negatively influences the perceived luxuriousness of the PPL (supporting H1a), but image similarity between the PPL and a NB positively influences the perceived luxuriousness of the PPL (supporting H1b). Although image similarity between a PPL and a RPL has no direct influence on the purchase intention of the PPL (H2a is rejected), image similarity between the PPL and a NB positively influences the perceived luxuriousness of the PPL (supporting H2b). Quality superiority of the PPL compared to the RPL positively influences both the perceived luxuriousness and purchase intention of the PPL (supporting both H3a and H4a), but quality superiority of the PPL compared to the NB does not have a significant effect (H3b and H4b are rejected). Congruity between the PPL and store is found to influence the perceived luxuriousness of the PPL (supporting H5a) but has no direct influence on the purchase intention (H5b is rejected). Meanwhile, the hypothesized effect of the perceived luxuriousness of PPL on purchase intention is supported (H6). Proposition Testing The data for each store type, department store (n =166) and hypermarket (n=158), was analyzed separately via multi-group analysis to assess store type effects on the modeled relationships. The findings for department stores indicate that the effects of image similarity between a PPL and a RPL on perceived luxuriousness, image similarity between the PPL and a NB on the purchase intention, quality superiority of the PPL compared to the RPL on the perceived luxuriousness as well as the purchase intention, and image congruity between the PPL and the store on the perceived luxuriousness are significant. Meanwhile, the findings for hypermarkets represent that the effects of image similarity between the PPL and NB on perceived luxuriousness and quality superiority of the PPL compared to the RPL on the perceived luxuriousness of the PPL are significant. For both store types, overall perceived luxuriousness turned out to be positively related to purchase intention. Conclusion The findings of this study have implications for a PPL aiming at positioning itself in consumers’ minds as luxurious, vis-à-vis a RPL and a NB. In regard to the perceived brand images, using advertising, efforts to differentiate a PPL from a RPL and to equate a PPL with the top-tier NB appears to be a reasonable strategy. Moreover, using advertising to emphasize superior quality compared to the RPL is likely to be effective whereas to compare it to a NB will not. Also, image congruity between a store and a PPL would allow the PPL to be perceived as luxurious as it aims to be. Furthermore, the results lead to a rationale for disparate strategies between two store types. As a follow-up study, we are planning to examine how direct manipulation of the comparative advertising messages influences consumers’ perceived luxuriousness and purchase intentions of a PPL.

Premium private label brands (PPLBs) are receiving increased attention in line with their significant growth. Private label brands (PLBs) have been evolving from offering low quality at a low price to high quality at a higher price. Among multiple tiers of PLB, PPLBs are assumed to be in an exclusive tier and compete with top-tier national brands. In consumers’ minds, PPLBs are perceived and evaluated in reference to alternatives represented by regular private label brands (RPLBs) and top-tier national brands (NBs). Thus, for PPLBs, being able to provide outstanding value that is perceived in relation with competitive alternatives is a critical issue. In addition, related marketing entities such as a store type are assumed to affect consumers’ perceptions and evaluations. Based on cue utilization theory and categorization theory, this research aims to identify key relationships influencing the perceived luxuriousness and eventual purchase intention of PPLB products. This research analyzes what strategies make consumers perceive a PPLB to be luxurious and in turn, increase purchase intention. The empirical study consists of a survey conducted among college students in their 20s in Korea. The data were analyzed to test the theoretical framework using a confirmatory factor analysis and structural equations.

This study aims to develop propositions about the factors that influence the purchase intention of private label products. These factors are: in-store promotion, visual merchandising, store image, and customer value. This study elaborates on some of the results of previous studies that have examined the factors that influence purchase intention of private label products that have been published on Google Scholar and indexed by Scopus between 1991- 2020, to develop a proposition. This paper fills a lack of Studies which discuss purchase intention from a consumer behavior perspective. From the perspective of consumer behavior, purchase intention is influenced by three factors, namely: intrinsic factors including: consumer value, extrinsic factors including: in-store promotions, visual merchandising and store image, and consumer factors. This paper defines purchase intention as the effort and strong urge to buy a particular product in the future, the possibility of considering buying the product, the decision to rebuy the product and the desire to recommend the product. The main findings of this research are several propositions, namely: in-store promotion, visual merchandising and store image directly affect customer value and purchase intention. The following propositions are: In-store promotion, visual merchandising and store image influence purchase intention mediated by customer value.