The Moderating Effect of Retailer Image on Customers

SatisfactionLoyalty Link
Yung-Hsin Chen1, Xia Wang2, Ying-Ying Wang3, Shuo-Chang Tsai1*
1
Department of Business Administration, Asia University, Taichung, Taiwan, China
(thomaschen@asia.edu.tw, *sttsai@asia.edu.tw)
2
School of Business, Renmin University of China, Beijing, China (wangxia@ruc.edu.cn)
3
Department of Business Administration, National Yunlin University of Science and Technology,
Yunlin, Taiwan, China (wj0720@yahoo.com.tw)

ABSTRACT
Distribution channel as one of important entities in the service sector, how channel members operate is seriously
relevant to the general public. Though categorized as the down-stream of the supply chain, leveraging market power
for own interest is a way of life for channel members, as opposed to coordination and collaboration of activities with
mutual trust performed by tiers of suppliers and manufacturer in the upper-stream. What is so salient is the entry of
private brand products by retailers in their chain hypermarkets or stores. Private brands are believed to be more
profitable, help leveraging price negotiation power, and enhancing retailer brand affinity to build store loyalty for
retaining customers. On the other hand, private brands may bring consumers benefits in several ways: increasing
category choice; paying lower price for reasonable quality of products, and so on. However, products sold with a
private brand are always under the cloud of quality and safety suspension from the perspective of consumers. Other
things being equal, retailer name intimacy out of localism and characteristics of private brands products impact on
retailer image The extant body of literature pays little attention to the empirical questions whether the entry of private
brands and intimacy out of localism have influence upon customers satisfaction, and in a consequence their loyalty
toward the retailer. This paper makes an empirical study on this topic and finds out that intimacy out of localism and
the characteristics of private brands do influence consumers loyalty via their total satisfaction. The managerial
implication is that the crucial factor of customers store loyalty lies in consumers trust-satisfaction on the retailer
image.

Keywords: private brand, store loyalty, trust, satisfaction-loyalty link

1. INTRODUCTION
The broad scope of supply chain management (SCM)
covers the processes and activities ranging from R&D,
manufacturing, production, logistics, and delivery to
the marketing channels for the end-users (consumers or
customers). To pursue cost reduction and on-time
shipping, tiers of suppliers in the up-stream work
together with trust and cooperation to coordinate
demand management, seeking for the optimized results.
However, there exists a series of intermediary between
manufacturer and customer: distributors, wholesalers,
and retailers. They are largely independent business
organizations striving for interest of their own and
always exert channel power to leverage bargain power.
The salient evidence is the introduction of private
brands products which are sold in hypermarket chain
stores. This strategy erodes the price negotiation
advantage of national brand manufacturers and enables
retailers to obtain a lower incoming price for
profitability. Private brands if defined as the products
sold in the store by the brand or label owned by retailer
or wholesaler, are also seen as one of drivers for
____________________________________________
Corresponding author: Shou-Chang Tsai is with the Department of
Business Administration, Asia University, Taichung, Taiwan, China
(Phone: +886-926-272-572; fax: +886-423-321-157)
This project is supported by grant No. Asia University 98-NSC-14
customer loyalty toward the retail stores if they meet the
needs of consumers and win satisfaction.
The private brands aggravate the intensity of struggle
fighting for own interest between channel members,
while bring out tangible benefits to consumers. The
increasing use for private brands involves the intricacy
of motivations and behaviors derived from a wide span
of consumers demographic, socio-economic, and
psychological variables. However, empirical evidences
in this area are quite sparse.
A point worthwhile to notice is the channel structure of
grocery stores and 3C electronics shops (computer,
communication, and consuming) in the larger part of
Asian region: multiple-level channels in both the vertical
direction and the horizontal direction co-exist at the
mercy of a few dominant players. It inevitably evokes
the issues of channel power and leverage situation within
the supply chain power regime [1]. The channel power
possessed by each channel member subjects to structural
imbalance and is contingent on the volatile market
situation which somewhat depends on economic cycle.
Therefore, market mediation becomes a way of life,
while trust and collaborative efforts are less evident if
compared with suppliers interaction in the up-stream
supply chain.
1.2 The Exertion of Channel Power for Members

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 Own Interest to Enhance Store Loyalty
In pursuit of their own operational performance and
profitability, channel members are apt to exercise the
channel power trying to seize the opportunities to gain
the maximum of benefits. Stern [2] argues that channel
power enables the bargain power of channel members to
influence the performance of channel operations. Ross [3]
and Hult [4] maintain that members should employ
channel power to enhance the relationship of cooperation
rather than escalate the confrontation. Many research
works in the literature based on Geskis power and
conflict theory [5] have discussed the interrelationships
among marketing channel members [6] [7] [8]. However,
their works involves no any antecedent-consequence
evidence to the economics concerns and customer
satisfaction, or even loyalty. This arouses the motivation
to investigate a contemporary issue of channel power
exercised in the struggle between manufacturer and
retailer (or wholesaler): Other things being equal, the
influence of intimacy out of localism and private brands
on retailer image which could be associated with
customer loyalty.
1.2 Intimacy out of Localism and the Characteristics
of Private Brands Affect Retailer Image from
Customers Perspective
A brand is a name to identify something. People identify
a brand with its manufacturer. Intimacy out of localism
determines consumers identification with the retailer..
The national brands products could be displayed in
different stores within the channel hierarchy and sold to
the general public, whereas the private brands products
are the unique possessions of retailers (or wholesaler,
distributor) and sold exclusively in their own single or
chain stores [9]. A product is assessed normally by
consumers through a variety of core values such as
quality, functional performance, taste, aroma, and texture,
and also augmented product characteristics like price,
packaging, design, and label. To sponsor their brands in
the greater coverage of market, national brand is
generally believed as accountable in terms of product
integrity, for the consequence of a scandal is too serious
to afford. However, as private brands can exclusively be
purchased in retailers own stores, consumers would
judge the store by adding on more relevant consideration
to make an aggregate evaluation score. Total
satisfaction accrues from all aspects about the store,
taking into account of location convenience, in-store
atmosphere, price and promotion, cross category
products assortment, the proportion of private brands in
store, the characteristics of private brands, and so on [17].
Thus, consumers store royalty is the antecedent of
retailer image and vice versa. This is the most intriguing
part that makes the study on store loyalty compelling
enough to discover implicit customer knowledge toward
the market phenomenon prevailing in our society.
Researcher tells apart three levels of private brand
products in retailing stores: generic products or
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commodities that are sold for daily; me-too private
products or clone products; and fancy private brands
that are products targeted at discerning consumers, e.g.
organic products, beauty products or functional health
foods [11]. Another typology groups into four tiers for
the private brands: low quality, no-name generics; cheap,
medium quality own brands; less expensive, comparable
private labels; and premium quality, high value one that
sells no less than national brands [10]. Therefore,
customers royalty toward the grocery store will be
mainly based on intimacy out of localism that reinforces
their perceived product value, trust on retailers
assurance of foods function, safety, and ingredients in
the category which they prefer to buy here. Oliver [12]
defines loyalty as A deeply held commitment to re-buy
or re-patronize a product or service in the future despite
situational influences and marketing efforts having the
potential to cause switching behavior. Kotler [13]
divides consumers into four groups according to brand
royalty status: hard core loyal, spilt loyal, shifting loyal,
and switcher. The private brands enable retailers to
creating an opportunity for profitability by offering more
optional choices in additional to national brands. The
underlying objective is an attempt to convert loyal
customers toward national brands into loyal customer
toward private brandsthe store brand loyalfor the
private brands are exclusively available in retailers own
store, and intimacy out of localism determines the extent
in which consumers understand the retailer itself. Based
on the assumption that success of private brands is
contingent on customers aggregate evaluation score as
well as their disposable money. Past wisdom in the
domain of conventional brand loyalty and channel
management will be borrowed for the study of retailer
image influence
This study takes Gaskis channel conflict theory as the
foundation and borrows the trust-satisfaction-loyalty
conceptual framework for high-involvement,
high-service product market from past research literature,
then prunes some relationship links to adapt to the
context of relatively low involvement and low service
grocery product market.[14] This is to propose a research
framework accounting for the intervention of private
brands in the chain hypermarket, and use the linear
structure modeling (SEM) to study the association
among constructs such as trust, satisfaction, and store
loyalty as well as the moderating role of retailer image in
the satisfaction-loyalty link. The contribution of this
study lies in the discovery of tacit consumer knowledge
toward retailer image involving intimacy out of localism
and private brands to fill the gap in the channel
management literature. The outcomes will provide
retailers with the implication how they can formulate
appropriate strategy to enhance consumers store loyalty.
2. METHODOLOGY
2.1 Research Questions and Hypotheses
Based on literature review and field observation,
we set up the research questions represented as the
theoretical framework shown in Figure 1, in an attempt
to explore the relationship between the constructs like
product quality perceived by customers, customers
trust toward the retailer, service quality perceived by
customers and others such as customer satisfaction and
customer loyalty to the retailing store and organization.
The quality-satisfaction-royalty link has been recognized
in the extant body of service literature. However, we
intend to re-examine its validity in the environment
where intimacy out of localism preoccupies consumers
perception toward retailer image. It therefore reinforces
consumers judgment on private brands. We focus on the
construct trust and satisfaction in the theoretical
framework, because the origin of the private brand
products may not be readily identified. Trust herein
becomes a crucial element in this study, as it is the
construct of trust that differentiates national brands
from private brands, and one private brands from another
private brands if intimacy out of localism is involved.
Thus, we make hypotheses as follows:
H1: Perceived value has positive influence on customers
trust on retailer
H2: Service quality has positive influence on customers
trust on retailer
H3 Perceived value has positive influence on customers
satisfaction
H4: Service quality has positive influence on customers
satisfaction
H5: Customers trust on retailer has positive influence on
customers satisfaction.
H6: Customers satisfaction has positive influence on
customers store loyalty
H7: Retailer image has moderating effect on customers
satisfaction-store loyalty link
2.2 Theoretical Framework
The path diagram for the theoretical framework is shown
in fig. 1. Corresponding indicator variables are used to
measure customer perception towards the five constructs
(latent variables) that cannot be directly measured.
Academic researchers argues that the most important
driver of private brand success is the perceived quality
of products, the better the private brands positioning
in perceived quality close to the leading national band,
the better odds it is to succeed [15,1]. It rests on the
assumption that consumers always develop an
internal calculation scheme to computer the ratio of
perceived quality to the price paid in a purchase
transaction and thus become value conscious rather
than treating price sensitive and quality conscious
in isolation. They also suggest that balancing of price
and quality issue relating to the consumers attitude
toward private brands [16]. Constrained by the limit
of paper space, the question items for the indicator
variables in the abbreviated form are shown in the left
side of Table I.
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The equivalent simultaneous linear equations for the
theoretical framework are shown below:
1 = 111 + 12 2 + 1 (1)
2 = 211 + 22 2 + 211 + 2 (2)
3 = 32 2 + 3 . (3)
Perceived Retailer Image
Value
H3
H1 H7
H5 H6
Trust Satisfaction
Loyalty
H2
H4
Service
Quality
Fig. 1 The theoretical framework
Where
1 is the latent variable representing the construct
customers trust on retailer
2 is the latent variable representing the construct
customer satisfaction
3 is the latent variable representing the construct
customers loyalty toward retail store
1 ~ 2 perceived value, service quality
, the path weights of influence factors
error terms
2.3 Questionnaire Design
The survey instrument is developed in four steps: (1)
question items are borrowed from prior research articles
of similar research background from various academic
journals, (2) observation by physical presence through
the arrangement of traineeship in the hypermarket store
for the robustness of construct, contents, construct
variables operationalized, (3) design of the questionnaire
for pretest and revision, (4) collection of primary data for
use of Cronbachs coefficient alpha to cross out the
inappropriate items, and (5). test the reliability of
construct measurement system by composite reliability
(CR) and average variance extracted (AVE).
The survey instrument has two parts. The first part
includes question items representing indicator variables
to measure customers response toward these five
constructs. It employs Likerts 5-point summated scale to
measure consumers ranging from strongly agree,
moderately agree, just agree, not agree, to strongly
not agree. The second part of instrument is to collect Store workers are considerate 0.79
data relating to the demographic and socioeconomic company-wide pervasion 0.68
variables such as age, gender, education level, Trust
occupation, and income. The pretest applies ANOVA to I trust products sold here 0.83
test the significance of differences among sample groups I trust service provided 0.84
I trust the store is responsible 0.82
representing various variables. Data is collected by 0. 92 0.69
I keep close relationship with 0.81
intercept method in the vicinity of two major this store
hypermarket stores in the southern Taiwan region. The I assess this store as 0.84
first one is a multinational Carrefour hypermarket store sufficiently reliable by my
established ten years ago where private brands come past shopping experience
from a variety of independent manufactures and national Customer satisfaction
brand manufactures. The second one is the TaiSugar It is wise of me to shop here 0.83
0.88 0.70
hypermarket where private brands come from its own This store is better than others 0.80
production facilities. TaiSugar Corporation is a state-run I am satisfied with this store 0.88
Store loyalty
organization of world-renown, which has operated for
I shop here as the first priority 0.77
more than 60 years, specialized in both agricultural R&D I will recommend friend to 0.77
and biotechnology, operating its own laboratories, ranch, shop at this store
and production demises. The response rate is 86.25% I prefer product sold here than 0.87 0.91 0.67
(400 issued), and after data cleaning 345 effective any other stores
questionnaires are in place, 177 for Carrefour and 168 I enjoy service offered here 0.86
for TaiSugar. than any other stores
I will keep on shopping here 0.83
We use composite reliability (CR) and average variance
extracted (AVE) to test the reliability of indicator
variable measurement system. The preferable value for 3.2. The Model Goodness Fitting Test
CR is greater than 0.7 and VE is greater than 0.5. The
outcome of pretest justifies the reliability and validity of Table 2. The result of goodness fitting for SEM model
Model goodness
the survey instrument. Software package SPSS AMOS Preferred value Value
fitting
5.0 enables us to carry out the Structural Equation <3
CMIN/DF 2.711
Modeling (SEM) task for path analysis with latent
GFI > 0.9 0.864
variables.
AGFI > 0.8 0.832
3. RESULTS AND FINDINGS RMR < 0.05 0.030
RMSEA < 0.1 0.071
3.1 Measurement System Test [0,1] and
NFI 0.866
approaches 1
We obtained all the values of CR and VE for indicator [0,1] and
RFI 0.848
approaches 1
variables representing constructs latent variables:
[0,1] and
perceived value, service quality, customer trust, IFI
approaches 1
0.911
customer satisfaction, and store loyalty are greater than [0,1] and
0.7 and 0.5 respectively as shown in the Table 1. It CFI 0.911
approaches 1
justifies that the reliability of the measurement system
and confirm the constructs is adequate for structural The result of goodness fitting for SEM is shown in Table
equation modeling. 2. All values meet the criterion of as preferable values,
except the ratio of CMIN/DF and RMSEA, referring to a
Table 1. Reliability of the measurement system fairly good fitting for the SEM modeling.
AVE
CR
Factor Average
loading
construct
variance
3.3. Hypotheses Test
reliability
extracted
Perceived value The result of hypotheses test for H1 to H7.is as follows.
Products quality is consistent 0.80 The value of path weight between the construct of
Products are safe to consume 0.81 perceived value and customer satisfaction is 0.078 (p >
0.86 0.55
Products provide warranty 0.73 0.05) to indicate a very weak relationship; the value of
Product pricing are reasonable 0.61 path weight between service quality and customer
organizational adaption 0.79 loyalty is -0.184 (p > 0.05) to indicate very weak
Service quality negative relationship; the value of path weight between
Store keeps promise 0.72
Store workers will provide
customer trust and customer satisfaction is 0.940 (p <
0.82 0.88 0.59
necessary assistance 0.001) to indicate a strong positive relationship; the
Store workers display good
0.82
value of path weight between perceived value and store
attitude

636
loyalty is -0.062 (p > 0.05) to indicate a very weak Perceived value
negative relationship; the value of path weight between 0.579 0.12 4.81 ***
trust
service quality and customer loyalty is 0.219 (p > 0.05)
Service quality
to indicate a very weak relationship; the value of path 0.348 0.13 2.78 0.01*
trust
weight between customer trust and customer loyalty is
Customer trust 0.842 0.12 6.79 ***
-0.387 (p > 0.05) to indicate a weak negative relationship;
customer
and the value of path weight between customer satisfaction
satisfaction and store loyalty is 0.954 (p < 0.001) to Perceived value 0.134 0.13 1.06 0.29
indicate a strong positive relationship. Not all hypotheses customer
in the study are supported, except for the trust- satisfaction
satisfaction link, and the link between satisfaction and Service quality
loyalty. The summary of hypotheses test is shown in -0.285 0.12 -2.30 0.02*
customer
Table 3. satisfaction
Customer
Tables 3. The result of hypotheses test 0.55 0.09 6.15 ***
satisfaction
Estimate p
S.E. C.R. value store loyalty
weight
Perceived value *** *** refers to p value smaller than 0.001
0.444 0.07 6.00 p<
trust
0.001 Table 5 The result of hypotheses-TaiSugar
Service quality 0.614 0.10 6.21 *** Estimate p
weight S.E. C.R. value
trust
Customer trust Perceived value 0.499 0.08 6.21 ***
0.864 0.12 7.13
customer *** customer
satisfaction satisfaction
Perceived value Service quality 0.560 0.10 5.83 ***
0.068 0.09 0.76 0.45
customer customer
satisfaction satisfaction
Service quality Customer trust 0.976 0.36 2.74 0.01*
-0.171 0.11 -1.49 0.14
customer customer
satisfaction satisfaction
Customer Perceived value
0.706 0.06 10.96 *** -0.025 0.19 -0.13 0.90
satisfaction store loyalty
store loyalty Service quality -.114 0.22 -0.515 0.61
*** refers to p value smaller than 0.001 store loyalty
* refers to p value smaller than 0.05 Customer
0.896 0.11 8.36 ***
satisfaction
3.4 The Moderating Effect of Retailer Image on store loyalty
Customer Satisfaction-Royalty Link
*** refers to p value smaller than 0.001

The Group Analysis/Manage Model procedure in the 4. DISCUSSION AND CONCLUSION.

SPSS AMOS 5.0 is used to test whether the behavior of
store loyalty for customers of Carrefour is significantly The result of the overall model demonstrates that the
different from those of TaiSugar. The result is shown in perception customers develop toward the grocery
table 4. As the ratio of CMIN/DF is larger than 3, the retailers are partially in line with the well-established
result of test is significant. academic paradigm in the service industry. For both
retail stores, neither perceived value nor service quality
Table 3 The result of moderating effect test alone leads to substantial influence on customer
Model DF CMIN p value satisfaction. Trust on the retailer in terms of product
b1 = b2 1 4.793 0.029 integrity, services, localism relationship, transaction
reliability, and how store takes care of failure recovery
The path weights for model construct links regarding to wins customers satisfaction. Other factors such as
Carrefour and TaiSugar respectively are shown in the pricing, product attributes, and promotion may as well
table 4 and 5. lead to customer satisfaction. Thus, only customer
satisfaction resting on trust can develop customers
Table 4 The result of hypotheses-Carrefour loyalty toward the store.
Estimate S.E. C.R. p
weight value

637
The retailer image also affects store loyalty. The
coefficient of regression links between trust and
satisfaction; satisfaction and loyalty for TaiSugar
customers outweighs that of Carrefour customers. A
plausible explanation is that TaiSugar has been
recognized as a pioneering organization in agricultural
technology, especially in the area of sugar cane, swine
and poultry breeding, orchid flower cultivation, and
other organic products. Most private brands in TaiSugar
store are the crystallization of own R&D and facilities
production, so that manufacturer of origin is easily to be
identified, and the quality control procedure is
trustworthy, if let alone the price premium charged.
However, private brands with the retailers logo
(Carrefour) come from different sources including
foreign and local, national brand manufacturers or
independent manufacturers. Pervasive in the store are a
variety of products bearing the same logo, it arouses the
doubtfulness how this store can guarantee the product
integrity.
Limitation of this study includes the lack of category
specific investigation, sampling frames is coming from a
rural region where a particular retailer takes advantage of
intimacy out of localism, and the short supply of
demographic variables as the moderator. However,
research bias can be diminished by the multi-method
multi-trait research approach adopted in this study.
The contribution of this study is the discovery of
customer knowledge about their propensity toward
trust-satisfaction-loyalty association in terms of retailer
image. The managerial implication is that customers
proneness for risk aversion partially accounts for their
perception toward retailer image, leading to trust,
satisfaction and loyalty. Direction of further research is
to conduct research in emerging economy such as China,
India, and Russia for comparison.
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