A Study of Consumer Perception and Loyalty towards Private Label Brands: Theoretical Approach

Transcription

1 A Study of Consumer Perception and Loyalty towards Private Label Brands: Theoretical Approach Pritam Chattopadhyay 1 and Dr. Ruchi Jain 2 1 (Research Scholar, Amity University Uttar Pradesh, India) 2 (Assistant Professor, Amity School of Business, Uttar Pradesh, India) Abstract: Private labels achieved amplified market diffusion and are mounting at a brisk rate. Retailers brands are to be established subsequently to national brands in largely all product categories. The rationale of this work is to analyze different elements those are related to organize retailing in India, specifically focusing on consumer perception and loyalty. There are lots of research papers published to describe comparative perception of retailers for factors affecting sales growth of private labels and national label in India. It has observed that there are many factors which has some indirect impact on consumer mind, but after sales service, Promotion, Price, Perceived Risk, Packaging and Brand Image of Store etc. to name a few. The study comprised of different categories of private labels mainly from Apparel industry. A noteworthy demarcation is found in perception of retailers for selling of private label and national brands and there is a difference in consumer perception and loyalty. Further study presents implications for retailers in terms of chalking out effective strategy on the basis of category of private labels. Manufacturers of national brands need to aware of gaining acceptance of private labels in various categories. This research opens up new areas of investigation for private labels in India. Indian retail is in an expansion extravaganza and many companies are joining the retail landscape. After food and groceries segment apparel is the next large retail segment and the consumption of apparel is also very large in volume. Previously the manufacturing brands used to lead the apparel category in the early days and the penetration of the private label brands was very small. But now things have changed and private label brands are leading in every segment. In the apparel segment also many private label brands are leading the competition. Keywords: Consumer Perception, Consumer Loyalty, National Label Brands, Private Label Brands Rationale As organized retail is growing by leaps and bounds in India, private labels gaining share in each and every category. However performance of private labels varies with category. Building a successful private-label brand is one of the important concerns for retailers. So it is essential to understand the category variation of factors which affects the sales growth of private labels. The study will serve the purpose by revealing the comparative perception of retailers towards impact of factors After sales service, Promotion, Price, Perceived Risk, Packaging and Brand Image of store towards sales growth of private labels amongst Food and Non Food FMCG, Apparel and Consumer Durables categories. Since not enough study has been done on private labels in India, this study will open the doors for the new research area, which will also help the retailers to successfully handle the private labels and in developing an effective strategy. I. INTRODUCTION Indian organised retailing has been roaring since the opening of the large store formats in the early 1990s. The country has progressed from a savings-driven economy to a consumption-driven economy. As of 2008, expenditure on private consumption was valued at $350 billion. Experts approximate that an supplementary spending value of another $40 billion will be spawned every year. This mounting consumption provides the prevalent business chance for the retailers in India with the impending intensification in key classes such as food (62%), fashion (9.5%) and entertainment (7.9%). With the revolutionize in consumption, Indian organised retailing is on the brink to cross the threshold into a new epoch with its muscular economic growth, constructive demographics and media exposure. It engages 7% of the Indian retail in 2010 and is expected to reach 14% 18% by Organised retail occupied nearly 16 million sq.ft. of retail space in 2008, an increase from just 1 million sq.ft. in It has created employment for about 2.2 million people by 2010 and fuel the economic growth of the country. Bearing in mind high prospective in the Indian retail sector, since the opening up of the economy in 1991, big business houses such as Future Group (Pantaloons), K. Raheja Group (Raheja Group) and Tata Group, etc., came up with huge format retailing stores. Raheja Group s Shopper s Stop has pioneered modern retail in India by opening a large format departmental store at Mumbai in Followed by PRIL s Pantaloons in 1996, and Tata Group s Trent Page 159

2 Ltd. in 1998, etc., which are the early large format retailers in India. These early on movers have grown hurriedly flattering the leading retailers in India, arresting sizable markets. Private Labels (PLs), being a innovative occurrence in the Indian retail, gained forceful momentum along with the expansion in organised retailing. PLs engage just 5% of the organised retail business in India, having remarkable potential to breed. PRIL was the first retailer to launch its own brands (PLs) in India. It started its operations in 1987 by launching its first brand Pantaloons trouser followed by Bare (jeans), John Miller (shirts) in the fashion apparel category of retail. PLs shape a noteworthy component of the group s business and have developed noticeably over the years. Besides PRIL, other retailers such as Shopper s Stop, RPG Enterprises, Westside, Reliance Retail, Lifestyle and Globus have all launched their own brands. Trent s PLs occupy 90% of their merchandise followed by Reliance and Pantaloon in their respective product categories Consumer buying behavior is primarily affected by many determinant factors and its difficult to understand and identify the important determinant factors affecting the consumer buying behavior towards private label apparel. Private label brands are exceptionally victorious because they propose many advantages to the consumers. Consumers are mainly affected by many internal factors like demographic, personality and lifestyle and many other factors while purchasing apparel. Consumers are also affected by many external factors like brand image, price, design and quality while buying private label apparel brands. India is a young nation with preponderance of population being young people, and also the rising income levels are changing the consumer attitudes and buying behavior to a great extent. The shift in cultural practices also has impact on change in the behavior of the consumers. The consumers while making buying decisions regarding apparel are affected by many factors, viz., brand awareness of store, brand image of store, brand awareness of, private label brand, brand image of private label brand, price, discounts, comfort, durability etc. As the private labels offer the best available choice to the consumers, majority of them are purchasing private label apparel brands. In Indian organized retail, all the big players have their own private label brands, posing threat to the manufacturer brands. Previously PLs were launched in the fashion apparel category and later stretch to food, personal and home care, consumer durables & electronics and general merchandising categories. Future Group has numerous private brands such as John Miller, DJ&C, Bare and Rig, etc., (apparel and fashion accessories); Tasty Treat, Fresh & Pure, Clean Mate and Care Mate (FMCG category); Dreamline (home segment) and Koryo (consumer durables). Food World, the retail chain of RPG Group has private label Select in its staples category, Reliance has Reliance Select for grocery and eatables and Expelz for toilet cleaners, etc. The retailers are escalating their labels penetration in dissimilar product categories to progress their margins. Retailers put on 30% 40% margins on the PLs. These margins became an exhilarating opportunity for retailers. The retailers achieve 15% 20% margins in FMCG category, 20% in electronics and about 30% 70% in apparel through private labels compared to the national brands. To illustrate the case, if a branded apparel product grants a margin of 30% 35% to the retailer, then the retailer can amplify his margin to 60% 65% with his label in the category. The retailers can also gain margin from the low-value items. Retailers are competent to make available labels of equal quality as national brands at low prices, as they save on advertising and distribution costs. The selling price of national brands includes advertising and distribution costs. For example, the manufacturer of an apparel brand spends about 35% on manufacturing, 7% 20% on advertising, 6% on distribution and remaining small costs and also retains a margin of 15% (all these increases the cost of the branded product). On the other hand, PLs have only production costs and its selling price will not include any advertising and promotion costs. Esha Anand, head, Marketing and Visual Merchandising, HyperCity, commented, Private labels provide great value to customers as they do not have the huge marketing spends of national brands and therefore can be retailed cheaper to the latter. 16 This helps the retailers provide the labels at fewer prices to the consumer while retaining the same margin as the manufacturer. The value proposition of PLs has been communicated to the customers through their promotion. Most of the retailers opt for in-house promotion of their labels through Visual Merchandising (VM) 17 educating consumers about the hygiene standards and ingredients of products. As per Point-of-Purchase Advertising International (marketing association of retail industry), 72% of the purchase decisions are taken in the store.18 To attract these customers to their private brands, retailers are using clever marketing techniques such as effective displays of their labels, sampling, bundled offers and promotion through in-store media channels (radio, TVs, etc.) to increase their sales. For instance, Shopper s Stop s in-store radio provides shopping related information to the customers and also entertains them by playing different genres of music. Retailers must educate consumers about their labels to instil trust and gain their confidence. Therefore, to achieve this retailers are investing in communicating their labels value and delivering the same. According to Himanshu Chakrawarti, GM, Trent Ltd., not just store brands, but the entire store concept has to be communicated to the customers and price alone is not the value determinant. He comments that, The key is make the customers think whether they are getting the value for money and the value proposition has to be consistently delivered over a period of time. The value proposition is the quality and style. 19 K. N. Iyer, CEO, Crossroads, highlights and said, The communication of the product especially for private labels inside the store is important, where one highlights the attributes of the brand. Aspects like the description tags, which talks about the fabric along Page 160

3 with the packaging are essential to create brand recall for the private brands. 20 Retailers are taking the PLs business as priority and making investments for the development of their labels in line with their expansion plans. Retailers are expanding their store presence from the large cities and towns to tier II and tier III cities like Nagpur, Vadodara, Vijayawada, Indore, Durgapur and Ambala. Retailers are even moving to rural markets to capture the growing consumption needs of the rural population (which constitute 70% of the Indian population). For instance, markets like ITC s e-chaupal, Future Group s Aadhar and Tata Group s Kisan Sansar, etc., present the potential for the growth of modern retail along with the potential growth of retailers PLs. India has emerged as the third most attractive market destination for apparel retailers, according to a new study by global management consulting firm A.T. Kearney. India comes after Brazil and China in the A.T. Kearney Retail Apparel Index (See Table 1), which looks at ten drivers, including apparel consumption and clothing imports/exports, to rank among the top 30 emerging markets for retail apparel investments. In India, apparel is the second largest retail category, representing 10 percent of the $37 billion retail market. It is expected to grow at percent per year according to AT Kearney Consulting firm. The Indian apparel retail industry generated a total revenues of $18.3 billion in 2005, this representing a compound annual growth rate (CAGR) of 10.6% for the five-year period spanning Menswear sales proved the most lucrative for the Indian apparel retail industry in 2005, generating total revenues of $8.4 billion, equivalent to 45.9% of the industry's overall value.the performance of the industry is forecast to follow a similar pattern, with an anticipated CAGR of 9.8% for the five-year period The primary reason a consumer buys a private label is usually price, but with improving quality of the products as well as labels and marketing, consumers tend to stick with these products rather than going back to branded labels. Most private label products are priced 5-20% lower than regular items. Globally, private label brands contribute to 17 percent of retail sales with a growth of 5 percent per annum. International Retailers like WalMart of USA and Tesco of UK have 40 percent and 55 percent own label brands representation in their stores, respectively. In India there is an increasing trend towards acceptance of private label brands and thus their penetration is on the rise especially in the apparel, consumer durables, home care and FMCG segments. Overall, in India, private labels constitute 10% of the organized retail product mix and by 2012 it will increase to 13%. II. LITERATURE REVIEW Private Label Brands are defined as the products owned and branded by the organizations whose primary objective is distribution rather than production (Schutte, 1969). PLBs, also called own labels or store brands can also be defined as any of products over which a retailer has exercised total sourcing and market control (Mintel, 2005a, b). The Private Label Manufacturers Association (PLMA) defines PLBs as: PLBs are Private label products that encompass all merchandise sold under a retailer s brand. That PLB can be the retailer s own name or a name created exclusively by that retailer. In few cases, a retailer may belong to a wholesale group that owns the brands that are available only to the members of that group. Kuruvilla Jose sheliia and Ganguli J (2008) studied the Indian perspective of shopping malls. This study was based on interviews with practicing retailers and mall managers and secondary data was used to understand the analytical and financial steps involved before setting up a mall. The researchers concluded that right blend of good location, good research on consumers and the right tenant mix vis-à-vis the catchment makes a successful mall in India. Liu, Yuping (2007) found out the long term impact of loyalty programs on consumer purchase behaviour and loyalty. Using longitudinal data from a convenience store franchise, the study found out that consumer who were heavy buyers at the beginning of a loyalty program were most likely to claim their qualified rewards, but the program didn t prompt them to change their purchase behaviour. Borja, Miguel Angel Gomez (2005), studied Spanish consumers perception of US apparel specialty retailers products and services. The study emphasized that specialty retailer s success in international markets is contingent upon their knowledge of culturally- defined values, norms and behaviour that influence consumer decision making and impact acceptance of products and services. The study examined consumers store patronage and apparel purchase behaviour. A report by Data monitor (2006) explored that global apparel accessories & luxuries market is likely to grow by 4.5% annually and Asia Pacific region is anticipated to acquire leadership position by 2011.Apparel stores in India poses a lot of challenges to a marketer. So far India s share in the world apparel trade has been insignificant (less than 3%).World garment trade is estimated at around 195 billion US$ annually. Kincade, Doris H; Woodard, Ginger A; Park, Haesun (2002) studied buyer-seller relationships for promotional support in the apparel sector which is critical for success. The purpose of the study was to define promotional categories offered to apparel retailers by manufacturers. A positive and significant correlation was fond between items the buyers perceived and the frequency of offerings on these items. Carter C Charles and Haloupe K J William (2001) studied the locations of two main clusters of stores in regional and super regional malls. The development of PLBs affects competition between retailers because PLBs become an additional way of differentiating between retailers (Berges-Sennou, Bontems, and Requillart 2004). Page 161

4 The rise of national advertising made manufacturers brands or national brands (NBs) to become widely recognized by consumers who became loyal to them. Over the time, manufacturers exercised greater influence over the demand for their products and secured a better bargaining position by dealing with retailers (Grant 1987). Retailers saw their margins drastically reduced, and their power to determine the prices to consumers depreciated (Borden 1967). In the Indian retail private label brands are in the danger of facing the Double Jeopardy effect (Goodhardt, Ehrenberg and Chatfield 1984) where the small brands suffer twice they have fewer customers and these customers buy the brand less often (Ehrenberg, Goodhardt and Barwise, 1990). This pattern has been observed in a variety of markets, in a variety of conditions (different lengths of time, different points in time) and in various contexts (Pare, Dawes and Driesener 2006). The main determining factors affecting consumer buying behavior are: quality, price, trust, availability of alternative packaging, frequent advertising, sales promotions, imitations, availability, brand image, prestige, freshness and habits (Dolekoglu et al. 2008), Packaging (Wells, Farley, Armstrong 2007), perceived risk (Batra & Sinha 2000; Bettman, 1973; Dunn et al., 1986; Richardson Jain, & Dick 1996; Shannon and Mandhachitra 2005), price consciuosness, price-quality association (Batra and Sinha 2000), advertising-pricing (Karray and Martin-Herran 2008), price, quality, risk perceiption (Ashok Kumar and Gopal 2009), price and quality (Ailawadi, Pauwels and Steenkamp 2008). Private Label s growth varies across product categories so it is critical to understand broader category dynamics for private labels. Inter-category differences are an important source of variation in private labels share (Batra and Sinha, 2000; Dhar and Hoch, 1997, Sethuraman 1992; Hoch and Banerji 1993; Dunn et al., 1986). Batra and Sinha (2000) suggested that examining inter-category differences may provide further insight into the development of private labels. More than a decade ago, Hoch and Banerji (1993) reported that the performance of private brands varied across different product categories, and this inter-category difference in private branding still exists. Other studies indicate that category involvement also negatively influences consumer attachment to private label brands (Baltas and Doyle, 1998). KyoungNan (2008) shed light on the inter-category differences in private brand sales, and reveals the effects of product characteristics across different levels of consumer value consciousness. Identifying product categories in which private brands are most likely to succeed is critical for retailers, especially in the current US context of changing private brand trends. Glynn and Chen (2009) examined the category-level differences of both risk perception and brand loyalty effects on consumer proneness towards buying private label brands (PLBs). The results indicate that quality variability, price consciousness, price-quality association and brand loyalty influence consumer proneness to buy private label brands. Sethuraman (1992) showed that retail promotion on national brands reduces private label share and that share of private labels is smaller in categories with greater price competition among national brands. Jin, Suh and Gu (2005) examined the significant relationship and relative importance of the factors influencing private labels attitude and purchase intention in two product categories food and household appliance. It reveals that depending on the product category contribution of the factors varies. Dhar and Hoch (1997) found that brand competition is a much more important determinant of private label share than retail competition. Raju, Sethuraman and Dhar (1995) proposed an analytical model to understand what makes a product category more conducive for store brand introduction. Model given by them helps in understanding cross category differences in market share of store brands. Ailawadi and Keller (2004) stated that store brands success is more categories driven than consumer driven. Dick, Jain and Richardson (1995) documented that perceived risk as an important factor in store brand purchasing behavior. Findings show that there is a significant difference between store brand prone and non-store brand prone shoppers with respect to the perceived risk associated with buying store brands. Narasimhan and Wilcox (1998) argued that the degree of perceived risk increases with the degree of perceived quality variation across brands in that category. d'astous and Saint-Louis (2005) observed that store-branded clothes like national brands, use advertising, celebrity endorsements, designer names, and other promotional retail techniques in order to create a distinct personality. III. CONCLUSION Retail industry is one of the flourishing sectors in Global economy. The concept is emerging drastically with new formats like hyper markets, supermarkets, malls, departmental stores, and specialty stores. Retailing industry has seen phenomenal growth in the last five years. Organized retailing has emerging from the shadows of unorganized retailing and is contributing significantly to the growth of Indian retail sector. The India Retail Sector Analysis ( ) report, analyze the opportunities and factors critical to the success of retail industry in India. Western Style mall culture is started appearing in Indian markets. Now the Indian consumer is enjoying world class shopping experience. The industry is in inflexion point, where the growth of organized retailing and rising in consumption levels by the Indian population is turning towards a higher growth trajectory. According to the market research reports 2007, in depth comprehensive cross industry review on Indian Retail Industry which explores the macro economic scenario of Indian economy which coupled with growth of GDP led to the shift of consumer purchase patterns and build up confidence in the retail sector there by giving shape Page 162

5 to the Government allowance for FDI in the Indian Retail Sector. In recent times the organized retailing by Indian players emerging with multi formats retail in India.. IV. REFERENCES [1] Ailawadi, K. L., Neslin, S. and Gedenk, K. (2001) pursuing the value conscious consumers: Store brands versus national brand promotions, Journal ofmarketing, Vol. 65, No. 1, pp [2] Bettman, James R Memory Factors in Consumer Choice: A Review, Journal of Marketing 43: [3] Dhar, Sanjay and Stephen Hoch (1994), Why Store Brand Penetration Varies by Retailer, Marketing Science, 16 (3), [4] Goodhardt, G. J., Ehrenberg, A. S. C., Chatfield, C. (1984). The Dirichlet: A Comprehensive Model of Buying Behaviour. Journal of the Royal Statistical Society, 147 (part 5), [5] Kincade, Doris H.; Woodard, Ginger A.; Park, Haesun,, International Journal of Consumer Studies, Dec2002, Vol. 26 Issue 4, p , 9p [6] Kuruvilla, S.J., Ranjan, K., Gender and Mall Shopping: An Analysis of Patronage Patterns, Shopping Orientation and Consumption of Fashion of Indian Youth. International Journal of Business Insights & Transformation 1, (2) 1-8 [7] Mintel (2005a), Chilled Desserts UK, Mintel International Group Limited, London. [8] Mintel (2005b), Own-label Food& Drink UK, Mintel International Group Limited,London. [9] Narasimhan, C. and Wilcox, R. (1998) Private labels and the channel relationship:a crosscategory analysis, Journal of Business, 41(4), pp [10] Paul Richardson, Arun K. Jain and Alan Dick (1996), The influence of store aesthetics on evaluation of private label brands, journal of product & brand management, vol. 5 no , pp [11] Schutte, T. F. (1969). The semantics of branding. Journal of Marketing, 33, pp5-11. [12] Sethuraman, R. (1992) Understanding cross-category differences in private label shares of grocery products, Marketing Science Institute, Report No , Cambridge, UK. [13] Shannon, R. and Mandhachitara,R. (2005),Private-label grocery shopping attitudes and behaviour: A crosscultural study, Brand Management, 12(6), pp Page 163