The impact of private label brands on customer loyalty and product category profitability
| DOI | https://doi.org/10.1108/10610421111107996 |
| Pages | 27-36 |
| Date | 01 March 2011 |
| Published date | 01 March 2011 |
| Author | Michael S. Pepe,Russell Abratt,Paul Dion |
| Subject Matter | Marketing |
The impact of private label brands on customer
loyalty and product category profitability
Michael S. Pepe
Siena College, Ballston Lake, New York, USA
Russell Abratt
Huizenga School of Business and Entrepreneurship, Nova Southeastern University, Fort Lauderdale, Florida, USA, and
Wits Business School, University of the Witwatersrand, Johannesburg, South Africa, and
Paul Dion
Weis School of Business, Susquehanna University, Selinsgrove, Pennsylvania, USA
Abstract
Purpose – The purpose of this study is to investigate the influence of private label resources possessed by a supermarket retailer on the shopping
behavior of loyal customers. The study examines whether or not private label products can help in the overall enhancement of product category
performance.
Design/methodology/approach – The paper examines the performance of a supermarket retailer in the Northeast United States that operates over
100 stores and generates a total yearly sales volume in excess of $3 billion. Data obtained from the Supermarket’s point of sale information were used.
The paper then developed a research model from the literature review and used structural equation modeling to analyze the data.
Findings – The findings show that overall dollars spent by loyal customers significantly impacted overall profitability.
Research limitations/implications – The data collected pertained to the supermarket’s grocery department that is comprised of center store dry
grocery products, frozen food products, and refrigerated dairy products. Perishable departments such as deli, seafood, meat, bakery, floral, general
merchandise, health and beauty care, etc. were not researched in this study. Also, data obtained were from one individual supermarket chain.
Practical implications – Although private label products may represent increased profitability for retailers, consumers prefer a full assortment of
merchandise; an over emphasis on private label brands may result in diminishing category performance.
Originality/value – The paper examines the performance of a supermarket retailer in the Northeast United States that operates over 100 stores and
generates a total yearly sales volume in excess of $3 billion. The use of scanner data has value as it measures actual shopping behavior.
Keywords Labelling, Customer loyalty, Retailing, Brands, Profits, United States of America
Paper type Research paper
An executive summary for managers and executive
readers can be found at the end of this article.
Introduction
There has been research on how private label brands provide
leverage to retailers, who buy private label products, and the
category and market determinants of private label share
(Ailawadi and Keller, 2004). However, in an article
summarizing retailing research in the Journal of Retailing,
Grewal and Levy (2007) called for additional work on private
labels and their impact on retail sales and profitability. Private
label brands comprised an all time high of 21.3 percent of unit
share and 16.4 percent of dollar share in supermarkets in
2006 (PLMA, 2007). Between 1999 and 2003, private label
products in supermarkets grew at an annual rate of 17.9
percent compared to national brand product sales growth of
14 percent during the same time period (PLMA, 2004). In
addition, recent work shows tha t there is a necessary
coexistence between store and manufacturer brands in the
consumer packaged goods sector (Gomez and Benito, 2008).
This study examines whether or not private label products can
help in the overall enhancement of product category
performance and favorably impact loyal customer shopping
behavior. The purpose is to investigate the influence of private
label resources possessed by a supermarket retailer on the
shopping behavior of loyal customers.
Private brands and consumer loyalty
Throughout the USA, retailers use store brands to increase
business as well as to win the loyalty of their customers.
Whether a store brand carries the retailer’s own name or is part
of a wholesaler’s private label program, store brands give
retailers a way to differentiate themselves from the competition.
Private brands supplement a retailer’s image and strengthen its
relationship with consumers. In addition, some store brands are
no longer category killers, but are comparable to national
brands (De Wulf et al., 2005). Retailers are aware that
consumers can purchase national branded items a nywhere, but
they can only buy their store brand at their stores.
The central thrust of the marketing activities of a firm is often viewed in
terms of development, maintenance, or enhancement of customers’ loyalty
toward its products or services (Dick and Basu, 1994).
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
20/1 (2011) 27–36
qEmerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/10610421111107996]
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