International Journal of Retail & Distribution ManagementStrategic objectives and competitive advantages of private label products:Manufacturers' perspectiveMurat Hakan Alt#nta# Serkan K#l#ç Gokhan Senol Feride Bahar Isin

Article information:To cite this document:Murat Hakan Alt#nta# Serkan K#l#ç Gokhan Senol Feride Bahar Isin, (2010),"Strategic objectivesand competitive advantages of private label products", International Journal of Retail & DistributionManagement, Vol. 38 Iss 10 pp. 773 - 788Permanent link to this document:http://dx.doi.org/10.1108/09590551011076542

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Users who downloaded this article also downloaded:Jeffrey Lewin, J. Tomas Gomez#Arias, Laurentino Bello#Acebron, (2008),"Why do leading brandmanufacturers supply private labels?", Journal of Business & Industrial Marketing, Vol. 23 Iss 4 pp.273-278Jorge Tarziján, (2007),"Should national brand manufacturers produce private labels?", Journal of Modellingin Management, Vol. 2 Iss 1 pp. 56-70Marco Hubert, (2009),"Quo vadis Manufacturers? Private Label Strategy: How to Meet the Store BrandChallenge20091K Nirmalyaumar, Jan#Benedict E.M. Steenkamp, . Quo vadis Manufacturers? PrivateLabel Strategy: How to Meet the Store Brand Challenge. Boston, MA: Harvard Business School Press2007. 270 pp., ISBN: 1#42210167#3", International Journal of Retail & Distribution Management, Vol.37 Iss 11 pp. 1008-1009

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Strategic objectives andcompetitive advantages of private

label productsManufacturers’ perspective

Murat Hakan Altıntas, Serkan Kılıc and Gokhan SenolFaculty of Economics and Administrative Sciences, Uludag University,

Bursa, Turkey, and

Feride Bahar IsinFaculty of Economics and Administrative Sciences, Baskent University,

Ankara, Turkey

Abstract

Purpose – The purpose of this paper is to determine which strategic objective factors havesignificant effects on competitive advantage of private label manufacturers in Turkey.

Design/methodology/approach – A study was conducted of 90 Turkish private labelmanufacturers. A web-based questionnaire was the chosen method.

Findings – Three strategic objective factors were found to have an effect on competitive advantage:production efficiency, market embeddedness and product selling control.

Research limitations/implications – A comparative analysis between retailers andmanufacturers of private labels was regarded as necessary to learn about their perspectivesregarding competition. The large sample size encouraged confident generalization of the findings.Another limitation was only analyzing data from a country that has a low private label market share.

Practical implications – The findings of this paper offer valuable insights to retailers, nationalbrand manufacturers and private label manufacturers, enabling them to learn the triggers for productmanufacturing from the perspective of private label manufacturers.

Originality/value – It is hoped that this paper will reveal some valuable perspectives from anemerging private label market.

Keywords Turkey, Competitive strategy, Fast moving consumer goods, Labelling, Brand image

Paper type Research paper

IntroductionPrivate labels have grown enormously in recent years in many countries. According tothe Private Label Manufacturers Association (PLMA) (2010), in countries such asGermany, Belgium, the UK, Austria and Spain, total share of private labels had nearlyapproached 40 percent. Turkey had the lowest private label share with 13 percent. Thisgrowth of private labels is due to factors such as retail concentration, retailers’marketing strategies, economies of scale, size of national brand market and consumeracceptance (Gomez and Rubio, 2008).

Retailers increasingly attempt to develop their private label products due to thecontrol and high margins that private labels provide to them (Terpstra and Sarathy,1994). For retailers, private labels are a tool for controlling the channel and reducing

The current issue and full text archive of this journal is available at

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Private labelproducts

773

Received November 2009Revised April 2010Accepted May 2010

International Journal of Retail &Distribution Management

Vol. 38 No. 10, 2010pp. 773-788

q Emerald Group Publishing Limited0959-0552

DOI 10.1108/09590551011076542

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the dependence of the store on national brands (Tamilia et al., 2000). Through thepractice of developing and marketing private label products in competition withnational brands and manufacturers, retailers increase their bargaining power(Tarzijan, 2004). If national manufacturers do not produce their private label productsthemselves, retailers cannot present their own brands in stores to maximum advantage(Omar, 1999). National brand manufacturers may choose whether or not to produceprivate labels; however, other manufacturers could also be providing private labelproducts to the retailer in similar categories. Thus, a manufacturer that producesprivate label products for retailers prevents them from buying the products from rivalsof the manufacturer (Omar, 1999; Jonas and Roosen, 2005; Arias and Acebron, 2008).Additionally, as manufacturers fulfill retailers’ demands and needs (Dunne andNarasimhan, 1999), a stronger relationship will form.

There are obvious benefits for retailers to introduce private labels. Retailers tend todevelop private label products to gain control over shelf space, to introduce lower pricesto consumers by controlling the costs, to have bargaining power with manufacturers(Halstead andWard, 1995; Savascı, 2003; Batra and Sinha, 2000; Tarzijan, 2004), to reachmore consumers by drawing their attention and reinforcing the store image(Tamilia et al., 2000; Vahie and Paswan, 2006), to differentiate themselves concerningprice and product diversification compared to competing stores (Schneider, 2004),to improve relationships with manufacturers (Fernie and Pierrel, 1996), to gain channelefficiency (Chen et al., 2009), to reduce the number of national brands on the shelves(Garretson et al., 2002) or lessen the dependence of the store on national brands(Quelch and Harding, 1996), to increase profit margins (Hoch and Banerji, 1993) and toraise the retailers’ income and profits (Schneider, 2004).

There are several private label-based studies which can be classified into threecategories:

(1) Consumer-based and related studies (Sinha and Batra, 1999; Miranda and Joshi,2003; Batra and Sinha, 2000; Bardakcı et al., 2003; Mieres et al., 2006; Corstjensand Lal, 2000; Vahie and Paswan, 2006; Ozkan and Akpınar, 2003; Korkmaz,2000; Baltas, 2003; Baltas et al., 1997).

(2) National brand and private label comparisons (Orel, 2004; Bontemms et al.,1999; Steiner, 2004; Narasimhan and Wilcox, 1998; Burt, 2000; Bonano andRigoberto, 2005; Ailawadi et al., 2003; Hultman et al., 2008; Ozgul, 2004).

(3) Manufacturer-related studies (Ozgul, 2004; Oubina et al., 2006a,b; Gomez andBenito, 2008).

Yet, to our knowledge, few similar studies analyzing the manufacturers’ strategicobjectives in producing private label products have emerged in this field (Quelch andHarding, 1996; Dunne and Narasimhan, 1999; Oubina et al., 2006; Gomez and Benito,2008; Arias and Acebron, 2008). In this context, the purpose of this paper is to analyzemarketing-based strategic objectives for manufacturing private label products andtheir effects on competitive advantage from the perspective of Turkish private labelmanufacturers. A multiple regression analysis was conducted only on dual-structuredmanufacturers to reach this purpose.

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Rationale for the studyPresent paper specifically lies on two factors:

(1) Although, Turkey has a low market share for private label sector, it has beengrowing for the domestic and export markets. It is closing to 9 percent in the year2009 (Infomag, 2010). According to the “2006 market brands report” from theRetailing Institute, private label sales grew by 0.5 percent compared to the year2005 inTurkey. The total share of private label sales was 21.7 percent. Across theproduct areas of private labels, the food product group growth trend had thehighest market share. The cleaning product group was second (RetailingInstitute, 2006).

(2) There are no sufficient studies about manufacturers related to private labelmanufacturing in Turkey. In this light, the main research problem is to findwhich strategic objectives have a positive relationship with competitiveadvantages of private label manufacturers.

The potential contribution of the present study is to point out the private labelmanufacturing from the perspective of private label manufacturers which have anactivity in non-maturity stage like Turkey and similar countries. Besides, two basicfactors derived from results can be used by private label manufacturers: resourceplanning and evaluation of competitive advantage.

ApproachThis paper is structured as follows. First, the existing literature on producing privatelabel products from the manufacturers’ perspective is reviewed. Second, the researchmethodology and the results are shown. Next, conclusions are drawn and the limitationsof the research are discussed. Finally, some suggestions for future research are made.

Conceptual frameworkPrivate label products are generally inexpensive, easy to find and with low risk forconsumers. In addition, the price differential between national brands and private labelsis wide (Quelch and Harding, 1996). National brand manufacturing focuses on sellingand on product diversification, but private label products need to be manufactured inhigh quantities at competitive price levels. In this context, price plays an important rolein product diversification (Connor and Peterson, 1992). When competitive interaction isexamined, the general price of national brands has a positive relationship to the marketshare of private labels (Narasimhan and Wilcox, 1998). Thus, the advancement ofprivate label product share triggers a decrease in national brand prices but an increase inprivate label prices (Putsis, 1997). In addition to price-based connections, therelationship can also be analyzed in terms of brand consciousness. Baltas et al. (1997)showed that consumers do not always prefer private labels, andmight tend to buy othernational brandswhen prices of national brands increase. Otherwise, there is competitionbetween private labels and national brands. Mills (1999) examined somecounter-strategies of manufacturers such as non-linear prices, coupons, shelf-spacechallenges and quality.

Manufacturers of private label products can be classified in to three groups (PLMA,2010): a group consisting of big national brand manufacturers that transfer their excesscapacities for private label products, a group specializing in a specific product category

Private labelproducts

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and that focuses on private label manufacturing and a group consisting of big retailersand wholesalers that have the capability of manufacturing their own products.The first group consists of dual-structured manufacturers, the second group producesonly private labels and the last group consists of the distributors. The PLMA (2010)states that there are more than 3,200 dual-structured manufacturers of private labelsworld-wide.

National brand manufacturers are not only challenged by the other national brandmanufacturers as competitors, they are also competing with private labelsmanufactured by retailers. On the other hand, private label manufacturers in thesystem are the hidden competitors for both groups as a third party. At first sight, thesefirms are seen as being in the back line, but they are learning the marketplace andconsumers’ preferences with their own brands, which are labeled as private labelproducts. Private label manufacturing also increases the market share and profitabilityfor manufacturers. In this context, manufacturers can use two models: a dual strategythat explains using own brands and private labels together and a dedication strategymodel that focuses only on private labels (Kumar and Steenkamp, 2007). Manufacturersmust have a plan to achieve a more powerful position in the marketplace; this planconsists of private label product manufacturing objectives and competitive advantages.

Manufacturers of private labels have regional positions as compared to manufacturerbrands that are created and financed by manufacturing firms (Lamb et al., 1992). Privatelabel products also motivate low-quality manufacturers to specialize only in this area(Arias and Acebron, 2008). Because of the risk of losing their brand’s prestige inconsumers’ minds and losing market share, some national manufacturers do not tend tomanufacture private label products unless they have an excess capacity (Colangelo,2002). The decision tomanufacture private label products is a chance for small andmiddlesize enterprises to compete with the other known brands in retail settings and to improvetheir operation standards (Cerceve Dergisi, 2003). In this context, manufacturers that donot decide to manufacture these products will be faced with worse problems in the future(Erdogan, 2003). Hence, retailers realize the strategic role of private labels and a numberof private label manufacturers provide products in the market; the presence of bothgroups makes this field competitive (Narasimhan and Wilcox, 1998).

Strategic objectives and competitive advantages of manufacturing private labelsfrom the private label manufacturers’ perspective are shown in Tables I and II.

These factors refer to market efficiency and competitive advantages of private labelmanufacturers and are associatedwithmajor dimensions in the sector such as competitiveand market advantages. First, the concept of market power is evaluated in terms ofindustrial conditions and characteristics (e.g. competition among manufacturers, whereindustry sales are not equally distributed among manufacturers; Butaney and Wortzel,1988). Second, profitability is a vital element. Two basic elements are essential forachieving profitability:

(1) Differentiation between firms can be attributed to consumer preferences(demand structure), efficiency (cost advantage) and anti-competitive conduct(tacitly cooperative behavior) (Kadiyali et al., 2001).

(2) Profitability is attached to channel power (Kadiyali et al., 2000).

Third, retailers focus on economic value-based long-term strategies to gain power in thechannel (Ailawadi et al., 1995) and can achieve market power based on differentiation

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through private label products (Draganska and Klapper, 2007). These activitieschannelize private labelmanufacturers to the same strategies due to the interdependency(e.g. quality, packaging) between retailers and private label manufacturers and providean indirect market advantage for private label manufacturers. Fourth, the promotionmaximizing target (Ailawadi et al., 2009) and accompanying promotions with nationalbrands (Chen et al., 2009) cause an increase in private label production and providemarket power for theirmanufacturers in the context of demand. Finally, branding powerof ingredients (Vaidyanathan and Aggarwal, 2000) can be used to gain an alternativemarket power for private label manufacturers. As a result, several potential competitiveadvantage factors, either direct or indirect, are available for private label manufacturers.The following “Methodology section” below aims to outline the primary dimensions ofstrategic objectives for specific competitive advantages.

MethodologyPurposeThe purpose of this paper is to determine the effect of strategic objectives oncompetitive advantages of private label manufacturers. The basic research problem isto determine which objectives have significant effects on competitive advantage.Hence, we use multiple regression analysis to fulfill this purpose.

SamplingThere isno listing of private labelmanufacturers that couldbeused to sampling inTurkey.Some sectoral associations have members but they do not represent the populationexactly. Therefore, we have decided to reach to 268 private label manufacturers whoattended the Private Label Turkish Fair in 2007 in all product categories (Fast MovingConsumer Goods sector). It was used to draw a sample of private label manufacturers.

Data collectionAweb-based questionnairewas preferred to gather the data. A participation requestwassent to 268 private label manufacturers to fill out the questionnaire. Totally, 90 private

Responding to other competitors Dunne and Narasimhan (1999), Kadiyali et al. (2001),Verhoef et al. (2002), Oubina et al. (2006a), Gomez andRubio (2008)

Entering new markets Dunne and Narasimhan (1999), Verhoef et al. (2002),Oubina et al. (2006)

Protecting position in the retailing channel Quelch and Harding (1996), Dhar and Hoch (1997),Narasimhan and Wilcox (1998), Dunne and Narasimhan(1999), Dunne (1999), Omar (1999), Verhoef et al. (2002),Oubina et al. (2006)

Getting more shelf space Quelch and Harding (1996), Omar (1999), Kim andStaelin (1999), Oubina et al. (2006), Draganska andKlapper (2007), Gomez and Rubio (2008)

Bargaining with retailers Quelch and Harding (1996), Omar (1999), Savascı (2003)Obtaining competitive advantage Quelch and Harding (1996), Dunne and Narasimhan

(1999), Omar (1999), Verhoef et al. (2002),Oubina et al. (2006)

Penetrating the retail sector Conor and Peterson (1992), Hoch and Banerji (1993),Hoch (1996), Quelch and Harding (1996)

Table I.Competitive advantage

variables of private labelmanufacturers

Private labelproducts

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label manufacturers replied to the questionnaire, representing a 33.58 percent responserate. Possible response bias was tested by examining of responses to the key structuralvariables in our study (company size, product category, production volume andgeographical activities). There were no significant differences.

Using economies of scale Quelch and Harding (1996), Dunne and Narasimhan (1999), Omar(1999), Oubina et al. (2006)

Increasing the market share Quelch and Harding (1996), Dhar and Hoch (1997), Dunne andNarasimhan (1999), Verhoef et al. (2002), Oubina et al. (2006),Kumar and Steenkamp (2007), Arias and Acebron (2008)

Improving relationships withretailers

Quelch and Harding (1996), Hoch (1996), Berman (1996),Narasimhan and Wilcox (1998), Dunne and Narasimhan (1999),Omar (1999), Jonas and Roosen (2005), Oubina et al. (2006)

Evaluating production capacity Halstead and Ward (1995), Quelch and Harding (1996), Hoch (1996),Omar (1999), Dunne and Narasimhan (1999), Oubina et al. (2006),Arias and Acebron (2008)

Evaluating the profitability ofprivate labels

Hoch and Banerji (1993), Quelch and Harding (1996), Dunne andNarasimhan (1999), Oubina et al. (2006), Kumar and Steenkamp(2007)

Fulfilling the retailers’ demands Dunne and Narasimhan (1999), Oubina et al. (2006) Arias andAcebron (2008)

Taking advantage of advertisingprocesses of retailers

Quelch and Harding (1996), Dunne and Narasimhan (1999), Omar(1999)

Increasing preferences ofconsumers toward private labels

Halstead andWard (1995), Quelch and Harding (1996), Tamilia et al.(2000)

Converting a product to astrategy

Verhoef et al. (2002)

Supporting the new productdevelopment process

Dunne and Narasimhan (1999), Fearne and Dedman (2000), Jonasand Roosen (2005)

Obtaining diversification in theproduction line

Quelch and Harding (1996), Dunne and Narasimhan (1999), Verhoefet al. (2002)

Supporting the branding process Quelch and Harding (1996), Dunne and Narasimhan (1999), Omar(1999)

Keeping a position in the crisissector

Hoch and Banerji (1993), Hoch (1996),Quelch and Harding (1996)

Minimizing production costs Quelch and Harding (1996), Dunne and Narasimhan (1999)Transferring the revenues ofprivate labels to own brands

Verhoef et al. (2002)

Achieving production continuity Halstead and Ward (1995), Quelch and Harding (1996), Hoch (1996),Omar (1999)

Taking advantage of paymentreceived

Quelch and Harding (1996), Berman (1996)

Obtaining efficient stock control Hoch (1996), Quelch and Harding (1996),Dunne and Narasimhan (1999),Omar (1999), Oubina et al. (2006)

Decreasing the risk of not sellingown products

Jonas and Roosen (2005)

Taking advantage of nobranding cost

Dunne and Narsimhan (1999), Omar (1999)

Increasing the awareness of ownbrands

Halstead and Ward (1995), Berman (1996), Dunne and Narasimhan(1999), Arias and Acebron (2008)

Table II.Strategic objectives ofprivate labelmanufacturers

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QuestionnaireFirst, a literature review was conducted to determine the strategic objectives andcompetitive advantages. A total of 28 items were found (Tables I and II). Second,20 private label manufacturers were interviewed to check these factors and discoverother items related to the objectives of producing private label products.Wederived onlyfive additional objectives from these interviews. These objectives are: maintaining thevisibility of own name in retailers’ product, taking advantage of packaging, supportingcompetitive power of small retailers in the market, creating a new brand name andincreasing the power of bargaining for the brand by turning it over more frequently inretailing chains. In this context, a total of 33 items were generated from this method.Seven items were assumed to represent competitive advantage and the other 26 itemsdescribe marketing-based manufacturing objectives. All respondents were askedto evaluate all 33 items by using a five-point Likert scale (1 ¼ I strongly disagree,2 ¼ I disagree, 3 ¼ Neutral, 4 ¼ I agree, 5 ¼ I strongly agree).

ResultsParticipants’ characteristicsThe total number of respondents was 90. The respondents consisted of owners(35.2 percent) and managers (64.8 percent) of private label manufacturing companies.The geographical activities of the firms were separated into three groups: local andregional (26 percent), national (44.4 percent) and international (29.6 percent). Sizes of theparticipant firms were classified into three groups: 1-99 employees (55.6 percent),100-249 employees (33.3 percent) and250 ormore employees (11.1 percent).Theproportionof private labels in total manufacturing was separated into three groups: 0-19 percent ofthe production (31.5 percent), 20-39 percent of the production (31.5 percent) and 40 percentor more of the production (33.3 percent). A few of the participants (3.7 percent) did notanswer this question. Across the produced private label product categories, it was foundthat private label manufacturers are mostly producing shelf-stable foods (35.88 percent),home care and cleaning products (27.77 percent), personal care and cosmetic products(21.03 percent), non-alcoholic beverages (9.77 percent) and other products (e.g. pet food,diapers, electronic products) (5.55 percent).

MeasuresCompetitive advantage scale. Competitive advantage scale has seven items. Reliabilitywas (Cronbach’s alpha) 0.783.Validity results (root mean square error of approximation(RMSEA) ¼ 0.06, godness of fit index (GFI) ¼ 0.97, comparative fit index (CFI) ¼ 0.97,x 2/df ¼ 1.50) indicate a good fit. Scale items are; responding to other competitors,entering new markets, protecting own position in the retailing channel, getting moreshelf space, bargaining with retailers, obtaining a competitive advantage, penetratingthe retail sector.

Strategic objective scale. The reliability of strategic objective itemswas 0.882, but fiveitems were dropped from the list, Cronbach’s alpha has increased to 0.902 as overall.Then, an exploratory factor analysis was conducted to identify the main groups.The principal axiswas orthogonally employed to reduce 21 items to amore focused set ofdimensions and identify any possible independent variables. The Kaiser-Meyer-Olkinmeasure of sampling adequacy was 0.76, which suggests that the data were suitable forfactor analysis. Initially, using a scree plot test to determine the factor number, six

Private labelproducts

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factors were identified and therefore extracted, accounting for 56.68 percent of thevariance with oblique rotation. Rotated factor loadings were examined assumingdifferent numbers of factors for extraction. Two itemswere omitted from the analysis asit scored lower than 0.40; and two factors (Factor 4 – two items and Factor 5 – one item)have been excluded as they did not have three or more items. As a result, four mainfactors have been maintained in the exploratory factor analysis. Common method biaswas examined using Harman’s one factor test and was found to be a non-issue in thisstudy. Consequently, the strategic objectives scale consists of four main factors and16 sub-items in total and the factor loadings were strong. Four first-order factormodel (correlated) has a good model fit (RMSEA ¼ 0.07, GFI ¼ 0.94, CFI ¼ 0.93,x 2/df ¼ 1.54). These factors can be included to the regression analysis. Factor 1;“Market embeddedness”, includes five items (increasing the market share, improvingthe relationship with retailers, evaluating the profitability of private labels keeping aposition in the crisis sector, increasing awareness of own brands). Factor 2; “Productionefficiency” includes four items (using economies of scale, evaluating the productioncapacity, minimizing the production costs, obtaining production continuity). Factor 3;“Branding advantage” includes three items (taking advantage of advertising processesof retailers, supporting the branding process, taking advantage of no branding cost).Factor 4; “Product selling control” includes four items (taking advantage of paymentreceived, creating efficient stock control, decreasing the risk of not selling of ownproducts, supporting competitive advantage of small retailers in the market). In dataanalysis (Table III), the range of the Cronbach’s alpha of four of the factorswas from 0.59to 0.81, indicating that the questionnaire has a high reliability.

Hypothesis testingFor the main purpose, four hypotheses were tested in the present study. Researchmodel is shown in Figure 1:

Items Factor 1 Factor 2 Factor 3 Factor 4

Improving the relationship with retailers 0.633Increasing the market share 0.501Increasing awareness of own brands 0.496Evaluating the profitability of private labels 0.453Keeping a position in the crisis sector 0.437Minimizing the production costs 0.785Obtaining production continuity 0.765Evaluating the production capacity 0.630Using economies of scale 0.617Taking advantage of advertising processes of retailers 0.831Taking advantage of no branding cost 0.453Supporting the branding process 0.406Creating efficient stock control 0.753Supporting small retailers 0.659Decreasing the risk of not selling of own products 0.598Taking advantage of payment received 0.409Explained variance (%) 30.13 10.10 6.04 2.76Mean 3.48 3.88 3.60 3.14Cronbach’s alpha 0.703 0.819 0.595 0.776

Table III.Exploratory factoranalysis result

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H1. Market embeddedness has a positive effect on competitive advantage.

H2. Production efficiency has a positive effect on competitive advantage.

H3. Branding advantage has a positive effect on competitive advantage.

H4. Product selling control has a positive effect on competitive advantage.

To test these hypotheses, a multiple regression analysis was conducted.Intercorrelations of variables can be shown in Table IV. Normality assumption wastested for using normal probability plot and scatter plot tables to ensure that the scoredistributions were normal and linear. All variables distributed as normal according toP-P plot and scatter plot. There was also no evidence of multicolinearity among theindependent variables according to intercorrelations and variance inflation factor (VIF)that did not exceed 5.0 (in this study VIF was found at 1.17 and 1.45 level for eachconstruct).

Figure 1.Research model

Marketembeddedness

Productionefficiency

Brandingadvantage

Productsellingcontrol

Competitiveadvantage

+

+

+

+

1 2 3 4 5

Market embeddedness 1 1.00Production efficiency 2 0.297 * 1.00Branding advantage 3 0.371 * 0.330 * 1.00Product selling control 4 0.482 * 0.126 0.339 * 1.00Competitive advantage 5 0.582 * 0.541 * 0.392 * 0.462 * 1.00

Note: Significant at *p ,0.05

Table IV.Intercorrelations

of variables

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Table V presents the results for the multiple regression analysis for each of the fourstrategic objective factors of private label manufacturers on competitive advantage.The regression coefficients, p values for the significance of the relationships and theassociated coefficients of determination are reported. The sign and the statisticalsignificance, rather than the magnitude, of each regression coefficient are of primaryinterest here. For each of the strategic objectives measures, the final model p-value, themodel R 2, the independent variables entered in the model, their b coefficients and thep values for the independent variables are listed.

Three factors were significant at p , 0.05 or p , 0.01 and one independent variabledoes not meet this significance level. Multiple regression analysis showed that marketembeddedness (b ¼ 0.330, p , 0.01) and evaluating the production capacity(b ¼ 0.394, p , 0.01) and product selling control (b ¼ 0.233, p , 0.05) factors havea positive effect on competitive advantage at a significance level of 0.01 and 0.05.Factor 3 has not a significant effect on dependent variable. As a result, H1, H2, H4were accepted but H3 was rejected.

ConclusionsThis study focused on the relationship between the strategic objective factors andcompetitive advantages of private label manufacturers. The research was conductedwith Turkish private label manufacturers, and the basic research problem was todetermine which objectives have a greater effect on competitive advantage. Althoughsome studies have been conducted on private label products in Turkey, little attentionhas been given to the objectives of Turkish private label manufacturers. The findings ofthis study will give valuable insights to retailers as well as national brandmanufacturers and private label manufacturers to learn the triggers of manufacturingthese products from the perspective of private manufacturers. We found that threemainstrategic objective factors have a significant effect on competitive advantage (marketembeddedness, production efficiency, product selling control). The results provideimportant and interesting information. Most of the participants in the research weredual-structured firms.

We can infer that these firms use private label product manufacturing as a lever todevelop their own product, to learn the sector and to process planning. Private labelmanufacturers are not only competing with their existing and known competitors, butalso with retailers indirectly. Therefore, the strategic objectives of private labelmanufacturers are the main parameters constituting competitive advantage and

Unstandardizedcoefficients

Standardizedcoefficients

Factors B SE b SE Significance

Market embeddedness 0.527 0.148 0.330 3.556 0.001 * *

Production efficiency 0.551 0.117 0.394 4.715 0.000 * *

Branding advantage 0.121 0.173 0.061 0.697 nsProduct selling control 0.314 0.121 0.233 2.590 0.011 *

Notes: Significance at *p , 0.05 and * *p , 0.01; dependent variable ¼ competitive advantage;adjusted R 2 ¼ 0.513; F ¼ 22.18, p , 0.01

Table V.Multiple regressionanalysis results

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position. This relationship is getting more intense in Turkey as a developing sector.According to the results of this study, competitive advantage is affected most by theevaluation of production capacity or efficient (Factor 2) and product selling control(Factor 4) factors. We found that private label manufacturers in Turkey focused onproduction in general as well as better production of private label products to plan theirproduction processes. Mieghem and Dada (1999) suggested that a make-to-stockapproach is better than a make-to-order approach if variability levels and marginalproduction and holding costs are low. Thus, private labelmanufacturersmay prefer thisapproach. The results are similar to Dunne’s (1999) findings that the factors offulfillment of extra capacity and support of their own products are the main incentivesfor manufacturers to produce private label products. Redesign of operations andformulation of a growth strategy through a market-oriented product strategy (Cravenset al., 2000) may be seen as a managerial function. We believe that manufacturers thatparticipated in the study are dual-structured firms; hence, the private label productsproduced by these manufacturers do not compete directly with the company’s ownproduct, which is a vital factor to success. At this point, product cannibalism (Srinivasanet al., 2005) must be considered by manufacturers. Also, if private label manufacturersare handled by an agent, that agent clearly must consider private label contracts andmodels (Bergen et al., 1992). On the other hand, evaluation of production capacity isimportant for the analysis of process costs. The use of opportunism, capabilities andadaptation may be considered from a managerial perspective (Rindfleisch and Heide,1997).

The objective of market embeddedness (Factor 1) is vital for private labelmanufacturers. This situation is the result of competition with other private labelmanufacturers in the sector. This finding reflects a sales-oriented approach. Anotherelement is support for the development of small retailers, which is a trigger factor forkeeping up the market development effort and private label manufacturing and arational, strategic and future-oriented objective. Implication of a strong strategy as amarket commitment ( Jain, 1993) can also be used to increase the market share forprivate label manufacturers. On the other hand, all requirements of customers in allcategories (i.e. share of wallet) (Du et al., 2007) will be useful tools for learning customerprofiles. Therefore, category-based market share may be increased. Findings of thisstudy provide a managerial perspective in the institutionalization of private labelmanufacturers. Findings show that three processes improvemanufacturers’ competitiveposition: institutionalization of production, sales and brand. In other words, privatelabel manufacturers must strengthen their competitive position in the market by theirexperience and knowledge of production and marketing. Because these commentsare acceptable for existing private label manufacturers, they provide a proactiveperspective to enterprises that might consider entering the private label sector as amanufacturer. Hence, private label production is vital for themanufacturer to respond tomarket signals in a timely manner and to simultaneously develop a reactive model.Actually, the experience gained from private label production may result in brandingderived from the positive relationship between themarket and the learning organizationsystem (Slater and Narver, 1995). At this point, as the product in operational marketingtransforms to communication in communication marketing (Gronroos, 2004), privatelabel manufacturers must gain the experience of communicating with consumers in thebranding process. Additionally, according to Achrol and Kotler (1999), experience

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provides an advantage for private label manufacturers that are specialized micro-firmsbased on network management. Although the concepts of competition and volumebalance are used in a traditional approach (Hunt and Morgan, 1995), private labelmanufacturers must gain a comparative advantage. At this point, it is clear that thesemanufacturers must consider innovation, financial performance and market harmony.

Branding advantage factor (Factor 3) has no significant effect on competitiveadvantage. It is unexpected result. We expected that branding advantage will affect thecompetitive advantage. This result is evidence that private label manufacturers willtend to establish their own branding and marketing processes in the future. Brandconcept is not only product-oriented but also a perception, considering how it improvesaccording to product characteristics ( Jevons, 2005; Thorbjornsen, 2005). Thus, privatelabel products must be analyzed from both the retailers’ and consumers’ perspectives.

This research has some limitations. First, we have considered only the opinion ofprivate label manufacturers who participated in the fair of Private Label Products 2007.Another limitation was only analyzing data from a country that has a low private labelmarket share. In this context, a cross-cultural study might be conducted to analyze thestructure of private label manufacturers which are in non-mature stage. Third, theobjectives of producing private labels were examined only from the private labelmanufacturers’ perspective. For the Turkish private label sector, in future research itwould be beneficial to consider the opinions of retailers about the objectives ofdeveloping private label products and tomake a comparison of the retailers according tofirm size and experience.

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About the authorsMurat Hakan Altıntas is an Associate Professor in Marketing at Uludag University, Turkey.His prime research areas are related to the cultural perspectives of marketing and consumerbehavior. Altıntas is the author of two books, has contributed various articles to academicjournals and presented his research work in conferences. Murat Hakan Altıntas is thecorresponding author and can be contacted at: mhakan@uludag.edu.tr

Serkan Kılıc is a Research Assistant and PhD candidate at Uludag University. His researchareas are retailing and private labels. He also focuses on innovation in marketing subject.

Gokhan Senol has done his PhD and working as a Research Assistant at Uludag University.His research area is Production and Operation Management. Senol also focuses on logistics andsupply chain management.

Feride Bahar Isin has done his PhD and working as a Lecturer at Baskent University.Her research areas are consumer behavior and international marketing.

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