Understanding Retail Branding1

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A

DISSERTATIONON

Understanding Retail Branding: Conceptual

Insights and Research Priorities

Submitted By

Shishir Gupta(PGPBM 2005-2007)

GUIDED BYProf. Sushama Kulkarni


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ACKNOWLEDGMENT

At the outset I am extremely grateful to Dr. Pramod Kumar,

(President) International School of Business and Media, Dr.

P.K.De, (Director) for having provided me with an opportunity to

do this project successfully. I am thankful for their support and

guidance.

I am extremely grateful to Prof. Shushama Kulkarni for his

constant guided support he had provided in carrying out the

project.

I am extremely thankful to Prof. Ajay Ramdasi for his continuous

guidance and encouragement throughout the project work,

especially in the analysis of the secondary data and its

presentation.

My heartfelt and sincere gratitude goes to all those who directly

or indirectly supported my effort in compiling this project.

With Sincere Regards

Shishir Gupta


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CERTIFICATE

This is to certify that Mr. Shishir Gupta, student ofInternational School of Business & Media, specializing inMarketing Management, has successfully completed hisDissertation entitled Understanding Retail Branding: ConceptualInsights and ResearchPriorities under the guidance of ProfShushama Kulkarni

Prof. Shushama Kulkarni


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Table of contents

Executive Summary

Introduction

The dimension of retailers imageAccessIn-store atmosphere

Case studiesPrice & promotionCross-category product/service assortment

Within-category brand/item assortment

The Impact of Manufacturer Brands on PrivateLabel Success

Future research priorities

Role of Private Labels in Building Retailer Brand Equity

Measuring Retailer Brand Equity

Conclusion

References


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Executive Summary

With the growing realization that brands are one of a firms most

valuable intangible assets, branding has emerged as a topmanagement priority in the last decade. Given its highlycompetitive nature, branding can be especially important in theretailing industry to influence customer perceptions and drivestore choice and loyalty. I have integrated lessons from brandingand retail image research to provide a better understanding ofhow retailers create their brand images, paying special attentionto the role of the manufacturer and private label brandassortment. I have also highlighted some important areas thatdeserve further research in the form of three sets of research

priorities.


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Introduction

The last 2 years has seen major flux in retailing, especially in the

Indian grocery and general merchandise industry. On one hand,the growth of promotions and private labels has been seen bymany as an indicator of growing retailer power. On the otherhand, the growth of discounters and warehouse clubs has putimmense pressure on traditional retailers and significantlyincreased retail competition both within and between retailformats.

Since a large portion of most retailers revenue and profit comesfrom selling manufacturer brands, which many of their

competitors also offer, building their own equity is a particularlychallenging problem, but one with big potential rewards. Suchequity insulates them from competing retailers, which has thedirect impact of increasing revenue and profitability, and theindirect impact of decreasing costs as their leverage with brandmanufacturers also increases.

Although many important branding principles apply, retailerbrands are sufficiently different from product brands that theactual application of those branding principles can vary. Retailerbrands are typically more multi-sensory in nature than productbrands and can rely on rich consumer experiences to impact theirequity.

Retailers also create their brand images in different ways, e.g.,by attaching unique associations to the quality of their service,their product assortment and merchandising, pricing and creditpolicy, etc. In most consumer industries, the image and equity ofretailer brands also depends on the manufacturer brands they

carry and the equity of those brands.

Retailers use manufacturer brands to generate consumerinterest, patronage, and loyalty in a store. Manufacturer brandsoperate almost as ingredient brands that wield significantconsumer pull, often more than the retailer brand does. To theextent "you are what you sell," manufacturer brands help to


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create an image and establish a positioning for the store. At thesame time, retailers compete with manufacturers for consumerpull to increase their relative market power and their share of thetotal channel profit pie. In doing so, they may sell some of theirown brands. In fact, in industries like apparel, one can findseveral examples of retailers who carry only their own privatelabel products, e.g., GAP, Brooks Brothers, Max and Talbots.

Private label products may have their own unique brand namesor be branded under the name of the retailer. They allow theretailer to differentiate its offerings from competing retailers,although often without the support afforded manufacturersbrands.

Understanding how a retailer should be positioned and how thebrand assortment sold by the retailer is related to its image arethus of critical importance. Some retailers have managed theirbrands more effectively than others, as is evident in theirperformance.

The purpose of this study is to:

(1) Integrate the lessons from branding and retail imageresearch to provide a better understanding of how retailers

create their brand images.

(2) Review what we know about how the types of brands thatretailer sells manufacturer brands and private labels influenceand are influenced by the retailers brand image.

(3) Highlight some important areas that deserve further researchin the form of three sets of research priorities.


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THE DIMENSIONS OF RETAILER IMAGE

Following the definition of a brand, a retail brand identifies thegoods and services of a retailer and differentiates them from

those of competitors. A retailers brand equity is exhibited inconsumers responding more favorably to its marketing actionsthan they do to competing retailers (Keller 2003).

The image of the retailer in the minds of consumers is the basisof this brand equity. Researchers have studied a multitude ofretailer attributes that influence overall image, e.g., the varietyand quality of products, services, and brands sold; the physicalstore appearance; the appearance, behavior and service qualityof employees; the price levels, depth and frequency of

promotions; and so on.

We may categorize these attributes into a smaller set of location,merchandise, service, and store atmosphere related dimensions.To organize our review of the key lessons from retailer imageresearch, we adopt this categorization, but modify it slightly tobetter reflect the increasing emphasis that pricing and thebreadth and depth of merchandise assortment have received inmore recent research. The five dimensions we use to review pastresearch are:

1) Access

2) In-store atmosphere

3) Price & promotion

4) Cross-category product/service assortment

5) Within-category brand/item assortment


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Access

The location of a store and the distance that the consumer musttravel to shop there are basic criteria in their store choicedecisions.

Today, suburban sprawl, greater driving distances, theappearance of new warehouse retail formats that are often

located in large spaces away from residential areas, and onlineretailing have made location somewhat less central as a storechoice criterion.

Consistent with this trend we may say that location no longerexplains most of the variance in store choice decisions. Rather,store choice decisions seem to be consistent with a model whereconsumers optimize their total shopping costs, effort to accessthe store location being one component of their fixed cost ofshopping.

That is not to say, however, that location is unimportant.Consumers store choice may be based on different criteriadepending upon the nature of the trip.

For instance, small basket, fill-in trips are very unlikely to bemade to distant or inconvenient locations. And, retailers in some

Retail

branding

In-store

enviornmentAccess

Price and

promotion

Within-category

product/service assortment

Cross-categoryproduct/service

assortment


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formats, like convenience, drug, or supermarket have lessflexibility in their location decision than mass merchandisers orwarehouse clubs.

In summary, although location no longer explains a major portionof the variance in consumers choice of stores, it is a keycomponent in consumers assessment of total shopping costs andis still important for retailers who wish to get a substantial shareof wallet from fill-in trips and small basket shoppers.


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Store Atmosphere

Atmosphere elicits from consumers varies along three maindimensions of the following:

Pleasantness

Arousal

Dominance

This response, in turn, influences behavior, with greaterlikelihood of purchase in more pleasant settings and in settings ofintermediate arousal level.

Different elements of a retailers in-store environment, e.g.,

color, music, and crowding, can influence consumers perceptionsof a stores atmosphere, whether or not they visit a store, howmuch time they spend in it, and how much money they spendthere.

We may categorize the elements of in-store atmosphere intophysical features like:

Design

Lighting Layout Ambience features like music and smell Social features like

o Type of clientele,

o Employee availability

o Friendliness.

They note that atmosphere can affect consumers perceptions ofthe economic and psychological costs of shopping in a store and

find that pleasing physical design lowers both economic andpsychological costs while music lowers the latter.

Store atmosphere mediates consumer perceptions of otherdimensions of store image. Store environment factors,particularly physical design perceptions, significantly affectconsumers perceptions of merchandise price, merchandise


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quality, and employee service quality. Since store atmospherehas a social identity appeal, a pleasing atmosphere in the storeshould influence perceptions of socially communicative productsin the store, not so much intrinsically rewarding products. Thislogic can be extended to argue that store atmosphere would havea greater impact on perceptions of products with higherperceived (social) risk.

Consumers ratings of the private labels quality are higher whenthe store is aesthetically pleasing than when it is less attractive,although there is no significant difference in their ratings ofnational brands quality.

Summary

A pleasing in-store atmosphere provides:

Substantial hedonic utility to consumers Encourages consumers to visit more often, stay longer, and

buy more.

Although it also improves consumers perceptions of the qualityof merchandise in the store, consumers tend to associate it withhigher prices.

From a branding perspective, an appealing in-store atmosphereoffers much potential in terms of crafting a unique store imageand establishing differentiation.

Increasingly, brands are being positioned on the basis of theirintangibles and attributes and benefits that transcend product orservice performance. Even if the products and brands stocked bya retailer are similar to others, the ability to create a strong in-store personality and rich experiences can play a crucial role inbuilding retailer brand equity.


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THE POWER OF MUSIC AND ITS INFLUENCEON INTERNATIONAL RETAIL BRANDS AND

SHOPPER BEHAVIOUR(A MULTI CASE STUDY APPROACH)


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Introduction

Retailers are facing an increasingly competitive market place andas a consequence are finding it more and more difficult todifferentiate their stores on the basis of:

Product

Place

People

Price

Promotion

Retail store elements such as Color, lighting and visualmerchandising have always been considered as having immediateeffects on the buying decision making process.

The emphasis has moved away from in-store product displays,towards elements that excite the senses of shoppers such as

Flat screen videos or graphics

Music Smells

Lighting Flooring

These elements tend to capture the brand image or personalityand help to create a unique environment and shoppingexperience.

The atmosphere of the shopping environment can influencecustomer attitudes and their perceptions in relation to the overall

quality of the store in terms of the uniqueness of the product,and service levels, the purchase price and purchase volume.

Playing of classical music in their stores can contributed to aprestigious store atmosphere which leads to a customerperception of higher merchandise and service quality.


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The specific atmosphere that the retailer creates, can in somecases be more influential in the decision making process than theproduct itself. It is the power of music that may in fact have thegreatest impact on the way people make their purchasedecisions. Mood states can have an important influence onbehavior. A given mood state within a retail environment canincrease the chances that a purchase will be made. Music can bea critical element of a stores atmosphere.

The Case Studies

Borders Books

The focus at Borders Books in United States is aimed atmaximizing the amount of time people stay in the store. Onentering a Borders Book store you immediately get theimpression that you are invited to relax, choose three or fourbooks from the enormous list of titles on offer, sit down and havea coffee or some food, take in some music and settle down andwhile away the hours.

The in-store music is designed to maximize customer visit time.

Research has shown that if shoppers stay longer and travel moreslowly throughout the store, they are likely to purchase more.

The tempo of the music at Borders Books is slow andrelaxed.

The tempo of the music tended to alter customer perceptionof elapsed time in the store.

This finding supports that the tempo of music can affectshoppers pace of movement around the store. Shoppers and

sales associates indicated that the soothing nature of music alsohelped to facilitate discussions about products and services.

FAO Schwarz


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Las Vegas is home to the worlds largest toy store FAO Schwarz.With 57,000 square feet of toy heaven, the store is the numberone attraction within the magnificent Forum Shopping Mall.The store provides a showcase for all the major toymanufacturers. The key departments such as the Mattel Barbierange and the dramatic Star Wars offering are very closelymonitored to ensure the best possible in-store concepts.Complete with a gigantic three storey high Trojan horse, thestore offers a shopping experience full of color, magic, movementand music.

There are three floors fulfilling every childs dream. The store iscomposed of specific themes, each with its own unique music;from plush toys to electronic games, arts and crafts to

magnificent dolls, an incredible Barbie store and a very excitingStar Wars department that boasts the worlds only Star WarsCantina - and of course a FAO Schweetz extravaganza offering anincredible array of candy and chocolates!

Each area demonstrates the power of music in creating the rightmood, excitement and atmosphere.

For example

The music playing in the Barbie section is up-tempo pop Dance and swing Creating a feeling of fun, fantasy and happiness,

Whereas, the music in the Star Wars department is awesome anddramatic - one cant help but be spellbound and enthralled. Themusic drives customers into the store.

The music plays a big part in catching peoples attention. Giventhe nature of Las Vegas and the focus on gambling, shoppingbecomes almost an afterthought. Shoppers indicated that theywanted to be enticed, excited and entertained.

Nike Town


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At Nike Town, brand is everything and everything is focused atmaximizing the brands potential. Brands can develop differentrelationships with customers.They see a successful brand as one that develops a high-qualityrelationship, where customers feel a sense of commitment andbelonging, even to the point of passion.

When you enter the world of Nike you are exposed to totalbranding. The Nike brand is everywhere such as on:

Door handles Elevator buttons Floor tiles Store fittings

Video screens Interactive kiosks and even the music.

There is no mistaking that you are in Nike Town. Stores werevisited in Chicago, Las Vegas and Los Angeles and in each storestaff expressed excitement about the current music.

Nike stores are multi-sensory retail environments that excite thesenses with:

Lighting effects Video monitors Gigantic pictures of famous athletes Interactive displays and powerful music.

The days of having sound effects (tennis balls bouncing or birdschirping) in specific pavilions have long gone, much to the reliefof all those people interviewed. The in-store music is high onenergy, vibrant, proactive and uplifting.

The current music definitely boosts the stores environment andhelps to attract the younger urban customer. The current musicis friendlier, more inviting, gives Nike a point of differentiationfrom its competitors and supports the Nike brand.

The interest shown in the in-store music has led to the need toprovide customers with Nike Music play lists.


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Victorias Secret

The atmosphere of the shopping environment can influencecustomer attitudes in relation to perceptions of the overall qualityof the store in terms of the uniqueness of the product, servicelevels and price.

Victorias Secret is a good example of this phenomenon. Withinseconds of entering the store, you can feel a sense of eleganceand style. The timing of the store visits saw the Valentines Daypromotion in full swing. One can see Lots of red and pink silksatin and lace.

The in-store music provided a perception of richness andgrandeur. Since playing classical music in their stores, there isthe belief that this has contributed to a prestigious storeatmosphere, leading to a customer perception of higher quality inboth merchandise and service.

Talking with store staff led to the impression that soothing musicis important when engaging in conversations with customersabout potential purchases.

Therefore, music that facilitates discussion between individualsmay be desirable where customers are likely to seek the adviceof a sales associate. This is certainly relevant at Victorias Secret,especially when men decide to enter what was once considered astrictly female only domain.

Conclusion

Stores environments provide consumers with informational cluesabout the uniqueness of themerchandise and service quality andassist in shaping consumer attitudes and perceptionsabout theglobal store image.


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Store image and mood can be changed dramatically by theintroduction of music.Music helps in following ways:

Establishing the mood Helps to motivate the subconscious Can also help in creating a lasting impression on existing

and potential customers.

The study found thatspecifically programmed music can play arole in the total shopping experience and can be an importanttool in creating a memorable identity for specific retail brands.

If the music was specifically designed to fit a particular

demographic and psychographic, then customerstended to relaxand stayed longer in the store.


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Price and Promotion

No matter how the characteristics of the consumer, product,store, or purchase situation might differ, price represents themonetary expenditure that the consumer must incur in order tomake a purchase. From the vast literature on pricing, wehighlight three areas that are of direct relevance to consumersimage and choice of retailers.

Store price perceptions: A retailers price image should beinfluenced by attributes like:

Average level of prices How much variation there is in prices over time The frequency and depth of promotions Whether the retailer positions itself as

o EDLP (Every Day Low Price)

Oro HILO (High-Low Promotional Pricing).

The difference between consumers perceptions of price levels in

various stores exists in reality, showing that consumers may usenon-price related cues like service offerings and quality levels toform their price perceptions.

Consumers may not form valid perceptions of actual prices in astore, but consumers do develop some general price perceptionsof products in a store, and can evaluate their expensiveness inrelative terms.

There is a product-price saliency framework to examine how

consumers form an overall store price image (OSPI). They showthat products with high unit prices and high purchase frequencyare more salient and therefore contribute more to OSPI, withpurchase frequency dominating unit price in importance.

Consumers perceptions of store prices changes with prior beliefsand information about how frequently a store has a price


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advantage on a set of products and the magnitude of that priceadvantage.Although prior beliefs affect price perceptions, frequency of priceadvantage dominates both prior beliefs and magnitude of priceadvantage in influencing consumers perceptions of store pricelevel.

Retailer pricing format:A retailers price format, which is on acontinuum between EDLP (Every Day Low Price) and HILO (High-Low Promotional Pricing), also influences consumers store choiceand shopping behavior.

Large basket shoppers prefer EDLP stores whereas smallbasket shoppers prefer HILO stores. The intuition behind the

finding is straight-forward.

Large basket shoppersare captive to the pricing across a largeset of product categories at a time and do not have the flexibilityto take advantage of occasional price deals on individualproducts. They therefore prefer EDLP because it gives them alower expected price for their shopping basket.

Small basket shoppers, on the other hand, can take advantageof variations in prices of individual products and, by buying on

deal, can lower their basket price even if average prices in thestore are high.

Both EDLP and HILO co-exist in the market. Average prices arehigher in HILO stores and average purchase quantities are lower.

HILO pricing is more effective in enticing shoppers to make morefrequent store visits, but, since shoppers have the flexibility tobuy more on trips when prices are lower, the HILO storesrevenue per unit time is lower.

In contrast, EDLP decreases shopping frequency but generateshigher revenue per unit time. Thus, neither format is dominant.

Price promotion induced store switching. The third researcharea studies whether retailer price promotions result in store


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switching by consumers. There is a significant impact ofpromotions on store switching/traffic.However, it is unlikely that consumers would keep track ofweekly promotions on a multitude of categories in all the storesin their neighborhood.

The retail promotions in any one category do not directlyinfluence a consumers store choice decision, but they indirectlyaffect where the category is purchased. Consumers typically shopin more than one store. They may purchase a promoted productin the store they happen to be visiting whereas they wouldotherwise have purchased it in another store.

This also reiterates the important moderating effect of in-store

atmosphere. The impact of promotions will be higher in apleasant atmosphere because the longer consumers stay in astore, the more likely they are to notice promotions and buymore than planned during the shopping trip.

Summary

Consumers are more likely to develop a favorable price imagewhen retailers offer frequent discounts on a large number of

products than when they offer less frequent, but steeperdiscounts.

Further, products that have high unit price and are purchasedmore frequently are more salient in determining the retailersprice image. One pricing format does not dominate another, butlarge basket shoppers prefer EDLP stores while small basketshoppers prefer HILO, and it is optimal for HILO stores to chargean average price that is higher than the EDLP.

Finally, price promotions are associated with store switching butthe effect is indirect, altering consumers category purchasedecisions while they are in the store rather than altering theirchoice of which store to visit.

These findings are crucial for retailers who are trying to buildtheir retail brand. They highlight the levers that retailers can use


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to influence their price image and the impact of their pricepromotions, and they show that retailers have considerableflexibility in following different pricing strategies and avoidinghead-to-head price competition with other retailers even thoughthey may carry many of the very same manufacturer brands thatcompeting retailers carry.


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Cross-Category Assortment

Consumers perception of the breadth of different products andservices offered by a retailer under one roof significantlyinfluence store image. The benefits of a wide assortment areclear.

First, the greater the breadth of product assortment, thegreater the range of different situations in which the retaileris recalled and considered by the consumer, and thereforethe stronger its salience. Salience is the most basic buildingblock for a brand.

Second, the one-stop shopping convenience that a broadproduct assortment enables is becoming more importantthan ever for todays time-constrained consumer, puttingpressure on retailers to broaden their assortment.

Third, consumers regularly shop at more than one store,and, as noted earlier, they may purchase a category in thestore that they are visiting based on in-store assortment

and marketing mix activities whereas they would otherwisehave purchased it in another store.

Together with the fact that unplanned purchases comprise asignificant portion of consumers total shopping basket, this givesan advantage to retailers with broader assortments.

The branding literature, however, suggests some potential pitfallsof broad assortments, apart from the rather obvious downsidethat increasing assortment breadth brings with it significantly

higher costs for the retailer.

There are certain types of product categories which havesignature associations with specific channels, e.g. supermarketswith food, drug channel with medications and health products,and mass merchandisers with household items. But, research has


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shown that a brand that is seen as prototypical of a productcategory can be difficult to extend outside the category.

Therefore, if a retailer has strong signature associations withcertain categories, consumers may find it difficult to think of theretailer in connection with other, very different categories. Brandextension research also shows that a large number ofassociations could produce interference effects and lowermemory performance.

The good news, however, is that if the retailer attempts to sell anew line of products or offer a new service that fails to connectwith consumers, there may be little long-term harm as long asthe new line is not too closely connected to the retailers

signature categories or its own brand name.

Research on brand equity dilution has found that parent brandsgenerally are not particularly vulnerable to failed brandextensions.

An unsuccessful brand extension potentially damages a parentbrand only when there is a high degree of similarity or "fit"involved. Of course, the retailers image and reputation would bemore vulnerable if the expanded product assortment is a private

label branded under the stores own name.

Another finding from brand extension research is also relevant toretailers assortment decisions. By taking "little steps i.e., byintroducing a series of closely related but increasingly distantextensions. It is possible for a brand to ultimately enter productcategories that would have been much more difficult or perhapseven impossible, to have entered directly.

Successfully introduced brand extensions can lead to enhancedperceptions of corporate credibility and improved evaluations ofeven more dissimilar brand extensions that are introduced later.

In other words, retailers are most likely to be successful if theyexpand their meaning and assortment in gradual stages, as forexample Amazon, or even Wal-Mart, did.


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SummaryA broad assortment can create customer value by offeringconvenience and ease of shopping. It is risky to extend too fartoo soon, but, staying too tightly coupled to the currentassortment and image may unnecessarily limit the retailersrange of experimentation. The logic and sequencing of a retailersassortment policy are critical to its ability to successfully expandits meaning and appeal to consumers over time.


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Within-Category Assortment

Consumers perceptions of the depth of a retailers assortmentwithin a product category are an important dimension of storeimage and a key driver of store choice. As the perceivedassortment of brands, flavors, and sizes increases, varietyseeking consumers will perceive greater utility, consumers withuncertain future preferences will believe they have moreflexibility in their choices, and in general, it is more likely thatconsumers will find the item they desire.

More offerings in a category, however, can be costly both for the

retailer and the consumer. From the viewpoint of the retailer,cutting out 20% of the most inefficient items from its assortmentcan mean savings of several million dollars per year for a largechain.

From the viewpoint of the consumer increasing the choice setleads to cognitive overload and uncertainty and can actuallydecrease the likelihood of purchase. In recent years, therefore,researchers have focused on how consumers perceive anassortment and whether and how actual assortment can bereduced without adversely affecting consumer perceptions.

For example, the importance of uniqueness or differences inattributes levels among items, with greater uniqueness beingassociated with greater perceived variety in assortment.

Organization and symmetry of an assortment moderate theimpact of actual assortment variety on perceived variety andconsumption, with organized and asymmetric assortments having

a more positive effect.

SKU reduction does not lower consumers perceptions ofassortment much unless their favorite item is dropped or thetotal amount of space devoted to the category is reduced.Further, a moderate decrease in number of SKUs can actuallyincrease consumers perceptions of assortment as long as their


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favorite item and total category space are maintained. Theaggregate sales actually increase when less popular SKUs aredeleted.

In summary, greater perceived assortment does influence store

image, store choice, and satisfaction with the store, but a greaternumber of SKUs need not directly translate to better perceptions.Retailers can reduce the number of SKUs substantially withoutadversely affecting consumer perceptions, as long as they payattention to the most preferred brands, the organization of theassortment and the availability of diverse product attributes.

BRAND ASSORTMENT

One specific aspect of the retailers assortment strategy, brandassortment, has become particularly important in the last yearsas a tool for retailers to influence their image and develop theirown brand name.

Most retailers carry manufacturer brands, but, increasingly, theyalso offer private label products. Motivation for offering private

labels is as follows:

Higher percent margins that they provide to retailers Negotiating leverage they provide over manufacturers The implicit assumption that providing a private label brand

engenders loyalty to the retailer

The growth in private labels has spawned much research on whobuys private label products, whether and how private labelsprovide leverage to retailers, and the category and marketdeterminants of private label share.

We review the main findings from this research and summarizethe implications for retail branding. We also review the rathersmall body of research that throws light on whether and how themanufacturer brands carried by a retailer influence consumersevaluation of private label products.


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Private Labels

Although the growth of private labels has been interpreted bysome as a sign of the "decline of brands," it could easily beargued that the opposite conclusion is more valid, as private labelgrowth could be seen in some ways as a consequence of cleverlydesigned branding strategies.

One of the most fundamental questions that researchers haveasked about private labels is Who is the private label proneconsumer?

Interestingly, despite a large body of research on this issue,

there are few generalizations about the characteristics ofthe private label user. The best we can say is that she/he isprice sensitive but not image sensitive, middle-income, andeducated.

Another key question is Do private labels give retailersnegotiating leverage over national brand manufacturers?

Several analytical models have been developed in recentyears that claim the answer to this question is yes and

analysis supports the hypothesis that retailers are able toearn high margins on national brands in categories wheretheir private label has a high share.

A third question relates to the category characteristics that areconducive to private label success.

Several researchers have noted that private label pronenessis more categories specific than consumer specific. Privatelabels gain higher share in large, less-promoted categorieswith a small number of brands, and when the pricedifferential between national brands and private label islarge. But, the most important driver of private label shareis its perceived quality.


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The fact that the perceived quality differential between privatelabels and national brands is so important clearly means that thebetter the private label position in terms of quality, the morelikely it is to succeed.

However, should the private label be positioned against theleading national brand?

We can show analytically that it is profitable for theprivatelabel to position itself close to the leading national brand,particularly when the leading brand has a high share. Whenprivate labels do target a particular national brand, theytend to target the leading brand. Interestingly, though, the

large majority of private labels do not seem to target aparticular national brand, perhaps because that positioningmay not be credible.

Is private label use related to store loyalty?

The answer has direct relevance to the ability of privatelabels to help build retailers brands. Conventional wisdomcertainly has it that store image and loyalty may improve asconsumers become familiar with the private label and their

shopping is facilitated by the ability to buy a single brandacross a wide range of product categories.

The ability to engender store loyalty can make private labelsprofitable for retailers even if they do not have a cost advantage.However, empirical evidence of the relationship between privatelabel use and store loyalty is not only sparse but mixed.

There is a positive correlation using scanner data for one productcategory, there a positive. Heavy private label users buysignificantly less from a retailer than do medium private labelusers.

Further, none of these studies can attest to the direction ofcausality in the relationship. As a result, it is by no means clearthat private labels increase consumer loyalty to a retailersstores.


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Summary

Private label users span a wide array of demographic andpsychographic characteristics, so retailers who use a strongprivate label strategy are not limiting themselves to only anarrow section of the market. The negotiating leverage providedby a successful private label can make it easier for a retailer tostrengthen some of the other levers of brand image.

E.g.: More attractive prices and promotions for the best nationalbrands.

There is significant variation in private label share acrosscategories, and the quality differential with national brands is amuch more important driver of share than the price differential.

But, it is not clear whether private labels really improve storeloyalty, and though analytical research suggests that positioningnext to the leading brand is a smart strategy for maximizingcategory profit, it is not clear whether such positioning is crediblein the minds of consumers.


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The Impact of Manufacturer Brands on Private

Label Success

Since consumers representations of private labels, which are notadvertised much and vary from one retailer to another, may notbe as well elaborated as their representations of well knownmanufacturer brands, extrinsic cues are more likely to affectperceptions of private labels.

The manufacturer brands carried by the retailer can serve as oneimportant extrinsic cue. The quality of manufacturer brandspositively influences consumers image of the retailer. In turn,

strong retailer image spills over to improve ratings of privatelabel products.

Carrying strong brands can improve the image of a retaileralthough strong retailer image cannot improve the image of aweak brand. Consumers ratings of private labels are higher whenstore image is favorable although their ratings of manufacturerbrands are not affected by store image.

Study of whether the presence of high equity brands increasesthe economic value of less established brands also suggests thatstocking high quality manufacturer brands can help retailersimprove the performance of their private label products.

However, the influence of manufacturer brands on private labelevaluation and choice may vary depending upon the assortmentof price-quality tiers and display structure in the store.

Adding an even higher quality option to an existing assortment

leads consumers to prefer a higher-quality, higher-price option,with the cheapest option losing the most. On the other hand,adding a lower quality option does not shift choices to lowerquality levels.

This reiterates the importance of quality in private label successand shows that the strategy of stocking an even lower quality


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manufacturer brand to make a low quality private label look moreappealing will not be effective.Consumers choose middle or compromise alternatives in somecases but not in others. Compromises are chosen when thedimensions on which choices vary have diminishing marginalvalues whereas non-compromise options are chosen whenmarginal values are increasing.

Given that most private labels in packaged goods are notpositioned at the extremes, this may explain why they performbetter in utilitarian versus hedonic categories.

Low price, low equity brands are more likely to be chosen whenthey are displayed alongside competing options while high price,

high equity brands are more likely to be chosen when they aredisplayed separately. When unfamiliar brands share the retailportfolio with well known brands, the former do better inseparate displays than in mixed displays.

A key difference between the studies is that, in the latter, theunfamiliar brand is described to be identical to the high equitybrand, generally even in price, low tier brands are low equity andlow price. Thus, mixed displays may help the private label whenit has a lower price and superior features compared to the higher

equity manufacturer brands, because comparisons are easier.

Otherwise, separate displays may be better because they reduceconsumers ability to use informational cues from manufacturerbrands.

Summary

Stocking high quality manufacturer brands improves thevaluation of a retailers private label by improving consumer

perceptions of the retailers overall image. However, theassortment of price quality tiers that the retailer carries anddisplays along with the private label can influence private labelchoice. Positioning the private label as a compromise betweenhigh and low tier manufacturer brands may increase its share insome categories but not in others. And, whether a mixed or


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separate display is better for private labels may depend uponwhether it has superior price and product features.

FUTURE RESEARCH PRIORITIESThe above review highlights several insights that past researchhas provided into some relevant retailer branding considerations.Yet, much work clearly still needs to be done. In this concludingsection, we review three areas that deserve greater researchattention.

Development and Application of Traditional BrandingTheory

There are a number of branding principles and concepts thatcould be productively applied to retailer brands. Here wehighlight three important ones.

Brand personality: Much of the theory and practice of brandingdeals with intangibles how marketers can transcend theirphysical products or service specifications to create more value.One important brand intangible is brand personality the humancharacteristics or traits that can be attributed to a brand. Onewidely accepted brand personality scale is composed of five

factors:

1) Sincerity (e.g., down-to-earth, honest, wholesome, andcheerful)2) Excitement (e.g., daring, spirited, imaginative, and up-to-date)3) Competence (e.g., reliable, intelligent, and successful)4) Sophistication (e.g., upper class and charming)5) Ruggedness (e.g., outdoorsy and tough).

This provides us answers of following questions

How applicable are these brand personality dimensions toretail brands?

Do other dimensions emerge?

Which retailer attributes affect?


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Which dimensions of retailer brand personality and howdoes this vary across market segments?

Experiential marketing: An important trend in marketing isexperiential marketing company-sponsored activities andprograms designed to create daily or special brand-relatedinteractions.

There is a concept ofCustomer ExperienceManagement (CEM).This is defined as the process of strategically managing acustomers entire experience with a product or company.Retailers are obviously in an ideal position to create experiences

for their customers.

These experiences may involve their own private labels,manufacturer brands, or not be tied to a specific product but thestore as a whole.

A host of questions are raised by such strategies:

What kinds of feelings can be engendered by a retailersevent?

How can that become linked to the retailers brand? How do retailers develop their communication strategies as

a whole? Can retailers use the Web to provide further event support

and additional experiences?


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A related issue is how retailers can engage in activities, perhapsin collaboration with national manufacturers, to encourageproduct use and communicate or demonstrate productinformation to build brand awareness and enhance brand imagefor the individual products or services that are sold. How can in-store merchandising, signage, displays, and other activitiesleverage the equity of the brands that the retailer sells while stillbuilding its own equity?

Brand architecture: Brand architecture involves defining bothBrand boundaries and Brand relationships

The role of brand architecture is two-fold:1) To clarify all products and services offerings and improve

brand awareness with consumers and2) To motivate consumer purchase by enhancing the brandimage of products and services.

In general, there are three key brand architecture tasks:

1. Defining brand potential. What can the brand stand for? Whatshould the brand promise be? How should the brand becompetitively positioned?

2. Identifying opportunities to achieve brand potential. Whatproducts or services are necessary to achieve the brandpotential? What markets should be tapped to achieve growth?

3. Organizing brand offerings. How should products and servicesbe branded so that they achieve their maximum sales and equitypotential?

These tasks suggest a number of research questions. In aretailing context, brand architecture issues revolve around howmany and what kind of products and services are provided by theretailer (i.e., cross- and within-category assortment) and how thevarious products and services are branded. An obvious questionis how the retailer chooses to develop private label offerings, if atall, as described in the next section. But, several other issuesneed to be considered, as follows.


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For example:

At the store level, how can a retail brand be optimallypositioned with respect to competitors?

How should competition best be identified and addressed?

How should the brand essence or core meaning of a retailbrand be defined?

How flexible are the mental categories consumers form forretail brands?

Within the store, other brand architecture issues also exist.

Should the retailer develop brands for different sections ofthe store or groups of branded products or services?

How can the retailer add value to already-branded products

and services? Does creating sub-brands under the retailer brand name

help increase awareness or enhance the image of thebrands that are being sold?

Retailers need to carefully design and implement a brandarchitecture strategy to maximize retailer brand equity and sales.


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Role of Private Labels in Building Retailer Brand

Equity

Although researchers have discussed optimal private labelintroduction, quality, pricing, and positioning strategies from theperspective of private label sales or category profit maximization,there is little work, either normative or descriptive, that linksthese strategic decisions to building the retailers brand equity.We discuss below some issues that are particularly importantfrom the perspective of retail branding.

Category determinants of private label success:

What are the category and market factors that determinehow effective private labels will be in building the retailbrand?

Should retailers in different formats emphasize privatelabels in different categories?

Consumers associate different product categories with differentretail formats. Consumers build both category independent andcategory-specific store loyalty. Would it be more effective forretailers to develop private labels in categories that consumersalready associate them with or in categories that are nottraditionally associated with them?

Private label tiers and retailer brand positioning:

There are at least four tiers of private label products:

Ranging from low quality no-name generics to cheap

Medium quality own labels to somewhat less expensive Comparable quality private labels to premium quality High value added private labels that are not priced lower

than national brands.


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In Europe, especially in the U.K., one can find many examples ofthe last two tiers, most notably Marks and Spencers or Tescosprivate labels.In North America, brands such as GAP, Tiffany, Brooks Brothers,and Talbots have established strong, premium private labels, butLoblaws Presidents Choice may be the only really successfulexample of a premium private label in packaged goods.

However, more retailers are attempting to create a line of privatelabels that spans these tiers.For instance, the supermarket retailer Kroger offers a line ofthree private labels the premium quality Private Selection,the Kroger Brand that is guaranteed to be better than or equal tonational brands, and the most economical FMV brand (For

Maximum Value).

Clearly, this private label portfolio strategy allows the retailer tocover a range of price-quality tiers but, how effective is it inbuilding the retail brand?

Is the retailers ability to position his or her retail brand improvedor restricted by the presence of a private label, and the tier(s) inwhich the private label is positioned?

What types of retailers are most likely to benefit from privatelabels in terms of their retail brand equity?

Private label branding strategy:

Many retailers give their own name to their private label,whereas others use different names for their private labelproducts.

For instance, CVS puts the CVS name on all its private labelproducts while Kmart does not. Aldi, a German hard discounterwho is becoming a major force in European retailing, also doesnot put its own name on any of the products it sells even thoughonly private labels are sold in its stores. Little research has


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examined the effectiveness of retailers private label brandingstrategy.

Private label branding decision as one of the variables in theiranalysis of private label market share and found that putting theretailers own name on the private label is positively associatedwith private label share.

What are the factors that determine whether one strategy wouldbe more or less effective than the other?

On one hand, having the same name and perhaps even thesame package design for products in a wide array ofcategories across the store, certainly strengthens

awareness and recall of the retail brand, and may facilitatethe consumers decision making.

On the other hand, will consumers find it credible that theretailer can provide a good value, strong product in somany different product categories? Would it be desirable fora retailer like Aldi to have its big box, discount image betransferred to the products it sells?

Consumer perceptions of a private label product branded under

the store name are more likely to color their impressions of thestore as whole and vice versa than if a different name wereused to brand the product. Yet, the different inherent qualities ofa retail store and its products suggest that the flow of meaningand equity may not always be strong.

In other words, consumers may be able to mentallycompartmentalize product offerings as distinct from retailingactivities such that, even if they deemed a particular store brandproduct as unacceptable, they may be less inclined to downgradetheir evaluations of the retailer as a whole. If the retailer choosesnot to use the store name for private label products, thefeedback effects, both positive and negative, would presumablybe less strong.

Extending private labels:


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One of the major benefits of brand equity is the option it providesfor extending the brand name to other market segments withinthe category or to other product categories. Although someretailers with premium private labels sell those private labelsthrough other retail outlets (e.g., Starbucks), it is not yetcommon for North American packaged goods retailers to do so --they do not yet seem to have that kind of equity.

In terms of building brand equity, the key point of difference toconsumers for private labels has generally been "good value," adesirable and transferable association across many productcategories.

As a result, private labels can be extremely "broad," and theirname can be applied across many different products. Researchhas shown that because of their intangible nature, more abstractassociations may be seen as more relevant across a wide set ofcategories.

But all brands have boundaries. If a retailer extends its privatelabel assortment too far beyond the categories that consumersassociate with its channel type then he has to consider followingthings:

Will the benefits be so small as to outweigh the costs of thatassortment breadth?

Will such an action be particularly effective in differentiatingthe retailers image from competitors in its own channel?

Is a strategy of multiple private label brand names moreeffective from the point of view of extension than having asingle private label under the store name?

Manufacturer response:Manufacturers have responded to the rise of private labels in anumber of different ways: decreasing costs, cutting prices,increasing R & D expenditures, increasing promotions,introducing discount "fighter" brands, and supplying private labelmakers.


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How manufacturers should think about private labels and whatissues they should consider in deciding whether to supply privatelabel products?Although there is a segment of value conscious consumers whobuy private labels and manufacturer brands when the latter arepromoted, there are also two separate and sizeable segmentsthat buy one but not the other. Offering deeper promotions tocombat private labels may therefore not be the ideal response formanufacturers.

However, more empirical analysis is needed to examine theeffectiveness of different types of manufacturer response. Somemanufacturers have their own outlets (e.g., Nike town, Polo)which compete with their retailers. What are the brand equity

and consumer loyalty implications of manufacturer-controlledstores?


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Measuring Retailer Brand Equity

The measurement of brand equity has been one of the mostchallenging and important issues for both academics andmanagers. A common conceptual definition of brand equity and aclear distinction between the consumer-based sources of brandequity and the product-market outcomes of brand equity havebeen very useful in efforts to develop measures of brand equity,

but a single measure that offers rich insights and diagnostic andyet is easy to compute and track still evades us.

As if the measurement of brand equity were not hard enough,the measurement of retail brand equity adds its own uniquechallenges. Brand equity is defined as the marketing effects oroutcomes that accrue to the product or service with its brandname as compared to the outcomes if that same product orservice did not have the brand name.

Since it is difficult to determine what outcomes would accrue inthe hypothetical no brand name situation, researchers oftenuse private labels as the no brand name benchmark.

What should be the benchmark for assessing a retailers equityand comparing it with other retailers?

One possibility is the approach which uses oligopoly economictheory and a series of simplifying assumptions to derive an

analytic expression for the incremental profit that a productwould get with its brand name versus if it did not have the brandname.

However, although we do not treat the private label directly as abenchmark, it does play a role in his analysis the expression for


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brand equity is a function of, among other things, the priceelasticity of branded and private label products.

Another possibility might be to use a cross-retailer hedonicregression type of approach. For instance, one could regressretailer revenue or profit on various physical attributes such aslocation, square footage, store timings, product/serviceassortment, availability of private label,etc. A retailers residualfrom this regression, i.e., the portion of its revenue or profit thatcannotbe explained by physical attributes, can be conceptualizedas a measure of its retail brand equity.

A second complication in the measurement of retailer brandequity is that brand equity is supposed to enable the brand tocharge a price premium.

In fact, many researchers view this price premium as a measureof brand equity. However, several of the strongest retailerstoday, e.g. Wal-Mart, Target, Aldi, are built squarely on a lowprice positioning. Clearly, the fact that these retailers chargelower prices than their competitors does not mean they do nothave equity.

Perhaps one way to conceptualize retail brand equity is to think

in terms of the resources premium that consumers are willingto expend in order to shop with the retailer. Resources mayreflect financial considerations but also other factors such asdistance traveled, brand or size preferences compromised, orservices foregone.


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CONCLUSION

Our contention is that branding and brand managementprinciples can and should be applied to retail brands. Eventhough there has not been much academic research on retailbranding, a lot of work has been done on retailer actions and

consumer perceptions of retailer image that has direct relevanceto branding.

We reviewed academic research on five main dimensions of storeimage

access

in-store atmosphere price and promotion

cross-category assortment

within-category assortment

And then we integrated the major findings with lessons frombranding brand research.

Consumer perceptions of these dimensions of retailer image canhelp develop strong and unique retail brand associations in theminds of consumers.

They also influence the utilitarian and hedonic benefits thatconsumers feel they gain from retailer patronage and ultimatelythe price premium consumers will pay the extra effort they willbe willing to expend in order to shop the retailer, and the shareof trips, share of requirement, and loyalty that the retailerenjoys.


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By influencing consumer preferences and shopping behavior inthese ways, retailers image becomes an important base for theirretail brand equity. The relative importance of different imagedimensions and of utilitarian versus hedonic utility vary fordifferent retail formats, different consumer segments, and evenfor different purchase occasions for the same consumer, thusproviding ample opportunity for retail brands to differentiatethemselves from one another.

Perhaps because of the lack of explicit focus, however, a numberof important retail branding questions and issues are yet to beresolved. We have offered suggestions in three main areas applications of traditional branding principles, the role of privatelabels in building retailer brand equity, and the measurement of

retailer brand equity. We hope our report will stimulate progressin these and other areas of retail branding.


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Documents

Understanding Retail Branding1