How to Increase Grocery Private Labels Quality Perception

Abstract 
The focus of this thesis is on the grocery retail market and more specifically on the store´s 
private labels. It is interesting to analyse this area because of the strong competition 
between products and the way customers assess quality to the different items in such a 
context. Research shows that private label brands suffer from a low quality image 
compared with national brands. The main reason for such a bad quality perception is not 
so much linked with the ingredients quality, but rather with the poor private label product 
image itself. Based on the situation outlined above, the objective of this master thesis is 
the development of an appropriate strategy in order to increase grocery private labels 
quality perception. This work studies four different issues: The customer´s evaluation of 
product quality, the identification and analysis of the causes of the low store labels quality 
image, the comparison between national and store brands, and the relevance of Price, 
Country of Origin, Package and Brand in product excellence evaluation. There is a long 
history of research that demonstrates that consumers frequently use extrinsic cues to infer 
product quality. Therefore, management’s strategy to target the most price-elastic 
shoppers by discounting their store brands and investing low resources on extrinsic cues 
like brand, package and advertisement may actually not be the right decision. National 
brands can claim a much more successful brand image in comparison with store brands. 
They are perceived by the customers as “better brands” and are seen as more reliable, 
trusted, higher quality, innovative, and exciting. To the contrary, consumers view store 
brands as approachable and strongly associate them with value, but do not think of them 
as distinctive, authentic, daring, or innovative. On this regard, the development of a 
premium store brand, characterized by high quality and innovative design,  can represents 
a source of channel power, improved retail image, customer loyalty and differentiation, 
as well as mean to improve the customer´s quality perception of the product. In order to 
develop such store brands, it is analysed the influence that price, country of origin, 
package and brand have on the customer´s perception of product quality. The result of 
this work, suggest the development of premium store brands, characterized by high 
quality,  strong brand, higher price, innovative and attractive package that underlines 
when beneficial the country of origin of the product, is the key to increase the customer´s 
quality perception of store brands. However, it is advisable to retain also some generic 
and mimic brands, to not lose market share and to increase the excellence perception of 
the premium store brands.
1 
 
1.  Introduction 
1.1 Problem definition and scope of the work 
Store brands are products owned and sold by retailers and they are usually produced by 
third party
1
. In the last decades their market share among different food categories has 
increased sensibly and in countries like Switzerland and Spain their market shares exceed 
50%
2
.  However, their success is not equal worldwide and because of increasing 
competition, retailers have to further differentiate themselves from competitors and create 
a distinctive retail offer. In addition, general research shows that store brands suffer from 
low quality image if compared with national brands, even if their quality is not inferior
3
. 
In this regard, this work, illustrates an empirical research, conducted by De Wulf et al. 
(2005), that confirms this statement. Taking into consideration the fact that store brands 
are not characterized by inferior quality compared with national brands, it is necessary to 
consider their extrinsic cues rather than their intrinsic cues.  
What do these terms mean? Consumers evaluating products consider several factors. 
These factors can be divided in two categories: intrinsic and extrinsic cues. The first ones 
are the attributes of the products itself and the second ones refer to factors like price, 
package, country of origin and brand. It is believed that customers are more familiar with 
extrinsic cues, this is the reason why they rely more on them than on intrinsic cues
4
. The 
focus of this thesis is on the influence that extrinsic cues have in the customers´ 
quality perception of a product and how store brands could improve their image 
taking it into consideration. The perceived quality can be defined as the consumer´s 
judgment about a product´s overall excellence or superiority
5
. On the contrary, objective 
quality is the word used in literature to describe the actual excellence or superiority of the 
products. The customer´s reliance on intrinsic or extrinsic cues depends on different 
factors that have to be analysed in order to give the managers the opportunity to develop 
appropriate marketing and sales activities. Furthermore, managers often miss the 
opportunity to gain market share just because they disregarded the customers’ 
expectations. For example, in a study conducted for General Electric, it was found that, 
when managers were asked about how costumers perceive quality, they indicated 
                                                           
1
 Cf. Zeithaml (1988) p. 17. 
2
 Statista  (2014). 
3
 Cf. Richardson et al. (1994) p. 28. 
4
 Cf. Lee and Lou (1996) p. 22. 
5
 Cf. Zeithaml (1988) p. 5.
2 
 
workmanship, performance and form as critical attributes
6
. However, customers listed 
other components as a measure of quality, such as clean appearance, ability and 
durability.   
1.2 Structure of the work 
The second chapter of this work shows the manner customers infer quality and illustrates 
how different variables influence the customer’s reliance on extrinsic or intrinsic cues. 
There is a long history of research that demonstrates that consumers frequently use 
extrinsic cues as an indicator of product excellence. Therefore, management’s strategy to 
target the most price-elastic shoppers by discounting their store brands and investing low 
resources on extrinsic cues like brand, package and advertisement may actually not be the 
right decision. Besides the work shows the characteristics and differences between store 
brands and national brands and as indicated previously, provides an empirical research 
on this regard.  
The third chapter shows the importance of the extrinsic cues (Brand, Package, Price and 
Country of Origin) in the improvement of the customer´s quality perception of store 
brands. In this regard, the work shows an overview of the past literature and illustrates 
some empirical studies in order to provide a clearer picture of the topic. 
Finally, a conclusion and management implications are provided. 
2.  How customers evaluate products  
2.1 Customer quality perception 
The way customers infer quality and their reliance on extrinsic or intrinsic cues depends 
on factors that have to be looked more closely into. 
The customers evaluate the products usually in a comparison context and this represents 
their evoked set
7
. It means that the quality of a product is evaluated by the customer 
considering also its relative value among other products. It is relevant to note that this 
evoked set is determined by the customer and not by the company.
8
 
The customer´s quality perception of a product depends also on the nature of the product 
itself
9
. Every product has different and specific attributes that are evaluated in different 
manners by the customer. It is also important to note, that the products´ attributes among 
                                                           
6
 Cf. Morgan (1985) cited by Zeithaml (1988) p. 5. 
7
 Cf. Zeithaml (1988) p. 5. 
8
 Cf. Zeithaml (1988) p. 5. 
9
 Cf. Zeithaml (1988) p. 7.
3 
 
the same category of products, influence the customer quality perception differently
10
. 
For example, the presence of pulp in orange juices is seen as a sign of quality, but this is 
not the case of apple juices. But, taking into account more abstract attributes, it is possible 
to determine which of them can be indicated as important attributes demanded by the 
customers among a specific category
11
. A study conducted by Bonner and Nelson (1985), 
show that attributes, for example appetizing appearance, rich flavour and natural taste, 
were relevant across 33 product categories.
12
 
Besides, as indicated before, customers use intrinsic and extrinsic cues in order to evaluate 
the quality of a product and the way they use them depends on different factors. 
Consumers could evaluate its quality during the point of purchase, in the supermarket for 
example, or at the point of consumption, for example at home
13
.  In the first situation, the 
customer may rely on intrinsic attributes to evaluate the quality of a product, if they are 
available and evaluable, if not; he depends more on the extrinsic attributes.
14
 Instead, at 
the point of consumption, most intrinsic attributes are verifiable, therefore are more 
usable as a quality indicator
15
.When the customer does not have sufficient knowledge 
about a product, the intrinsic cues are not available or difficult to evaluate (for example 
complex products like stereo equipment), or when the analysis of the intrinsic attributes 
of a product requires too much effort than the customer perceives is worthwhile, the 
customer relies more on extrinsic attributes like warranty, package, price and brand 
name
16
.  Hence, they may ignore some attributes that have a high influence on the product 
quality, in favour of others that contribute a few
17
. Additionally, research shows how 
extrinsic cues may strongly influence the product´s quality perception, like visual clues
18
. 
For example Wansik, Park et al. (2000),  found that some respondents claimed to feel 
differences in the taste of breakfast bars they thought to contain soy, when all the products 
were the same and none contained it
19
.  
The use of extrinsic or intrinsic cues in product quality evaluation, depends also on the 
objective and subjective knowledge. It is possible to indicate two types of knowledge, the 
                                                           
10
 Cf. Zeithaml (1988) p. 7. 
11
 Cf. Zeithaml (1988) p. 7. 
12
 Cf. Zeithaml (1988) p. 8. 
13
 Cf. Zeithaml (1988) p. 9. 
14
 Cf. Zeithaml (1988) p. 9. 
15
 Cf. Zeithaml (1988) p. 9. 
16
 Cf. Zeithaml (1988) p. 9. 
17
 Cf. Veale et al. (2006) p. 1. 
18
 Cf. Veale et al.  (2006) p. 3. 
19
 Cf. Wansink and Park (2002) p. 483.
4 
 
objective and subjective knowledge
20
. Regarding the first one, it is based mainly on 
cognitive type learning and experiences with different products and brands. In this case, 
the customer has the ability to focus on the relevant attributes that reflect the quality of a 
product
21
. Hence, they tend to take into consideration the intrinsic attributes rather than 
the extrinsic cues of a product in order to evaluate its quality. Concerning the subjective 
knowledge, it can be described as the customer product familiarity. It is the customer 
perceived ‘self-assessed’ level of knowledge about a product
22
. These type of customers 
tend to use their own limited experience to judge the quality of a product and empirical 
evidence show that they know much less about product than they believe
23
. This is the 
reason why they are more influenced by extrinsic cues than the expert customers are.  
Another customer behaviour that influences the manner customers use intrinsic or 
extrinsic cues as quality indicators is the customer´s self-confidence level. ‘‘Consumer 
self-confidence is defined as the extent to which an individual feels capable and assured 
with respect to his or her marketplace decisions
24
”. A customer with a low level of self-
confidence tends to be more influenced by third opinions and extrinsic cues than a self-
confident customer does
25
. Nevertheless, it is necessary to also take into consideration the 
level of customer knowledge (objective or subjective) seen in the previous paragraph. In 
fact, a particular combination of type of customer knowledge (as described in the previous 
paragraph) and the self-confidence level, change the customer tendency to be influenced 
by extrinsic cues
26
. For example, an expert customer with an objective knowledge about 
a category product but with a low level of self-confidence may also be influenced by 
strong extrinsic cues
27
. 
The customer´s involvement level with a specific product also influences his product´s 
quality evaluation. A highly involved customer evaluates the excellence of a product by 
analysing more narrowly the information at disposal, rather than a low involved customer 
who categorize the product just taking into consideration the brand
28
. Hence, highly 
                                                           
20
 Cf. Veale et al. (2006) p. 4. 
21
 Cf. Kuusela et al. (1998) cited by Veale (2006) p. 4. 
22
 Cf. Veale et al.  (2006) p. 4. 
23
 Cf. Veale et al (2006) p. 4. 
24
 Bearden et al. (2001) p. 122. 
25
 Cf. Veale et al. (2006) p. 5. 
26
 Cf. Veale et al. (2006) p. 5. 
27
 Cf. Veale et al. (2006) p. 5. 
28
 Cf. Lee and Lou (1996) p. 23.
5 
 
involved customers, in comparison to whose are less involved, rely heavily on intrinsic 
cues
29
.  
It is also important to take into consideration that the cues used as quality indicators by 
the customers change over time because of aspects like competition, technological 
progress, promotional efforts of companies, information and changing consumer tastes
30
. 
In this regard, for example, Harnes (1978, p. 17) shows the changes made by Procter & 
Gamble to keep Tide detergent the highest quality brand in the packaged soap category:  
´´Since Tide was first introduced in 1947, consumers have changed, washing machines 
have changed, fabrics have changed, laundry habits have changed, and competition has 
changed. . . . These are just a few of the more significant changes in the household laundry 
market, and every one of these changes has a meaning for the performance and the 
marketing plans for Tide. The product which we are selling today is importantly different 
from the Tide product which we introduced in 1947. It is different in its cleaning 
performance, in sudsing characteristics, aesthetics, physical properties, packaging. In 
total, there have been 55 significant modifications in this one brand during its 30-year 
lifetime
31
´´ 
Finally, the manner customers evaluate the product´s excellence depends also on the 
market segment which is considered.  Taking into consideration the fact that the main 
product sold in the groceries is food, it is analysed more specifically, the different 
consumers segments in this domain. It is possible to categorise customers taking into 
account their ways of shopping for food, ways of preparing meals, eating situations and 
ways of weighting quality dimensions and purchasing motives for food, i.e. their food-
related lifestyle
32
. Research on consumers´ food-related lifestyle in some European and 
non-European countries has classified the following consumer segments
33
: The 
uninvolved food consumer, the careless food consumer, the conservative food consumer, 
the rational food consumer and the adventurous food consumer- 
The first category of consumer does not care too much about food. He is typically single, 
young, has a low income and tends to live in big cities. He is not interested in cooking, in 
food quality and in product information and for him the most important aspect is 
convenience.  
                                                           
29
 Cf. Lee and Lou (1996) p. 23. 
30
 Cf. Zeithaml (1988) p. 10. 
31
 Harnes (1978), cited by Zeithaml (1988) p. 10.  
32
 Cf. Brunsø et al. (2002) p. 13. 
33
 Cf. Brunsø et al. (2002) p. 13.