Consumption-Based Cross-Brand Learning: Are Private Labels Really Private?

Abstract

While some researchers view private labels (PLs) as a key tool for retailer differentiation, others imply that consumers do not distinguish between PLs of different chains. This debate raises the question: Do a retail chain's PL investments subsidize rival PLs? In addition, how does this affect their choice share vis-à-vis national brands? The authors investigate whether consumers generalize knowledge from product experience across PLs of different retail chains and whether such cross-brand learning depends on the PL brands' link with the chain name or on their quality differences. The proposed brand choice model captures cross-brand learning through quality perception spillovers (consumers adjust beliefs about PL quality on the basis of consumption experience) and familiarity spillovers (uncertainty about a PL diminishes with rival PL consumption). Household scanner panel data on dish soap and breakfast cereals yield clear evidence of cross-retailer learning among standard PLs, regardless of their name or quality differences. The results also reveal that familiarity spillovers dominate quality-level spillovers, implying that the presence of cross-learning benefits PLs and enhances their market position relative to national brands. The authors conclude with a discussion of managerial implications.