Why devote a special issue of Journal of Retailing to Retail Branding and Customer Loyalty? The fundamental reason we embarked on this special issue co-sponsored by the Marketing Science Institute was to stimulate research on two interrelated topics that are currently prominent in the minds of retailers and service providers.  Specifically, retailers are struggling to come to grips with issues associated with the role of a retailer as a brand and how to effectively enhance customer loyalty. 

The rise of the retailer as a brand is one of the most important trends in retailing. Some large retailers have developed strong private-label merchandise, e.g., Federated Department Store’s INC, Wal-Mart’s Old Roy Dog Food, or Canadian grocery giant Loblaws’ President’ Choice.  Other retailers, such as The Gap and its sister stores Banana Republic and Old Navy have such a strong brand name that the average consumer does not make a distinction between store and brand.   Understanding the image of a retailer as a brand or how brands impact its image and customer loyalty are important issues both for retailers and the manufacturers who rely on them to sell their own branded merchandise. The purpose of this special issue is to stimulate work on this topic.  Some topics that deserve closer attention include:

• Impact of store versus national brands
• Global retail branding strategies
• Impact of retail brand extension strategies
• Private label options: copycat, premium, and parallel strategies
• Joint effects of store reputation and other information cues (e.g., price, brand) on perceptions of quality, value and behavioral intentions
• Determinants of store reputation (e.g., flagship stores, brands carried)
• Retailer loyalty (e.g., loyalty programs, service recovery issues, drivers of store loyalty, and consumer service and its impact on loyalty and profitability)
• Integrating on-line and in-store activities

Overall Organizing Framework

We believe the articles and commentaries that make up this special issue shed some light on the above mentioned issues.  The framework in Figure 1 provides an organizing structure that considers how store image impacts perceived value, and in turn influences customer loyalty.  Moderating variables for perceived value and customer loyalty are technological innovations and multi-channel retailing.  The sub-components of each of these constructs, and how the research in this special issue of Journal of Retailing relates to them are briefly discussed in the following sections.

Insert Figure 1 About Here

Role of Store Image and Retail Brands

            Research has provided evidence that brand and brand-related information cues influence customer evaluations (Dawar and Parker 1994; Dodds, Monroe and Grewal 1991; Miyazaki, Grewal and Goodstein 2005; Rao and Monroe 1989).  We believe that research should focus on the various components of retail branding.  Three critical facets that need to be examined include, the role of national brands, the role of private labels and the role that the store itself plays as a brand (Figure 1).

            Sayman and Raju (2004) examine the question of whether retailers should have more than one store brand by examining the relative size of the national brands and their specific positioning, both analytically and empirically.  They provide interesting insights into the complex interplay between national and store brands.  Specifically, the relative strength of the national brands seems to be the key factor in determining whether a store should have one or two store brands within a category.  When there are similar strength national brands, and those brands are distinctively stronger than others, but similar to each other, such as the case of Pepsi and Coke, then we can expect to see two store brands in the category.

Sprott and Shimp (2004) shed light into the use of in-store sampling as a tactic to gain greater acceptance of store brands.  Their results suggest that in-store sampling can be a cost effective tactic for improving the sales of store brands contingent on these products having acceptable quality. 

Perceived Value

            Customers use various types and sources of information provided by retailers to form their assessments of value.  They cognitively tradeoff benefits against costs to determine their value perceptions (e.g., Dodds, Monroe and Grewal 1991; Grewal, Monroe and Krishnan 1998).   Some of the components of the benefits side of the value equation include merchandise selection and quality as well as store and service quality.  On the cost side of the value equation is the time and effort it takes to make a purchase and, of course, the price (Figure 1).

Gomez et al. (2004) focus on the role of quality, service and value on satisfaction and ultimately on store performance in a supermarket chain.  Using data from 250 stores they found that the impact that these factors have on satisfaction and retail performance are asymmetric.  For instance, they found that increases in quality may not substantially improve customer satisfaction; whereas if quality decreases, customer satisfaction and subsequently store revenues decline significantly suggesting both a ceiling effect and loss aversion.  On the other hand, if stores increase perceived value, it will have a significant increase on satisfaction; while a decrease in value has only a modest negative effect on satisfaction.  They also found that stores that already have high levels of customer satisfaction will not experience as much improvement in sales revenues with further increases in customer satisfaction as stores with lower levels of customer satisfaction.  However, if there is any reduction in satisfaction in the higher level customer satisfaction stores, then revenues drop significantly.  This research suggests that retailers should assess their current quality and satisfaction levels before taking action that could alter customer perceptions of these issues.

Loyalty

      The next phase of the framework in Figure 1 links perceived personal value to customer loyalty.  Value plays an important role in creating customer satisfaction and loyalty: "…providing customers with outstanding value may be the only reliable way to achieve sustained customer satisfaction and loyalty."  (Jones and Sasser 1995, p. 90).  On the other side, if customers do not perceive retailers to be providing a good value, then they will certainly shop elsewhere.  Past research has consistently viewed customer satisfaction as being central to loyalty and improved financial performance (Anderson, Fornell and Lehmann 1994; Ittner and Larcker 1998).  The better financial performance may be a function of both the direct effects of loyalty and ease in being able to cross-sell and upgrade (Ittner and Larcker 1998), and indirect effects associated with new customers being generated through positive word-of-mouth (Zeithaml, Rust and Lemon 2001). 

While firms may want customers to have a strong relationship with them, Noble and Phillips (2004) focus on why satisfied customers may not want to develop or maintain relationships with retailers and service providers.  Their qualitative research suggests that the negative components of the value equation in Figure 1 play a significant role in customer decisions not to foster relationships with retailers, even when they are satisfied.  They find, for instance, that some satisfied customers don’t want to maintain a relationship because it is takes too much time and effort.  Others believe the perceived benefits of the relationship are either disingenuous, unenticing, or just difficult to determine.  Still others don’t want a personal relationship because they believe it is an invasion of their privacy.

Kumar and Shah (2004) in their invited commentary provide a provocative two-tiered system of loyalty programs.  They focus on the need for loyalty programs to go beyond just rewarding usage to  rewarding customers using future-oriented measures such as estimated life-time value. 

Role of Technology and Multi-Channels     

            The final feature of the framework in Figure 1 represents the growing role that technology and multi-channel retailing is playing in shaping perceived value and customer loyalty.  Technological innovations are continually changing the process through which retailers and service providers are creating and delivering value to their customers.  For instance, customers can use in-store kiosks connected to the retailer’s Internet website to get product information, check on order status, or purchase merchandise that isn’t available in the store.  When they are finished shopping, they can also avail themselves of the convenience and extra speed of self-checkout.

            Wallace, Gies and Johnson (2004) focus on the role of multi-channels in enhancing loyalty.   They find that customers using multiple channels typically expect better quality and more combinations of services.  This raised expectation can actually decrease satisfaction.

Future Research on Retail Branding and Store Loyalty

            While we believe this issue significantly contributes to our understanding of retail branding and store loyalty, there is, as always, much more to learn.  Ailwadi and Keller (2004) support several useful directions for research.

            Sayman and Raju (2004) examined one aspect of the impact of store brands on national brands.  It would be interesting to take a step back from their study and examine more basic questions about retail branding such as, to what extend does our knowledge on branding in general, such as brand equity issues, translate to retail private brands and the store as a brand concept?  How should retailers decide which branding strategy or combination of branding strategies to use?

            From a global perspective, how well do retail brands travel?  What makes some global retail brands more successful than others?  Is it just the business model (Wal-Mart), is it a merchandising issue (IKEA), or is there some intrinsic brand success factor?

            Another key issue is how perceived value and store image is impacted by different branding strategies?  For instance, is there an adverse affect on perceived value and store image if a retailer carriers several copycat brands, i.e., brands that are similar to national brands in appearance and packaging, but is less expensive?  How do premium private labels really stack up to national brands?

            Another high priority area involves customer management.  Customer relationship management programs (CRM) are not new in retailing, but their level of sophistication has accelerated in recent years.  Although these programs and related loyalty issues have been extensively studied in other venues, what, if anything, is different about the retail environment? 

            More broadly, examining how store image evolves as well as the development of store brands and brand equity provides a fruitful area of research, although one not amenable to simple cross-sectional databases.  The relative impact of mix variables on this evolution and how that may shift overtime is another high priority topic area.

            Of course, this list could be very long.  Put differently, it is highly likely that research outside the directions suggested here could make a major contribution.  Nonetheless, the general directions suggested here provide a nice starting point for research in this area.