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Over the last four decades, over 700 papers have explored strategies to either increase PL share for retailers or protect national-brand share for manufacturers, with the price gap between PLs and national brands and the inherent characteristics of the product category being the most frequently studied drivers of PL share. Comprehensive reviews of these drivers have been offered by and , among others.

Historically, PLs were seen as inferior to national brands and positioned as low-cost or budget-friendly alternatives. However, over the last decade, many retailers have started to strategically position their PLs beyond just price by also fostering emotional bonds with consumers. A survey from found that 59% of U.S. consumers believe PLs offer an above-average value for their price, indicating a growing appreciation of and emphasis on quality and brand attachment beyond mere affordability. This shift in consumer attitudes is evident across diverse segments. Younger shoppers are increasingly choosing grocery stores based on their PL offerings, demonstrating that store brands are now seen as genuine competitors rather than mere substitutes (). Similarly, high-income consumers are prioritizing PLs at growing rates, with 70% of shoppers earning over $100,000 annually selecting their grocery store based on PL products (Sheehan 2024).

These changes have enabled retailers to prioritize their own labels over national brands. They allocate PLs more favorable in-store placements, such as Costco’s Kirkland Signature products, which are often placed at eye level or in high-traffic areas within the stores. In addition, retailers are promoting PLs through targeted discounts and loyalty programs. For example, Kroger regularly offers 10%–20% discounts on its Simple Truth organic PL line through digital coupons, while Walmart+ members receive exclusive savings on select Great Value products. This prioritization of PLs, often at the expense of national brands, is particularly visible in online platforms, where the practice of self-preferencing—where a retailer’s own brands are favored over third-party brands—has sparked significant antitrust scrutiny (). As a natural outcome of these strategic evolutions, some PLs, such as Costco’s Kirkland and Loblaw’s President’s Choice, have become trusted brands in their own right and are no longer viewed as mere budget options.

Following these evolutions, academic research on PLs has also shifted, moving from a value-based focus to a more quality-centered approach, where various elements of the branding toolkit are gradually being infused and explored. This transformation, known as “PL brandification,” has unfolded in three key steps: first, a focus on quality as the initial step toward PL brandification; second, differentiation as a critical next phase; and finally, the full embrace of PL branding as the third and most advanced stage in this transformation.

A Focus on Quality: The First Step Toward PL Brandification

Already more than twenty years ago, seminal paper in the Journal of Marketing Research emphasized that product quality should be a critical factor in PL strategy. Their findings show that in markets where consumers are sensitive to quality and where inertia affects brand choice, a quality-focused PL strategy enables retailers to succeed. In contrast, a “cheap and nasty” PL approach intensifies price competition. Crucially, they argue that PLs must exceed a certain quality threshold to build long-term profitability.

After improving PLs’ objective quality, it is essential that consumers also perceive a reduced quality gap between PLs and national brands. demonstrate that in countries in the PL development stage, marketing tactics such as advertising and distinctive packaging are especially effective in managing the perceived quality gap between PLs and national brands. In contrast, in PL-mature countries, focusing on manufacturing fundamentals is more impactful, as the belief that national-brand manufacturers produce PLs is more effective in reducing the perceived quality gap than in PL-development countries. Not surprisingly, in mature PL markets like Spain, retailers are likely to heavily rely on national-brand manufacturers as their PL suppliers. This is evident as more than 70% of PL suppliers across all retailers in Spain are dual branders, producing both national brands and PLs (). Another way to foster this belief may be through copycatting. show that copycatting increases consumers’ preference for PLs. Yet, when a well-known retailer name appears on a copycat product, this may inadvertently weaken the appeal of the imitating PL.

However, the dissemination of these insights has not been uniform across the globe. While some regions have embraced quality-focused strategies, others have been slower to adopt these approaches. In particular, the quality gap between PLs and national brands remains significant in the United States and emerging markets. According to , PLs have not yet achieved quality equivalence with national brands in these regions, limiting their competitive potential and consumer acceptance compared with more mature markets.

Differentiation: The Second Step Toward PL Brandification

As PLs evolved beyond their initial focus on price, differentiation emerged as a crucial strategy in shaping their competitive positioning. were among the first to introduce the notion of differentiation as a key factor in explaining how PLs should position themselves relative to national brands. According to their framework, when national brands are differentiated, a high-quality PL should align itself closer to the stronger national brand, while a lower-quality PL should position itself closer to the weaker national brand. However, when national brands are undifferentiated, PLs must distinguish themselves from both stronger and weaker competitors. Importantly, PLs cannot afford to remain undifferentiated in terms of either quality or features if they wish to remain successful. As such, their work hints at two distinct paths for differentiation: vertical differentiation, which focuses on quality tiers such as economy, standard, and premium PLs, and horizontal differentiation, which emphasizes unique product attributes. We now turn to the academic work that further explores these two differentiation paths in greater depth.

Vertical Differentiation on Quality

Acknowledging the importance of quality differentiation, many retailers now offer multitier PLs, as illustrated in Figure 1 for two leading retailers, Tesco and Kroger. Standard PLs (depicted in the middle column) typically mimic mainstream national brands by offering comparable quality at lower prices, while premium PLs (shown in the right-hand column) offer superior quality at higher prices, often with unique ingredients, flavors, or packaging. In contrast, economy PLs (shown in the left column), focus on cost reduction by cutting back on expensive ingredients, allowing retailers to pursue enhanced quality without neglecting the economy-seeking segment of their shoppers.

Figure 1
Examples of vertically differentiated PL lines

Many retailers have fully embraced this shift, moving away from a single-tier PL approach. In the United Kingdom, premium PLs already account for 8.4% of total PL sales, while economy-tier PLs make up 4.7% (). This strategy enables retailers to capture a broader audience, from budget-conscious shoppers to high-end consumers seeking premium PL alternatives. Ultimately, this results in a product portfolio that is vertically differentiated in both price and quality, but it must be carefully managed to avoid unintended cannibalization (; ).

While PL tiers help retailers cover the full price–quality spectrum, their introduction may also trigger cannibalization. Economy PLs may pull customers from both national brands and higher-tier PLs, while premium PLs can challenge premium national brands. Geyskens, Gielens, and Gijsbrechts (2010) suggest that to minimize cannibalization, retailers should counter the brand-type similarity effect by positioning PL tiers on different shelves or using stand-alone brand names instead of subbrands. Interestingly, national-brand manufacturers’ concerns about PL proliferation are often overstated. find that PL tiering can sometimes even increase national-brand choice share. Premium national brands should emphasize quality and avoid price cuts, while mainstream national brands should leverage mixed displays alongside other PLs and national brands to encourage favorable consumer comparisons.

What should the quality levels of multitier store brands be? suggest that retailers align the quality of their different PL tiers with national brands to reach all types of consumers. This approach helps reduce overlap between their own PL products, but it increases competition with national brands. Although this added competition can affect profitability, retailers can manage it by carefully adjusting the prices of both their PLs and national brands. In fact, with their control over pricing, retailers can even position one of their PLs as the top-quality choice. However, when national brands dominate a category, retailers may allow a national brand to take the top spot, ensuring their PLs can still appeal to a wide range of consumers.

Horizontal Differentiation on Features

As PLs evolve, retailers are increasingly turning to horizontal differentiation to stand out in the market. A key approach involves incorporating nontraditional, intangible attributes such as organic, eco-friendly, health, and fair trade into their PL offerings. Figure 2, for instance, highlights how Carrefour prominently emphasizes the organic attribute within several of its food categories. Similarly, Tesco prioritizes the eco-friendly attribute in some of its nonfood categories, while Kroger underscores health through its Simple Truth product line, which is distinguished by the avoidance of unwanted ingredients.

Figure 2
Examples of Horizontally Differentiated PL Lines

In this respect, highlights the growing trend of introducing organic PLs. These PLs are horizontally differentiated from conventional standard PLs by offering unique qualities that only appeal to some consumers. By focusing on such attributes, retailers can compete more effectively with (organic) national brands and lower the risk of cannibalizing their existing PL lines.

As PLs increasingly benefit from horizontal differentiation, their new product lines are becoming strategic weapons not only to sustain their own sales but also to steal share from leading national brands. Over 80% of grocery retailers identify innovation as the top strategy for growing PL market share (). For instance, Target’s Good & Gather has introduced over 2,500 new PL products, while Kroger launched 680 new items in 2023 and Albertsons added more than 800 PL products in 2021. In Spain, Mercadona operates 23 “co-innovation centers” that test 11,000 products annually, showcasing a sophisticated, data-driven approach to product development ( et al. 2024). Research by demonstrated that standard PLs, in particular, are more likely to compete directly with national brands, with their new product introductions effectively capturing share from both rival national brands and other PL tiers within the retailer’s portfolio.

PL Branding: The Third Step Toward PL Brandification

To transform PLs into true, competitive brands, retailers must take an additional leap beyond quality improvement and differentiation by fully embracing comprehensive branding strategies. highlight that while consumers expect PLs to perform well, they are still less likely to choose them over national brands due to their deep-rooted loyalty to established national-brand names. To fully capitalize on their PLs’ potential, retailers must therefore integrate more branding elements into their strategies. Doing so can help break through the aforementioned brand-loyalty barriers and create stronger, lasting consumer connections with PLs. Both brand naming and advertising play a crucial role in this transformation.

Naming PLs

To build effective PL brands, retailers must carefully choose brand names that enable consumers to more easily differentiate among various PLs. After all, the key to branding is that consumers perceive differences among brands within a product category. An important decision for retailers involves whether to align their PL brands with the store banner or use a stand-alone brand name. With store-banner branding, the link between PL product and retailer is explicit, enhancing the likelihood of positive spillover effects. Germany’s Edeka, for example, has its banner name in the naming of both its economy (Edeka Gut & Günstig) and premium (Edeka Genussmomente) tiers, consistent with the branding strategy used on its long-standing standard tier (Edeka). The Spanish retailer Mercadona, in contrast, opted to use the stand-alone name “Hacendado” for its standard PL products in the ambient and frozen food categories.

For the standard tier, , using a survey in Germany, conclude that store-banner branding increases PL recognition and PL attitude. demonstrate the benefits of store-banner branding for standard PLs by examining a Dutch retailer’s strategic relaunch of its entire standard PL portfolio. Overall, the PL rebranding was a success, with PL sales soaring by 27% in the first quarter after rebranding, and profits also experiencing an increase. The rebranding initiative drove PL growth in product categories where PLs are traditionally weaker than national brands. By leveraging its banner name on its standard PL, the retailer effectively capitalized on its strong reputation.

For the economy and premium tier, studied a large pan-European sample of over 220 PL-branding decisions made by over 150 retailers across more than 25 countries. They conclude that retailers benefit most from store-banner branding their premium PLs when they possess high brand equity or follow a hi–lo price format. However, for retailers with lower equity or an everyday-low-pricing strategy, stand-alone branding for the premium tier becomes more effective.

Importantly, even when using stand-alone branding, retailers can benefit from using a common (umbrella) brand name for all categories, rather than working with multiple category-specific brand names, as this may facilitate consumers’ mental categorization and credibly signal positive intercategory quality correlations. studied three substantially different retailers that switched to an umbrella brand name for one of their (economy or standard) PL tiers. Figure 3 shows in this respect how SPAR, a leading Dutch convenience store chain, switched from a diffuse set of category-specific brand names to a single unified name, “OK€.” In all three instances, the rebranded PL tier’s intrinsic brand strength increased.

Figure 3
SPAR’s Rebranding of Category-Specific Brand Names to a Single Unified Name

Advertising

As a final frontier in branding, PL retailers can explore advertising to elevate their PLs. Historically, PLs relied on price and shelf placement to drive purchases, since advertising campaigns for a wide variety of PLs across various categories were seen as cost-prohibitive. Recently, however, Kroger invested $2.5 million in an advertisement highlighting its PL products. In this campaign, it seeks to complement its core focus on value and product features with stronger attitudinal and emotional appeals (see Figure 4, Panel A).

Moreover, the rise of social media and new retail advertising platforms offers fresh opportunities for cost-effective advertising. For example, Kroger actively leverages its Instagram account to prominently feature its PL products in an engaging and entertaining manner while also providing additional product information (see Figure 4, Panel B). This approach reflects a broader trend among leading retailers, who are increasingly using digital channels to tell the stories behind their PLs. These narratives often highlight key aspects such as ingredient sourcing, production methods, and product origins, enabling brands to deepen consumer engagement and build trust while distinguishing their offerings in a competitive market. Such efforts help create stronger brand awareness and build emotional connections. Yet, the academic study of advertising’s role in PL branding remains largely unexplored, opening new avenues for research in this area. Szymanowski and Gijsbrechts (2012), for example, found that a retailer’s PL is not entirely private, in that consumers use their positive experiences with one PL to upgrade their beliefs about rival retailers’ store brands. It would be interesting to study to what extent messages with different content, or through different media (see also ), may help to better appropriate advertising’s branding benefits.

Figure 4
Examples of Kroger’s Advertising Campaign Dedicated to Its PLs

Conclusion

The transformation of PLs into fully-fledged brands, holding significant equity on their own account, unfolds in three steps prioritizing (1) quality, (2) strategic differentiation, and (3) full-scale branding.

First, quality remains the foundation of successful PL strategies. Retailers must ensure their PLs consistently meet or exceed consumer expectations to foster long-term loyalty. Beyond objective quality improvements, bridging the perceived quality gap is equally critical. In markets where PLs are still developing, advertising and distinctive packaging are effective tools to enhance perceived quality, whereas in PL-mature countries, leveraging consumer beliefs that PLs are produced by trusted national-brand manufacturers plays a more significant role.

The second step in PL brandification is to differentiate with purpose. Retailers achieve this through a two- or three-tiered approach, structuring PL portfolios into economy, standard, and/or premium tiers to cover the price–quality spectrum. At the same time, they may harness the power of horizontal differentiation by embracing attributes like sustainability, fair trade, and ethical sourcing. This approach positions PLs as compelling alternatives to national brands while curbing the risk of cannibalizing existing products.        

The third and final step in PL brandification is to choose the PL’s brand name wisely. Aligning the naming strategy with each tier’s objectives is crucial—while a banner-aligned name reinforces trust and strengthens the retailer’s overall brand image, a stand-alone name can provide greater flexibility, particularly for premium tiers seeking independent positioning. In addition, the naming strategy should align with the store’s format. In a hi–lo pricing model, store-banner branding is particularly effective for premium PLs, leveraging positive spillover effects from the retailer’s reputation. Conversely, in everyday-low-price formats, stand-alone branding for premium tiers helps create a distinct premium perception without overly relying on store credibility. Retailers should also evaluate the benefits of umbrella branding, as using the same brand name across an entire PL tier can reduce consumer uncertainty and enhance the overall sales performance of the PL brand.

As PLs continue to evolve, several research gaps warrant further exploration. First, the role of advertising in PL brandification remains an open question. It is unclear how different advertising strategies—such as storytelling, influencer partnerships, or targeted social media campaigns—affect consumer perceptions of PLs. Further research could explore how advertising effectiveness varies by PL tier. Understanding the long-term impact of PL advertising on PL equity would provide valuable insights for both retailers and researchers.

Second, while prior work has examined individual elements such as tiered pricing and store-banner branding, there is limited understanding of how these elements interact with shelf positioning, promotional intensity, and category management to influence the PL brand’s equity. For example, does a premium PL benefit more from prominent shelf placement than a standard-tier PL, or do price promotions have a stronger impact on lower-tier PLs? A more integrated perspective on these dynamics could help retailers optimize their PL strategies to maximize brand equity.

Finally, the rise of e-commerce and algorithm-driven recommendations raises new challenges and opportunities for PLs. Online environments enable new forms of self-preferencing, where retailers promote their own PLs over national brands, a practice that has drawn increasing regulatory scrutiny. Future research could explore the effects of digital shelf placement, targeted advertising, and algorithmic bias on PL success, shedding light on how these strategies influence consumer decision-making and retailer performance in an increasingly digital landscape.

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In a , we find that a higher level of air pollution is associated with greater spending. A quantitative analysis of credit card usage data and experimental evidence further reveals that this correlation is pronounced in hedonic (pleasure-seeking) categories, as products and services in these categories tend to lift the mood of consumers.

Benefits for Retailers

There are several notable ways retailers can benefit from an increase in consumer spending for hedonic categories. We define managerial implications for this group of stakeholders into two broad categories:

1. Promotion and advertising, and
2. Corporate social responsibility and brand image building.

An increase in demand linked to air quality fluctuations presents an opportunity for retailers to develop tailored marketing strategies. Marketers can consider the following examples:

• As soon as the rise in air pollution is noted from the Air Quality Index (AQI) tracking, retailers can leverage displays or signage catering to hedonic consumption and comfort. In-store events, such as a hobby workshop or a wellness product demonstration, can be planned in advance and ready to deploy at the opportune time.

• Retailers can adjust store ambiance (e.g., music and in-store decorations) to serve current customer preferences more proactively.

• Retailers can prepare point-of-sale promotions during periods of high air pollution. These may include instant markdowns, special offers on mood-lifting items, or bundles that include hedonic items of increased demand.

• Retailers may also want to provide sales promotions to counteract an anticipated shrinkage in spending the day following higher air pollution (to correct for overspending) or from big spenders (who are less likely to spend after exposure to pollution).

Ideas for Chief Marketing Officers

Given the ambient nature of air quality, marketing strategies leveraging our results should be capable of quick and effective deployment over a short planning horizon. Chief marketing officers can consider implementing the following ideas:

• Employ digital marketing tactics such as online ads, social media, or customized content. These may include:
  • i) localized display or search ads for products offering enjoyment and comfort, such as gourmet snacks, entertainment gadgets, wellness products, or feel-good promotions on social media, and
  • ii) customized content, such as timely emails advertising leisure activities.

• Improve corporate social responsibility and brand image. For example, a company may want to launch a campaign that emphasizes the importance of self-care to address the effect of air pollution on individual well-being. They may partner with healthcare and wellness experts to generate content and resources that help consumers navigate stress and health concerns related to air quality. This campaign can tie into the idea that indulging in hedonic products responsibly is part of self-care during significant air quality drops.

• Develop a line of hedonic goods and services that are environmentally sustainable, including organic luxury comfort foods or ecofriendly leisure activities. This initiative aligns with the increased demand for such items during periods of high air pollution and reinforces the company’s commitment to sustainability.

Implications for Policymakers

This research is also valuable to policymakers for designing environmental and socioeconomic regulations.

• First, our main findings of increased spending due to deteriorating air quality raise public awareness about a major environmental crisis and its consequences for daily life, making the issue more relevant and urgent. Accordingly, policymaking institutions can develop campaigns that associate air quality with everyday consumer choices and illuminate how environmental health contributes to individual well-being and economic stability.

• Second, increased spending might lead to social costs for the general public, such as overconsumption of pleasure-seeking categories. Insights from this research should help consumers be cautious of their continual and habitual consumption of hedonic goods and services during periods of higher air pollution, while policymakers can promote healthier and more environmentally conscious alternatives.

• Third, our study has implications for household economics in that pollution-induced incidental spending, particularly overspending, may result in the accumulation of revolving debt.

• Finally, our study suggests an opportunity for industry collaboration involving retailers and manufacturers. Joint campaigns could support the development of sustainable practices, providing incentives for consumers to engage in more sustainable consumption (e.g., emphasizing the benefits of sustainable products) and ecofriendly practices (e.g., highlighting the benefits of eco-friendly transportation), hence promoting responsible consumerism.

Overall, we advocate for the execution of marketing strategies with a strong focus on sustainability, aiming to balance business profits with societal values in the face of escalating environmental challenges and practice more responsible marketing for a better world.

Source: Sanghwa Kim and Michael Trusov, “,” Journal of Marketing.

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When customers choose BNPL installments at the checkout of a participating retailer, the bill is paid in full by the BNPL provider to the retailer. Customers pay the BNPL provider for the first installment at the time of purchase and repay the remaining interest-free installments over a short time period.

However, despite the growing popularity of BNPL installment payments, little is known about their impact on retail sales.

In a , we use transactional data from a major U.S. retailer and find that BNPL installment payments boost spending. By allowing customers to pay for purchases in smaller, interest-free installments, BNPL boosts both the number of purchases and the average amount spent.

We compare installment payments with upfront and delayed lump sum payments. We find that BNPL installment payments consistently boost spending across various products (e.g., party supplies, apparel, flights, mugs, coffee pods) and number of installments (e.g., three installments, four installments, six installments).

The Power of Perceived Financial Constraints

We uncover two main reasons why BNPL installment payments lead to more spending:

1. BNPL’s impact on spending stems from alleviating perceived financial constraints. In particular, BNPL installment payments increase spending among customers who previously relied more on credit cards and tended to buy smaller baskets of goods. Customers who pay in BNPL installments feel less financially constrained than those who pay an equivalent amount in a lump sum, both upfront and delayed. Customers may focus on the segregated installments (“four installments of $15”) and judge these as less costly than the aggregate term (“total cost of $60”). By alleviating perceived financial constraints, BNPL installment payments encourage customers to spend more.
   
   
2. Moreover, BNPL facilitates budget control. It is often easier to estimate budgets for shorter time frames (”next month”) than for longer time frames. Unlike traditional credit card payments (a single lump sum due at the end of the month), installment payments are segregated into shorter time frames (four weekly payments). By highlighting a shorter time frame, BNPL can give customers a sense of greater control over their budgets. By making payments appear less costly and facilitating budget control, we discover that BNPL installment payments feel less financially constraining. Consequently, this reduction in financial constraints translates into greater spending.

Previous studies have focused on framing prices in aggregate terms ($60/month) or segregated terms ($15/week) and demonstrated that segregating versus aggregating prices has consequential effects on perceptions and purchase intentions. Our work differs from these studies in the following ways.

• BNPL installments go beyond segregated price frames, requiring customers to make actual segregated payments across the specified time periods (”Pay $60 in four biweekly installments of $15”).
• Our research leverages transactional retailer data to study how segregating payments into BNPL installments impacts customers’ actual spending over time. This further enables us to answer managerially relevant questions about how shoppers will likely change their spending (i.e., depending on historical basket size and credit card use).
• Segregating payments makes customers feel more in control of their budgets, alleviating perceived financial constraints. By working through additional mechanisms, our effects not only apply to recurring consumption (e.g., car leases) but also generalize to purchases consumed on a one-off basis (e.g., a flight ticket)

Lessons for Chief Marketing Officers

Our research offers actionable insights for various stakeholders:

• Consumers can benefit by using BNPL installments as a tool for managing expenses by making them feel more in control of their budgets and less financially constrained.
• Retail managers should consider integrating BNPL options to boost sales. Retailers benefit because adoption of installment payments leads to more frequent purchases and larger basket amounts. The difference is significant, with an increase in purchase incidence of approximately 9% and a relative increase in purchase amounts of approximately 10%.
• Policymakers need to be aware of the significant impact BNPL has on consumer spending to ensure that regulations protect consumers while fostering financial flexibility.
• Societal stakeholders, including consumer advocates, should monitor BNPL’s growing influence to promote responsible spending practices.

Understanding the benefits and potential risks associated with BNPL is crucial as this payment method continues to reshape the retail landscape.

Source: Stijn Maesen and Dionysius Ang, “,” Journal of Marketing.

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This trend raises important questions: How does the shift to ODS affect customers’ behaviors and online retailers’ sales performance? When should online retailers venture beyond their core business of retailing to offer ODS, and why? Despite growing interest in the last-mile problem and the emerging ODS practice adopted by online retailers, no study has examined the impact of ODS on customer purchases and its value for online retailers. ODS remains an unresearched business phenomenon because major online retailers usually do not share transaction data.

In a , we overcome this obstacle by obtaining customer-level data on the ODS phenomenon with 250,055 customer transactions over 10 years across 416 cities and 49 product categories from JD.com. Furthermore, we complement our research with over 6.7 million customer reviews. This access to rich data offers a rare opportunity to understand the ODS phenomenon.

The Value of ODS

Our study is the first to empirically estimate the sales impact of ODS and demonstrate the effectiveness of self-ownership delivery service. We show that ODS is a profitable strategy in the long run by not only improving delivery quality but also by building customer trust. With third-party delivery service providers, when consumers receive damaged products, it is hard to know where to pin blame because the product may be damaged before delivery (when the online retailer is responsible) or during the delivery process (when the third-party delivery supplier is responsible). With ODS, the online retailer takes full responsibility for product damages or other delivery issues. Consequently, consumers face low online transaction risks, and ODS helps build consumers’ trust in online retailers and increases purchases.

Our results show that, at the individual customer–level, ODS increases customers’ monthly spending by 7.8%, purchase frequency by 4.2%, and the number of items purchased by 5.1%. At the city level, ODS results in an average aggregate sales growth of 11.9% and is larger in cities with a lower level of customer trust than in cities with a higher level of customer trust. Additionally, ODS has greater value for infrequent buyers, higher-risk product categories, and JD’s own products. Our analysis further reveals that ODS not only improves delivery quality but also builds customer trust, which together increase customers’ purchases.

Lessons for Chief Marketing Officers

ODS is a profitable strategy in the long run because it helps an online retailer acquire more active customers and increase customer purchases. JD’s annual reports disclosed that it had 47.4 million and 90.6 million active customer accounts in 2013 and 2014, respectively, and that the average consumer growth rate was more than 90% between 2010 and 2013 and 50% between 2010 and 2020. Thus, the ODS effect can be expected to be much larger if we account for the growing customer base.

When should online retailers offer ODS?

• ODS works better in cities or markets with lower levels of customer trust. This suggests ODS is even more important for online retailers in emerging markets (e.g., JD in China, BigBasket in India).

• ODS works better for customers with less purchasing experience. This suggests that online retailers should start ODS in regions with many potential new customers. For example, Alibaba provided ODS in Brazil as part of its effort to expand into the Latin American market.

• ODS has a greater impact on high-risk product categories. This suggests that the self-ownership model is more suitable for high-risk products, such as perishable goods. Online grocer Ocado adopted the ODS model in the UK; Walmart acquired Parcel and started using its own delivery network to deliver fresh, frozen, and perishable food; and Amazon uses ODS for fresh grocery and food delivery.

• Finally, ODS generates more sales for JD’s products than third-party products. This suggests that online retailing platforms can expand ODS for third-party sellers by offering services like Fulfillment by Amazon, in which sellers are provided storage, packaging, and shipping assistance. Sellers can ship their merchandise to an Amazon fulfillment center, where items are stored in warehouses until they are sold.

Source: Banggang Wu, Yubo Chen, and Prasad A. Naik, “,” Journal of Marketing.

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In the fast-paced world of retail, marketers are constantly seeking innovative strategies to capture consumer attention and drive sales. Time scarcity promotions are powerful tools that allow brands to break through the noise and create a sense of urgency that compels customers to take immediate action. These promotions typically involve offering discounts, deals, or exclusive offers that are only available for a specific period or until a certain deadline. Common examples of time scarcity promotions include flash sales, limited time offers, countdown timers, and expiring discount codes. By emphasizing the limited availability of the offer, time scarcity promotions aim to drive consumer interest, increase conversion rates, and stimulate immediate action.

Such strategies are mainstays in both brick-and-mortar and online retail contexts—but can firms expect the same level of effectiveness in both settings?

Time Scarcity Promotions Online Versus Offline

A by Jillian Hmurovic, Cait Lamberton, and Kelly Goldsmith sheds light on the efficacy of these promotions. The authors explored the effectiveness of time scarcity promotions in online retail compared to offline, while also examining the optimal implementation strategies in the online context.

Contrary to previous findings in brick-and-mortar settings, this research suggests that the positive effects of time scarcity promotions may not be as robust in online settings. The findings show that online time scarcity promotions tend to be less effective than promotions without time limits, largely due to the activation of increased persuasion knowledge by consumers (i.e., consumers online are more aware that the retailer is trying to persuade them with a promotion). Furthermore, the study reveals that online time scarcity promotions can be more effective when the justification for the time limit is outside of the retailer’s control, such as when the promotion involves a consumer’s birthday, a holiday, or a change of season.

Online time scarcity promotions can be more effective when the justification for the time limit is outside of the retailer’s control, such as when the promotion involves a consumer’s birthday, a holiday, or a change of season.

However, the authors caution against assuming that online time scarcity promotions will consistently outperform identical online control promotions. They emphasize the need for careful managerial implementation and further research to better understand the optimal translation of offline tactics to the online retail environment. In a time when marketers face tightening budgets and high demands, understanding the limits of offline promotions in the online world may be critical for retail success.

To further explore the dynamics involved in time scarcity promotions, we interviewed the authors for some behind-the-scenes insights into the research process and findings:

Q: What phenomena inspired you to study online time scarcity promotions? How did you develop the idea for this research paper? 

A: A key inspiration for this paper came from observing the disconnect between how time scarcity promotions are implemented in the contemporary marketplace and how time scarcity promotions have been studied in the marketing literature. Time scarcity promotions are widely used online, yet much of the empirical work in this area predates the proliferation of e-commerce and examines time scarcity promotions intended for offline retail contexts (e.g., newspaper inserts, physical coupons, supermarket flyers, and print advertisements). To date, limited marketing literature has directly examined time scarcity appeals in their contemporary online forms. Because of the transformative changes the internet has had for the retail marketplace, consumer experience, and promotion implementation, this raised questions about the applicability of pre-internet, offline effects to the modern-day, online retail context. Ultimately, these questions spurred a deeper exploration of time scarcity promotions and, more generally, an interest in online retailing and communications.

Q:  What are the main implications of this research for managerial decision making?

A:  The research offers several practical insights. For one, results suggest time scarcity promotion tactics may be relatively less effective when implemented in online retail contexts compared to offline retail contexts. Furthermore, findings suggest that online time scarcity promotions can activate more persuasion knowledge than identical control promotions. Critically for marketers, however, providing justification for the online promotion’s timeframe that is exogenous to the retailer can produce positive effects. As such, marketers attempting to translate traditionally offline promotional tactics to the online environment may therefore want to consider the online context’s nature and consumers’ persuasion knowledge schema. In addition, retailers wanting to implement time scarcity promotions online may benefit from justifying the deal’s limited timeframe in terms of an event that is not under the retailer’s control. More broadly, and perhaps more importantly, the findings also suggest that retailers implementing online time scarcity promotions may want to temper their efficacy expectations. In this article, positive effects of online time scarcity promotions primarily emerged in relatively costless engagement activities, typically occurring early in the purchase funnel, such as opening an email or clicking a Facebook ad. This suggests online time scarcity promotions might be better utilized as part of marketing promotion strategies aimed at building awareness rather than immediately driving sales.

Q: Your research explores the (in)effectiveness of time scarcity marketing promotions in the online retail context. Did you identify any cognitive or emotional processes that were particularly influential in driving consumer responses to time-limited offers?

A: Our study focuses on persuasion knowledge activation, predicting that online time scarcity promotions activate more persuasion knowledge than identical control promotions. Despite its theoretical importance and practical usefulness, persuasion knowledge is not the only difference between offline and online retail contexts that might affect offline-to-online promotion translation. The article also discusses three additional critical psychological differences between online and offline retail contexts that warrant further exploration: search costs, experience of psychological distance, and arousal.

Q: Your research provides generalizable findings across various product categories. It is also important to note that consumers’ expectations and behavior toward services may differ from those toward products. Do you anticipate similar outcomes for services, and if so, why?

A:  At least two of the studies in the article involve products that possess experiential features (e.g., recording music, delivering food); however, it remains an open empirical question whether providing a retailer-exogenous justification for the time restriction associated with an online time scarcity promotion similarly enhances consumer interest for services. The paper’s predictions suggest that to the extent that the online time scarcity promotion for services similarly activates persuasion knowledge, one would anticipate a similar pattern of results to emerge. By the same logic, however, identifying distinct features of services (vs. material goods) that theory suggests could alter persuasion knowledge activation may reveal specific testable hypotheses to investigate. As noted in the paper, future work needs to continue to examine the various moderators of online time scarcity promotions and their efficacy. To that end, probing the product category represents a natural extension of such efforts.

Q: To what extent do you view positive customer reviews as a means to mitigate the negative impact of time scarcity promotions on consumers’ persuasion knowledge? Considering that time constraints can divert attention from the true value of a deal, would you perceive positive customer reviews as a potential remedy for such distractions?

A: Although specifically examining the role of customer reviews was beyond the scope of this work, this speaks to the bigger question of how marketers can increase the likelihood that online time scarcity promotions are effective. Our article suggests incorporating elements that reduce persuasion knowledge activation can, under some conditions, increase the effectiveness of online time scarcity promotions. Although the article purposely focuses on aspects of the online time scarcity promotion that marketers can directly alter (e.g., justification for the time limitation of the discount, time remaining until expiry), future research could focus on features of the online retail context over which marketers have comparatively less control (e.g., user-generated customer reviews). It’s possible that positive customer reviews may offset persuasion knowledge activation in ways that can increase the efficacy of online time scarcity promotions, for example by enhancing the online retailer’s credibility, reducing perceived purchase risk, or providing social proof, although such effects may depend on the degree to which consumers perceive positive customer reviews to be authentic and free from retailer influence. Ideally, continued systematic exploration will provide a richer and more comprehensive understanding of the various contextual, promotional, and methodological moderators of online time scarcity promotions. There remains much to be explored!

Q: Your research article offers two field studies. Can you reflect on the process of developing partnerships with companies? Are there any tips (and/or pitfalls) for researchers and practitioners on implementing these partnerships? What benefits can companies get when partnering with academics to endeavor research? Can you cite specific outputs that the companies received in this research project?

A:  Developing successful partnerships with companies can be challenging, particularly for early-career academics; however, there are multiple ways to foster such collaborations. Examples include reaching out to colleagues, professional contacts, or alumni who may have connections with companies interested in research partnerships; attending conferences or seminars that provide opportunities to initiate conversations with professionals about potential research collaborations; joining interdisciplinary research teams investigating complex issues with established industry partners; and organizing informal interviews with industry professionals about their firsthand insights and ongoing challenges related to the phenomenon of interest. 

Companies can derive several potential benefits from partnering with academics. A few include accessing specialized expertise, skills, and tools that may not be readily available within the organization; developing innovative practices and interventions supported by rigorous research methodology and analysis; conducting research experiments that would otherwise be too difficult or costly to conduct independently; and tackling specific challenges facing the company while concurrently enhancing the firm’s reputation within the industry.

Although specific outputs will depend on the nature of the collaboration, it’s common for companies engaging in research partnerships to receive outputs such as research reports and briefs, data analysis code and results, detailed recommendations, and insights, as well as presentations showcasing findings and impact.

Read the full article:

Jillian Hmurovic, Cait Lamberton, and Kelly Goldsmith (2023), “,” Journal of Marketing Research, 60 (2), 299–328. doi:.

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Across the globe, over one billion individuals—including 650 million adults, 340 million teenagers, and 39 million children—are considered obese (). This number is still rising, and with dangerous expected outcomes. According to the World Health Organization, by 2025, 167 million adults and children will have worsening health due to being overweight or obese. Consequently, regulatory bodies around the world are working to combat this issue. Professors Max J. Pachali, Marco J.W. Kotschedoff, Arjen van Lin, Bart J. Bronnenberg, and Erica van Herpen study such a regulation in Chile to develop a model that sheds light on the impact of warning labels on cereal prices. Their reveals a fascinating trend: Labeled cereals experience price hikes, while unlabeled products either witness a decrease in price or only marginal price increases. This intriguing finding presents compelling evidence that price-sensitive consumers remain within the unlabeled product category.

In 2016, Chile took a pioneering step by becoming the first country to enforce a mandatory, nationwide policy requiring nutrient warning labels on the front of product packaging (). Focusing on this crucial issue, the researchers delved deep into the multifaceted nature of the problem, with a particular emphasis on its impact on lower-income groups. Their study unveils the intricate dynamics between nutrition, economics, and consumer behavior, shedding light on a fascinating interplay. By peeling back the layers of this complex phenomenon, the article uncovers valuable insights that prove indispensable to both academic scholars and industry practitioners seeking a comprehensive understanding of how warning labels might influence pricing dynamics

Prices Align with Policymakers’ Intentions

The authors’ findings reveal an unexpected outcome in response to the warning label regulation: a price equilibrium that aligns with the objectives of policymakers. Notably, cereals deemed less healthy and labeled as such experience a significant loss in market share, whereas their healthier, unlabeled counterparts witness a substantial gain. In other words, firms increase the prices of unhealthier (labeled) products and drop or increase less the prices of healthier (unlabeled) products—a striking and perhaps unexpected pattern that is driven by the way different consumers respond to the warning labels.

Firms increase the prices of unhealthier (labeled) products and drop or increase less the prices of healthier (unlabeled) products—a striking and perhaps unexpected pattern that is driven by the way different consumers respond to the warning labels.

The adjustment of prices plays a pivotal role in this equilibrium. From a policymaker’s perspective, one of the most notable discoveries is the substantial impact of price changes on products with calorie and sugar labels. Furthermore, the study highlights that equilibrium price adjustments result in significant shifts in demand for unlabeled cereals. The research demonstrates that a mere .44% increase in market share for unlabeled cereals translates to a remarkable 12% of their total market share within the new equilibrium established post-regulation.

We had the privilege of conducting an insightful interview with the authors, who generously shared captivating perspectives on their research for this article. Brace for an extraordinary journey that unveils the covert strategies of the market, where labeled cereals encounter the daunting challenge of skyrocketing prices:

Q: Most research on nutrition labels in marketing has focused on changes in consumer behavior. What prompted you to study the effect of a warning label mandate on both consumer and manufacturer behavior?

A: The goal of the warning label regulation in Chile was to stimulate healthier product choices. In particular, policymakers targeted consumers with lower socioeconomic standards who often have less knowledge about a healthy diet and often have limited access to healthcare. However, the intended goal of the regulation may backfire if manufacturers responded by, for example, lowering the prices of labeled (unhealthier) products to compensate for the negative utility shock triggered by the warning label mandate. In this case, consumers with lower income (often more price sensitive) would face additional incentives to purchase unhealthier products. However, in our case, we find that the effect of the regulation is even amplified as more price-sensitive households updated more negatively on labeled products (referred to as a “composition effect” in the manuscript). Because of this, labeled cereals face a larger portion of less price-sensitive consumers than before, rationalizing raised prices after regulation. These price responses amplify the effect of the regulation as it becomes even more unattractive for low-income consumers to purchase unhealthy cereals. As the direction of price adjustments is usually unclear a priori, it is thus important to account for the supply-side’s adjustments of prices for judging the effectiveness of a public policy intervention, such as the warning label introduction in Chile.

Q: The U.S. is one of the countries with an obesity epidemic. Considering the cultural and socioeconomic differences between countries like the United States and Chile, do you think similar behavior would be encountered in the U.S.?

A: Our main finding that firms increased prices of unhealthier and labeled cereal products was derived using a structural model of optimal consumer and retailer behavior. Our findings thus provide guidance for predicting the likely direction of price adjustments in other markets if policymakers can, for example, anticipate which consumers will be most responsive to the introduction of warning labels: price sensitive (generally lower socioeconomic groups with lower income) versus less price sensitive (higher socioeconomic groups with higher income). To gain ex-ante knowledge of whether this might also be the case in a different market, policymakers could set up a choice experiment or conjoint analysis in their target population to investigate the likely price response. Thus, our results are generalizable beyond the Chilean case and may apply to countries like the United States as well.

Q: What do you think about consumer and manufacturer behavior across product categories? Cereal is a staple product, typically consumed daily, which makes the item (and consequently, the warning label) more salient. Do you think we would see similar effects across categories such as fast food, which people might consume outside the home and less frequently but with equally harmful consequences?

A: As other research shows (), consumers may not respond as strongly to introducing warning labels in categories where they expect unhealthy products, such as chocolates and cookies. The reason is that labels only influence purchase behavior if consumers’ beliefs about the healthiness of products were biased before the label introduction. Thus, our findings may not be generalizable to categories in which consumers are already aware of the unhealthiness of products regarding sugar, calories, fat, or salt. We cannot therefore say with certainty that our findings would also apply to the fast food category. However, in other categories where the healthfulness of products is less clear for most consumers a priori, such as bread, we would expect similar price responses.

Q: What are your thoughts on products that were reformulated to avoid the warning labels? What characteristics would you say prompted certain firms to make the change while others did not?

A: Reformulations are an important aspect for judging the effect of the warning label regulation as well (see, e.g., ). We expect products that reformulated their recipe below the critical thresholds to avoid warning labels to benefit after regulation, similar to what we indicate for unlabeled products in the manuscript. However, most prominent product manufacturers with high market shares did not reformulate their product recipes in the cereal category for one-and-a-half years after the warning label regulation. The reason is that manufacturers are more hesitant to change the recipe of successful products in the marketplace. For most manufacturers, the price is the most flexible marketing-mix variable to adjust after a warning label introduction.

Q: Chile was the first country to implement nutritional warning labels. Was this a reason to choose Chile to study the effect of nutritional warning labels on price? In 2020, Mexico enacted a law requiring warning labels on the front of food packages that contain “excess” sugar, calories, sodium, or saturated fat. How do you think the findings of this study apply in Mexico?

A: Chile was one of the first countries that adopted a warning label regulation. We chose Chile because a mandatory regulation creates a clean setting to evaluate the effect of warning label introductions on consumer behavior and retailers’ price setting. As mentioned in our response to previous questions, the consumer composition effect may apply in Mexico as well, depending on which consumers will be most responsive to the introduction of warning labels—price sensitive (generally lower socioeconomic groups with lower income) versus less price sensitive (higher socioeconomic groups with higher income). Please also consider our previous answer on how policymakers can ex-ante test whether this is likely the case using, for example, conjoint analysis.

Q: Since price is one of the most flexible marketing mix elements to adjust, how do you think promotional offers will influence the relationship between nutritional warnings and price for both price-sensitive and non-price-sensitive consumers?

A: As suggested by our results, unlabeled products face a larger segment of more price-sensitive consumers than before regulation due to the consumer composition effect triggered by the warning label introduction. This suggests that these price-sensitive consumers that also pay attention to the healthfulness of their consumption would be very responsive to temporary price promotions of unlabeled products. On the other hand, labeled cereal products that face a more price-insensitive consumer clientele after regulation may have fewer incentives to put their products on price promotions. This would be a desirable side-effect of our results. However, we agree that this is a very interesting aspect that should be analyzed in future research.

Read the full article:

Max J. Pachali, Marco J.W. Kotschedoff, Arjen Van Lin, Bart J. Bronnenberg, and Erica Van Herpen (2022), “” Journal of Marketing Research, 60 (1), 92–109. doi:

References:

AlĂ©-Chilet, Jorge and Sarah Moshary (2022), “Beyond Consumer Switching: Supply Responses to Food Packaging and Advertising Regulations,” Marketing Science, 41 (2), 243–70.

Araya, Sebastián, AndrĂ©s Elberg, Carlos Noton, and Daniel Schwartz (2022), “Identifying Food Labeling Effects on Consumer Behavior,” Marketing Science, 41 (5), 982–1003.

Taillie, Lindsey Smith, Maxime Bercholz, Barry Popkin, Marcela Reyes, M. Arantxa Colchero, and Camila Corvalán (2021), “Changes in Food Purchases after the Chilean Policies on Food Labelling, Marketing, and Sales in Schools: A Before and After Study,” The Lancet Planetary Health, 5 (8).

World Health Organization, “World Obesity Day 2022 – Accelerating Action To Stop Obesity,” World Health Organization, .

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Multichannel retailing has become crucial to the sales strategy of any brand, including digital-native brands that started retailing as online-only. Digital-native brands like Quip in the U.S. and Myprotein in Europe have partnered with independent retailers to offer consumers an in-person retail option. But some brands—especially those in the fast-moving consumer goods (FMCG) category—have opened their own brand stores to create a bigger physical footprint.

Brand stores are brick-and-mortar stores owned and operated by the manufacturer. They carry only the brand’s products and are designed to sell them profitably in a brand-centric environment. These stores offer physical exposure, which digital-native brands might struggle to attain on supermarket shelves given the steep competition from mass-market brands. Brand stores increase brand awareness, which in turn can increase sales in the company-owned online channel and independent supermarkets. Brand stores can also spark distributor interest and prompt supermarkets to distribute more of the brand on their shelves. Since the number of brand stores that a digital-native FMCG brand can open is limited, increasing breadth and depth of supermarket distribution can further drive brand sales.

Yet brand stores also entail risks. Sales in this channel may cannibalize sales in the online channels if consumers migrate to the newly opened brand store. If brand stores signal the manufacturer’s encroachment, supermarkets might reduce their distribution of the brand. Finally, opening and operating brand stores is expensive, and such substantial operational costs put pressure on profits.

In a , we investigate the multichannel impact of brand stores by digital-native FMCG brands.

The Supermarket Effect

Our research uncovers a substantially different impact of opening a dedicated brand store on a brands’ own online channel sales than on sales within independent supermarkets. In areas in the vicinity of brand stores, we find that the brand’s online channel sales decreased, yet its supermarket sales increased. This is because for customers seeking a more elevated consumption experience, brand stores offer an interesting alternative, which causes cannibalization of its own online channel. In supermarkets, on the other hand, we find grocery store buyers are mainly concerned with price and convenience. For them, brand stores offer an opportunity to discover a digital-native brand that otherwise would have remained anonymous among bigger mass-market brands, which in turn causes supermarket sales to increase.

We also discover that brand stores spark distributor interest and prompt supermarkets to start distributing the brand on their shelves. Indeed, part of the supermarket sales increase that brand stores bring about is driven by brand stores’ positive effect on the number of supermarkets that carry the brand. This increase in distribution breadth is an important component to drive sales, as brands cannot open brand stores everywhere.

Pros and Cons of a Brick-and-Mortar Brand Store

We find that brand stores generate an influx of sales that more than make up for any online losses. This is not necessarily surprising: their strong local visibility, typically in locations with high foot traffic, and their appeal to customers who lack opportunities or motivations to visit the online channel or supermarket make brand stores an attractive sales channel on their own. Despite the cannibalizing impact on their own online channel, brand stores are an effective means to increase a brand’s top-line sales. Digital natives in startup or growth markets that aim to draw investors’ attention can try to improve their valuation through brand stores and the corresponding sales growth.

However, opening and running brand stores is a capital-intensive operation due to factors such as store rental cost and sales staff wages. Our analyses show that nearly half of the brand stores under study were not able to turn a profit. Brands therefore need to carefully weigh brand stores’ top-line gains against their high operational expenses to justify the investment financially.

Our findings offer important insights and caveats to digital-native brands that consider opening brand stores to increase their physical footprint beyond supermarkets. The upside is that brand stores can help digital natives reach potential consumers and gain additional physical exposure that FMCG brands especially require. Yet brand stores are not without risks: they may hurt the brand’s sales in the online channel where the digital native started and further impact brand profitability if the influx of new sales is not great enough to cover those online losses and the brand stores’ own substantial operating costs.

From: Michiel Van Crombrugge, Els Breugelmans, Florian Breiner, and Christian W. Scheiner, “,” Journal of Marketing.

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