Editor’s note: Johan Anselmsson, Niklas Bondesson and Ulf Johansson are from the School of Economics and Management, Lund University, Lund, Sweden. This article was derived from research published under the title “Brand image and customers’ willingness to pay a price premium for food brands” in the Journal of Product and Brand Management, Volume 23, Issue 2, 2014 by Emerald Group Publishing.
Traditional manufacturer brands are facing tough price competition from the growing influence of private label and store brands. Driven by the increasing marketing power of retailers, own-label products are casting off their image as just a low-cost alternative and increasingly providing strong and sophisticated competition to their established rivals. This is most evident in the packaged food industry, which is one market where the rivalry has become particularly intense.
Retailers’ branded goods are often regarded as inferior alternatives and this is reflected in their markedly lower price. But such products have improved to such a degree that to many consumers, the quality differences between national brands and their private label counterparts are now perceived as minimal. With product quality long being used as a means to successfully position and differentiate a brand, this narrowing quality gap makes it difficult to secure a competitive edge just on that basis. An earlier study1 confirmed that only 20 percent of consumers are willing to pay a price premium for a certain brand based on quality alone.
Brand equity
This changing landscape has prompted a greater belief that non product-related brand factors might enable manufacturer brands to more effectively distance their offering from store label brands. A greater understanding of precisely which aspects best motivate a consumer to pay a price premium is needed to understand how a brand is perceived and how this determines its true value – financial or otherwise.
Brand equity is an extensively-researched concept that remains subject to varying definitions and interpretations. But many scholars do agree that consumer-based brand equity is especially important where brand image reflects the knowledge and associations people hold about a brand, and where brand strength is measured in purchase intention, willingness to pay more and loyalty. Price premium products play a key role in signifying brand equity, delivering shareholder value and predicting market share.
Driving forces behind consumer choice
So with product quality losing its strength as a competitive tool, what can manufacturer brands do to ensure they maintain a price premium? In a study published in the Journal of Product and Brand Management2, we investigated the driving forces behind a consumer’s decision to pay more or less for different packaged food brands. We analyzed brand related dimensions such as:
• Brand awareness – being able to readily identify and recognize a brand.
• Perceived quality – the mental belief of consumers regarding the quality of the product.
• Corporate social responsibility (CSR) – customer perceived ethical actions of the company.
• Home country origin – products that originate in the customer’s home nation.
• Social image – status and how brands can help customers to express themselves.
• Uniqueness – achieved through specific brand associations or combinations of them that makes the brand unique relative to other brands.
The brand image and the price premium were captured through a survey of over 350 household food purchasers aged between 20 and 74 who were in charge of the household food budget. The survey included brands from three consumer packaged food categories: bacon, frozen ready meals and rice. These products were chosen because they had a high likelihood of being bought at least once in the last year by every household surveyed. In each category, the market-leading brand, the leading me-too private label and the leading discount private label were chosen in each of the three categories.
Social image is essential
The results verify that all six brand dimensions had a significant impact on price-premium purchases. The two strongest factors in predicting a customer’s willingness to pay a price premium were uniqueness and social image. These factors scored top across all three food categories. Home country origin was the third strongest factor in all categories other than rice. CSR was significant but among the weaker dimensions regarding the impact of customers’ willingness to pay price premiums. Results also proved that consumers are more willing to pay a price premium when non-quality factors augment their perceptions of product quality.
The apparent significance of uniqueness, social image and home country origin reinforces the belief that both tangible and intangible aspects of brand equity are important. Interestingly, the importance of social image is quite a powerful and novel finding – having not been linked to customers’ willingness to pay a price premium before. And while social imagery has often had an important place in the marketing of such products as cars, clothes and wine, this study highlights that social image should certainly be taken into account when differentiating between store brands and manufacturer brands.
The finding that CSR was significant – but among the weaker dimensions regarding the impact of customers’ willingness to pay price premiums – should raise some concerns for those brands whose message is predominantly CSR focused. Justification for charging more for brands emphasizing CSR is typically attributed to higher production costs. Since the impact of CSR was marginal, we believe that such brands might need to strengthen their offering with uniqueness, social image or home country origin messages to achieve success with this pricing policy.
Seeing the full picture
We believe that loyalty and price premium might be driven by different image associations. This means that brand managers should decide what their main objectives are when building a brand’s profile. They are advised to utilize intangibles – like uniqueness and social image – to really distance themselves from their in-store rivals on the pricing dimension but then also focus on quality in order to assure customer loyalty in the long run.
There is a need for all brands – whether national or store – to determine whether their strategic decisions should be based on securing a price premium or loyalty. This would depend on whether the company prioritizes more immediate margins and profitability or attaining revenue volumes over the longer term.
This study reinforces that quality perceptions do not provide the full picture for making customers choose a premium priced product – that when adding uniqueness, a positive social image and local origin to the equation, the ability to understand what drives customers to pay a price premium more than doubled.
It highlights the central idea in brand literature: strong brands evoke both rational and emotional sentiments, which make products less sensitive to competitive action by rivals and ensures that they remain first and foremost in consumers’ minds when out shopping.
1Sethuraman, R. (2003), "Measuring national brands' equity over store brands," Review of Marketing Science, Vol. 1 No.1, pp.1-25.
2Johan Anselmsson, Niklas Vestman Bondesson, Ulf Johansson, (2014) "Brand image and customers' willingness to pay a price premium for food brands," Journal of Product & Brand Management, Vol. 23 Issue: 2, pp. 90-102.