The effect of product transparency on female consumers’ loyalty towards cosmetics brands

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The Effect of Product Transparency on Female

Consumers’ Loyalty towards Cosmetics Brands

MSc. In Business Studies ─ Marketing Track

Final version

Author: Siqi Pan (10485589)

Amsterdam Business School, University of Amsterdam Academic Year: 2013 - 2014

Submitted onJune 30, 2014

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Abstract

Cosmetics industry is a continuously growing field with a great number of brands. The intense market competition forces cosmetics brand managers to try to formulate effective brand management strategies in order to attract more loyal consumers. Cosmetics products are products with high risks for purchase. Hence, getting information of cosmetics products before buying is essential for consumers. Consumers have more trust for a transparent brand. The trust of a brand can increase consumer brand loyalty. In this study, a web-based experimental-designed survey was conducted to examine whether there is a direct or indirect relationship between product transparency and brand loyalty, and whether brand trust is a mediator of the indirect relationship. The results revealed that product transparency can positively influence brand loyalty via the mediation effect of brand trust. With the experiment, the different effects of two different kinds of transparency (disclosure of neutral and negative product information) and non-transparency were investigated. Participants had more brand trust and were more loyal to a cosmetics brand if there was transparency of neutral product information rather than non-transparency. However, no significant results were found concerning transparency of negative product information. This study contributed to adding product transparency as another loyalty factor that affects brand loyalty.

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1. Introduction

1.1 Importance of Transparency in Relationship-building

Transparency has become a new strategy for many firms to reach their target consumers (Granados et al., 2010). Although transparency has long been a basic principle underlined in transactions (e.g. cost transparency), its impacts on brand loyalty remain an insufficiently-touched field. People may frequently hear claims of transparency from governments, media and other institutions. However, many brands only begin to stress transparency in their public reports recently when they try to express corporate social responsibility to consumers. Many socially-responsible brands, especially those in industries with social concerns, are members of organizations that regard transparency as a key objective (Hustvedt & Kang, 2013). Brady (2003, pp.288) has mentioned that “Successful responsibility management is about trust relationships built on transparency and supported by performance”. In this sense, transparency is good for building trust. In fact, a trust relationship built upon transparency is not only important for social responsibility management, but also benefits a brand in maintaining its relationship with consumers.

1.2 Importance of Brand Loyalty in Cosmetics Industry

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5 and its consumers. Cosmetics industry develops very rapidly (Chen et al., 2011) and thousands of cosmetics brands are on the market now. It is estimated that consumers spend U.S. $18 billion on cosmetics worldwide each year (Khraim, 2011). Cosmetics brands are struggling to acquire more market share (Khraim, 2011). Since brands of cosmetics are flooding the markets, brand loyalty becomes important for cosmetics brands to keep their consumers. Loyal consumers are sources for their profits. For cosmetics brands, brand loyalty might be the key in managing a brand relationship with consumers. Brand loyalty has an influence on consumers’ purchasing behavior. Price is no longer the only factor that affects consumers’ intention of purchasing cosmetics. Consumers also consider brand image, perceived risks as well as existing relationships between them and the brand (Chen et al., 2011). Khraim (2011) investigates the influence of brand loyalty on female consumers’ buying behavior of cosmetics in the Emirate of Abu Dhabi. This research reveals that among the seven factors (product quality, brand name, price, design, promotion, service quality, store environment) of brand loyalty, brand name has the strongest correlation with brand loyalty. This result shows that a favored brand image brought by the name of a brand can affect consumers’ loyalty towards cosmetics brands. Product quality, which impacts consumers’ perceived risks of buying, is crucial for consumers to make purchase decisions (Khraim, 2011). Brand managers from cosmetics manufacturers should pay more attention to brand loyalty and the factors that affect brand loyalty. Brand loyalty can ensure that consumers keep in mind of products from a brand and do not switch to other brands (Khraim, 2011). Consumers are willing to recommend

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6 such a brand, pay more for its products and buy product extensions from the same brand (Khraim, 2011).

1.3 More Consumer Demands on Product Transparency for Cosmetics

On the other hand, consumers are now relatively more careful about buying products concerning with their health, safety and life quality. This is reflected from the emergence of laws and regulations by different institutions. For example, according to U.S. Federal Food, Drug, and Cosmetic Act 2011, cosmetics producers should be legally responsible for the safety of their products and product ingredients if they sell cosmetics into markets. However, news and reports about hazardous cosmetics from famous brands continue to come out. For instance, the May/June 2012 issue of Cosmetic Science reported results from two U.S. Food and Drug Administration (FDA) tests that well-known national brands such as L’Oreal, Avon, Revlon and Cover Girl in the U.S. had positive lead-level test results; among ten most contaminated lipsticks five were produced by L’Oreal USA” (Haiken, 2012).

As consumers care about product safety, they might require more information about products and demand product information to be more transparent. The development of information technology, especially the Internet and social media, has enabled consumers to get information which they need. California Department of Health in the U.S. even implements the California Safe Cosmetics Act 2005 (“the

Act”) which requires cosmetics companies selling products in California to report

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7 the California Safe Cosmetics Program (CSCP) which gathers data about these companies, their products and the harmful ingredients (Somerville, 2014). Consumers can have an access to this data base launched on 10 January 2014 and get information about unsafe cosmetics (Somerville, 2014). It is highly likely that consumers will find undisclosed information via multiple channels. Their purchase behaviors might be changed because of the undisclosed information that they find about the products. Consumers tend to have lower trust towards a brand which hides critical information.

On the contrary, a transparent brand produces a brand image of being genuine and consumers can easily find out the product quality of products from this brand. More brand trust will be developed towards a transparent brand. Hence, product transparency can be a factor that affects brand trust, which in turn can influence brand loyalty.

Product transparency was defined as the complete disclosure and publicity of information about product ingredients, product attributes and production process. It will be interesting to study the relationship between product transparency and brand loyalty. If there is a relationship between product transparency and brand loyalty, this study should advance the existing marketing literature by adding product transparency as another loyalty factor that influences brand loyalty. This study should also give brand managers a new insight of the importance of transparency and the necessity of formulating new strategies regarding product transparency in order to build up and maintain consumer brand loyalty.

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8 Therefore, this study aimed to examine whether product transparency can have a direct effect on brand loyalty or an indirect effect via brand trust by using a web-based survey with an experimental design. Female consumers were the target subjects of this study because using cosmetics plays a greatly important part in women’s lives (Kelson et al., 1990). Cosmetics are a leading fashion for modern females (Chen et al., 2011).

From an academic perspective, this study would contribute to complementing the new research concept of transparency with its impacts on brand loyalty. It would cause brand managers to pay attention to the importance of product information disclosure and integrate it into marketing strategy to maintain and attract more loyal consumers. From a societal perspective, this subject would lead to more emphasis on product safety and production standards improvement in cosmetics industry, and would help build a healthy, safe and high-qualified consumption environment.

1.5 Structure of the Thesis

Next section is literature review on product transparency, brand trust and brand loyalty. In the end of literature review, research question and hypotheses will be proposed. Following literature review, the methodology of this study will be illustrated and results of analysis will be reported. Before the conclusion part, there is a detailed discussion of the results and a general discussion of the whole study as well as limitations and implications for future research.

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2. Literature Review

2.1 Transparency in Business World

Eggert & Helm (2003) are the first researchers to introduce the concept of relationship transparency into business worldwide. In their study, they conduct a cross-sectional survey among purchasing managers in Germany and find that there is a significant relationship between relationship transparency and marketing outcomes of consumer-perceived value, satisfaction and behavioral intentions (Eggert & Helm, 2003). Relationship transparency is “an individual’s subjective perception of being informed about the relevant actions and properties of the other party in the interaction” (Hultman & Axelsson, 2007, pp.101). In 2007, Hultman & Axelsson contributed to the concept of transparency in marketing research by adding three aspects – degree, direction and distribution of transparency, and by developing a typology of transparency in buyer-supplier relationships. Hultman & Axelsson (2007) outline four types of buyer-supplier relationship transparency ─ technological transparency, organizational transparency, supply transparency and cost/price transparency. Technological transparency refers to the sharing of new technology to business partners; organizational transparency refers to the easiness of a buying party noticing the flow of information of a supplying party. Supply transparency is the transparency of the flow of products/materials in a buyer-supplier relationship. Cost/price transparency simply means transparent information of costs and prices. From the four

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10 types of relationship transparency, it can be seen that studies of relationship transparency emphasize the role of transparency within the field of business-to-business (B2B) relationship.

While these two studies eye on transparency in B2B relationship, Granados et al. (2010) propose a research agenda for future research on information transparency in business-to-consumer (B2C) markets. Although the purpose of their research agenda is to help managers to better use transparency as a strategy to effectively compete with competitors, this research agenda highlights the term of transparency in B2C marketing. As the importance of transparency is noticed in B2C markets, more and more literature focuses on transparency from consumers’ perspective. In this article of

Consumer Perceptions of Transparency: A Scale Development and Validation,

researchers put forwards a measurement of transparency and suggest transparency as a “consumer concern” and “a belief held by consumers that correlates with their brand purchasing intention and brand WOM intention” (in Hustvedt & Kang, 2013, pp.310). This perspective can be illustrated more by Moser et al. (2012) in their research of consumer preference of product transparency in the food segment in India. Their research reveals that under the circumstance where consumers are not able to know everything about a product, information about the product disclosed to them will influence their product choice and future purchase behavior. This demonstrates that consumers might change their buying behavior if they find the product is not transparent. In this regard, product transparency is an important issue for businesses.

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11 2.2 Product Transparency and Cosmetics

Product transparency is defined by Moser et al. (2012) in their research as the visibility of and access to information on product sources, production process and methods, and impact on the environment within the supply chain. Moser et al. (2012) focus their study of product transparency on food industry, while this study had a focus on cosmetics industry. Both food and cosmetics industries involve a common consumer concern of product safety. Therefore, in this study a similar definition of product transparency was developed by emphasizing the impacts of product characteristics on consumers. As mentioned in the Introduction, product transparency was defined as the complete disclosure and publicity of information about product ingredients, product attributes and production process.

This research would study product transparency in the context of cosmetics retailing. Here product transparency exclusively refers to transparency of the product itself, rather than relationship transparency which has a stress on the information flow within buyer-supplier relationships. This study looked at the effect of product transparency on the relationship between a consumer and a brand from a transaction perspective. The definition of product transparency in this study was highly related to product characteristics and product information which might cause consumers’ concerns in the specific context of cosmetics. These concerns might influence consumers’ purchase behavior and thus have impacts on cosmetics brands. The general definition of cosmetics is “all preparations used externally to condition and beautify the body, by cleaning, coloring, softening, or protecting the skin, hair, nails,

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12 lips, or eyes” (in Khraim, 2011, pp.123). The term of cosmetics includes all kinds of make-ups and skin care products.

Information of product ingredients, product attributes and production process is basic information for a purchase situation, especially for sensitive products such as cosmetics. Product ingredients refer to all the raw materials used ─ the composition of cosmetics. Product attributes are the functions and effects that a cosmetics product has. Production process mainly concerns production methods and quality standards applied within production process. Consumers care more about supply chains of products. They want to know where, how and by whom products are produced (Moser et al., 2012). Specifically, product-testing and safety guarantee are extremely necessary for cosmetics production. Usually, cosmetics brands only provide positive and neutral information about products. Consumers seldom find any negative information on products. Product transparency in this study not only referred to the disclosure of neutral product information (information on product ingredients, product attributes and production process), but also the disclosure of negative information such as the harmfulness and side-effects. Consumers have the right to know all the information before they purchase anything.

2.3 Relationship between Product Transparency and Brand Trust

Transparency is important in encouraging trust in a one-shot transaction and in maintaining trust in repeated transactions (Kanagaretnam et al., 2010). Kanagaretnam et al (2010) deliver a laboratory experiment under an investment game setting to study

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how complete information (transparency) can affect trust. Although their results come from a controlled experiment not from real transactions, their study contributes to our knowledge about how transparency can impact trust. Besides, Hultman & Axelsson (2007) also give a conclusion about the link between transparency and trust.Rampl et al. (2011) study consumers’ trust in food retailers by applying the model of trust in organizations proposed by Mayer et al. (1995). Their study highlights the role of consumers’ perceived risks, which might be influenced by information transparency,

in affecting trust and risk-taking behaviors. Moser et al. (2012) argue that product transparency causes a lot of consumers’ attention in food retailing industry and consumers lack of a trust in the food chain. This suggests that product transparency can affect consumers’ trust towards food retailers. When a purchase behavior involves risks perceived by consumers, they would like to gather as much information as they can before buying to avoid risk-taking. When consumers lack of product information about certain products, they perceive more risks in buying such products. The more risks have been perceived by consumers, the less likely they will trust the brand of the products (Rampl et al., 2011). Moreover, some consumers tend to trust a transparent brand whether or not they perceive any risk. They may see integrity in such a transparent brand. According to the study by Rampl et al. (2011), integrity is significantly related to consumers’ specific trust in food retailers. Similarly, integrity of a brand for cosmetics should also facilitate trust development by consumers towards the brand.

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2.4 Relationship between Brand Trust and Brand Loyalty

The literature mentioned above indicates that transparency plays a critical part in creating trust. Trust is essential for a brand to manage its relationship with consumers. Previous studies have shown that trust is a mediator of the relationship between a brand and consumers (Fournier, 1998; Morgan & Hunt, 1994). Brand trust is another vitally important predictor of brand loyalty apart from brand affect (Chaudhuri & Holbrook, 2001).

For brand trust, the definition in this study was referred to the definition given by Ballester et al. (2003) (in Hustvedt & Kang, 2013, pp.301) that brand trust is consumers’ confidence of positive expectations for a brand and belief in its reliability and intentions in risk-taking situations. In 2007, Elliott and Yannopoulou developed a psychosociological model of brand trust and demonstrated that brand familiarity is an antecedent for brand trust (in Hustvedt & Kang, 2013, pp.300). But in their interviews with consumers, they found that brand familiarity is only needed in low-risk purchase decisions while brand trust is required for high-risk or symbolic purchase decisions

(in Hustvedt & Kang, 2013, pp.300). In another research, Malik et al. (2013) come up with the idea that brand trust can be one mediator of the positive relationship between consumer satisfaction and brand loyalty. If consumers are satisfied with a brand, more trust towards the brand will be developed and thus consumers will become more loyal to this brand. Yet this study does not tell whether brand trust can also be an antecedent for consumer satisfaction. Nevertheless, one point is confirmed in their study that brand trust directly affects brand loyalty. Rampl et al (2011) also confirm

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15 that “specific trust in a food retailer strongly predicts risk taking and, in turn, loyalty” (2011, pp.254)

In the existing literature, various definitions of brand loyalty can be found. For brand loyalty, two perspectives have been identified by researchers, behavioral loyalty and attitudinal loyalty. One frequently-used measurement for behavioral loyalty is “repeat purchase frequency or relative volume of purchasing” (Gupta & Zeithaml, 2006, pp.721). Measurements for attitudinal loyalty are mainly “repurchase intention, intension to recommend to others, likelihood of switching and likelihood of buying more” (Gupta & Zeithaml, 2006, pp.721). In earlier studies, researchers hold that behavioral loyalty is less effective in predicting future behavior; on the other hand, they also think that behavioral loyalty cannot explain why and how consumers develop their loyalty (Malik et al., 2013). Therefore, researchers focus on measuring attitudinal loyalty in recent studies (Malik et al., 2013). However, Oliver (1980) maintains that loyalty includes both dimensions and Han et al. (2011) propose four stages of loyalty formation which are cognitive loyalty, affective loyalty, conative loyalty and behavioral loyalty (in Malik et al., 2013, pp.502).

In this study, behavioral loyalty and attitudinal loyalty were also combined. Brand loyalty was defined as consumer’s firm commitment to repurchase products from a brand, repurchase intention and the likelihood to recommend the brand to others. According to the definition of brand loyalty given by Oliver (1997), loyal consumers will buy from the same brand or the same brand-set repeatedly even though environmental effects such as marketing activities could have the potential to

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16 cause them to switch (in Malik et al., 201, pp.502).

2.5 Relationship between Product Transparency and Brand Loyalty

Some past researches indicate that product transparency might affect brand loyalty. Khraim (2011) contends that product quality has a significant positive effect on cosmetics brand loyalty. Khraim (2011, pp125) defines product quality as “the features and characteristics of a product”. In the context of cosmetics, product quality also refers to materials, fitness for use and other performance perspectives (Khraim, 2011). The three dimensions of the definition of product transparency, to some extent, overlapped with the meaning of product quality. For cosmetics, product ingredients are the materials that merge together into the final product; product attributes are characteristics and functions of cosmetics to realize certain effects; production process determines whether product ingredients can successfully achieve expected product performances. In this sense, product transparency may have a similar effect as product quality towards brand loyalty. Consumers are more willing to pay for food products if there is presence of product information on product origin, producer and low environment impact (Moser et al., 2012). Since consumers have analogical concerns for cosmetics and food products, the disclosure of product information of cosmetics should have impacts on consumers’ willingness to purchase and repurchase. Repurchase intention and actual repurchase behavior are two important dimensions of brand loyalty. Although it is still unclear whether product transparency can directly influence brand loyalty, there is a possible positive relationship between these two

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constructs based on the analysis of existing literature.

This thesis will answer the research question:

How does product transparency have an effect on female consumers’ brand loyalty of cosmetics, and how does brand trust influence this relationship? (The conceptual framework was shown in Figure 1).

2.6 Hypotheses Development

Product transparency contributes to the increase of brand trust and brand trust can predict brand loyalty (Chaudhuri & Holbrook, 2001). Therefore, it is reasonable to assume that product transparency can influence brand loyalty via the mediator of brand trust.

H1a: Product transparency indirectly affects brand loyalty by affecting brand trust.

On the other hand, product transparency might affect brand loyalty in a direct way. A brand which provides consumers with a lot of clear and helpful product information can save time for consumers to search for information by themselves. Although they may not have a deep trust in such a brand, they keep buying products from this brand just for convenience. The frequency of repurchase behavior is likely to turn into loyalty towards the brand. Further, consumers who strongly believe that a brand is transparent are more likely to have stronger purchase intention for products from the brand than consumers who have less strong belief on a brand’s transparency (Hustvedt & Kang, 2013). And these consumers also tend to have stronger word-of –

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18 mouth intention and recommend products from this brand to others (Hustvedt & Kang, 2013).

H1b: Product transparency has a direct and positive influence on brand loyalty. Product transparency (complete information disclosure) and non-product-transparency should result in different levels of brand trust and thus have different influences on brand loyalty.

H2a: The level of brand trust will be higher when neutral information about product ingredients, product attributes and production process is transparent to consumers than when no product information is disclosed to consumers.

H2b: Consumers will be more loyal to a brand when neutral information about product ingredients, product attributes and production process is transparent to consumers than when no product information is disclosed to consumers.

Also, transparency of neutral product information (product ingredients, product attributes and production process) and transparency of negative information concerning these three aspects (product ingredients, product attributes and production process) were assumed to have different results. Consumers, especially long-term loyal consumers, may not pay much attention to the disclosure of neutral product information. Since they have been purchasing products from the brand for so many times, they have already developed some basic ideas of the products. For them, basic product information may not be necessary. However, transparency of negative product information might lead to a lower level of brand trust and brand loyalty compared with transparency of neutral product information. The negative product

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19 information disclosed to consumers might give them a feeling that the brand is not trustworthy. On the other hand, since the brand honestly tell consumers about negative product information, consumers may still see integrity in such a brand and have more trust in it than in a completely non-transparent brand.

H3a: The level of brand trust will be higher when negative product information is completely disclosed to consumers than when the brand is not transparent about any product information.

H3b: The level of brand trust will be higher when neutral product information is transparent to consumers than when negative product information is transparent to consumers.

H4a: Consumers will be more loyal to a brand when negative product information is transparent to them than when no product information is disclosed to them.

H4b: Consumers will be less loyal to a brand when negative product information is transparent to them than when neutral product information is disclosed to them.

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20 Figure 1 Conceptual Framework

3. Methodology

3.1 Research Method and Design

An experimental-designed survey was implemented in this study to examine the effect of product transparency on brand loyalty. To reach more possible participants, this survey was conducted online.

The experiment was designed as an experiment consisting of three groups, two experimental groups and one control group. Transparency and negative product information were manipulated among the three groups. Product transparency was the independent variable. Brand loyalty was the dependent variable and brand trust was an assumed mediator of the indirect relationship between product transparency and

Product Transparency

(PT)

Brand Trust Brand

Loyalty H1a H1a Non PT Negative product information Neutral product information H2 H3-4 H1b Complete PT

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21 brand loyalty.

The treatment for Group 1 would be that the brand was totally transparent about neutral information of the product (a moisture cream as in this experiment). In other words, non-negative product information was given to participants in Group 1. The treatment for Group 2 would be that the brand was totally transparent about negative product information of the moisture cream. Both non-negative and negative product information covered information on product ingredients, product attributes and production process. For the control group, the brand was not transparent of any product information including neutral and negative one. The participants only knew the brand name and the product name which was Intensive Moisture Cream. There were 50 participants in Group 1 and 51 participants in Group 2. The control group consisted of 54 participants. Participants were all female. Participants in Group 1 represented consumers who are in a situation where neutral product information (ingredients, product attributes and production process) is totally known to them. Participants in Group 2 represented consumers who get negative product information disclosed by the brand. Participants in the control group represented consumers who know nothing about product characteristics and other product details.

Before the experiment, participants were asked if they used a moisture cream. If they did, they would be asked to provide the brand name of the moisture cream that they had kept using for years or the one they were using at that moment. The experiment stimuli included a picture, a product description and three fake reports about the moisture cream from this brand. Moisture cream was chosen because it is

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22 one common cosmetics product in female consumers shopping list and female consumers who use cosmetics are very likely to use a moisture cream.

Experimental design was chosen because of its advantages in testing causal relationships and manipulating variables. Questionnaires were used in this survey to investigate the relationships among the three constructs in the research question ─ product transparency, brand trust and brand loyalty.

3.2 Sampling

In total, there were 179 responses from female consumers. Totally 484 invitations were sent out by email. The response rate was 36.98%. They were recruited via the author’s own Facebook contacts. Snowball sampling and convenience sampling methods were used to reach participants. The sampling frame was online-accessible female consumers for cosmetics. They represented a population of female consumers from Europe, Asia, North America and Oceania. Participants included females ranging from 18 to 52 years old (M = 25.91, SD = 4.80). They came from a variety of countries in Europe, Asia, North America and Oceania. The three countries with the most participants were China (35.5%), Netherlands (14.8%) and Greece (7.1%). The majority were students (54.8%) and women employed for wages (38.7%). 58.1% of the female participants had bachelor degrees and 33.5% of them had master degrees. Most of the participants (52.3%) had annual income below $5,000. By taking away 23 invalid responses, there were 155 (N = 155) valid samples. 23 responses were invalid because the participants did not go for the experiment. Each

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23 group of the experiment had more than 50 participants, with 50 for Group 1, 51 for Group 2 and 54 for the control group.

3.3 Measurements

Gender, age, nationality, employment state, highest education and annual income were measured as control variables. For construct items, a 5-point Likert scale (ranging from 1 “strongly disagree” to 5 “strongly agree”) was applied as response format.

3.3.1 Product transparency

To measure product transparency, the 5-iterm (α = .87) measurement of transparency developed by Hustvedt & Kang (2013) was chosen. However, this measurement was originally focused on social responsibility. Therefore, the items were adapted to the context of cosmetics based on the definition of product transparency in this study. One item example would be “If I wanted to, I could easily find out information about product ingredients, product attributes (functions) and production process for the moisture cream of ______ (brand)”. The original item for this developed by Hustvedt & Kang (2013) was “If I wanted to, I could easily find out about labor conditions in the factories the ______ (brand) uses to make their product”.

3.3.2 Brand trust

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24 by Erdem and Swait (2004) (in Hustvedt & Kang, 2013, pp.309) was adapted to be used as the measurement for brand trust. Brand trust and brand trustworthiness were considered as the same concept but in different expressions. Erdem & Swait (2004) define brand trustworthiness as “an individual’s belief that a brand will continue to deliver what it has promised” (in Hustvedt & Kang, 2013, pp.308). In this study, brand trust referred to a consumer’s confidence of positive expectations from a brand and belief in its reliability. Both of these two terms have the meaning of trust and belief in a brand. Therefore, it was reasonable to use the items for measuring brand trustworthiness here to measure brand trust after adaptation. One item example would be “Over time, my experiences with ______ (brand) have led me to expect it to keep its promises, no more and no less”.

3.3.3 Brand loyalty

In this study, both attitudinal (cognitive, affective, conative) loyalty and behavioral loyalty were measured. In this regard, the 8-item scale (α = .97) measuring loyalty was adapted from Lim et al, (2006) in their research on “determinants of satisfaction and loyalty decisions in the use of mobile services” (in Lim et al., 2006, pp.208). These items measure both behavioral and attitudinal loyalty. An item example used in this survey would be “When I need a moisture cream, ______ (brand) is my first choice”.

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25 All the three groups went through the same procedure but with different experiment stimuli. In the first part of the survey, participants would be asked questions about some demographic data. They were asked whether they used any cosmetics and whether they used a moisture cream. Participants who provided an answer of “No” for each of these two questions as well as male participants would not go for the experiment. If they chose “Yes”, they had to indicate the brand name of their moisture cream. After that they would be randomly assigned to one of the three groups and given different treatments depending on which specific group they were in the experiment. Then they answered the same 21 questions about product transparency, brand trust and brand loyalty as well as their frequency of using a moisture cream and time of being loyal to the brand (see Appendix 1). The brand name in these 21 questions and the experiment treatment was automatically adapted to the specific brand which was given by the participant before the experiment.

The three groups were given three different experiment treatments except an identical picture of a moisture cream. Group1 saw a picture of a moisture cream from the brand and read product descriptions of information about the ingredients, attributes and production process. Participants were told that what they read was real and believable information provided by the brand. Participants from Group 2 read three fake reports from the brand disclosing negative product information about product ingredients, product attributes and production process of a moisture cream to consumers. The contents were about the brand with a moisture cream made of ingredients that might cause diseases or with side-effects or a moisture cream that did

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26 not meet several safety standards for production. Besides, they also saw a picture of the moisture cream. Participants from the control group were only shown a picture of the moisture cream with no information. In the picture, only the product image could be seen. Above the picture, there wrote “______ (brand) Intensive Moisture Cream”. No other extra information was provided.

3.5 Data Collection and Analysis

Data was collected through Qualtrics, a platform for doing online survey. Data analyses were conducted by using SPSS system. Correlation analysis was conducted to test whether there were relationships among product transparency, brand trust and brand loyalty. Simple regression was used to analyze the causal relationships among them and to see the total effect of product transparency on brand loyalty. Further, multiple regression and simple mediation analyses (PROCESS) were conducted to test the direct effect and indirect effect between these two constructs. Finally, between-groups mean scores were compared using one-way ANOVA and independent-samples t-tests.

4. Results

4.1 Preliminary Analysis

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27 6% (below 10%). Before hypotheses were tested, the data was cleaned and missing data was replaced. All items were highly reliable with the sample of this study, as showed in Table 1 (Cronbach's Alpha > .80, Corrected Item-Total Correlation > .30, Difference between Cronbach's Alpha and Cronbach's Alpha if Item Deleted < .10). The 5-item measurement of product transparency (α = .90) appeared to be even more reliable with the sample in this study. The 5-item measurement of brand trust (α = .84) and the 8-item measurement of brand loyalty (α = .85) adapted from established studies were also highly reliable. The scatter-plot graphs of scale means of product transparency, brand trust and brand loyalty showed that there were linear relationships between each of the three variables except that the linear relationship between product transparency and brand loyalty was not that obvious (as shown in Graph 1, Graph 2 and Graph 3 respectively).

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28 Graph 2 Scatter-plot Graph of Brand Trust and Brand Loyalty Scale Means

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29 4.2 Hypotheses Testing

All Pearson’s r values were positive, suggesting positive relationships between product transparency and brand trust, brand trust and brand loyalty, product transparency and brand loyalty. Especially, there were strong relationships between product transparency and brand trust (r = .61, p < .01) and between brand trust and brand loyalty (r = .65, p < .01). However, the correlation between product transparency and brand loyalty was at medium level (r = .39, p < .01). In summary, all the three constructs were correlated with each other. Table 1 showed the full correlation matrix:

Table 1 Scale means, SD’s, Inter correlations and Reliabilities of Construct Items

M SD 1 2 3

(1)Product transparency 3.41 .87 (.90)

(2)Brand trust 3.89 .53 .61** (.84)

(3)Brand loyalty 3.67 .63 .39** .65** (.85)

Note: N = 155, using a 5-Likert scale measurement, **p < .01 (two-tailed).

Since there were two experimental groups and one control group in this study, the correlation coefficients (Pearson’s r) of the three constructs for each group were also compared. The results were shown in Table 2:

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30 Table 2 Correlation Coefficients Comparison between Groups

group N PT&BT BT&BL PT&BL

1 50 .62 .84 .57

2 51 .62 .54 .39

control 54 .59 .52 .18

Note: PT = Product Transparency, BT = Brand Trust, BL = Brand Loyalty, N = 155, **p < .01 (two-tailed).

All the Pearson’s r values were positive, which indicated that each pair of variables was moving in the same direction. For each group, the more transparent the product, the more they trusted the brand; the more they trusted the brand, the more loyal they were to the brand. For product transparency and brand trust, the correlation coefficients were similarly large for Group 1 (r = .62), Group 2 (r = .62) and the control group (r = .59). The relationship between brand trust and brand loyalty was very strong for Group1 (r = .84). For Group 2 (r = .54) and the control group (r = .52), the r values were nearly equal. The strength of correlation between product transparency and brand loyalty varied between groups. For Group1, the correlation coefficient was quite large (r = .57). For Group2, the correlation coefficient was at a medium level (r = .39) and for control group, it was very small (r = .18). In sum, the correlations between each pair of variables were the strongest for Group 1 and the least strong for the control group.

To further test the relationship between product transparency and brand loyalty, a simple regression analysis of these two constructs was conducted first.

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31 In this model, b0 = 2.72, b1 = .28.

The regression model was significant, R2 = .15, adjusted R2 = .14, SE = .58, F (1,

153) = 22.67, p < .001. This result indicated that product transparency could account for 15% of the variation in brand loyalty. Product transparency made a significant contribution to predicting brand loyalty［β = .39, t (153) = 5.16, p < .001］. Besides, product transparency［R2 = .38, adjusted R2 = .37, SE = .42, F (1, 153) = 92.17, p

< .001］contributed to significant prediction of brand trust［β = .61, t (153) = 9.60, p < .001］. Brand trust［R2 = .423, adjusted R2 = .419, SE = .48, F (1, 153) = 112.14, p

< .001］was a significant predictor of brand loyalty［β = .65, t (153) = 10.59, p < .001］.

However, it was possible that the effect of product transparency on brand loyalty may be mediated by brand trust. Since product transparency was largely correlated with brand trust and brand trust was significantly correlated with brand loyalty, the effect of product transparency on brand loyalty may be due to the influence of brand trust. To confirm this, two hierarchical multiple regression analyses were conducted to see the prediction abilities of product transparency and brand trust on brand loyalty both together in the same model.

Model equation 2: c = c1’+ a1b1, (2)

(total effect = c, direct effect = c1’, indirect effect = a1b1).

When brand trust was added after controlling for product transparency, the whole model accounted for 42.3%［R2 = .423, adjusted R2 = .416, R2 change = .275, F (2,

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32 brand trust contributed an additional 27.5% of the variance in brand loyalty. In terms of unique contribution of each variable, only brand trust made a significant and unique statistical contribution to this model［β = .66, t (153) = 8.51, p < .001］. Product transparency was not a significant predictor［β = - .02, t (153) = - .28, p = .782］. When brand trust was controlled for, the prediction of brand loyalty was found completely contributed by brand trust. The model fit was R2 = .423. After product

transparency was added, the R2 change equaled zero, suggesting that product

transparency did not add any additional percentage of the variance in brand loyalty. Based on the above results, it could be concluded that product transparency had an effect on brand loyalty which may be contributed by its correlation with brand trust. Brand trust can affect brand loyalty and product transparency did not influence the relationship between brand trust and brand loyalty. Product transparency could predict brand loyalty, yet there was no direct effect and the total effect was caused by a potential mediator — brand trust. Therefore, H1b was rejected and H1a was supported.

To assess the effect of product transparency on brand loyalty both directly and indirectly through brand trust, a simple mediation model from PROCESS in SPSS was used. The conceptual model in this study corresponded with Model 4 in PROCESS, where X = product transparency, M = brand trust, Y = brand loyalty. The model was:

M = iM + a1X + eM, (3)

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33 The total effect c1 was statistically different from zero (c1 = 0.28, p < .0001, 95%

CI:［.17, .38］). The direct effect was not statistically different from zero (c’1 = - 0.02,

p = .781, 95% CI［- .13, .10］). The indirect effect of product transparency through brand trust was significant (a1b1 =0.29, a1 = 0.38, b1 = 0.78, p < .0001, 95% CI

［.21, .39］), which was positive and statistically different from zero. The R2

mediation effect size was 0.15, 95% CI［.04, .27］. A significant indirect effect of X on Y was found and there was no significant direct effect of X on Y after finding a significant indirect effect. Therefore, it was concluded that the mediator brand trust completely mediated the effect of product transparency on brand loyalty. This result corresponded well with that from multiple regression analysis of the effect of product transparency on brand loyalty. Product transparency could affect brand loyalty, yet there was no direct effect and the total effect was caused by a mediator — brand trust.

Table 3 Results of Simple Mediation Model Test

a1 b1 c1 a1b1 c’1 a1b1/c1 a1b1/c’1

0.38 0.78 0.28 0.29 - 0.02 1.04 - 14.50

R-square mediation effect size (R-sq_med): .15, 95% CI［.04, .27］

Note: N = 155; coefficients a1 = the effect of X on M, b1 = the effect of M on Y controlling for X; indirect effect = a1b1, direct effect = c’1, total effect = c1; ratio of indirect effect to total effect = a1b1/c1, ratio of indirect effect to direct effect = a1b1/c’1.

Before looking into the variance of brand trust and brand loyalty among the three groups in the experiment, a one-way ANOVA analysis was conducted to check whether the effect of three different experiment treatments manipulating product transparency was significant. Participants were randomly divided into three groups

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34 (Group 1 = with neutral product information; Group 2 = with negative product information; control group = without any product information). The difference in product transparency for the three groups was statistically significant［ F (2, 152) = 9.41, p < .05］. Therefore, the three different experiment treatments were effective. The effect size, Eta squared, was .11. Post-hoc test of the Tukey HSD showed that the mean score for Group 1 (M = 3.80, SD = .69) was significantly different from those of Group 2 (M = 3.34, SD = .79) and the control group (M = 3.10, SD = .97), but the difference between Group 2 and the control group was not significant.

To test H2 – H4, three independent-samples t-tests were conducted to compare the means of brand trust and brand loyalty between each pair of the three groups. For both the means of brand trust and brand loyalty, the difference was significant only for Group 1［M = 4.02, SD = .54, t (102) = 2.30, p < .05; M = 3.83, SD = .67, t (102) = 1.98, p = .05］and the control group［M = 3.79, SD = .50, p < .05; M = 3.59, SD = .58, p = .05］. However, the effect size was very small. The Eta squared was 0.05 for brand trust level and 0.04 for brand loyalty level. This meant that only 5% of the variance in brand trust level and 4% of the variance in brand loyalty level was explained by the experiment treatments of neutral information and no information. There was no significant difference in both brand trust and brand loyalty means for Group 1 and Group 2［M = 3.85, SD = .54, t (99) = 1.60, p = .113; M = 3.61, SD = .63, t (99) = 1.70, p = .092］and for Group 2［t (103) = .61, p = .543; t (103) = .70, p = .851］and the control group. As a result, only H2a and H2b were supported. H3 and H4 were rejected because the differences of brand trust and brand loyalty mean scores between

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35 Group 1 and Group 2 as well as between Group 2 and the control group were not significant. There were only small actual differences.

What’s more, some additional information was found from this survey. Among the 155 participants, 81.3% of them used a moisture cream every day, 9.7% used it for 4-6 days and 9% used it for 1-3 days. With this result, it made sense that moisture cream was adopted as the product type for the experiment stimuli because it is a frequently used cosmetics product in females’ daily life. Another interesting result was that 83.2% of the participants said that they bought other products from the brand but only 63.2% of them considered themselves as a loyal consumer of the brand. Some researchers hold that loyal consumers will purchase same-set products or product extensions from the same brand (e.g. Khraim, 2011). However, even though consumers perform to be loyal to a brand, they may not regard themselves as loyal consumers. They are not aware of their loyalty or do not want to admit being loyal to certain brands.

5. Discussion

5.1 General Relationships

A very strong relationship between product transparency and brand trust was found in this study. In other words, a brand with more transparent products will earn more trust from consumers. If a cosmetics brand wants to be a trustworthy one in

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36 consumers’ eyes, it has to disclose all of its product information to the public in terms of product ingredients, product attributes and production process. The correlation between brand trust and brand loyalty was also significant. The more a consumer trusts a brand, the more loyal he/she will be to this brand. Consumers are more likely to repurchase products from a brand that they trust and regard as a reliable one. They tend to spread positive words about the brand and its products to other people. The results of the correlation analysis in this study confirmed the results from existing studies. There is a positive relationship between product transparency and brand trust, and between brand trust and brand loyalty.

However, there was no strong relationship between product transparency and brand loyalty. They were related to each other but the relationship strength was only at a medium level. Without brand trust being considered, product transparency may not be seen to be obviously related to brand loyalty. This is logical based on this literature review. No existing studies indicate that product transparency is strongly related to brand loyalty. Product transparency seems to have a similar effect as product quality on brand loyalty because the definition of product transparency in this study overlapped with that of product quality given by Khraim (2011). Khraim (2011) contends that product quality has a significant positive effect on cosmetics brand loyalty. Moser et al. (2012) find that the presence of product information on product origin, producer and low environment impact can positively influence consumers’ willingness to pay.

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37 5.2 Between-groups Analysis

While looking into correlation coefficients of the three construct variables in each group, the results were similar with that in the general analysis. The relationship between product transparency and brand trust and the relationship between brand trust and brand loyalty were much stronger for all the three groups. However, the strength of the relationship between product transparency and brand loyalty was varying among different groups. The relationship between product transparency and brand loyalty was the strongest for Group 1 and the least strong for the control group, with Group 2 in between. This was sensible because participants in the control group were given no product information. They only knew the product brand. Therefore, participants’ responses might be based on their original level of brand loyalty and their loyalty had not changed as no stimuli were provided. In contrast, participants in Group 1 were shown transparent product information which was neutral and nearly totally complete. Participants in Group 1 may, to a larger extent, give their opinions of their brand loyalty level based on what information they had from the experiment. The experiment treatment rather than their original perceptions of the brand had an influence on their responses.

Even though the results varied among groups, both the general analysis and grouping analysis of the correlations of the three construct variables revealed positive relationships of product transparency, brand trust and brand loyalty. Therefore, the more transparent the product, the more loyal the participants were to the brand. One

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38 reason why product transparency correlates with brand loyalty may be that consumers have more brand trust when they get transparent product information.

5.3 Indirect Effect of Product Transparency on Brand Loyalty

From this study, not only the relationship strengths of product transparency, brand trust and brand loyalty, but also the causal direction of each relationship was found. Product transparency directly affects brand trust. Brand trust has a direct influence on brand loyalty. Product transparency does not affect brand loyalty directly. Product transparency can lead to brand loyalty through the mediation effect of brand trust. Therefore, consumers should be more loyal to a brand with transparent products because such a brand makes them feel reliable and they tend to trust it. A transparent brand means that this brand does not hide any information from consumers. From the literature review on the relationship between transparency and trust, it is known that many researchers have concluded that transparency can affect trust (e.g.

Kanagaretnam et al., 2010; Hultman & Axelsson 2007; Moser et al. 2012). The more information consumers get from a brand, the fewer risks they will perceive in purchasing from this brand (Rampl et al., 2011). The less probability of involving in higher risks may contribute to making consumers stick to the brand. Sticking to such a brand reduces their cost of risks. In this regard, encouraging brand trust is important for brand management. Previous studies also reveal that brand trust is one significant predictor of brand loyalty (Chaudhuri & Holbrook, 2001). The results from this study reflected that the more transparent a product is, the more loyal consumers will be to

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39

its brand. This study indicated that making a brand transparent is essential for building a trust relationship with consumers, and thus essential for keeping loyal consumers. Product transparency could be added as another loyalty factor in addition to the other seven factors identified by Khraim (2011) that influence brand loyalty on female consumers’ buying behavior of cosmetics. Based on the analysis of the relationships of the three construct variables, a conclusion can be drawn such that product transparency has an indirect effect on brand loyalty through brand trust.

5.4 Experiment Results

With the experimental design, this study also tried to investigate the different effects of two types of transparency as well as non-transparency. Before this experiment was executed, participants in different groups with three different treatments were expected to have brand trust level and brand loyalty level different from each other. The experiment was designed with two experimental groups and one control group. Participants were shown different stimuli. The stimulus for Group 1 was a product description in text about product ingredients, product attributes and production process of a moisture cream together with a picture of the product with no information from the brand. Participants in Group 2 read three fake reports about the brand publicizing negative information about containing harmful product ingredients, having products causing side-effects and violating safe standards in its production process. The same picture without any information was also included as a stimulus for Group 2. These two experimental groups represented consumers who are exposed to

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40 two different kinds of transparent information. One kind is neutral and provides basic information about a moisture cream; the other kind is negative product information. Cosmetics are functional products. People who use cosmetics would like to know what materials the products are made from, what kind of functions they can achieve and whether the products are safe and in accordance with recognizable safety standards for production. The control group was used for comparison because the experiment stimulus for the control group was only the same picture without any product information. With the control group, this study was able to investigate the relative importance of product transparency.

This study assumed that the levels of brand trust and brand loyalty would be the highest for Group 1, the second highest for Group 2 and the lowest for the control group. One reason why such an assumption was made was that consumers are believed to prefer transparency to non-transparency according to general knowledge. In addition, although the disclosure of negative information might tell consumers that the brand was honest, the negative information itself was possible to bring consumers’ perception of high risks. Anyway, negative information was still assumed to be better than no information at all. However, the results from the three t-tests showed that only Group 1 and the control group had significantly different levels of brand trust and brand loyalty. In this sense, it was concluded that a brand with neutral product information can encourage more brand trust and thus increase brand loyalty compared to a brand which provides no product information.

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41 5.5 Possible Reasons for the Experiment Results

There could be several reasons for getting this conclusion. Participants from Group 1 understood clearly that the brand disclosing all neutral but necessary information was trying to be transparent to consumers. For this reason, they gave more trust to such a brand and became more loyal to it. However, the disclosure of negative information may be a more complex issue. Participants in Group 2 could form different opinions about a brand being transparent about negative product information. Some of them might think that the brand tried its best not to hide anything even negative information. These participants would trust the brand even more. Nevertheless, there were also participants thinking that such a brand was likely to have other negative product information which the public was unknown yet. Participants thinking in this way would reduce their trust of this brand and became less loyal to it. The variance of the perceptions of negative product information in Group 2 could influence the final mean scores of brand trust and brand loyalty for this group. Consequently, the difference between Group 2 and the other two groups became smaller.

Another possible reason might be the inappropriate choice and design of the experiment stimulus. Although in general the experiment treatments were effective, the results did not turn out perfectly as what was expected. Especially, the two mean scores for Group 2 differed neither largely from those for Group 1 nor from the mean scores for the control group. In this sense, the three fake reports as stimulus for Group

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42 2 may not provide sufficiently negative information. The degree of the negativeness might be lower than what it was assumed to be. This study should have included information which was more negative.

As a whole, this study of an experimental-designed survey was successful in examining the relationship between product transparency and brand loyalty. It was concluded that product transparency has an indirect effect on brand loyalty by affecting brand trust. This study also demonstrated the importance of disclosing transparent product information to consumers. Compared to a non-transparent brand, a brand providing transparent and neutral product information tends to win more brand trust from consumers and make them more loyal to it. Even though consumers seldom encounter a totally non-transparent brand, this study can still remind those brands, which provide a little information about their products, of the advantages of telling consumers more.

6. General Discussion

As mentioned in the Introduction, the market of cosmetics on the whole is growing vigorously (Chen et al., 2011), with a large amount of various brands competing together. As new market competitors continue to enter the market, cosmetics brands existing in the retailing industry should pay attention to attain more loyal consumers. There might be several ways to achieve this goal. One possible solution is to develop a trustful brand image and build a reliable relationship between

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43 a brand and its consumers. The brand image is vital for a cosmetics brand to be successful (Chen at al., 2011). How can a brand succeed in forming a good brand image? Price is for sure an important factor for consumers to make purchase decision, but it is no longer a decisive one, especially for female consumers with secure income. Besides, in a highly competitive market environment, the prices of products from many different brands are quite similar to each other. For loyal consumers, they even do not care about how much they pay. Sometimes they are willing to pay more for products from their loyal brands. Competitive pricing is not sufficient. Successful brand management should take product characteristics into consideration. Cosmetics products are products that are directly applied to the body, especially to the skin. Therefore, consumers should know about the information of such products which have contacts with the body and skin. Buying cosmetics involves high risks. The products can be unsuitable for some personal use, contain harm or even can destroy the skin. To lower the risks, consumers must gather information about the products as complete as possible before they buy and use them. Product transparency in terms of product ingredients, product attributes and production process helps consumers lessen the risks in purchase. Consumers tend to trust in brands with totally transparent product information. Thus, they are more likely to stay a long-lasting relationship with such brands.

Brand managers should notice the importance of product transparency for keeping and increasing brand loyalty. Product transparency can be a new strategy for cosmetics brands to keep their target customers (Granados et al., 2010). To implement

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44 this strategy, brand managers can choose from a number of feasible tactics. For instance, they can make a short movie introducing what ingredients there are in the product, what it can do for consumers and how it is produced. This movie can be shown on a TV screen in stores and on the official website of the brand. In stores, sales providers or beauty experts from the brand should understand everything in the movie and are able to explain all the information to consumers. Now in reality, cosmetics products always have product information printed on paper and placed inside the package, or printed on the package in texts of very small letters. Many consumers cannot find the information. Or at least, it is not easy for them to look for the information written in such tiny letters. Brand managers of cosmetics should execute the strategy of product transparency in a more attractive and fruitful way. What’s more, neutral information is more likely to increase brand trust and affect brand loyalty. Therefore, the disclosed product information should be neutral and non-negative. Concerning negative information, brand managers should be careful about the disclosure of it. The brand wants to tell consumers about its integrity, but consumers may generate bad feelings regarding the brand.

To conclude, cosmetics brand managers should realize the vitality of promoting a transparent brand as well as the benefits of it in successfully managing a cosmetics brand.

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45 7.1 Sample Selection Biases

In this study, convenience and snowball sampling methods were chosen to collect data. With limited time and financial support, these two sampling methods helped to employ participants to join this survey within a short time. However, there were selection biases with these two sampling methods. One of the biggest biases was that the sample in this study could not represent for the whole population. Although participants recruited on Facebook were from various cultures around the world, there were still some nationalities not included in the sample. For instance, there were not enough participants from South and North America as well as Oceania. Participants from China consisted of more than 1/4 of the whole sample. Their ideas may not represent the ideas of most females in the world. Moreover, the total sample size was not large compared to other survey studies. Future research can enlarge the sample size and apply better sampling methods to reduce the selection biases.

7.2 Web-based Experiment Design Limitations

The experiment design in this study was simple, with only three different treatments. There was one problem with the negative information treatment. The result turned out that the negative information may be a complex issue. This study should take the degree of negativeness into consideration. Future research may consider investigating the effects of negative product information of different degrees, i.e. low negative, medium negative and extremely negative product

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46 information. Further, the experiment was online-based. There was very little control of the factors that may influence the experiment results. Future research can conduct a laboratory experiment to study the effect of product transparency on brand loyalty.

7.3 Implications for Future Research

This study only looked at the effect of product transparency on females’ loyalty towards cosmetics brands. Males were excluded from the survey. However, more males are using cosmetics now and they also care about their beauty. Future research can include males into the sample and find out whether there is a sexual difference regarding the effect of product transparency on brand loyalty in cosmetics industry.

This study was focused on cosmetics brands. It will be interesting to examine the influence of product transparency on brand loyalty in other industries. Transparency is not only an important issue in industries such as cosmetics and food retailing, where product safety is a main concern for consumers. As market competition is getting fiercer and fiercer in almost every industry and consumers are getting much easier to gather information, product transparency will be more and more vital for brands within the majority of product categories. For instance, electronics brands and airlines are also interesting fields for study.

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47 This study aimed to investigate whether there is a relationship between product transparency and brand loyalty in the context of cosmetics. With an experimental-designed survey, it was discovered that there is a positive and indirect relationship between product transparency and brand loyalty. Product transparency affects brand loyalty via the mediation effect of brand trust. Therefore, this study concluded that cosmetics brands are better to provide transparent product information for consumers so that consumers will be more loyal to the brands. In turn, the good relationship with consumers will help the brands to tackle with the increasing market competition.

The effect of product transparency on female consumers’ loyalty towards cosmetics brands