A model to forecast the effects of price changes on brand loyalty of non-durable, consumer packaged goods in a competitive environment

Maintaining brand loyalty is a problem facing many consumer goods manufacturers in a competitive environment. This dissertation deals with the effects of price changes on brand loyalty. The purpose of this dissertation is to develop a model describing consumer reaction in terms of retaining brand loyalty as prices change and to describe the importance of product quality and brand strength as causal factors on maintaining brand loyalty. Previous literature studied the importance of the factors of couponing, advertising, product development, brand value, and perceived quality levels on brand loyalty. Consumer reactions to price changes given brand attitude levels, quality levels, promotion and advertising levels for laundry detergent and hot dogs are hypothesized. A survey technique was used to gather data and test hypotheses. The testing of these hypotheses is necessary to discount the effects of price changes on brand loyalty. A model using multiple regression technique is constructed with repurchase intent as the dependent variable representing brand loyalty. The independent variables in this model are advertising, product innovation, and perceived quality levels. In this study, consumers were asked their intentions of repurchasing their preferred brand given various levels of price changes. Responses were then separated by levels of brand loyalty, levels of market share, coupon usage, brand value, and perceived quality levels. Price elasticities were calculated for different levels and categories. It was concluded that price elasticities are dependent upon quality levels and that price sensitivity behaves in multi-tier fashion with respect to quality levels. The deterministic model shows quality levels and product innovation as predominant causal variables in predicating brand loyalty. Methodology for developing a deterministic model to predict brand loyalty and to measure price sensitivity is discussed. Results are discussed with recommendations for future study enabling generalization of brand loyalty model construction to other products, with consideration to factors such as high involvement products and the separation of normal and inferior products.