Brand loyalty is the preference of the consumer to buy a particular brand in a specific product category. 'Brand loyalist have the following mindset: "I am committed to this brand', "I am willing to pay a higher price for this brand over other brands" and "I will recommend this brand to other" ' (Giddens, 2002). Greater loyalty leads to numerous benefits such as an improved market share, decline in marketing cost and improved opportunities for brand extension to name a few (Martin evans). The Business Cycle Dating Committee of the National Bureau of Economic research determined that in December 2007 the U.S. economy reached its peak in economic activities. The peak marked the end of the expansion period that began in November 2001 and the start of the recession episode. Recession is a considerable decline in all economic activity which affects employment, production and real income spread over the economy.
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The recession has forced many consumers to prioritise and cut back spending. 'But how will consumers cut back and by how much, will vary immensely by brand and by category'. The money consumers spend on various brands in different product categories would vary person to person but one thing that remains constant is that each one evokes a set of positive feelings like powerful, confident, young, happy, stylish etc. Consequently, for a brand to do well in an economic downturn, it is vital for the brand to do more than just satisfy a need or service. It must create and maintain an emotional connection with its customers which would induce positive feelings in them and hence the consumer will keep coming back for more (Isakovich, 2008).
In this regard, this research proposal would answer a few questions regarding the effects of recession on brand loyalty of consumers in the U.S. Firstly, how store brands have become more popular than name brands in supermarkets. Lastly, how luxury brands have benefitted even through recession. The structure of the proposal would include methodology, its literature review, research techniques, research time-table and a conclusion.
Research methodology is a system of principles and methods of procedure followed by a researcher of any discipline. There are several paradigms of research methodology. 'The most quoted definition of paradigm is Thomas Kuhn's (1962, 1970) concept in The Nature of Science Revolution, i.e. paradigm as the underlying assumptions and intellectual structure upon which research and development in a field of inquiry is based.' The main components of a paradigm are ontology, epistemology and methodology. Under these comes the comparative study of different approaches like positivism, interpretivism and critical theory.
Ontology is reality and the state of being. It is how things exist in the world. It is how we view objects in studies (Lecture 2). Reality can be subjective or objective. For example are people with free will wholly responsible for their actions or is life predetermined by situations. Subjectivists believe that something comes into existence only when one experiences it and gives it meaning. They believe that people have their own beliefs assumptions and perceptions so they experience realities in different ways. While objectivists consider that reality is independent of those who exist in it. From their point of view people react to situations in a predictable way since their behaviour is a part of the material world these can be determined by causes (Hatch, 2006).
There are a few assumptions which have to be explained in order to carry out this research:
- Store brands also include private-label brands
- Luxury brands are the companies which sell true luxury commodities.
- In this study hypermarkets are also taken into account.
- Recession is still prevalent but the economy is improving so the study is of when it was at its worst.
- Brand loyalty will be restored to its original state once consumers have disposable income to spend.
Epistemology is the theory of knowledge in which we study how we know the world (Lecture 2). It basically investigates and answers questions like how do people generate knowledge? How do we discriminate knowledge (for example: good from bad or valid from invalid)? How should reality be represented? Epistemology and ontology is interlinked since answers to these questions help to forge and depend on ontological assumptions (Hatch, 2006). Epistemology can be of two categories either positivist or interpretivist. Positive Epistemology is the search of accurate representation which is objective in nature (Lecture 2). It assumes one can learn about what actually happens in organizations by categorizing and scientifically measuring the behaviour of individuals and systems. They generate knowledge by gathering data and analysing it, then develop hypotheses and propositions and finally test these against the external reality to see if they are accurate (Hatch, 2006).Positivists use more of the quantitative methods like questionnaires and surveys. Based on these methods they derive theoretical models for factual explanations. Interpretivist believe that there are multiple and subjective interpretations of the world. This means that there can be numerous understandings and interpretations of reality. Interpretive epistemology helps us to apply methods designed to understand meanings made by others and how they come to make these meanings (Hatch, 2006). The third approach is critical theory which is governed by conflicting, underlying structures -political, social, economic, ethnic, gender. Individuals can reconstruct their world by way of action and critical reflection (Voce, 2004).
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Methodology is figuring out 'how can the researcher go about finding out whatever she/he believes can be known' (Guba, 1994). There are basically two ways or carrying out research Quantitative and Qualitative. According to ontology and epistemology the methodology is chosen. So if the ontology is objective then epistemology will be positivist and methodology will be quantitative. So in positivism quantitative methods are used like surveys, questionnaires and quantitative analysis. Positivists need more data and large samples to prove their study. But if the ontology is subjective then epistemology will be interpretivist and methodology will be qualitative. Interpretivists use qualitative methods like case studies, interviews and ethnographic style of investigation. Here researchers can lose context with large samples. Many researchers combine both quantitative and qualitative methods in one study this is known as the triangulation approach.
This research proposal would be positivistic. The objects here would be independent from the external environment. Brand loyalty in customers is based on consumer behaviour which is predictable. In recession, since the disposable income of consumers have reduced it is very obvious that consumers will shift to cheaper brands in the short term. This brings brand loyalty down for the commodity or service. The research questions specifically are how store brands have become more popular than name brands and how luxury brands have benefitted through recession also.
Addressing the first question it is based on consumer preferences which can be studied using quantitative methods. For example: does Mr.Simon prefer brand A over brand B in toothpastes? These results are quantifiable and are objective. Since we are addressing the issue of recession in the U.S., we have to keep in mind and study the product type as well since luxury brands did well in these times. Since luxury brands are bought by the wealthy, these brands did well. Not that the rich were not affected by recession but there are several reasons (discussed in the literature review) that the rich could not keep away from these brands. The behaviour of the affluent is predictable and one of the major causes luxury brands are flourishing.
A study released by Boston Consulting Group on 30th April, 2008 indicated that 73% of Americans said that they intended to cut down on spending in the next twelve months. In reality, spending has been on a steady drop each month since July 2008 (Bureau of Economics Analysis, 2008).The significance of brands for consumers in the U.S. has been continuously declining. Only 27% of Americans said they were ready to trade up for a superior brand (McGregor, 2008). Research denotes that the less personal the commodity, the lower the need to stay loyal to a particular brand (Isakovich, 2008). This research will cover two broad product categories which are household items and luxury goods.
Due to the recession, one way consumers are cutting back on spending is by substituting more expensive name brands with less expensive store or private label alternatives (Isakovich, 2008). This is mostly seen in supermarkets since consumer have a wide variety of name and store products to choose from. Retailers are also sensing shopper experimentation. Supermarkets like Safeway Inc. and Kroger Co. recorded that sales of their store brands were on the rise. '"In this economy, customers are much more willing to try a private-label item, and we're seeing signs that this is happening more and more as the year progresses," Kroger CEO David Dillon said on a conference call' (Brown, 2008). Thomas Falk (CEO) of Kimberly -Clark Corp noted that the company's once famous potty training which used to be one of the biggest sales growth products in the baby aisle has reduced in it sales and consumers now prefer diapers since the diaper is less expensive (Brown, 2008).
Mintel International, a market research company by interviewing 3000 customers found out that 40% of primary household shoppers said they would buy store brand paper because it is cheaper than national brands. This is one product category where consumer strictly trade for budgetary reasons. Paper napkin, facial tissue and paper towels suffered the sharpest declines in the past year though toilet paper did well (Brown, 2008). Laundry habits were another sector in which change in consumption patterns was seen. Consumers shifted to cheaper detergents and softeners this is a rare shift since it is one of the most brand loyal among product categories (Brown, 2008).According to Nielson Co. private label soaps and other bath products did very well and were up by 23% and skin care products was up by 16%.
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It is obvious that lower incomes consumers were hit the most and reacted to changes quickly by changing to store brands. Upper income consumers have also started reacting to prices. According to a survey conducted by IRI consumers with household incomes of $100,000 are making considerable changes. A report 'Shopper in crisis' found that upper -income consumers had reduced spending on nonessential groceries by 41%. In another IRI survey of 1000 respondents of all income levels, 52% of consumers said they try to make personal -care items last longer and a quarter of them share these products with household members (Brown, 2008).
Nielson reported from late November 2008 that private label brands grew in the U.S. to $81 billion that would a 10% growth from 2007 (Wong, 2008). This study also reported that 72% of respondents viewed private label brands while 62% viewed store brands as good alternatives to name brands (Wong, 2008).
There is empirical evidence that consumers have shifted to private label or store brands and have become more loyal to name brands. In numerous of product categories people often buy the same products or brands repeatedly either as several purchases or on the same purchase, For example groceries, we buy them week after week but that does not show our loyalty towards the brands. Consumers are brand loyal when even if a cheaper option is available the consumer would still be committed to a brand due to trust (Martin evans). Riechheld (1988) argued that repeat purchasing pattern of a consumer cannot be called loyalty. Since here consumers are forgoing trust and accepting a lower quality product and are willing to change to a less expensive alternate. This aspect of research should be analysed as well. This one of the drawback of this research whether repeat purchasing behaviour can be called brand loyalty or not.
The marketing and branding are very different for luxury commodities compare to household commodities. As for luxury goods their business plan places trust designer and his artistic vision and anticipates that it will lure customers. There are several reasons why consumers purchase luxurious brands. Some of which is uniqueness of the brand /product, materialistic attitude of the consumer, quality associated with the brand, functional advantages and financial associations with luxury product (Shukla, 2009). The rich tend to fly towards quality this is reason that luxury brands will survive the recession specially the ones with heritage and a strong identity (Fellowes, 2008). The rich continue to spend on private jets, boats, cars, art, jewellery and beautiful garments. This is because they are used to it but now during recession they will buy carefully and ensure value for their money.
Prince and associates, a consulting company conducted a recent survey which saw that consumers worth more than $10million including assets intended to increase their expenditure this year on luxury goods but those with less than that will cut back (Sullivan, 2007). In these times of recession it is important that we differentiate between affordable luxury and true luxury. The affordable luxury sector especially cars, travel, perfumes and clothing which have been hit by recession. Since the broader market is subdued, as middle-income consumers have deserted luxury brands which they used to buy during the good times. This is why profits of the affordable luxury companies have significantly dropped (Clark, 2009). The Companies which come under true luxuries have actually flourished even during recession. Since only a few individuals have cash to spare they look for genuine luxury and not something everyone can own (Clark, 2009). These brands have to have an image of exclusivity and quality but at the same time they should achieve enough scale to be profitable. Brand like these have very glamorous stores and boutiques, their goods are never crammed into sales racks or sold at discount stores. Louis Vuitton, Hermes and Rolls-Royce are a few of the companies which did well even in the face of recession.
According to the Top 100 Most Powerful Brands, Louis Vuitton tops the luxury category with a enormous brand value of $19.4 billion and following behind is Hermes at $7.86 billion (Sherman, 2009). Despite the Automotive industry not doing well in recession but the luxurious car manufacturer Rolls-Royce accounted a 20% increase in sales for the year 2008. According to the company it sold 1010 cars in 2007 compared to 1212 cars in 2008 (Clark, 2009).
Providing Empirical evidence and conceptual understanding it now clear that all luxury commodities did not flourish during the economic downturn. It was only the very exclusive and unique brands that were successful. Other mid-market retailers of luxury brands did not abide by this and reduced their prices. For example Saks Fifth Avenue went on a price cut rampage last fall, offering 70% discount on several high-end brands. But stores like Louis Vuitton remained at full price. Strategies should be implemented but in such a way that the exclusivity of the brand should not be lost whether in good or bad times.
Research methodology and research methods are interlinked because methodology determines which methods to use quantitative or qualitative. In reference with this research proposal, ontology is objective which makes epistemology; positivism therefore the methodology used here would be Quantitative. Research questions under consideration are firstly, how store brands have become more popular than name brands in supermarkets and lastly, how luxury brands have benefitted even through recession. Both have a positivistic approach, so to investigate this topic, more of quantitative methods will be used. Usually both quantitative and qualitative methods are combined in order to get the fuller picture. Methodology can be only one but methods can vary.
In this study of how brand loyalty was affected in the U.S. due to recession, several research methods can be used. Some of which are interviews, questionnaires, surveys, focus groups, case studies, observation, laboratory experiments and mathematical modelling. Interviews can be structured, semi-structured or unstructured. In structured the question are preset, in semi-structured the some questions are preset the rest are spontaneous and in unstructured there are no preset questions only a framework of the research questions. Structured Interviews are more quantitative in nature. Questionnaires and survey are also quantitative method of research. These have open or close ended questions which individuals answer. There are various mediums to do a survey via mail or telephone or face to face. Written questionnaires and surveys have a coding system to analyse their results. Laboratory experiments and mathematical modelling are also quantitative methods. Case-studies and observations are qualitative methods. Being a positivist study, the research methods which will be employed will be structured interviews and Questionnaires. Structured interviews will be used to answer the first research question on store brands and Questionnaires will be utilized for the second research question on luxury brands.
To test whether store or private - label brands did better than name brands in supermarkets structured interviews would be planned with supermarket giants in the U.S. A representative of the market research team would be interviewed in order to gain insights and facts into this topic. Using questionnaires for this topic would be difficult because there is a very huge market to cover since lower, middle and upper income consumers reacted during recession. These interviews will be structured and through the telephone (convenient and less time consuming). There will be five supermarkets involved Aldi, Costco, Kroger, Safeway and Wal-mart supercenters. Interviewers will be informed that where their information will be used and all the necessary background information will be given beforehand. The length of the interview will be merely 20 minutes. There will be four questions asked. For example: has the market share of their store brand increased? According to them the cause of this increased popularity? Which products were doing very well as store brands? What does the future hold for name brands endorsed in their respective supermarkets? There will be one open ended question at the end of the interview. If possible within the level of confidentiality secondary data supporting the information just given will be requested for. This would help since there will be a back up of empirical evidence.
Questionnaires will be utilized to prove that the brand loyalty of luxury brands in U.S. consumers was intact during recession. These questionnaires will be sent out to consumers and their families worth more than ten million dollars including assets. Since the range is so restrictive in money matters there will be no age barrier. This Questionnaire will let us know that whether the ultra wealthy are ready to spend on true luxury brands or not. These Questionnaires will be emailed to suitable candidates. Assuming the response rate of questionnaires is only 20%, 5000 questionnaires will have to be sent out in order to get 1000 respondents. There will be very little cost associated with these questionnaires.
The Questionnaire will provide clear instructions for respondents and will state the purpose and aims of the study. Respondents will not have to disclose their names but they will have to disclose their age and income. There will be an income and age bracket which they will have to place themselves in at the end of the questionnaire. There would be a code to analyse results since there will be there will be all multiple choice questions. There will be one question in the end which will not be a multiple choice and the respondents will have to express their views. Examples of questions would be: Do you feel brand loyal towards any luxurious brand? Do you still purchase these brands? What is the average price range you would spend annually on these brands? How often do you purchase products from these brands? Why are you loyal to these brands? Other than the last question all other questions are multiple choice questions.
There are several problems which one can face with these research methods. Structured interviews may be expensive and time consuming. It is open to manipulation in answers by the interviewer. It might be also difficult to summarise findings. Interviewing giants can be a problem because they might not want to disclose information regarding their brand because of several reasons. A questionnaire has its own set of problems. They have a very low response rate and responses can be biased. Many of the respondents may not understand the questions. It's not certain that the intended individual filled in the questionnaire. Lastly, we cannot check responses with the respondent (Nef, 2008).
Data Protection and ethics have also become an integral part of a research topic. In this research data will be held fairly, lawfully, accurately and relevantly. It will not be used for any future purposes and will not be held any longer than necessary. Ethics will also be taken care of while dealing with individuals. Confidentiality and anonymity of respondents will be respected. The research design will be reviewed to further ensure integrity and quality. There is no forms of compulsion to take part in the research it is purely voluntary. There is no sexism or racism involved in this study.
Impulsive buying used to be one of the most distinct features of American Consumers. According to Abrahams (1997) 62% of supermarket and 80% of luxury -goods sales in the U.S. were impulsive (Zhang, 2009). But these are the two product categories in which due to recession either people are moving to name brands in supermarkets or are buying luxury goods very carefully to ensure value for money. The basic aim of this research is to show how the popularity of store brands have increased and how the luxury brand still make profits during recession. The recession has created great opportunities for store brands to advance their market position. As for the luxury brands, true luxury will always sell at its highest price so it remains exclusive and unique. Both product categories one of household items and the other of luxury commodities are very different but it shows a contrast in the market which is affected by the recession.
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