Pricing strategies : optimal price gap between private labels and National Brands

Abstract

The importance of Private Labels for retailers in the modern grocery distribution sector increased their responsibilities when defining price strategies. In recent years the literature has been paying attention to the shift from an inside out to outside in approach when defining prices. This present thesis intents to focus on pricing strategies for Private Labels, centering in the development of a consumer oriented price definition by looking on the optimal price gap between Private Labels and National Brands. Analyzing the Portuguese Market, the goal is to understand the importance of the price comparison between private labels and national brands. The importance of price comparison is essential to understand how the selling price gap will have an influence on consumer’s behavior. The ultimate objective is to be able to give some insights when defining pricing strategies and to understand how manufacturers of national brands can react to competitive moves from retailers. It was concluded that consumers compare more prices within the store than between different stores, enhancing the importance of the price gap as a visible cue with an influence on the consumer behavior. Another conclusion was that the price gap should be tailored according to the nature of the product and the competitive category landscape. Yet, managers should not neglect competitors’ PL prices, because in the end price adjustments should not lead to an overall higher “basket price” compared to competitors, which will be translated as a decrease performance in the price image of the banner.