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Store and brand name effects on consumer purchase decision-making.
In order to distinguish essays and pre-prints from academic theses, we have a separate category. These are often much longer text based documents than a paper.
posted on 13.02.2017by Vocino, Andrea
The efficiency of a market critically depends on the amount and nature of the information available. When imperfect information characterises a market, agents like consumers and firms may use signals to convey information about product quality. Signals can take the form of cues. Consumers use a variety of cues to infer product quality. These cues can be intrinsic, which means they are derived directly from the physical product and, if changed, would change the product itself. They can also be extrinsic, meaning they are not related directly to the product performance. Prices, brand names and store names can all act as extrinsic cues and, hence, as signals. To be effective as signals, however, such cues need to be credible.
Extant research has recognised the importance of brand credibility to the believability of the product position information contained in a brand. Brand credibility depends on a brand's willingness and ability to deliver what it promises to its customers. Research in information economics on brand equity has examined the imperfect and asymmetrical informational structure of the market. It has substantiated credibility as a principal basis of consumer-based brand equity (Erdem and Swait 1998 p. 393).
Prior research has acknowledged the effects of price, brand, store name and product quality signals on product evaluations. Surprisingly, however, most of the literature has only analysed the above constructs as antecedents of (product) quality. Very little research has been conducted on how these constructs interact in the consumers' minds before making the purchase. Because different types of cues are available in the marketplace, the credibility, and therefore the diagnosticity and use of cues of a particular type, may depend on the valence of other cue types (Purohit and Srivastava 2001 ) .
In this thesis it is, therefore, argued that in order to develop an understanding of how consumers combine multiple cues, it is important to differentiate between cue types as well as incorporate the interactions among them. The presented research aims to identify the effects of brand name and store name credibility on product choice and to test their interaction. Many studies have looked into effects of product brand names on consumer behaviour but far fewer have looked at the effects of store names as brand signals. Consumers obtain the majority of their purchases from retailers and the reputation of the retailer will playa role in their decision-making process. It is, therefore, relevant to study how the name of a retail store acts as an additional brand signal in the consumer decision process.
Specifically, the objective of this thesis is to investigate and measure the effect of brand name and store name credibility signals on consumer choice. The research aims to answer how the credibility of brand and store names affects consumer choice. Following the cue diagnosticity theory of Purohit and Srivastava (2001), it seeks to test whether brand and store name effects depend on each other. Based on the brand signalling theory of Erdem and Swait (1998), it seeks to answer how store name credibility affects the store name's perceived quality and information costs search, similar to the way brand name credibility affects the same measures for product brand names.
It is hypothesised that when deciding which signals to access in a limited information situation, consumers will choose those attributes that provide the greatest utility to them in learning about the products on offer. Dawar and Parker (1994) argue that the relative importance of these cues depends on their level of specificity, or the degree to which a particular signal is not shared across competitive products. It is, therefore, suggested that getting to know the brand name will be of greater value than getting to know the price, and that both information items are of greater value than information about the retailer providing the item.
Further, it is expected that the choice of which available signal to access prior to the purchase will also be affected by the market perceptions of the variability in product quality as signalled through the available brand names, store names and price range. This is because the higher the perceived variation, the more diagnostic the signal will be, and therefore the more likely that such a cue would be preferred.
The empirical part of the research consists of a survey and an experiment, both designed to examine how consumers value information and signals before making a purchase. Both studies use members of a nation-wide online panel as participants. The survey endeavours to establish the level of credibility (high vs. low) of store names and brand names, as well as using simultaneous equation modelling, and testing the signalling framework proposed by Erdem and Swait (1998) for different product categories and brand names as well as for store names. Part one of the survey is devoted to application of the signalling framework to the measurement of the brand equity of several existing product brands. In the second part of the survey phase, the signalling framework is extended to include store names as signals.
The data are analysed using Structural Equation Modelling• (SEM, e.g. covariance structured analysis)and Partial Least Squares (PLS). When using Confirmatory Factor Analysis high levels of multicollinearity in the measurement models resulted in Not Positive Definite Matrices. The data are therefore remodelled using PLS. Results confirm a similar, albeit reduced, model structure of the signalling framework proposed by Erdem and Swait (1998) in both realms, that is, in the brand
and store name condition. The two reconfigured models yield similar parameter estimates. It can, therefore, be argued that the signalling framework can be applied to measure the equity in a retail context.
The experimental phase examines which extrinsic cues might be of greatest value to consumers when making a purchase decision. This phase of the study includes brand name, store name, price and warranty as attributes since they are considered central to most consumers' purchasing decisions. Based on the collected survey data, high and low levels of credibility for store and brand names are selected as eliciting stimuli. The first aim of the experiment is to determine the value of information about each of these attributes relative to their perceived market variability. Second, the experiment is designed to dissect the "credibility" function embedded in store and brand names in conjunction with the effects of warranty and price, which are also manipulated.
The experiment takes the form of a scenario where participants have to assume they have won a prize and need to choose from different prize options. Because only limited information is available about the prize options, participants have to rely on external signals such as brand, store, price (retail value) and warranty information. Analysis of the option choices reveals the utility of each product attribute to consumers when making such choices. The analyses are conducted using Robust Variance Estimator Logit and Generalised Estimating Equation modelling.
The findings confirm a positive relationship between the perceived market variability of an attribute and the likelihood of choosing such an attribute for information search. They also reveal that, as the credibility of the brand and store signals increase, so does the utility and hence the likelihood of a product to be chosen. Further, the higher the product warranty, the higher the utility derived from the product. Similarly, the higher the price of a product, the higher the utility derived from the product.
Tests of the interaction between the credibility of the brand signal and the credibility of the store signal show that a brand signal provides more utility in conjunction with a low credibility store than with a high credibility store.
The thesis advances knowledge and insight with regard to how consumers perceive and use cues. The contribution of the thesis is two-fold. First, the thesis shows that the brand equity framework proposed by Erdem and Swait (1998) also applies to store names, that is, it validates the notion that store signals can act as brand signals. Second, its contribution lies in examining how consumers integrate multiple cues in order to maximise the utility of their purchases. The most notable finding is the ability of the credibility signal of the retailer to moderate the effect of the credibility signal provided by a brand name on the product's purchase likelihood.
Whereas no such effect was originally hypothesised, the results seem to indicate that amongst the multiple cues available in the marketplace, in a purchase selection condition, consumers favour and, therefore, attribute higher utility to cues that are congruent. Whilst 'cue congruency' as a construct is not new to marketing, it is argued that the specific application to brand and retail credibility signals presented herein is quite novel. This has important implications as, given the inherent symbiotic relationship existing between retailers and brand managers, it is crucial for both parties to understand how their brand signals interact when consumers make their purchase decisions.