Brands in the Retail Market - Literature review Example

? Brands in the retail market Retail industry offers great earning potentials to organizations operating in a globalised environment that thrives on consumerism and brand power. Countries across the globe are shifting away from conventional retail shops in the locality to superstructures accommodating a wide range of brands under one roof. Convenience and the appeal of brand names are combined forces that attract customers to these huge retail stores offering a wide assortment of goods and products. Brand building exercise is one of the most important marketing innovations which have changed the way conventional marketing was done. Brands give products a unique identity or name with the help of a name / design or logo which catches the imagination of the customers. “A brand is an experience that lives at the intersection of promise and expectation. Your products are a way to deliver upon that promise. Forget features; concentrate on the unique experience you can provide” (Savard & Gallagher, 2010). The goal of retailers is to build strong brand identity to compete with other players in the industry. The paper discusses the implications and strategic significance of retail branding and its impact on customer choice and preference of stores. Introduction The retailing industry has gained increased prominence over the past few decades with growing consumerism in countries and wide range of products flooding the markets vying for consumer attention. The retail industry comprises of the department stores, local shops, discount stores, and specialty stores that form the vital link between the manufacturers and customers. The global retail industry has witnessed significant changes in the post globalization period with markets opening to multinational products and brands making their way to the retail counters. The small local retail shops are disappearing to large multinational retail chain stores that have created a brand image for their quality of service and range of products available under one roof. Popular retail chain stores like Tesco, Walmart, Marks and Spencer have adopted international expansion strategies to increase market shares and profits. “Indeed, the larger the company, the more likely it is to operate beyond its domestic borders and to generate a higher percentage of its sales from foreign operations” (Deloitte, 2009). Brand management has emerged as a critical top management function for a business in the last decade. Brand image is increasingly being acknowledged as one of the most valuable intangible assets for a company. In the highly competitive retailing industry, branding has a very important role to play in influencing customer perceptions and enhancing store loyalty. In the United States grocery and general merchandise industry, retailing has made major inroads in the last few years. The surge in promotions and private labels has been seen as an indicator of increase in retailer power. Simultaneously, there has also been a significant increase in the number of discounters and warehouse clubs. This has put a lot of pressure on traditional retailers. Retail competition has increased and become cut throat both within and between retail formats. Based on these observations the research provides an insight into the different perspectives that have emerged in driving customers to the retail chain stores. What role does branding play in influencing choice of retail stores and how do customers differentiate one retail brand from the other? These are some of the vital questions that are answered by the research paper through an analysis of existing literature and theoretical perspectives defining customer decision making process. Retail branding – a conceptual overview Retail branding is an evolving concept that has transformed the way customers shop today and it has generated a lot of speculation on how retail brands influence customers. Retail branding has been defined by Zentes, Morschett, and Schramm-Klein in their book Strategic Retail Management (2007) as “a strategy based on the brand concept and which transfers it to a retail company.” It constitutes a group of outlets that are identified by a brand name, logo or symbol reflecting its distinctive features and attributes to the customers. Though it is an evolving international marketing strategy adopted by retailers the focus is on building long term customer relationship for business growth and expansion (Bhatia, 2008). The focus of these branded retail stores is to heighten customer experience to ensure repeat visits. Recognizing customer needs and expectations is the prime strategic manifestation of these retail stores that drives revenues through prompt delivery, customer service, and ambience that promises a pleasant shopping experience to its customers. “Retail branding does not sell a specific product. It is about customer service and how salespeople greet the customers. It is about how fast the product is shipped or delivered” (Pradhan, 2009). The focus is on satisfying customer needs. A majority of retailers’ revenue and profit is driven by the sale of manufacturer brands. These manufacturer brands are not exclusive and are available from competitors too. As a result, retailers have to strive hard to establish their own brand image and leverage their brand equity. The task of building brand equity is complex and multi faceted but offers success and profitability in the long term. Brand equity creates a strong brand image for the company and strengthens its position in the competitive landscape of the retail industry. Strong brand equity helps in increasing sales and profits. It also helps the company to leverage their brand equity with manufacturers and reduce costs (Ailawadi & Keller, 2004). Key branding principles can be used in the retail space. But the application of branding principles will vary significantly as retail brands are very different from product brands. Retailer brands are more multi-dimensional compared to product brands. Impact on brand equity in the retail market is based on varied consumer experiences. There is also a difference in the way in which retail businesses create their brand image. A lot of importance is given to quality of service, product assortment and merchandising, pricing and credit policy. The brand image and equity of retailer brands is influenced by the manufacturer brands they offer and the equity of those brands. Retailers use manufacturer brands to generate consumer interest, patronage and loyalty in a store. Manufacturer brands have a vital role to play in generating consumer pull. Manufacturer brand generate more interest and consumer pull when compared to the retailer brands. Manufacturer brands facilitate the creation of brand image and establish a positioning for the store. Simultaneously, retailers compete with manufacturers for consumer pull to increase their relative market power and their share of the total channel profit pie (Steiner 1993). In the process, they may offer some of their own brands. For example, apparel retailers like GAP, Brooks Brothers and Talbots offer only their own private label products. Private label products may carry their own unique brand names or be could be sold in the retailers’ brand name. This facilitates the retailer to differentiate their offerings from competitors. The impact of market positioning and brand assortment offered on the brand image of the retailer needs to be carefully analyzed and understood. Analysis of the performance of retailers over a period of time shows that some retailers have managed their brand image and equity well compared to their competitors. For example, during the eighties and nineties, a few retailers performed well in spite of slow growth in retail markets in the United States (Ailawadi, Borin and Farris 1995). Customer brand perception of retail stores Based on the American Marketing Association’s definition of a brand, a retail brand identifies the goods and services of a retailer and differentiates them from those of competitors. A retailers’ brand equity can be measured by analyzing the consumer behavior and response to their marketing and promotion initiatives, and comparing it the consumer behavior and response generated by their competitors. Keller 2003). This brand equity is based on the brand image of the retailer from the consumer perspective. Over the years, studies and research have analyzed the retailer attributes that impact the brand image, including quality of products and services; the diversity in the product and brand assortment, the appearance, behavior and service quality of employees; the price levels, the nature, depth and frequency of advertising and promotional campaigns. Lindquist (1974) and Mazursky and Jacoby (1986) categorized these attributes into a smaller set of location, merchandise, service, and store atmosphere related dimensions. The subsequent sections provide an insight into the impact of various parameters like store accessibility, price, promotion and store ambience on customer choice of retail store brands. Access to retail stores Consumer behavior with respect to store choice and loyalty is influenced by the location of a store and the distance that the consumer must travel to shop there. Beginning with gravity models (e.g., Huff 1964) store choice and the optimization of retail site location attracted a lot of research attention in the eighties (e.g., Achabal, Gorr, and Mahajan 1982; Ghosh and Craig 1983; Donthu and Rust 1989). In the present times, growth of suburban areas, willingness to drive more distances, the emergence of new warehouse retail formats located in large spaces away from residential areas, and online retailing have to some extent reduced the impact of physical store location on store choice. According to Bell, Ho, and Tang (1998), store location is no more a significant differentiating factor that explains the variance in store choice decisions. Store choices are driven by the need of the consumers to optimize their total shopping costs. The time, cost and effort of reaching the store is regarded as a part of their fixed cost of shopping. However, this does not mean that store location is not important and has no bearing on the consumers’ choice. Store choice for customers is based on different criteria depending upon the nature of the trip. For example, consumers shopping for small value items will not want to travel a great distance to make their purchases. Retailers, such as convenience stores, drug stores and supermarkets have less options and choice in their store location decision when compared to mass merchandisers or warehouse clubs. In conclusion, we can infer that even though store location is no longer a major factor in the store choice decision of consumers, it is still a key determining component of the customers’ assessment of total shopping costs. From the retailer perspective, store location is an important criterion for those businesses whose sales and profit margins are driven by small basket shoppers and fill-in trips. The ambience factor Mehrabian and Russell (1974) point out that that the consumer response to store ambience varies along three main dimensions of pleasantness, arousal and dominance. This response has an impact on consumer behavior in terms of purchase and sustaining loyalty. Pleasant settlings will invoke good response from customers and the chances of purchase and revisits are increased. Different elements of a retailer’s in-store environment, e.g., color, music, and crowding, can influence consumers’ perceptions of a store’s atmosphere, whether or not they visit a store, how much time they spend in it, and how much money they spend there (Bellizzi, Crowley, and Henderson 1983; Milliman 1982; Eroglu and Machleit 1990; Grewal et al. 2003). Baker et al. (2002) have categorized the elements of in-store atmosphere into different groups, such as physical features like design, lighting, and layout; ambient features like music and smell, and social features like type of clientele, employee availability and friendliness. Baker et al. (2002) find that store atmosphere has a significant impact on the consumers’ perceptions of the economic and psychological costs of shopping in a store. For instance, pleasing physical design lowers both economic and psychological costs while music reduces the psychological costs. Price and promotion Price of goods and services has always influenced consumer decisions. “Price will be decisive especially if consumers see no difference in range, convenience or store experience” (Floor, 2006). Retailers are well aware of the fact that low prices will attract customers and boost sales. Walmart has used a low price strategy to lure customers into its stores. The pricing of products hence is largely influenced by the brand positioning of the products and their perceived value to the targeted customers. However, competing on price is never an ideal situation since there are number of stores that are willing to offer yet lower prices. Thus the most popular strategy adopted by retail stores is promotional offers that attract customers to the stores by offering them a good bargain for their purchases (Floor, 2006). Offering a wide range of products and services is also important in luring customers to the stores who are always in search of better products and services. Studies related to consumer behavior while selecting retail stores for meeting their daily needs have highlighted the significance of wide range of products and services offered by the stores in framing the brand image of the stores. An assortment of goods and products offered under one roof is convenient for customers and there is little doubt that preference of shopping destinations depend on the range of products and substitutes available in the store. Consumers prefer the one-stop shopping convenience to meet their needs (Floor, 2006). Observations on past research and existing literature Research studies have highlighted the significance of growing economic prosperity and wealth accumulation as vital forces shaping the changes in the retail industry (Deloitte, 2009). “During the past decade, the extraordinary growth of consumer spending in the US was a driving force for the global economy and for the global retailing industry in particular” (Deloitte, 2009). Organizations across the world have adopted various strategies to improve customer retention and loyalty to their goods and services. However, the evolving customers are found to be less loyal to a single product or brand (Nagpal, 2007). The competitive market environment offers a wide range of brands to the customer to choose from and this increases the need for high quality services by retailers to promote customer loyalty. “Several retailers who have kept pace with the evolving customer say the most important thing that has remained constant is the belief that personal attention to customers is the key to repeat business and ultimate success” (Nagpal, 2007). Retail brands like Walmart have adopted aggressive strategies to promote their market shares and revenues and one of the prominent strategies involves low prices offered to its customers. “The secret of successful retailing is to give your customers what they want. And really if you think about it from your point of view as a customer, you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience” (Walton, 1992). There are number of lessons to be learnt from the Wal-Mart way of doing business and controlling the economic drivers to increase business revenues. The business strategy of Wal-Mart is based on offering the customers with a wide range of goods at low prices and providing a convenient shopping experience under one roof. The company maintains a profit margin by ensuring that the suppliers sell their products to Wal-Mart at the lowest possible price. The company wants to dominate the retail market through an aggressive strategy for growth and expansion. Creating a brand name that is widely popular among masses, offering the best prices; big stores having numerous brands and range of products, and maintaining a low cost strategy have helped the retail chain dominate the market spaces in US and other countries of operation. While large global corporations like Wal-Mart are thriving, reaping surplus benefits from the globalization of economies while the smaller firms are struggling to survive in the face of growing competition. These smaller firms do not have adequate resources to challenge the multinational companies and they tend to fumble in the process of survival. Conclusion The growing popularity of retail brands have shifted the focus of manufacturers and distributors from local small retail shops to bigger brand names like Tesco, Walmart, Marks and Spencer who have profited immensely from the globalization of markets and international brands attracting customers. With most branded retail stores offering similar products and range of goods, the key differentiating factor influencing consumer choice of retail stores is the ease of accessibility, promotional offers, and ambience that provides a pleasant shopping experience for individual customers as well as families. While research studies have focused on the consumer perceptions and experience that influence their choice of retail stores, there are still some gaps in understanding the impact of global cultures and ideologies that shape consumer behavior. Consumer behavior is a complex study guided by numerous factors that have variable influences on the decision making process. Arriving at a definite conclusion is far from practical reasoning but at least it gives some clues on how or why consumers choose a specific brand to another. 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Zentes, J., Morschett, D., & Schramm-Klein, H. 2007, Strategic retail management: text and international cases, Gabler Verlag. Read More