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Determinants of price elasticities for private labels and national brands of cheese

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Abstract:

An Almost Ideal Demand System model is developed and used to estimate price elasticities for US cheese sold at retail. Growing consumption of cheese coupled with fierce competition between private labels and national brands serves as motivating factors for this study. Per capita consumption of cheese grew by 75% during 1980-2004 and private labels captured a rising share of this growth. Private labels today account for 35% of market share; national brands, for the remaining 65%. Kraft accounts for 45% of national brands, but price increases for Kraft brands led to a sizeable price gap between its brands and private labels. This gap helped to stimulate growth of private labels. Marketing managers seek to capitalize on both growing cheese sales and price gaps for brands. Relevant information for marketing managers is consumer sensitivity to price changes. This study uses 69 weeks of scanner data, with consumers segmented by income levels to derive price elasticities for both lower-and higher-income consumers. Results show lower-income consumers to be more price sensitive. If large price gaps are maintained, the results suggest continued growth of private labels. Yet, meta-analyses for this study suggest that Kraft could lower the price gap and regain market share.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840500439069

Affiliations: 1: Department of Asia-Pacific Industrial and Business Management, National University of Kaohsiung, Kaohsiung 811, Taiwan 2: Environmental and Development Economics, Department of Agricultural, The Ohio State University, Ohio 43210-1067

Publication date: March 1, 2007

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