Marketing textbook, chapter 7

In order to save money, many supermarket customers prefer to buy private labels rather than the more expensive manufacturer brands. However, due to a simple trick used by retailers, they often pay more than they think.

Consumers can choose between numerous alternatives in the retail sector, particularly when it comes to fast-moving consumer goods, i.e. food, personal care products, detergents and cleaning agents, with more or less significant price differences between traditional manufacturer brands and retailers' own brands.

The assessment of the Cost-effectiveness (price compared to the price of competing products) encompasses all processes of receiving and processing price information from the available offers. As buyers of a certain type of product are often unable to judge the absolute value for money of the available alternative, they try to orientate themselves on the relative value for money, i.e. the price differences between the offers. It is precisely this assessment process that retailers exploit in their favour, as the following example shows:

In the frozen food section of a supermarket, its own brand „TiP - Edelpizza Salami“ is offered at a price of €2.49 for three 350 g pizzas. Next to it is the manufacturer's brand „Dr. Oetker - Die Ofenfrische Salami“ for €2.69 for a 390 g pizza. The different prices stretch like an umbrella over the salami pizza offers in the frozen food aisle. The price difference is considerable, as the price for the TiP private label is only €2.40 per kilogramme, while customers have to pay €6.90 per kilogramme for the manufacturer's brand. The price for both products is then increased by 30 cents. The private label now costs €2.79 and the manufacturer's brand €2.99. The price difference therefore remains the same, only both products are now more expensive. This means that the price umbrella is simply moved upwards. However, many customers who reach for the TiP private label to save money do not notice this subtle price increase of 12 per cent because they are guided by the relative affordability of the TiP private label.

Sources:

• Schwarz, P.: „Umbrella pricing“ - how supermarkets make no-name products more expensive; http://www.welt.de/wirtschaft/article133066774/So-verteuern-Supermaerkte-No-Name-Produkte.html (as at 27 June 2022).