Factors Affecting Consumer Preferences towards Private Label in the Thai Context What could motivate Thai shoppers to prefer private labels? Thittapong Daengrasmisopon Doctor of Business Administration

What is Private Label (PL)…? Products that are owned and/or licensed exclusively by retailers, wholesalers, restaurant operators, food service distributors or caterers for distribution in their respective segments of the marketplace Fitzell, 1992, p. 8

Increasing dominance of European retail chains in Thailand The Big Four Hypermarket / Cash & Carry Chains

PL is significant to the modern retail scene worldwide… Internationally, PL sales contribution accounts for… – 15% of total category in US – 54% of Sainsbury’s sales – 41% of Tesco’s sales Quelch and Harding (1996) In Thailand, PL has been growing as driven by The Big Four – 500+ items at Tesco Lotus – 1,000+ items at Big C – 400+ items at Carrefour – 300+ items at Makro Business Thai (2002); Jitpleecheep (2002)

From the Western literature… What factors correlate to PL purchase proneness? Economic situations – Economic growth – Disposable income growth Demographics – Age, income, education, marital status, household size Purchase behaviour/nature – Frequency buyers – Heavy buyers Consumer attitudes – PL risk perceptions – PL familiarity – Manufacturer brand loyalty Price & perceived quality – Low price – Extrinsic cues for product quality perceptions Cue Utilization Theory (Dick et al., 1997; Richardson & Jain, 1994, 1996) Inconsistent or inadequate results to conclude PL proneness from shopper characteristics and from ‘macro’ view… More consistent findings on factors that influence PL preferences and more relevant to shopper/retailer’s view...

From the Thai literature… Very limited research articles, mostly in local journals… Some cultural variables were investigated… – Materialism, but no significant difference between PL shoppers and non-PL shoppers – ‘Face’ might have effects varying upon different categories Shannon & Lockshin (2002, 2003)

1. WHAT ARE POTENTIAL FACTORS AFFECTING CONSUMER PURCHASE PREFERENCES IN THE THAI CONTEXT? Hence, the key research questions… 2. TO WHAT EXTENT EACH FACTOR CORRELATE WITH PRIVATE LABEL QUALITY PERCEPTION?

Research Methodology Qualitative 4 focus groups 38 BKK Female 29 PL users & 9 non users Quantitative Questionnaire survey 222 BKK PL shoppers Pearson’s Correlation Test Phase 1 : Identify potential factors influencing PL preferences Phase 2 : Investigate correlation of each factor vs. PL quality perception Research Question 1 : What are potential factors affecting consumer Purchase preferences in the Thai context? Research Question 2 : To what extent each factor correlate with private label quality perception?

Phase 1 : Overall Private Label Perception Smart choice for products that do not require ‘the best quality’ ‘Trial-and-error’ often by impulse (at point of purchase) and sensory cues (looks okay / smells nice); therefore… – More familiar with household, low-risk products – More receptive to purchase for ‘business use’ and ‘for others’ – Less tendency to purchase ‘for personal use’ – Less and less tendency towards ‘sensitivity’ and ‘riskiness’ e.g. Cotton bud vs. cotton ball Identifies 27 potential factors classified into Perceived Saving, Perceived Quality and Perceived Risk in the proposed framework…

1. Perceived Saving (PS) 2. Perceived Quality (PQ) 3. Perceived Risk (PR)

Correlations of between each factor statement rating and PL quality perception by each retail channel were tested – Pearson’s Correlation Test Found most correlations with Hypermarket retail channel – Hypermarket could be perceived as representation of private label as 91.44% aware of having private label Phase 2 : Factor Correlation with Overall PL Quality Perception

Perceived Saving : Saving-related factors 1.Price difference from national brand (+) 2.Price promotion of private label (+) 3.Purchase volume (+) Phase 2 : Factor Correlation with Overall PL Quality Perception *The color bars indicate factors with correlations with Hypermarket’s PL Quality Perception

Perceived Quality : Product-related factors 1.Brand name (+) 2.Packaging design (+) 3.Indication of quality content (+) 4.Uniqueness of product (+) 5.Appearance similar to national brand (+) 6.Manufacturer image (+) 7.Country of origin (+) 8.Price image (+) 9.Indication of satisfaction warranty (+) Phase 2 : Factor Correlation with Overall PL Quality Perception *The color bars indicate factors with correlations with Hypermarket’s PL Quality Perception

Perceived Quality : Retail-related factors 1.Store aesthetics (+) 2.In-store promoter (+) 3.In-store demonstration (+) 4.Retailer image (+) 5.Foreign retail owner reputation (+) Phase 2 : Factor Correlation with Overall PL Quality Perception *The color bars indicate factors with correlations with Hypermarket’s PL Quality Perception

Perceived Risk : Risk-related factors 1.Physical risk perception toward category (-) 2.Financial risk perception toward category (-) 3.Social risk perception toward category (-) 4.Familiarity with the private label product (+) 5.Familiarity with private label concept (+) 6.Conspicuousness of usage (?) 7.Urgency of use (+) 8.Gift/donation recipient (+) 9.Purchase for others (+) 10.Trust in consumer protection mechanism (+) Phase 2 : Factor Correlation with Overall PL Quality Perception *The color bars indicate factors with correlations with Hypermarket’s PL Quality Perception

Discussion Confirms the existence of the proposed framework PL perception is primarily in the hypermarket context Supports Cue Utilization Theory – Product and retail perception/image Weak consumer confidence on quality – Extrinsic cues and familiarity with product and concept play key role toward preferences ‘Face’ issue seems not that big, in general, among PL shoppers – Acceptable to purchase for others/donation

Implications for Retailers PL acceptance seems not yet at the tipping point Consumer understanding of PL concept is one important driver to acceptability at large Perceived savings is primary, BUT ALSO… – Choose well to select which suitable product to enter – Look at all extrinsic cues and how to be perceived, such as Generic vs. similar appearance vs. premium look Or combination of them

Research Limitation Limited generalizability – Bangkok / urban Thailand context – Exploratory framework Current validity of the 2003 study Influence from the economic circumstances to purchase criteria

Suggestion for Future Research Further empirical investigations – By product type or category specific – Retail channel specific – User vs. non-user Nationwide representation Cross-country comparison

Questions?