Beware the informed shopper

Posted by Oliver Koll on Oct 23, 2014

Folie2A recent study on willingness-to-pay for brands versus private labels in the pharmaceutical industry shows that the more consumers are educated the more they prefer store brands vis-à-vis national brands.

If all consumers were as informed as pharmacists, the market share of national brand headache remedies would fall by half and total expenditure on headache remedies would fall by 14 percent.
Consequently, uninformed shoppers explain a sizeable portion of price premium for national brands in product categories that are physically homogeneous. Another reason for manufacturers to strive for clear differentiation of their brands from Private Labels.

Source: Bronnenberg et al (2014), Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium, National Bureau of Economic Research Working Paper Series.