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premium
Retailer premium own-brands: Retailer
own-brands
creating customer loyalty through
own-brand products advantage
Ying Huang
Division of Retailing and Consumer Sciences, University of Arizona, Tucson,
Arizona, USA, and

Patricia Huddleston

975

Received 26 May 2008

Revised 14 October 2008
Accepted 27 April 2009

Department of Advertising, Public Relations, and Retailing,

Michigan State University, East Lansing, Michigan, USA
Abstract
Purpose The purpose of this paper is to propose a theoretical model which investigates
antecedents, consequences, and contingency factors of retailer own-brand product advantage.
The paper develops propositions and managerial implications.
Design/methodology/approach It summarizes an empirical work related to the key constructs of
the theoretical model and identifies gaps in the literature. The paper provides definitions of each
antecedent and outcome of retailer own product advantage and discusses managerial implications of
the proposed framework.
Findings Retailers who have higher degree of customer participation, innovation, and brand
orientations are likely to have a stronger own-brand product advantage. In turn, those retailers are
more likely to have loyal customers and superior own-brand financial performance. These
relationships will be influenced by retailer image, market power, number of national brands and
category size, technology complexity, and competitive intensity.
Research limitations/implications Understanding the key outcomes of own-brand product
advantage will facilitate managements evaluation of current retail product development strategies.
If outcomes of the current own-brand strategy are not satisfactory, an assessment of customer
participation, innovation, and brand orientation effectiveness may be warranted.
Originality/value The authors are the first to define a retailer premium own-brand. Based on the
theory of resource-based view, it is proposed a new theoretical framework that pinpoints three
business orientations as antecedents of and customer loyalty and brand performance as consequences
of retailer own-brand product advantage. The framework also suggests some contingency factors at
retailer, category, and market levels.
Keywords Brands, Brand loyalty, Customer loyalty
Paper type Conceptual paper

Introduction
Staples Inc. is making efforts to develop exclusive products to differentiate its own-brand
line from those of competitors. One of the efforts is to involve consumers in a contest
called InventionQuest. Under the royalty contract, the winning products will then be
produced under Staples brand name and sold exclusively in Staples stores. Staples-brand
products have become a staple source of profit for the company. In 2005, Staples-brand
products accounted for 18% of Staples $16.08 billion in revenue. Chief executive
Ron Sargent says his ambition is to make the chains own products the top national office
products brand (Bulkeley, 2006).

International Journal of Retail &

Distribution Management
Vol. 37 No. 11, 2009
pp. 975-992
q Emerald Group Publishing Limited
0959-0552
DOI 10.1108/09590550910999389

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The last two decades have witnessed a change in positioning of retailer own-brands:
originally introduced as cheap, low-price alternatives to manufacturer brands, many
retailer own-brands are now shifting to premium brands that reflect the personality of
stores (Burt and Davis, 1999; Choi and Coughlan, 2006; Davies et al., 1986; de
Chernatony, 1988). Retailers, such as Tesco, Mercadona, and Brooks Brothers, launch
high-quality new products every year, competing head-to-head with manufacturers.
Some retailers (e.g. Zara and Staples) even have their own in-house new product
development (NPD) and packaging-design departments. Consequently, the talk in both
academic and practitioner journals as well as the trade press has focused on the ever
increasing quality of store brands and their market penetration in each category
(Ailawadi and Keller, 2004; Steenkamp and Dekimpe, 1997; PL Buyer, 2008). In 2007,
sales of own-brands accounted for 49 percent of grocery sales in the UK and over
20 percent in the USA (Marketing, 2007). Retailer own-brands are now ranked as top
brands in many categories. For example, Kumar and Steenkamp (2007) report that
Consumer Reports magazine ranked Winn-Dixies chocolate ice cream ahead of Bryers,
Wal-Marts Sams Choice detergent better than Tide, and Krogers potato chips tastier
than Ruffles and Pringles.
The changing position of retailer own-brands appears to result from the fact that
retailers now take an active role in developing and marketing their proprietary
own-brands rather than being a passive distributor of national brands. Researchers
have acknowledged the evolution of retailer own-brands from low price, low-quality
products to high-price, high quality ones (Burt and Davis, 1999; Burt, 2000). Yet, the
active role of retailers in positioning premium brands has not yet been examined.
Although previous studies acknowledge the potential benefits of using retailer
own-brands as a tool to achieve customer loyalty and market growth (Corstjens and
Corstjens, 1995), little research has actually examined how a retailers own-brand
positioning affects customer loyalty and performance (Ailawadi and Keller, 2004).
Thus, the purpose of this paper is to fill the gap by focusing on the development
strategy of retailer premium own-brands and their product advantages. To be specific,
we propose a theoretical framework that connects retailer own-brand product
advantage with its antecedents and consequences, develop relevant propositions, and
suggest managerial implications.
The organization of the paper is as follows: first, a review of retailer own-brands is
given and based on that, a new definition of a retailer own-brand and the discussion of
retailer own-brand product advantage are provided; second, a conceptual framework
delineating antecedents consequences and moderating factors of retailer own-brand
product advantage is proposed and propositions are developed based on a review of
extant literature; third, managerial implications are provided to inform retailers about
the importance of modifying their business orientations to facilitate the development of
premium own-brands; and finally, we conclude with a discussion of the importance of
retailer own-brand product development and its impact on retailer own-brand strategy.
A review of retailer own-brands
Definition of retailer own-brands
Retailer own-brands are traditionally referred to as retailers own products and the
term retailer own-brands is often used interchangeably with private labels, own-labels,
retailer brands, or store brands. Morris (1979) defines own-brands as consumer

products produced by or on behalf of distributors and sold under the distributors own
name or trademark through the distributors own outlets. This definition, although
it captured three key factors in development of earlier generations of retailer
own-brands process of production, labeling, and availability (Burt, 2000), it did not
reveal much about the purpose or the role of retailer own-brands as differentiation.
According to the American Marketing Associations (AMAs) definition, a brand
identifies the goods and services of a seller and differentiates them from those of
competitors. In this sense, Morriss definition of a retailer own-brand did not capture
the role of own-brands as differentiation, probably because the earlier generations of
retailer own-brands did not serve this role a retailer own-brand did not serve as a
true brand until its later generations (Burt, 2000).
Researchers suggest different phases or stages of retailer own-brands. For example,
Laaksonen and Reynolds (1994) propose four tiers of retailer own-brands ranging from
low quality, no-name generics to medium quality, quasi-brands to comparable quality,
me-too products to premium quality, and high value-added own-brands. Similarly,
Wileman and Jary (1997) suggest five stages of retailer own-brands spanning
from generics to cheap to re-engineered low-cost to par quality to leadership. Despite
these different terms, researchers seem to agree upon an evolutionary sequence
of the development of retailer own-brands (Burt, 2000). In other words, while low
price, low-quality retailer own-brand products still exists, the general trend has been to
move from low price, low- to high-quality products. For the purpose of this paper,
we group retailer own-brands into three types (Figure 1) and discuss the market
position of each type.
The first type, generics, is consistent with Laaksonen and Reynoldss (1994) and
Wileman and Jarys (1997) earliest generation. Generics were first introduced by UK
grocery retailers in 1977 (de Chernatony, 1988). The market positioning for generics is
to provide consumers with the lowest possible price by eliminating expenses on
advertising, packaging, and marketing (Corstjens and Corstjens, 1995). Most generics
are basic, functional products and often adopt a commodity-style presentation with
minimalist white packs and black print stating the contents (Corstjens and Corstjens,
1995, p. 142). Such a stance is referred to by researchers as brand-free or no-brand
(de Chernatony, 1988). Generics do not compete with national brands; rather they serve

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High
Own-brands

Quality

Leading
national brands

Mimic brands

Generics
Low
Low

Price

High

Figure 1.
Positioning of retailer
own-brands

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as product alternatives, and usually possess lower quality and inferior image
compared to national brands (Laaksonen and Reynolds, 1994).
The second type, and also the largest group, is referred as mimic brands. Mimic
brands may include Laaksonen and Reynoldss (1994) quasi-brands and me-too
products and Wileman and Jarys (1997) low-cost to par quality products, as long
as the purpose of introducing mimic brands is to compete directly with manufacturers
through mimicking leading national brands. The market position for mimic brands
usually takes a value for money approach; therefore they are low-priced products with
reasonably acceptable quality and similar packaging, targeted to offer alternatives to
higher priced national brands (Burt and Davis, 1999). In some cases, the mimic brands
are so similar to the leading national brands that some manufacturers take legal actions
against retailers. For example, Burt and Davis (1999) report that J Sainsburys launch of
Classic Cola in 1994 provoked an angry response from Coca Cola because Classic Colas
initial use of the word classic and the package design of red and silver colors very
closely resemble those of Coca Cola. Despite the price difference, the quality of retailer
mimic brands varies from medium to comparable to national brands (Burt, 2000).
The third type, also the most recent generation of retailer own-brands, are premium
own-brands, which is consistent with Laaksonen and Reynoldss (1994) extended
own-brands and Wileman and Jarys (1997) leadership brands. The market positioning
of a premium own-brand is to provide consumers with a high value-added product
with an innovative design and sometimes even higher quality than national brands.
For instance, Tesco Finest Premier Cru champagne was named the best nonvintage
champagne at the 2005 International Wine Challenge (Kumar and Steenkamp, 2007).
Therefore, premium own-brands are often not priced lower than national brands
(Laaksonen and Reynolds, 1994). Gaining widespread acceptance, particularly in the
UK, these premium own-brands are designed to compete with leading national brands
and differentiate their retailers from competitors, therefore, providing consumers with
a real brand choice (Laaksonen and Reynolds, 1994; Burt, 2000). Tescos Finest, Marks
& Spencers St Michael, and Loblaws Presidents Choice are examples of premium
brands. Based on the AMAs definition of a brand, we think only premium own-brand
products fulfill the strategic role of differentiation and thus can be considered a true
retailer own-brand. Accordingly, our conceptual framework focuses on premium
own-brands as a study context of retailer own-brand product development. Combining
Morriss (1979) definition and the AMAs definition of a brand, we define a retailer
premium own-brand as the consumer products, produced by or on behalf of retailers
with high quality and priced close to national brands, that contribute to differentiating
the retailer from its competitors.
Retailer own-brand product advantage
Product advantage is defined as the customers perception of product superiority with
respect to alternatives (Montoya-Weiss and Calantone, 1994). Product superiority
usually refers to differences between alternatives on important attributes (Day and
Wensley, 1988). New or improved attributes of a product, such as quality,
innovativeness, and unique features, provide consumers with better choices. In the
NPD literature, product advantage consistently appears as the most important factor in
explaining the adoption and success of new products (Montoya-Weiss and Calantone,
1994). Introduced as alternatives to national brands, not all retailer own-brand

products possess product advantage. In many cases, retailers own-brands possess only
a price advantage. Earlier types of retailer own-brand products, such as generics and
mimic products, involved little design or development. In fact, the reports from early
studies indicate that consumers consistently rate store brands as inferior to national
brands (Richardson et al., 1994). These findings highlight a lack of sophistication in
product development of retailer own-brands. Essentially, these products possess
minimal product advantage relative to national brands, but often had a price
advantage.
More recently, retailers have realized the importance of creating a retail image by
developing high quality and unique own-brand products. Therefore, they are moving
away from merely offering me too copies of existing manufacturer products
(Burt, 2000; Choi and Coughlan, 2006; Corstjens and Corstjens, 1995). To consumers,
high quality is much more important than lower price (Hoch and Banerji, 1993).
Investment in high quality means investment in image (Burt, 2000). For example, Boots
is a retailer known for creating its image from its own-brands such as high quality,
high-price cosmaceutical brands (Corstjens and Corstjens, 1995).
Further, due to their direct in-store contact with consumers and access to
information such as scanner data, retailers are also in better position to discover new
consumer values and therefore develop high value-added consumer product to meet
consumer needs (Corstjens and Corstjens, 1995). As a result, UK retailers have
launched a series of own-brands advocating consumer values such as healthy eating,
animal welfare and environmental concerns (Burt, 2000). Many retailers, particularly
in the UK, have learned to develop own-brands that compete directly with leading
manufacturer brands on added value, not price. Tescos premium own brand,
Tescos Finest, is one example (Marketing, 2007). Consequently, innovation and
quality have become major elements in these premium own-brands (Burt, 2000).
With innovative features or superior quality, premium own-brands are clearly
distinguished from the other two types of retailer own-brands, and therefore can be
said to possess a degree of product advantage that creates a competitive advantage
for retailers.
A conceptual framework and propositions
The resource-based view (RBV) of the firm is adopted as the theoretical underpinning
of our conceptual framework. RBV, proposed by Barney (1991) and further developed
by Barney (2001), has been adopted as a general paradigm explaining links between
firm resources, firm competitive advantage, and performance. According to Barney
(1991), firm resources are strategic assets that are rare, valuable, imperfectly imitable
and not substitutable. Owing to these four characteristics, strategic resources
possessed by a firm are difficult for competitors to replicate and thus help differentiate
the firm. As a result, these resources create a sustainable competitive advantage for the
firm and lead to a better performance.
Applying this perspective to the context of retailer own-brands, we posit that
a retailers own-brand product advantage which results from a retailer premium
own-brand serves as a competitive advantage that differentiates the retailer from
its competitors. More specifically, we identify three firm resources customer
participation orientation, innovation orientation, and brand orientation as the
antecedents of retailer own-brand product advantage. A retailer possessing these three

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strategic assets collectively demonstrates its capabilities of developing a premium

own-brand with product advantage. Subsequently, the consequences of retailer
own-brand advantage are customer loyalty and brand performance. To facilitate our
discussion of the antecedents and the consequences of retailer own-brand product
advantage, Figure 2 is shown. In addition, contingency factors which moderate the
relationship (retailer, category, and market factors) are included for discussion.
Antecedents of own-brand product advantage
Customer participation orientation. The customer/consumer has been a focus of studies
in the marketing literature for decades. As early as the 1950s, Peter Drucker, proposed
that the central tenet of business is customer orientation (Webster, 1994). Over time,
customer orientation has evolved into a broader concept: market orientation (MO).
However, while MO emphasizes the importance of collecting market intelligence to
respond to customer needs, firms collect information through exogenous market
factors (e.g. technology, competitors, government regulation, and other environmental
forces) rather than through direct customer contact (Jaworski and Kohli, 1993).
According to this perspective, the customer/consumer is not included in the firms NPD
process.
More recently, a new school of thought proposes treating the customer/consumer as
a co-producer (Vargo and Lusch, 2004). They argue that, in todays market, a market
offerings value is both perceived and determined by the consumer; therefore, the
consumer is not only a receiver but also a co-producer of the market offering, be it a
product or a service. Other scholars have similar views. For example, Calantone et al.
(2005) contend that seeking and integrating customer/consumer input in the early
stages of NPD and throughout the process are essential to product success.
For example, Staples Inc. involves individual consumers in a contest to develop
innovative products for its stores. The winning products are then produced under

Antecedents

Consequences

Firm resources:
Customer participation orientation
Innovation orientation
Brand orientation

Performance:
Competitive advantage:
Own-brand product advantage

Contingency factors:
Retailer factor:
Retailer image
Market power

Figure 2.
A conceptual framework

Categoryfactor
Number of national brands
Category size
Technology complexity
Market factor:
Competition intensity

Customer loyalty
Brand financial
performance

Staples brand and consumers often rate these products better than national brands
such as 3M (Bulkeley, 2006).
As researchers detect the change in customer focus practices from fulfilling
customer needs to involving the customer to fulfill customer needs, some have
started defining and measuring the concept of customer participation. For example,
Fang (2008, p. 91) defines customer participation as the extent to which the customer
is involved in the manufacturers NPD process. While this term reflects the firms
behavior of involving customers, in our view, it does not capture the essence of
customer participation being part of an organizational culture. Fangs (2008) study
addresses only speed to market, not product success. Therefore, integrating ideas from
customer orientation and MO, we propose customer participation orientation to
emphasize the importance of consumer input in a retailer own-brand product
development. We thus define customer participation orientation as the systematic
involvement of the consumer into the processes that identify and operationalize
consumer needs. We imagine, with consumer participation in the development of a
retailer own-brand, a retailer can confidently identify consumer needs correctly, and
therefore make sure that the attributes of the new own-brand are what the consumer
really wants. As described by RBV, we consider customer participation orientation and
the unique design this can yield to be a resource that contributes to a competitive
advantage (i.e. own brand product advantage).
Innovation orientation. Innovation is vital to firm growth and survival (Cooper,
1984). Thompson (1965, p. 36) defines innovation as the generation, acceptance, and
implementation of new ideas, processes, products or services. Hurley and Hult (1998)
introduce two innovation-related constructs:
(1) innovativeness; and
(2) the capacity to innovate.
They contend that firm innovativeness is the notion of openness to new ideas as an
aspect of a firms culture, while the capacity to innovate is the ability of the firm to adopt
or implement new ideas. In our view, for a retailer to develop an own-brand product with
product advantage, being innovative simply being open to new ideas is not enough;
a retailers capacity to innovate the capability to adopt and implement new ideas is
equally important. In other words, a retailer may have intention to be innovative, thus is
open to the idea of developing a new own-brand, but may lack the ability to develop a
new product with higher quality or unique features. A retailer own-brand with
product advantage is an outcome of two conditions the retailers innovativeness and
the retailers capacity to innovate. For example, next, a UK apparel retailer, has an
in-house design team responsible for designing all products. Staples not only has
in-house product and packaging design departments, but also sponsored an episode of a
popular TV show to generate innovative ideas. In addition, Staples has filed for
50 patents in the past two years, which is unusual for a retailer (Bulkeley, 2006).
Based on the above argument, we propose innovation orientation as a higher order
construct consisting of two dimensions: innovativeness and the capacity to innovate.
We define innovation orientation as an organizational culture of being open to,
generating, and developing a capability to implement new ideas, processes, products,
or services. This definition relates to RBV in the following way: as part of a firms
culture, a retailers innovation orientation is valuable and hard for competitors to copy,

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thus, it confers a competitive advantage to the retailer. An innovation-oriented retailer

is extensively engaged in specific kinds of innovative activities including own-brand
product development. The greater the innovation orientation of a retailer, the more
capable it is to develop an own-brand product with product advantage.
Brand orientation. Brand orientation, a concept coined by Urde (1999, p. 117),
refers to:
[. . .] the process of organization revolving around the creation, development, and protection of
brand identity in an ongoing interaction with target customers with the aim of achieving
lasting competitive advantages in the form of brands.

Brand orientation emphasizes the formulation of a firms strategy around brands to

sustain strong customer relationships and maintain a distinctive identity. In our study,
brand orientation refers to how a retailers strategy is focused on its own-brand
development. Bridson and Evans (2004) study of Australian apparel retailers shows
that brand orientation is the secret to fashion retailers product offering advantage.
Brand orientation can be applied to non-fashion retailers. In the aforementioned Staples
case, the company has a strong inclination to be brand oriented. Therefore, Staples
stocks the winning products from its consumer product design contest
(InventionQuest), and, as a result, these exclusive, innovative own-brand products
help build the Staples image and differentiate it from its competitors. In contrast, in the
early 1990s, Wal-Mart also hosted a consumer contest event called Wal-Mart Innovation
Network (WIN) (Udell et al., 1993). However, Wal-Mart simply viewed WIN as a
volunteer program to help stimulate American innovations rather than an opportunity
to market those winning product as an own-brand for stores. Thus, Wal-Mart missed an
opportunity to carry exclusive innovative own-brand products from the contest and
may be indicative of a lack of brand orientation. Some retailers are known for a higher
degree of own-brand orientation. For example, retailers such as Whole Foods, Macys,
and JC Penney focus on developing their high-quality own-brands.
Based on RBV, brand orientation is a resource for the company (Urde, 1999). Similar
to innovation orientation, brand orientation can be viewed as a strategic capability of
creating intangible assets or competencies (i.e. brands). By focusing on building,
developing, and nurturing brands, a sustainable competitive strategy may be achieved
(Urde, 1999). A retailer, who focuses on brand orientation, benefits from using branding
as a means of identification, differentiation, and guarantee of consistency for consumers.
As a result, retailer own-brands resulting from the retailers brand orientation may
provide consumers with added value as well as emotional attachments (Bhat et al., 1998).
From the above discussion of three antecedents of retailer own-brand product
advantage, we can see that customer participation orientation, innovation orientation,
and brand orientations are all part of the organizational culture of a firm. Similar to
MO, these three orientations comprise a retailers strategic resources that are rare,
valuable, imperfectly imitable and not substitutable (Barney, 1991). As a result,
collectively they create one source of competitive advantage for a retailer retailer
own-brands product advantage:
P1. A retailers own-brand product advantage is positively related to the degree of
its:
P1a. customer participation orientation;

P1b. innovation orientation; and

P1c. brand orientation.
Consequences of own-brand product advantage
Customer loyalty. Oliver (1997) posits that customer loyalty is a multidimensional
construct, consisting of four dimensions: cognitive, affective, conative, and action
loyalties. Firms which achieve the highest level of loyalty, action loyalty, have
customers who will overcome obstacles to patronize them. As one British retailer
manager put: customer loyalty is a fundamental reason for having own-brands (cited
in Steenkamp and Dekimpe, 1997, p. 919). In the context of a retailer own-brand,
customer loyalty encompasses two associated loyalties brand and store loyalties.
Brand loyalty to a retailer own-brand is only possible if the own-brand possesses
a favorable image (Steenkamp and Dekimpe, 1997). High-quality products play a
crucial role in determining consumer satisfaction and store loyalty (Binninger, 2008).
Using the Dutch supermarket chain Albert Heijn (AH) as a case study, Steenkamp and
Dekimpe (1997) find that the AH store brand commands high-brand loyalty in those
categories where its quality is perceived to be higher. Binninger (2008), on the other
hand, directly measure French consumers brand loyalty for grocery retailers
own-brands and find that consumers satisfaction with the own-brand is a significant
driver of the brand loyalty. Thus, it appears that a high-quality premium retailer
own-brand is capable of commanding high-brand loyalty (Corstjens and Corstjens,
1995).
The exclusivity of a retailer own-brands assists in building store loyalty and
decreases store-switching behavior because store brands are store specific (Corstjens
and Corstjens, 1995). Therefore, offering exclusive products is considered as one viable
strategy to build store loyalty. A growing body of literature links store loyalty to
purchase of and satisfaction with store brands. Binninger (2008) finds store brand
loyalty not only leads to store loyalty but also mediates the positive relationship
between consumer satisfaction and store loyalty. Preference for high-quality premium
own-brands further contributes to store loyalty. Using a mathematical model analysis,
Corstjens and Lal (2000) show that premium quality store brands, rather than cheap
and nasty private labels, generate store differentiation and store loyalty by increasing
consumers switching costs between stores. Two studies (Carpenter and Fairhurst,
2005; Veloutsou et al., 2004) find that customer loyalty occurs when consumers are
satisfied with retail brands. In addition, we argue that retail own-brands with
distinctive product advantages, such as innovative features or functions, can produce
a magnetic effect that induces consumers psychological commitment to the store, thus
can be a source of store loyalty. The aforementioned studies posit that store loyalty is
an outcome of satisfaction with store brands. However, a recent study (de Wulf et al.,
2005) identified a reverse effect. That is, store loyalty moderates perceived
brand equity of store brands; thus loyal customers tend to purchase store brands.
We acknowledge that further investigation of the reverse effect is warranted.
Nevertheless, because the preponderance of literature supports the former relationship:
store loyalty is an outcome of satisfaction with store brands, we posit brand loyalty
and store loyalty as consequences of retailer own-brand product advantage.
Own-brand performance. Own-brand performance refers to the financial benefits
own-brand products bring to retailers, such as profitability and market share.

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A brands performance is positively associated with its product quality (Aaker, 2004).
Quality retailer own-brands have achieved success in battles with national brands.
For example, JC Penneys own-brands such as Worthington and Arizona, now make up
nearly 50 percent of its total sales, beating national brands such as Liz Claiborne, Dana
Buchman, and Ellen Tracy (The Economist, 2007). Tescos finest brand is the UKs best
selling grocery brand with sales of over 1 billion (Bokaie, 2008). The largest selling
brand of chocolate chip cookie in Canada is Loblaws Presidents Choice (Hoch and
Banerji, 1993).
Empirical studies in NPD show that product advantage leads to a new product
superior financial performance (Song and Parry, 1997). The gross margin of retailer
own-brands can be 20-50 percent higher than national brands (Keller, 1993). Higher
sales of higher margin own-brands increase profits (Richardson et al., 1994).
Researchers noted a correlation between profitability and proportion of sales
accounted by own-brands for European chains. Sainsburys and Tesco, the leading
supermarkets in the UK, sell more own-brands than they do manufacturer brands
(Corstjens and Corstjens, 1995). In these chains, in most product categories, the
own-brand is the brand leader. Many of their shoppers are loyal to brands which they
can only obtain from the chain. Steenkamp and Dekimpes (1997) case study on
the AHs store brand finds that the AH store brands market share in a product
category is positively associated with its perceived quality. A high-quality own-brand
product combined with attractive packaging speaks for itself and attracts consumers.
After examining 1564 shoppers perceptions of store brand quality, Richardson et al.
(1994) conclude that consumers perceive store brands with high quality as more
important than store brands with low price. They assert that high quality of store
brands represents the basis for a sustainable competitive advantage for retailers,
while low-price (implying low-quality) or a value for money approach reflects a
suboptimal strategy in attracting consumers (Richardson et al., 1994). Corstjens and
Lal (2000) show that quality store brands are drivers for store profitability. Based on
data from 34 food categories of the US supermarket chains, Dhar and Hoch (1997) find
that a premium product offering and a retailers commitment to quality enhance the
retailers store brand performance in all categories. Furthermore, unique products
or products with a superior quality enable retailers to sidestep price competition
(Burt and Davis, 1999). These retailers can therefore concentrate on developing new
and innovative products meeting consumer demand. When comparing UK retailers
with US retailers, the better financial performance (i.e. profit margin and market share)
of the UK retailers may be partially explained by their high-quality store own-brands
(Burt and Davis, 1999; Corstjens and Corstjens, 1995):
P2. A retailer premium own-brand with product advantage contributes to
customer loyalty and own-brand financial performance.
Contingency factors
Previous studies suggest a retailers choice to introduce an own-brand depends on
many factors, such as market concentration of a product category, number and positions
of national brands, and price sensitivities among the existing national brands (Hoch and
Banerji, 1993; Sayman and Raju, 2004). However, these studies focus primarily on mimic
brands, not premium own-brands. In this section, we only focus on factors that may affect
the introduction of a premium own-brand. Three types of factors (retailer, category,

and market) which moderate the relationship between the antecedents, own product
advantage and consequences are discussed. While we have attempted to include all
relevant contingency factors, we acknowledge that our list of factors may not be
exhaustive.
Retailer factors. Retailer image. Congruity theory (Jacoby and Mazursky, 1984,
p. 106), a more quantitative version of balance theory (Heider, 1944), holds that
incongruity or inconsistency occurs when the source (i.e. the retailer) and the object
(i.e. the retailer own-brand) are not perceived as equally associated. We particularly
consider one aspect of retailer image here price image. Although consumers
perceptions of prices may not always reflect the actual prices of products in a store
(Corstjens and Corstjens, 1995), consumers do form an overall price image of a store
(Desai and Talukdar, 2003) and use it to assess expensiveness of stores and quality in
relative terms (e.g. Neiman Marcus . Macys . Dollar General). For example,
incongruity would be reflected if a low-price image retailer carried a premium own
brand, or a high-price image retailer carried a low price, low-quality own brand. In the
former case, a low-price image retailer may find the investment in developing a
premium own-brand not worthwhile because the retailers less favorable image may
transfer to its own-brand. In the latter case, a high-price image retailer (usually
implying high-quality merchandise) may not want to carry a low price own brand
because the price-quality association (low quality with low price) is found to adversely
affect a retailer with a more favorable image (Jacoby and Mazursky, 1984). Based on
the logic of congruity theory, it is probably more appealing for a
high-price/high-quality retailer to develop a premium own-brand because in such
case, both the retailer image and its own-brand image are likely to be enhanced.
For instance, Richardson et al. (1996) find that consumers ratings of the overall quality
of private labels are higher when store image is more favorable.
Market power. A major factor in the emergence of retailer own-brands can be
attributed to the concentration in the retail sector, particularly grocery retail sector
(Steenkamp and Dekimpe, 1997). The increased concentration induces the shift of
market power from manufacturers to a few large retailers. These retailers are
increasingly involved in advertising and control a number of key marketing-mix
variables (Corstjens and Corstjens, 1995). Further, these large retailers are also better
positioned to build scale economies than smaller chains to justify the high cost of
developing a premium own-brand (Dhar and Hoch, 1997). Accordingly, retailers with
a higher level of market power are better positioned to employ a premium own-brand
strategy.
Category factors. Number of national brands and category size. The number of
national brands in a product category and the size of category represent entry barriers
for a retailer to introduce a premium own-brand. As Hoch and Banerji (1993) observe,
categories differ in terms of the number of national brands in the market. For example,
there are over 1,100 shampoos with different brands and manufacturers while there are
only a few salt and sugar brands available on the market (Hoch and Banerji, 1993). In
addition, they observe more store brands when a product category is large in sales.
Combining these two factors, one may conclude that introducing a premium
own-brand may be more likely to succeed when there are few national brands in a
relatively large category.

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Technology complexity. Technology complexity may represent another entry barrier

for a retailer own-brand due to the fact that a manufacturer is usually a specialist in a few
focused categories (Corstjens and Corstjens, 1995). Categories vary with level of
technological sophistication. For example, in categories such as canned and frozen fruits
and vegetables, processing sophistication is low, whereas in categories such as digital
cameras, technology complexity is high. Hoch and Banerji (1993) find that in the categories
where technological barriers are high, the comparative quality of store brands are
relatively low. Thus, in categories where national brands have strength in technological
innovation, a retailer may want to avoid the introduction of a premium own-brand.
Market factors. Competitive intensity. Competitive intensity refers to the degree of
competitive strength in retailing. As Kohli and Jaworski (1990) observe, in the absence
of competition, a retailer may perform well, even if there is not much differentiation
between competitors, because consumers have few options. By contrast, under
conditions of high competition, consumers have many alternative options to satisfy
their needs and wants. As a result, a retailer may be pressured to differentiate.
The exclusivity provided by retailer own-brands has become an important
differentiating strategy for retailers (Corstjens and Corstjens, 1995). However, an
own-brand that mimics a leading national brand will not serve as differentiator for the
retailer because the packaging, design, and quality of these own-brands may be too
similar to national brands. On the contrary, a premium own-brand with higher quality
or other innovative features will serve as differentiating factors, bringing high-profit
margin for the retailer. Thus, under the pressure of intense competition, a premium
own-brand strategy may help a retailer to achieve high performance:
P3. The retailer, category and market factors affect the retailers own-brand
strategy. Other things being equal, a retailer should pursue a premium
own-brand strategy in product categories characterized by:
P3a. Large dollar volume.
P3b. Fewer national brands.
P3c. Relatively low-technology complexity. A retailer should pursue a premium
own-brand strategy when:
P3d. The retailer faces intense retail competition.
P3e. Possesses a high-price image, and
P3f. Large market power.
Managerial implications
Our conceptual framework delineates four sets of factors:
(1) antecedent orientations that foster or encourage innovative retailer own-brand
products;
(2) retailer own-brand product advantage;
(3) consequences of retailer own-brand product advantage; and
(4) contingency factors that affect the retailer premium own-brand strategy.
The propositions proposed have direct managerial implications for retailers.

We do not propose a one size fits all strategy for the implementation of premium
own-brands, nor do we suggest that all retailers should adopt this product strategy.
Rather as RBV posits, we suggest that rare, valuable, imperfectly imitable and not
substitutable resources (customer participation orientation, innovation orientation,
and brand orientation) create a sustainable competitive advantage for a retailer and
retailers should critically examine their own resources to determine whether a premium
own brand strategy is a good fit. Our model proposes a number of retailer characteristics
that position some retailers to better develop an own-brand strategy. First, we suggest
that retailers with a high level of customer participation orientation are more likely to
develop own-brands with product advantage. Customer participation orientation
indicates customer interaction in the NPD process. As such, consumers role is not just
limited to voicing needs and wants. Rather, consumers are treated as partners (Vargo
and Lusch, 2004), helping to crystallize product concepts and critically evaluate product
designs and final product offerings (Li and Calantone, 1998). Since consumers know
what product features they really want, retailers who develop appealing, new
own-brand products may find it is effective to involve consumers in the NPD process,
particularly at the idea generation stage. How is it possible for retailers to increase their
customer participation orientation? In addition to more traditional methods such as
consumer panels and focus groups, the advent of Web 2.0 makes it easier and less costly
to involve customers in the product design process. Retailers can take advantage of
social networking sites such as Facebook, blogs and RSS feeds to solicit input from
customers. Some firms are already involved, for example, the I k Tesco Facebook
Group has over 1,200 members who regularly communicate their likes (and dislikes)
about Tesco; Lego loyalists can communicate directly with corporate headquarters
through e-mail and blogs (Hanlon, 2007); Loblaw uses online consumer reviews to
streamline its product development practices, and as a result, Smokin Stampede Beer &
Chipotle Barbecue Sauce, one of its premium own brand, is rated no. 1 barbecue source
by consumers. The consumer reviews also boost sales.
Second, our model indicates that retailers who possess a high level of innovation
orientation are likely to develop own-brands with product advantage. As indicated
before, innovation orientation consists of two components: innovativeness and the
capacity to innovate. Therefore, top management must commit resources to creating a
learning environment which increases the capacity to innovate (Hult and Ketchen,
2001). For example, creating an environment where employees are empowered and
rewarded for sharing innovative ideas and providing opportunities to engage in
environmental scanning activities, such as the high-information frequency model of
Zara (Ghemawat and Nueno, 2003), will nurture a learning environment. In addition,
possessing a research and development function seems to help increase the capacity to
innovate (Bulkeley, 2006).
Third, our model specifies that retailers who possess a brand orientation are likely
to develop own-brands with new product advantage. In order to create own-brands
with distinct advantages that attract consumers, retailers need to revolve all NPD
activities around differentiating its brands from competitors. To illustrate this point,
Kohls department store created a nine box grid to position its portfolio of own label
brands into good, better, and best (premium) brands. An examination of this grid
highlighted strategic gaps in their brand strategy. This in turn provided strategic

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direction for premium brand development, which resulted in the brand launch of
Simply Vera, Vera Wang in 2007.
Further, our model proposes two consequences of retailer own-brand product
advantage: customer loyalty and brand performance. Since the 1980s, the development
of retailer own-brands as an integral part of retail marketing strategy illustrates
the greater role taken by retailers in building up its store/brand image (Burt, 2000).
To achieve a high level of customer loyalty, market share, and profitability, retailers
need to strategically position own-brands (low-quality and generic vs high-quality and
innovative), thus successfully gain a competitive advantage. The evolution of retailer
brands from being copy cats of manufacturer brands to being innovative products has
changed consumer perceptions of these brands from an alternative product option to a
preferred brand option (Burt, 2000). When appropriate, a competitive advantage in
premium own brand product can be leveraged into increased customer loyalty by
building brand communities (brand enthusiasts) and accomplished by involving the
customer in engaging activities such as name the flavor contests (Hanlon, 2007).
The moderating factors (retailer, category, and market) delineate under what
circumstances it makes sense for a retailer to pursue a premium own brand strategy.
Clearly, not all retailers will find it worthwhile to pursue a premium own brand
strategy. Low-price image retailers such as Aldi may find a value for money strategy
(i.e. mimic brands) fits the company better. Further, not all product categories are
appropriate for a premium own brand strategy; nor does this strategy seem optimal in
a low-competitive intensity environment. Category managers are advised to engage in
environmental scanning to keep abreast of high-growth product opportunities that
might be ripe for a premium own brand strategy (e.g. organic or green products). In the
wake of increasing competition and changing consumer perceptions, some retailers
need to seize the opportunity of developing high quality, innovative own-brand to
create a differential sustainable competitive advantage.
Conclusion
Next time you are hurtling through a supermarket, slow down and look around
the packaged-goods battlefield. There are the massed battalions of supermarkets own
labels no longer just cheap stuff, but increasingly segmented into things like ready meals,
healthy options or pricey treats (The Economist, 2005, p. 6).

Retailer own-brands are products developed and managed by retailers. Therefore,

retailers make significant investments in designing merchandise, managing
production, creating awareness, and developing a favorable image (Levy and Weitz,
2006). However, retailers function as own-brand product developers has been often
ignored. Although studies on manufacturer NPD are abundant (Calantone et al., 2005;
Li and Calantone, 1998), research on retailer own-brand product development is by and
large overlooked. Since retailers must take on full responsibility for own-brand
products, the design and development processes play a critical role in determining
success or failure (Dhar and Hoch, 1997). For more than a decade, retailers have
reformulated, repackaged, restructured, and re-launched products in an effort to shake
the generic stigma that has plagued the industry for years (PL Buyer, 2008). To address
the concerns of gaining channel power, improving retail margin, and building
customer loyalty, retailers need to focus on the strategic role of own-brands by

replacing some generics and/or mimic brands with high-quality store brands bearing
store name or another trademark (Burt, 2000; Corstjens and Lal, 2000). Consequently,
an investigation of retailers own-brand product development and its impact on retailer
own-brand strategy, customer loyalty, and performance is necessary and long overdue.

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Corresponding author
Ying Huang can be contacted at: huang2@email.arizona.edu

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