Price differentials among brands in retail distribution: product quality and service quality

Juan A. Manez, Rafael Moner-Colonques, José Sempere-Monerris and Amparo Urbano
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Juan A. Manez: Department of Applied Economics II and ERI-CES, University of Valencia, Spain
Rafael Moner-Colonques: Department of Economic Analysis and ERI-CES, University of Valencia, Spain

No 2011017, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We develop a theoretical model of retail competition that include two sources of quality, one inherently linked to brand characteristics and the other linked to the retailer level of service. We then measure their contribution in explaining the observed price differentials for a sample of U.K. grocery retailer prices in the south of Coventry during the period November 1995 to March 1997. We find that retailers that offer a higher quality service sell same quality brands at higher prices. These price premia are explained solely by differences in service quality levels. We find econometric evidence that they amount to 6 percent for national brands and to a range between 9 percent and 15 percent for low-quality store brands. Besides, at a given store, the price premia paid for the national brand is positive. These differentials are very large: around 150 percent between national brands and low-quality store brands, around 40 percent between national brands and high-quality store brands. Also, the price differential between the national brand and the low-quality store brand does not increase with its service quality. Besides, the price of the high-quality store brand approaches the price of the national brand when service quality increases. Thus suggesting that stores that offer high quality service uses the level of service as a strategic tool to target the leading national brand consumers.

Keywords: store brands; brand quality; service quality (search for similar items in EconPapers)
JEL-codes: C70 J50 J52 L13 (search for similar items in EconPapers)
Date: 2011-03-01
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Related works:
Working Paper: Price Di erentials among Brands in Retail Distribution: Product Quality and Service Quality (2016)
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