Building Store Loyalty through Store Brands

By Marcel CorstjensRajiv Lal
1996| Working Paper No. 1422

In this paper we study the role of the store brand in building store loyalty. Through a game theoretic approach we show how the store brand can create store differentiation leading to superior profits for the retailers. More specifically, we show that a store brand, without a cost advantage, can lead to increased store loyalty and retailer profitability. This improved profitability fundamentally hinges on two critical factors: the store brand has to be of acceptable quality and the existence of a sizeable segment of consumers who are rather averse to switching away from the manufacturer brand. We use data from several countries to support the key results of our paper.