brand insights– paying for premium: do name brands survive on consumer ignorance?

Pharmacists buy store-brand aspirin and chefs buy store-brand sugar and salt, so why won’t the rest of the consumer population? A new study from Dutch economist Bart Bronnenberg of Tilburg University and three researchers from the University of Chicago into the purchase funnel and what drives consumer choice suggests that the more informed consumers are, the more likely they are to buy private label or store brand items.

The study analyzed more than 77 million shopping trips at markets and chain stores from 2004 to 2011 and matched purchases with consumers’ jobs and knowledge. The less education a consumer had, the more likely they were to buy name brand products vs. private-label brands. When a consumer worked in a specific field, he or she was more likely to buy store brands of products related to that field. For example, 23 percent of the time that chefs bought such pantry staples as salt, sugar and baking soda, they bought name-brand products. That number rose to 40 percent with all other consumers.

According to Bloomberg columnist Cass Sunstein, if all consumers followed the buying patterns of professionals in their respective fields, “total expenditures on headache remedies … would fall 13 percent, and retailer profits would rise 5 percent as people bought more in-house brands.” That could mean an extra $44 billion in the pockets of consumers.
Other factors must be considered, of course. Tough economic times have helped boost private label sales in recent years.

According to Time, “surveys indicated that 93 percent of consumers had changed their grocery-shopping habits because of the economic downturn” by 2010, “and many of them did so by trying out more store-branded goods.” Meanwhile, other research is showing that Millennials—a demographic once thought to be all about name brands—are now a driving force behind the success of store brands, Forbes reports. “Private label brands in food, retail and CPG are taking over a significant market share—a growing trend that’s largely driven by millennials,” the site notes.

Part of the reasoning behind Millennials’ interest in store brands is economic, since the generation is underemployed, but also, its “definition of cool does not correlate with high-end,” Forbes points out. More inexpensive items are considered desirable but that doesn’t mean that certain high-end brands and products, such as baby car seats, aren’t desired by Millennials. Others, such as beauty products, surprisingly don’t need a major brand name attached to boost purchasing power.

Another report, however, from Integer Group, shows that name-brand products are still challenging store brands based on perceived quality. Nine out of 10 women will compare store and name brands before making a purchase, while 56 percent of men prefer name-brand health and beauty products. Still, most consumers don’t care if their milk and medicine has a name brand on it. One name-brand product that remains strong, though, is laundry detergent. According to Integer, 69 percent of consumers prefer to wash their clothes with name-brand products.

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