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Maximiliaan Follender Grossfeld

11893788

Private labelPrivate Label opportunities in China: a quantitative study regarding Chinese millennials

Universiteit van Amsterdam

Economics and Business Economics

MSc BA - International ManagementInternational Business

Thesis Supervisor: Erik Dirksen

Keywords: Private LabelPrivate Label, China, Europe, Retail, Purchase intention, Familiarity, Quality consciousness, Price consciousness, consumer, Millennials, Risk.

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2 Feedback structuur Scriptie – Erik

• Hoe test ik private label in China?

• wat voor type private label producten wil ik testen?

Hoofdstuk 1

KEEP IT SIMPLE!

Introductie onduidelijkheden:

Research questions moeten er bij.

Theorie – elementen behandelen die nodig zijn voor mijn onderzoek

Hoofdstuk 2: Als ik hypotheses benoem, moeten de research questions al benoemd zijn,.

Scriptie is nu een mix van verschillende onderwerpen

Statement of originality

This document is written by Student Maximiliaan Follender Grossfeld who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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List of Tables

Figure 1 Mckinsey China Luxury Report (2019). ... 27

Figure 2: Conceptual Model ... 29

Table 1 Correlation matrix Quality 1 ... 38

Table 2 Correlation matrix Price 1 ... 39

Table 3: Correlation Matrix Price 2 ... 39

Table 4: Correlation Matrix Risk 1... 40

Table 5 Correlation Matrix Risk 2... 40

Table 6: Correlation Matrix Risk 3... 41

Table 7: Correlation Matrix Familiarity 1 ... 41

Table 10: Linear Regression analysis – Anova - Familiarity ... 43

Table 11: Linear Regression analysis – Model summary – Familiarity ... 44

Table 12: Linear Regression analysis – Coefficients table – Familiarity ... 44

Table 13: Linear Regression analysis – Excluded variables – Familiarity ... 45

Table 14: Linear Regression analysis – Anova - Quality ... 45

Table 15: Linear Regression analysis – Model summary – Quality... 45

Table 16: Linear Regression analysis – Coefficients table – Quality ... 46

Table 17: Linear Regression analysis – Excluded variables – Quality ... 46

Table 18: Linear Regression analysis – Anova - Price... 47

Table 19: Linear Regression analysis – Model summary – Price ... 47

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Table 20: Linear Regression analysis – Coefficients table – Price ... 48

Table 21: Linear Regression analysis – Anova - Risk ... 48

Table 22: Linear Regression analysis – Model summary – Risk ... 48

Table 23: Linear Regression analysis – Coefficients table – Risk ... 49

Table 24: Hypothesis findings revealed ... 50

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Abstract

This thesis investigates the opportunities for European managers looking to expand their Private Label products to China. By examining an important and profitable consumer group Millennials, and identifying a research gap with coffee, purchase intention was delineated based on previous research papers. The relationship between consumers’ familiarity of Private Label coffee, their perception of perceived price, perceived quality, and risk consciousness towards purchase intention was therefore investigated. The research question: What purchase intention factors should retailers focus on when targeting Chinese millennials Private Label coffee?, was then formulated to help European managers narrow their focus when targeting this profitable consumer group.

The thesis was performed through a Likert-scale survey. By accumulating over 100 responses of millennials, the data was first validated to allow an accurate analysis. A correlation analysis was first performed to see if in fact the variables correlate with one another, followed by a regression analysis to identify the predictive power of these variables towards Private Label coffee. The study revealed that quality was the most important criterion. Risk and familiarity were also significant in their predictive power. Price was not relevant for this consumer group.

The thesis also revealed that millennials are open and eager to try Private Label coffee products. The thesis could serve as a basis for future research in China regarding coffee and Private Label, both under researched topics.

For future research, it is interesting to further examine the types of channels that Private Label coffee can be sold. Gender was not considered, and it can be interesting to see if Private Label coffee would still be found as a good substitute to national brands such as Starbucks.

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The researched will be conducted through a survey-based research approach to understand the factors that significantly contribute to consumers’ purchase intention towards PL coffee.

Participants were selected via based on the age group, however participants outside the age range were also monitored for any valuable analyses or findings. The goal is to accumulate a total of at least 200 Likert-scale survey questionnaires in China.

5.1. Introduction

In the present-day worldwide retail markets, consumers have ample choice. There are many types of food and beverages consumers can obtain. These can differ in terms of quality, price, and channels. The element that has changed the most overtime, is the information available about a product, the quality, the origin, and the ingredients that make up a product. The amplitude of information enables consumers to compare similar products on all these attributes. As a result, consumer expectations have changed and the manner of shopping has changed as well (Cunningham, Young and Gerlach, 2009).

With all this added knowledge, consumers have become aware that certain store brand products that were labelled cheap or low quality were in fact a misconception. The additional available information has enabled consumers to compare premium brands with product lines owned by retailers (CBinsights, 2018). As a result, consumers started shifting from premium and national brands to Private Label (PL) brands. The recession starting in 2008 because of the financial market meltdown created a new momentum for

Private Label brands (PLB or PB) because consumers actively tried to save money on their household budget (Euromonitor, 2018).

A private labelPrivate Label is a brand that is owned not by a manufacturer or producer but by a retailer or distributor. Private labelPrivate Label products are usually not made by premium brand manufacturers but produced on demand by a contract manufacturer for the

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private labelPrivate Label owner who determines the quality of the product and the ingredients.

Private Labels allow retailers to set their product pricing competitively and retain the profits earned. Retailers realised that taking manufacturing in their own hands while utilizing the gained know-how from the premium brand manufacturers, they can earn up to 25-30%

higher gross margins on their Private Labels (CBInsights, 2018).

Private Label products initially were attributed with low cost, low quality and socially not desirable (DelVecchio, 2019). Over time however in Western developed consumer markets, consumers changed their opinion on the quality associated with private-label products, from average to good and getting better.

1.2 Development of Private Label

The development as described above has also led to the existence of so called premium private-label brands. These premium private-label brands are extremely high in quality, examples are to be found in coffee, wine, and special groceries (Holdings, N, 2018).

Private Labels markets have developed primarily in North America and

Western Europe. These markets are further developed than some markets in the Asia- Pacific or African regions. In China consumer spending power over the last 40 years has grown exponentially. The market has developed from basic low-cost products and services to an increasing demand for premium brands. This is due to the development of the Chinese middle class, currently categorized as Millennials (Allen, D. 2016), which are set to become an important and powerful spending power in the Chinese economy.

Until recently, Chinese consumers had a negative perception of private labelsPrivate Labels.

In the 2010 paper by Nielsen, their survey showed that Consumers in the Asia Pacific region had a distinct negative perception of private labelsPrivate Labels compared to premium brands (Nielsen, 2010). In comparison, in the paper by Nielsen in 2014, Egyptian consumers wanted to neither incur physical risk by trying PLB products, which may not rise to their expectations, nor bear the financial risks, even as the majority does not have enough disposable income to test new products (Nielsen, 2014).Planet Retail RNG in a 2012 report

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comes to the similar conclusions in Asia. The report describes that private brands have a much lower market share in developing markets such as China, India, and Vietnam.

1.3 Interest in China

In the 2019 China Luxury report by McKinsey (2019) it is stated that Chinese consumers are set to contribute to possibly two-thirds of global growth in luxury spending. The report describes that Chinese consumers are spending for status and to demonstrate individualism in the world’s most populated cities. Chinese affluent consumers see luxury as a form of social capital that helps them distinguish and achieve personal and social goals. In the graph depicted in Appendix A.2 it is shown that wealthy Chinese will represent a major force in luxury spending. With the increasing demand towards western products an immense shift is emerging in terms of spending.

Compared to the Mckinsey report (2019), a key enabler for spending on western products has been the scaling up of cross-border e-commerce capabilities and distribution networks, such as bonded warehouses in China and easy-to-use (for an international supplier) online websites such as Alibaba and JD.com. They enable 20.000 international brands on their inbound-to-China e-commerce websites, offering millions of consumers all kinds of products, including Private Labels in a 1.94 trillion-dollar e-commerce market (Wang, J. 2019).

The report also mentions that despite a recent slower economic growth, an increase of the average wage level has resulted in growing consumer spending in 2018. In 2018 the food imports exceeded $70 billion (a historic first). China’s food imports increased fifteen-fold between 1997-2017. It is expected that China will be importing $100 billion worth of food and beverage products by 2021 (Mckinsey, 2019).

To address consumers’ growing demand for quality products, retail companies have stepped up efforts to launch their own private labelsPrivate Labels. Private labelPrivate Label products are often used as a market entry strategy (Lin, Marshall, and Dawson, 2009). In China’s Department Stores Report (2018-2019) it is mentioned that many Chinese

department store operators launched private labelPrivate Label brands in food & beverages, 26.5%, apparel 23.8% and home products 15.4%.

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Private Labels have also attracted wide attention after the introduction of chain-store operations (Pan and Xu, 2009). Hence, Private Labels in China were in the initial stage in the past decennium. Retailers have many advantages to gain from Private Labels. For example, Private Labels have brought added

market power (Hoch, 1996) and increased store reputation (Corstjens and Lal, 2000) (Hyman, Kopf, and Lee, 2008). Similarly, to normal products, they can enhance profits, credibility, and trust with consumers. Private Label products help create

strategic opportunities to retail owners (Cuneo, A., Lopez, P. Yagüe, M. 2012) and offer strong differentiation in terms of store image to retailers. A positive correlation has also been revealed in the Vahie and Paswan (2006) report between store image and Private Label image. The positive correlation can help motivate store loyalty towards consumers when the low price can simultaneously appeal to price-sensitive consumers (Hyman et al., 2008).

The study by Lupton, Rawlinson and Braunstein (2010) found that Chinese consumers did not recognize or know Private Label products and that Chinese consumers think

Chinese Private Labels are not as good as premium brands. This study aims to enable European Private Label coffee producers to better understand

what it takes to target Chinese millennials and which factors play a role in their purchase intention, given their preference for luxury rewards (Luo, 2019).

1.4 Research Gap

The Private Label product that will be tested both in China is Coffee. The reason

coffee is chosen as subject products for Chinese millennials are the recent growth in interest in these products. Revenue in the coffee segment in China amounts to €8.357 million in 2020. The Chinese coffee market is expected to grow annually by 10.7% (CAGR 2020-2023) (Statista Market Forecast, 2019), this estimation was done before the Covid-19 pandemic.

Another reason for selecting these product types is the recent interest surge by this study’s main target group; millennials (CBS, 2019).

Coffee is also seen as a relevant consumer good due to the rising middle class and young Chinese professionals drinking coffee, which is coupled by the opening of many coffee

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houses and cafes, including fast expanding Starbucks (Team CBI, 2019). Despite the growth, coffee is a relatively underdeveloped research topic in China. Compare that to the alcoholic market, including spirits (Noël, 2019), beer (Koutsakis, 2018) or the snacks industry which is set to become an industry that will grow to 36% in 2020 to $3.,432 billion (Liu, 2020).

However, all these products are already developed in terms of research and will yield little additional or new data.

Given the fact that Private Label coffee has a lack of research, it will add much

more value for retailers considering a niche export or move to the Chinese economy which has been proven to be prosperous. To achieve this, retailers will need to know what drives millennials to purchase coffee and what factors can be influenced to raise this drive (Grant.T, 2020).

The research gap is best answered by analysing what influences the purchase intention of millennials. Based on earlier researched topics (Lin et al., 2009) (Lupton et al., 2010), the following variables are chosen: familiarity, price consciousness, risk consciousness, quality consciousness for Private Labels. Familiarity will be tested as the

independent variable among the target group. What is interesting to find out, is which variables prove to be the most influential on millennials with purchase intention.

1.5 Relevant Research papers

Several papers have studied consumer perceptual variables; like quality, price, value, store Several papers have studied consumer perceptual variables; like quality, price, value, store

Several papers have studied consumer perceptual variables; like quality, price, value, store reliance, familiarity with private LabelsPrivate Labels, the self-perception in shopping or the risk associated with private labelsPrivate Labels (Hoch and Banerji 1993; Hoch 1996;

Richardson, Jain and Dick 1996; Burton et al. 1998; Sinha and Bata 1999; Garretson Fisher and Burton 2002; Erdem et al. 2004; Jin and Suh 2005). In those studies, especially

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familiarity but also variables such as price, risk, and quality were mentioned as the most important variables.

Familiarity, in these studies, was found to be important as the results were comparable to the findings of Baltas (1997). It showed that familiarity reviews perceived risk and the amount of information available to the consumer Private Labels. When a consumer was found to trust the Private Label, the attitude correlated positively. Therefore, familiarity increases trust in Private Labels and influences their purchase intentions and lowers risk. However, if there is no familiarity, one might conclude that millennials do not desire to buy the PL coffee at all.

• Sub research question: Is familiarity existent amongst millennial private label

coffee drinkers?

• Sub research question: How does familiarity affect private label coffee purchase

intention?

The paper by Lin, Marshall, and Dawson (2009) examined similar factors influencing Taiwanese consumers' selection of Private Labels. The study revealed that

Taiwanese consumers are more concerned about the quality than the price of Private Labels. It was found that consumers have more confidence in evaluating product quality, thereby reducing perceived risk, and enhancing price consciousness.

The reason why Private Labels are better than brands for retailers is because there is far less necessary budget required for advertising, retail promotions and maintaining a sales force (Kumar and Steenkamp 2007). Furthermore, retailers with large Private Label sales can bargain lower prices with manufacturers with PLs versus

national brands (Steiner, 2004). Private Labels could provide another

bargaining advantage versus brand manufacturers as it provides less shelf space for national brands.

There are drawbacks to developing private labelPrivate Label products. If a logo,; the packaging or the product itself is not up toto standard, the reputation of the entire private

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labelPrivate Label is tarnished and has a far lower chance to succeed or survive at all (Dunne and Narasimhan, 2014).

It can also be difficult for a Private Label brand to evolve with the customer

preferences if the product is made in i.e., Europe and then shipped to China. Tuttle (2012) reported how it is important to continuously innovate and be aware of product and consumer environments. Competing with national brands will always remain difficult, especially abroad. National brands have the advantage of more brand loyalty and experience a higher quality perception. However, a shift is occurring where consumers no longer believe in the higher perceived quality in established brand names compared to other products i.e., Private Labels (Tuttle, 2012). Whether consumers

are open to the idea of Private Labels instead of national brands, what purchase intentions variables are important for this switch will be tested.

private labelsPrivate Labels (Chen, L., & Tang, C. W., 2011) and purchase intentions (Steenkamp J.B., Van Heerde, H.J., Geyskens, I., 2010). In these studies, it was found that in developing countries there are still opportunities for private labelsPrivate Labels. No recent study has been conducted wherein the growing spending power and preference for luxury brands of Chinese consumers has been connected to the opportunities for private labelPrivate Label brands.

Research has been conducted on several private labelPrivate Label topics including foreign retailers' private labelsPrivate Labels (Chen, L., & Tang, C. W., 2011) and purchase intentions (Steenkamp J.B., Van Heerde, H.J., Geyskens, I., 2010). In these studies, it was found that in developing countries there are still opportunities for private labelsPrivate Labels. No recent study has been conducted wherein the growing spending power and preference for luxury brands of Chinese consumers has been connected to the opportunities for private labelPrivate Label brands.

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17 1.7 Research Objective

Private labels will be tested by analysing the buying behaviour. This is delineated by what draws attention to a buyer regarding coffee; what risks a consumer experiences when purchasing coffee and what aspects of purchase intention trigger buying behaviour. 1.7 Research Objective

With the Private Label defined, the Chinese market opportunities outlined, the target group identified and delineated into measurable variables, a research objective, research (sub)questions and framework can be defined. This thesis project is practise oriented:

"providing knowledge and information that can contribute to a successful intervention in order to change an existing situation" (Verschuren and Doorewaard, 2010).

The overall results will provide a solution to: What purchase intention factors are important for Private Label manufacturers who try to reach Chinese millennials for coffee?

1.8 Research Questions

Using the research objective and framework the Research questions are defined together with their respective sub-questions:

1. What purchase intention factor should retailers focus on when targeting Chinese millennials Private Label coffee?

1.1 Are quality, price and risk playing a role on purchase intention in Private Labels coffees (are intention factors in fact playing a role)?

1.2 Which of these factors is most important for purchase intention with Private Label coffee?

1.3 Is familiarity existent amongst millennial Private Label coffee?

1.9 Hypotheses Hypotheses

H1 Familiarity influences positively towards purchase intention amongst Chinese millennials the most

H2 Price negatively influences PL purchase intention

H3 Quality has a positive influence on purchase intention

Commented [TFG12]: Niet prominent/aanwezig genoeg in je thesis. Komt wellicht omdat dit 2.9 en 2.10 is en onbelangrijk lijkt tov 3. Research Framework

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H4 Perceived risk has a positive influence on purchase intention

Table 1 - Hypothesis

1.10 Novelty

The novelty of this study is that there is a lack of consumer response directly from Chinese target consumers in this case, millennials. The results of this study will also enable foreign Private Label producers to better understand what it takes to target Chinese millennials and which factors determine a successful product strategy. Finally, it will guide European business managers to bring their Private Label Coffee products to China using e-commerce.

1.11 Feasibility

The scope of the research is wide, and it may be exceedingly difficult to develop a Chinese survey and gaining enough respondents (assuming the language barrier is not affected by the translation). The translation will be done by two Chinese students from the Chinese university Ningbo, who have agreed to then share the survey amongst their acquaintances and friends that meet the millennial age requirement as mentioned before, between 1981 and 1996 (PBS, CBS, Federal Reserve, 2019).

The research objective can be attained using the results and data. The risk that this project currently faces however, is the outbreak of Covid-19. It is important to control the impact Corona has on consumer good purchasing in China for internal validity. Another issue that can occur is that the survey might not gain enough attention and lead to a possible low survey response and therefore inadequate recommendation to European managers.

1.12 Thesis outline

This thesis investigates the opportunities for European managers looking to expand their Private Label products to China. By examining an important and profitable consumer group Millennials, and identifying a research gap with coffee, purchase intention was delineated based on previous research papers. The relationship between consumers’ familiarity of Private Label coffee, their perception of perceived price, perceived quality, and risk consciousness towards purchase intention is therefore investigated. The research question:

What purchase intention factors should retailers focus on when targeting Chinese millennials Private

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Label coffee?, is created to help European managers narrow their focus when targeting this profitable consumer group.

• Sub-research question: Are quality, price and risk playing a mediating role on purchase intention in private labels in coffee (are intention factors in fact playing a mediating role)?

2. 2 Literature Review

2.1 Introduction

In this literature review, the paper will examine why PL coffee producers should seek opportunities in China, by focusing on millennials. It is important to examine the relevance of each variable for this research topic so that PL producers can export coffee and with a targeted approach gain from the economic opportunity. By

identifying the importance of each variable and the coherence to one another in multiple research papers, the research gap will be determined and help identify

what is relevant for research purposes and what key takeaways can be made, such as whether a focus on familiarity might help overcome purchase intention barriers or rather quality. The literature review will furthermore highlight what makes the research topic new and relevant for possible Private Label stakeholders.

2.1 China versus European Union

There are multiple differences and challenges to consider between China and the European Union. Challenges remain in some areas such as intellectual property rights, standards, public procurement, national treatment, and market access in “strategic sectors” (Lerais, Levin, Sochaki and Veugelers, 2007).

One of the biggest differences occurs with the legal differences. Chinese laws offer comprehensive protection of patents, trademarks, trade secrets and copyrights, however;

violation and ineffective enforcement of law raise concerns about brand protection (Cox and Sepetyx, 2006). Though there have been developments in intellectual property rights, it is still the number one cause for foreign companies to avoid doing business in China.

Compare this to the intellectual property rights (IPR) of, for example, the Netherlands, which often ensure complete validity and legal defence mechanisms such as patents,

Commented [MFG13]: Er is nog steeds geen intro gemaakt naar koffie.

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Commented [MFG15]: Verder verwerken

Commented [TFG16]: Ik ga je Lit Review (nu) niet heel aandachtig doornemen. Houd rekening met de volgende opbouw:

- Wat wil je onderzoeken?

- Waarom is dit belangrijk voor je onderzoek?

- Wat zijn de learnings/key take-aways

- Waarom voegt je thesis onderzoek iets toe aan de state-of- the-art?

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copyrights, trademarks and more (Protection of intellectual property and trade secrets, 2019) or of EU in general (Intellectual property EU, 2017).

Furthermore, consumers behave culturally different. Materialistic rewards are much higher in China whereas Europeans often only enjoy materialistic rewards when they believe they have truly earned it (Lampert and Schoemaker, 2020).

The interesting development giving meaning to food historically is also different, where China developed into a culture with rice as opposed to the European Union developing with potatoes (Anciano, 2017). Furthermore, China has an exceptionally large population making it an interesting country to examine.

2.2 Familiarity

Several studies have proven that familiarity of consumers with a brand can enhance their judgement in evaluating the criteria for the product quality (Lin, Marshall, and Dawson 2009). When the familiarity of a buyer with a product increases, the price-quality

relationship decreases as a relevant criterion (Roa, Monroe, 1988). Familiarity helps to rely less on price as the evaluating measure (Richardson et al. 1994). This results in a positive attitude toward Private Label products.

The paper by Dick and Richardson (1995) researched how greater familiarity helps decrease the misconception that Private Labels are of lesser quality. This means that a

lack of familiarity could lead to excluding brands for purchasing. Similarly, with the paper by Sethuraman and Cole (1999); Mieres, Martin and Gutierrez (2006), who found that brand uncertainty decreases as more knowledge is accumulated, which in turn could lead to more purchases.

Finally, Chinomona and Maziriri (2017) found that brand trust, brand familiarity and brand experience positively influence brand attachment in a significant and direct way.

The above shows the relevance and importance of the variable familiarity for this paper and the indication that both price and quality depend on familiarity.

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In the research article by Vo and Nguyen (2015), an insignificant association between familiarity with PL and perceived quality among Vietnamese consumers was reported.

Nevertheless, numerous scholars emphasised how familiarity in Private Labels

positively influences perceived quality and negatively affects its perceived risk. For example, Park and Stoel (2006) found a significant effect of brand familiarity and previous experience on perceived risk and purchase intention. One could also infer that as the perceived quality of Private Labels decreases and lowers its perceived risk and uncertainty

associated with the willingness to or actual purchase of the product (Richardson et al., 1996;

Mieres et al., 2006; Dursun et al., 2011; Rubio et al., 2014; Beneke and Carter, 2015; Girard et al., 2017).

H1: Familiarity influences positively towards purchase intention amongst Chinese millennials the most.

2.3 Perceived Price (consciousness)

Price consciousness, as described by Burton, Lichtenstein, Netemeyer and Garretson (1998), is a strong indicator of the Private Label purchase behaviour. Jin and Suh (2005)

also researched how the availability of low-priced PL products directly increases consumers’

willingness to buy PL products. For example, when consumers perceive a large price saving, they might develop a more positive attitude towards PL products. It follows the traditional rule, high prices reduce willingness to purchase due to the loss of money (Dodds, Monroe and Grewal 1991). This rule is confirmed by Kirk (1992) who conducted a survey where 67%

responses stated a low price was especially important.

Palazon and Delgado Ballester (2009) tested price consciousness on price discounts and premium promotions. They found that price discounts are more effective than premiums for low price conscious consumers. At a high perceived benefit, price discounts are more effective than premiums, but this effect is more apparent for high price conscious

consumers. Price is a strategic marketing variable that has a distinct influence on consumer purchase behaviour (Konuk, 2015).

This paper definition for price consciousness will follow the definition of Lichtenstein, Ridgway and Netemeyer’s (1993, p. 235): “The degree to which the consumer focuses

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exclusively on paying low prices”. See also the paper by Lin et al. 2009. This variable will therefore be tested on the basis ofbased on price saving perception, rather than a comparison in prices.

H2: Price negatively influences PL purchase intention.

2.4 Perceived Quality (consciousness)

Lin et al. (2009) describes that quality perception is, next to the variables price and familiarity, one of the most important aspects in purchasing. In 1988 Zeithaml defined perceived quality as “the consumer’s [subjective] judgment about a product’s overall excellence or superiority” (p. 3). If a product is perceived to own higher quality, it can enhance purchasing. Similarly, poor quality recognition can lead to less purchasing. Wellman (1997) confirms this and states how Private Label quality and purchasing

behaviour have a positive relationship. Wells, Farley, and Armstrong (2007) researched how an improvement in packaging design or product quality of British retailers’ own PL products ultimately led to a high market share of Private Labels in the United Kingdom.

Baltas and Argouslidis (2007) found that the quality improvement of Private Labels is particularly effective in creating consumer demand.

Private Labels have seen an overall increase in reputation, recognition, and demand. Mann, Reeve and Creed (2002) conducted blind tasting tests where Private Label products were deemed acceptable to the same degree as premium products. In some cases, Private Labels were valued better than quality

products, also found by Wulf, Goedertier and Ossel (2005). This development in reputation, recognition and demand has led to a high standard of both perceived and experienced quality (Johansson and Burt, 2004). Other studies have indicated that the perceived consumers value positively influences the purchase intention of Private Label products (Diallo et al., 2013, Chang and Wang, 2011, Beneke et al., 2013).

Lin et al. 2009 describes how the primary determinant for success in Private

Label products is the delivery of perceived quality. Therefore, it will be used in this paper to understand purchasing behaviour of Private Labels better. Based on the

importance described in the papers regarding quality, the following hypothesis is created:

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H3: Quality has a positive influence on purchase intention.

2.5 Perceived risk (consciousness)

Lin et al. 2009 describe perceived risk as the level of consumer uncertainty that can influence the willingness to purchase as well. Perceived risk is considered to own a negative impact on Private Label attitude (Lin et al., 2009).

Five types of perceived risk can be identified, which all share the perception involving the belief, attitude, judgement, and feelings of people (Pidgeon et al., 1992). These include functional, financial, social, physical, and psychological risk.

Functional risk is the fear that a product purchased by a consumer will fail to perform its intended function. This perception is similar when a Private Label product is

bought and does not meet the desired quality, thus not meeting consumer expectations (Beneke, Greene, Lok and Mallett, 2012). However, the interpretation of an intended function can be significant too.

Financial risk is like price consciousness since both variables rely upon cost saving. However, financial risk is the assessment of whether an intended product purchase is worth its price and whether the benefits of the products outweigh the investment. Financial risk also applies when a consumer hesitates because possible money is lost rather than the degree to which the consumer focuses exclusively on paying low prices. Financial risk can be measured exceedingly difficult because coffee is a luxury product, but not viewed as in investment over a longer period unlike wine or baijiu¹ (Xiao-Wei Zheng, Bei-Zhong Han,

2016(reference). It is an instant beverage that people enjoy in a short span of time. With that in mind, the perceived risk finance will be excluded from this research paper.

1Baijiu (白酒) is a traditional fermented alcoholic drink originating in China, which is typically obtained by natural fermentation. It has a high reputation and constitutes an important part of Chinese dietary profile. The production of baijiu involves five major steps, materials preparation, daqu (大曲) making, alcoholic fermentation, distillation, and aging.

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Social risk can be explained as the risk or uncertainty one experiences from friends, relatives or other social relationships when purchasing a product. The Chinese are said to “view the world as based on a network of relationships” (Nisbett et al. 2001, p. 241), which can be translated as a greater sensitivity to relationship context (Bolton, Keh, Alba, 2018) when purchasing products. It also includes the evaluation of comparative brands or products.

The physical risk concerns the usage of a product, where a consumer might be confused about how safe it is to use a product or service and thus thinks multiple times before making the purchase. In terms of food and beverages it might apply less. However, it can be tested to mark an additional difference for Private Label manufacturers to consider

when exporting to China (Bhasin, Vigz and Oladimeji, 2018).

Finally, psychological risk factor is defined as whether the product or service is consistent with the prospect’s sense of self-identity (Tharakan, 2017), or instances where product consumption may harm the consumer's self‐esteem or perceptions of self (Hong-Youl, 2002).

The report by Mostafa and Elseidi (2018) investigating PL in Egyptian hypermarkets found that perceived risk does not directly nor indirectly affect consumer willingness to buy Private Labels. However, risk can be perceived in multiple ways and possibly

identify differences that Western and Chinese consumers have in purchasing PL products instead. In the report by Kakkos et al. (2015), a significant relation between lower perceived risk and Private Label purchasing-intention among Greek consumers was found.

The promised perceived quality and risks are interrelated, when risk is lower purchasing is higher (Girard et al., 2017) and shows a positive effect for Private Labels in

Europe.

H4: Perceived risk has a positive influence on purchase intention.

2.6 Purchase intention

The large overseeing factor of this research is to identify what motivates purchase intention among the selected consumers. It can be tested and described in multiple ways. Woo and

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Kim (2019) define purchase intention as “predicted or planned actions in the future, which is the likelihood of predisposition to turning beliefs and attitude toward a product into action”

(p. 324). Their goal was to identify consumer behaviour intentions to buy green food products.

Purchase intentions help advise managers’ need to know when best to rely on them and how best to use them (Morwitz, V. 2012). In the research paper by Grimmer M., Kilburn A.P., Miles M.P., (2015) they tested which factors were most important in Australia. The data revealed similar factors to this research such as price and received prior knowledge, or familiarity. The outcome regarding the variable price was like the paper by Yin, S., Wu, L., Du, L., & Chen, M. (2010), focusing on purchase intention with organic food in China. Risk was also deemed important in this paper. In the paper by G. Pino, A.M. Peluso and G. Guido (2012) one of the concluding important factors to purchase intention was the level of ethical commitment but also food safety, relating to risk. Finally, in the paper by Rana J., Paul J.

(2017), it was found that purchasing quality food also improves the quality of life, thus having large implications for the retail market.

Based on the earlier defined variables, the goal is to identify which factors European managers should focus on most when exporting PL coffee to China based on millennial responses.

2.77 Retail channels

There are numerous channels used for the sale of food and beverages, one of which is E- commerce. The sales volume of Fast-Moving Consumer Goods (FMCG) through E-commerce have grown continuously over the past years, where the Chinese online retail market is expected to grow from 17% of total retail sales in 2017 to 25% by 2020 (Arora, 2018). The year 2018 alone showed a 20% growth which included Chinese e-commerce applications such as Taobao, Pinduoduo, JD.com, VIP.com and T-Mall (Roger, S. 2019).

More established channels make use of importing agents or local distributors. Creating a cooperation with a Chinese agent or distributor is a known entry strategy for China. The

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distributor or agent will be responsible for the sales of the product in mainland China. The distributor will buy the products and sell them in the Chinese market at his own risk, whereas an import agent deals on behalf of the foreign manufacturer who bears the risk of the transaction (Tabbers, R. 2020).

Another channel which enjoys a revival in the Chinese retail market is the Brick-and-mortar store. Consumers that are willing to spend more time purchasing food and beverages often choose for the experience in the shop itself.

There is a pursuit of online-to-offline (O2O), where strategies have become a relevant issue for brands and retailers in China. Pop-up retailing is when pop-up stores are backed with marketing content to promote products and raise awareness as mentioned in the China’s Department Stores Report (2019).

A Private Label manufacturer or retailer therefore has ample choice in applying

a channel to reach out to its target consumer. This paper would investigate which channel is best for Private Label intention. However, given the complications of the

epidemic Covid-19, e-commerce will solely be considered due to the restrictions made by the WHO and local governments.

For future research purposes it would therefore be interesting to see if the other channels have larger influences or not.

2.8 Millennial consumer segment

In this research, the focus will be on Millennials which are understood to be the cohort of youth born between the years 1981 to 1996. Millennials appear to be a useful consumer group, however own many definitions or descriptions. This research will the description and definition used in studies by EY, the American Psychological Association and other

companies like PBS and CBS (Valerio, Yarvin, 2015) (PBS, CBS, Federal Reserve, 2019). This will help provide researchers to perform similar studies for future purposes.

The Chinese economy has seen a steady growth in the last decade, where the Chinese consumer has had the ability to spend more than ever. The 2019 McKinsey report showed that Chinese luxury consumers are heavy spenders, spending on average RMB 71,000

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(€9.220) on luxury goods; 38 percent of them spend more than RMB 100,000 (€12.987) annually.

This spending has developed continuously by more than 5% per year since 2010. Topping the increased spending, the Chinese luxury consumers have become increasingly impulsive in the methods of shopping for luxury goods: one in two of their purchases are decided within a single day (Orr, n.d.).

According to Statista (2020) and the National bureau of statistics of China (2020), the disposable income of urban consumers per capita, is about 42359 yuan, or €5450. That will be close to the current standard of living in South Korea but still a long way from developed countries such as the United States (about €32.000) and Japan (about €23.700). However, one must consider that the spending behaviour might have been altered by covid-19.

The increased spending has also led to a new consumer group, named the millennials. The Chinese millennials, those born between 1996 and 1981 (aging between 24-39), are set to become the dominant force and the most influential consumer segment in the consumer market due to their high willingness to spend (Leung, 2017). Chinese millennials number more than 350 million, or over 25% of China’s population. They are the main driver of Chinese consumption, with spending by those under the age of 35 accounting for 65% of total consumption growth (Leung, 2017).

In general, millennials own a higher willingness to spend on luxury goods, creating opportunities for European businesses to flourish (Kidwai, 2019). Furthermore, Millennials are known to be experimental in trying out new products and consequently,

Private Labels are becoming increasingly popular among this group. They demand products that do more, provide greater convenience and offer a variety of lifestyle options and are also known to undertake extensive research before buying products (Businesswire, 2019).

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Figure 1 Mckinsey China Luxury Report (2019).

Based on the variables researched above, the prosperity of the consumer segment, the research objective and the research questions will be defined in the next chapter.

2.9 Research objective

With the private label defined, the Chinese market opportunities outlined, the target group identified and delineated into measurable variables, a research objective, research (sub)questions and framework can be defined. This thesis project is practise oriented:

"providing knowledge and information that can contribute to a successful intervention in order to change an existing situation" (Verschuren and Doorewaard, 2010).

The overall results will provide a solution to: How can private label manufacturers best reach Chinese millennials in China?

2.10 Research questions

Using the research objective and framework the Research questions are defined together with their respective sub-questions:

1. What purchase intention factor should retailers focus on when targeting Chinese

millennials private label coffee?

Commented [TFG17]: Goed, maar zorg ervoor dat 2.9 en 2.10 prominenter in je thesis staan.

Commented [TFG18]: Niet prominent/aanwezig genoeg in je thesis. Komt wellicht omdat dit 2.9 en 2.10 is en onbelangrijk lijkt tov 3. Research Framework

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