Perceived Risk and Private Label Purchasing Behavior: An Abstract

Private labels have received much less attention in developing and emerging nations. The aim of this study is to investigate the impact of four types of perceived risk (functional, financial, time and social), familiarity with private labels and perceived quality differences between private labels and national brands on the propensity of supermarket shoppers to purchase Private Labels. The paper is informed by a survey of shoppers in Tesco, the world’s third largest grocery retailer, carried out in China and the UK with an overall sample size of 1062 respondents.

In line with the mere exposure effect, familiarity with private labels reduces all four types of perceived risk. This familiarity reduces perceived quality differences between private labels and national brands only in the UK, whilst it has an opposite effect in China. Perceived financial risk lowers the propensity to purchase private labels in the UK. In contrast, only social risk predicts this propensity in China.

The study indicates that risk associated with private labels is significant in the purchase propensity of PL (Erdem et al. 2004; Mitchell 1998; Richardson et al. 1996). The study also confirms hypotheses regarding country differences. Namely, perceived social risk has a greater impact on the propensity to purchase private labels in China compared to the UK. The level of familiarity has a stronger positive impact on the propensity to purchase private labels in China (emerging market with significant growth potential) compared to more saturated market of UK.

In the mature UK grocery market high levels of consumer familiarity with PL may increase the perceived quality differences between PL and national brands. As the effect in China is in complete contrast, retail managers and international marketers may aim to stimulate awareness of and familiarity with PL in an effort to improve quality perceptions vis-à-vis branded competitors. Retailers in China should develop their brand image rather than focusing on a low-price strategy. Since price and quality are not the only two factors which influence the propensity to buy private labels, retailers should consider reinforcing their brand image and corporate identity which may increase familiarity and prevent them from being considered lesser alternatives. Koschate-Fischer, Cramer and Hoyer (2014) found that when retailers have a large, priced-oriented customer group, private labels can be used as a crucial strategy in order to enhance store loyalty.

The results of the study are confined to one geographic region in each observed nation.