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Brand price differentials in retail distribution: product quality and service quality

Juan A. Mañez, Rafael Moner Colonques, José Sempere-Monerris and Amparo Urbano

Applied Economics, 2016, vol. 48, issue 59, 5749-5760

Abstract: A theoretical model is proposed to disentangle the contribution of brand quality and retailer service quality in explaining brand price differentials across retailers. Two testable hypotheses emerge: (i) for each brand type, price differences across retailers are independent of brand quality differentials and (ii) at a given retailer, price differences between different brand qualities are independent of service quality differentials. Our empirical analysis, for a sample of the U.K. grocery retailer prices, discloses that retailers that offer higher service quality sell same quality brands at higher prices. In particular, service quality premia amount to 6% for national brands and are in the range of 9–15% for low-quality store brands. Besides, at a given retailer, the price premia paid for the national brand are very large: around 150% between national brands and low-quality store brands, and around 40% 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 service quality.

Date: 2016
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DOI: 10.1080/00036846.2016.1184377

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