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The role of branded retail in manufacturers international strategy

Laura Ilonen, Jody Wren, Mika Gabrielsson and Markku Salimaki
School of Economics, Aalto University, Aalto, Finland
Purpose The purpose of this paper is to clarify the different roles and implications of a manufacturers branded retail operations on its international strategy. The roles are analyzed through two dimensions, brand strength and the role of branded retail as a sales channel. Design/methodology/approach A multiple case study approach is used to look at the international development of branded retail in four companies, LEGO, Nokia, Iittala and H & M. Findings This study nds that there are at least two approaches to implementing branded retail strategy internationally that can be and often are overlapping. Emphasis on branding appears to be important in both approaches. However, the role of the branded retail as a direct sales channel differs between the case companies. The paper discusses and demonstrates the importance and role of branded retail for companies not generally seen as retailers, from both sales and brand management perspectives. Originality/value The paper contributes by narrowing the evident research gap regarding this current and seemingly global phenomenon. Keywords Brands, Retailing, Selling methods, International trade, Globalization Paper type Case study

Received July 2009 Revised August 2010 Accepted November 2010

Introduction As the retail industry is becoming increasingly consolidated and retailer power increases, many manufacturers and brands are losing control of their destiny at the retail level. Retailers meet and communicate with nal customers personally at their stores, right where the shopping takes place and most shopping decisions are made (Thomassen et al., 2006, pp. 1 and 2). According to Keller (2003, p. 260), this consumer interaction means that retailers can have a great inuence in manufacturer brand equity. According to Wise and Baumgartner (1999), globalization and increasing competition in many industries have highlighted the importance of exploring opportunities downstream, closer to the customer, for example by offering services, solutions or controlling their distribution. In relation to this, Floor (2006, p. 59) states that:
This article acknowledges the contribution of the RESPONSE-research project of the Helsinki School of Economics, which has now become School of Economics of Aalto University. The project is part of the LIITO-research program, nanced by Tekes, the Finnish Funding Agency for Technology and Innovation. The authors would also like to thank all the interviewees for their time and valuable comments. Special thanks to the interviewee at Iittala for being a key interviewee and for helping to establish contacts with some of the case companies as well as determining the managerial problem behind the research, which has been extremely helpful for this study.

International Journal of Retail & Distribution Management Vol. 39 No. 6, 2011 pp. 414-433 q Emerald Group Publishing Limited 0959-0552 DOI 10.1108/09590551111137976

[. . .] no matter what the retail activities of a manufacturer are, it is certain that in the future manufacturers will sell directly to consumers more: through their own stores, but also via catalogues and web sites.

The role of branded retail

This seems indeed to be happening globally as many brands that have traditionally been sold to nal consumers through external retailers are starting to become more retail oriented and open, for example, their own agship stores or branded chains of stores both domestically and internationally. Examples of this type of activity are Coach, Apple and Nike who, among others including smaller brands, are seeking growth through branded retail. In addition to the more powerful retailer, the manufacturer and its brand are also squeezed by the increasingly powerful global consumer (Thomassen et al., 2006). For example, Anderson et al. (1997, p. 60) state that although many observers believe that manufacturers have lost ground to suppliers in fact both manufacturers and retailers have lost power to the consumer. Recently, the global consumer has access to wide variety of information sources, has more disposable income than before and also demands more from the product and the consumption experience as he/she has many alternatives of which to choose from. As Brun and Castelli (2008, p. 169) comment consumers are no more focused only on product characteristics; their purchase attitude is everyday more inuenced by the complete shopping experience provided in the point of sale. According to Stern et al. (1996, p. 22), change [in a channel structure] must always take place according to an assessment of future requirements. And as the future requirements currently seem to emphasize experiences and direct consumer contact, the investment in own retail capabilities will need to increase in the future. Despite this topics relevance, academic research on branded retail is limited. Alexander and Doherty (2009, p. 101) discuss international non-food retailers stating that In the fashion sector, retailing has been traditionally the less important arm of a manufacturing-based commercial activity. However, while addressing the integration of manufacturers into retail they reect the international retails literatures focus upon (luxury) agship stores and/or (designer) fashion brands (Moore et al., 2000; Kozinets et al., 2002; Doyle et al., 2008; Moore et al., 2008; Hollenbeck et al., 2008). As their name suggests, agship stores are seen as standard bearers for the brand and are dened as:
[. . .] the major shop or outlet in a chain, usually located in capital cities, which is larger than major outlets and carries a wider range or merchandise [. . .] may have its own unique identity in the chain (Baron et al., 1991, p. 82 in Doyle et al., 2008, p. 553).


However, as mentioned within the international retailing literature (Hollander, 1970; Dawson, 1994), there are many different international retail expansion methods. Not all branded stores will be agship operations; therefore, we think that the role of branded retail as a whole should be looked into as well. In particular, the overall logic behind the choices made and the role of branded stores in the manufacturers international strategy remains to be studied. That said, agships are also an important part of branded retail, and thus literature on agship stores is seen as relevant to this research as well. Also relevant is fashion retail literature as it may also be applicable to other industries where the brand is seen as an important asset. To clarify the terminology, the terms branded retail and branded stores both refer to the retail operations of a manufacturers (product) brand and will be used extensively throughout this paper. No commonly used term seems to exist for branded retail

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operations that would take into account the fact that the brand originated from a manufacturer and was developed along with the retail concept. Retail brand is an established term for companies who see retail as their core business (Interbrand, 2008) but the term does not explicitly take into account retail operations built around an existing manufacturers brand, i.e. retail brand is often seen as retailer as brand (Ailawadi and Keller, 2004). Since this study emphasizes the brand aspect, terms such as company stores or company owned stores used by, for example, Keller (2003, p. 264) and Coughlan et al. (2006, p. 335) are also not the best terms. This is because stores are not necessarily owned by the manufacturer, as in this paper we see franchised stores as branded stores as well. Here, the (fascia) brand is the dividing factor between a branded direct channel and an indirect one (as the external retailer could have its own brand), even if we acknowledge differences between ownership modes. For example, Benettons franchised stores have helped to make its brand known all over the world, even if the companys roots are in manufacturing. There have been numerous studies that have described the sales and marketing strategies of manufacturing rms in foreign markets (Luostarinen, 1970; Luostarinen and Welch, 1990; Gabrielsson et al., 2002). Yet, these studies have not analyzed manufacturing rms using branded retail as a way of marketing and selling their products in international markets. While entry modes used by international retailers has been studied in detail (Hollander, 1970; Dawson, 1994), very little of this research examines manufacturing rms utilizing branded retail channels. Doyle et al. (2008) is an example of a paper that looks at the forward integration of a manufacturing rm (i.e. B&B Italia) into retailing. However, as mentioned, that paper focuses on a luxury designer brand utilizing one retail entry mode; agship stores. Laulajainen et al.s (1993) looks at the degree of globalization of specialist retailers that often have their own manufacturing. The paper nds that own manufacturing can offer retailers an advantage, e.g. shorter order times and merchandise control, however this increased control comes at a high risk and cost. While these papers offer valuable insights, we aim to add to the discussion by examining different manufacturing rms that have decided after years using traditional manufacturing channels to incorporate different types of branded retail operations within their international expansion strategy. Using semi-structured interviews with business-to-consumer (B2C) manufacturing rms that emphasize high design, we explore the role overtime of branded retail in international strategy, especially its role in strengthening the brand and operating as a direct sales channel. Initially, the paper reviews the literature on building a brand through retail and international channel strategies in order to identify the relevant dimensions and constructs related to branded retail in manufacturers international strategy. Next, the methodology used to collect and analyze the data is discussed and the case companies are described. This is followed by a summary of the main ndings, including a framework, and the conclusions. Review of the literature In this section, previous literature on factors affecting the role of branded retail in the manufacturers international strategy is reviewed. We look at brand literature as well as channel literature. The rst part focuses on brand-related literature and the implications of retail space on the brand. In the second part of the literature review, we take a look at channel and internationalization literature to determine the branded channels role in creating revenue on an international scale.

Building manufacturers brand strength through retail Mascarenhas et al. (2006, p. 397) state that the current trend in marketing is to create engaging and lasting experiences for the customers. Markkanen (2008, p. 10) notes that in the past companies sold products and services, then they sold brands and now through brand extensions and complimentary services we have moved to a new era where those that succeed offer entertainment, ideas, emotions, unique experiences and surprises. This view is supported by Hollenbeck et al. (2008) who state that in todays society companies are trying to differentiate their brands through experiences rather than specic product attributes. Doyle et al. (2008) agree that for their case (B&B Italia) the core reason for the company to launch agship stores was in fact the willingness to move from product-oriented business to a brand-oriented business as the company had previously been known for certain elements of the brand rather than for the brand as a complete experience that the stores could represent. Brand strength is often compared to brand equity that according to Aaker (1996, pp. 8-9) consists of brand name awareness, brand loyalty, perceived quality and brand associations. According to Ponsonby-McCabe and Boyle (2006), the building of a strong brand can be disrupted by the different views of brand value held by brand managers (often seen as brand identity) and customers (often referred to as brand image). Furthermore, it is up to the company to create the product, brand awareness, positive brand identity and the brand environment, but ultimately the customer is responsible for being loyal towards a certain brand. Even though brands have their roots in reality and in consistent identity development, they nally reside in minds of the consumers (Keller, 2003, p. 13). For Ponsonby-McCabe and Boyle (2006), brand environments or brandscapes such as agship stores, themed retail outlets and virtual brand spaces, could offer one possible solution to the problem of the different views of the company and its customers. This type of branded environment can:
[. . .] offer strategic marketers and brand managers an opportunity to reinforce the link between the brands symbolic meanings and the consumption experience, on the one hand (Sherry, 1998); and, consumers the opportunity to consume the brand as a place experience, thereby creating experiential value for them, on the other hand (Ponsonby-McCabe and Boyle, 2006, p. 183).

The role of branded retail


This type of branded experience is then expected to improve the consumers perception of the brand and increase their loyalty and commitment to it. Corstjens and Corstjens (1999, p. 172) found that in general retailers have three advantages over manufacturers when inuencing consumers. These are communication with the consumer, control of marketing mix variables, and consumer information. Communication with the consumer refers to the fact that company owned stores can act as giant advertisements for the brand. Flagship stores in particular are often used to make the brand visible and more dynamic (Floor, 2006, p. 56). While it is in general accepted that agship stores are an increasingly popular means to build relationships with consumers and show off product ranges, the literature is undecided on whether agship stores generate prot. For example, Kozinets et al. (2002) believes they do not while Doyle et al. (2008) found that the agship stores they researched actually had a prot generation function. Retailers control of multiple-marketing mix variables gives them power over the consumers interaction with manufacturing brands and thus the brand is increasingly more dependent on the decisions the retailer makes. According to Quinn and Doherty (2000), the lack of control over the end-retail concept, in their case by a franchisee,

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was especially true for franchisors lacking a strong brand enabling them to differentiate themselves from their competitors. However, one of the most important reasons to start a chain of branded stores is often that the manufacturers brand wants to be more independent and not only one brand among many others on retailers shelves (Floor, 2006, p. 58). According to Davies and Ward (2005, p. 505), retailers efforts at branding draw on a different array of tools and components to those organizations in different sectors. They state that in addition to the usual brand identity building elements of name, symbol, packaging and advertising, retailers can also draw from the elements that have been identied in the studies of store image. These elements are for example merchandise (assortment, quality, brand mix and price), store (location, environment, atmosphere and name/fascia), service (personnel, levels and quality) and nally promotion (advertising/public relations and in-store) (Davies and Ward, 2002, p. 178). As the manufacturer takes its brand to retail, it can then create the brand experience by using these elements as well. The nal advantage is the retailers privileged access to consumer information (Corstjens and Corstjens, 1999, p. 172). A brand manufacturer could thus automatically use these data in brand building, for example, to segment and target consumers and to approach them with correct offerings (Corstjens and Corstjens, 1999). Direct contact to the consumer and access to direct feedback also allow brand stores to operate as a test market and nd out how consumers respond to, for example, alternative product designs, product presentations, and prices as well as new ranges of products or range extensions (Keller, 2003, p. 266; Doyle et al., 2008). Flagship stores have an extra function in that they can act as a blueprint for other stores development (Doyle et al., 2008). Even if, according to Keller (2003, p. 266), company stores are in many cases seen as a means of bolstering brand image and building brand equity rather than as direct sales devices, agship store studies have also identied other strategic functions for these stores (review, e.g. in Doyle et al., 2008). These include, supporting partnership relations by, for example, increasing sales in other distribution channels, and acting as market entry/development method (Moore et al., 2006 in Doyle et al., 2008). Direct branded channel as a part of manufacturers international channel strategy Keller (2003, p. 266) categorizes company stores as a direct sales channel. Despite branded retails strong role in branding, under the pressure of economic circumstances, the focus of mono-brand stores has been more on the distribution function in the last couple of years (Floor, 2006, p. 58). Parment (2008) states that there has traditionally been a tension in distribution between short-term protability (cost/revenue focus) and long-term brand-building, a thought that has also been brought up by Wileman and Jary (1997, p. 1). Also, the capabilities needed in retail business are rather different from those needed in manufacturing (Levy and Weitz, 2008, p. 88). According to Wileman and Jary (1997, p. 2), a retail business needs to nd a balance between short-term prot and long-term brand building to create sustainable competitive advantage. As discussed in the previous section, branding and experiences seem to be increasingly important today in the eld of marketing research, early distribution research on the contrary has focused on minimizing costs as the primary goal [. . .] they did not take marketing and branding issues into account (Parment, 2008, p. 252). According to Parment (2008), this is because

early theorists assumed that there is always a market for the products, and thus minimizing cost would be the most important goal in developing distribution channels. This is not the case today because as discussed the global consumer has an endless variety of products to choose from. Regarding the international and global dimension of branded retail, according to Gabrielsson et al. (2002), international business (IB) and marketing literature use different denitions of sales channel structures. IB literature focuses on the internationalization stages perspective (Johansson and Vahlne, 1977; Luostarinen, 1970) recognizing two main groups of channel strategies (Gabrielsson et al., 2002); export operations (including indirect export mode, direct export mode and own export mode) and sales and marketing subsidiary options. The marketing literature, on the other hand, concentrates mainly on a domestic market or single market perspective, which can make the combination of these two approaches confusing at times (Gabrielsson et al., 2002). However:
[. . .] many dimensions for these denitions, such as the degree of directness and ownership of the channel, the variety and number of the channels, and the degree of selectivity of the channel, are important in both research streams (Gabrielsson et al., 2002, p. 75).

The role of branded retail


Since here the focus is on how to benet from branded retail at the international level, the common dimensions have to be taken into account. The important common dimensions are best summed up in Mallens (1996, p. 1970) ve major issues in channel selection decisions. These are: degree of directness, selectiveness, type of middlemen, number of channels and nally the way channel members are selected. He continues that distribution structures change with time as factors such as the market, marketing mix, resources and different environmental forces all dictate the most efcient channel structure. In this study, the degree of directness and number of channels are among the main considerations. However, of the remaining three decision areas selectiveness has direct relevance to branding, but is left for further research. For a manufacturer, deciding whether to sell the products directly or to use independent intermediaries internationally is basically a make or buy decision (Anderson and Coughlan, 1987) that has been widely researched in the marketing channel literature (Anderson and Coughlan, 1987; Mols, 2000). Coughlan et al. (2006, p. 340 and 346) write that outsourcing distribution should be the default option. They continue that under normal circumstances markets for distribution services are efcient and it is thus difcult for the manufacturer to get better results from these operations, not least as they require considerable nancial investment. However, they agree that the more valuable a specic asset (e.g. a brand) is to the manufacturer, the more the rm is better off if it vertically integrates. (Coughlan et al., 2006, p. 352) Also Parment (2008) found that in the car market the motivations for having a direct channel are stronger for premium brands than for volume brands. Furthermore, sometimes outsourcing distribution is not even possible internationally. To give an example, it has been said that one of the reasons why Apple opened their own stores was because their market share was too low for consumer electronics stores to take the products into their shelves (Floor, 2006, p. 59). Multiple channels According to Keller (2003, p. 260), it is rare that a manufacturer would use only a single channel, rather manufacturers are more likely to use multiple channel types in order to achieve optimum coverage and effectiveness with minimum cost and conict.

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When a company sells its offerings to the nal user through both integrated and independent channels, the channel structure is called a dual channel (Mols, 2000). For example, internet-based channels that compliment a traditional supply chain through independent organizations are making the use of dual channels more common (Mols, 2000). Choi (2003) argues that it seems that even if expanding to a direct channel can seem as attractive to a manufacturer, the move can cause conict between the new and existing channels as retailers that previously have distributed the manufacturers products may see the store or other direct channel as a threat to their sales (Floor, 2006, p. 59; Keller, 2003, p. 266). Furthermore, manufacturers may not only face resistance from their own existing channels, but also from the branded stores of other manufacturers from the same industry. There is simply not enough room in the direct market to support as many manufacturers as in conventional channels as those that start direct sales rst operate as entry barriers to latecomers (Choi, 2003, p. 27). Whereas, a dual channel is prone to conict between different channels, another multiple channel strategy, the hybrid channel strategy, is based more on cooperation and partnership:
In a hybrid sales channel, the marketing functions are shared by the producer and the channel intermediary; the former usually handles promotion and customer-generation activities, whereas the intermediary is in charge of sales and distribution (Gabrielsson et al., 2002, p. 78).

An example is the case of B&B Italia, Doyle et al. (2008, p. 558) found that the rms move into branded retail was not seen as undermining the wholesale channel, but rather, in keeping with the literature, as a means of supporting and augmenting it. In addition, branded stores that are seen as means of strengthening the brand image are not so easily subject to channel conict (Keller, 2003, p. 266). Methodology As Yin (2003, pp. 5-7) states, research questions asking why and how favor the case study approach. The case method is also said to be best in creating a basis for further research in undeveloped research areas where no ready developed hypotheses exist (Eisenhardt, 1989). The paper includes case studies of three design-orientated manufacturing companies that all have used branded retail as a part of their strategy in international markets. These cases were then compared with the experiences of a successful retailer, H&M, which has managed to build a global brand around its branded retail operations through its value creating retail concept. The purpose of this comparison is to highlight any similarity and differences between retail and manufacturing brands expanding internationally via branded retail. The companies are in different stages of development, some brands are globally known, whereas others are in the process of making the brand known internationally through branded retail. The companies were selected because they all have their roots in manufacturing and have a well respected brand within their industries, even if not all are globally known, that they are taking to retail or have taken to retail on an international scale. The companies are from different industry backgrounds and in different phases of international development, which allows a broader look at the phenomenon, but also

limits the generalizability of the ndings. However, we acknowledge this limitation and suggest further research using more similar companies in the future. The main method of gathering information was interviews. The interviews were semi-structured with the questions varying around the same topics. Yin (2003, p. 89) states that interviews are one of the most important sources of case study data, because through interviews it is possible to gain a lot of data quickly. In addition, immediate clarication is possible if something is not completely understood. On the downside, during personal interactions interviewees may be unwilling or uncomfortable sharing knowledge that the interviewee hopes to obtain (Marshall and Rossmann, 2006, p. 201). Also, interviews are often subject to common problems like poor recall and bias, and thus interviews should be reinforced by information from other sources (Yin, 2003, p. 92). As such, for study information on the cases and case companies was also gathered from sources such as annual reports, newspaper articles and company web pages. The interviewees were the senior managers in charge of the companies branded retail operations, except in the case of H & M as the interviewee was a former CEO of H & M Finland. Consequently, the interviewees were very knowledgeable about their companys past, present and future retail strategy. In support, Marshall and Rossman (2006, p. 105) state these elites make very good interviewees because of their broad view. Description of the case companies In this part, we look at the role and implications of branded retail in three companies, all of which are manufacturers that are now taking their brand to retail. These ndings are then also compared to the development of H & M that originally built its brand through a value creating retail concept. The case companies are presented in Table I reecting the framework suggested by Akehurst and Alexander (1995), i.e. answering who is internationalizing? How retail operations have developed? Where are the companies developing their operations? And when did internationalization of retail operations occur? A fth question, why are they internationalizing via retailing? is, in the context of this paper, rephrased as why are the manufacturing rms expanding internationally via branded retail? And is addressed in the following section. Discussion on the role and development of branded retail in the case companies In this part, we discuss the international development of branded retail in the case companies. H & M is not discussed here as retail has been an important part of the business model from the founding of the company. Instead, we compare H & Ms experiences with the other three companies in the main ndings section. In this section, we rst look at the role of branded retail in communicating the correct brand identity and strengthening the brand by narrowing the gap between brand identity and image. Second, we move on to looking at branded retails role as a sales channel. Based on the emphasis of the companies branded retail, we place them in a two-dimensional matrix. Brand emphasis Nokia and LEGO both were strong brands globally before they started to integrate forward into retailing. For Nokia, the development of branded retail in its current form started in 2004 when Cliff Crosbies team started to develop a sales channel for Nokia where the brand would be ultimately presented, i.e. a agship store. Later, the retail

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Headquartered Billund, Denmark Founded 1932 51.1 billion Mobile communications; currently dominated by a few global companies. Fast changing and volatile (Datamonitor, 2008a)

Net sales in 2007 (e) Industry

Homeware design; not currently very dominated by global companies. Some niches in the industry have higher globalization potential (e.g. Scandinavial design) The leading Finnish design Competitive One of the largest toy manufacturers Number one mobile phone manufacturer in the world with over company in home-ware and interior position in the world and the biggest in 40 percent market share currently. decoration items. Internationally construction toys Also one of the leading companies in less known mobile networks Brand LEGO is a premium brand in the Nokia wants to deliver the thought Iittala is the companys international construction toy category of ease of use, quality, reliability and brand. All about lasting everyday design through its brand. Nokia is design with a thought and against the fth most valuable brand in the throwawayism. Also combinability and world (Interbrand, 2008) multifunctionality are important Global, started in the 1980s (mobile Mostly in Europe, started in the Geographic Global, started in the 1950s with expansion sales ofces. Products sold in more phones). Products sold in over 150 1930s with exports, products sold in countries in about 350,000 points of over 60 countries than 130 countries sale Branded retail In 2002, as a marketing investment. In its current form in 2004 with the In 2002, spearhead of brands started Strategy revised in 2004 creation of a agship concept, which international development is then scaled down to other channels 29 Iittala stores in international Nine company owned agship Number of 25 company owned LEGO Brand markets, of which seven are stores and ,2,000 partner run stores Stores in the USA, Germany and Nokia stores, thousands of shops-in- franchised and the rest company UK. Of these, three are LEGO owned. Tens of shops-in-shops shops Imagination Centers (agship stores) and four are outlet stores. The rest follow the middle-store concept

Table I. Case companies

Nokia Espoo, Finland 1865 Stockholm, Sweden 1947 ,8,447 million Fashion (high street); fast paced due to seasonality and short product lifecycles and lead times. Very global, the same fashion retailers can be found from all over the world One of the global leaders in the industry Iittala Group H&M Helsinki, Finland 1881 (from 2007 part of Fiskars Corporation) 189.8 million (in 2006) The top performing European Retail Brand in 2008 (Interbrand). Business idea behind the H & M brand is always based on fashion, quality and the right price Global, started in 1964, growth accelerated after 2000, present in 33 countries In 1947, the rst international store in 1964 ,1,700 company owned H & M stores in 33 countries. From 2006 also franchise stores in the Middle East

LEGO Group

,1,077 million

Toys and games; dominated by large global companies with a focus on brand building and global distribution (Datamonitor, 2008b)

concept has been scaled down to other types of stores and shops-in-shops as well, but according to the interviewee from Nokia this type of development always has to be started from the top and the concept needs to be absolutely right before it can be scaled down. Nokias initial interest in branded retail stems from the fact that brand has gotten so big you cannot give your entire brand away to your retailers. For Nokia it was important to take control of the brands look and feel at the retail level and communicate the brand identity and values through this new media of retail. In its own stores, Nokia can present its entire range and offer superior customer service that is seen to be a very important part of the agship brand experience. Also, the agships stores are a great way to experiment with concepts, for example, Nokia has tested service ideas and technologies, etc. in its agship stores before introducing the new solutions in other types of stores. A similar type of reasoning was behind LEGOs decision to launch its Brand Stores in 2002. According to Ms Pallesen, the company wanted to have an outlet where they could show the whole LEGO brand experience and use it as a marketing platform. Whats more, the company wanted to control its own destiny because the growing consolidation in retail in some markets (especially in the USA) and resulting disappearance of small toy stores was putting pressure on the brand. Since giant retailers are increasingly in control of the selling situation and the way the brand is presented, LEGO wanted to gain direct relationships with the people using the companys products to learn more about them, about their wants and needs. By doing this, LEGO wanted to create value not only for the consumers, but also for itself and its retail customers, thus binding all stakeholders closer to the company. For LEGO, however, the stores are not the only way to gain direct contact with the consumer in international markets. LEGOs direct channel structure consists of three different channels: branded stores, online sales, and catalogue sales. The brand aspect was crucial for Iittala as well driving the company to develop a branded store concept that would be an important part of the companys international strategy. Like LEGO and Nokia, Iittala wanted to create closer relationships with its consumers and wanted to be able to present the brand and the products in a controlled manner. The branded retail concept enables Iittala to really create a brand experience for the nal customer instead of just showing and selling individual products at external retailers premises. Similar to Nokia, Iittala believes its stores are a good place for the company to test new ideas. According to our interviewee, in retail you can immediately change the merchandising campaign or communication and see immediately how it works through the sales it generates. In contrast, when Iittala was only a manufacturer this kind of immediate feedback went only to the external retailers who controlled the customer interface. It is worth noting that while brand aspects are very important to Iittala the sales aspect of the branded retail channel is more prominent than it is for Nokia and LEGO as the retail concept is also the basis of the companys international growth strategy. Sales emphasis In addition to strengthening the brand, Iittalas stores have a very important role in the international development of the brand as branded retail is currently the spearhead mode of Iittalas internationalization. The whole company is shifting emphasis from wholesale to retail sales internationally and the expansion of direct retail operations, i.e. stores as well as shops-in-shops, is one of the key elements in Iittalas international strategy. Thus, Iittalas decision to start branded retail is essentially a result

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of the companys strategy of internationalizing the brand, not just products, and making the brand known in international markets. So, for Iittala, the approach to branded retail is rather different and the company will likely follow an expansion path that differs from LEGO and Nokia and is more similar to the internationalization of retail companies such as for example H & M, Benetton, and Body Shop. Like Iittala, these retail chains were not so known all over the world before they expanded with their respective store concepts. Part of Iittalas strategy is to keep the number of its international wholesale customers selling the Iittala products rather small. The company wishes to keep the distribution rather exclusive and focus on brand presentation through the branded stores and shops-in-shops in premium department stores, i.e. seeking sales where the targeted consumer is seen to be found internationally. Thus, as the international sales of the company are increasingly generated through the branded channel the stores (and departments) need to generate prot in addition to building the brand and boosting sales in external channels. As discussed in the literature review, there has traditionally been a tension in distribution and retail between everyday protability (i.e. cost/revenue focus) and a long-term, brand-building view. In fact, the interviewee from Iittala commented that you really cannot be as pure as you would like to be with the brand in the stores, as the stores need to be protable as well. LEGO noticed this the hard way after considering their rst stores as a pure marketing investment. Quickly the company noticed that these pure stores were becoming too expensive to maintain and was forced to close down some in the most expensive locations in order to reach prot. In the case of Nokia, the existing literature often suggests that agship stores are a marketing tool rather than a protable sales channel. In reality, Nokias agship stores have also been very successful in terms of generating sales. According to Nokias interviewee, location is about consumer trafc and as the Nokia agships are in the best streets of the world the massive trafc present in such locations also creates a good sales level. Both LEGO and Nokia interviewees emphasized the fact that brand stores bring value and benets to external retailers as well. This means that even if their branded retail is not their main sales channel, it does not mean that it is not boosting the brands sales elsewhere. Both interviewees commented that before going to retail, both companies have already built extensive global distribution based on external retailers that will always be their primary sales channel. It could be that as efcient distribution already exists and the nature of the products and markets require rather intensive distribution, it would not make economic sense to sell only in branded outlets. Then again as Iittala is positioning its offering abroad as new luxury (for more about new luxury see Silverstein and Fiske, 2003) it has to pay more attention to the presentation of the brand as a whole and focus more on the direct channel and selectivity and control at the point of sale to really build the brand and appeal to the emotions of people and make them trade up in this category. In this way, its approach is rather similar to designer fashion, where the products are sold from selected outlets that really build the brand in a controlled manner. In the LEGO and Nokia cases, the approach to multiple channel design can be seen as a hybrid channel. As commented, cooperation is important and brand stores are not a threat to the sales of external retailers as they are not the primary sales channel. In fact, LEGOs external retailers were initially worried about the impact that the brand stores would have on their sales. However, according to our interviewee, it soon came apparent that whenever a new LEGO store opened the sales of nearby retailers went up.

As a result, today retailers are more than happy to welcome a LEGO store to their neighborhood. According to Mr Crosbie from Nokia, the brand stores can in fact create a halo-effect around the brand. This is not only in terms of sales but a agship can also operate as a role model for external retailers (or carriers) for example as they see that the agship concept is working very well service wise, and start to copy. So as Keller (2003, p. 266) commented, channel conict does not seem to be a problem in these cases and the best interest of external retailers (and carriers) is looked after also by always keeping the prices premium in the branded stores. As the manager from Nokia commented if the brand cuts prices in its own stores, it is lethal to everyone else. Then again, Iittala faces a different types of situation as the whole emphasis of the company is shifting from wholesale to retail sales internationally (especially in the focus markets in Central Europe) based both on own stores as well as shops-in-shops. Thus, even if Iittala also appreciates the role of external retailers selling only the products, as they create availability for the consumer with a smaller risk, the current strategy can naturally create channel conict as it can be seen as dual channel design. This is true especially as the Iittala brand is not so known internationally and thus the customer/potential shopper base to be shared between the direct channel and external retailers is not as extensive as for Nokia or LEGO. However, according to our Iittala interviewee, the stores have convinced external retailers, such as major department stores, of the brands potential and in this way paved the way for Iittala shop-in-shops. As successful as Nokia has been in opening its own stores, our Nokia interviewee commented that it is unlikely that in the future all brands would have their own stores. According to him the brand has to be big and powerful enough to make branded retail work nancially. Similarly noted by Choi (2003), the direct retail market cannot support the large number of manufacturers as there is today. Finally, all the three case companies that have taken their (product) brand to retail have started their international ventures originally through export operations, and thus had some international experience prior to starting branded retail. The international development of branded retail then again has varied between the companies as LEGO and Nokia were very well known as brands already as with Iittala the aim of the brand stores is to build the brand internationally and make people appreciate the whole brand experience and the story behind it. By doing this in a way that is also nancially feasible, as mentioned, the branded concept allows Iittala to gain access to up market department stores, where the targeted consumers can be met. Summary of main ndings The importance of taking the brand to retail truly seems to be growing as all the interviewees stated that they felt sure that the value of branded retail will grow for their respective companies in the future. On the basis of the interviews, it seems that branded retail will develop in different directions for different companies and thus have different roles in their international channel strategies. For Iittala, branded retail is about building their brand internationally, and thus gaining control and power over its retail concept. For LEGO and Nokia, it may mainly stay as a way for directly controlling and communicating their already-strong brands at the consumer level. To show our main ndings in a compressed form, we have developed a matrix (Figure 1), in which each company can be mapped according to their international channel strategy and the inuence of its international branded retail. The international

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H&M 1950s Branded retail-own stores 2002-2008 Branded retail - Own stores - Franchised stores - Shop in shops

2006-2008 Branded retail -Own stores -Franchised stores


Sales emphasis

1930s > exports


2004-2008 Branded retail -Own stores (profitability focus)

LEGO 1950s > exports 1980s > exports

2006-2008 Branded retail - Own stores (marketing investment)

2004-2008 Branded retail - Own flagship stores - Franchised stores - Shop in shops

Figure 1. International channel strategy development and the role of branded retail


NOKIA (mobile phones) Low Brand emphasis High

development has started with exports for all the manufacturing companies, and exports still continue today. However, they have been left out of the later phases as we want to emphasize branded retail and its role in the channel strategy development. Furthermore, the matrix does not show the cumulative effect of the changes in channels, but rather presents the shift in emphasis after each change in the channel structure. The two dimensions according to which companies are placed have been derived from the main parts of the literature review. The vertical dimension represents the emphasis on branding and on affecting the customer, reecting the main theme in the rst part of the literature review on the way going to retail could help strengthen the brand. The horizontal axis of the matrix is emphasis on sales. By this we mean the extent to which the company relies on its direct channel to generate revenue in international market. If the retail operations sales emphasis is low, the primary motivation behind branded retail operations is seen to be the communication and control of the brand. Furthermore, branded retail is a channel option for manufacturing rms that want to increase brand control and communication, increase international sales, or both. As emphasis on both sales and brand implies that they emphasis are not mutually exclusive. The different

approaches also cannot be seen as clear cut. For example, Nokias franchised stores are creating revenue as are the agships, but as Nokia products are sold in over 350,000 sales points, these stores are not the basis of international development of the brand as is the case for H & M and Iittala currently. To further clarify the gure, all companies except H & M started their internationalization with exports. Nokia started to develop the agship store concept in 2004 and the concept has been since scaled down to partner run stores and shops-in-shops. As discussed, the emphasis seems to be on the brand but sales are naturally important as well, however by far the most important sales channels are the external carriers. In the future, the importance of branded retail can be seen to grow both in branding and sales as for example the number of stores increases. As for LEGO, the investment in Brand Stores was initiated in 2002 as a marketing investment, but the company revised its strategy in 2004 and currently the stores need to be protable on their own as well. For LEGOs near future, the most important sales channels will likely remain the external retailers, thus the depicted moderate increase in sales emphasis. However, as the number of stores increases their relative importance as a sales channel is likely to go up, as the company aims at extending their footprint in new markets as well with the stores. Iittala, after the company had exported its products for decades, started to develop its branded retail concept in 2002 to drive the brands international development instead of selling individual products. As the company wishes to become a retail specialist, in addition to brand emphasis direct sales from the stores is emphasized considerably as the whole business model is based on the success of the stores internationally. In the future, the emphasis on both branding and sales can be seen to increase as Iittala builds its branded chain of stores further and it becomes more widely known. Finally, H & M has been selling its products only in its own stores since 1960s. However, recently it has also signed franchise agreements to benet from the local knowledge of its franchisees. Also, the emphasis on the brand can be seen to be increasing constantly for example with the collaborations of famous designers. After reviewing literature and analyzing the empirical ndings, it can be concluded that creating complete experiences (Doyle et al., 2008), where the brand could be presented in a controlled manner seemed to be important for all companies in their initial decision to take the brand to retail. Furthermore, as Hollenbeck et al. (2008) discussed these case companies wanted to differentiate their brand on the global market through experiences rather than specic product attributes. For example, even if Iittala is known for its timeless design and unique manufacturing capabilities, in international markets the company wants promote its complete brand rather than individual products. As Ponsonby-McCabe and Boyle (2006) suggested, Nokia and LEGO want to control their brand at the consumer level as they do not want to lose all contact with the consumer to external retailers. The ways that the case companies wanted branded retail to affect the consumer were mostly in line with the advantages that retailers have in inuencing the customer that Corstjens and Corstjens (1999, p. 172) discussed. All the manufacturer case companies saw direct communication with the consumer as important and also used many of the marketing mix variables available to retailers to strengthen the brand. LEGO saw it as important to be able to control its own destiny at retail as the growing consolidation of retail, especially in the USA, put pressure on the brand. Also, the importance of gaining direct feedback from the consumers at the point of sale was seen as important when testing new products and services. Then again

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the role of branded retail as an actual sales channel and driver of international growth seemed to differ between companies as illustrated in the matrix. For companies like Nokia and LEGO, whose global brands had already been built prior to engaging in branded retail, revenue generation is not the main role of their branded stores. Instead, emphasis is placed more on brand communication, creation of brand experiences, and retaining brand control. Of course, the stores also create sales directly and indirectly, and protability is not indifferent to these companies. We conclude that the ndings, especially from Nokia, are in accordance with Doyle et al. (2008) who also commented that agships can have a prot generation function in addition to the branding function. Nokias interviewee commented, protability may not always come in the same place though, as a person who for example visits a agship may nally buy the product somewhere else, which is no less valuable for the brand. Branded stores also act as a blueprint for store development as Doyle et al. (2008) commented to be the case with agship stores. However, as most apparent in the Nokia case, they also can create a halo-effect around the brand that not only boosts the brand and its sales in external retailers premises, but also allows the brand to extend its control indirectly over external retailers as well. This is because when they see what works in the branded stores, external retailers start to copy those best practices as well. Importantly, the companies pursuing this type of approach and emphasizing the brand in their branded retail do not seem to be widely harmed by channel conict as their stores do not compete with external retailers, but acknowledge them as their most important sales channel that is backed up by branded retail. On the other hand, it can be seen that the international development of the role of branded retail at Iittala has been different from the previous two and has more in common with the development of H & M and other fashion brands. In the case of H & M, the stores have from the beginning all been branded stores, unlike Iittala whose international ventures have started with exports already in 1930s. Yet currently, brand stores and the retail concept are the spearhead of Iittalas international strategy and the brands international development. So, one can say that Iittalas move into international retail was a more comprehensive change than it was for Nokia and LEGO. For Iittala, the importance of the protability of the stores is more acute because, although the stores are important for building and communicating the brand, limited distribution means that they are very essential means of generating sales as well. As Wileman and Jary (1997) and Parment (2008) point out, there has traditionally been a tension in distribution and retail between the everyday protability (cost/revenue focus) and long-term view that is required for effective branding, so it can be seen that a branded store can nd balancing these two as challenging at times. In addition, as the retail business is very different from manufacturing the change may be challenging. Wise and Baumgartner (1999) commented on moving downstream; in addition to shifting your strategic perspective, you may well have to acquire new skills and new people. Owing to move into retailing Iittala needed to revise the whole value chain, expand its product assortment, and offer a whole brand solution for example for setting a table. This was challenging for a rm in an industry that according to our interviewee was still product driven. In a similar manner, Doyle et al. (2008) found that as their case company (B&B Italia) integrated forward into retailing it broadened its product range and launched a range of accessories to provide a complete lifestyle. However, the new products have to suit the brand DNA to avoid diluting the premium brand and to

allow combinability. As Iittala wishes to become a consumer-oriented retail specialist its focus seems to be more and more in the lower right corner of the matrix, as currently it is there only with regards to a few international markets. Success in branded retail in either of the paths is a large issue that is not answered in this study. However, what seems to be crucial to both strategic paths is the existence of a strong brand, which either exists already when branded retail is initiated or alternatively is built with the development of the retail operations as has already been done by H & M and what Iittala is currently doing internationally. According to our Nokia interviewee, in order for agship retail to work nancially the brand has to be powerful. Ponsonby-McCabe and Boyle (2006) also mention that nancial resources and a strong brand are important in creating successful brand environments. Then again, it is worth keeping in mind that H & M was not a powerful international brand when it started international retail operations. By initially utilizing its own stores, H & M was able to create an extremely powerful brand based on its business model of fashion and quality at the best possible price. In line with Quinn and Doherty (2000), H & Ms strong brand name then helped the rm to retain control over the end retail concept as it expanded its branded retail network via franchising. As can be seen from the down movement of the case rms in the matrix, even when manufacturers use less controllable forms of branded retail the importance of the brand is still emphasized. However, it is important to bear in mind that while franchising represents a less low cost/low control strategy for a retailer (Treadgold, 1988), for a manufacturer it is a higher control/higher cost strategy than, for example, using external retailers as sales channels. The higher cost means that it is likely that there is always some emphasis on brand building for a manufacturer starting branded retail. Conclusions The main goal of this research was to nd out why and how a manufacturer could use branded retail operations as a part of its strategy in international markets. In response, this research provides further evidence for manufacturers use of agship stores to communicate brand identity and presentation of brand experience (Doyle et al., 2008). However, this papers ndings show these characteristics applied to store types other than agships, and to rms from a broad range of industries. In their branded stores manufacturers, such as Nokia and LEGO, are able to control everything the customer sees and experiences in the store. These stores are not seen as the main sales channel, but they do create sales both directly and indirectly, supporting external retailers with their example and communicating the brand through this new media. However, the most important sales channels remain external retailers, leveraging existing world-wide distribution. In addition, the research reveals a more comprehensive use of branded retail in the international strategy of manufacturing rms. This approach requires the manufacturer, for example Iittala, to change its whole business model to become a retailer. As in Iittalas case branded retail is the main mode of brands internationalization, in addition to acting as a very important sales channel, we also support the nding that agship stores can act as market entry/development method as was commented in Doyle et al. (2008). For example, agship stores allows Iittala to strengthen its brand in a market, increasing its control over the subsequent expansion via lower control/lower cost forms of branded retail, such as franchising. As both,

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brand emphasis and sales emphasis, are strongly present, it is important to nd the correct balance between long-term brand building and everyday protability as emphasized in the literature as well as develop new capabilities needed in a protable retail business. A manufacturer adopting this approach to branded retail will most likely need to adopt retailer characteristics, for example by broadening its product offering to keep the stores protable and fresh. As this type of channel strategy can be seen as dual, companies following this strategic path are also more likely to face channel conict with their existing external retailers (if there are such) than those operating stores mainly for marketing purposes. As companies move to the lower right corner of the matrix, they can already in some cases be seen as retail brands similar to H & M. In terms of theoretical contribution, it can be seen that the case companies used retail operations that would fall under existing taxonomies of international retailers, e.g. Hollanders (1970) specialized chains and dealers in luxury goods. In this paper, however, the emphasis is on the companies retail strategies, meaning the manufacturing rms would likely use any form or combination of retail operations in order to fulll their branding and/or sales aims. Figure 1 shows these key aims and the various combination paths. Our paper offers guidance to managers of B2C manufacturing rms looking to use branded stores as a way to promote their brands and/or generate sales in fragmented industries, even if they would not have access to the shelves of major retailers. However, we do not suggest that this type of strategy that requires huge nancial investments would be suitable for all manufacturers as there are many challenges involved. Finding the balance between everyday protability and brand building as well as developing the capabilities needed to run a retail business is an important challenge and it is important to have the concept just right prior to scaling it out no matter which approach is chosen. Also, nding the correct real estate in the best locations and the right employees can prove difcult, especially when a brand is not so widely known. We conclude this paper with some suggestions for further research. First, it would be benecial if a similar study could be done by using different types of companies, to see if the same approaches would be applicable elsewhere or would alternatives be found. We do not imply that our model would be exhaustive and welcome new views on the topic. An obvious extension to this study would be to research the case rms burgeoning online retail strategies and assess their impact on existing brick-and mortar channels. Further, it would be interesting to see if the role of branded retail in the international channel strategy varies between companies, whose situation is similar (product category, phase of development, etc.) as in this research the companies and their situations were rather different from each other.
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Further reading Alexander, N. and Quinn, B. (2002), International retail divestment, International Journal of Retail & Distribution Management, Vol. 30 No. 2, pp. 112-25. About the authors Laura Ilonen, MSc, has worked as a Researcher as part of a large Tekes-funded research project conducted at Aalto University School of Economics. Her research interests include international strategy, brands and manufacturers own retail. Jody Wren, MSc, is an International Business Researcher at the Aalto University School of Economics, Finland. He has worked as a Researcher as part of a large Tekes-funded project studying how rms, both large and small, are dealing with intensifying globalization affects. He also supervises theses related to this area. Mika Gabrielsson, DSc, is Professor of International Business at the Aalto University School of Economics, Finland. His teaching covers areas such as export and international marketing, and global business management, and research interests include among others rapid globalization. He has been active in research projects funded by Academy of Finland and Tekes, such as the Born Globals and Responding to Globalization projects. He has published over 100 articles in refereed international journals or conference proceedings, and many of them have been included as chapters in international business books. He is a frequent reviewer in many journals and serves for instance on the Editorial Board of Industrial Marketing Management. Before joining the academic world, he held several senior positions in purchasing and marketing in global high-tech companies. Mika Gabrielsson is the corresponding author and can be contacted at: mika. gabrielsson@aalto. Markku Salimaki, DSc, is Director of the International Design Business Management Programme at the Aalto University School of Economics. After graduation from Helsinki University of Technology (Industrial Management) in 1973, he worked in different managerial positions in the Finnish Ceramic and Glass Industry. He left the industry in 1992 to start his doctorate studies at Helsinki School of Economics and received his Licenciate degree in 1996 on topic of the competitive strategy of the Finnish design companies. The IDBM programme was started in the beginning of 1995 and Markku Salimaki became the rst Coordinator and Director of the programme. He defended his doctoral thesis and received the degree of Doctor of Science in 2003 at HSE. The topic of his thesis was The competitiveness and the internationalisation process of the Finnish design companies. In 2007, Markku Salimaki was nominated as Visiting Professor at Kyoto Institute of Technology, Japan.

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