Do Retailers Manipulate Prices to Favour Private Label over Brands?

Retailers act as both customers and competitors for brand manufacturers when selling private label in direct competition with brands. This paper considers whether retailers exploit this double-agent position to practice switch marketing, manipulating elements of the retail marketing mix to encourage shoppers to switch from buying brands to private label. Such manipulation can be blatant in nature, such as comparative advertising, brand delisting trials, copycat packaging, and biased shelf allocation. However, the key interest in this paper concerns whether retailers use a more subtle means through strategic pricing to favour private label over brands. The paper reveals very different price treatments of brands and matching private label goods. However, the identified pricing patterns are more indicative of retailers manipulating prices for the sake of segmenting consumers rather than displacing brands

Marketing strategy and supply chain relations in grocery retailing

This submission for PhD by publication consists of a portfolio of nine peer reviewed and published papers. The research presented in the portfolio contributes to theory, knowledge and discussion in the area of retail marketing. The common theme of the papers is competition in grocery retailing, and specifically the way that retail marketing strategy and supply chain relations affects retail competition and outcomes for consumers. While the nine papers share a common approach in how grocery retailers compete through pricing and product choices along with their trading terms with suppliers, each individual paper addresses a distinctive central question: How does pricing competition change in the wake of a major merger in the retail grocery sector? How do grocery retailers respond in their pricing, promotion and advertising to the onset of a macro-economic crisis? Do grocery retailers encourage excessive consumption of alcohol by under-shifting excise duty increases on cheap alcohol? Why do retailers use value size pricing and offer bargain prices on jumbo-sized sugary drinks that encourages harmful excessive consumption? Is retail buyer power over suppliers detrimental to competition? In what circumstances might the development and promotion of brands and private labels be deleterious to consumers interests? How should competition authorities and practitioners assess the extent of competition between brands and private labels? How can the development of copycat private labels directly mimicking leading brands result in higher overall prices for consumers? Do retailers manipulate grocery prices to favour private labels over brands? Beyond their academic research contribution, the findings and insights provided in the papers both individually and collectively have relevance to retailers, suppliers, consumers, regulators and policymakers in desiring to see an efficient, well-functioning and dynamic grocery retail sector

How Do National Brands and Store Brands Compete?:Centre for Competition Policy Working Paper 14-7

This paper considers the nature of competition between national brands and store brands (otherwise known as private label or own label goods). We expound an analytical framework that allows for both price and non-price (quality) competition and use this to see how these different forms of rivalry interact in a setting where a leading retailer offering a store brand acts as both a customer and competitor to a national brand producer. This relationship thus entails both vertical and horizontal competition. We show that generally the retailer will seek to position its store brand as closely as possible to the national brand, by seeking to minimise the quality gap, but price the two goods very differently, with a wide price gap, as a means to segment consumers. Store brand introduction can lead to overall higher prices, so be against consumers’ interest, unless there is intense head-to-head rivalry for value-conscious consumers. Intense rivalry is more likely to happen if the national brand producer can exercise some control over its own product’s retail price (e.g. by being allowed to use maximum resale price maintenance) and has protection against copycat (lookalike) store brands ensuring a degree of differentiation between the competing products. Accordingly, we suggest that there are horizontal competition benefits on top of the usual vertical (alleviating double marginalisation) and intellectual property (to encourage brand investments) reasons to support respectively a more lenient policy stance towards RPM and a tougher stance against parasitic copycatting. The mix of horizontal and vertical aspects has important implications for undertaking market definition analysis in CPG markets, and specifically testing whether store brands and national brands are in the same product market. We highlight the considerable care needed in applying and interpreting the usual price and demand elasticity analysis used in market definition tests because of how segmentation and item-by-item retail pricing can distort demand and sales patterns

Market Consolidation and Pricing Developments in Grocery Retailing: A Case Study

When large retailers merge, there is a concern that a sudden and marked increase in concentration will alter the intensity and nature of price competition to the detriment of consumers. This chapter considers just such a situation in regard to UK grocery retailing, which has witnessed steadily increasing concentration over recent years, advanced by a series of mergers. Specifically, we examine the nature of price competition amongst the major “one-stop-shop” retail chains before, during, and after the Safeway/Morrison merger in March 2004.We find the merger offered consumers an immediate windfall benefit — with average prices falling straight after the merger—and more intriguingly appears to have led to (or at least is associated with) a marked change in the character of price competition in the market

Pricing in inflationary times- the penny drops

We investigate micro pricing behaviour in groceries (the UK’s most important consumer market) over eight years including the inflationary period of early 2008. We find behaviour sharply distinguished from most previous work, namely that overall basket prices rise but more individual prices fall than rise! This is consistent with retailers obscuring the fact of rising basket prices. We employ a significant new source of data that captures cross-competitor interplay in prices at a very detailed level. Unusually but importantly, our work takes into account that consumers buy baskets of goods, rather than individual products, when shopping at supermarkets.

Containing big soda: Countering inducements to buy large-size sugary drinks

Health concerns about overconsumption of large portions apply to a wide range of highly calorific foods and drinks. Yet, amongst all products, sugar-sweetened soft drinks and especially sugared soda are the ones which seem to raise the most ire because they contain little or no nutritional value beyond their sugar content and because of the way that vendors encourage excessive consumption by pricing jumbo-size portions to look like bargains while making smaller portions appear overpriced. This paper considers the logic of such extreme value size pricing and reveals why this marketing practice can harm economic welfare beyond public health concerns. The paper shows why policy interventions, including portion cap rules and soda taxes, seeking to reduce portion sizes and curb the consumption of large-size sugary drinks might fail when they do not fully take into account or appreciate the strategic responses that vendors might adopt to retain value size pricing

Pricing in inflationary times: The penny drops

How does the frequency and magnitude of micro-price rises and falls relate to macroeconomic crisis, as well as moderation? Weekly micropricing behaviour in British groceries was investigated across three leading retailers over the moderation period 2004–7 and the crisis period 2008–10. We find significant price flexibility sharply distinguished from behaviour observed in most previous works. Downward price flexibility increased markedly in 2008. Overall basket prices rise, but significantly more individual prices fall than rise in the latter period. Tests of obfuscation in price setting suggested that large numbers of small price falls were used to disguise the basket price rises

A framework to assess the challenges to food safety initiatives in an emerging economy

Emerging economies, e.g. India, China and Brazil etc., face challenges to adopt food safety (FS) practices in their food supply chains. Considering food industry’s operations and processes, this study identifies 25 challenges to the FS initiatives involving the opinions of practitioners from six major Indian food producers and academic experts. The challenges are grouped into five categories, viz. organisational, government and policy, global, knowledge and financial. We identify the best and worst challenges to the FS initiatives along with causality among them using combined Best Worst Method (BWM) and ‘Decision Making Trial and Evaluation Laboratory’ (DEMATEL) approaches. BWM prioritises these challenges, while DEMATEL identifies causal relationship maps for the prioritised challenges. The BWM results demonstrate that the government and policy related challenges are the key challenges followed by the organisational, global, knowledge and financial related challenges. The DEMATEL results exhibit the organisational, government and policy, and global related challenges as the cause group challenges. The knowledge and financial related challenges represent the effect group challenges. Mitigation of these challenges inherently necessitates stakeholders’ involvement in the food supply chains. We identify constructs for food safety initiatives policy in the emerging economies to raise public awareness while encouraging greater collaboration and efficiency in food supply chains to help achieve the second Sustainable Development Goal (SDG) for securing food for everyone. The results of the study offer guidance and deeper insights to supply chain managers about synergy requirements between the government policymakers and key players of the industry in the emerging economies

Strategic incentives for complementary producers to innovate for efficiency and support sustainability

Process innovation that increases operational efficiency through a step change improvement in resource utilisation and waste reduction can help boost manufacturing profitability but also offer broader social and environmental benefits. Business owners, though, might be reluctant to make investments in process innovation unless they serve a pure profit motive. While not guided by altruistic intentions, the owners might nonetheless see a strategic benefit in providing their managers with remuneration incentives supported by public commitments to increase innovation effort for more efficient, lean and sustainable operations. We model such a possibility amongst producers controlling the supply of essential complementary components that go into the assembly of competitively produced composite finished goods. We demonstrate the ruinous effect of independent strategic delegation to managers of powerful complementary producers. Instead, collaboration amongst the owners of the complementary producers to establish common managerial incentives can increase innovative effort to raise efficiency that benefits the whole industry supply chain, end consumers, and social welfare. Government-backed voluntary agreements with sector-wide commitments may be helpful in encouraging process innovation to support lean supply chains and sustainability