Research Note—Are Store-Brand Buyers Store Loyal? An Empirical Investigation

Abstract

This paper tests the notion of whether high preference for store brands leads to higher store loyalty. Our work differs from the earlier empirical evidence on this issue in how we define and measure the two key constructs: store-brand loyalty and store loyalty. To measure store-brand preference, we develop a multicategory brand choice to elicit the basic latent tendency for a household to buy store brands, while controlling for other factors such as price sensitivity. The household-specific measures on store-brand preference and price sensitivity (along with other control variables) are then used to assess household store loyalty in the context of entry by a Wal-Mart supercenter in the market. Results show that store-brand buying behavior is driven by households' underlying “value trait” over and beyond what is captured by price sensitivity alone. In addition, these value-oriented households, which show high preference for store brands in the pre-entry period, shift a significantly higher level of their expenditures to Wal-Mart. These results are in contradiction to the conventional wisdom that high store-brand patronage is associated with a higher level of store loyalty. However, this finding comes with the caveat that the entrant analyzed in the paper has a well-defined “value” positioning and might not hold if the new entrant does not dominate the incumbent in the value proposition. Implications for supermarket managers in a more general context are discussed.