Does private-label use drive store loyalty? This question is important to retailers, as they decide how much to push private labels over national brands, and to national brand manufacturers, as they look for effective ways to both cooperate with and compete with retailers. However, empirical evidence of the association between private-label use and store loyalty is both limited and mixed. This study develops an econometric model of the relationship between a household’s private-label share and behavioral store loyalty. The model includes major drivers of these two behaviors and controls for simultaneity and nonlinearity in the relationship between them. The authors estimate the model using a unique data set that combines complete purchase records of a panel of Dutch households with demographic and psychographic data. They estimate the model for two retail chains in the Netherlands—Albert Heijn, the leading service chain with a well-defined private-label strategy and higher private-label share, and C1000, the leading value chain with lower private-label share.
The authors find that private-label share significantly affects all three measures of store loyalty in the study: share of wallet, share of items purchased, and share of shopping trips. Furthermore, store loyalty has a significant effect on private-label share. For the service chain, both effects are strongly nonmonotonic in the form of an inverted U. Share of wallet increases with private-label share up to a certain point and then declines. The inversion point is at approximately 40% private-label share. Private-label share also increases with share of wallet, but only up to a certain point. The effect becomes negative at approximately 50% share of wallet. For the value chain, the effects are positive and nonlinear but do not exhibit nonmonotonicity, because private label share has not yet reached high enough levels.
The managerial implications of this research are important. Retailers can reap the benefits of a virtuous cycle; greater private-label share increases share of wallet, and greater share of wallet increases private-label share. However, this virtuous cycle operates only to a point because heavy private-label buyers tend to be loyal to price savings and private labels in general rather than to the private label of any particular chain. Therefore, retailers with a high-quality, well-differentiated private label face a conundrum. What can they do to grow their private label while avoiding the downside? They can focus on medium private-label buyers and (1) develop specialty private-label products to increase the perception of choice (e.g., Tesco) or (2) imbue their private labels with emotion and imagery to encourage use in categories in which consumers are otherwise reluctant to buy them (e.g., Target). Chains without a well-differentiated private-label program face a different challenge—namely, improving the actual and perceived quality of their private-label and convincing shoppers to try them. Their ability to build a virtuous cycle is also limited by the small reverse effect of store loyalty on private-label share.
Kusum Ailawadi is Charles Jordan 1911TU’12 Professor of Marketing in the Tuck School of Business at Dartmouth College. She received her BSc and MBA from Delhi University and the Indian Institute of Management, respectively, and her PhD from the University of Virginia. Kusum’s current research focuses on the impact of marketing spending decisions on category and brand performance and on the strategic interaction and balance of power between manufacturers and retailers. Her work has been published in journals such as Journal of Marketing, Journal of Marketing Research, Marketing Science, Sloan Management Review, International Journal of Research in Marketing, and Journal of Retailing. Kusum and her coauthors are past winners of Journal of Retailing William Davidson Award, Journal of Marketing Harold Maynard Award, and the ISMS John D.C. Little Award.
Koen Pauwels is Professor of Marketing at Ozyegin University, Istanbul, and an associate professor in the Tuck School of Business at Dartmouth College, where he teaches and researches marketing, statistics, and return on marketing investment. He won the 2007 O’Dell award for the most influential article in Journal of Marketing Research and built his research insights in industries ranging from automobiles and pharmaceuticals to business content sites and fast-moving consumer goods. Current research projects include the predictive power of market dashboard metrics, performance turnaround strategies, and retailer product assortment and price wars. Professor Pauwels received his PhD in Management from University of California, Los Angeles; won the EMAC 2001 best-paper award; and publishes in Harvard Business Review, Journal of Marketing, Journal of Marketing Research, Journal of Retailing, and Management Science and Marketing Science. He serves on the editorial boards of International Journal of Research in Marketing, Journal of Marketing, Journal of Marketing Research, and Marketing Science. Koen is also reviewer for these journals, as well as for Management Science, Marketing Letters, Journal of Retailing, Journal of the Academy of Marketing Science, Journal of Advertising, Statistica Neerlandica, and International Journal of Forecasting.
Jan-Benedict E. M. Steenkamp is C. Knox Massey Professor of Marketing and Marketing Area Chair in the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. His work has been published in journals such as Academy of Management Journal, International Journal of Research in Marketing, Journal of Consumer Research, Journal of Marketing, Journal of Marketing Research, and Marketing Science. He serves on the editorial boards of International Journal of Research in Marketing, Journal of Consumer Research, Journal of Marketing, Journal of Marketing Research, and Marketing Science and has been editor of International Journal of Research in Marketing. His most recent book is Private Label Strategy: How to Meet the Store Brand Challenge (with Nirmalya Kumar; 2007 Harvard Business School Press). The book has already been translated into Chinese and Portuguese. He has won the Hendrik Muller lifetime award for the social and behavioral sciences awarded by the Royal Netherlands Academy of Sciences for “exceptional achievements in the area of the behavioral and social sciences” (the first time the prize has been awarded to a researcher in any area of business administration). He has also received the O’Dell, Little, Bass, and International Journal of Research in Marketing Best Article Awards, as well as the American Marketing Association Global Marketing SIG Excellence in Research Award (twice). His current research focuses on private labels and branding, global marketing, and international marketing research technique
Journal of Marketing, Volume 72, Number 6, November 2008 View Table of Contents