The Impact of Retail Promotion on the Decision to Purchase Private Label Products: the Case of U.S. Processed Cheese

Abstract

AbstractThe authors examine the impact of retail promotions, specifically, store coupons, manufacturer coupons, and store features on the decision to purchase private label products. To identify these effects, a probit model is specified and estimated, which allows the calculation of the probability that the private label product is chosen conditional on a set of explanatory variables. Attention is centered on American processed cheese transactions. The source of the data is ACNielsen Homescan Panel of U.S. households for calendar years 2005 and 2006. Retail promotion using store coupons had a significant negative effect on the decision to purchase private label products. In our sample, store coupons were used to purchase both private label products and national brands. A strong negative relationship was found between national brand manufacturer couponing activity and the decision to purchase private label products. Therefore, national brand couponing appears to be an effective strategy for manufacturers to deter private label growth, at least in the processed cheese market. This analysis also shows that the decision of purchasing a private label cheese product is influenced by several sociodemographic characteristics of the household, namely household income and size, age and education of the household head, race, ethnicity, and location.