Profile: Jeremy Gilley

The man marketing world peace

Beware the loyalty prophets of doom

Everybody knows about brand loyalty. It’s one of the first concepts taught to marketing undergraduates. In a decent MBA programme a couple of weeks are spent exploring all the strategic attractions of building loyalty for a brand: price insensitivity, repeat purchase, advocacy. No wonder, then, that most brand managers spend a lot of their lives talking about, understanding and then protecting that magical little army of consumers considered to be loyalists.

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But in recent weeks this might have come into question. There has been a slew of powerful, data-driven articles predicting, or in some cases announcing, the imminent death of brand loyalty.

Ernst & Young (E&Y) recently published data from a global sample of 25,000 consumers showing that only 28 per cent of consumers cite brand loyalty as influencing their shopping behaviour. They conclude that the concept of brand loyalty “could become a thing of the past”.

It’s a theme echoed by consulting firm Bain & Co, which surveyed 3,500 British shoppers and discovered that only 42 per cent of consumers have a brand in mind before they go shopping.

And even if a consumer has a preference, data from TNS suggests the likelihood that this will turn into a purchase is not guaranteed. Its report The Commitment Economy canvassed 39,000 consumers across 17 markets and found that 42 per cent of consumers may not buy their preferred brand because other factors influence the decision-making process. According to Steve Hamilton-Clark, chief executive of TNS MENA: “Brand managers preoccupied with being the customers’ preferred choice could do well to understand that there are other factors too that need their attention.”

Given all this evidence, it’s hardly surprising that articles in influential magazines such as Forbes in the US - Is Brand Loyalty Dying a Slow and Painful Death? - and Marketing Week - The Big Brand Loyalty Theory is History - suggest that the end might be nigh for one of brand management’s central concepts (see MWlinks.co.uk/promotions).

My advice to marketers is to take all of the above with a large pinch of your favourite brand of salt. While it’s true that building brand loyalty is increasingly difficult to achieve, it’s certainly not cause to throw the loyalty baby out with the recessionary bath water.

At first sight, the recent evidence suggests that brand loyalty is diminishing to a point of non-existence, but look again. E&Y’s figure of 28 per cent of consumers who are influenced by brand reputation seems painfully low. If I asked your dad how he bought his butter would he agree that brand had anything to do with it either? Like the fabled consumer who says he buys Guinness because it is good for him, not because of the advertising, most consumers under-report the influence of brand on their decision-making in these types of surveys.

To be fair, the data from Bain and TNS is much more robust. But, once again, it’s not necessarily such frightening news. We learn that only 42 per cent of consumers have a brand in mind when they go shopping (Bain) and that 42 per cent might not buy that brand at point-of-sale (TNS). Put those figures together and about 25 per cent of consumers have a brand in mind and usually buy it at point-of-sale.

That figure might sound low, but it’s always been that way. The whole point of brand loyalty is that a small proportion of the market provides the majority of profit. With the clients I work with on CRM projects, we inevitably observe a relationship of about 20 per cent of total consumers providing between 70 and 80 per cent of sales. Most consumers aren’t brand loyal - they never were.

Too many marketers have this halcyon vision of a past where consumers were brand loyal for life. Very little data exists to suggest that this vintage era of marketing ever existed and, if it did, I’ll bet it was never as strong as myth and the fuzzy goggles of nostalgia would suggest.

Clearly, the proportion of brand-loyal consumers is in decline thanks to the recession, the power of big retail and, increasingly, accessible sources of data. But again I would counsel marketers to retain perspective. Yes it is becoming harder to build and maintain brand-loyal consumers. But just because something is becoming harder to achieve does not warrant the wholesale rejection of the concept. If anything it elevates its importance.

Learn from brands that have continued, or increased, their proportion of brand loyal consumers in recent years. Ask Apple, Gillette, Benefit or Call of Duty about the death of brand loyalty and they’ll beg to disagree.

The game of brand loyalty remains the same. It’s just slightly tougher and some of the weaker players are questioning the rules. Be clear about your position. Execute with élan and efficiency. Don’t let retailers run your marketing. Avoid price-based promotions. Spend 10 per cent of your marketing budget on research and, most important, stay loyal to brand loyalty.

Readers' comments (10)

  • The organisations that make the most hay out of loyalty also understand it is a result not a goal – the result of doing other things well and keeping your promises. Is a distinction many marketers forget (or don't think about in the first place).

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  • Surely this varies between categories though?
    With purchase drivers varying so much between airlines and electronics through to Alcohol and FMCG - these findings can't be true for all. I can be extremely loyal to say diet coke and other basket staples that i know my family enjoys and can happily afford but at the same time have no loyalty to say white goods in my household. So whilst loyalty is a challenge for all marketers I'd say that this very much depends how price sensitive your category is....

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  • In a world with an increasing amount of brands, mind boggling array of choices.. I think we rely more so ever on a bouquet of brand preferences if not iron clad loyalty to help us transverse our way thru.. I know I do!

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  • Mark, Data from Byron Sharp shows that loyalty rates are the same for a brand in a given category... the difference between big and small brands is all to do with PENETRATION levels. And this goes for brands in all categories, service and FMCG.

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  • Hi David

    The Byron Sharp stuff is a different kind of critique of loyalty: stating not that its becoming less relevant but that it was never worth pursuing in the first place.

    His book is a great read with genuinely new insights. But its spoiled by mistaking "science" with not being prepared to look at other examples, settings and points of view. I refer you to your own (excellent) blog for evidence.

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  • Brand loyalty is more relevant & valuable to brands than ever. Consumers no longer just buy products, word of mouth recommendation is now the most powerful and trusted marketing channel. Agree with Mark, it’s vital that brands invest in research to understand how to engage and recruit more BrandFans.

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  • Hasn't the 80/20 theory been the basis of a ridiculous amount of social science and marketing thinking for years. What's all the fuss about?

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  • i think people dont have in mind any brand when they go out for shopping, but people do select items from store which they are familiar most or in back of their mind they are always selecting items which have good public reputation and awareness.

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  • Interesting article and comments. Quite right Mark, it's the Pareto principle at work isn't it? A few thoughts although I haven't read these reports... Firstly, the economic conditions would encourage people to flirt with other brands as price promotions increase in number and intensity. So this could be a factor in the apparent decline in loyalty (which I am sure is happening to a degree).

    Second, I am sure people would be more disloyal to more brands were they not locked in e.g. your bank, utility. It's a lot of hassle despite those goddamn meerkats' encouragement. Have these reports taken this into consideration? If not then actual loyalty levels might be even lower!

    Third, I do think brands fail in rewarding loyal customers. I can't be alone in resenting brands I stay loyal to giving people massive incentives to join whilst not rewarding me once in a while e.g. BT, Sky, or insurance at renewal time (the disloyalty in the insurance market must be the worst!). But imagine if insurers gave you an automatic 10% discount for being loyal? They'd keep more customers wouldn't they and as we know it costs 3x more to acquire than retain (doesn't it?). So in general, I suggest most loyal customers get the same benefits as those who shop around and aren't always loyal! This is a major 'crime' of brands who have forgotten the basic rules of loyalty. The number of true loyalty schemes have definitely declined since the 90s, and the money has gone to promotions.

    I end with two examples of loyalty schemes, one very expensive to run but effective, one cheap and simple yet just as effective. Tesco's Clubcard works - they send me vouchers with genuine money off (or double points). That's cash in hand. Sainsbury's on the other hand don't seem to do this anymore - they use their Nectar data to give money off vouchers at the till on crappy paper with no true personalisation, and the discounts are less. Result is I will always go to Tesco if I have a choice even if I prefer Sainsburys as a brand and shopping environment. Tesco's have bought my loyalty by giving me a bigger and more obvious discount and in return they get my continued loyalty (and money, horsemeat or not).

    The cheapo loyalty scheme that works for me is Cafe Nero. A simple card that get's stamped every time you buy a drink. When you get a full house, you get a free drink. That's why I go to Nero instead of Starbucks and Costa whenever I can, despite their products tasting the same. Shimples!

    Academics tell us to build the brand to get differentiation and added value in an increasingly crowded market. These reports are suggesting we shouldn't bother. Like Mark, I'm with the brands on this one.

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  • I did a buyer study about a dozen years ago - for glossy magazines - and guess what, the split was around 30% for buyers with a specific magazine brand in mind, another 30% or so with a few potential titles to choose from and the remaining were buying from a different category (yet some could be persuaded to switch from say one indulgence – choc bar – to another – magazine). It seems E&Y and Bain have spotted the same behaviour which, I suspect, is less to do with brand loyalty and more to do with buyer moods and motivations. The key thing for any brand owner to dig for genuine shopper insights and purchase triggers and then act with real dexterity at the point of purchase to secure the sale: consistent deliver of an excellence brand experience will go a long way to securing commitment.

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