The Effect of Business-Cycle Fluctuations on Private-Label Share: What has Marketing Conduct Got to do with it?

Abstract

The authors investigate whether, and to what extent, marketing conduct varies over the business cycle and how this contributes to the growing popularity of private labels. To address this issue, they examine a unique data set that combines a broad set of seven marketing-mix instruments with private-label share, using two decades' worth of data for 106 consumer packaged goods categories in the United States. The results show that private-label share behaves countercyclically and that part of the boost in private-label share during contractions is permanent. Retailers' observed practice of supporting their own labels in contraction periods while cutting back in expansion periods helps this cyclical sensitivity even further. In addition, national brands' procyclical behavior in terms of (1) major new product introductions, (2) advertising, and (3) their promotional pressure compared with private labels is associated with more pronounced cyclical fluctuations in private-label share and even with permanent private-label market share gains. Although brand managers cannot be held responsible for the occurrence of economic downswings, they can be held accountable for how much contractions help strengthen their fiercest competitor, the store brands owned by their very customers.