Price. Product Performance Competition between Retailer and Manufacturer Brands Author(s): John E.

Swan Reviewed work(s): Source: Journal of Marketing, Vol. 38, No. 3 (Jul., 1974), pp. 52-59 Published by: American Marketing Association Stable URL: http://www.jstor.org/stable/1249850 . Accessed: 04/05/2012 03:14
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John E. Swan

Performance Price-Product between Retailer Competition and Manufacturer Brands

To what extent does competition between two major product classes foster a better price-quality relationship for the consumer?

AMONG current emphasis on consumerism has of the

been the relationship between price and product performance. It is generally assumed that in the American marketing system competition is a major factor in the development of a price-product performance relationship that benefits the consumer. Yet Morris and Bronson found very little relationship between price and quality (or product performance) and criticized the effectiveness of competition in the American marketplace, noting that "price and quality do correlate, but at a level so low as to lack practical significance."' The purpose of this article is to examine and compare the price-product performance relations of two competitive classes of products: manufacturer and retailer brands. In the study reported here, the major household appliances tested by Consumers Union were analyzed to determine if different price-product performance relationships existed when different types of brands and channels of distribution were employed. The article is organized into three parts. First, the relationships between manufacturer and retailer brands in terms of different channels of distribution are discussed. This is followed by a description of a study designed to measure these relationships. Finally, the results of this study
1. Ruby T. Morris and Claire S. Bronson, "The Chaos of
Competition OF Indicated by Consumer Reports," JOURNAL
MARKETING,Vol. 33 (July 1969), p. 33. Journal of Marketing, Vol. 38 (July 1974), pp. 52-59.

the important issues raised as a result

and their implications for consumers and marketers, as well as for the effectiveness of competition, are given. The Relationship between Manufacturerand Retailer Brands and Channels of Distribution The concept of channels of distribution is eomplex. Essentially, this study considers only the outcomes of competition between manufacturer brands and retailer brands. Marketing practices involving distributor and manufacturer brands have received some attention in the marketing literature.2 Schutte and Cook, in particular, found that large retailers require relatively high levels of product quality for their retailer brands and that most manufacturers supply products for distributor branding that are similar to the products sold under their manufacturer brands.3 Price has been one of the major competitive tools used by retailer brands, and a number of authors believe that it has been of benefit to consumers. Bliss notes that the cutting edge of competition in retailing that has brought lower prices to consumers is the competition between different
2. Thomas F. Schutte and Victor J. Cook, "Branding Policies and Practices," in Science, Technology and Marketing, Raymond E. Haas, ed. (Chicago: American Marketing Assn., 1966), pp. 197-213;Bjorn Carlson and Bertil Kussoffsky, "Distributor Brands and Conflict in Distributive Organizations," in Distribution Channels: Behavioral Dimensions, Louis W. Stern, ed. (Boston: Houghton Mifflin Co., 1969), pp. 188-194;and Joseph C. Palamountain, Jr., The Politics of Distribution (Cambridge, Mass.: Harvard University Press, 1955), pp. 48-57. 3. Schutte and Cook, same reference as footnote 2. 52

Price-ProductPerformanceCompetitionbetween Retailerand ManufacturerBrands retail institutions; for example, the supermarket competes with "conventional" stores.4 Of direct relevance to this study is Galbraith's concept of "countervailing power," in which he argues that the large retail chain store organizations with their own brands have used low price to the consumer as a major competitive tool. The low prices were made possible because of the considerable buying power of the chains in dealing with their suppliers.5 Another important concept to which this study is related is Palamountain's analysis of intertype competition, or competition between different channels of distribution. An example would be the integration of food retailing and wholesaling into a chain organization that competes against an independent wholesale-retail channel. Palamountain concluded that intertype competition has played a more important role in creating conditions leading to lasting price reductions than has the competition between similar firms at the same level in the channel.6 A Study of the Effects of Competitionon Price and ProductPerformance The Theoretical Base The research and essays mentioned above strongly imply that retailer brands have been priced lower than manufacturer brands, and the Schutte and Cook study suggests that retailer brands also emphasize product performance.7 Assuming that retailer brands are priced low and are also of good quality, the following hypotheses can be formulated: H 1: Retailer brands are underpriced relative to manufacturer brands. H 2: Retailer and manufacturer brands are equivalent in quality or product performance. H 3: Retailer brands are lower in price than manufacturer brands. Another important result of competition is the extent of correlation or association between price and product performance. Morris and Bronson found a weak association between these two variables when manufacturer and retailer brands
4. Perry Bliss, "Schumpeter, the 'Big' Disturbance and Retailing," Social Forces, Vol. 39 (October 1960), pp. 72-76. 5. John K. Galbraith, American Capitalism (Boston: Houghton Mifflin Co., 1952),pp. 123-128. 6. Palamountain, same reference as footnote 2, pp. 38-48. 7. Schutte and Cook, same reference as footnote 2. * ABOUT THE AUTHOR.

53

were combined in an analysis by product line.8 In their study, it was felt that the low correlation could have been due in part to including both manufacturer and retailer brands in the same analysis. One reason is that in some cases the same or a similar product is offered under a manufacturer brand and also under a retailer brand at a lower price, which would result in similar product performance but divergent prices. Therefore, the fourth hypothesis was: H 4: Price and performance will be significantly associated for manufacturer brands and for retailer brands when analyzed separately. Another aspect of competition is the possible differences between manufacturer and retailer brands in terms of the strength of association between price and product performance. Assuming that business firms wished to correlate price and quality, retailers may have an advantage in controlling price, since they do set prices on their private brands. On the other hand, retailers may find it relatively more difficult than manufacturers to control quality, since in many cases the retailer relies on outside sources of supply. The opposite conditions would probably hold for manufacturers. The result would be that no firm estimate could be given regarding strength of association between price and product performance in comparing retailer to manufacturer brands. Thus, the fifth hypothesis was: H 5: In comparing the strength of association between price and product performance, there is no difference between retailer and manufacturer brands. This hypothesis was included because if association exists and there are differentials in strength of association, they could have implications for competition between manufacturer and retailer brands. The hypotheses given above were tested using data from Consumers Union's product tests and shopping surveys of prices for 23 appliances, which made it possible to rank the items on price and performance. The ranks of price and performance provide data for measures of over- or underpricing and the degree of association between price and performance. In a purely competitive market, products of lower performance should be priced lower, other factors being equal. It is difficult to see why a rational consumer who is "fully informed" would be willing to pay more for less quality. This argument appears to be an implicit assumption of
8. Same reference as footnote 1.

John E. Swan is associate professorof marketingin the the College of Business Administration, Universityof Arkansas, Fayetteville.

54 Morris and Bronson, who found that price did not correlate strongly with quality.9 Many would argue, however, that the assumptions of a purely competitive market do not apply to the American market system. Therefore, it may be useful to consider an alternative approach, that is, the concept of competition for differential advantage. According to this concept, every firm must make part of its total offer different from competing firms and of utility to some group of customers.10 Business firms would attempt to set a reasonably consistent price-performance strategy across the set of products sold by the firm. As an example, a firm competing primarily on price would try to set a relatively low price for all of its products, which may vary somewhat in performance. However, if this firm ended up with a single superior product, it would be inconsistent with overall strategy to try to obtain a premium price on this single product. Firms should be consistent in terms of offering their brand of products within a particular price or performance level and more consistent in terms of remaining within a price or performance level than in correlating price and performance. Thus, hypotheses 6 and 7 were: H 6: Products sold under the same brand will tend to be congruent with a particular price or performance level. H 7: The congruence for a brand between price (performance) and a particular price (performance) level will be greater than the congruence between price and performance for the brand. These last two hypotheses concern contrasting manufacturer to retailer brands on congruence within a price or performance level. Following the same line of thought above, that retailers have more control over price and manufacturers better control over product performance, it was also hypothesized that: H 8: Retailer brands will show greater congruence within price levels than manufacturer brands. H 9: Manufacturer brands will demonstrate greater congruence within performance levels than retailer brands. Hypotheses 6 through 9, involving price or performance levels by brand, were tested by using the ranks of price or performance by product line as follows. The manufacturer and retailer brands were classified as high, medium, or low on price
9. Same reference as footnote 1. 10. Wroe Alderson, Marketing Behavior and Executive Action (Homewood, Ill.: Richard D. Irwin, 1957), pp. 101129.

Journal of Marketing, July 1974 or performance by dividing the brands within each product line so that one-third fell into each category, with "excess" items placed in the medium category. As an example, if fourteen manufacturer brands of a product were tested, the top four in performance would be classified as high, the next six as medium, and the last four as low. Next, all of the products tested for a brand were similarly arrayed. As an example, of the eleven products manufactured by one of the firms, nine were of high price and two medium; thus, this firm was included in the high-priced group, with nine congruent items (high price and high price level) and two incongruent (medium price and high price level). These data allowed for tests involving congruence with price or performance levels. ConsumersUnion Data Consumers Union (CU) has undertaken a program to obtain the retail prices of products and to test and rank the tested brands on the basis of product performance. The methods used by Consumers Union will be examined in light of Littlefield and Kirkpatrick's definition of quality, in which it is stated that the quality of a product includes every feature and service that affects the product's capacity to give satisfaction to consumers."1 The CU rating system can be understood by using an example discussed by Morris and Bronson. Electric frying pans were judged on the basis of 100 total points, with 25 points for legibility of thermostatic dial. The other major categories included 10 points for hazards, 40 for performance, and 25 for durability and maintenance. These criteria were used by the testers to judge each frying pan and to generate a summary score. The set of pans was ranked on the basis of the summary scores.12 Price was not a factor in determining the ratings.13 To find out what product attributes are important to consumers, CU relies on communications with subscribers to Consumer Reports, controlled product-use tests, field studies of how people use products, and the opinions of technical experts as well as reports from industry, government, and the CU staff. Where it is feasible to do so, the brand identity of models of a product being tested is withheld from the test participants.4 The greatest problem with the CU procedures is that insufficient information is made public to permit a careful judgment of the level of validity
11. James E. Littlefield and C. A. Kirkpatrick, Advertising, 3rd ed. (Boston: Houghton Mifflin Co., 1970), p. 50. 12. Same reference as footnote 1, pp. 26-27. 13. "The Continuing Need to Discover the Truth," Consumer Reports, Vol. 36 (November 1971),p. 697. 14. Same reference as footnote 13, pp. 687-691.

Price-Product Performance Competition between Retailer and Manufacturer Brands

TABLE1 PERFORMANCE RELATIONSHIPSFOR MANUFACTURER PRICE-PRODUCT AND RETAILERBRANDS

55

Price-QualityRelationship' Overpriced % 52.0 27.4 Underpriced % 37.2 69.0 Price equal to Quality % 10.8 3.6

Product Performanceb High Med. % % 33.2 23.8 35.6 46.4 Low % 31.2 29.9

Pricee High Med. % % 38.8 7.1 42.4 29.8 Low % 18.8 53.1 Total N 250 84

Brand Type Manufacturer Retailer

= "Chi-square 25.99;significant as chi-square .05 = 5.99. = bChi-square 3.75;not significant. = "Chi-square 64.59;significant as chi-square .05 = 5.99. and reliability achieved. Without knowledge of the methods used, another investigator could not apply the operational definitions in the same context. However, the general procedures used by CU suggest that acceptable levels of face validity and reasonable reliability are probably achieved.
Description of the Study

The CU data provided a means for ranking both manufacturer and retailer brands on the basis of performance and average price. The data covered the period of time from September 1961 to October 1970. A mean of 14.6 individual brands or models per product class were tested. The 23 products used in this study included various models of washing machines, refrigerators, food freezers, clothes dryers, portable dishwashers, sewing machines, and vacuum cleaners. Major appliances were selected for this study for two reasons. First, some of the products (other than appliances) for which market prices were reported were not given performance ranks by individual brand. Instead, sets of brands were grouped into performance ranks, which reduced the validity of the price-performance comparisons. Second, the relatively high price and extended life of major appliances make the purchase of these products particularly significant to the consumer. At least three retailer brands were included in all tests of major appliances in this study. While a sample of three brands is small for a comparative analysis, many of Consumers Union's product ratings contained only three retailer brands. This is a major limitation of the study. In the case of manufacturer brands, however, the samples usually contained twelve to fourteen items. In the analysis of data, the .05 level of significance was selected for the statistical tests.
Results and Discussion A Comparison of Underpricing and Overpricing of Manufacturer and Retailer Brands

placed in one of three classifications: (1) overpriced-the price of a brand was higher than its product performance rank; (2) underpriced-the performance of a brand exceeded its price rank (for example, a brand ranked second in performance but third in price); and (3) price equal to brand had an equal price and performance-a performance ranking. A comparison of manufacturer brands (MBs) and retailer brands (RBs) for each product tested clearly showed that the RBs offered the consumer better product performance relative to the price paid. As shown in Table 1, 52% of the MBs were overpriced compared to less than 28% of the RBs. On the other hand, 69% of the RBs were underpriced in contrast to less than 38% of the MBs. The distributions were significantly different, thus supporting the first hypothesis. To evaluate the second and third hypotheses (that RBs equal MBs in product performance and are lower in price), the brands were classified as high, medium, or low depending on their rank on performance or price for each product, and the resulting distributions of RBs and MBs were tested for a significant difference. As shown in Table 1, the RBs and MBs were equal in performance, with the RBs being significantly lower in price. Taken together, these results imply that RBs compete with MBs primarily on price, yet at the same time the RBs maintain levels of performance that are favorable relative to the MBs. This finding supports the arguments presented by Galbraith and Palamountain of the important role of RBs in price competition.15 The results also support Schutte and Cook's finding that retailers require high levels of performance.'6 The findings suggest that RBs have not simply taken over the lower performance segments of the market.
The Strength of Association Between Price and Product Performance

Hypothesis 4 stated that price and product per15. Galbraith, same reference as footnote 5, and Palamountain, same reference as footnote 2. 16. Schutte and Cook, same reference as footnote 2.

To test for under- or overpricing relative to product performance, the branded products were

56

Journal of Marketing, July 1974

TABLE 2 BRANDS FOR AND RETAILER RANKINGS MANUFACTURER PERFORMANCE PRICE-PRODUCT PERFORMANCE RANKING Retailer Brandsb Manufacturer Brandsa Total Medium Low High Medium Low High
% % % N % % %

Total
N

RANKING PRICE

15.6 77 48.0 36.4 30.4 102 30.4 39.2 42.2 46.5 71 11.3 = 9.49;C = .32. aChi-square= 28.36;significant as chi-square .05 = bChi-square 7.19;not significant; C = .28. High Medium Low formance would be significantly associated for both manufacturer and retailer brands. The findings revealed that this was the case for manufacturer brands but not for retailer brands (Table 2). The strength of association as measured by the contingency coefficient C did not reach high levels for either the MBs or RBs (the maximum possible value for C would be .816 for the data in this study). The results imply that the weak association between price and performance found by Morris and Bronson was not due to including RBs and MBs in the same analysis and that their findings can be generalized to both RBs and MBs.17 In order to test hypothesis 5-whether manufacturer and retailer brands differed in strength of price-performance association-the price-performance relationships in Table 2 were classified as follows: (1) the relationship between price and performance is congruent in the diagonal cells (1,1), (2,2), and (3,3)-an example would be cell (1,1) of Table 2, where products with high price and performance are located; (2) in the corner cells (1,3) and (3,1) price and performance are incongruent (for example, low performance and high price); and (3) the remaining cells were classified as somewhat congruent. The results as shown in Table 3 indicate that slightly more than 43% of the price-performance relationships were congruent and that the retailer and manufacturer brands were not significantly different from each other. Findings in this section imply that consumers do not necessarily obtain the best product performance by paying the highest prices. It appears, therefore, that the American marketing system does not function to equate price and performance. Retailers do not improve this situation; in fact, the retailer brands appear to have less price-performance congruence than the manufacturer brands. However, the formal statistical test found no difference. Congruence of Brands with a Particular Price or PerformanceLevel Drawing from Alderson, the lack of a strong price-performance relationship could be due to
17. Same reference as footnote 1.

38.5 32.2 8.3

42.3 41.2 50.0

192 26.4 41.6

26 34 24

TABLE 3
BRANDS TO COMPARED MANUFACTURER BRANDS RETAILER RELATIONSHIPS OF ONCONGRUENCEPRICE-PERFORMANCE LINE BY PRODUCT

Classification of Relationships Somewhat InconConConBrand Type gruent % gruent % gruent %

Total N

40.4 51.1 Retailer 48.0 44.0 Manufacturer 48.8 Meanpercentage 43.1 Chi-square= .417;not significant.

8.3 8.0 8.1

84 250

competition for differential advantage as retailers and manufacturers attempt to provide a uniform price or performance level.18 In order to test hypothesis 6 (that products sold under the same brand would be congruent with a particular level of price or performance), the MBs and RBs were separately trichotomized within each product line on product performance and price. The brands were classified as high, medium, or low, depending on the classification that contained the highest frequency of products for a brand. Next, the distributions of products by level were summarized for the brands within each level. The results are shown in Table 4. The manufacturer and retailer brands were significantly associated with a price or performance level. These results can be contrasted with the price and performance relationships in Table 2, where price and performance were associated for MBs but not RBs. The data suggest that sellers of appliances may be concerned with attempting to set a constant price or performance level across products. Hypothesis 7 stated that the congruence of a brand within a price or performance level (Table 4) would be greater than the congruence between price and performance (Table 3). To test this hypothesis the congruence within levels was measured by classifying each high-high, mediummedium, or low-low relationship as congruent, and other relationships as incongruent, employ18. Same reference as footnote 10.

Price-ProductPerformanceCompetitionbetween Retailerand Manufacturer Brands

TABLE 4 DISTRIBUTION PRODUCTS PRICE, OF BY PERFORMANCE LEVEL
RETAILER BRANDS MANUFACTURER BRANDS

57

Ranking of
Prods.

Performance Leveld Med. Low Tot. High Med. Low Tot. High Med. Low Tot. High Med. Low Tot. High
% % % N % % % N % % % N % % % N

Price Levela

Performance Levelb

Price Level"

High Med. Low

0 0 0 0 44.4 22.2 33.3 31.7 50.8 17.5 63 16.7 66.7 16.7 14.3 28.6 57.1 21 23.8 33.3 42.8 = "Chi-square 12.54;significant as chi-square .05 = 5.99. = "Chi-square 50.37;significant as chi-square .05 = 9.49.

27 64.7 21.6 13.7 51 61.4 34.3 4.3 36 23.8 47.6 28.7 143 19.8 54.3 25.9 21 0 39.3 60.7 28 14.1 22.5 63.4 = bChi-square 15.57;significant as chi-square .05 = dChi-square = 81.87;significant as chi-square .05 =
TABLE 5 RESULTS OF MCNEMAR TEST FOR SIGNIFICANT DIFFERENCE BETWEEN Two MEASURES OF CONGRUENCE

70 81 71 9.49. 9.49.

ing data used to prepare Table 4. To test for a significant difference between the two measures of congruence (within levels or by price and performance), the McNemar test for the significance of changes where paired observations are made on the same objects (in this case products) was employed.19 The results as shown in Table 5 provide moderate evidence that congruence by brand occurs with greater frequency than congruence by price and performance, although congruence by brand was significantly higher only for performance. These findings (Tables 4 and 5) imply that firms may set performance levels or prices on a set of products in order to be a relatively high-, medium-, or low-priced or performance competitor. The significance of these results is that some evidence has been found concerning a key concept used by Alderson. According to Nicosia, Alderson's functional approach is of consequence because it focuses attention on marketing agencies and their relationships as components of a system.20 In particular, the brand-price relationships do form a pattern when viewed as a system of offers by the same firm. These results are also consistent with the recommendation by writers on marketing management that in product line pricing, price should be set not on the basis of each item considered individually, but on the overall product line.21 This method of pricing was found in business practice by Kaplan, Dirlam, and Lanzillotti in their survey of pricing.22 The results in this section should be considered quite tentative, because while retailers and manuhavioral Sciences (New York: McGraw-Hill Book Co., 1956), 63-67. pp. 20. F. M. Nicosia,"Marketing Alderson's and Functional19. Sidney Siegel, Nonparametric Statistics for the Be-

Type of Brand and Congruence by Type of Level Retailer Brands Performance Levelc 40.4 54.6 84 Price Leveld 40.4 50.0 84 Manufacturer Brands Performance Levele 44.6 59.5 222 Price Level' 44.6 53.2 222 aMethodused in Table 2. bMethodused in Table 4. cChi-square= 4.11; significant as chi-square .05 = 3.84. = dChi-square 2.21; not significant. eChi-square= 9.94;significant as chi-square .05 = 3.84. fChi-square= 3.27; not significant. facturers offer a number of price lines under the same brand name, it is not known how Consumers Union selects products to test within price lines. Manufacturerversus Retailer Brands on Congruence by Price or PerformanceLevel Hypotheses 8 and 9 were that retailer brands would show greater congruence within price levels than manufacturer brands, while manufacturer brands would be more congruent within performance levels than retailer brands. The data in Table 4 were used to classify relationships as congruent (high-priced brand/high-priced product), somewhat congruent (medium-priced brand/ high-priced product) or incongruent (low-priced The results are brand/high-priced product). shown in Table 6. The manufacturer brands demonstrated significantly less incongruence than the retailer brands on both price and performance, which suggests that manufacturers may be better able or more interested in controlling price and performance. From a consumer's point of view, the person who relies on a particular MB as being high in quality would have a slightly

ConCongruence gruence by by Product Brand by Total Line"% LevelbO Congruent Congruent Total N Relation- Relationships ships

ism," in Perspectives In Marketing Theory, Jerome B. Kernan and Montrose S. Sommers, eds. (New York: Appleton-Century-Crofts,1968),p. 85. 21. Philip Kotler, Marketing Management, 2nd ed. (Englewood Cliffs, N. J.: Prentice-Hall, 1972), p. 543; and William J. Stanton, Fundamentals of Marketing, 3rd ed. (New York: McGraw-HillBook Co., 1971),p. 468. 22. A. D. H. Kaplan, Joel B. Dirlam, and Robert F. Lanzillotti, Pricing in Big Business (Washington, D.C.:

The BrookingsInstitution,1958), 258. p.

58

Journal of Marketing, July 1974

TABLE 6 BRAND CONGRUENCE LEVEL BY PERFORMANCE RANKINGS: PRICE, COMPARED RETAILER MANUFACTURER TO BRANDS

Ranking by
Brand Type

Classification of Relationships Somewhat Congruent Congruent Incongruent Total

N % N % N % N

Price Rankinga Retailer Brands Manufacturer Brands Performance Rankingb Retailer Brands Manufacturer Brands

44 118 45 132

52.4 53.2 53.6 59.5

0 97 25 77

0 43.6 29.8 34.7

40 7 14 13

47.6 3.2 16.7 5.9

84 222 84 222

aChi-square= 115.17;significant as chi-square .05 = 5.99. = bChi-square 8.88;significant as chi-square .05 = 5.99. better probability of not obtaining a very lowquality product than the consumer who relied on a RB. This analysis concerning congruence within price or performance has one weakness in evaluating RBs: with only three or four brands per product, the RBs had to have "closer" congruence than MBs to be considered congruent. As an example, with three brands ranked as high, medium, and low across products, a brand would have to be quite consistent in performance to always be the medium-quality, or the high- or low-quality, brand. On the other hand, with some twelve to fourteen items, the medium performance MBs could range over four to six ranked positions and remain in the medium rank. Summary,Implications,and Conclusions of Summary General Results in Testingthe Hypotheses The results can be summarized in terms of three general areas as follows: The first three hypotheses stated that the retailer brands would be underpriced in comparison to manufacturer brands and the RBs would be equal in quality to the MBs. The results clearly supported these hypotheses. Retailer brands on the average offered the consumer better product performance relative to the price paid. Hypotheses 4 and 5 were that price and product performance would be significantly associated for the MBs and RBs and that the two types of brands would be equivalent in strength of association. Price and performance were significantly associated for the manufacturer brands but not for the retailer brands. No significant differences were found when the strength of the association between price and performance of the retailer to the manufacturer brands was compared. Although price and performance were associated, the strength of association was not impressive; in fact, for only 43% of the items were price and performance correlated such that high price was paired with high performance, medium price with medium performance, or low price with low performance. The consumer cannot be assured of high quality by paying a high price. The last three hypotheses were concerned with whether retailer and manufacturer brands seek a competitive advantage by correlating price and performance (pairing high price with high performance, etc.) or by positioning the product line to a consistent price or performance level. The findings were not strong, but they did suggest that both retailer and manufacturer brands were more congruent with a pattern of consistency within a price or performance level than they were congruent with a correlation between price and performance. The MBs were more congruent with a price or performance level than the RBs. This set of results implies that one reason for the weak association between price and performance is that firms seek a differential advantage by positioning their brands to a particular price or performance level. Implicationsfor Consumersand MarketingProfessionals Implications for consumers can be summarized in terms of a clear rule: do not judge product performance on the basis of price. Since retailer brands tended to be underpriced relative to manufacturer brands, the retailer brands appear to offer better buys than manufacturer brands, on the average. However, if the consumer is seeking top quality, the highest quality product was a manufacturer brand for 22 of the 23 products studied. Also, a fair proportion of the manufacturer brands were underpriced. Therefore, the consumer for whom the cost of information seeking is not excessive should rely not on any simple clue such as price or type of brand; by seeking information, he may be able to obtain good product performance at a relatively low price. The main implications for marketing profes-

Price-ProductPerformanceCompetitionbetween Retailerand Manufacturer Brands sionals concern the ability of manufacturers to meet retailer brand competition and the social value of product differentiation. The results indicate that retailer brands are underpriced relative to manufacturer brands, which raises questions concerning the ability of manufacturers to meet the competition of retailer brands. Manufacturers may be required to make greater efforts in areas where retailers are felt to be weak, such as product innovation, to remain competitive over the long run.23 This study also raises questions about the social value of product differentiation, which has been challenged on the grounds that advertising and style emphasis divert the consumer's attention from more fundamental values such as quality.24 Since this study found no strong correlation between price and product performance, which is one important dimension of quality, the implication is that either consumers cannot judge properly the quality received for the price paid or that they place greater weight on factors not considered by Consumers Union. Marketing professionals could meet the critics' charge of misleading consumers by adopting a simple policy of labeling the models within a product line to distinguish performance differentials from other product features such as convenience features. As an example, if a firm had three models of essentially the same refrigerator from a mechanical point of view, why not specify that Models A, B, and C are similar and that model C is the basic model available in white only, B has color panels, and A has color panels plus a more flexible arrangement of trays and food storage space? The consumer would then be able to make a wiser purchasing decision. Conclusions:Implicationsfor Competition in the AmericanMarketingSystem The results of this study are mixed concerning benefits to the consumer arising from competition between manufacturer and retailer brands. The benefits of countervailing power are sustained by this analysis; however, the consumer who relies on price as a cue to quality will often pay a high price for low quality. The benefits of countervailing power undoubtedly work to widen consumer choice and, as a class, the retailer brands clearly offered
OFMARKETING, 34 (January 1970), pp. 31-38. Vol.

59

23. Robert W. Little, "The Marketing Channel: Who Should Lead This Extra-corporate Organization?" JOURNAL 24. H. Paul Root. "Should Product Differentiation Be Re-

a higher proportion of good buys. Almost 70% of the retailer brands were underpriced relative to the manufacturer brands (Table 1). This study has a direct bearing on the questions raised by Little of the choice afforded the consumer by different channel arrangements.25 Retailer brands serve to widen the consumer's choice by providing reasonable performance at relatively low prices. From a public policy point of view, the present study points to the desirability of industries with both large retailer channels and manufacturersmaller retailer channels so that the effect of countervailing power can work to enhance consumer welfare. The results here would certainly question the propriety of industries that lack the structure to develop countervailing power, such as the automobile industry. This study also has direct implications concerning the relationships between price and product performance. The data confirm the findings of Morris and Bronson that the association between price and performance is not strong.26 To the extent that consumers rely on price as a cue to quality in purchasing major appliances, the American marketing system is not working to enhance consumer welfare. It should be noted that the Consumers Union rankings do not include some factors such as the styling or prestige of manufacturer brands, upon which the consumer may place some value. However, based on a number of factors related to performance, consumers do not necessarily obtain high performance by paying a high price. The low correlation between price and performance found in earlier studies was not changed by a separate analysis of retailer brands. Is the weak association between price and performance related to a strategy of trying to obtain a uniform price or performance level? The results do indicate that this could be one reason; however, the findings were not strong, so other factors must play a role. Considering the impact of both competition for differential advantage and countervailing power, the underpricing of retailer brands suggests competitive pressure, but the lack of a strong association between price and performance implies that product differentiation has diluted the impact of countervailing power. The fact is that prices did not relate to performance for a majority of the items included in this study. 26. Same referenceas footnote 1.
25. Same reference as footnote 23.

stricted?" JOURNAL MARKETING, Vol. 36 (July 1972), pp. OF

3-9.