Reports

Consumer Misinformation and the Brand Premium: A Private Label Blind Taste Test

Bart J. Bronnenberg, Jean-Pierre Dubé, and Robert E. Sanders, 2019, 19-102-01

While 75% of U.S. respondents agreed with the statement, “Private labels are a good alternative to name brands” (Nielsen 2014 survey), U.S. consumers routinely pay a large price premium for national brands.

In this report, Bart Bronnenberg, Jean-Pierre Dubé, and Robert Sanders explore this discrepancy between consumers’ low propensity to buy private labels, in practice, and their stated perceptions that private label quality is often comparable to national brands.

To investigate whether there is a CPG information barrier and whether it can be overcome, they conduct a field study that treats consumers with information about their subjective preferences for national brands and comparable private label food products. In cooperation with a large, midwestern supermarket chain, they conduct a series of in-store blind taste tests that match the chain’s private label products against the leading national brand competitors in several CPG categories.

In a survey administered during the taste test, subjects self-report very high expectations about the relative quality of the private labels relative to national brands. However, they predict a relatively low probability of choosing them in a blind taste test.

Surprisingly however, an overwhelming majority systematically chooses the private label in the blinded test. During the week after the intervention, the tested private label product market shares increase by 15 share points, on top of a base share of 8 share points. However, the effect diminishes to 8 share points during the second to fourth week after the test, and to 2 share points during the subsequent four months after the test. Using a structural model of demand, the authors find that participation in the blind taste test increases the preference for the private label brands, but decreases the preference for the national brands.

These findings are consistent with consumers learning and then forgetting gradually about the quality information from the blind taste test. While they suggest that firms can change consumer demand for private labels, a single usage experience may be insufficient to generate a lasting effect.

Bart J. Bronnenberg is Professor of Marketing, Tilburg School of Economics and Management at Tilburg University and Research Fellow, CEPR. Jean-Pierre Dubé is Sigmund E. Edelstone Professor of Marketing, The University of Chicago Booth School of Business and Faculty Research Fellow, NBER. Robert E. Sanders is Assistant Professor of Marketing, University of California, San Diego Rady School of Management.

Acknowledgments
We are grateful to Bob Mariano and Roundy’s Supermarkets for providing the data for this project. We benefitted from the comments and suggestions of Guido Imbens and Moshen Bayati, along with seminar participants at McGill University, the 2016 Data Science Academy at AC Nielsen, the 2016 Kilts Center Marketing Insights Conference and the 2016 Marketing Science Conference in Shanghai.

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