Private-Label Use and Store Loyalty

Does private label use drive store loyalty?This question is important to retailers, as they decide how much to push private labels over national brands, and to national brand manufacturers, as they look for effective ways to both cooperate with and compete with retailers.Yet, empirical evidence of the association between private label use and store loyalty is both limited and mixed.In this study, we develop an econometric model of the relationship between a household's private label share and behavioral store loyalty.The model includes major drivers of these two behaviors and controls for simultaneity and non-linearity in the relationship between them.It is estimated using a unique dataset that combines complete purchase records of a panel of Dutch households with demographic and psychographic data.We estimate the model for two retail chains in the Netherlands --the leading service chain with a well-defined private label strategy and higher private label share and the leading value chain with lower private label share.We find that private label share significantly affects all three measures of behavioral loyalty in our study, share of wallet, share of items purchased, and share of shopping trips.And, behavioral loyalty also has a significant effect on private label share.For the service chain, we find that both effects are strongly non-monotonic in the form of an inverted U.For the value chain, the effects are positive and non-linear but do not exhibit non-monotonicity because private label share has not yet reached high enough levels.The managerial implications of this research are very important.Retailers can reap the benefits of a virtuous cyclegreater private label share increases share of wallet and greater share of wallet increases private label share.But, this virtuous cycle only operates to a point, as heavy private label buyers tend to be loyal to price savings and private labels in general, rather than to the private label of any particular chain.Keywords: private labels, store brands, store loyalty, share of wallet,