Price–Quality and Market Share of Consumer Goods in Spain: Retail Brands and Manufacturer Brands1

Price–Quality and Market Share ofConsumer Goods in Spain: RetailBrands and Manufacturer Brands1

OSCAR MEDINA, JOSE LUIS MENDEZ & NATALIA RUBIOAutonomous University of Madrid, Department of Financing and Trade Research, Business Faculty,

Madrid, Spain

ABSTRACT The development of retail brands has been favoured by the creation of large chainsand by the high level of business concentration in the retail sector. It has been supported by anincreasing number of consumers who are aware of value and consider that retail brand is the bestalternative, with quality levels similar to those of leading manufacturer brands but with lowerprices. In this survey, we analyse the price differentials between manufacturer brands and retailbrands in several categories of widely consumed products. We study the relationship between theprice differential and the mean category price with the market share of retail brands, for food-stuff, perfumes and cleaning materials categories. Finally, we determine the possible connectionbetween the price of a consumer good brand and its real quality.

KEY WORDS: Retail brands, manufacturer brands, real quality, perceived quality, price, retailtrade

Introduction

In Spain, as in other European countries, retail brands have developed strongly.This process has lasted three decades. It began with the use of new formulas forcommercial distribution in the 1960s, leading to the displacement of traditionaltrade in favour of the development of self-service trade (Puelles 1997).

In the 1990s the market share of retail brand increased considerably in Spaindue to, among other reasons, consumers finding them attractive because of theirprefered price–quality relationship compared with manufacturer brands (Pacheco1996; Puelles 1997; Fernandez 2000). As Table 1 shows, the market share of retailbrands increased in the foodstuff category 8.7 percent points between 1990 and2000 while, for the same period, the market share in the category of perfumes andcleaning materials increased by 4 percent points.

Undoubtedly, retail brands are becoming an important marketing tool for thedistributor to attract consumers to their store, as well as a key strategic tool innegotiations with manufacturers. Thus, retailers can control markets by means of

Correspondence Address: Oscar Medina, Departamento de Financiacion e Investigacion Comercial.

Facultad de CC. Empresariales, Universidad Autonoma de Madrid, Ctra. de Colmenar Km 14,5. Campus

de Cantoblanco, Madrid, Espana. Tel.: + 914974271. E-mail: [email protected]

Int. Rev. of Retail, Distribution and Consumer Research,Vol. 4, No. 2, 199–222, April 2004

ISSN 0959-3969 Print/0959-3969 Online/04/020199-24 # 2004 Taylor & Francis Ltd

DOI: 10.1080/0959396042000178197

the intensive merchandising of their own brands to achieve better negotiationagreements with manufacturers (Fernandez & Gomez 1999). Besides, they can takeadvantage of advertising and the promotion of manufacturer brands for the inter-est of their own brands, increasing the price differential between both brandsduring advertising and promotion (Hoch 1996). They can also give their ownbrands an intermediate positioning between manufacturer brands and price leaderbrands.2 Thus, consumers would perceive the retail brand as the alternative withthe best quality–price relationship (Mendez, Oubina & Rozano 2000).

Burt & Sparks (2002) point out that retailers increasingly are developing activ-ities and services to provide added value to their brand offer. They mentionseveral factors that have contributed to turn retail labels into true retail brands,such as the improvement of the intrinsic and extrinsic cues of retail brands, theincreasing sophistication in product branding to create an innovative brand offer,the store format branding and the corporate brand relationship building. Throughthe 1990s, retail brands have developed from generics to retail branding and, atthe moment, they have come to constitute a corporate brand for some retailers.

Most research has adopted a demand perspective, studying factors that influencethe attitudes to the retail brand by consumers (Burton et al. 1998) and perceivedquality of brand (Richardson, Dick and Jain 1994). However, there is a lack ofresearch about the retail brand from a ‘push’ perspective (Hoch & Banerji 1993).For this reason, this paper looks at some of the major issues affecting widelyconsumed goods markets from a ‘push’ view, such as the differences of pricebetween manufacturer brands and retail brands, the relationship between the pricedifferentials and the market share of a retail brand, and the possible links betweenprice and quality of consumer goods.

The study has been achieved as follows: first, we assumed the existence of differenttypes of consumers following the guidelines established by Burton et al. (1998).3

These authors distinguish three types of consumers, regarding their attitude towardsprices: consumers aware of price, consumers aware of value (both have a positiveattitude towards retail brands) and consumers considering price as an indicator ofquality (with a negative attitude towards retail brands). These three types of consu-mers are distinguished because manufacturers and retailers design their quality andprice brand strategies taking into account the different consumer behavioursdescribed above. Therefore, this research analyses how the offer is adjusted to theconsumer, and it must be considered as a market study from an offer perspective.

Second, we establish the methodology used for the analysis and describe thesources used to achieve our objectives. Third, we show and comment on the

Table 1. Evolution of market share of retail brand in Spain in the 1990s (% value).

Years

Categories 1990 1995 2000

Foodstuff 7.4% 9.5% 16.1%Perfumes and cleaning materials 8.4% 9.5% 12.3%

Source: Nielsen Yearbook (1991; 1996; 2001).

200 O. Medina et al.

results obtained. Finally, we describe conclusions of this analysis and outlinepotential future research.

Review of Literature

Differences between price levels and market share of manufacturer brands and retailbrands

In the analysis of retail brands, it is necessary to consider consumers’ behaviourand their attitude towards this type of brand. Research has shown the importanceof a low price in purchase decisions. Kirk (1992) concludes, by means of a consu-mer survey to assess the factors influencing the decision to purchase retail brands,that 67 percent of consumers choosing retail brands instead of manufacturerbrands consider price as a crucial factor and behave as consumers aware of price.Burton et al. (1998) define consumers aware of price as those who want to pay alow price, which is a factor decisive in their purchase decision. This type of consu-mer adopts a favourable attitude towards low-price brands – retail brands, priceleader brands and promoted brands. Some studies, carried out in Spain, workingwith price differentials between retail brands and manufacturer brands (Puelles1997; Cruz et al. 1999), show that there are large differences between prices ofboth types of brands.

This policy of low-priced retail brands is consistent with the results shown byseveral empirical studies. Hoch (1996) finds that sales of retail brands are moresensitive to price differentials than sales of manufacturer brands. That is, anincrease in prices of manufacturer brands and/or a decrease in prices of retailbrands lead to a higher level of sales of retail brands and to a lower level of salesof manufacturer brands. However, retailers obtain higher profits for both brandswith high price differentials. This is explained by the less price sensitivity of consu-mers of manufacturer brands against the more price sensitivity showed byconsumers of retail brands.

From the data provided by theoretical and empirical literature, we can suggestthe following hypothesis:

Hypothesis 1: In general, there are significant differences between average pricelevels of all manufacturer brands and those of retail brands.

Theoretical and empirical literature in the area of marketing has shown that anincrease in market share of retail brands has been generally linked with price.Hoch & Banerji (1993), Hoch (1996) and Quelch & Harding (1996) analyse thedevelopment of the market share of retail brands for several consecutive years(from 1972 to 1990), taking into consideration accrued disposable income. Theseauthors observe that retail brands have a higher market share in declining periods,when accrued disposable income is low or decreases, even in situations in whichthe perceived quality of retail brands does not change.

Connor & Peterson (1992), Dhar & Hoch (1997) and Cotterill, Putsis & Dhar(2000) observe that a higher price differential between manufacturer brands andretail brands leads to a higher market share of retail brands, because consumers

Price–Quality and Market Share of Consumer Goods in Spain 201

are encouraged to choose these latter brands. On the contrary, a reduction of theprice differential between both types of brands leads to a reduction of the marketshare of the retail brand.

Thus, for example, from the 1970s, market shares of retail brands in Europehave had a positive development in staples (favoured by a higher degree of busi-ness concentration of retail stores). However, in the late 1970s, in countries whereretail brands are more widespread (Great Britain, Holland and western Germany)the increase in retail brands slowed down and it even decreased in some cate-gories. The explanation of this phenomenon can be found in the reduction of theprice differential observed between retail brands and manufacturer brands, as aconsequence of the strong promotion campaigns put into practice in that period(McMaster 1987).

However, it is advisable to consider these results carefully, because severalempirical studies, such as that by Weinstein (1994), show that strong price differ-entials between manufacturer brands and retail brands can lead to the detrimentof the perceived quality of retail brands. The market share of retail brands willdecrease and retailers will have to raise prices of their own brands to improveconsumers’ attitude towards them.

As far as price elasticity in a single category is concerned, Raju, Sethuraman &Dhar (1995) distinguish between cross-price elasticity among manufacturer brandsand cross-price elasticity between manufacturer brands and retail brands. Theresults of their analysis show that, in those categories in which cross-price elasti-city among manufacturer brands is low and cross-price elasticity betweenmanufacturer brands and retail brands is high, retail brand obtains higher marketshares and profits for retailers. That is, the higher the degree of substitutionbetween manufacturer brands and retail brands in a category, the higher themarket share obtained by retail brands in this category, and the lower the pricedifferential required between both types of brands to maintain or increase marketshare of retail brands.

On the basis of these considerations, we establish hypothesis two:

Hypothesis 2: Categories of product with higher market share of retail brandswill have a lower price differential between manufacturer brands and retailbrands.

Price–Quality Relationships in Consumer Goods

Besides the favourable attitude towards retail brand shown by consumers aware ofprice, there is also a tendency to buy this type of brand by consumers aware ofthe value, that is, the profit obtained by the purchase of the brand, in relation tothe cost supported. To define this type of consumer, we follow Thaler’s (1985)approach, which distinguishes between the concept of utility of acquisition and theconcept of value of transaction. Utility of acquisition refers to the profits obtainedby the consumer after purchasing and using the product; value of transactionrefers to the difference between internal reference price (the price that consumersthink they should pay) and price paid by consumers for the acquisition of aproduct.


Rajendran & Tellis (1994) underline that consumers create their own internalreference prices (those they consider appropriate for a certain product) taking intoconsideration two main factors: contextual and temporal. Contextual factorsinclude the type of store (Huber, Holbrook & Kahn 1986) and the retail prices ofall the brands in the same category at the moment of purchase (Della Bitta,Monroe & McGinnis 1981). Temporal factors include previous prices (Monroe1990; Pedraja & Yague 2000) and future prices foreseen (Jacobson & Obermiller1990). However, other authors underline that many consumers are not aware ofprices of the products they have just purchased (Dickson & Sawyer 1990). Thisfact underlines that contextual factors have a greater influence on the creation ofinternal reference prices by consumers.

To create internal reference prices, consumers consider the following criteria:manufacturer brands, retail brands and price leader brands. A positive attitudetoward retail brands is based, partly, on the value of transaction, and should be posi-tively related with the confidence on internal reference prices. According to Burtonet al. (1998), this is a typical characteristic of consumers aware of value. These consu-mers are not impulsive and consider carefully the brand they will purchase.

For the analysis of the price–quality relationship, we must mention that, againstconsumers aware of value and price, there are also many consumers determiningquality by means of prices (Burton et al. (1998)). The characteristics of beingaware of price or of value are very positive for the development of retail brands,just the opposite to the characteristic of inferring quality from prices.

Authors, such as Hjorth-Andersen (1984) observe that markets behave in aninefficient way, as long as they observe that consumers determine quality bymeans of prices and in a wrong way on many occasions. Cruz and Mugica (1993)underline some reasons to explain the inefficiency of markets. Some of these are:the difficulty of consumers to assess the quality of products in categories with ahigh technical complexity, the lack of time to look for information before purchas-ing a product, and the volatility of information due to the wide range of supplyand promotions.

Cruz & Mugica (1993) distinguish two types of economic losses as a conse-quence of consumers considering that high prices imply high quality: losses forconsumers and losses for the economic system in general. Brands with the samereal quality can have different prices, due to the different degrees of efficiency inthe manufacture–distribution chain, which would imply a loss for the economicsystem. However, both brands can have a similar efficiency; this would imply aneconomic loss for consumers.

In the categories characterized by high average prices and a high dispersion ofprices, it is more usual that consumers consider that a high price implies highquality, supporting economic losses on many occasions.

Following these guidelines, we hypothesize that:

Hypothesis 3: Categories with a higher dispersion of prices will have a higherprice–quality relationship.

On the other hand, Burton et al. (1998) and Rao & Monroe (1989) find that,for consumer goods, price–quality relationship is positive and statistically signifi-


cant. Consumers who believe that brands with a higher quality are more expensivewill pay higher prices for manufacturer brands. We would like to stress the factthat this relationship is more frequent in consumer durable goods, which is theopposite of frequently consumed products. For that type of good, it is more diffi-cult to look for information about real quality of products, average prices arehigher and there are important differences among products (Havlena & DeSarbo1991).

On some occasions, when consumers lack information about products or whenthey must pay a high amount of money to get such information, they usuallyconsider that the most expensive products are those with a higher quality. Whenthe only factor to determine product quality is price it can be found that price willplay a leading role in purchase decisions. However, when a consumer has morefactors to assess product quality, price does not constitute such an importantfactor to explain quality. Several studies underline that there are other factors,besides price, such as packaging and extrinsic clues influencing the qualityperceived by consumers (Richardson, Dick & Jain 1996). Among these factors areadvertising expenses (Kirmani & Wright 1989) and brand and store name (Dodds,Monroe & Grewal 1991; Dawar & Parker 1994; Grewal et al. 1998).

Grewal et al. (1994) and Dowling & Staelin (1994) show that as the averageprice of the category increases, consumers are more prone to pay higher overpricesfor manufacturer brands as a guarantee of a higher quality. On the other hand,Sethuraman & Cole (1997) observe that categories implying a considerable effortto look for information have a higher variability of prices and consumers usuallyassociate high quality with high-price brands.

Hence, we hypothesize that:

Hypothesis 4: Categories with a higher average price will have a higher price–quality relationship.

The existence of a wide segment of consumers that believes high quality isclosely connected with high prices supports the implementation of business strate-gies, such as that of giving high prices to products with similar quality in the samecategory. In this sense, marketing-related literature has shown that certain charac-teristics in a category increase the success of fixing high prices to communicatehigh quality. Thus, for example, consumers will determine quality by means ofhigh prices in those categories requiring a considerable effort to look for informa-tion, in categories where consumers are less familiar, with a high variability ofprices, with a low purchase frequency and with a high average price implying abigger economic risk. Consequently, in these categories, retail brands do notachieve a great market share (Sethuraman & Cole, 1997). These authors showempirically that retail brands achieve a lower market share in those categories inwhich consumers perceive that average price is high. Also Grewal, Gotlieb &Marmorstein (1994) and Dowling & Staelin (1994) find that the economic riskperceived by consumers for a certain product increases as does the average priceof a product in a category. This explains that consumers are prone to overpayingfor manufacturer brands within that category and are less prone to look for vari-ety. Therefore, the results of retail brands for that category will be worse.


Hence, we hypothesize:

Hypothesis 5: Categories with a higher average price will have a lower marketshare of retail brands.

Methodology and Analysis Structure

The sources of information used to assess the hypotheses developed in the theore-tical review have been the magazine OCU Compra Maestra for the period 1990–2000 and the data offered by the consultancy firm Nielsen for the period 1999 and2000.4

As regards OCU Compra Maestra we have collected information for staples,involving packed foodstuff for 830 brands in 60 categories.5,6 For all the cate-gories analysed, we obtain a common variable consisting of the global assessmentof real quality carried out by experts for all the categories involved. This variableis used in our research as a ‘proxy’ variable to measure real quality (QREAL),because it considers, for every brand, both the assessment of technical characteris-tics and the tasting by experts. This variable has been analysed on a nine-pointscale, where value nine represents the maximum level of real quality and value onerepresents the minimum level of quality.

As regards prices, OCU Compra Maestra takes samples of prices of all thebrands analysed. For our study, we have taken into consideration the averageprice between the maximum and the minimum values. Prices collected by OCUCompra Maestra do not take into consideration the amount of products offeredby every brand; therefore, we have homogenized prices according to amount. Insuch a way prices have been established on a 1Kg- or 1 ltr-basis (PRICE Vari-able).

The main restrictions of this research come from the source of informationused. Data were collected from the magazine OCU Compra Maestra. Periodically,this magazine carries out studies in different product categories regarding pricesand objective qualities of brands, in order to determine the best purchase optionin the whole market. Since our information comes from a secondary source, wemust consider its reliability and the validity of the results obtained.

Thus, in the case of prices, although the process of data collection guaranteesthe accuracy of the data obtained, OCU provides maximum and minimum valuesper product category. In our analysis, we have considered average prices.However, we must be prudent when using these data, because such informationimplies that most stores apply prices taking standard prices into consideration andwe must guarantee the validity of the analysis carried out.

As far as objective quality of brands is concerned, OCU includes the opinion ofexperts who, without knowing the name of the brand, determine the intrinsic attri-butes of products and assess the objective quality of brands. On the other hand,the data obtained refer to different years, and the assessment of brands is notalways carried out by the same experts because it depends on the product cate-gory. These facts must be taken into consideration to understand the frameworkin which the analysis has been carried out, as the opinion of experts about objec-tive quality also includes subjective elements that we cannot control.


In addition to OCU Compra Maestra and in order to contrast the second andfifth hypotheses, we have used data offered by the consultancy firm Nielsen. Fromthis source, we have data about the market share of retail brands, the price differ-ential between retail brands and manufacturer brands and the average price of theproduct’s category, both for foodstuff (94 categories) and for perfumes and clean-ing materials (52 categories).

To test the hypotheses we have used analysis techniques based on variance andlinear multiple regression, using the software package SPSS 11.0.

Results

Average price differentials between retail brands and manufacturer brands

In order to determine if there are significant differences in price levels betweenmanufacturer brands and retail brands, we have carried out an ANOVA analysisbetween average prices obtained for both types of brands considering 60 cate-gories.

The results of this analysis (Table 2) show that 35 out of the 60 categories ofthe sample present significant price differences at a level of 90 percent betweenmanufacturer brands and retail brands. Besides, we have observed that the averageprice differentials of retail brands as compared with manufacturer brands arelower than zero in all significant categories1. This result indicates that retail brandssupport a significantly lower average price than manufacturer brands in most ofthe cases. These results allow us to verify for most of the categories the firsthypothesis presented in this survey, stating that, in general, there are significantdifferences in the price between manufacturer brands and retail brands.

These results should be attributed to the low marketing effort developed by theretailer with respect to their brands. This impinges on a lower final cost of theproduct and consequently in lower prices than those that sustain the manufacturerbrands.

On the other hand, those categories in which no differences of prices are foundgenerally represent categories with high market share in retail brands (Table 3)such as biscuits, frankfurters, instant coffee, madeleines, marmalade, milk, liverpate, rice, sardines, table wine, frozen vegetables. Also we found non significantdifferences of prices in products with high value added, which are occasionalpurchase products and that generally show a high seasonality such as king prawnsand smoked salmon.

Market Share of Retail Brands and Price Differentials between ManufacturerBrands and Retail Brands

Besides using the data provided by OCU Compra Maestra, we have analysed theNielsen data on the market share of retail brands and the price differentialbetween retail brands and manufacturer brands during the years 1999 and 2000.We have analysed 94 Nielsen categories of foodstuff and 52 Nielsen categories ofperfumes and cleaning materials (see Appendix, Table B). This source allows us tocontrast, by means of a regression model, the negative relationship between both


Table 2. Analysis of prices (PRICE) and price differentials (PRICEDIF) between manufacturer brands and retail brands.

Product categories Year Average price MB Average price RB F-Snedecor Average PRICEDIF (%)

Olive oil 1996 587.98 (31.53) 547.04 (36.01) 6.96 b – 6.96n=13 n=7

Still mineral water 1996 21.35 (6.16) 13.22 (6.17) 5.70 b – 38.10n=18 n=4

Cocoa 1998 581.56 (229.89) 351.45 (53.81) 4.75 b – 39.57n=14 n=5

Instant decaffeinated coffee 1995 3723.75 (474.79) 2942.50 (45.96) 4.80 c – 20.98n=4 n=2

Ground light roast coffee 1990 841.50 (20.74) 649.33 (19.73) 152.94 a – 22.84n=4 n=3

Ground medium roast coffee 1990 765.78 (129.11) 613.60 (35.05) 6.46 b – 19.87n=9 n=5

Frozen croquettes 1996 624.49 (175.53) 397.97 (118.86) 6.53 b – 36.27n=9 n=5

Tinned white asparagus 1995 1051.30 (44.04) 877.29 (140.51) 8.42 b – 16.55n=6 n=8

Tinned bean stew 1998 478.98 (130.95) 356.88 (53.12) 4.78 b – 25.49n=15 n=6

Egg creme caramel 1996 2190.84 (527.76) 1509.24 (88.71) 4.63 c – 31.11n=7 n=3

Ice creams of creme and milk 1998 1119.10 (98.24) 779.21 (35.15) 20.41 b – 30.37n=4 n=2

Slices of Parma ham 2000 3192.67 (574.34) 1959.17 (246.61) 16.55 a – 38.64n=10 n=4

King prawns 1992 2449.44 (800.65) 1525.50 (250.96) 3.63 c – 37.72n=8 n=3

Lasagne 2000 961.85 (393.25) 568.90 (116.75) 4.61 c – 40.85n=9 n=5

Bottle of milk with cocoa 1994 147.69 (16.65) 111.25 (16.62) 8.30 b – 24.67n=13 n=2

(continued )

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Table 2. (continued )


Whole pasteurized and homogenized milk 1992 85.54 (10.72) 77.65 (8.39) 4.30 b – 9.23n=24 n=10

Apple liquor 1996 1076.60 (203.65) 610.89 (14.33) 14.73 a – 43.26n=10 n=3

Margarine 1999 421.25 (72.70) 230.75 (69.50) 18.79 a – 45.22n=8 n=4

Mayonnaise 1998 370.40 (88.54) 290.44 (54.28) 3.41 c – 21.59n=11 n=5

Strawberry marmalade 2000 479.17 (123.49) 346.78 (51.34) 6.24 b – 27.63n=13 n=6

Honey 1994 561.41 (210.46) 358.67 (49.82) 5.30 b – 36.11n=16 n=6

Pan loaf 1997 334.09 (76.97) 245.20 (34.78) 5.63 b – 26.61n=6 n=5

Integral pan loaf 1997 466.70 (162.74) 290.41 (105.80) 4.57 c – 37.77n=8 n=5

Frozen fish coated in breadcrumbs 1999 950.28 (293.37) 501.11 (56.89) 11.17 a – 47.27n=6 n=5

Pre-cooked pizzas 1991 1240.73 (112.27) 696.43 18.80 b – 43.87n=4 n=1

Slices of cheese 1991 877.56 (90.39) 746.50 (124.54) 4.68 c – 14.93n=9 n=4

Cheese from La Mancha 1995 1300.17 (197.99) 1070.67 (112.43) 3.60 c – 17.65n=12 n=3

Petit Suisse 1997 550.00 (73.10) 356.25 (24.55) 12.04 b – 35.23n=4 n=2

Tinned sardines in oil 1991 805.42 (103.55) 653.06 (60.72) 7.89 b – 18.92n=19 n=4

Traditional vegetable soups 1998 1504.37 (94.17) 981.74 (321.52) 8.12 c – 34.74n=3 n=2

(continued )

208

O.Medinaet

al.

Table 2. (continued )


Sweets 1993 1617.28 (305.36) 1182.00 (434.39) 6.21 b – 26.91n=15 n=5

Whiskey (also with soft drinks) 1992 2304.00 (543.39) 1372.44 (41.34) 8.41 a – 40.43n=16 n=3

Natural yoghurts 1990 231.33 (24.73) 160.00 7.13 b – 30.84n=6 n=1

Orange juice 1997 105.71 (15.00) 91.67 (5.66) 7.06 b – 13.28n=12 n=9

Peach –Grape juice 1997 103.89 (17.93) 92.72 (5.96) 3.14 c – 10.75n=9 n=9

Notes:a: 99 percent significant.b: 95 percent significant.c: 90 percent significant.Typical deviations in brackets.

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variables, established in the second hypothesis: market share of retail brand andprice differential between retail brand and manufacturer brand.

We estimate a regression model with dependent variable PRICEDIF MB-RB

(price differentials between retail brands and manufacturer brands in absolutevalue) and with an independent variable MSRB (market share of retail brand).This can be represented by means of the following equation:

PRICEDIFMB�RB ¼ aþ b MSRB:

The results of this model (Table 4) allow us to clearly observe how the higher themarket share of the retail brand the lower the price differential between manufac-turer brand and retail brand, as stated in the second hypothesis. However, if weanalyse separately the categories of foodstuff and perfume and cleaning materials,we will find that only in the latter case is there a significant relationship betweenboth variables. Therefore, the second hypothesis would be partially contested.

These results derive the next conclusion: the negative relationship betweenmarket share of retail brand and the price differentials between manufacturerbrands and retail brands could be influenced by the variability of the economicrisk, the performance risk and the hedonist perceived risk by the consumer forthese types of categories. Thus, the perceived risk by the consumer would be great-er, as would the relationship between the market share of retail brand and itscorresponding price differential with respect to manufacturer brand.

In this sense, if we break down the Nielsen categories of perfumes and cleaningmaterial in three differentiated groups according to the level of perceived risk ofthe consumer (the highest to lowest): categories of perfume and personal hygiene,categories of home cleaning and categories of paper derivatives, the followingresults (Table 5) are obtained. The categories of perfume and personal hygiene getthe lowest average market share of retail brand and the highest average prices’differential between retail brand and manufacturer brand (14.3 percent and – 55.7percent for the year 1999, 15.8 percent and – 55.4 percent for the year 2000). The

Table 3. Market share of retail brands in categories of product where there are no differencesbetween manufacturer brands and retail brands.

Categories Retail brand market share %

Biscuits 22.4Frankfurters 31.6Frozen vegetables 47.4Instant coffee 25.6Madeleines 41.3Marmalade 39.5Milk 23.7Liver pate 15.6Rice 37.2Sardines 35.7Table wine 30.3

Source: Nielsen (1999).


categories of paper derivatives have the highest average market share of retailbrand and the lowest average price differential (27.9 percent and – 27.2 percent forthe year 1999; 31.9 percent and 7 26.7 percent for the year 2000). Finally, thecategories of home cleaning have an intermediate level of average market share ofretail brands and average price differential between both types of brand (23.41percent and – 41.1 percent for the year 1999; 26.7 percent and – 42.6 percent forthe year 2000).

Price–Quality Relationship

Besides consumers who are aware of price and value, there is another group ofconsumers who do not have enough information to assess product quality or do

Table 4. Relationship between market share of retail brands (MSRB) and price differentialsbetween manufacturer brands and retail brands (PRICEDIFMB-RB).

Year 1999 Year 2000

Total categories (94 + 52) Total categories (94 + 52)PRICEDIFMB-RB=45.8037 0.296 MSRB

(18.407)a (7 3.186)a

Adjusted R2=5.9%F=10.148a

PRICEDIFMB-RB=46.8877 0.302 MSRB

(18.487)a (7 3.468)a


Foodstuff categories (94) Foodstuff categories (94)PRICEDIFMB-RB=36.4667 0.05411 MSRB

(12.276)a (7 0.518)Non Significant ModelF=0.268


(12.447)a (1.1136)Non Significant ModelF=1.290

Perfumes and cleaning materials categories(52)

Perfumes and cleaning materials categories(52)


(14.745)a (7 3.374)a



(14.593)a (3.168)a


Notes: In brackets t-student. a99% significant.

Table 5. Average market share of retail brand (MS) and price differential between retail brandand manufacturer brands (PRICEDIF) in perfumes and cleaning materials categories.

1999 2000

CategoriesAverageMS

AveragePRICEDIF

AverageMS

AveragePRICEDIF

Pefume and personal hygiene 14.3% 7 55.7% 15.8% 7 55.4%Home cleaning 23.41% 7 41.1% 26.72% 7 41.98%Paper derivatives 27.9% 7 27.2% 31.85% 7 26.65%


not have enough time to collect such information. They determine that high-priceproducts have a higher quality on numerous occasions. In order to assess thevalidity of the relationship between high price and high quality, following themethodology used by Cruz & Mugica (1993), we have carried out a regressionmodel7 using a dependent variable (standard prices per product category) and anindependent variable (the quality of brands, assessed by experts (QREAL)). Wecan represent this model by means of the following equation:

SPRICE ¼ aþ bQREAL

The results of regression for each category (Table 6) show that, for some cate-gories, a relationship exists between quality and prices. Moreover, we can observethat such a relationship is not the same for all categories. We can find categorieswith a positive and significant relationship, such as slices of Parma ham, wholepasteurized and homogenized milk, margarine, frozen fish coated in breadcrumbs,slices of cheese, frankfurters and whiskey. Categories with a negative and signifi-cant relationship include olive oil 0.48, Marıa biscuits, and liver pate, or categorieswith a non-significant relationship, such as top-quality stuffed olives, mineralwater, extra-quality rice, frozen croquettes and white asparagus.

In order to analyse to what extent the categories with higher variability of pricesand higher average prices have a higher price–quality relationship (hypotheses 3and 4), we present two models of linear regression, using the methodology usedby Cruz & Mugica (1993). We will take into consideration as independent vari-ables average price and average dispersion of prices per category8 respectively, andas dependent variables coefficients obtained for each category in the regressionstandard price–quality (Table 6). The results of both regressions, shown in Table7, do not allow us to verify the third and fourth hypotheses, proposed on the basisof theoretical review.

In the case of frequently consumed products, price is not high enough to implyan important economic risk for consumers, who will be prone to look for variety inthese categories of consumer goods, and will have a higher understanding of thequality of these products. Literature about marketing shows that, to assess productquality, intrinsic characteristics of frequently consumed products are more consid-ered than extrinsic characteristics, as opposed to the case of consumer durables.

As for price differential, Pearson’s coefficient of variation does not go beyond0.5 in any of the categories assessed. We can conclude that dispersion of prices inthe categories analysed is not high enough to lead consumers to perceive thathigher prices represent higher quality.

This analysis should be carried out taking into consideration the categories ofconsumer goods and those of consumer durables. Nevertheless, Cruz & Mugica(1993) included both categories of goods and could not find a relationship betweenthese variables either. Therefore, in the case of Spain, with the sources availablenowadays it is not possible to maintain the thesis that there is a relationshipbetween price–quality relationship and average prices, and between price–qualityrelationship and dispersion of prices in all categories.

Finally, in order to contrast the fifth hypothesis, we analyse the market share ofretail brands with respect to the variable of average price per category, using the


Table 6. Regression of standard prices (SPRICE) and quality assessed by experts (QREAL).

Constant QREAL

Categories N B t B T R2 F

Olive oil 0.48 20 2.08 2.02(b) 70.36 72.06(b) 0.15 4.23(b)

Top-quality stuffed olives 10 71.82 71.04 0.33 1.06 0.01 1.11Mineral water 22 71.47 71.55 0.28 1.59 0.07 2.53Extra-quality rice 12 72.21 71.39 0.41 1.41 0.08 2.00Top-quality rice 12 70.55 70.27 0.10 0.27 0.00 0.08Cocoa in powder 19 0.61 0.37 70.10 70.37 0.00 0.14Ground high-roast coffee 14 71.31 71.02 0.27 1.04 0.01 1.08Squid fried in batter 10 2.33 1.18 70.58 71.19 0.05 1.43Frozen croquettes 14 0.34 0.28 70.07 70.29 0.00 0.08White asparagus 14 1.23 0.83 70.21 70.85 0.00 0.72Tinned bean stew 21 71.61 71.55 0.27 1.58 0.07 2.50Egg creme caramel 10 71.06 70.46 0.16 0.46 0.00 0.21Vanilla creme caramel 10 72.29 71.17 0.36 1.18 0.04 1.39Marıa biscuits 20 2.12 2.74(a) 70.38 72.83(a) 0.27 8.00(a)

Integral Marıa biscuits 12 1.07 0.78 70.25 70.80 0.00 0.63Ice creams of non-milk fats 13 72.33 71.30 0.42 1.32 0.06 1.73Slices of Parma ham 14 72.82 72.63(b) 0.57 2.69(b) 0.32 7.25(b)

Frozen green beans 10 71.04 70.38 0.19 0.38 0.00 0.14King prawns 11 70.95 70.37 0.16 0.37 0.00 0.14Lasagne 14 0.03 0.03 70.01 70.03 0.00 0.00Bottle of milk with cocoa 15 70.09 70.06 0.01 0.06 0.00 0.00Pack of milk with cocoa 17 0.48 0.35 70.08 70.36 0.00 0.13Whole pasteurized andhomogenized milk

34 72.09 71.92(c) 0.35 1.95(c) 0.08 3.79(c)

Apple liquor 13 70.61 70.41 0.10 0.42 0.00 0.17Madeleines 18 70.18 70.17 0.03 0.17 0.00 0.03Margarine 12 74.28 72.69(b) 0.72 2.71(b) 0.37 7.36(b)

Mayonnaise 16 71.29 70.73 0.20 0.74 0.00 0.55Peach marmalade 17 70.59 70.64 0.12 0.66 0.00 0.43Strawberry marmalade 19 71.33 71.02 0.23 1.03 0.00 1.07Honey 22 70.52 70.72 0.12 0.75 0.00 0.57Pan loaf 11 70.71 70.50 0.12 0.51 0.00 0.26Integral pan loaf 13 1.26 0.88 70.21 70.89 0.00 0.80Precooked chips 12 0.12 0.04 70.02 70.04 0.00 0.00Liver pate 26 1.54 1.93(c) 70.24 71.98(c) 0.10 3.92(c)

Frozen fish coated inbreadcrumbs

11 71.03 71.70(c) 0.22 1.90(c) 0.21 3.62(c)

Slices of cheese 13 73.51 72.52(b) 0.57 2.55(b) 0.31 6.51(b)

Cheese from La Mancha 15 0.62 0.39 70.12 70.39 0.00 0.16Frankfurters 15 72.96 72.73(b) 0.58 2.78(b) 0.33 7.74(b)

Smoked salmon 17 70.57 70.46 0.10 0.46 0.00 0.22Tinned sardines 23 70.54 70.47 0.09 0.48 0.00 0.23Yolk candies 20 70.06 70.03 0.01 0.03 0.00 0.00Pack of table wine 21 70.02 70.01 0.00 0.02 0.00 0.00Whiskey 19 72.80 72.40(b) 0.45 2.44(b) 0.22 5.93(b)

Orange juice 21 71.01 71.06 0.20 1.08 0.01 1.17Peach-grape juice 18 70.50 70.51 0.09 0.52 0.00 0.27

Notes: (a)99 percent significant. (b)95 percent significant and (c)90 percent significant.


technique of linear multiple regression. The data about market share of retailbrand and the average price of the category have been obtained from the NielsenYearbook 2000 and 2001 and refer to the years 1999 and 2000. We have alsoincluded the categories of foodstuff, cleaning materials and perfumes. Results ofregressions are shown in Table 8.

The regression results show that, as average price of the category decreases, themarket share of retail brands increases. These results allow us to confirm the fifthhypothesis formulated in this paper.

Conclusions and Further Research

The importance of retail brands in the manufacturer–retailer relationship is due tothe fact that retail brand is now considered by retailers as a very importantmarketing and negotiation tool. Retailers can carry out the following actions tocontrol markets: a) occupying more space in markets with their own brands, toobtain better negotiation agreements with manufacturers; b) promoting their own

Table 7. Regressions of price – quality relationship (Rel P/Q) in relation with average price(PMEAN) and with dispersion of price per category (PDISPER).

Rel P/Q=0.169 – 0.198 PDISPER(70.634)

Adjusted R2: 0F=0.402 (Non-significant model)

Rel P/Q=0.09355 + 0.00002454 PMEAN(0.481)

Adjusted R2: 0F=0.232 (Non-significant model)

Notes: In brackets t-student.

Table 8. Relationship between market share of retail brands (MSRB) and average prices percategory (PMEAN).

1999 2000

Total categories Total categoriesMSRB=27.7717 0.00516 PMEAN

(18.240)a (7 4.317)a


MSRB=29.5587 0.00569 PMEAN(22.106)a (7 4874)a


Foodstuff categories Foodstuff categoriesMSRB=31.9557 0.00916 PMEAN

(15.546)a (7 3.906)a


MSRB=32.8667 0.00816 PMEAN(17.748)a (7 3.797)a


Perfumes and cleaning materials categories Perfumes and cleaning materials categoriesMSRB=19.4967 0.00262 PMEAN

(8.682)a (7 2.421)a


MSRB=25.5687 0.00450 PMEAN(9.882)a (7 1.936)a


Notes: In brackets t-student. a99 percent significant.


brands, therefore increasing the price differential with respect to manufacturerbrands; c) giving their own brands an intermediate positioning between manufac-turer brands and price-leader brands, in order that consumers perceive retailbrands as the best alternative with regard to quality–price relationship.

In this research we have assessed price differentials between manufacturer brandsand retail brands, the relationship between the magnitude of these price differen-tials, and the market share of retail brands and the possible links between priceand quality in consumer goods, taking into consideration existing literature. On thebasis of existing literature, we have considered three types of consumers, accordingto their attitude towards prices: consumers aware of price, consumers aware ofvalue (both have a positive attitude towards retail brands) and consumers consider-ing price as an indicator of quality (with a negative attitude towards retail brands).Taking these types of consumers into consideration, we have assessed the price–real-quality relationship of retail brands and manufacturer brands.

As far as price differentials between manufacturer brands and retail brands areconcerned, we can verify that there are significant differences in price levelsbetween manufacturer brands and retail brands, having found that 35 out of the60 categories show significant price differences between manufacturer brands andretail brands. Therefore, in general, we can state that retail brands will have lowerprices, as compared with those of manufacturer brands.

As for the effect of the market share of retail brands on price differentials, wehave found that in the categories of cleaning materials and perfumes there is anegative relationship (considering price differentials in absolute values) betweenthe market share and the price differential. The higher the market shares of retailbrands in a certain category, the lower the price differential between retail brandsand manufacturer brands. However, these results have not been verified in thefoodstuff category, where market share of the retail brand does not allow us toexplain price differentials between manufacturer brands and retail brands.

There are many consumers aware of price and value. Likewise, there is anothergroup of consumers who do not have enough information to assess product qualityor do not have enough time to collect such information. They believe that high-priceproducts have a higher quality. In general, we cannot come to the conclusion that anincrease in quality leads to an increase in prices: quality is not a clear indicator ofprice variability. We have also tried to determine whether price–quality relationshipdepends on average prices and variability of prices or not. Finally, we found that inSpain there is not a clear relationship between these variables for consumer goods.

Also, we have assessed the relationship between the average price of the cate-gory and the market share of retail brand, finding a negative relationship betweenthe price and the market share obtained by retail brands in the same category.

Finally, and for future research which could constitute a promising additionalcontribution to this work, we consider the following important: first, the analysisof the influence of the risk perceived by consumers on the relationship betweenmarket share of retail brands and price differentials between manufacturer brandsand retail brands. Second, we find it interesting to explore the connection of aver-age price and dispersion of prices with the relationship price/perceived quality.Third, we propose future research to study how prices and quality of brandsevolve over time and analyse how price differentials between retail brands and


manufacturer brands are behaving for consumer goods. At the moment, full datafor this in Spanish markets do not exist.

Notes

1. This survey can be classified within the framework of the research project ‘Business Concentration,

Competitiveness and Prices Creation in Retail Trade’, sponsored by the sectoral programme for gen-

eral promotion of understanding PB98-0068.

2. We use references as to the US literature. As Burt (2000) points out, the origin and development of

retail brands differ markedly from one country to another. In this sense, Laaksonen and Reynolds

(1994) suggest that the development of retail brands implies important differences in product charac-

teristics, production technology input, market position and consumer motivation. As in the US, re-

tail brands are mid-quality/mid-price retail brands, in some European countries, these brands have

already become high added value/high price retail brands (Burt 2000). Factors, such as the lowest re-

tail concentration of US market and consequently the lowest capability of retailers to use their

power in the negotiations with manufacturers, have slowed down the development of retail brands

in this market. We have been conscious of these differences when assessing US literature.

3. Price leader brands are manufacturer brands with not very consolidated brand image (they are gen-

erally regional or local brands); they have a low recognition and they are the lowest-price alterna-

tives.

4. OCU is a member of the European Group of Consumers–-CONSEUR–-with other associations in

Belgium, Italy, Portugal and France. It is an independent magazine, as far as funding is concerned.

It is financed by associates’ shares and the sale of the magazine. This does not include pre-paid ad-

vertising of manufacturers or retailers. It does not favour political or economic interests.

5. This source of information presents technical analysis about the composition of the most representa-

tive brands of each category. Thus, for example, in the category of marmalades, the amount of fruit,

artificial colours and hygiene is assessed, whereas in the category of olive oils with an acidity of 0.48,the assessment takes into consideration the degree of real acidity, the oxidation degree and adultera-

tion. In any case, the weighting of intrinsic attributes is not mentioned.

6. For the product categories considered from OCU Compra Maestra see Table A in the Appendix.

7. To carry out this regression we have only considered those categories with a number of brands of

ten or more.

8. As a measure of dispersion, we have used Pearson’s coefficient of variation.

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Appendix

Table A. Product categories considered in the analysis.

Categories Year Categories Year

American Ice 1998 Marıa biscuits 1995Apple liquor 1996 Mayonnaise 1998Bottle of milk with cocoa 1994 Natural yoghurts 1990Cheese from La Mancha 1995 Olive oil 1996Cocoa 1994 Orange juice 1997Egg creme caramel 1996 Orange soft drink 1999Extra-quality peach marmalade 1992 Pack of milk with cocoa 1994Extra-quality rice 1994 Pan loaf 1997Extra-quality stuffed olives 1994 Peach-grape juice 1997Frankfurters 1993 Petit Suise 1997Frozen croquettes 1996 Precooked chips 1996Frozen fish coated in breadcrumbs 1999 Precooked pizzas 1991Frozen green flat beans 1997 Slices of cheese 1991Frozen green round beans 1997 Slices of Parma ham 2000Frozen squids fried in batter 1999 Smoked salmon 1997Frozen vegetable stew 1997 Still mineral water 1994Ground light roast coffee 1990 Strawberry marmalade 2000Ground medium roast coffee 1990 Strawberry yoghurts 1995Honey 1994 Table wines 1991Ice creams of creme and milk 1998 Tinned bean stew 1998Ice creams of non-milk fats 1998 Tinned sardines in oil 1991Instant coffees 1993 Tinned white asparagus 1995Instant decaffeinated coffee 1999 Top-quality rice 1994Integral Marıa biscuits 1995 Top-quality stuffed olives 1996Integral pan loaf 1997 Traditional chicken soups 1998King prawns 1992 Traditional vegetable soups 1998Lasagne 2000 Vanilla creme caramel 1996Liver pate 1994 Whiskeys (also with soft drinks) 1992Madeleines 1999 Yolk candies 1993Margarine 1999 Whole pasteurized and homogenized

milk1992


Table B. Market share of retail brand (MS RB) and price differentials between manufacturerbrands and retail brands (PRICEDIFRB-MB).

MSRB in volume PRICEDIFRB-MB (%)

Foodstuff categories 1999 2000 1999 2000

Olive oil 28 32 79 715Sunflower oil 44 46 718 721Instant coffee 25 26 733 733Toasted coffee 22 23 727 728Tea 31 23 757 750Chocolate bars 21 23 733 734Chocolates 11 13 755 752Cocoa creme 34 30 747 747Cocoa drinks 16 17 747 749Sweeteners 18 20 740 740Mayonnaise 19 21 734 734Ketchup 27 31 728 731Fried tomato 29 32 729 731Pasta sauce 17 18 757 759Spices 35 39 731 735Biscuits 20 22 741 745Breakfast cereals 17 21 741 739Madeleines 40 41 728 728Slices of toast 48 49 748 748Pan loaf 31 33 743 744Bread rolls 29 31 734 736Pasta 33 35 754 754Packed rice 34 37 734 739Pulses 41 44 734 733Clear soups 17 19 754 755Flour 53 54 750 754Packet soup 12 13 750 750Creamed potatoes 27 29 749 751Snacks 20 22 740 742Nuts and dried fruits 54 58 721 720Dog foodstuff 38 41 738 738Cat foodstuff 38 42 739 740Mussels 20 23 77 74Sardines 34 36 736 737Tuna 22 25 721 724Mackerel 23 24 714 718Cockles 17 26 79 713Asparagus 35 38 721 715Preboiled sweet corn 50 50 735 736Crushed tomato 36 43 719 724Tinned pineapple 45 52 725 724Peaches in syrup 48 53 716 712Marmalade 37 40 741 740Bean stew 22 21 745 744Precooked legumes 53 52 732 729Tripe 45 47 740 739Olives 28 33 717 718

(continued )


Table B. (continued )



Milk 22 24 722 725Condensed Milk 40 41 725 729Milk shakes 13 19 740 736Horchata 24 30 732 733Mineral water 11 11 735 738Cola drinks 8 8 757 759Citrus 20 20 758 760Lemonade 47 49 754 755Bitter 13 15 748 752Fruit juice + Grape juice 27 32 727 726Beer without alcohol 33 35 737 737Beer with alcohol 21 19 736 7371-l Pack table wine 30 30 721 718Sherry 12 12 750 749Vermouth 20 23 753 755Sparkling wine 14 14 750 747Brandy 17 18 738 740Gin 10 10 742 743Rum 6 8 746 750Vodka 9 10 737 740Liquors 21 19 751 752Anisette 5 8 731 729Sloe gins 6 9 719 719Whiskey 9 13 739 743Processed cheese 22 23 730 729Green cheese 16 18 743 741Chorizo 7 7 78 77Salchichon (spiced sausagesimilar to salami)

9 12 718 719

Salami 9 11 713 712Fuet-Longaniza (thin spicysausage from Catalonia)

11 14 733 728

Sliced sausages 52 57 728 726Cold meats 10 12 728 732Cooked ham 9 10 719 711Parma ham 7 8 716 714Tinned sausages 30 32 738 740Precast fish 27 32 736 736Vegetables 39 47 741 740Tuna pasties 29 29 724 728Croquettes 37 42 748 742Precooked dishes 39 37 728 725Ice creams 36 35 738 732Yoghurts 19 21 747 744Precast desserts 22 24 751 747Butter 20 23 731 734Margarine 21 21 751 752Single cream 24 28 725 728

(continued )





Perfumes and cleaning materials categories

Washing powders and liquids 13 16 743 741Fabric softeners 36 40 747 749Washing-up liquid 15 19 748 745Washing-up liquid fordishwashers

32 37 757 758

Salt for dishwashers 28 31 731 735Bleach 22 26 743 745Detergent for toilets 26 23 742 743Polish for furnitures 19 16 762 762Window cleaning liquid 12 16 741 734General cleaning liquids 11 20 751 757Polish for floor 33 35 754 756Dusters and cloths 14 18 729 729Refill for floor polish 15 20 734 736Scourers 14 20 735 738Rubber gloves 36 33 720 720Rubbish bag 41 47 713 712Aluminum foil 53 63 719 727Plastic reels 48 53 741 746Insecticide 17 20 739 741Antimoth spray 12 14 737 738Air fresheners 17 18 762 755Shoe cream 4 3 757 757Shampoo 11 12 768 765Hair conditioners 16 15 764 765Styling gel 12 11 750 749Hair gel 8 10 752 750Hairspray 11 11 748 748Products for beauty care 5 9 779 786Safety razors 3 6 751 747Razor blades 17 19 774 774Shaving foam 9 10 744 743After-shave lotion 2 2 758 759Toothpaste 10 11 757 753Toothbrush 34 37 763 762Mouthwash 31 33 764 764Gel + liquid soap 15 17 748 746Bar of toilet soap 13 12 745 751Liquid toilet soap 37 42 756 758Deodorants 5 6 755 751Products for body 12 12 757 757Hair removers 5 5 744 745Suntan lotion 12 15 760 757Aftersun lotion 15 16 754 755Eau de cologne for thewhole family

9 9 743 742

Makeup remover 40 43 749 749Toilet paper 37 42 711 79

(continued )





Paper serviette 38 44 717 719Kitchen paper 36 41 710 78Cellulose handkerchiefs 25 28 721 726Towelettes 30 34 757 750Sanitary towels 17 18 752 749Disposable nappies 12 16 722 727


Price–Quality and Market Share of Consumer Goods in Spain: Retail Brands and Manufacturer Brands1

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