private label consumer goods towards customer loyalty – case study of (x) private label goods

8/9/2019 PRIVATE LABEL CONSUMER GOODS TOWARDS CUSTOMER LOYALTY – CASE STUDY OF (X) PRIVATE LABEL GOODS

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INTRODUCTION

Nowadays, the marketing strategy is always required to track the trend of the changing t ime.

A changing time will result in an era of globalization, advance in science and technology. This

trend has prompted the emergence of the marketing environment to move dynamically, practical

and also reactive in following the changes and developments.

An emerging trend that is in line with the changing of time is an inflation, which is

categorized as a negative trend. According to Siegl (2009), inflation can be considered as the rise

on rate in prices over a given stage of time. Because of that inflation, there is a disproportion

between income level and living cost that will result to a changing in customer’s shopping

behavior and make them become more sensitive toward the price (Jaafar et al., 2012). The

growth of the living cost will also escalate the demand of low cost goods or products; and due to

that declining of the economic condition, the ‘value-conscious’ shopper is more visible than ever

before (Nielsen, 2011).

Since the customers become more selective in purchasing an adequate quality with the best

price product, the need of private label product seems to get higher (Tjandrasa, 2006). For

several retailers, the current economic situation has assisted their private label brands to improve

and grow, as shoppers are mostly searching for value by trading high-end labels for retailer’s

branded goods (Nielsen, 2011). Based on price and value perception, 40 % of consumers from

27000 respondents surveyed said that private label brands are extremely good value for the

money (Nielsen, 2011).

Although there are some national brands which have been existed for a long time and have a

strong position, the role of private label brand seems to be inevitable due to the increasing

competition. Some private label brands are no longer identified as category killers, but are


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comparable to national brands (Pepe et al., 2011). According to Chimhundu (2011), private label

brands have been identified as a global trend and gradually more challenging national brands in

the market place.

As that issue can be very essential, retailers start to improve the quality and also the

packaging of its private label products to become an ideal product by offering an alternative

option to customers on low price product with adequate quality level compare to premium

product that might have higher price (Jaafar & Lalp, 2012).

Definition of Private Label

The concept of private label can be elaborated as the perfection of the theory of the brand

(Tjandrasa, 2006). A brand can be classified as a name, term, sign, symbol, design or a

combination of those things that is suggested to classify the product and service from the seller

or a group of seller and to distinguish them from other competitor’s products and services

(Tjandrasa, 2006).

Private label can be determined as all commodities which are sold under retailer’s brand and

the brand can use the name of the retailer or can be created exclusively by the retailer (Private

Label Manufacturers International, 2013).

The advantage of Private Label

Kumar & Steenkamp (2007) stated that private label products were introduced by the retailers

due to its benefits toward the company such as: provide higher margin than manufacturer brand

and it can also be used to distinguish themselves from other competitors. Those reasons are very

important for the retailer to sustain and compete with other brands especially other national

brands that have been existed for a long time and have a strong position.


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According to Ailawadi et al (2008), most of the leading grocers set their private label brand

for speed up the growth, by improving the private label penetration. Higher retail opportunity on

private label, negotiating leverage with national brand manufacturers and larger consumer store

loyalty can be the reasons on why some retailers want to develop their private label (Ailawadi et

al., 2008).

Competition in Private Label Industry

The phenomenon in the retail industry is the development of retail business which has grown

rapidly from year to year. In the last six year period (from 2007 – 2012) the amount of modern

retail stores in Indonesia have grown-up in average of 17, 57% each year and reached 18152

stores cover almost all cities in Indonesia (Apipudin, 2013). Based on the information from the

Association of Indonesian Retailers (APRINDO), there is a 10%-15% growth of the retail

business in Indonesia per year.

With the population for around 237 million people and total consumption for around IDR

3.600 billion, Indonesia becomes a potential market for modern retail business; and this situation

is supported by the shifting in the shopping behavior from the traditional to the modern retail

market (Apipudin, 2013).

Apipudin (2013) also added that the rise of modern retail can result in a competition between

the modern retailer and it can also bring opportunity for the customer to choose their preferred

retail that suitable with their desires; therefore, this condition will allow the customers to switch

the modern retail visited or stay loyal to the one because it was comfortable. Retailers have to

pay more attention toward private label product in facing the competition (with other retailers)

which is getting tighter (Tjandrasa, 2006).


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conducted by Li et al., in 2012. The empirical studies are determined in order to support the

conceptual model.

Conceptual framework

The conceptual framework below will elaborate the most significant factor that influences

customer loyalty toward private label consumer goods of brand (X) and the most significant

indicator that measures customer loyalty toward private label consumer goods of brand (X).

Figure 1.

Source : Li, M.L., Green, R.D., Farazmand, F.A. & Grodzki, E., 2012

Figure 1 depicts that marketing strategy, perceive value, and relationship quality are the

independent construct that influence customer loyalty (dependent variable). Word-of-mouth,

purchase intention, and price insensitivity are the independent construct(indicator) that measure

customer loyalty (dependent variable).


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Customer Loyalty

According to Chaudhuri & Holbrook (2001), loyalty can be defined as a strong commitment

to make a repurchase in the future toward a product and service that is preferred; that can cause a

repetitive similar-brand purchase, although there is an influence from the circumstances and

marketing effort that can affect to form switching behavior. Therefore, a loyal customer is a

customer who repurchases from the same provider whenever it is possible and maintains a

positive attitude toward the provider.

Castaneda (2011) stated that customer loyalty has become an essential issue for modern

business for two reasons; the first because customer has been positioned as a scarce resources,

the purchase from old customer is easier to be obtained compare to the new one; the second,

loyalty of customer has an absolute effect toward profitability and revenues of the firm. Enhance

customer loyalty has several impacts toward the firm, such as increased profit, decreased

customer acquisition costs, lower costs of helping repeat purchasers and leading to better

profitability (lam et al., 2004).

Customer loyalty creates a foundation to verify the correlation between relationship quality,

perceived value and marketing strategies (Li et al., 2012).

Marketing Strategy

According to Fifield (1998), marketing strategy can be indicated as marketing mix and how

each of those elements will be used to reach the objectives of marketing. Marketing strategy are

the marketing variables which consists of product, price, place and promotion and all of those

factors will be used by the company in purpose to make their target market feel satisfy (Li et al.,

2012).

Relationship Quality


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Since there is a shifting from transaction tactics to relational tactics in the business

circumstance, customer-firm relationship has become an issue to be focused (Cannie`re et al.,

2010). Referring to Chiu (2009), “The relationship quality is a general evaluation of relationship

strength and the extent to which a relationship meets the needs and expectations of the parties

involved based on a history of successful or unsuccessful encounters or events.”

Relationship quality decrease the purchaser’s uncertainly and reinforce the correlation

between customer and firm (Li et al., 2012).

Study in the field of customer-firm relationships and loyalty is supported by the faith in the

impact of relationship quality concepts such as perceived trust, commitment and satisfaction

within the customer’s buying behavior (Cannie`re et al., 2010). Loyalty is built up of attitudinal

loyalty (including of commitment, trust, and satisfaction, also called perceived relationship

quality), which leads to repeat patronage intentions and create loyal behavior and more profit as

the result (Cannie`re et al., 2010).

Perceive Value

Customer perceived value can be identified as the overall evaluation of the utility of a product

or service that is made by the customer based on their experience about what is received and

what is given (Li et al., 2012). According to Jen & Hu (2003), perceived value, which is based

on customer’s careful assessment of product or service, can become the determination of

customer repurchase intentions. Perceived quality and sacrifice can be included in the customer

perceived value (Li et al., 2012). Jen & Hu (2003) also added that perceived value has been

judged as one of the most crucial marketing strategies in differentiation, and is a considerable

factor in maintaining corporate competitiveness.

The Customer Loyalty indicator


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According to Li et al. (2012), customer loyalty can be measured by these indicators, such as:

Word-of-Mouth, Price insensitivity, and Purchase Intentions.

Word of Mouth

Several researches have shown that word of mouth (WOM) becomes one of the most

important and influential channel of communication in the marketplace (Allsop et al., 2007).

Word of mouth play an important role in the arrangement of consumer perception and over the

past year, it has transformed into more powerful force due to the existences of the advance

technology that can assist an information and opinion sharing easier than before (Allsop et al.,

2007). Mangold et al. (1999) also added that the customers have been determined to rely on

Word of mouth to decrease the level of perceived risk and the uncertainty that are often related

with the purchase decision.

Price Insensitivity

Price sensitivity can be measured by asking the customers how much of a price increase

would be required to prompt the customers either to change to other product categories or

completely stop purchasing the product if the price of the item under considerable increases

(Sirvanci, 2000).

According to Nagle & Holden, (2003), the shoppers are moderately price insensitive when

facing a new existing innovation on them; besides that, the more the consumers must rely on

price to evaluate quality, the less sensitivity they will be. For some purchase decision, shoppers

can either determine a product prior infer its quality from past experience with the brand; that

condition indicates price is not used as a quality cue (Nagle & Holden, 2003).

Purchase Intention


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H1#1 Relationship Quality is the most significant factor that influences customer loyalty

toward private label consumer goods of brand (X).

H2#1 Perceived Value is the most significant factor that influences customer loyalty


H0#2 Word of Mouth is the most significant indicator that measures customer loyalty


H1#2 Purchase Intention is the most significant indicator that measures customer loyalty


DATA AND METHODOLOGY

In order to have a better understanding of customer loyalty toward private label brand in retail

industry, this research uses a retail company (company XYZ) that can be categorized as

hypermarket. In this research, the author used both the descriptive research and causal research.

Descriptive study are conducted in order to recognize and describe the characteristic of related

phenomenon in this study. A questionnaire method of close-ended questions are used and 129

respondents are needed for postesting and 15 questionnaires to process a pretesting.

Causal research can be categorized within this study since the author are going to determine

the cause and effect relationship between one variable with another variable. The variables which

give affect are considered as independent variable (in this research is represented by marketing

strategy, relationship quality and perceived value) those three variables are intended to affect the

dependent variable which are customer loyalty (word of mouth, purchase intention and price

insesitivity).

The data consist of both statistical and numerical data that will be gathered from

questionnaire. “Likert Scale” as one of the attitudinal scales method is being used in order to


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implement a rating question (SD: Strongly Disagree, D: Disagree, N: Neutral, A: Agree, SA:

Strongly Agree). Liker scale will be used in these variables such as:

Marketing strategy include product (3 items), price (3 items), place (2 items) and promotion (2

items). Relationship quality consists of customer satisfaction (3 items), trust (2 items) and

commitment (3 items). Customer perceived value consists of perceived quality (3 items) and

sacrifice (2 items). The three indicators that measure customer loyalty: word of mouth (3 items),

purchase intention (3 items) and price insensitivity (2 items).

In order to prove validity and reliability of this study, the author used SPSS 20 to measure the

value of each question and variables within the questionnaire. In order to examine the reliability,

Cronbach’s Alpha was used to determining the internal consistency of a test or the correlation of

items (variables) within the test.

Microsoft Excel, SPSS 20 and Amos 20 package software are used to conduct a data analysis

process. First step, all the data from questionnaires will be input to Microsoft excel. After all data

have been input in Microsoft excel, data should be transformed into SPSS. The researcher

transforms the data into SPSS because AMOS can only process and read the data from SPSS.

After all the data have been transformed into SPSS, SEM (Structural Equation Model) will be

created in order to get the result from research question by using AMOS Statistical Tool.

The sample includes 129 respondents. There were more female shoppers which is 77% than

male shoppers. The majority of the respondents were between 21-40 years old (68%). Most

shoppers were had earned a high school degree as their education background (43%). Most of the

respondents were married (55%). The participants were most likely employee (61%) as their

occupation. The majority lived in Central Jakarta (36%).The majority had a personal income of

less than IDR 5.000.000 (51%). Most of the respondents were likely to purchase brand (X)


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private label once a month (49%). The majority spent less than IDR 1.000.000 for brand (X)

private label (72%). Most shoppers purchased tissue as their brand (X) private label preference

(17%).

FINDINGS

After the data was gathered, data was transferred to Microsoft Excel, SPSS and AMOS. From

AMOS, the value of each variable of influential factor toward customer loyalty and customer

loyalty measurement indicator is shown in this figure which is the result of AMOS.

Figure 2. Path Diagram

Source : Li, M.L., Green, R.D., Farazmand, F.A. & Grodzki, E., 2012


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Figure 3. Influential Factors toward Customer loyalty

No Element Coefficient correlation

( r)

Square Correlation r² Association

1. Marketing Strategy 0.81 65,61% Strong

2. Relationship

Quality

0.69 47,61% Moderate

3. Perceived Value 0.57 32,49% Weak

According to the table above, most respondents concerned about marketing strategy as an

influential factor toward customer loyalty. The most significant factor is determined by the level

of coefficient correlation (r ). The more higher the coefficient correlation, the more significant the

indicator is.

Figure 4. Customer loyalty measurement indicator

No Elements Coefficient Correlation r Square Correlation

r2

Association

1. Purchase Intention 0.73 53,29% Moderate

2. Word of Mouth 0.67 44,89% Moderate

3. Price Insensitivity 0.41 16,81% Weak

Most respondents concerned about purchase intention toward Brand (X) private label consumer

goods. Purchase Intention becomes the highest indicator that can measure customer loyalty with

0,73 correlation value and followed by Word of Mouth and Price Insensitivity.


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CONCLUSION AND RECOMMENDATION

The purpose of this study is to determine the most significant factor that influences customer

loyalty toward private label consumer goods of Brand (X) and to identify the most significant

indicator that measures customer loyalty toward private label consumer goods of Brand (X) by

examining marketing strategy, relationship quality, perceived value, word-of-mouth, purchase

intention and price insensitivity.

There are six hypotheses were examined and tested using AMOS statistical tools. The result

showed the significant factors that influence customer loyalty and the significant indicators

which measure customer loyalty. the result that is derived from the calculation using AMOS

statistical tools will decide which hypothesis is accepted.

Based on the hypothesis testing, several conclusions can be made and it will be divided into

some parts based on the research questions and related hypotheses. In overall, the researcher

concludes that the loyalty of the customer towards private label brand (X) is mostly influenced

by marketing strategy which consists of product, price, place and promotion.

According to the calculation using statistical software, it was found that the significant factor

within marketing strategy toward private label brand (X) is the price of the product itself. More

than 68% of respondents are more attracted about the price compared to the other aspects of

marketing strategy.

From three indicators which are word of mouth, purchase intention and price insensitivity that

are aimed to measure customer loyalty toward private label brand (X), purchase intention

becomes an indicator that is mostly shown by the customer to determine customer loyalty toward

private label brand (X).


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Thirdly, as shown in the table, it indicates that price becomes the significant aspect within

marketing strategy toward customer loyalty. It can be concluded that the motive why customer

purchase private label consumer goods of brand (X) is because the price are low and affordable

for them. The impact of low price is the increase in purchase intention that can result in

profitability of the company. The reason why Brand (X) can provide a low cost product is

because they have cooperation with many Small Medium Enterprises as their provider of private

label products. At present, there are around 4000 small enterprises that become the provider of

Brand (X) private label consumer goods. From business point of view, the recommendation will

be to establish more cooperation with other small medium enterprises; therefore, it can reduce

their production cost, and provide some jobs to the unemployment.

.


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private label consumer goods towards customer loyalty – case study of (x) private label goods

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