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Dibia Abduh , Yohanes Lestanto ,
International Business Administration Department, Swiss German University, Indonesia

This study is significant in facing an industry tight competition from consumer goods retailer
industry that carries private label products. Also, as the rate of Indonesias inflation increases
every year as shown by the Badan Pusat Statistik Republik Indonesia, this study will be
important for consumer goods retailers due to their current customers will be very selective in
term of their purchasing consumption. The need for private label product seems higher for this
reason. Further, supported by the secondary data research that purchasing private label brands
are good value and the consumers have the tendencies to buy private label.
The study can be used for private brand label consumer goods to be competitive in consumer
goods market particularly in retail market industry. The purpose of the study is to determine the
most significant factor that influences customer loyalty toward private label consumer goods of
X. The second purpose of the study is to measure customer loyalty toward private label
consumer goods of X.
The study used is a descriptive research with quantitative methods of data collection.
Questionnaire survey is gathered for data collection methodology. The respondents are the
customer of X gathered for random sampling.
The result of the study identifies that marketing strategies becomes the highest significant
factor that influences customer loyalty toward private label consumer goods. Further, the result
indicates that purchase intention also becomes the most significant indicator when measuring
customer loyalty.
Keywords - Private Label, Customer Loyalty, Consumer Goods, Relationship Quality,
Marketing Strategies.

Nowadays, the marketing strategy is always required to track the trend of the changing time.
A changing time will result in an era of globalization, advance in science and technology. This
trend has prompted the emergence of the marketing environment to move dynamically, practical
and also reactive in following the changes and developments.
An emerging trend that is in line with the changing of time is an inflation, which is
categorized as a negative trend. According to Siegl (2009), inflation can be considered as the rise
on rate in prices over a given stage of time. Because of that inflation, there is a disproportion
between income level and living cost that will result to a changing in customers shopping
behavior and make them become more sensitive toward the price (Jaafar et al., 2012). The
growth of the living cost will also escalate the demand of low cost goods or products; and due to
that declining of the economic condition, the value-conscious shopper is more visible than ever
before (Nielsen, 2011).
Since the customers become more selective in purchasing an adequate quality with the best
price product, the need of private label product seems to get higher (Tjandrasa, 2006). For
several retailers, the current economic situation has assisted their private label brands to improve
and grow, as shoppers are mostly searching for value by trading high-end labels for retailers
branded goods (Nielsen, 2011). Based on price and value perception, 40 % of consumers from
27000 respondents surveyed said that private label brands are extremely good value for the
money (Nielsen, 2011).
Although there are some national brands which have been existed for a long time and have a
strong position, the role of private label brand seems to be inevitable due to the increasing
competition. Some private label brands are no longer identified as category killers, but are

comparable to national brands (Pepe et al., 2011). According to Chimhundu (2011), private label
brands have been identified as a global trend and gradually more challenging national brands in
the market place.
As that issue can be very essential, retailers start to improve the quality and also the
packaging of its private label products to become an ideal product by offering an alternative
option to customers on low price product with adequate quality level compare to premium
product that might have higher price (Jaafar & Lalp, 2012).
Definition of Private Label
The concept of private label can be elaborated as the perfection of the theory of the brand
(Tjandrasa, 2006). A brand can be classified as a name, term, sign, symbol, design or a
combination of those things that is suggested to classify the product and service from the seller
or a group of seller and to distinguish them from other competitors products and services
(Tjandrasa, 2006).
Private label can be determined as all commodities which are sold under retailers brand and
the brand can use the name of the retailer or can be created exclusively by the retailer (Private
Label Manufacturers International, 2013).
The advantage of Private Label
Kumar & Steenkamp (2007) stated that private label products were introduced by the retailers
due to its benefits toward the company such as: provide higher margin than manufacturer brand
and it can also be used to distinguish themselves from other competitors. Those reasons are very
important for the retailer to sustain and compete with other brands especially other national
brands that have been existed for a long time and have a strong position.

According to Ailawadi et al (2008), most of the leading grocers set their private label brand
for speed up the growth, by improving the private label penetration. Higher retail opportunity on
private label, negotiating leverage with national brand manufacturers and larger consumer store
loyalty can be the reasons on why some retailers want to develop their private label (Ailawadi et
al., 2008).
Competition in Private Label Industry
The phenomenon in the retail industry is the development of retail business which has grown
rapidly from year to year. In the last six year period (from 2007 2012) the amount of modern
retail stores in Indonesia have grown-up in average of 17, 57% each year and reached 18152
stores cover almost all cities in Indonesia (Apipudin, 2013). Based on the information from the
Association of Indonesian Retailers (APRINDO), there is a 10%-15% growth of the retail
business in Indonesia per year.
With the population for around 237 million people and total consumption for around IDR
3.600 billion, Indonesia becomes a potential market for modern retail business; and this situation
is supported by the shifting in the shopping behavior from the traditional to the modern retail
market (Apipudin, 2013).
Apipudin (2013) also added that the rise of modern retail can result in a competition between
the modern retailer and it can also bring opportunity for the customer to choose their preferred
retail that suitable with their desires; therefore, this condition will allow the customers to switch
the modern retail visited or stay loyal to the one because it was comfortable. Retailers have to
pay more attention toward private label product in facing the competition (with other retailers)
which is getting tighter (Tjandrasa, 2006).

Since one of the advantages of private label is able to larger customer loyalty, then it is very
important for the retailers who provide their own private label brand to more concerning about
the customer loyalty toward their private label brand.
Consumer goods industry
According to Kumar & Sharma (1998), consumer goods are products which are intended to
be used by the final consumers or household and in such form that they can be used without
commercial processing. Consumer goods refer to such goods or products which are able to
accomplish human need (Aryasri, 2008).
Referring to Kumar & Sharma (1998), consumer goods can be divided into some
subcategorizes such as: convenience goods, shopping goods, speciality goods, and insistence
The economic difficulties that are faced by Indonesia actually does not cause the sales of fast
moving consumer goods declining, in other hand, the number has increased from year to year
(, 2008). Nielsen through stated that total sales of fast moving
consumer goods in value, increase by double point on average in every year. That phenomenon
has become the background on why the author concentrates in the consumer goods.

A conceptual model and supporting empirical evidences are included in this literature review.
A conceptual model presents the relationship between the dependent variable and independent
variables. Dependent variable is the customer loyalty and the independent variables are
marketing strategy, perceived value, relationship quality, word-of-mouth, purchase intention and
price insensitivity. The conceptual framework comes from the empirical study that has been

conducted by Li et al., in 2012. The empirical studies are determined in order to support the
conceptual model.
Conceptual framework
The conceptual framework below will elaborate the most significant factor that influences
customer loyalty toward private label consumer goods of brand (X) and the most significant
indicator that measures customer loyalty toward private label consumer goods of brand (X).
Figure 1.

Source : Li, M.L., Green, R.D., Farazmand, F.A. & Grodzki, E., 2012
Figure 1 depicts that marketing strategy, perceive value, and relationship quality are the
independent construct that influence customer loyalty (dependent variable). Word-of-mouth,
purchase intention, and price insensitivity are the independent construct(indicator) that measure
customer loyalty (dependent variable).

Customer Loyalty
According to Chaudhuri & Holbrook (2001), loyalty can be defined as a strong commitment
to make a repurchase in the future toward a product and service that is preferred; that can cause a
repetitive similar-brand purchase, although there is an influence from the circumstances and
marketing effort that can affect to form switching behavior. Therefore, a loyal customer is a
customer who repurchases from the same provider whenever it is possible and maintains a
positive attitude toward the provider.
Castaneda (2011) stated that customer loyalty has become an essential issue for modern
business for two reasons; the first because customer has been positioned as a scarce resources,
the purchase from old customer is easier to be obtained compare to the new one; the second,
loyalty of customer has an absolute effect toward profitability and revenues of the firm. Enhance
customer loyalty has several impacts toward the firm, such as increased profit, decreased
customer acquisition costs, lower costs of helping repeat purchasers and leading to better
profitability (lam et al., 2004).
Customer loyalty creates a foundation to verify the correlation between relationship quality,
perceived value and marketing strategies (Li et al., 2012).
Marketing Strategy
According to Fifield (1998), marketing strategy can be indicated as marketing mix and how
each of those elements will be used to reach the objectives of marketing. Marketing strategy are
the marketing variables which consists of product, price, place and promotion and all of those
factors will be used by the company in purpose to make their target market feel satisfy (Li et al.,
Relationship Quality

Since there is a shifting from transaction tactics to relational tactics in the business
circumstance, customer-firm relationship has become an issue to be focused (Cannie`re et al.,
2010). Referring to Chiu (2009), The relationship quality is a general evaluation of relationship
strength and the extent to which a relationship meets the needs and expectations of the parties
involved based on a history of successful or unsuccessful encounters or events.
Relationship quality decrease the purchasers uncertainly and reinforce the correlation
between customer and firm (Li et al., 2012).
Study in the field of customer-rm relationships and loyalty is supported by the faith in the
impact of relationship quality concepts such as perceived trust, commitment and satisfaction
within the customers buying behavior (Cannie`re et al., 2010). Loyalty is built up of attitudinal
loyalty (including of commitment, trust, and satisfaction, also called perceived relationship
quality), which leads to repeat patronage intentions and create loyal behavior and more profit as
the result (Cannie`re et al., 2010).
Perceive Value
Customer perceived value can be identified as the overall evaluation of the utility of a product
or service that is made by the customer based on their experience about what is received and
what is given (Li et al., 2012). According to Jen & Hu (2003), perceived value, which is based
on customers careful assessment of product or service, can become the determination of
customer repurchase intentions. Perceived quality and sacrifice can be included in the customer
perceived value (Li et al., 2012). Jen & Hu (2003) also added that perceived value has been
judged as one of the most crucial marketing strategies in differentiation, and is a considerable
factor in maintaining corporate competitiveness.
The Customer Loyalty indicator

According to Li et al. (2012), customer loyalty can be measured by these indicators, such as:
Word-of-Mouth, Price insensitivity, and Purchase Intentions.

Word of Mouth
Several researches have shown that word of mouth (WOM) becomes one of the most
important and influential channel of communication in the marketplace (Allsop et al., 2007).
Word of mouth play an important role in the arrangement of consumer perception and over the
past year, it has transformed into more powerful force due to the existences of the advance
technology that can assist an information and opinion sharing easier than before (Allsop et al.,
2007). Mangold et al. (1999) also added that the customers have been determined to rely on
Word of mouth to decrease the level of perceived risk and the uncertainty that are often related
with the purchase decision.
Price Insensitivity
Price sensitivity can be measured by asking the customers how much of a price increase
would be required to prompt the customers either to change to other product categories or
completely stop purchasing the product if the price of the item under considerable increases
(Sirvanci, 2000).
According to Nagle & Holden, (2003), the shoppers are moderately price insensitive when
facing a new existing innovation on them; besides that, the more the consumers must rely on
price to evaluate quality, the less sensitivity they will be. For some purchase decision, shoppers
can either determine a product prior infer its quality from past experience with the brand; that
condition indicates price is not used as a quality cue (Nagle & Holden, 2003).
Purchase Intention

Generally, purchase intention can be correlated with consumers behavior, perception and
their attitude (Jaafar et al., 2012). According to (Hartanto & Haryanto, 2012), intention is shaped
when an individual makes a plan to conduct an activity in the future. Jaafar et al., (2012) also
added that purchase intention is an effective instrument that can be used in predicting purchasing
Purchase intention can be categorized as one of the elements of consumer cognitive behavior
on how an individual intends to purchase a specific brand or product (Hosein, 2010). However,
purchase intention might be changed due to the influence of price, quality perception and value
perception (Jaafar et al., 2012).
A loyal customer is the one, who seems to buy more regularly, purchase the other products
from the same firm, recommend others to use the firms product or service and is not easily
influenced by the competition (Griffin, 1995). Therefore, customer loyalty can be the variable
that assist and influence the customer to purchase other products from the same firm.
Empirical Support
This research uses the previous research from International Journal of Management and
Marketing Research that was conducted by Li et al., in 2012 as the empirical study that support
this study. This study is aimed to prove the relationship of marketing strategy, relationship
quality, and customer perceived value as influential factors on customer loyalty in private label
industry. Word-of-mouth, purchase intention and price insensitivity are also tested to prove
whether those indicators significantly measure customer loyalty in private label industry. Hence,


Marketing Strategy is the most significant factor that influences customer loyalty
toward private label consumer goods of brand (X).


Relationship Quality is the most significant factor that influences customer loyalty
toward private label consumer goods of brand (X).


Perceived Value is the most significant factor that influences customer loyalty
toward private label consumer goods of brand (X).


Word of Mouth is the most significant indicator that measures customer loyalty
toward private label consumer goods of brand (X).


Purchase Intention is the most significant indicator that measures customer loyalty
toward private label consumer goods of brand (X).


In order to have a better understanding of customer loyalty toward private label brand in retail
industry, this research uses a retail company (company XYZ) that can be categorized as
hypermarket. In this research, the author used both the descriptive research and causal research.
Descriptive study are conducted in order to recognize and describe the characteristic of related
phenomenon in this study. A questionnaire method of close-ended questions are used and 129
respondents are needed for postesting and 15 questionnaires to process a pretesting.
Causal research can be categorized within this study since the author are going to determine
the cause and effect relationship between one variable with another variable. The variables which
give affect are considered as independent variable (in this research is represented by marketing
strategy, relationship quality and perceived value) those three variables are intended to affect the
dependent variable which are customer loyalty (word of mouth, purchase intention and price
The data consist of both statistical and numerical data that will be gathered from
questionnaire. Likert Scale as one of the attitudinal scales method is being used in order to

implement a rating question (SD: Strongly Disagree, D: Disagree, N: Neutral, A: Agree, SA:
Strongly Agree). Liker scale will be used in these variables such as:
Marketing strategy include product (3 items), price (3 items), place (2 items) and promotion (2
items). Relationship quality consists of customer satisfaction (3 items), trust (2 items) and
commitment (3 items). Customer perceived value consists of perceived quality (3 items) and
sacrifice (2 items). The three indicators that measure customer loyalty: word of mouth (3 items),
purchase intention (3 items) and price insensitivity (2 items).
In order to prove validity and reliability of this study, the author used SPSS 20 to measure the
value of each question and variables within the questionnaire. In order to examine the reliability,
Cronbachs Alpha was used to determining the internal consistency of a test or the correlation of
items (variables) within the test.
Microsoft Excel, SPSS 20 and Amos 20 package software are used to conduct a data analysis
process. First step, all the data from questionnaires will be input to Microsoft excel. After all data
have been input in Microsoft excel, data should be transformed into SPSS. The researcher
transforms the data into SPSS because AMOS can only process and read the data from SPSS.
After all the data have been transformed into SPSS, SEM (Structural Equation Model) will be
created in order to get the result from research question by using AMOS Statistical Tool.
The sample includes 129 respondents. There were more female shoppers which is 77% than
male shoppers. The majority of the respondents were between 21-40 years old (68%). Most
shoppers were had earned a high school degree as their education background (43%). Most of the
respondents were married (55%). The participants were most likely employee (61%) as their
occupation. The majority lived in Central Jakarta (36%).The majority had a personal income of
less than IDR 5.000.000 (51%). Most of the respondents were likely to purchase brand (X)

private label once a month (49%). The majority spent less than IDR 1.000.000 for brand (X)
private label (72%). Most shoppers purchased tissue as their brand (X) private label preference
After the data was gathered, data was transferred to Microsoft Excel, SPSS and AMOS. From
AMOS, the value of each variable of influential factor toward customer loyalty and customer
loyalty measurement indicator is shown in this figure which is the result of AMOS.
Figure 2. Path Diagram

Source : Li, M.L., Green, R.D., Farazmand, F.A. & Grodzki, E., 2012

Figure 3. Influential Factors toward Customer loyalty

No Element


correlation Square Correlation r Association


Marketing Strategy













Perceived Value

According to the table above, most respondents concerned about marketing strategy as an
influential factor toward customer loyalty. The most significant factor is determined by the level
of coefficient correlation (r). The more higher the coefficient correlation, the more significant the
indicator is.
Figure 4. Customer loyalty measurement indicator


Coefficient Correlation r


Correlation Association


Purchase Intention





Word of Mouth





Price Insensitivity




Most respondents concerned about purchase intention toward Brand (X) private label consumer
goods. Purchase Intention becomes the highest indicator that can measure customer loyalty with
0,73 correlation value and followed by Word of Mouth and Price Insensitivity.


The purpose of this study is to determine the most significant factor that influences customer
loyalty toward private label consumer goods of Brand (X) and to identify the most significant
indicator that measures customer loyalty toward private label consumer goods of Brand (X) by
examining marketing strategy, relationship quality, perceived value, word-of-mouth, purchase
intention and price insensitivity.
There are six hypotheses were examined and tested using AMOS statistical tools. The result
showed the significant factors that influence customer loyalty and the significant indicators
which measure customer loyalty. the result that is derived from the calculation using AMOS
statistical tools will decide which hypothesis is accepted.
Based on the hypothesis testing, several conclusions can be made and it will be divided into
some parts based on the research questions and related hypotheses. In overall, the researcher
concludes that the loyalty of the customer towards private label brand (X) is mostly influenced
by marketing strategy which consists of product, price, place and promotion.
According to the calculation using statistical software, it was found that the significant factor
within marketing strategy toward private label brand (X) is the price of the product itself. More
than 68% of respondents are more attracted about the price compared to the other aspects of
marketing strategy.
From three indicators which are word of mouth, purchase intention and price insensitivity that
are aimed to measure customer loyalty toward private label brand (X), purchase intention
becomes an indicator that is mostly shown by the customer to determine customer loyalty toward
private label brand (X).

Firstly, as part of marketing objectives, satisfaction can be considered as an important aspect
in order to make the customer loyal. As shown in the diagram, satisfaction becomes the weakest
aspect within relationship quality toward customer loyalty. From marketing point of view, a low
satisfaction level can result to the brand switching.
This phenomenon can be a disadvantage both for the company and for the customer,
therefore, from the marketing point of view; then the recommendation would be focus on the
improvement of products performance. The improvement could be some product modifications,
innovation, or appearance (packaging). By conducting a product improvement, it is believed that
the customer satisfaction will increase and it can affect to their repurchase intention. Beside an
increased in satisfaction, a product development can affect to the perceived quality.
Secondly, Promotional mix is considered as one of the important aspects that play a vital role
within a company activity. The performance of promotional mix will affect to the companys
performance and the performance of the company will create the perception of customer toward
the company. According to the result which shows that the aspect of promotion is considered as
low (ranked in the third place within marketing strategy), then, from marketing point of view, it
will result to the low rate of customers awareness. As promotion mix is considered as an
essential aspect which can affect customers brand preference, and then the recommendation
would be establishing more promotional activities in order to increase the customers awareness.
The promotional activities could be: Give shopping voucher for minimum purchase and
conducting a contest for customers.

Thirdly, as shown in the table, it indicates that price becomes the significant aspect within
marketing strategy toward customer loyalty. It can be concluded that the motive why customer
purchase private label consumer goods of brand (X) is because the price are low and affordable
for them. The impact of low price is the increase in purchase intention that can result in
profitability of the company. The reason why Brand (X) can provide a low cost product is
because they have cooperation with many Small Medium Enterprises as their provider of private
label products. At present, there are around 4000 small enterprises that become the provider of
Brand (X) private label consumer goods. From business point of view, the recommendation will
be to establish more cooperation with other small medium enterprises; therefore, it can reduce
their production cost, and provide some jobs to the unemployment.

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