In general, you have three options when you need to pick up an item at the grocery store – you buy the national brand at whatever price the store is charging, you buy the national brand with a coupon to save some money, or you buy the less expensive store brand.
But with store brand products improving in quality lately, national brand manufacturers have to step up their game to get your business, by lowering their prices or offering better coupons.
So how do you decide which product, at which price, using which coupons, offers the best value for your money?
That’s the subject of a scholarly study, published in the latest edition of the Journal of Retailing. The authors of “Couponing Strategies in Competition Between a National Brand and a Private Label Product” examined how the values of manufacturer’s coupons and store coupons can change, based on how good the store brands are and how similar they are to their name-brand counterparts.
The study’s authors examine three types of coupons: manufacturers’ coupons, store coupons for national brands, and store coupons for store brands. Savvy shoppers will use these in various combinations to save money – but savvy marketers will tweak the value of their coupons to make sure you buy their products instead of the competition’s.
The researchers studied scanner data representing the grocery purchases of 40,000 households across the country. They zeroed in on a few specific grocery staples that best illustrate the array of choices that shoppers face in the grocery store – ketchup, peanut butter and mayonnaise. If you’ve ever gone down the condiment or peanut butter aisle, you know the shelves are full with all manner of national brand and store brand varieties. And there are almost always coupons available.
But how much money you can save with those coupons, depends on how good the products are.
If the quality of a store’s private label product is low, the manufacturer figures it has nothing to worry about in the way of competition. So the researchers found that manufacturers are likely to offer lower-value coupons in that area. But as the store brand product increases in quality and attracts more price-sensitive customers, “the manufacturer increases its coupon value to mitigate the loss” of those price-sensitive shoppers, the study notes, while “the retailer responds by decreasing the national brand store coupon”. Once the store brand’s quality meets or exceeds the quality of the national brand, not only do manufacturers offer higher-value coupons, but they’re likely to reduce the shelf price of their product as well.
Things get a little more complex when considering another factor – how similar or different the store brand is from its national brand equivalent. Maybe the closest comparable store brand ketchup bottle is a different size than the national brand item, for example, or the national brand peanut butter has all-natural ingredients.
In this case, manufacturers can charge a higher price for their product, because it’s not in competition with the store brand as much as it would be if the products shared all the same features. And yet the manufacturer’s coupon value will remain high, because it doesn’t want to turn off price-sensitive shoppers. Retailers, in contrast, will offer lower-value store coupons on the national brand item, and may boost the value of store coupons on the store brand.
So it’s no longer true that the best way to save money on your groceries is to settle for a store brand’s inferior quality. As store brands get better, and more distinctive, you may find that you’re seeing even better, higher-value coupons for the national brands.
“To our knowledge, this is the first systematic analysis of couponing behavior when a national brand and a private label product compete,” the researchers write. They take particular notice of the inherent conflict that retailers face, selling national brand products while having a vested interest in getting shoppers to buy their store brand products instead. “This duality provides a fascinating backdrop for studying couponing strategies,” the study’s authors observe. “Retailers trying to promote their private label product may consider decreasing couponing activity on the national brand product, or increasing its couponing on the private label product. In response, a manufacturer might increase its couponing on the national brand product.”
And you thought couponing was simple. Ultimately, the bottom line is that in the battle for your business, if you play your cards right – and clip those coupons – you could end up the biggest beneficiary.
Image source: Walmart
