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A study of market structure: brand loyalty and brand switching

behaviours for durable household appliances.

International Journal of Market Research

| June 22, 2000 | Lin, Chinho; Wu, Wann-Yih; Wang, Zhi-Feng | Copyright

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Chinho Lin [*]

Wann-Yih Wu [+]

The main purpose of this paper is to provide an approach for analysing market structure in terms of brand
loyalty and brand switching behaviours for the purchase of durable household appliances. A three-choice model
provided by McCarthy et al. (1992) is implemented as the main technique in our approach. First, we segment the
market by measuring the proportion of brand loyal customers and brand switchers using this three-choice model.
Then we employ factor analysis and ANOVA in order to identify the key factors affecting brand loyalty and to
understand whether or not differences exist among the factors deemed important by heterogeneous customer
segments. Through the application of empirical data, collected on the refrigerator market data in Taiwan, it can
be seen that it is helpful to understand the structure and brand switching behaviours of a specific product line.

Introduction

As the product life cycle and the price increase for most durable products, consumers tend to be highly involved
and become more rational in their purchase (Anirudh, 1994). These factors, combined with others, such as the
prevalence of global marketing and the reduction of international trade barriers, have resulted in highly
competitive markets for durable products. In today's free and competitive markets, consumer preferences and
key attributes of products have become so diversified that companies that can meet these customer expectations
will prosper and grow, while those that fail to do so will decline. Allenby (1989) and Kannan & Wright
(1991a,b) suggest that the design of successful marketing strategies requires a thorough understanding of the
structure of the product market and the patterns of competition within those markets. Thus, it is crucial to collect
market data to analyse market structures, especially for durable goods that have entered their mature stage,
characterised by maturing product tech nologies, lack of product differentiation and similarity in product
qualities. The increasing competition, brand image and attitude toward brands will greatly impact on the
purchase decisions of customers. In order to position its products and brands, the manufacturer needs to
comprehend the consumer's attitude towards these factors. Therefore, it is essential to have a better
understanding of brand loyalty.

It is also useful to segment the market based on brand loyalty and to understand the needs of both loyal
customers and potential brand switchers, as well as their attitude towards key brand attributes. Based on such
findings, corporations can find ways to increase their market share by fulfilling the needs of repeat buyers. In
addition, corporations can convert brand switchers into loyal customers by focusing on certain key factors.

Thus, the intent of this study is to provide insights of the needs of two groups of customers, repeat buyers and
brand switchers, in order to help corporations develop appropriate marketing strategies. This study was carried
out in two stages: (1) segmenting the market into the two consumer groups; and (2) analysing the differences of
the two groups based on the key factors that affect consumption behaviours.

Literature review

Definition of brand and brand loyalty

The American Marketing Association defines brand as 'a name, term, sign, symbol, or design, or a combination
of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from
those of competitors' (Kotlei 1995). Aaker (1995) defines a brand on different levels, stating that a brand is not
merely the physical product, but is also composed of brand attributes, symbols, brand--consumer relationships,
benefits of self-expression, customer profiles, associations with the culture of the country of origin, and
corporate identity. In essence, the brand provides a simple means for the customer to distinguish it from its
peers. Padberg et al. (1974) stated that in the marketing process, a brand provides a means of communicating
economic information; it facilitates product recognition and protects the customer from the risks associated with
buying an unknown brand.

De Chernatony & McDonald (1998) stated that 'A successful brand is an identifiable product, service, person or
place augmented in such a way that the buyer or user perceives relevant, unique added values which match their
needs most closely. Furthermore, its success results from being able to sustain these added values in the face of
competition.' Successful brands deliver benefits to satisfy customer needs. These needs include rational needs
(such as features, packages or the price of a brand) and emotional needs (such as prestige, distinctiveness, style
or the social reassurance of a brand).

Brand loyalty refers to the consumer's behaviour of repeatedly purchasing a specific brand over a certain period
of time. This is based on past behaviour, and the local consumer is highly likely to purchase the products of a
specific brand currently and in the future. According to Aaker (1995), a powerful brand enjoys a high degree of
brand loyalty. Related brand choice theories claim that, in order to increase the sales volume or marketing shares
of a particular brand of products, it is necessary to either strengthen the brand loyalty of existing customers or
try to persuade the consumers of other brands to switch. The former is called inertia or brand loyalty, and the
latter, brand switching.

Although it is an important concept, brand loyalty measurement has not flourished in the marketing literature
(Chaudhrui, 1999). Previous studies (Cobb-Walgren et al. 1995; Baldinger & Rubinson 1996; Dyson et al.
1996) concluded that a person's attitude toward a brand is relevant to the degree of their brand loyalty. Brand
awareness and brand association are linked to consumers' brand preferences. Ehrenberg et al. (1997) asserted
that salient brands are high in both intention to buy the brand and brand loyalty. Ehrenberg (1997) stated that
since the selling brand tends to be copied quickly by competitors, competitive brands lack variation between
each other. Similar brands have different market shares because of the different number of people to whom each
brand is salient. Ehrenberg et al. (1997) further argued that the main function of advertising is to reinforce an
existing consumer's propensity to buy a particular brand.

Research on brand buying behaviour and brand switching

There are many theories that are available to explain how consumers make product and/or brand choices. The
'expectance-value model' argues that consumers assign scores to two parameters and make a mental calculation
before making a decision. The first parameter is the degree to which consumers expect a pleasurable outcome.
The second parameter is the value the consumers ascribe to a favourable outcome. This model is insufficient to
explain the phenomenon because people have limited brand information and limited mental processing
capabilities (Yi & Vanden Abeele 1989; Dabholkar 1994; Shoham et al. 1998).

The economist's view of consumer behaviour hypothesises that consumers seek information until the marginal
value that is gained is less than the cost of securing knowledge of the product. This model is also not acceptable
since in many cases consumers are unable to acquire 'perfect' information (Girish 1989; Russo et al. 1998)

De Chernatony and McDonald (1998) propose a more accepted model for brand buying behaviour. It argues that
the making of a brand purchase is determined by 'consumers seeking and evaluating small amounts of
information. Consumers rely only a few piece of information with which they feel confident to help them decide
how the brand might perform.' The amount of information that consumers seek may be determined by various
factors such as time pressure, previous experience, advice from friends and the level of involvement in the brand
purchase.

In recent years many researchers have studied brand choice and switching. The scope of these studies not only
includes the analysis of the factors that affect the consumer's brand choice and switching …

Literature Review
O verview
Today¶s market is characterised by highly competitive organisations which are all
vying for consumer¶s loyalty. Firms are faced with the challenge to maintain their own
competitive edge to be able to survive and be successful. Strategies are carefully
planned and executed to gain the ultimate goal of all i.e. company growth. There are
also internal factors, components working within the organisation which shape the
direction of the company.
Despite the economic and technological conditions that make it possible now to
promote products and services in a larger consumer market, there are other factors that
still need to be considered for a business organisation reach out easier to their target
market. Looking into the characteristics and thought processes of the people still holds
as the most significant factor to be looked into by the individuals in the field of sales and
marketing. The large scope of market can pose a hindrance to a successful marketing
strategy in terms of over generalised definition of the target or niche market.
According to Kotler and Armstrong (2001), ³consumer buying behaviour refers to
the buying behaviour of the individuals and households who buy the goods and services
for personal consumption´.
Consumers around the world are different in various factors such as age income, education
level and preferences which may affect the way they avail of goods

and services. This behaviour then impacts how products and services are presented to
the different consumer markets. There are many components which influence consumer
behaviour namely: cultural, social, personal and psychological (Kotler & Armstrong,
2001).
Coffee business, knowing the product and its demands in the market as well as
the people who will likely avail and take advantage of the offer will open the possibilities
for a campaign that will be most ideal in the market. The manufacturers of coffee
products and the advertisers should be conscious enough to know the characteristics of
their product and its demand. There are products and services that are only utilised in a
particular location because of the unique lifestyle of the people. The character of the
product, if properly studied, could be made and taken as an advantage rather than a
drawback in gaining a larger number of target market.
C o nsumer Behavi our
Consumer behaviour and consumer decision-making have become prominent
research topics in the various fields of consumer science in recent years (Fullerton,
2005; Stern, 2000; Anurit et al, 1999). Generally, consumer behaviour is defined as the
behaviour or activities that consumer engage in when selecting, purchasing, and using
products and services so as to satisfy needs and desires. Such activities involve mental
and emotional processes, in addition to physical actions (Schiffman & Kanuk, 2004,
p.8).
The important of consumer behaviour is deeply rooted in the marketing strategy.
Virtually, all decisions involved in developing an effective marketing mix for a product or
service rely on thorough knowledge of the consumers who comprise the target market
(Mullen & Johnson, 1990 p.16).
In order to understand the factors to drive consumer brand loyalty, it is necessary to
understand the basic of consumption relationships. Douglas (2006) suggested that
consumers who more involved with a particular brand are also more committed and
therefore more loyal to that brand. Loyalty level to brand, Lau et al (2006) cited from
Evans et al 1996 that there are four categories of consumers: Hard-core loyal
consumers ± buy this particular brand name; brand switchers ± choose and buy the
products or brands depending on pricing, situational factor and others, new users and
non-users.
Product characteristics include the extent to which the product's probable

Product characteristics include the extent to which the product's probable

performance can be assessed by visual inspection and its complexity, that is, the
number of decisions the consumer is required to make about it. Consumer
characteristics include experience with purchasing the product, and the kinds of criteria
the consumer uses in judging the product. The evaluative criteria are shaped by the
consumer's beliefs, attitudes, and perception of risk in the purchase.
Research on sensation and perception, product attribute, product quality, service
quality, categorisation, information search, memory, attitude and behaviour, attitude
formation and formation and satisfaction have been undertaken to understand
consumer behaviour (Kivela, 1997; Jacobs, Latham & Lee; 1998, Andaleeb & Conway,
2006). As stated by (Karjaluoto et al, 2005; Hsu& Hung, 2005; Lau et al 2006; Ankomah
& Yiridoe, 2006), attitudes towards purchase behaviour are believed to be shaped by
many factors such as direct experience with the product, information acquired from
others, price, nature of business, satisfaction, exposure to mass media

This study aims to identify the presence of such factors using the case of coffee brand
and experience of top three coffee brands in Delhi
In the current business era, the value and importance of customers is not something
that should be set aside by companies. Marketing plans and strategies would be
incomplete without paying much consideration to the customers. Customers will and
should always be a part of the agenda in any marketing plan of any company. Because
of the implications for profitability and growth, customer retention is potentially one of
the most powerful weapons that companies can employ in their fight to gain a strategic
advantage and survive in today's ever increasing competitive environment
(Lindenmann, 1999).
Basically, consumers can either be subjective or objective, testing the persuasiveness
of brand names. Coffee shops selling the coffee products also play an important role in
swaying the decisions of university or college consumers. The whole package or visual
appeal of the coffee outlet can determine sales consumers not only in coffee business
but also to other retail businesses may choose particular products/brands not only
because these products provide the functional or performance benefits expected, but
also because products can be used to express consumers¶ personality, social status or
affiliation (symbolic purposes) or to fulfil their internal psychological needs, such as the
need for change or newness (emotional purposes) (Kim et al, 2002)
Which means that consumers buy products for the benefits they reap out of it, the study
of consumer behaviour investigates the steps, or the processes involved regarding the
decisions made by the consumer. Most consumers regard the purchase of real estate to
be µhigh involvement goods' that require complex decision-making,¶ in purchasing real
estate, such as houses, apartments or units, consumers usually go through three key
processes before they consider buying, and these are: information search, evaluation of
alternatives and decision rules.
Aside from the local coffee shops and restaurants that offer traditional coffee
experience among people, international coffee brands are present among business
streets in Delhi. The popularity of brands is seen to be the most compelling factor that
contributes to the emergence of contemporary coffee experience.
The culture of coffee brands and experience is an interesting area of empirical
exploration. Thus, this research case study hopes to explore deeper on the coffee buying
behaviour among university students. As stated, its main goal is to identify the most important
factors consumers have in mind when buying coffee (i.e. brand name, taste, price, location,
convenient, atmosphere, and others) in either of the mentioned brands.

Marketing of coffee products with respect to the buying behavior of consumers has
undergone several changes over the years, especially considering the changes with the
demands of the consumers. In addition to this, technological change has also widely contributed
to the changes in the primary method of purchase, which now includes credit cards and
cashless purchases that rely on information exchange rather than the actual act of purchasing in
a store. From this, development of marketing of coffee products has already continued to evolve
way into interactive marketing of the products based on one source (Bailey & Schultz 2000) as
different methods of ensuring the consumers¶ interests are being considered for their patronage.
The marketplace has also grown to become more competitive, all vying for the attention of the
average consumer, thus their loyalty has also continued to increase over the years as they are
now the source of the companies that rely on their abilities to choose which they may wish for
their own needs and demands.
From the discussion of previous literatures, it is discovered that while coffee product and
company brand loyalty may have some similarities, there are essentially some considered
differences especially with regards to the strategies that the companies may use to endorse
their services and products. Such actions will help the company to ensure the loyalty of their
consumers, thus giving them the allowance of knowing how they will be able to improve their
services.
References:
Andaleeb, S. & Conway, C. 2006, ³Customer satisfaction in the restaurant industry: an examination of the
transaction-specific model´, Journal of Services Marketing, vol. vol. 20 (1), pp. 3-11
Ankomah, S. & Yiridoe, E. 2006, ³Organic and Conventional Food: A Literature
Review of the
Economics of Consumer Perceptions and Preferences´, F inal Report, Organic Agriculture Centre
of Canada.

A COMPARATIVE STUDY OF THE RELATIONSHIP BETWEEN

BRAND LOYALTY AND MARKET SHARE AMONG DURABLE AND
NON-DURABLE PRODUCTS
Lecturer PhD Ovidiu I. MOISESCU
Babeş-Bolyai University of Cluj-Napoca, Romania
Associate Professor PhD Andrej BERTONCELJ
University of Primorska, Koper, Slovenia
Abstract:
Marketing specialists widely accept that brand loyalty, as core component of brand equity, can
leverage several positive effects on brand commercial performance and on other dimensions of
brand equity, loyalty being both an input and an output from this perspective. Starting from the
supposition that higher brand loyalty can generate higher market share, the paper investigates
the relationship between the two, considering repurchase and recommend intentions as main
measurements of loyalty. Analyzing the data collected through a questionnaire based survey
among a representative sample of Romanian urban consumers, the paper comparatively
investigates the potential positive correlations between loyalty and market share considering
two market types and product categories: durables and non-durables. The results reveal that
 the relation is not sustained statistically in the case of non-durable, but can be modeled through
exponential functions in the case of durables.
Keywords: brand loyalty, market share, durables and non-durables, Romania

Brief literature review

The concept of brand equity and its constituencies
Although the concept of brand equity has received much attention during the last two decades,
the 90s “classics” (Aaker, Keller, Kapferer, Farquahar and others) still dominate the list of most quoted
approaches.
For David A. Aaker (1991) brand equity is a complex system including a set of brand
fundamental dimensions as brand awareness, brand perceived quality, brand loyalty and brand
associations. Moreover, he designs a brand equity measuring system – the “brand equity ten” – which
considers ten analytical dimensions to be taken into consideration in order to describe brand equity,
dimensions among which brand loyalty (satisfaction, repurchases, and recommendations) and
commercial performance (especially market share and customer base) are fundamental (1996).
Kevin Lane Keller (2008) states that brand equity should be viewed from a customer based
perspective in which brand knowledge is essential in generating differential effects on consumers’
responses to marketing actions related to the brand. Keller’s brand equity model includes two general
dimensions – brand awareness and brand image composed of brand associations, but brand loyalty
and market share are seen as fundamental outcomes of a strong brand.
Another “classic” (Farquhar, 1989) modeled brand equity through three core elements that build a
strong brand – a positive customer brand evaluation, an accessible brand attitude, and a consistent
brand image in customers’ minds. His approach is more abstract,
 but still relates, more or less directly, to brand awareness, brand loyalty and market performance
(especially sales level).
The concept of brand loyalty as core dimension of brand equity
The American Marketing Association defines brand loyalty as “the situation in which a consumer
generally buys the same manufacturer-originated product or service repeatedly over time rather than
buying from multiple suppliers within the category” or “the degree to which a consumer consistently
purchases the same brand within a product class”.
Trying to define the term, David A. Aaker (1991) considers that brand loyalty reflects the
probability that a customer will switch to another brand, especially when that brand makes a change in
its marketing mix. In Aaker’s view, brand loyalty represents the core of a brand’s equity. Moreover,
Daryl Travis (2000) considers that brand loyalty represents the meaning of brand equity.
Brand loyalty can’t be analyzed without considering its relationship to other dimensions of brand
equity like awareness, perceived quality, or associations. Firstly, all the other descriptive dimensions
of brand equity can enhance brand loyalty, as perceived quality, associations and awareness provide
reasons to buy and affect satisfaction. Loyalty could arise from a brand’s perceived quality or
associations, but could also occur independently. Yet, the nature of this relationship is unclear. On the
other hand, loyalty can induce a higher perceived quality (for example, a potential customer has a
better evaluation of a brand if that brand is perceived as having a loyal customer base), stronger
associations (the brand can be associated to elements characterizing its loyal customers), or increase
awareness (loyal customers tend to provide brand exposure to new customers through “mouth to
mouth” communication). Thus, brand loyalty is both an input and an output of brand equity and it is
both influenced by and influences the other descriptive dimensions of brand equity.
Effects of brand loyalty on marketing performance
A high degree of loyalty among customers provides the firm with a series of specific competitive
advantages, loyalty having a strong positive effect in two main directions, reducing marketing cost and
increasing the brand’s revenue.
Customers can manifest their loyalty to a brand in several ways: they may choose to stay with a
provider, and they may increase the number of purchases or the frequency of their purchases or even
both, thus generating higher revenues for the brand. They may also become advocates of the brand,
concerned by playing a powerful role in the decision making of others, thus reducing the brand’s
marketing communication costs.
It is well known that it is much more expensive to gain new customers than to keep existing ones,
especially when the existing customer base is satisfied and loyal. Even if there are very low switching
costs and low customer brand commitment, there is a substantial inertia among customers. Still,
brand loyalty must not be confounded to brand inertia. According to Bloemer and Kasper (1995),
brand loyalty implies a deep-seated commitment to brands and there is a sharp distinction between
repeat purchases and actual brand loyalty. In their published research, they assert that a repeat
purchase behavior is the actual re-buying of a brand whereas loyalty includes antecedents or a
reason or fact occurring before the behavior. Bloemer and Kasper (1995) further delineate brand
loyalty into “spurious” and “true” loyalty. Spurious loyalty represents biased behavioral response
138
 expressed over time by some decision-making unit, with respect to one or more alternate brands,
as a function of inertia. True brand loyalty includes the above, but replaces inertia with a psychological
process resulting in brand commitment.
The loyalty of the customer base reduces the vulnerability to competitive attacks. Loyal
customers perceive very little incentive to try other brands and even if they do, there is a substantial
time gap between they receive the information about the new alternative and their decision to try it.
Thus, the firm has a significant time to respond to competitive threats and knowing this, competitors
are discouraged from spending resources to attract other brands’ loyal customers.
Loyalty also generates trade leverage, as loyal customers expect the brand to be always
available generating incentives for distribution channels to reference the brand. Research has shown
that loyal customers are less price sensitive and the expense of pursuing new customers is reduced,
while organizational profitability is positively affected by the level of brand loyalty. Brand loyalty can
enhance marginal cash flow and profitability, as loyal customers often accept to pay a price premium
for their favorite brands, are easily stimulated to new usage situations and tend to increase intensively
and extensively their spending on the brand.
The marketing communication spending is also reduced as loyal customers are already confident
in the purchase decision and process information rapidly, instruments like sales promotions or
advertising being less intensive needed in this case in comparison to brands with low loyalty degree.
Loyalty also enhances the process of attracting new customers, and thus, generates increased
market share. Satisfied and loyal clients tend to provide brand exposure and reassurance to new
customers, through “mouth to mouth” communication. On the other hand, a potential customer has a
better evaluation of a brand if that brand is perceived as having a loyal customer base.
Research methodology
Objectives
This paper represents a partial dissemination of the results of a larger study conducted in order to
investigate and identify significant relationships among specific brand dimensions like brand
awareness, brand associations (perceived quality, brand personality etc.), and brand loyalty, taking
into consideration cognitive, affective and action based perspectives. The study as a whole was also
intended to statistically quantify the influence of several demographics (sex, age, income, education,
consumer personality) on the brand dimensions and components mentioned above. The aim of the
larger study was to finally depict a general model explaining the synergic impact of brand dimensions
on consumer behavior, comparatively considering two market types (product categories): durables
and non-durables.
The specific objectives of this paper were to analyze the potential link and mutual influence between
brand loyalty, on one hand, depicted through brand repurchase intention and brand recommend
intention, and brand commercial performance, on the other hand, which we considered as being well
represented through a classic market indicator, namely the brand’s market share. The analysis was
conducted in a comparative manner considering the cases of two product categories and, implicitly,
two market types – durables and non-durables – within an investigated statistical population
consisting in urban Romanian consumers.
Indicators
Considering the paper’s research objectives, certain particular indicators
139
 had to be established and used to measure brand loyalty and market share.
In order to establish operational indicators for brand loyalty, we conceptualized brand loyalty as
the probability that consumers who have bought a certain brand within the last buying decision would
chose the same brand within the following purchasing decision in a similar context given by the nature
of the product, the market type (durable or non-durable) and the specific product category within the
decision is made. We also extended the concept of brand loyalty towards the active involvement of
loyal consumers in brand promotion through brand recommendations to other potential buyers.
Therefore, the necessary data that had to be collected regarding brand loyalty were the intention
to repurchase the brand („Will you repurchase the same brand next time?”), and, respectively, the
intention to recommend the brand („Would you recommend the brand you bought last time to
others?”). The data regarding to the two brand loyalty components mentioned above were implicitly
collected in relation to the last purchased brand within each of the two market types, corresponding to
a chosen durable and, respectively, a selected consumable product category.
The indicators’ values further used in our analysis were computed as further described. Firstly,
respondents were asked to mention the most recent purchased brand, the market share of each
brand being reflected by the percentage of respondents that mentioned that brand as being the most
recent purchased one. Secondly, respondents were asked to evaluate their intention to repurchase
the most recently purchased brand, on a modified Likert scale from 1 (“will definitely not repurchase”)
to 6 (“will definitely repurchase”). The repurchase intention of each brand was computed as mean of
repurchase intentions mentioned by respondents who most recently bought that brand. Finally, each
respondent evaluated his/her intention to recommend the most recently purchased brand, on a
modified Likert scale from 1 (“will definitely not recommend”) to 6 (“will definitely recommend”). The
recommend intention of each brand was quantified as mean of repurchase intentions mentioned by
respondents who most recently bought that brand. Thus, the indicators’ values were depicted through
computing simple percentages or means for each identified brand within each product category.
Sampling and data collection
Data were collected through an ad-hoc questionnaire based survey, the instrument for data collection
including open questions in order to identify most recent purchased brands, and, respectively, closed
questions with modified Likert scales in order to assess brand loyalty from the perspective of
repurchase and recommend intentions. The alteration of the classic Likert scale, specifically
consisting in establishing six instead of five answering options, was intended to avoid neutral
responses and force either positive or negative attitudes.
The resources and time allocated to the research did not permit conducting a panel survey in order to
investigate medium or long term evolutions of the analyzed relations and limited the investigated
population to the urban consumers of Cluj-Napoca, one of the largest cities of Romania, although the
intention of the research was to analyze the urban Romanian consumers as a whole. Nevertheless,
the research could still be considered, with certain limitations, as being representative for the entire
urban Romanian population as Cluj-Napoca the second largest city of Romania, representing almost
3% of the Romanian urban population in 2009.
140
 The investigated population was heterogeneous considering demographical characteristics (age,
income, education, and sex), vocabulary, intelligence level, technical knowledge, different product
categories usage etc. In order for the data to be collected in such a manner so that investigated
consumers could describe their behavior and attitudes, what they do and what they think about
brands of durable and non-durable products, the particular product categories selected to be
investigated within the research were chosen so as to be different in usage duration, not too technical
(in order for most of the consumers to be able to evaluate their own behavior and express their
attitudes towards those product categories) and to have a large rate of penetration into households
usage or consumption. Therefore, we chose the product category of tooth-paste, as being
representative for the nondurables, and television sets, for durables.
The questionnaire based interviews were conducted face to face, at the household‘s residence of
the respondents, by a group of 119 students, each student completing a set of five interviews.
The sampling method consisted in a mixture of classical probabilistic and non-probabilistic
methods. Firstly, the population was geographically clustered considering the 474 postal areas of
Cluj-Napoca. Afterwards, 119 clusters were extracted through systematic random sampling. The 119
clusters (postal areas) were assigned to the 119 interview operators (one cluster to each operator),
and each operator had to complete five questionnaire based interviews on the basis of an itinerary
sampling method (5 consumers from different households, located into five consecutive buildings from
the assigned cluster – postal area). The data collected was validated by contacting (via phone) a
random sample of respondents in order to confirm their answers. The interview operators identified as
trying to mislead the research through providing non-valid questionnaires were fully verified. From a
total of 595 face to face interviews, only 551 were validated, therefore, the research having, an
estimation error of ±4.2%, considering a statistical confidence level of 95%.
Hypothesis
Considering the indicators detailed above, in order to asses the relation between brand market share
and brand loyalty among durable and non-durable products, the following hypothesis were
investigated:
H1: Brand market share is positively correlated with brand repurchase intention in the case of non-
durables.
H2: Brand market share is positively correlated with brand repurchase intention in the case of
durables.
H3: Brand market share is positively correlated with brand recommend intention in the case of non-
durables.
H4: Brand market share is positively correlated with brand recommend intention in the case of
durables.
Results
In order to investigate the previous hypothesis and to measure the proportion of market share’s
variation explained by brand loyalty components, three bivariate regression models were tested: linear
Y=a+b·X, logarithmic Y=a+b·ln(X), and exponential Y=a·eb·X. Brand repurchase intention and,
respectively, brand recommend intention, were successively the independent variable (predictor) of
the model, while the dependent (predicted) variable was each time represented by brand market
share. The models were tested both in case of the durable and, respectively, non-durable product.
Selecting the most appropriate model to explain the relation firstly
141
 implied testing the existence of a relation between variables. In order to test the relation, the null
hypothesis of “no relation” was rejected depending on the value of the statistical indicator p, with a
statistical confidence level of 95% if p<0.05, or with a statistical confidence level of 99% if p<0.01. The
intensity of the relation was afterwards evaluated, according to the tested model, considering the
bivariate correlation coefficient R and the determination coefficient R2, indicating the proportion of the
dependent variable’s variation explained by the predictor’s variation. Finally, the regression
coefficients were determined according to each tested model, along with appropriate mathematical
functions to reflect the relations.
In the case of brand loyalty as repurchase intention, only hypothesis H2 was confirmed, while
hypothesis H1 was invalidated (Table 1). None of the three tested models was statistically significant
for a possible relation between market share and brand loyalty as repurchase intention in the case of
non-durables. Still, in the case of durables, all of the three models were statistically explanatory, the
most appropriate model being the exponential one.

Table 1
Tested bivariate Mod Market share = f (Repurchase intention)
regression models for el
Relation – existence and Regr
the relation between intensity essio
brand repurchase n
intention and brand coeffi
market share Market cient
type s
R F df1 df2 p a b
2
Non-durables Line ,089 ,784 1 8 ,402 -,149 ,053
ar
L ,083 ,722 1 8 ,420 -,195 ,194
o
g
a
r
i
t
h
m
i
c
E ,220 2,25 1 8 ,171 ,001 ,730
x 6
p
o
n
e
n
t
i
a
l
Durables Line ,457 6,74 1 8 ,032 -,151 ,061
ar 1
L ,415 5,66 1 8 ,045 -,175 ,196
o 7
g
a
r
i
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Delhi Business Review X Vol. 9, No. 2 (July - December 2008)

17

IMPACT OF PRICE ON BRAND LOYALTY

SENSITIVITY
Emmy Indrayani*
Hotniar Siringoringo**
Trini Saptariani***
ASIC question about brand loyalty is how strong the brand to drive repurchasing (Hislop,
2001). Building brand loyalty employs marketing strategy, such as price strategy. The objective
of this research is to analyze brand loyalty sensitivity due to price changes. Research
instrument is questionnaire. Questionnaire developed based on last brand bought and limited to
detergent consumption. Result shows that brand choice is sensitive to price changes. Tendencies to
switch to another brand greater when the price changes from 1 per cent to 2 per cent, from 4 per cent
to 5 per cent, from 5 per cent to 6 per cent, and from 9 per cent to 10 per cent. This imply to marketing
manager that every one digit of price changes on product pricing, will give effect on sales.
Key Words: Price Changing, Brand Switching, Intention.
Introduction
For many consumers, price is a very important attribute. The attribute price can indeed be more
important on decision making than that of quality, brand name and others. Generalizations about the
effect of price should be tempered however because consumer reactions to a price differential clearly
depend on the magnitude of the differential as well as the brand names which are considered.
Importance of this phenomena can be studied in Indonesian consumer, where price is changing rapidly,
even could be daily live performed on convenience goods, since the economic crisis of 1998. Price changing
is reflected by inflation rate. Inflation rate in March term 1998 was 25.13 per cent, and this number is
the smallest inflation rate during 1998. The highest inflation rate occurred on December term 1998,
77.63 per cent. Fantastic number of inflation rate ever been faced by a country since 1945. The changing
of price continuously occurs until this day. Even in the last two terms (September and December)
inflation rate lowered and became one digit, consumer shopping power still low, referred to Indonesian
GDP per capita 7.2 million rupiahs which equal to US $ 833.
One can conclude that consumer consideration to decide product brand is mainly based on price. The
main question is how consumer brand decision is effected by price fluctuations. Does consumer move to
another brand as price rise?
Good example to study the effect of price fluctuation towards brand sensitivity is to study consumer
shopping decision on convenience product, detergent. Detergent must be consumed and bought whether

B
* Doctoral Student, Faculty of Economics, Gunadarma University, Jl. Margonda Raya No. 100 Depok 16424, West Java,
Indonesia.
** Doctoral Student, Faculty of Economics, Gunadarma University, Jl. Margonda Raya No. 100 Depok 16424, West Java,
Indonesia.
*** Doctoral Student, Faculty of Economics, Gunadarma University, Jl. Margonda Raya No. 100 Depok 16424, West Java,
Indonesia.
Emmy Indrayani, Hotniar Siringoringo, and Trini Saptariani
18
it.s price rises or not. It.s daily requirement of every household. Detergent is produced by many companies
and sold using various brands.
Recently, only view research conducted on relationship between pricing and brand loyalty. Most brand
researches have been conducted to analyze brand extension, relationship between price and quality
perception, etc. It might be common in western or developed country, that decision to shop or not is
based on quality perceived not money availability. In developing country such as Indonesia, mainly
after economic crisis, the decision not surprisingly is based on price and need.
The objective of this research is to study the effect of brand fluctuation towards brand loyalty.
Theoretical Background
To understand the relationship between perceived quality and willingness to buy, it is necessary to
introduce the concept of the acceptable price range. It is postulated that buyers, generally, have a range
of acceptable prices for considering purchases. Thus, buyers may not purchase a product when price is
perceived to be too high, nor when price is perceived to be too low. Therefore, the acceptable price range
concept provides the implication that perceived value is positive when prices are acceptable. However,
perceived value will be positive only when the utility inferred from the perception of quality is greater
than the utility sacrificed by paying the price (Monroe, 1984).
There is some evidence that endpoints of the evoked range of prices may impact price judgments.
Biswas and Blair (1991) in Janiszewski and Lichtenstein (1999) have shown that consumer purchase
intention are sensitive to their perception of the lowest and highest prices in the marketplace.
The threat of consumer anger can account for the stability of prices from one period to the next while
also having the potential for explaining some of the dynamic responses of the economy to monetary
policy shocks. The consumer reactions are .irrational. in the sense that consumers are maximizing
something other than a utility function that depends only on their own material payoffs. Rather, they
also wish to harm (or at least not to help) firms that they see as having given them a bad deal.
Understandably, this leads firms to be careful not to induce these emotional reactions (Rotemberg,
2003).
Price may serve as a reference point for judging quality when other product information is not available
(Monroe, 1976; Zeithaml, 1988). When considering buying a store-branded garment, price may be a
key element in the decision process. Baltas (1997) has shown that price is an informational cue that
increases consumer sensitivity to private brands.
Till now, one critical attribute of the brand that has been intensively studied by economists is brand
price. It is only in the past decade or so that researchers of consumer behaviour in marketing turned
their attention to studying price as a perceptual dimension of evaluations with respect to brand quality
and brand worth (defined as some measure of quality per unit price.) Past research (Gabor and Granger,
1966; Gardener, 1971; Jacoby, 1970; Leavitt, 1954; McConnell, 1968a; 1968b; Peterson, 1970; Rao,
1972; Tull, Boring and Gonsoir; 1964) has indicated that price is used by consumers as a surrogate for
quality in the absence of other brand information and that the importance of price in quality perceptions
diminishes when a number of other brand cues are present.
Recent researches on brand were conducted on building strong brands, brand image (via the brand
name) on estimates of internal price standards (Biswas and Sherrell, 1993), price effects on brand
extension quality evaluations (Taylor and Bearden, 2002), or price perception in brand extension,
strategic bundling of price.
Delhi Business Review X Vol. 9, No. 2 (July - December 2008)
19
The managerial significance of brand extension strategies has been proposed conceptually by
Park, Jaworski, and MacInnis (1986), and demonstrated empirically by many researcher, i.e.,
Aaker and Keller (1990), Keller and Aaker (1992), Bottomley and Doyle (1996), Sunde and Brodie
(1993), Bousch and Loken (1991), and Park, Milberg, and Lawson (1991). Consistent findings
support the cost-efficiency (Pitta and Katsanis 1995; Smith and Park 1992) and/or revenue-effectiveness
of such strategies (Lassar, Mittal, and Sharma 1995; Doyle 1990; Sullivan 1992; Smith and Park
1992).
Previous research also found that the introduction of the minimum pricing policy in 1990 without
allowing generic substitution had a relatively small impact on the selection of medicines within the
Pharmaceutical Benefits Scheme. However, the effect of generic substitution at the pharmacist level,
which was introduced in December 1994, resulted in a marked increase in the percentage of eligible
PBS items dispensed at benchmark. Case studies showed a larger premium resulted in a greater shift
of patients from drugs with a brand premium to the benchmark alternative.
On new product launch, most marketers use price discount to attract consumer buying. This strategy
is used in line with proposition believed that whenever price is presented in a discount format it can
perform an informative role in brand choice. Moore and Olshavsky (2006) found from their empirical
research that the desirability of a discounted unfamiliar brand does not continue to increase as the size
of the price discount increases. Predictions concerning the effects of store type and size of price discount
were not confirmed.
Research Method
Questionaire Design
Preliminary data collection, a self-administered questionnaire as instrument of research was
designed. Questionnaire containing price and brand sensitivity measurement. Question is started
by asking the last brand, respondent bought and it.s price. This question formed is open, so that
respondent has flexibility in filling out the answer, regarding the variety of brand available in
market. Questions were asked to the respondents regarding the next shopping trip, it the price rise
of the brand was from 1 per cent upto 10 per cent. These are closed questions, with alternative
choice .buy. or .not buy..
Data collection
Research object is detergent, and research subject is households. Respondents were chosen
using convenience sampling from lecturer in Gunadarma University. Basic consideration to
sampling from Gunadarma University is providing respondent homogeneity. That is,
questionnaires were distributed to a convenience sample of women Gunadarma University lecturer,
as households shopping decision are made by women. It was filled out on the spot. It takes 5 to 10
minutes when self administered questionnaire is deployed, and up to 20 minutes when interview is
deployed.
Data collected then plotted using linear graph to show the sensitivity brand choice and supported
by hypothesis test. Regarding studying the effect of price rise toward brand loyalty, the hypothesis
to be tested is:
H0 : There is no effect of price rise towards brand loyalty, versus
H1 : There is effect of price rise towards brand loyalty
Product brand varied at least into 8 brands. It.s interesting also to study the effect of price fluctuations
Emmy Indrayani, Hotniar Siringoringo, and Trini Saptariani
20
towards brand loyalty on each brand. Hypothesis was tested using Friedman test non parametric
statistics. Hypothesis to be tested is:
H0 : There is no differences on consumer decision among detergent brands as price, versus
H1 : There is differences on consumer decision among detergent brands as price
Result and Discussion
Respondent Characteristics
Data collected from 83 households using self administered questionnaire. We asked respondent
their intention .to buy. or .not buy. if they find the price of detergent with same brand as they
bought before change varied from 1 per cent until 10 per cent. The results are shown in Table 1.
As mentioned before, product brand of detergent varied. We identified 8 brands bought by different
households on the last shopping trip, as shown on Figure 1. .Rinso. is the majority brand bought
i.e., 40 per cent of total, followed by .attack., 29 per cent, .daia. 16 per cent, .soklin. 7 per cent,
.surf. 5 per cent, and .B29., .total., .surf. 1 per cent of each. It.s not surprising to see the figure,
.rinso. is the most common brand of detergent in Indonesia, even the first brand known as detergent
packed. The price among brand also varied. The most expensive for same weight is .attack., followed
40
29
1
5
16
1
7
1
product brand
rinso
attack
B29
surf
daia
wings
soklin
total
Figure 1: Detergent Product Brands and Percentage of Respondent Buying
Delhi Business Review X Vol. 9, No. 2 (July - December 2008)
21
by .rinso.. One pack of .attack. with 900 grams weight sold Rp. 13500, but .rinso. only Rp. 12500
per pack with weight 1000 grams.
Studying the Effect of Price Changing Towards Brand Loyalty
To explore brand switching sensitivity, we provided respondents a list of questions, if they will
switch to another brand when they find the price of product for the same brand as they bought
before rise. We provided 10 different level of price rise, starting with 1 per cent, then followed in
ascending order 2 per cent, 3 per cent, 4 per cent, 5 per cent, 6 per cent, 7 per cent, 8 per cent, 9 per
cent, and 10 per cent. Even most of respondents said that the level of price rise does not show the
real level price rise (most of time, the price change on a range 7-15 per cent these days), Figure 2
show the sensitivity brand switching as price goes high. Sensitivity brand switching was measured
by asking respondent action, .buy. or .not buy.. From Figure 2 it can be stated that respondent
tend to switch to another brand as the price rises. From line created, we can classify 5 regions,
with two trends. Region 1 covers the brand switching when price level rise on 1 per cent-2 per cent
range, region 2 rise on 2 per cent-4 per cent range, region 3 rise on 4 per cent-6 per cent range,
region 4 rise on 6 per cent-9 per cent, and region 5 rise on 9 per cent-10 per cent. Region 1, 3, and
5 have properties very sharp slope. Region 2 and 4 have lower slope. Hence, we can state, price
change from 1 per cent to 2 per cent, from 4 per cent to 5 per cent, from 5 per cent to 6 per cent, and
from 9 per cent to 10 per cent give more impact on brand sensitivity than price change from 2 per
cent to 3 per cent, or from 3 per cent to 4 per cent, or from 6 per cent to 7 per cent, or 7 per cent to
8 per cent, or from 8 per cent to 9 per cent.
Impact of price changing on brand sensitivity explore deeply by deploying hypothesis test. The
hypothesis to be tested is .there is no intention to switch to another brand if price level rises. versus
.there is intention to switch to another brand if price level rises.. Since intention to switch to
another brand variables is measured using ordinal scale, we used Kendall.s tau_B correlation
coefficient in order to test the hypothesis and measure the correlation. Result shows (as can be seen
on Table 1) the rejection of null hypothesis at 0.000 per cent. So that, we can conclude consumer
will switch their choice on detergent brand when price goes high. The correlation between brand
switching with price changing is -0.299, means every unit changing on price that tend to be high,
the intention to switch to another brand will rise on 0.299. This result does not support. Hoch et al.
(1995) result, that consumers are inelastic to price changes for grocery purchases, nor finding by
Kalyanaram and Little (1994) that consumers are not affected by small differences in price, provided
that prices are close to their expectations. In sum, while visit-to-visit price variation strongly
influences brand-level purchase decisions.
In addition, Krishnamurthi et al. (1992) show that brand loyal consumers are more elastic than
brand switchers when they make purchase quantity decisions (i.e., a brand loyal consumer will
stock up on his or her preferred product).
Table 1: Correlations between Price Rise with Brand Loyalty
decision price_raise
Kendall.s tau_b decision Correlation Coefficient 1.000 -.299(**)
Sig. (2-tailed) . .000
N 827 827
price_raise Correlation Coefficient -.299(**) 1.000
Sig. (2-tailed) .000 .
N 827 828
** Correlation is significant at the 0.01 level (2-tailed).
Emmy Indrayani, Hotniar Siringoringo, and Trini Saptariani
22
1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00
price_raise (%)
0
20
40
60
80
decision
not buy
buy
price_raise (%)
Figure 2: Brand Switching Line if the Price Rises
The result also does not match with previous research, that is the minimum pricing policy without
allowing generic substitution had a relatively small impact on the selection of within the
Pharmaceutical Benefits Scheme. It.s understandable, provided that the study was on medicines
product.
However, the result is in line with Monroe (1984) finding. On the concept of the acceptable price
range, it is postulated that buyers, generally, have a range of acceptable prices for considered
purchases. Thus, buyers may not purchase a product when price is perceived to be too high, nor
when price is perceived to be too low.
From the result above, we can conclude that detergent consumers are not brand loyal. If they are
brand loyal, they will be relatively insensitive to prices in their brand choice decisions, yet they
respond to deals by stocking up on their preferred brands (Krishnamurthi and Raj, 1991). Brand
switchers, on the other hand, act in the opposite manner: they do not stock up on any one brand,
but their initial brand choice decisions are highly sensitive to changes in price.
not buy
buy
Delhi Business Review X Vol. 9, No. 2 (July - December 2008)
23
It is not surprising to deal with the result. The relation between price and quality, might exist
(Gabor and Granger, 1966, Gardener, 1971, Jacoby, 1970, Leavitt, 1954, McConnell, 1968 a and b,
Peterson, 1970, Rao, 1972, and Tull, Boring and Gonsoir, 1964), but consumer is not aware of
quality. Detergent, as daily need, is not quality based product. Consumer need not to consider of
quality when detergent purchasing is made. This is true to Indonesia consumer, where laundry
work is done by household keeper, detergent quality is not factor to be considered by shopping
decision maker. Household keeper is not shopping decision maker. Shopping decision maker then
will make decision based on product price in deciding which brand to be chosen.
Table 2 shows the statistics test on second hypothesis, i.e., the difference of decision as price goes
high among brands. Significant value is 0.000. Based on Table 2, we can conclude that decision to
switch to another brand as price rise is different among brands. Few brands are well known to
most of customer, such as .rinso.. As pioneer of detergent product, even customer can.t be
differentiated between brand and product. Most customer say .rinso. to express detergent. The
decision to buy .rinso. brand could be as repeated action, without any other considerations. We
imply the evidence of past behaviour (habit) on buying intention (Siringoringo and Kowanda, 2007).
Table 2: Hypothesis Testing on Brand Loyalty with Brand as Price Changing among
Different Brand
Test Statistics(a)
N 829
Chi-Square 609.961
df 2
Asymp. Sig. .000
a Friedman Test
Conclusion and Implication
Consumers switch brand when the price rises. The tendencies will be greater when the price level
change from 1 per cent to 2 per cent, 4 per cent to 5 per cent, 5 per cent to 6 per cent, and from 9 per
cent to 10 per cent. The significance of brand switching due to price level fluctuation is very strong.
This implies any rise in price, even a smaller one, will result in brand switching. It.s concluded that
there is difference in brand loyalty among different brands.
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Delhi