Dennis B. Arnett, Debra A. Laverie and Amanda Meiers

Research suggests that the image that a retailer's name portrays to consumers (e.g., good values, friendly service, or low prices) can be a source of competitive advantage because of the profound effect it has on consumers. The information that is communicated by a retailer's name represents added value endowed to the market offerings that it sells (i.e., it is a form of brand equity). As Keller (1998, p. 616), emphasizes, "Retailers create their own brand equity by establishing awareness and associations to their product assortment (breadth and depth), pricing and credit policy, and quality of service." Benefits derived from a strong retailer name include greater customer loyalty, less vulnerability to competitors' actions, product differentiation, and larger profit margins.

In this article, we demonstrate a method that can be used to develop parsimonious retailer equity indexes and illustrate the usefulness of such indexes. Retailer equity is comprised of four dimensions (store loyalty, name awareness, service quality, and retailer associations). Three of the dimensions (store loyalty, name awareness, and service quality) are consistent from retailer to retailer. That is, the items used to measure these dimensions will be the same for all retailers. However, because consumers sometimes form unique associations with certain retailers, the fourth dimension (retailer associations) may need to be adjusted to match the unique characteristics of some retailers. Nonetheless, the specific retailer associations used in this study are general enough to be used by most retailers.

The refinement of the RE index is accomplished using partial least squares (PLS) analysis, which is a nonparametric structural equation modeling technique. The process involves five steps: 2 (1) choosing an appropriate population, (2) specifying the domain of content for the index, (3) selecting appropriate measures for the index, (4) collecting data, and (5) refining the index. We provide an example of the process using a specific retailer – Abercrombie & Fitch. The process results in a retailer equity index that is general enough to be used by most retailers.

Our study suggests four possible uses of the retailer equity index and provides illustrations of each. The potential uses of the retailer equity index include: (1) as a benchmarking tool, (2) as an indicator of the success (failure) of marketing strategies and tactics, (3) as a means to evaluate the attractiveness of market segments, and (4) as an instrument to examine the relative importance of the various components of retailer equity for specific retailers. In addition, the RE index provides researchers with a parsimonious measure of retailer equity that can be used to investigate the relationships between retailer equity and its possible antecedents and outcomes.

The retailer equity index developed in this study provides retailers with some advantages over other methods. First, the retailer equity index can be customized, if necessary, to a particular retailer. That is, additional retailer-specific associations can be incorporated into the index using the method outlined in the article. Second, the retailer equity index is not proprietary. Therefore, both practitioners and researchers can use the index at no cost. Furthermore, the index is parsimonious and, therefore, requires less complex questionnaires than do other methods (e.g., the BrandAsset Valuator.). As a result, the index provides retailers with a fast and easy way to measure and track changes in their retailer equities.