The Effect of National Culture on Own-Label Brands Performance

Transcription

1 The Effect of National Culture on Own-Label Brands Performance Abstract The performance of own-label brands varies enormously across countries, with high penetration in Western countries but limited success in Eastern countries. This study aims to provide insights into the effect of national culture on own-label brands performance. We conceptualise a model in which national culture is represented by Hofstede s five dimensions (power distance, individualism, masculinity, uncertainty avoidance and long-term orientation) and where the effect of national culture on own-label brands is mediated by the retail market development (market size, store formats and market concentration). Our data involving 57 countries show that among the five national cultural dimensions: power distance, individualism and long-term orientation have a significant impact on own-label brands performance through the mediation of retail market development. The two other national cultural dimensions do not play any role according to our results. Past studies on this domain are restricted to one or two cultural dimensions and generally involve a limited number of countries. This research would therefore pioneer in investigating the five national cultural dimensions across a high number of nations. The findings are important for retailers and may help them to adapt their own-label strategy according to the culture of the nations they are operating in. Key Words: National Culture, Own-Label Brands Performance, Retail Market Development, Mediation Effect Track: International Marketing Paper Type: Competitive 1

2 1. Introduction Considerable inter-country difference in terms of own-label brands performance still exist - a 2009 Nielsen survey reports that in Western European countries the penetration of own-label brands is significant (46% in Switzerland, 44% in the UK, and 32% in Germany). However, the performance of own-label brands in Asian markets is relatively underdeveloped, with Hong Kong and Singapore having the largest share (respectively 5% and 3%) of own-label brands (Nielsen, 2009). Past studies argue that this discrepancy is due to market factors such as the size of national brands market, the development of big retail chains, and the power balance between retailers and manufacturers (Rubio & Yague, 2009). However, the role of national culture in explaining this discrepancy has been overlooked. Hyman et al., (2010, p.381) call for a more thorough the investigation of the effect of national culture in the adoption of own-label brands stating that to understand the inter-country differences on own-label brands usage.studies on the effect of national culture on ownlabels market share are important. A few studies have attempted to investigate the role of national culture on own-label brands performance (see e.g., Herstein et al., 2012; Shannon & Mandhachitara, 2005) however, these investigations remain partial. First, these studies only test one or two cultural dimensions to explore the effect of national culture on preference for own-label brands, while other studies generally emphasised the importance of testing the Hofstede s five national cultural dimensions (Kirkman et al., 2006). Second, cross-cultural studies on own-label brands generally only employ comparisons between two-countries, which are considered to be a major methodological concern (Engelen & Brettel, 2011) as it does not isolate different national cultural forces. Finally, these studies generally do not take into account the development of the retail market on a national level, which is a fundamental factor in explaining the success of own-label brands. The purpose of this study therefore is to extend knowledge in this domain by investigating the effect of national culture on own-label brands performance and understanding the mediating role of retail market development. Our data involves information about national cultural dimensions, retail market development and own-label brands performance in 57 countries. 2. Literature Review and Conceptual Framework According to Clark (1990) national culture is gaining importance in marketing studies as a general theory. It represents the collective programming of the mind that distinguishes the members of one group or category of people from another (Hofstede, 2001, p.9). Different models have been developed to analyse and measure national culture in the literature (Hofstede, 1980, 2001; Schwartz, 1992; or GLOBE of House et al., 2004). Despite the criticisms, this study adopts Hofstede s (1980) national cultural dimensions for the following reasons. First, Hofstede s model is generally the one that is used for international comparisons as it is the only one for which the different dimensions have been measured for a large number of countries around the world (Fernandez et al., 1997). Second, Hofstede s national cultural dimensions are independent from each other, which is advantageous when applying regression analysis (Henseler et al., 2010). Further, the level of analysis of this study (at country level) corresponds to the level of analysis for which Hofstede s model has been developed. To build our conceptual framework, we rely on contingency theory (Hall, 1987). This theory proposes that markets and their performance are dependent on the context in which they operate. Tayeb (1987) argues that national culture is one of these fundamental contextual variables. Our framework therefore hypothesises an influence of national culture on retail market, which in turn should influence own-label brand performance (cf. Figure 1). 2

3 Figure 1: Effect of National Culture on Own-Label Brands Performance H2a (-) Power Distance H3a (+) Individualism Retail Market Development H1 (+) Own-Label Brands Performance Masculinity Uncertainty Avoidance H4a (-) H5a (-) Long-Term Orientation H6a (-) Retail Market Development. Many empirical studies suggest that several elements of the retail market development greatly impact own-label brands performance, such as the size of the market (Dhar & Hoch, 1997), the modernity of the retail outlets (Goldman, 1974), and the retail market concentration (Rubio & Yague, 2009). It is therefore argued that the more the retail market is composed of big modern retail chains that dominate the market (high market concentration and dominance of modern distribution channels), the more powerful the ownlabel brands offered by these retailers are (H1). Power Distance. Power distance (PDI) is the extent to which the less powerful members of organisations accept that power is distributed unequally (Hofstede, 2001). In high PDI cultures, people place more importance on products brand names than in low PDI cultures (Bristow & Asquith, 1999) and global brands serve more often as standard brands (Kim & Zhang, 2011). We therefore hypothesise a negative relationship between PDI and own-label brands performance (H2a). Moreover, Etgar & Rachman-Moore (2011) suggest that retailers originating from high-pdi countries are likely to be more traditional and less concentrated. We therefore hypothesise a negative relationship between PDI and retail market development (H2b). In turn, we hypothesise a mediating role of retail market development between PDI and own-label brands performance (H2c). Individualism. Individualism implies a loosely knit social framework in which people are supposed to take care of themselves and of their immediate families only (Hofstede, 1980). Past research shows that Western individualistic cultures are more prone to buy own-label brands (Shannon & Mandhachitra, 2005), maybe because they are more brand-savvy (Sun et al., 2004). We therefore hypothesise a positive relationship between individualism and ownlabel brands performance (H3a). Moreover, past studies report that countries with low levels of individualism are less likely to accept modern retail distribution channels (Kim & Jin, 2001). Hence, we hypothesise that a positive relationship between individualism and retail market development (H3b). In turn, we hypothesise a mediating role of retail market development between individualism and own-label brands performance (H3c). Masculinity. Masculinity refers to the dominant gender patterns in a society (Swaidan et al., 2008). In masculine cultures performance and achievement are important, which leads consumers to buy status brands or products to show one s success (De Mooij & Hofstede, 2010). We therefore hypothesise a negative relationship between masculinity and own-label brands performance (H4a). Moreover, Goldman & Hino (2005) show that high-masculinity 3

4 cultural norms lead women to stay on the safe radius around the home, preventing them from shopping regularly in distant modern supermarkets. We therefore hypothesise a negative relationship between masculinity and retail market development (H4b). In turn, we hypothesise a mediating role of retail market development between masculinity and ownlabel brands performance (H4c). Uncertainty Avoidance. According to Hofstede (1980), cultures displaying a high level of uncertainty avoidance (UAI) tend to be more risk averse. These cultures tend to expect more loss associated with the purchase of non-established brands (Bao et al., 2003). We therefore hypothesise a negative relationship between UAI and own-label brands performance (H5a). Moreover, literature suggests that when the level of uncertainty is low, markets feel less the need to be concentrated (Achrol & Stern, 1988). As such, we hypothesise a negative relationship between UAI and retail market development (H5b). In turn, we hypothesise a mediating role of retail market development between UAI and own-label brands performance (H5c). Long-Term Orientation. Long-term orientation (LTO) is defined as the extent to which a society exhibits a pragmatic, future-oriented perspective rather than a conventional historic or short-term perspective (Hofstede, 2001). According to De Mooij & Hofstede, (2002) consumers from LTO country tend to prefer well-known (i.e., national or global) brands because they may be interested in forming a long-term relationship with these brands. We therefore hypothesise a negative relationship between LTO and own-label brands performance (H6a). Moreover, Khare (2013) report that retailers originating from high-lto countries are likely to be more traditional and less concentrated. We therefore hypothesise a negative relationship between LTO and retail market development (H6b). In turn, we hypothesise a mediating role of retail market development between LTO and own-label brands performance (H6c). 3. Research Method We use secondary data to test our hypotheses. We concentrate on the packaged food category grocery in which own-label brands have emerged as fierce competitors of national brands (Lamey et al., 2012). We built our dataset from two data sources. First, we extracted the information regarding own-label performance and retail market development from the online database Euromonitor. This database provides data regarding worldwide sales (by country) of different brands (including own-label brands) in the different retail (modern and traditional) formats. To measure own-label brands performance we extracted the average own-label market share sold in the different retail formats and computed the weighted mean of these market shares. To capture the different dimensions of the retail market development, we computed (1) the total sales in grocery retailers per inhabitant (representing retail market size), (2) the market share of modern grocery retailers (representing the relative importance of modern versus traditional formats) and (3) the Herfindahl index 1 (representing market concentration). Second, we extracted information about the scores of national cultural dimensions from the recent book of Hofstede et al., (2010) titled Cultures and Organizations: Software of the Mind (Rev. 3rd ed.). We extracted the absolute values of five out of the six dimensions included in Hofstede s Cultural Model : power distance (PDI); individualism (IDV); masculinity (MAS); uncertainty avoidance (UAI) and long-term orientation (LTO). In total our cross-sectional dataset includes all this information for 57 countries. 1 The Herfindhal Index is computed by summing the squares of the markets share of the different competitors on a market. 4

5 4. Results Before testing our conceptual framework, we conducted a principal component analysis (PCA) on the three variables representing retail market: retail market size, importance of modern retail formats, and retail market concentration. The results of PCA, with an Eigenvalue of 2.293, explain around 76% of the sample variance. The results of the analysis confirmed that the three variables form an accurate and uni-dimensional component representing retail market development. Subsequently, we performed a multiple regression analysis to test the impact of retail market development and the five national cultural dimensions on own-label brands performance. Results are shown in Panel A of Table 1. Results show a significant positive direct relationship between retail market development and own-label brands performance confirming H1. Moreover, we find a significant positive direct relationship between individualism and own-label brands performance (H3a is confirmed). However, we did not find any significant direct relationship between the other four cultural dimensions (PDI, MAS, UAI and LTO) and own-label brands performance (H2a, H4a, H5a, H6a are not confirmed). Table 1: The Impact of National Culture on Own-Label Brands Performance (OBP) and Retail Market Development (RMD) Panel A: Dependent variable: OBP Panel B: Dependent variable: RMD Variable Coefficients p-value Coefficients p-value RMD 0.368** PDI *** IDV 0.375*** *** MAS * UAI LTO *** R *** p <.01; ** p <.05; *p <.10 Further, in order to test the impact of cultural dimensions on retail market development, we performed another multiple linear regression (cf. Table 1, Panel B). We found that four cultural dimensions (PDI, IDV, MAS and LTO) significantly impact retail market development (H2b, H3b, H4b and H6b are confirmed). However, we did not find any significant relationship between UAI and retail market development (H5b is not confirmed). Finally, we used two mediation tests the Baron and Kenny (1986) method, and the more recent Preacher (2012) version of the Sobel tests advocated by Zhao et al., (2010) to test the mediating role of retail market development in the impact of national culture on own-label brand performance. The first method Baron and Kenny s mediation tests only found retail market development significantly mediates between individualism and own-label brands performance (see Appendix 1). Table 2 presents the mediation results of the Sobel tests. Table 2: Aroian Tests (Sobel) paths Dimension Paths z p Power Distance Power Distance Retail Market Development -1.80* Individualism Individualism Retail Market Development 2.06** Masculinity Masculinity Retail Market Development Uncertainty Uncertainty Retail Market Development

6 Long-Term Orient. Long-Term Orient. Retail Market Development 1.91* ** p <.05; *p <.10 However, the second mediation test, shown in Table 2, report that retail market development significantly mediates the relationship between three national cultural dimensions power distance, individualism, and long-term orientation and own-label brands performance (H2c, H3c and H6c are confirmed). However, retail market development does not mediate the relationship between masculinity and uncertainty avoidance and own-label brands performance (H4c and H5c are not confirmed). 5. Discussion On the basis of our findings, we can argue that, even if all our hypotheses have not been validated, the expectations based on contingency theory have been generally confirmed: the development of the retail market and its performance in terms of own-label brands are contingent on national culture dimensions. In particular, our results first show that there is a significant positive direct relationship between individualism national culture dimension and own-label brands performance. However, we did not find any significant direct relationship between the other four national culture dimensions (PDI, MAS, UAI and LTO) and own-label brands performance. Second, we found that the retail market development positively impacts own-label brands performance. That is, the more important the retail market development is in terms of size, concentration (composed of big retailer chains that dominate the market), and modernity (composed of modern retail formats such as supermarkets rather than traditional formats such as small family stores), the more powerful own-label brands are compared to global or manufacturer brands. Third, our results discovered that countries displaying high power distance national culture dimension are more prone to develop a less concentrated retail market, which would in turn negatively impact own-label brands performance. In addition, the mediation results found that the retail market development significantly mediates the relationship between individualism national culture dimension and own-label market shares. Further, our findings also revealed that countries which are high long-term orientation national culture dimension are more prone to develop less concentrated retail market, which would in turn negatively impact own-label brands performance. However, the retail market development does not significantly mediate the relationship between the two other national culture dimensions (masculinity and uncertainty avoidance) and own-label brands performance. Besides addressing a theoretical gap this study also has strong managerial implications related to a better understanding of the effect of national culture on the adoption of own-label brands. Indeed, ignoring national culture s influence has led retailers to centralise operations and marketing, which instead of increasing efficiency resulted in declining profitability (De Mooij & Hofstede, 2002). Understanding the effect of national culture plays in this context would allow retailers to adapt their own-label brand strategies according to different cultures (Shannon & Mandhachitara, 2005). This research is not without limitations. One of these limitations lies in the fact that we have not incorporated the sixth national cultural dimensions of Hofstede s model: indulgence. This is due to the fact that reliable data is missing regarding these dimensions. An interesting area of future research would be to incorporate this dimension in order to test its impact on own-label brands performance. Further, we only focused on consumers packaged foods category, future studies may also test our hypotheses on other product categories including non-food products such as home appliances, health and beauty, electrical and electronic goods. 6

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9 Appendix 1 Results of Mediation Analysis of Retail Market structure Step Predictors Unstandardized Std. Error Standardized p value Coefficients (B) Coefficients (β) 1 Power Distance *** *** Individualism 0.018*** *** Masculinity * * Uncertainty Long-Term Orientation 0.012*** *** Power Distance * * Individualism 0.241*** *** Masculinity Uncertainty Long-Term Orientation 0.123*** *** Power Distance Individualism 0.172*** *** Masculinity Uncertainty Long-Term Orientation Retail Market Development 3.902** ** *** p < 0.01, ** p < 0.05, *p <