How a brick-and-mortar retailer’s strategic focus on niche (versus mainstream) brands influences category sales
| Date | 01 July 2020 |
| Pages | 609-625 |
| DOI | https://doi.org/10.1108/JPBM-12-2019-2673 |
| Published date | 01 July 2020 |
| Author | Jake David Hoskins,Abbie Griffin |
How a brick-and-mortar retailer’s strategic
focus on niche (versus mainstream) brands
influences category sales
Jake David Hoskins
Atkinson Graduate School of Management, Willamette University, Salem, OR, USA, and
Abbie Griffin
Department of Marketing, University of Utah, Salt Lake City, UT, USA
Abstract
Purpose –This study aims to focus on the role of niche brands in online retailer assortments and the general market positions of niche brands, no
prior study has explicitly focused on if and when brick-and-mortar retailers should include niche brands in t heir category assortments.
Design/methodology/approach –The authors empirically analyze the category performance implications of focusing assortments on niche brands,
at the expense of mainstream brands, in two product categories that have significant niche brand presence, namely, coffee and beer. The empi rical
data include sales, distribution and marketing tactical information for 50 US geographic markets from 2001–2011.
Findings –This research finds that a mainstream brand focus has a generally positive impact on category performance. However, a store’s strategic
shift toward niche brands is beneficial in certain cases such as when a store has higher average prices or product form variety or when they are part
of a powerful chain. The authors also find that a niche brand focus strategy is becoming increasingly viable over time for brick-and-mortar retailers.
Originality/value –Little is known about the parameters that might make a brick-and-mortar retailer more or less likely to pursue a niche brand
focus strategy and when doing so might improve category performance. This analysis helps clarify the conditions under which a brick-and-mortar
retailer may experience category level sales increases from focusing assortments on niche brands.
Keywords Assortment planning, Retailing, Brand identity, Marketing strategy, Product management, Fast moving consumer goods,
Brick-and-Mortar retailing, Category evolution, Consumer packaged goods, Niche brands
Paper type Research paper
Introduction
While a “niche brand”was formally defined in the marketing
literature over three decades ago as a low share brand that
fulfills a small, yet distinct set of customer needs (Kahn et al.,
1988), renewed research interest has surgedon the topic in
recent years. Empirical studies acrossavariety of contexts have
confirmed the theoreticalexpectations laid forth in that original
paper: niche brands provide a specialized set of product
offerings that distinctly appeal to theunique needs of their
(small) customer base resulting in higher price premiums,
higher customer loyalty and elevated customer-brand
relationship strength (i.e. Beckeret al., 2019;Beverland, 2005;
Echols and Tsai, 2005;Jarvisand Goodman, 2005;Noy, 2010;
Toften and Hammervoll, 2013;Verhaal et al., 2015;Warren
et al.,2019).
This body of research has largely focused on how niche
brands strategically succeedand cater to their special customer
base from the perspective of the niche brand manager. A
corollary literature has examined how niche brands may be
beneficial for online retailers, taking the managerial perspective
of the retail manager (i.e. Anderson, 2006;Bell et al.,2012;
Brynjolfsson et al., 2003;Brynjolfsson et al., 2011;Choi and
Bell, 2011;Meiseberg, 2016). A highly related question that
has received less attention is if and,if so, when, brick-and-
mortar retailers may benefit from incorporating niche brands
into their category assortments. While interest in the general
strategic tradeoffs between category assortment breadth and
depth in the face of constrained shelf-space and inventory
holding costs for brick-and-mortar retailers has received
considerable research interest (Kahn et al.,2014;Mantrala
et al., 2009), this extant literature has not directly zeroed in on
the impact of a niche brand focus.
Perhaps, this literature gap exists because of the field’s long-
standing assumption that niche brands are simply not
worthwhile for brick-and-mortar retailers to include in their
category assortments. Brick-and-mortar retailing approaches
advised by theory and practice have long followed Pareto
approaches (Mantrala et al., 2009), which assume that about
The current issue and full text archiveof this journal is available on Emerald
Insight at: https://www.emerald.com/insight/1061-0421.htm
Journal of Product & Brand Management
29/2 (2021) 609–625
© Emerald Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/JPBM-12-2019-2673]
The authors wish to graciously thank the external financial support
provided by a pair of sources: The Monty and Christine Botosan Bridge to
Practice Doctoral Thesis Award Fund and the Product Development
Management Association's Innovation Doctoral Consortium Speed
Funding Competition held at the University of Illinois-Chicago.
Received 6 December 2019
Revised 10 April 2020
Accepted 26 May 2020
609
20% of the leading brands (i.e. the top mainstream brands)
should account for about 80% of category sales. Kim et al.
(2017) recently empirically confirmed this Pareto rule
expectation to be true, on average, for brick-and-mortar
category level brand shares across a wide variety of product
categories and over a long time frame. Tanusondjaja et al.
(2018) found a similar Pareto relationship to be true when
focusing an analysis on the product, rather thanthe brand,
level: a few top-selling products command the vast majority of
sales in most productcategories.
A retailer tilting its focus toward niche and away from
mainstream brand offerings also incurs risk. Negative returns
may result from a suboptimal redistribution of shelf-space from
more to less popular brand offerings (Boyd and Bahn, 2009;
Dreze et al.,1994;Elberse, 2008). Indeed, in further support of
the field’s general belief that niche brands hold a limited (if any)
strategic role in brick-and-mortar assortments, Brynjolfsson et al.
(2011) compared online and brick-and-mortar channel
assortments and sales patterns for the same retailer with the logic
that the brick-and-mortar would not and should not, stock many
niche brands. Verhaal et al. (2017) observed that niche brands
have typically been sold in direct outlets rather than in
mainstream market-focused brick-and-mortarretail outlets.
However, industry anecdotes suggest an increasing interest
among brick-and-mortar retailers in bolstering their niche brand
offerings. Mass-market retailers, including Wal-Mart and
Kroger, are increasingly reallocating shelf-space away from large
share mainstream brands to make more room for the inclusion of
smaller share niche brands [1]. Meanwhile, both Whole Foods
and Trader Joe’s have enjoyed marked success without including
mainstream market-leading brands (such as Coca-Cola or
Folgers) in their category assortments at all [2], [3].
So, which viewpoint is correct? Are brick-and-mortar
retailers best off to focus category assortments exclusively on
mainstream brand offerings that serve most customers and
generate the majority of sales within the category? Or are
smaller share niche brands an important aspect of category
assortments as well? We argue that the answers to these
questions are context-dependent. With the aid of established
theory that differentiates between the market positions of
mainstream and niche brands, this research identifies key
contexts in which a retailer’sniche (vs mainstream) brand focus
may impact, positively or negatively, category level sales.
Additional key predictions are also generated by linking the
roles of both the retailer’sgeographic market share and evolving
consumer search capabilities in further influencing the impact
of niche brand focus on categorysales.
We test our hypotheses using the beer and coffee categories,
for which niche brands are considerably more common than
the typical category, and thus, managerially relevant, across a
wide sample of US brick-and-mortardrug and grocery retailers.
The beer market, in particular, has drawn considerable
research attention for the role and prevalence of niche brands,
despite a very small group of mainstream brands commanding
the vast majority of category sales (i.e. Barlow et al.,2018;
Carroll and Swaminathan, 2000;Verhaal et al.,2017), while
the coffee market, to perhaps a lesser degree, has also been
noted for its presence of niche brands (i.e. Thompson and
Arsel, 2004). The results generally indicate that niche brands
can play a key role in brick-and-mortar retailer assortment
planning strategy, but only when the proper conditions exist.
Significant heterogeneity arisesamong retailers as to whether a
niche brand focus helps or hurts category level sales
performance. Finally, some distinctions in the results between
the beer and coffee categories also emerge, which we posit is
likely because of the more advanced niche markets in the beer
category. We discuss the findings and provide implications for
theory and practice,before conceding study limitations.
Theory and hypotheses
What are market niches and where do they come from?
The market niche concept originated in the Management
literature when research uncovered a peculiar phenomenon
surrounding highly concentrated industries. In industries as
varied as manufacturing (Dobrev et al.,2001), media distribution
(Carroll, 1985), consumer packaged goods (Carroll and
Swaminathan, 2000;Weber et al.,2008) and energy (Liu and
Wezel, 2015), researchers found that market share consolidation
to a few dominant brands led to small opportunities in the
periphery of the market, commonly referred to as market niches.
The logic is, in search of economies of scale and lower price
points to appeal to a wider customer base, mainstream brands
tend to abandon the unique and relatively idiosyncratict astesand
preferences of a few remaining customers (Carroll, 1985). In a
similar vein, Fornell (1995) found a common inverse relationship
between a brand’smarketshareanditslevelofcustomer
satisfaction: mainstream brands generally rely on dominant
positions to reasonably please their wide base of customers,
leaving other marketplace customer’s needs either underserved
or unmet altogether. More contemporary research has even
found that main stream brands are prone to having a vocal set of
detractors who are displeased with the brand’s abandonment of
their unique customer needs (Mafael et al.,2016;Osuna Ramirez
et al.,2019;Wolter et al., 2016). Hence, the success of
mainstream brands in growing share at the center of the market
leaves niche market opportunities on the periphery.
Kahn et al. (1988) was the first to extend the market niche
concept into the marketing literature, identifying two common
types of niche opportunities: those with a small base of highly
loyal customers; and those with a wider base of variety seeking
customers. As then, research has furtherinvestigated questions
around the industry environments in which market niches are
likely to be available, how they may be recognized and
successfully pursued and the distinct characteristics of niche
customers (i.e. Noy, 2010;Jarvis and Goodman, 2005;Dalgic
and Leeuw, 1994;Toften and Hammervoll, 2013, etc.).
However, much of the extant research has focused on
determining, which brands are most likely to find success in
filling market niches. While not intended by any means to be a
complete list, an overview of the existing niche brandliterature
is provided in Table 1.
Which brands may fill market niches?
This question consistsof two parts, namely:
RQ1.Which brands wish to fill marketniches?
RQ2.Which brands are likely to succeed in filling market
niches?
Strategic focus on niche (versus mainstream) brands
Jake David Hoskins and Abbie Griffin
Journal of Product & Brand Management
Volume 29 · Number 2 · 2021 · 609–625
610
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