Assessing Price Elasticity for Private Labels and National Brands: Differences by Income and Store Location

Abstract

Previous studies have been inconclusive as to whether national brands have greater or smaller price elasticities than private labels. This paper examines consumers' price sensitivity for private labels and national brands within different socioeconomic environments and investigates how socioeconomic status impacts price response to private and national brands. An AIDS model is developed and used to measure price elasticities for seven product categories that are sold in six stores. These stores are selected from geographic areas that are populated by higher- and lower-income consumers. Results show that national brands have larger price elasticities than private labels, particularly in lower-income areas.

Keywords: pricing, private labels, marketing