Customers\' Attitudes Towards Own Labels:

Customers' Attitudes Towards Own Labels: An Analysis of the Customers' Brand Loyalty and Attitude towards the Own Labels and in UK's Retail Sector; Case of Tesco

Academic Year 2009-2010

Tesco is the largest employer in the United Kingdom and is a leading retailer of groceries and non-food items throughout the country, as well as Central Europe, Asia and North America. The company achieved this growth due in large part through the judicious use of private brands, as well as the use of the most appropriate store format for the areas it serves. Moreover, Tesco has managed to succeed where many other retailers have failed in its introduction of home-based delivery services of groceries and other non-food items by identifying an optimum branding strategy. These successes are especially significant given the logistical issues involved in the supply chain management requirements for perishable food items and the need to keep costs low in order to compete in this growing but still niche market. Given its well developed and mature infrastructure, this study examines how Tesco is well positioned to continue its growth and success in the future based on a commitment to identifying optimum branding strategies for its different store formats as well as the regions in which it competes.

Table of Contents

Chapter 1: Introduction

Statement of the Problem

Purpose of Study

Importance of Study

Scope of Study

Rationale of Study

Overview of Study

Chapter 2: Review of Related Literature

Chapter 3: Methodology

Description of the Study Approach

Data-gathering Method and Database of Study

Chapter 4: Data Analysis

Chapter 5: Conclusions

Chapter 6: Recommendations

An Analysis of the Customers' Brand Loyalty and Attitude towards the Own Labels and in UK's Retail Sector: The Case of Tesco

Chapter 1: Introduction

Over the past 3 decades, the concentration of retail grocery stores and the competitive environment have significantly increased throughout Europe and the U.K. (Marsh & Brester 2004). In response to these increasingly competitive conditions, the retail grocery industry has embraced a number of technological innovations to help improve firm performance and profitability, including management information systems which have increased the efficiencies of product invoicing, employee payrolls, logistics, warehouse management technologies, universal product codes, point-of-sale scanning, and improved coordination / integration with food chain suppliers (Marsh & Brester 2004). In addition, the judicious use of private branding strategies has been used to good effect by many grocery retailers, including Tesco with primary operations in the U.K., but which increasingly extend to Asia and North America as well. Tesco has managed to grow from relatively modest beginnings to become the largest employer in the United Kingdom today, and the company's growing presence abroad is clear testament to the effectiveness of its branding strategies. Customers' brand loyalty and attitude toward private brands is based on a wide range of factors that transcend mere pricing considerations, though, making it an interesting and timely area of study today based on the issues that are discussed further below.

Statement of the Problem

In recent years, consumers have generally demanded improved food quality, better food safety, additional food services, as well as more diverse value-added products from their retail grocery stores, while grocery retailers are forced to incur extra costs to satisfy these demands (Marsh & Brester 2004). Because most retail grocery stores operate on very small profit margins, any diminution of these profits must be offset by corresponding cost-saving initiatives. For example, Marsh and Brester note that, "Retail grocery stores have become larger to take advantage of distribution and labor efficiencies, and to compete with national store chains" (2004, p. 47).

While some efficiencies of scale can be realized through the efficient management of a retail grocery chain's logistical requirements and supporting infrastructure, other approaches to improving profitability can include various branding techniques that differentiate a chain from its competitors, but even these require careful analysis of the logistical requirements that are involved. For instance, according to Lynch, Keller and Ozment, "Retail grocery chains are either cost leaders or differentiators. In the retail grocery business, logistics is of paramount importance due to the low margins, numerous inventory turns, and perishable nature of product" (2000, p. 47). In this environment, identifying opportunities to promote increased profitability in a retail grocery store's operations represents a timely and important enterprise, which is the purpose of this study as described further below.

Purpose of Study

The purpose of this study was three-fold as follows:

1. To deliver a comprehensive review of the relevant literature concerning customers' brand loyalty and attitude towards the own labels in general and in the U.K.'s retail grocery sector and at Tesco in particular;

2. To provide an analysis of the quantitative data concerning the effectiveness of Tesco's private branding strategies; and,

3. To provide a synthesis of the qualitative and quantitative data that emerged from the research in order to develop salient conclusions and provide informed recommendations for areas in need of future study.

Importance of Study

This study is important for several reasons. In the first place, an increasing number of companies have been shown to be willing to expend the resources that are required to build strong brands based on the benefits that accrue to companies and consumers alike because brand names serve to assist customers in identifying products in which they may have an interest (Hu & Chuang 2009). According to Hu and Chuang, "As consumers' lives become more rushed, brand names simplify consumer's decision making and reduce purchasing risk. Second, brands also represent a signal about product quality and functions to the customers. Consumers often learn about brands through past purchase experiences, word of mouth from friends, or from other media, so they can identify which brands satisfy their needs and which ones do not" (2009, p. 129).

Likewise, brands provide a number of benefits for the companies involved as well. For example, Hu and Chuang emphasize that, "Brand names and trademarks are both important intellectual properties for a company, which protect unique product features from being copied by competitors. Next, brand loyalty provides predictability and security of demand for the firm and creates barriers to impede other competitors to enter the market. In general, brand loyal customers are willing to pay a higher price for desired brands" (2009, p. 130). Beyond the foregoing benefits, companies in general and retail grocery store chains in particular can gain competitive advantage through various branding strategies. In this regard, Hu and Chuang conclude that, "Brands are enormously valuable pieces of legal property that can influence consumer behavior, and provide the security of sustaining future revenues to their owner. Thus, building and managing brands awareness and loyalty are perhaps a marketer's most important tasks" (2009, p. 130).

Scope of Study

The review of the literature extends to the global retail grocery industry, but there was a specific focus on the grocery retail sector in the United Kingdom and Tesco's branding practices in particular.

Rationale of Study

Even during periods of economic downturn, some industries are more resistant to recessionary forces because of the relative elasticity of the demand for their products and services. For example, consumers must continue to purchase groceries during recessionary periods, but it is reasonable to suggest that they will purchase fewer high-end items and will become more selective in their choice of retail stores for their grocery needs. In this competitive environment where profits may be razor thin, retail grocery stores that have the most efficient operations will enjoy the competitive advantage needed to weather the economic downturn periods. One such retail grocery store chain is Tesco, whose superstores have become a ubiquitous throughout the United Kingdom in recent years.

Overview of Study

This study used a six-chapter format to achieve the research purpose stated above. Chapter one introduced the issues under consideration, including a statement of the problem, the purpose and importance of the study, as well as its scope and rationale. Chapter two of the study was used to deliver a critical review of the relevant and peer-reviewed literature concerning the retail grocery industry in general and Tesco in particular. Chapter three more fully describes the study's methodology, including a description of the study approach, the data-gathering method and the database of study consulted. Chapter four consists of the analysis of the quantitative data developed during the research process and the penultimate chapter presents the study's conclusions. Finally, salient recommendations are presented in chapter six.

Chapter 2: Review of Related Literature

Background and Overview

The literature is consistent in emphasizing the importance of retailing practices on consumer lifestyles and the larger society in which they live and work. For example, according to Fernie, Fernie and Moore, "Retailing impacts upon our lives. In terms of economic significance, the sector makes a major contribution to the Gross Domestic Product of countries (around 10.5 per cent in the U.K.)" (2003, p. 3). This major impact is due in large part to the fundamental changes that have characterized the retail sector in recent years. In this regard, Fernie et al. note that, "Moreover, retail organizations are no longer small-scale family-run concerns but powerful multinational corporations. Tesco, the largest UK company, employs 260,000 people. This corporation has global aspirations and has come a long way in a relatively short period of time" (2003, p. 3).

According to the company's promotional literature, the employment figure for 2003 has almost doubled today, as shown in Table 1 below.

Table 1

Current Key Figures for Tesco

Category

Statistic

Staff worldwide

472,000

Staff in the UK

287,669

Stores worldwide

5,008

Total stores in the UK

2,545

Extra

13

Homeplus

Superstore

Metro

Express

OneStop

Number of markets

14

Which markets

China, Czech Republic, Hungary, India, Japan, Malaysia, Poland, Republic of Ireland, Slovakia, South Korea, Thailand, Turkey, UK, USA

Note: Facts correct October 2010

Source: Tesco Quick Facts 2010

Figure 1. Respective Number of Tesco Retail Formats in the U.K.

Source: Based on tabular data in Tesco Quick Facts 2010

A brief summary of the company's guiding corporate strategy is provided in Table 2 below.

Table 2

Summary of Tesco's Guiding Corporate Strategy

Strategic Area

Description

Core UK

The UK is our biggest market and the core of our business. We aim to provide all our customers with excellent value and choice.

Community

Making Corporate Responsibility integral to our business is essential in applying our values as a responsible business. We believe it is also an opportunity for growth.

Non-food

Our aim is to be as strong in non-food as in food. This means offering the same great quality, range, price and service for our customers as we do in our food business.

Retailing Services

Tesco has followed its customers into the growing world of retailing services, aiming to bring simplicity and value to complex markets. All our customers are different, and their needs are continually changing. That's why we continue to offer more than one way to shop:

Tesco Personal Finance (TPF): Tesco Personal Finance recently celebrated its eleventh anniversary and over the last decade it has grown to be the UK's most successful supermarket bank. Customers have a choice of 28 products ranging from savings accounts and credit cards to car and travel insurance.

Tesco.com: Since launching in 2000, Tesco.com has gone from strength to strength, with over 1 million active customers now choosing to buy online. Shopping for groceries online has been a revolution for people leading busy lives and those without access to transport.

Tesco Telecoms: Tesco Telecoms offers simple, straightforward telecoms services with great value tariffs. Customers can benefit from our mobile network, home phone service, internet access and an internet phone service. Tesco Telecoms also offers a wide range of telecoms products in store and online.

International

Tesco is an international retailer and wherever we operate we focus on giving local customers what they want.

Source: Our strategy 2010, p. 3

At Tesco, this core strategy is supported by specific corporate goals for growth. In this regard, Child reports that Tesco has succeeded where a number of competitors have failed: "Many retailers have tried and failed to establish themselves outside their home markets. Likewise, some retailers have gone astray trying to exploit Internet shopping. As a result, Tesco, the United Kingdom's biggest grocer, has attracted considerable attention because of its ambitious overseas strategy and its successful online home delivery service" (2002, p. 135). As an overall brand, Tesco has expanded its image among an increasingly diverse consumer base in recent years in ways that traditional retail grocers have been unable to match. For instance, Child also notes that, "Relying on sales of nonfood items and on international sales -- particularly in emerging markets -- for an important part of the company's future expansion, Tesco has delivered one of the fastest organic growth rates of any major retailer in the world. Its nonfood business rose by 18% in 2000-01, and its international business, which began with a launch in Hungary in 1994, now accounts for more than 40% of the group's floor space" (2002, p. 136). Besides non-food offerings, Tesco has been in the vanguard of retail grocers with online offerings including home delivery. In this regard, Child adds that, "Tesco also happens to be the undisputed world leader in Internet grocery sales (www.tesco.com). Its online home delivery service is now profitable, Tesco says, and it has struck a deal in the United States with Safeway, which will use Tesco's system for a home-shopping service" (2002, p. 136).

On the one hand, this impressive corporate performance is attributed to Tesco's leadership team's emphasis on efficiency: "Underpinning Tesco's success is excellent management and an obsession with operational efficiency and productivity gains, which the company uses to keep prices low or to improve service rather than to increase its operating margins. Despite this impressive record, Tesco is still relatively small compared with the likes of Carrefour and Wal-Mart, but it is growing faster" (Child 2002, p. 136). On the other hand, the company's rapid growth has involved a much broader range of store formats, as well as its online offerings, each of which involves different considerations as they relate to an optimum branding strategy.

This enormous range of retailing formats described in Table 1 above, though, clearly provides Tesco with countless branding mix opportunities, and the profitability of these mixes can be fine-tuned to provide superior returns on investment if the process is approached properly and administered carefully. For example, Tesco's "one-stop" format provides the opportunity to promote additional private brands that may be more profitable while restricting the choice for competing brand names, while the company's "superstore" format may require a more complete mix of brand offerings. Given the diverse cultural settings in which Tesco competes, identifying this optimum mix assumes some truly daunting aspects, but it is clear that Tesco has achieved superior results where others have faltered and these issues are discussed further below.

Branding Strategies at Tesco

As noted above, Tesco has become the largest employer in the U.K., making it a major actor in the domestic grocery retailing sector. This level of performance has been facilitated by the organizational practices that Tesco's leadership has used to guide the company into the 21st century that have responded to shifts in consumer purchasing behaviors. One of the more visible and therefore prominent organizational practices used by Tesco has been the physical environment in which retail sales are conducted. Recent trends in retail grocery stores have included the introduction of so-called "superstores" that generally range between 2,325-4,650 square meters in size; this retail format was introduced during the mid-1960s and was specifically developed for grocery retailing purposes (Bromley & Thomas, 1993). According to Bromley and Thomas, "Development was most active between 1977 and 1990; by the early 1990s, 600 such stores transacted 20 per cent of the British grocery trade [and] a Tesco Superstore is an example" (1993, pp. 7-8).

These innovations in the physical retailing environment have been directly linked with Tesco's overall strategy to sustain and grow its business operations in Europe and abroad. Clearly, though, the company has enjoyed the advantage of having the resources that were required for such corporate adventurism, but Tesco has remained focused on the logistical aspects of their operations in order to ensure a reasonable return on their investment of resources. In this regard, Lynch et al. (2000) emphasize that, "Logistics capabilities are significantly linked to strategy. Resources (capabilities) are necessary in order for firms to pursue a given strategy. This seems to be the case, at least in the retail grocery industry [and] certain activities a firm performs will lead to sustainable competitive advantage" (p. 48).

Superior logistics capabilities therefore involve identifying a product mix that provides the most profit per square foot of retail space while satisfying certain minimal criteria with regards to consumer expectations for different brand availability and price. Based on their analysis of profitable marketing practices in the retail grocery industry, Lynch and his associates (2000) identified two basic successful strategies: (a) cost leadership and (b) differentiation. According to these researchers, "Although the links between strategy and performance have been examined, the results are not always consistent. In our study, strategy appears to be positively linked to performance. Therefore, it is important for a firm to adopt and pursue a generic strategy" (Lynch et al. 2000, p. 48).

A generic strategy in this context involves the provision of brands that provide cost leadership as well as differentiating the brand from its competitors. According to the company's published "strategy": The strategy to diversify the business was laid down in 1997 and has been the foundation of Tesco's success in recent years. The new businesses which have been created and developed over the last 12 years as part of this strategy now have scale, they are competitive and profitable - in fact we are now market leader in many of our markets outside the UK" (Our strategy 2010, p. 2). In this regard, Tesco's generic strategy success is also driven and supported by a top-down inspired organizational culture that embraces these cost leadership tenets as part of its overall business strategy. In this regard, Parnell and Lester add that, "[Tesco's] cost-control-oriented corporate culture, which includes a reliance on low-cost, part-time labor, keeps costs down" (p. 14).

One of the more significant findings that resulted from the study of the retail grocery industry by Lunch et al. (2000) was that superior firm performance was capable of being attained through either basic strategy (i.e., cost leadership or differentiation). In this regard, Lynch and his colleagues conclude that, "Conventional wisdom seems to dictate that cost-saving measures and a low-price strategy are the only avenues to good overall firm performance. Yet, we found that the link between performance and cost leadership is no stronger than the link with differentiation. Because it appears that both strategies are equally important to performance, determining the logistical capabilities to be employed in pursuing either strategy becomes even more intriguing and important" (2000, p. 49). These findings indicate that retail grocery chains have much to consider when formulating branding strategies that will provide them with the best return on their investment of resources which, by definition, are scarce.

With regards to Tesco, the company's superstore format provides a number of logistical advantages for Tesco as well as for the customers it serves throughout the U.K., Asia and the United States. As Parnell and Lester emphasize, "Distribution and supply chain efficiencies enable the retailer to offer exceptionally low prices that are difficult for rivals to match. Its wide product assortment -- especially in superstores where both groceries and general merchandise are offered -- generates store traffic and supports a one-stop shopping experience for the consumer" (p. 14). Therefore, the so-called superstore format requires a broader mix of brands, many of which are in direct competition with a retailer grocery chain's own private brands. The superstore format also demands a distribution network that is capable of supporting the provision of a wider range of brands, including Tesco's own, on a reliable basis. Because Tesco's superstore deployment is supported by a comprehensive network of distribution centers and an efficient supply chain operation, it is possible for the company to realize a profit on all of the brands it offers in its superstore format.

By contrast, smaller retail store configurations, including so-called "neighborhood marts," provide a much smaller range of brands, with a higher concentration of a retail grocery chain's own brands which typically generate higher profits, ceteris paribus. The decision concerning which mix of brands will be offered is therefore based in large part on what type of logical infrastructure is needed to support this mix. In Tesco's case, this infrastructure is well developed and mature. For example, according to the company's Web site, Tesco has followed a thoughtful and consistent strategy for growth over the years that has directly contributed to its success in the United Kingdom. This consistent growth has been attributable in large part to Tesco's ability to identify changes in consumer purchasing behaviors and provide responsive and timely solutions, including the provision of financial services, non-food and telecoms to its offerings, as well as its increasing expansion into overseas markets including Central Europe, Asia, and the United States (About Us 2010).

This expansion has also required a careful analysis of where different brands can be secured, at what price and in what quantities. It would make little sense for even a corporate giant such as Tesco to promote its own private brand for a product in a region where its scarcity would make its production cost prohibitive. By sourcing its grocery items needs to the different regions where prices may be more competitive, Tesco has achieved some important cost savings on purchases that the company has passed on to its customers. In this regard, Campbell notes that, "The past 20 years has seen a whole lot of work done on the supply side of the value chain. Goods and components that once cost a lot of money now cost next to nothing, either because they've been outsourced to regions with lower labor costs or because they're made more efficiently" (2006, p. 2).

Although Tesco's has enjoyed a great deal of success in its domestic market, the company's expansions in Asia and North America have experienced even better success in many cases. In this regard, Tesco's Web site emphasizes that, "The new businesses which have been created and developed over the last decade as part of this strategy now have scale, they are competitive and profitable -- in fact, the International business alone makes about the same profit as the entire Group did a decade ago" (About Us 2010, p. 2). Taken together, it is clear that Tesco's business strategy has contributed to the company's success in recent years, but like almost every other type of retail enterprise, Tesco is confronted with some significant challenges in administering an efficient supply chain for these geographically diverse and far-flung locations. In this regard, the company's annual report and financial statement notes that, "Multi-format capability is developing well across our International network. With our large destination stores now established and with first class supply chain infrastructure in place or planned for most of our main markets, a growing part of our new space is coming through our smaller formats, such as compact hypermarkets, discount supermarkets and convenience stores" (2006, p. 8).

In terms of its smaller retail formats, Tesco's supply chain management needs are minimized to a smaller geographic area by decentralizing their operations. Although the company has used its superstore format in a highly successful approach in regions where there is sufficient population and consumer concentrations to support them, the company's leadership team has also determined that there is no "one-size-fits-all" approach that is effective for all of the geographic regions in which it competes. For example, the company's annual report notes, "Smaller formats serve the needs of customers in smaller catchment areas and they also cost less to build. For example, we now have Express stores in six countries outside the UK, with 139 stores in Thailand alone, and discount supermarkets in seven countries, including openings in the Czech Republic, Malaysia and Thailand. Of the 419 stores planned to open outside the UK this year (including the Edeka stores), 338 will be in smaller formats" (p. 8). The company's recent branding initiatives have focused on increasing direct sourcing from suppliers in Asia, but this practice has resulted in ethical considerations. In this regard, the company's annual report points out that, "We do business with a large number of own-brand suppliers in over 90 countries and the supply chain is made of complex relationships -- from individual farmers and growers through to processors, manufacturers and distributors. There is a risk that any part of the supply chain might not adhere with the Group's high ethical standards, which are set out on our website" (p. 15).

In an effort to minimize the adverse public backlash that might result from a scandal involving its suppliers overseas and the damage such publicity could cause its brands, Tesco has taken steps to ensure that its vendors subscribe by a set of ethical standards. In this regard, the company's annual report also notes that, "To minimise this risk, we have a partnership approach to working with suppliers, providing a certain and growing market for their products, regular payments and payments on time, and our commitment to sharing our understanding of customers and changing consumer behaviour. We also have a programme of risk assessment and internal and external auditing of suppliers on ethical issues to complement our compliance work on product safety, quality and capability" (p. 15).

While each of the business formats used by Tesco has a number of corresponding branding decisions involved to identify an optimum mix, this analysis has become particularly challenging with respect to the company's online offerings. In recent years, Tesco has increasingly promoted its home delivery of groceries, creating another link in its supply chain management needs. As Boyer, Frohlich and Hult (2005) point out, "As leading Internet retailers such as Amazon and Dell have shown, there is a market for products ordered online and delivered to customer homes. Yet, delivering products directly to customers is a challenging task -- particularly with groceries" (p. 9). The branding decisions that are involved in Tesco's online offerings include many of those that are involved in traditional brick-and-mortar facilities, but involve some that are more pronounced. For example, branding choices for online sales that involve perishable items are particularly challenging, but Tesco appears to have identified an optimum mix of products and services to offer online, making it possible for the company to successfully deliver groceries to consumers where others might fail. One such enterprise was Webvan, described by Boyer et al. (2005) as a "$700 million failed effort," but Tesco remains committed to pursuing this growing market.

Remarkably, the marketers at Tesco appear to have done their homework before they ever launched their online offerings to ensure that everything worked the right way the first time to ensure customer satisfaction, promote repeat business and encourage word-of-mouth advertising. Indeed, even though its online sales unit was launched during the so-called "dot.com" boom of the late 1990s when numerous enterprises established online presences without sufficient planning or organization, Boyer and her associates emphasize that "Tesco appears to have got it right."

Rather than resting on their laurels and continuing to pursue refinements in its branding mixes in their traditional business formats, Tesco has modeled the way for others by identifying a potential market and delivering a solution -- and they did this early on making them a first mover in this growing market niche. In this regard, Holmstrom, Hoover, Louhiluoto and Vasara (2000) report that, "By tweaking the demand-supply chain, suppliers can offer their customers completely new value propositions and improve their own operations -- without having to weigh the benefits of customer service against its cost" (p. 63). Clearly, this is how Tesco approached the launch of its online grocery home delivery services. The company's success in its online grocery business model, though, is especially noteworthy given that the retail grocery supply chain model that had been in place had not been refined to any significant extent for more than a century (Boyer et al. 2004). Indeed, Dennis, Fenech and Merrilees report that, "Customer relationships' is an area that successful bricks retailers such as Tesco (www.tesco.co.uk) have used to gain a major lead over competitors" (2004, p. 7). Moreover, Tesco has extended its it solutions to its entire supply chain in ways that allow it to develop optimum branding mixes. For instance, Dennis et al. add that, "Increasingly, retailers such as Tesco are allowing Internet access to their suppliers for realtime Electronic Point of Sale (EPoS) data. Trusted supplier partners can thus respond more quickly to changes in customer demand" (2004, p. 8).

In reality, identifying the optimum branding mix for Tesco's online service represents the cumulative total of the branding decisions that are made in each of the locations from which merchandise is collected for home delivery. For instance, in contrast to a number of its competitors, Tesco uses a fully extended supply chain management strategy for its online sales that does not require a centralized warehouse facility for order fulfillment; instead, individual items are selected from its individual stores as the need arises. This means that smaller retail formats that feature higher concentrations of private labels will contribute a higher percentage of the profitability for online sales compared to larger retail formats that offer a wider range of brand names. Fortunately, consumers who use home grocery delivery services recognize that the added convenience typically involves an added cost. For instance, according to Holmstrom and his colleagues, "Consumers want the convenience of shopping from home, but they must usually pay extra for home delivery: after all, the goods still emanate from local supermarket shelves, so retailers have no way to achieve offsetting economies" (p. 63).

Tesco's fully extended supply chain management approach, though, helps to reduce these costs by avoiding the need for specialized facilities that are dedicated solely to the company's online sales efforts. By minimizing the challenges and constraints that are inevitable in the supply chain management area in the company's home-based delivery services, Tesco has become a pioneer in the e-retailing grocery market. According to Dennis, French and Merrilees, the Tesco brand has been an important part of its success in the emerging online retail grocery sector: "The computing, category management, supply chain and delivery systems are areas in which the early e-retailers, particularly pureplay dot.coms, have been sadly lacking, affecting trust, image, and customer care and service. The stronger brands with greater customer franchise have higher sales and potentially higher profit - for example, Tesco (www.tesco.com)" (emphasis added) (2004, p. 14).

This branding strategy appears to have significantly contributed to the company's success by minimizing capital investment in what continues to be a growing but niche market; despite the fact that Tesco delivered in excess of $600 million worth of groceries and household items from its individual stores directly to customers' homes to date, this amount still represents just 1.5 per cent of the company's overall revenues (Boyer et al. 2004). Despite the relatively miniscule contribution level of Tesco's online sales to the company's overall revenues, it is apparent that the effective use of its logical infrastructure has been responsible for its success across the board (Boyer et al. 2004).

The company is quick to point out that none of these efficiencies would have been possible without the effective integration of supporting information technology (it) solutions. According to Tesco's annual report, its online sales business unit naturally remains highly dependent on it solutions, but virtually all of the organization has implemented it solutions that provide valuable insights concerning which branding approach would be best suited for a given region. In this regard, the company's annual report emphasizes that, "The business is dependent on efficient Information Technology (it) systems. Any significant failure in the it processes of our retail operations (e.g. barcode scanning or supply chain logistics) would impact our ability to trade" (2006, p. 17).

Private Labels vs. Name Brands

The foregoing issues are particularly important with respect to Tesco's branding strategies because the company uses this data to fuel its customer relationship management processes as well. By analyzing consumer purchasing patterns, Tesco is able to use its it capabilities to identify trends and modify its sales and purchasing forecasts concerning which branding mix is most appropriate. In this regard, Holmstrom and his colleagues emphasize that, "Manipulating the demand-supply chain does more than improve customers' performance and benefit suppliers; suppliers can also use this approach to discover completely new value propositions for customers. Suppliers can thus extract new value from current accounts by escaping the commodity trap (and also, in some cases, find new customers)" (p. 63).

It is clear that Tesco has used this customer behavior data in useful ways to identify optimum branding mixes. This branding mix analysis requires a critical evaluation of the logistical aspects that are involved in bring a given brand to market in a given region, and what distribution systems are required to support this branding mix. Not surprisingly, given the efficiencies of scale that can be realized in a larger store format such as the superstore featured by Tesco and some of its competitors, there has been an increase in the centralization of distribution facilities in the retail grocery industry in recent years. According to Sternquist and Kacker, "One trend in the grocery retailing industry is a trend toward central distribution systems and the elimination of the traditional merchant wholesalers. For the seven largest multiples, 80% of their sales volume goes through consolidation warehouses and distribution services, which are under their direct control. Paralleling the decline of the traditional wholesaler is an increase in the importance of integrated logistics companies" (1999, p. 37). This 80 per cent of sales volume, though, may not contribute a full 80 per cent of the company's profit, making an examination of the profitability of the remaining 20 per cent of the company's sales volume an important part of the analysis.

Improved profitability in the retail grocery industry can be achieved through centralization or decentralization, depending on the unique set of circumstances that define a given market. In some cases, private branding strategies are most appropriate. For example, Sternquist and Kacker (1999) report that purchasing practices in the retail grocery sector are centralized for three reasons:

1. To achieve economies of scale in buying;

2. To be able to employ specialized, high caliber staff in buying positions; and,

3. To enjoy greater bargaining power with suppliers.

In the United Kingdom, there is widespread consumer acceptance of private label products that influence the purchasing practices needed to support retail grocery operations. For example, according to Sternquist and Kacker, "Private label products account for 30% of packaged grocery turnover, and a large volume is needed to support this private label program. The UK is often cited as an attractive market for discount food stores, particularly from Germany" (1999, p. 39). The attractiveness of the U.K. market for private labels is due in large part to the marketing abilities of the larger grocery retailers such as Tesco. For example, Sternquist and Kacker emphasize that, "The margin for food is higher in the UK, although the reason for this difference with the continent is not necessarily greater profits for the owners. UK has been a leader in private label development. Food and beverage suppliers in the UK have become accustomed to dealing with the concentration of power in the supermarket distribution channel. UK retailers have shown extreme skills in category development" (p. 39). As noted above, larger retail grocery enterprises enjoy the competitive advantage of sophisticated consumer relationship management technologies that help them analyze consumer purchasing patterns to develop optimum branding strategies. As Sternquist and Kacker point out, "Once suppliers dismissed retailers as only knowing what sold yesterday, today the leading edge retailers have become very professional in their understanding of what will sell tomorrow. Control of store brands provides the retailer with additional market information which they can control to their advantage" (1999, p. 39).

Some observers might attribute the growth in private labels as a response to the ongoing global economic downturn, when consumers might be more inclined to focus on price rather than a specific name brand. In this regard, Sternquist and Kacker suggest that the growth in private label acceptance is more likely attributable to improved marketing practices on the part of larger grocery retailers. For instance, these authorities note that, "Is private label a response to the recession? More likely it is a result of the evolution in retailing. Data from the United States suggest that private labels increase through both economic ups and downs. Current private label programs are not focused on reducing price, but at offering higher quality for the price" (Sternquist & Kacker 1999, p. 39). Therefore, by fine-tuning its offerings of private labels with other name brands through its marketing messages, Tesco and similarly situated grocery retailers can increase the sales of their private label brands to the detriment of their competitors. According to Sternquist and Kacker, "Will private label vanish in the environment of Every Day Low Prices (EDLP)? Probably not. Private label needs a reference brand price to make its argument to consumers seem plausible. High-low pricing strategies make consumer price references difficult to follow. High-low pricing is when a retail store uses advertised specials to convince consumers that they are receiving an excellent retail bargain. EDLP of branded alternatives gives quality private label the opportunity to push weaker brands off the shelf" (emphasis added) (1999, p. 39).

Rather than simply being able to resort to one heavy-handed branding strategy or another that promotes its own private labels to the exclusion of its competitors, Tesco is walking a very fine line when it comes to its branding strategy irrespective of the store format that is involved. For example, according to Hu and Chuang, to the extent that product categories are influenced by strong manufacturer brands is the extent to which customers can easily compare price across stores for identical products. "Many customers will change stores for the particular brand," Hu and Chuang note, "patronizing another retailer if the previous retailer does not offer the particular brand or price it competitively. If customers have strong manufacture brand loyalty, they will be reluctant to change brands within the stores" (2009, p. 130). As an example, Hu and Chuang cite the case of consumers highly preferring national brands such as Procter & Gamble. "While national brands still have an edge in the customers' mind. This will reduce retailers' margins when they negotiate with the manufacturers and allow manufacturers' brand to raise prices without retailers' support" (Hu and Chuang 2009, p. 131).

Conversely, because of varying consumer loyalty for manufacturer brands, retailers enjoy a higher level of substitution elasticity in product categories (Hu & Chuang 2009). For example, Hu and Chuang note that, "If the manufacturers increase their price above their competitors, retailers are able to buy a similar brand from other alternative manufacturers easily and don't worry about losing sales in the category. This is because most customers are willing to change brands within the store, making their purchases from the brands the retailers offer" (2009, p. 132).

Beyond the foregoing, the price differential that is involved is yet another significant issue that must be taken into account in the analysis of an optimum mix of national brand and private label brands (Hu & Chaung 2009). This optimum mix depends on the power of the brand image of the retail grocery chain itself as well as the private labels that are associated with it. These trends suggest that larger grocery retailers such as Tesco are in a position to use branding strategies that produce the optimal return on investment of brick-and-mortar as well as online retailing activities in response to efforts by competitors to undercut their prices or adversely influence the perception of quality on the part of consumers. In this regard, Hu and Chuang emphasize that, "To counter the increasing popularity of private brands, manufacturer brands proceed aggressive price promotion to increase their market share. The customers, who link brand's price with its quality, or think of themselves as smart shoppers, are more probably attracted by price saving when manufacturer brands promote their products. By price cuts, manufacturer brands draw sales away and hurt private brands sales" (2009, p. 132).

This means that the marketers at Tesco must balance their promotional efforts of private labels with national brands based on the dynamic relationship between consumer perceptions of quality vs. price. According to Hu and Chuang, "At the same time, private label brands may acquire sales by continuously improving consumers' perceptions of quality. The negative perception of private brands quality is the major drawback to hinder sales increase. Upgrading the substantial quality of the merchandise, improving the packaging, reinforcing innovation are different efforts to improve quality perceptions of private brands" (2009, p. 132). Retail grocery chains and their suppliers can take some cost-effective steps to promote the perception of quality by consumers. For instance, Hu and Chuang add that, "Retailers should demonstrate that lower prices of private brands are not connected with poor quality. In improving quality perceptions, retailers should also strengthen various promotion and packaging skills" (Hu & Chuang 2009, p. 131).

In some cases, though, it may not be in Tesco's best interests to promote a certain private label in a given store format based on a wide range of social and cross-cultural factors that may not be readily discernible. In some cases, the optimum branding strategy will provide a mix of lower prices as well as higher quality. For instance, Hu and Chuang cite the case of Costco as a good example of this branding strategy for its private labels: "Costco's operating strategy is to offer products to their members with lower prices and higher quality than other retailing channels. Besides, Costco offers a wide variety of product categories, with only limited national or private brands within each category. This practice enables Costco to produce high sales volumes and rapid inventory turnover" (2009, p. 131). In other cases, however, it might be in Tesco's best interests, from a profitability perspective, to promote a higher concentration of private labels, as well as its own house brands. This appears to be especially true where Tesco's enjoys a solid reputation and a loyal consumer base. For example, Hu and Chuang also note that, "The process of purchasing goods is not all analytical. Shoppers' attitudes toward national brands and private labels are influenced by many factors. There are many issues that retailers must deal with strategically. Retailers must decide their branding strategy. Should they purchase famous manufacturer brands to what extent? Or should they create private brands with their own label on it as their goal?" (2009, p. 131).

Therefore, identifying the optimum branding strategy for a given store format or online service from this strictly pragmatic perspective requires determining which mix produces the most profit. As Hu and Chuang conclude, "The issue that private brands should account for what percentage deserves further research. Therefore, future study is needed to investigate what percentage of private brands will have the most significant effect on retailers' profits. The attempt should be made for retailers to set up the best branding strategy" (2009, p. 131). This attempt to identify the optimum branding strategy also forms the focus of this study, the methodology of which is described further below.

Chapter 3: Methodology

Description of the Study Approach

Based on a review of the available research methodologies, it was determined that a mixed methodology was best suited to achieving the study's guiding research purposes where were as follows:

1. To deliver a comprehensive review of the relevant literature concerning customers' brand loyalty and attitude towards the own labels in general and in the U.K.'s retail grocery sector and at Tesco in particular;

2. To provide an analysis of the quantitative data concerning the effectiveness of Tesco's private branding strategies; and,

3. To provide a synthesis of the qualitative and quantitative data that emerged from the research in order to develop salient conclusions and provide informed recommendations for areas in need of future study.

To satisfy the first research purpose, a qualitative review of the relevant peer-reviewed and scholarly literature was conducted in chapter two above. This approach is congruent with numerous social researchers who emphasize the need to review the existing body of knowledge concerning a given topic before formulating opinions or developing conclusions (Neuman 2003). For instance, Fraenkel and Wallen report that, "Researchers usually dig into the literature to find out what has already been written about the topic they are interested in investigating. Both the opinions of experts in the field and other research studies are of interest. Such reading is referred to as a review of the literature" (2001, p. 48). In fact, Gratton and Jones (2003) suggest that a critical review of the relevant literature is an essential element in virtually all types of modern research. "No matter how original you think the research question may be, it is almost certain that your work will be building on the work of others," Gratton and Jones points out (2003, p. 51). Besides developing an overview of the existing body of knowledge, a well conducted literature can also help identify gaps in the literature. For instance, Gratton and Jones add that, "It is here that the review of such existing work is important. A literature review is the background to the research, where it is important to demonstrate a clear understanding of the relevant theories and concepts, the results of past research into the area, the types of methodologies and research designs employed in such research, and areas where the literature is deficient" (p. 51). Besides identifying gaps in the literature, Wood and Ellis (2003) report that there are a number of other valuable outcomes that can be achieved with a well conducted literature review, including the following:

1. It helps describe a topic of interest and refine either research questions or directions in which to look;

2. It presents a clear description and evaluation of the theories and concepts that have informed research into the topic of interest;

3. It clarifies the relationship to previous research and highlights where new research may contribute by identifying research possibilities which have been overlooked so far in the literature;

4. It provides insights into the topic of interest that are both methodological and substantive;

5. It demonstrates powers of critical analysis by, for instance, exposing taken for granted assumptions underpinning previous research and identifying the possibilities of replacing them with alternative assumptions;