Study Links Private-Label OTC Purchases To Pharma Knowledge

Physicians and pharmacists are significantly more likely than average consumers to purchase private-label OTC headache remedies, a marketing study finds. The researchers say brands in categories with largely homogenous products may derive premiums through “misinformation” in advertising.

Marketers of branded OTCs, already pressured by growing consumer acceptance of private-label products, now could be affected by research findings that question the utility of brands.

A study conducted by four marketing professors and made public in June finds a clear positive correlation between a consumer’s knowledge of active pharmaceutical ingredients and his or her propensity to purchase private-label OTCs – headache remedies, in this case.

The study, an unpublished working paper titled “Do Pharmacists Buy Bayer? Sophisticated Shoppers and the Brand Premium,” zeroes in on the buying patterns of pharmacists and other health care professionals. Controlling for income levels, a household whose primary shopper is a physician or pharmacist is 18 percentage points more likely than the average consumer to purchase a private-label headache OTC.

“We predict that in a world where all households had a primary shopper as informed as a pharmacist or physician, the market share of branded headache remedies would fall by 55%. Expenditure on branded products would fall by 50%, and total headache remedy expenditures would fall by 15%,” say Bart Bronnenberg, of Tilburg University in the Netherlands, and three co-authors from the University of Chicago’s Booth School of Business – Jean-Pierre Dubé, Matthew Gentzkow and Jesse Shapiro.

Using market data from the Nielsen Co. and their own data collected through online household surveys in 2008 and 2011, the researchers found that proxies for knowledge – including college education and a health or science major – also correlated with a greater share of private label purchases.

The researchers were most interested in the link between a participant’s ability to identify a branded OTC’s active ingredient and his or her propensity to buy private-label versions of the drug. They quizzed consumers on five products – Advil (ibuprofen), Aleve (naproxen), Bayer (aspirin), Excedrin (aspirin/acetaminophen/caffeine) and Tylenol (acetaminophen) – and found that those who correctly named all the active ingredients bought private label for more than 80% of their headache remedies, while those who failed to name any of the actives bought less than 60% private label.

In parallel research also described in the study report, Bronnenberg and his colleagues found similar results for food purchases – specifically, that chefs are more likely to buy private-label pantry staples.

“We predict that in a world where all households had a primary shopper as informed as a pharmacist or physician, the market share of branded headache remedies would fall by 55%.”

– Bart Bronnenberg, et al.

“Taken together, the results suggest that in categories such as headache remedies and pantry staples, which we singled out for having particularly homogeneous products, the share of brand [premiums] due to misinformation is large and real utility differences are small or negligible,” the researchers say.

They are aware of the economic implications of their findings, noting that U.S. consumers have the potential to save $32 billion annually by switching from brands to comparable private-label products in relevant categories.

The study received funding from Booth’s Initiative on Global Markets, the Marketing Science Institute, the Netherlands Foundation for Scientific Research and the Neubauer Family Foundation.

Misinformation Vs. Innovation

Private labeler Perrigo Co. PLC recently launched the “Store Brand Meds” campaign, which encourages consumers to make OTC purchase decisions based on active ingredients rather than branding. Somewhat presciently, in light of the Bronnenberg study, Perrigo’s campaign features videos of pharmacists encouraging consumers to buy less-expensive but chemically equivalent store brand OTCs (Also see "Perrigo Campaigns For Rational OTC Shopping Over Brand Loyalty" - Pink Sheet, 3 Jun, 2013.).

Despite the study and Perrigo’s efforts, however, some marketing experts say it would be a mistake to discount the power of brands in shaping consumer decisions, especially when it comes to long-trusted brands like Tylenol and Bayer Aspirin.

Bronnenberg’s team refers to “misinformation induced by advertising” as a possible cause of consumer preference for branded products. But OTC marketers see advertising as a strategy for informing consumers about product innovation and differentiation.

The researchers examined purchases of headache remedies in basic gelcap and tablet delivery formats, which are highly vulnerable to generic competition. Branded product manufacturers, on the other hand, seek to appeal to consumers and grow through delivery, taste and packaging innovations that private labelers may find challenging to replicate.

For example, Bayer HealthCare LLC is striving to become the world’s largest OTC drug player and plans to realize 16% of its growth through product innovations by 2015 (Also see "Bayer Push To Lead OTC Space Relies On Distribution, Emerging Markets" - Pink Sheet, 21 Jun, 2013.). The company keeps its Aspirin brand fresh with delivery and formulation innovations every few years; in 2011, Bayer introduced Bayer Advanced Aspirin with Pro-Release technology to accelerate absorption into the bloodstream (Also see "Bayer Advances Aspirin Pain Relief With Pro-Release Technology" - Pink Sheet, 30 May, 2011.).

To succeed, such innovations must resonate with consumers and offer utility over less expensive products containing the same active ingredients.

Marketers also must bear in mind that knowledge about health products – the focus of the Bronnenberg study – is easier to come by as consumers have increasing access to smartphone apps that can tell them about active ingredients and indications.

Additionally, implicit social pressure and other consumers’ behavior may play a key role in influencing OTC purchases. This suggests the potential power of Perrigo’s Store Brand Meds campaign is in creating a noticeable shift toward public acceptance of private-label products.

The Bronnenberg study refers to concurrent research on how OTC product labels affect private label purchases, conducted by Mariana Carrera of Case Western Reserve University’s Weatherhead School of Management, and Sofia Villas-Boas of the University of California, Berkeley. According to Carrera’s curriculum vitae, their study on “Generic Aversion and Observation Learning in the Over-the-Counter Drug Market” found no evidence that consumers are unaware of private-label OTCs and their comparability to branded products.

However, they determined that “observational learning, through information on the purchases of other customers, is most powerful in persuading brand-buying customers to try the generic version.”