Household income may have a smaller impact on the success of private-label brands than previously believed.
According to big consumer-goods companies, the Great Recession drove people from branded products to cheaper store-brand options—“private-label” products.
But research suggests other factors may have played a bigger role. Chicago Booth’s Jean-Pierre Dubé and Günter J. Hitsch and UCLA’s Peter E. Rossi find a relationship between changes in income and wealth and demand for private-label products—but also find the effect is too small to explain a larger movement away from the Coca-Colas, Frito-Lays, and Pampers of the world.
Drawing on the Nielsen Datasets at the Kilts Center for Marketing, the researchers examined household income and wealth fluctuations from 2004 to 2012 and tracked how those fluctuations affected shopping habits, controlling for changes in products’ prices. Where past research has suggested that a 1 percent fall in real GDP per capita yields a 1.22 percent annual jump in the private-label share of Americans’ shopping baskets, this study finds household income and wealth have a much smaller impact.
Even so, the researchers note that private-label goods are rising as a portion of total consumer-goods expenditure, by a half a percent a year, in a trend that predates the Great Recession.
If income and wealth aren’t driving private-label growth, perhaps private-label manufacturers are making adjustments that lure in customers? The researchers tested whether the introduction of new private-label products or a move toward higher-quality private-label items might have been the root causes of the long-term trend, but find no evidence for either.
What this means for consumer goods companies: at very least, they can’t simply wait for recessions to blow over and bet that rising incomes will bring market share.
Demand may be the key to healthier diets.
What Would Make Americans Eat Better?
It isn’t just the quantity of goods that consumers buy but the quality that matters.
Why ‘Trading Down’ May Bias Our Picture of Inflation
Companies that want to do good might consider personalized pricing.
Is a Fair Price the Same Price for All?Your Privacy
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.