Retail Brand Equity and Consumer Learning

Retail brand equity is a critical differentiator in today's competitive marketplace. However, retail managers have few metrics that they can rely on to manage their brand equity. In this paper, we propose a structural model to describe how retail brand equity is formed in each consumer's mind based on his/her consumption experiences across product categories provided by the retailer. Based on the behavioral research on brand equity and consumer inference, we represent consumers' beliefs about the qualities of the retail brand and the product categories as nodes that are linked in an associative network. This associative network enables consumers to generalize what they learn from one product category to the other categories as well as to the retailer. We integrate this associative belief structure into a Bayesian learning model, which can be estimated empirically from individual purchase data across categories. The model is applied to a direct mail retailer that sells products in three major categories. We analyze the complete transaction history of a sample of customers over ten and a half year period. The results show the existence of learning within and across product categories as well as considerable heterogeneity in learning across consumers. The model provides a tool to track the evolution of brand equity at the individual consumer level. Among the retailer's current best customers, we find that the retail brand equity contributes about 6% to the annual revenue. We also show how the model can be used to identify the key product category that influences brand equity in consumers' learning process.