September 7, 2012
BrainTrust Query: How Loyal Are Your Loyal Buyers, Really?
Through a special arrangement, presented here for discussion is an excerpt of an article from the Joel Rubinson on Marketing Research blog.
Catalina Marketing shared data with me two years ago on laundry detergent and bottled water showing that the brand bought most often by a given shopper is still only bought about two-thirds of the time.
Worse, these loyal customers aren’t automatically retained. My own published brand equity paper in the Journal of Advertising Research shows that of those who are loyal to a brand in a given year (50 percent plus share of requirements) only half are still loyal to the same brand one year later.
From modeling loyalty distributions for many years from household purchase panel data, I have estimated that only 15 percent of brand buyers can be considered truly loyal and engaged with a typical CPG brand that they buy.
But I wonder if marketers and ad agency execs generally realize how much customer sharing, conquest and churn there is. I don’t think they do.
Why do marketers form such hardened incorrect beliefs? For this answer, I turn to some of the principles in Nobel Prize winner Daniel Kahneman’s best seller, Thinking, Fast and Slow. The behavioral economist notes that telling stories is easy for humans, while doing math is hard. We have a bias towards creating and believing stories that give a cohesive explanation.
In marketing, I think the culprit is the power of persuasive stories as told by marketing gurus. Social media zealots will point to the success of Old Spice. The cautious observer will note that if we had more success stories like that, indicating we knew how to engineer success and virality, we would not be mentioning Old Spice at every conference.
Branding gurus use great stories to preach that brands are expressions of self-narrative where consumers find the brand to which they will form deep attachment with no regard to actual purchasing data or the constant threat of private label. We need to create stories that deliver correct assessments from hard data in unforgettable ways, not imagine hard data from the interpretive stories consultants construct to explain individual marketing cases with false certainty.
For 85 percent of consumer/brand relationships, the data suggest that brands function as simplifying heuristics, in the way that behavioral economists might use the phrase. They help shoppers get through a big shopping trip in half an hour rather than two hours. This is not to denigrate the value of branding, as the recognition, trust, perceived fit to purpose, and familiarity that someone has towards a brand is a tremendous asset. But it does not produce exclusive brand buying patterns.
Final words of advice by Prof. Kahneman in Thinking, Fast and Slow: when faced with an important choice, he advises us to slow down our decision processes and force ourselves to use "System 2" (rational, calculating). I think these are wise words for marketing teams. Get grounded and prove your beliefs before making them the basis of decision-making.
BrainTrust
Recent Discussions
Discussion Questions
Do marketers generally overestimate how loyal and attached customers are to brands? Do narratives around brands generally offer false hope around building engagement and preventing churn? What’s a healthier way for marketers to explain the value of branding and assess churn?
Poll
I don’t know if marketers actually overestimate brand loyalty, but they clearly oversell it. After all they are … er … marketers, it’s kind of their job to sell virtues and ignore vices.
Ditto on the narrative question. As noted, if building brand loyalty was so simple there would be — at a minimum — far more successful brands and far, far fewer failures.
The answer to the third question is a tad more complex.
The issue really isn’t about consumer loyalty to brands, rather it’s all about brand marketers loyalty to consumers. The reason brand loyalty has eroded is that many, many brands don’t deserve any loyalty in the first place. Instead they are overpriced, overhyped and not all that original, authentic, innovative or honest.
Want to build loyalty? Try starting off with a product or service that has actual substance and value to real human beings. Marketers have proven they can sell anything to anybody and that’s the problem. The emphasis has shifted to the slickness of the pitch and away from the value of the product or the real needs of the customer.
You can, in fact, sell ice to Inuits … at least once … just don’t be surprised when they aren’t so loyal to you.
Collecting and analyzing data is the only way to know whether consumers are being loyal. According to services research, unless consumers’ expectations are exceeded every time they use the product or service, they are vulnerable and can be persuaded to change their mind. If someone else presents a good story consumers may well be trying the new product. Other research shows that if the product is out of stock, about a third of consumers may try another brand.
Marketers may overestimate the need to engage customers as opposed to giving them a reason to buy. If you believe Kahneman (and mostly I do), a good reason to buy your product that is not subject to competitive interference (price/promotion) creates the heuristic that will be relied upon in the future. Give them a good heuristic and they won’t think about your competitors. Keep it simple, keep consistently hammering it in, and you’ll see loyalty maintain/improve.
I couldn’t agree more with Mr. Kahneman’s statement that humans can tell stories far easier than doing the math. The corollary is that we, certainly as consumers, are far more receptive to an emotionally engaging story than we are to taking a moment and thinking through the facts and logic. The majority of our purchasing decisions are driven by emotions. We then rationalize our purchase after the fact. It is simply irrational for marketers to believe and strategize their efforts around the notion of ‘loyalty’. In the world of the digitally empowered shopper, marketers should concentrate on the elusive art of brand storytelling and then communicating and sharing the chapters of that brand story across all available shopper channels. It’s extremely revealing when you take the time to ‘do the math’. The marketing narrative often melts away very quickly leaving one to deal with the cold hard evidence.
The fidelity of loyalty is not constant or universal. For instance, the loyalty of your dog is greater than customer loyalty to your brand. In accepting that premise, one will more likely find a healthier way to explain the value of your branding and increase the likelihood of your conquest of customers’ hearts and wallets.
We all want to be loved. Brand affinity is like a marriage commitment. But, no brand manager expects their brand loyalist to be a 10x purchaser out of 10 trips. Maintaining awareness is essential to protecting purchase preference and frequency, but the consumer as is mentioned in the piece will always be intrigued with the newest/latest/greatest enhancement to their favorites, whether it be laundry detergent, toothpaste, deodorant, beauty aids, soft drinks, snacks, and the like.
The rational and calculating consumer is always looking for a better value, both in terms of product features and price/cost savings. That’s why Catalina pushes coupons to cause the consumer to stop and consider a competitive brand, to cause an interruption in the brand loyal purchase cycle.
Joel makes the point well…”only 15 percent of buyers can be considered truly loyal and engaged with a typical CPG brand they buy.” It makes me wonder about the definition of “truly loyal” because that could set the stage for building more effective strategies to attract and maintain loyalty. Sadly (or not) I cannot imagine going to war for Whisk or Poland Spring. Therefore I conclude there has always been some limit to loyalty. And no doubt marketers overestimate their customers’ loyalty…but more importantly how loyal they can ever be. Hats off to Joel for being the voice of reason and greater marketing efficiency.
100% Agreement, except that there are pockets of marketers that are fully on board with the ideas Joel is pushing. The Ehrenberg-Bass Institute has been a major force behind recognizing “loyalty” churn. I recommend Byron Sharp’s book, "How Brands Grow."
I find it interesting that Joel Rubinson attributes part of the difficulty brands experience in creating loyalty to “interpretive stories consultants construct to explain individual marketing cases with false certainty.” It is clear to me that the only people who are attributed more blame for things that go wrong, or even unexplained, than economists or meteorologists, are consultants.
Seriously, I want to respond to this from a consumer point of view. During a recent trip to my local grocery, I found the plethora of brands on shelves in many categories to be overwhelming. Price, nutritional content, packaging size, and price again, were all over the map. It is no surprise to me that CPGs have a challenge cutting through the madness of choice to connect with consumers and create true loyalty as evidenced by consistent repurchase.
Stories are fun, exciting and inspiring, but to the write the best story you need to understand what your readers (in this case consumers) are looking for. This is where collecting multiple data points on what consumers are buying, thinking, and doing comes in. Last year we did a study that helped a retailer order the correct color and style sweater for their fall season, by testing two styles and several colors in store during early spring. By watching what consumers did (walk away, pick up one or both, or actual decide to purchase one) and then asking them why, we were able to help the retailer determine the best style and colors to order for Fall. Needless to say the retail team and their agency put together a great story using the data we helped collect.
As far as churn you will always have it. Understanding the data and measures that are most important to you will help reduce churn and build greater loyalty. “What gets measured gets done.” – Tom Peters
Kudos to Joel Rubinson for raising the topic. Brands and retailers have spent billions in marketing their features and benefits, when perhaps they would be better advised to capitalize on their role as “heuristic simplifier”.
Certainly shoppers are looking for quality brand and retailer attributes, but they are also looking for speed and efficiency. Fellow BrainTrust Panelist, Dr. Herb Sorensen has been preaching for years that shoppers have three currencies to spend, time, money, and angst. Successful branding will address each of these currencies. Being an agent of familiarity and therefore eliminating some of the painful selection decisions shoppers must make during their trip is an admirable attribute of successful branding.
There are lessons to be learned here for both brands and retailers. If simplifying the heuristics breeds loyalty, perhaps even more than features and benefits of the product, (or store in the case of the retailer), then perhaps more attention should be paid to how the brand is presented in the store, and how the store is laid out to further simplify the shopping trip for the shopper.
May I suggest that the word “loyalty” is itself an all-too convenient heuristic for marketers? It is often used to tell a vaguely substantiated story about shopper behavior that assumes an emotional connection where one may or may not exist. If instead we crunch the data on repeat purchase behavior, consideration sets, share of wallet, and promotional and competitive actions, we may attain the kind of insights that are truly actionable. System 2 – I love that.
Joel a raises some excellent observations here (at least equal to his usual superb standard). But how would this line of reasoning be transformed if we deleted the word and concept of “loyalty” throughout and instead substituted “repeat patronage,” “most frequently purchased brand,” “share of wallet,” “consideration set,” “decision simplification,” and other descriptors that reflect actual measures of behavior?
I admit I get impatient with some experts who chug-a-lug the consumer loyalty KoolAid (Joel, I do not include you in that list). Churn is the normal state. Repeat purchase is the happy exception. Loyalty is a quality that brands may exhibit toward consumers in order to encourage repeat purchases. And I firmly agree with Rubinson and Kahneman that marketers need to be more empirical and less heuristic about this.
Yes, marketers may generally overestimate how loyal customers are to brands. That’s why I like to take the “gut feel” out of that metric and use unbiased brand value measurement organizations, like InterBrand. Building engagement and preventing churn is being done by many innovative CPG & retail brands through analytics tools and good, old-fashioned consumer insights activities. For instance, when was the last time your marketing department listened to customer service help desk call recordings? They can offer huge insights into brand value drivers.
Will brand churn ever stop? Well, if you look at brands outside retail, like BMW, Coca-Cola, Google and GE, you see that brand value is as strong as ever, and the customer loyalty following those brands is rock-solid.
I’d like to add a few points to the discussion:
1. Even if brands know this they still seem to spend more time and money on acquisition-based approaches. To Ryan’s point, marketers are not being loyal to their consumers/shoppers.
2. The numbers are different for each brand and they do change over time. Probably very few brands know what their current loyalty is. With the excuse of not having the data and the legacy approaches and metrics in place, brands generally have the wriggle-room to merrily avoid doing anything about it!
3. Too many businesses see loyalty as a marketing tactic. It should be part of the values and beliefs of a business or brand. I use the analogy of “my best friends” to explain this: I spend time with friends because it is very rewarding and I grow my friendships by doing this. I don’t spend most of my time and money trawling the streets looking for friend “look-a-likes.” I also know that if I don’t spend time with my friends then they lose interest in my friendship. Loyalty in business is really the same. Most brands have access to the data and levers to be able to act on this today … if they wanted to!
Good marketers, and those with the budget to do so, will include research in the marketing plan to evaluate brand loyalty and retention.
I want to know the period of time covered in the research mentioned in the article. Brand loyalty should never be evaluated on data gathered from a snap-shot. Brand loyalty is a fluid value and for marketers an on-going relationship with consumers.
As a marketer, I want to know what other micro and macro factors — such as economy, employment status, lifestyle changes, and so forth are affecting the ultimate purchase decision of consumers. Armed with comprehensive data and trends marketers can tweak variables (offers, price, discounts…) to reduce churn.
Marketers do overestimate how loyal customers are, and how much loyalty matters. One reason is that “regression to the mean” acts like gravity that brings heavy buyers in one period back closer to the norm in the next. Furthermore, only the very heaviest buyers (<5%) disproportionately drive business, and they’re the ones who don’t need marketing.
This can be disappointing for brand marketers because we like to believe our heavy buyers are special, and can be motivated with stories and other emotional triggers. The reality is that my heavy buyers are often just like my competitor’s.
A healthier way than narratives is to use loyalty programs and similar tools to encourage heavy users to raise their hands. When they identify themselves, we can reach them with relevant offers at relevant times to choose our brands instead of our competitors’.
I think the article above seems to dismiss simplifying heuristics too quickly. If the definition of brand loyalty is that you can count on the consumer to return to your brand again and again, simplicity is key. The tired and time-stressed shopper grabs the brand they are familiar with, the brand that consistently performs and delivers value to the consumer. You can talk about viral marketing and telling stories all you want, but the bottom line is how that customer distributes their dollars at the point of decision. If they’re choosing your brand on a consistent basis, you’ve got their loyalty.
A brilliant article and premise for discussion. The same bent toward storytelling vs. facts that drives purchasing decisions also drives professionals’ actions around buying and selling ideas and strategies. This is true in all business interactions because we are all human and susceptible to the same emotional responses at work that we do as consumers.
It is critical to provide the space for reflective thought that balances the power of the ‘story’ to the reality of whatever factual data is available.
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I don’t know if marketers actually overestimate brand loyalty, but they clearly oversell it. After all they are … er … marketers, it’s kind of their job to sell virtues and ignore vices.
Ditto on the narrative question. As noted, if building brand loyalty was so simple there would be — at a minimum — far more successful brands and far, far fewer failures.
The answer to the third question is a tad more complex.
The issue really isn’t about consumer loyalty to brands, rather it’s all about brand marketers loyalty to consumers. The reason brand loyalty has eroded is that many, many brands don’t deserve any loyalty in the first place. Instead they are overpriced, overhyped and not all that original, authentic, innovative or honest.
Want to build loyalty? Try starting off with a product or service that has actual substance and value to real human beings. Marketers have proven they can sell anything to anybody and that’s the problem. The emphasis has shifted to the slickness of the pitch and away from the value of the product or the real needs of the customer.
You can, in fact, sell ice to Inuits … at least once … just don’t be surprised when they aren’t so loyal to you.
Collecting and analyzing data is the only way to know whether consumers are being loyal. According to services research, unless consumers’ expectations are exceeded every time they use the product or service, they are vulnerable and can be persuaded to change their mind. If someone else presents a good story consumers may well be trying the new product. Other research shows that if the product is out of stock, about a third of consumers may try another brand.
Marketers may overestimate the need to engage customers as opposed to giving them a reason to buy. If you believe Kahneman (and mostly I do), a good reason to buy your product that is not subject to competitive interference (price/promotion) creates the heuristic that will be relied upon in the future. Give them a good heuristic and they won’t think about your competitors. Keep it simple, keep consistently hammering it in, and you’ll see loyalty maintain/improve.
I couldn’t agree more with Mr. Kahneman’s statement that humans can tell stories far easier than doing the math. The corollary is that we, certainly as consumers, are far more receptive to an emotionally engaging story than we are to taking a moment and thinking through the facts and logic. The majority of our purchasing decisions are driven by emotions. We then rationalize our purchase after the fact. It is simply irrational for marketers to believe and strategize their efforts around the notion of ‘loyalty’. In the world of the digitally empowered shopper, marketers should concentrate on the elusive art of brand storytelling and then communicating and sharing the chapters of that brand story across all available shopper channels. It’s extremely revealing when you take the time to ‘do the math’. The marketing narrative often melts away very quickly leaving one to deal with the cold hard evidence.
The fidelity of loyalty is not constant or universal. For instance, the loyalty of your dog is greater than customer loyalty to your brand. In accepting that premise, one will more likely find a healthier way to explain the value of your branding and increase the likelihood of your conquest of customers’ hearts and wallets.
We all want to be loved. Brand affinity is like a marriage commitment. But, no brand manager expects their brand loyalist to be a 10x purchaser out of 10 trips. Maintaining awareness is essential to protecting purchase preference and frequency, but the consumer as is mentioned in the piece will always be intrigued with the newest/latest/greatest enhancement to their favorites, whether it be laundry detergent, toothpaste, deodorant, beauty aids, soft drinks, snacks, and the like.
The rational and calculating consumer is always looking for a better value, both in terms of product features and price/cost savings. That’s why Catalina pushes coupons to cause the consumer to stop and consider a competitive brand, to cause an interruption in the brand loyal purchase cycle.
Joel makes the point well…”only 15 percent of buyers can be considered truly loyal and engaged with a typical CPG brand they buy.” It makes me wonder about the definition of “truly loyal” because that could set the stage for building more effective strategies to attract and maintain loyalty. Sadly (or not) I cannot imagine going to war for Whisk or Poland Spring. Therefore I conclude there has always been some limit to loyalty. And no doubt marketers overestimate their customers’ loyalty…but more importantly how loyal they can ever be. Hats off to Joel for being the voice of reason and greater marketing efficiency.
100% Agreement, except that there are pockets of marketers that are fully on board with the ideas Joel is pushing. The Ehrenberg-Bass Institute has been a major force behind recognizing “loyalty” churn. I recommend Byron Sharp’s book, "How Brands Grow."
I find it interesting that Joel Rubinson attributes part of the difficulty brands experience in creating loyalty to “interpretive stories consultants construct to explain individual marketing cases with false certainty.” It is clear to me that the only people who are attributed more blame for things that go wrong, or even unexplained, than economists or meteorologists, are consultants.
Seriously, I want to respond to this from a consumer point of view. During a recent trip to my local grocery, I found the plethora of brands on shelves in many categories to be overwhelming. Price, nutritional content, packaging size, and price again, were all over the map. It is no surprise to me that CPGs have a challenge cutting through the madness of choice to connect with consumers and create true loyalty as evidenced by consistent repurchase.
Stories are fun, exciting and inspiring, but to the write the best story you need to understand what your readers (in this case consumers) are looking for. This is where collecting multiple data points on what consumers are buying, thinking, and doing comes in. Last year we did a study that helped a retailer order the correct color and style sweater for their fall season, by testing two styles and several colors in store during early spring. By watching what consumers did (walk away, pick up one or both, or actual decide to purchase one) and then asking them why, we were able to help the retailer determine the best style and colors to order for Fall. Needless to say the retail team and their agency put together a great story using the data we helped collect.
As far as churn you will always have it. Understanding the data and measures that are most important to you will help reduce churn and build greater loyalty. “What gets measured gets done.” – Tom Peters
Kudos to Joel Rubinson for raising the topic. Brands and retailers have spent billions in marketing their features and benefits, when perhaps they would be better advised to capitalize on their role as “heuristic simplifier”.
Certainly shoppers are looking for quality brand and retailer attributes, but they are also looking for speed and efficiency. Fellow BrainTrust Panelist, Dr. Herb Sorensen has been preaching for years that shoppers have three currencies to spend, time, money, and angst. Successful branding will address each of these currencies. Being an agent of familiarity and therefore eliminating some of the painful selection decisions shoppers must make during their trip is an admirable attribute of successful branding.
There are lessons to be learned here for both brands and retailers. If simplifying the heuristics breeds loyalty, perhaps even more than features and benefits of the product, (or store in the case of the retailer), then perhaps more attention should be paid to how the brand is presented in the store, and how the store is laid out to further simplify the shopping trip for the shopper.
May I suggest that the word “loyalty” is itself an all-too convenient heuristic for marketers? It is often used to tell a vaguely substantiated story about shopper behavior that assumes an emotional connection where one may or may not exist. If instead we crunch the data on repeat purchase behavior, consideration sets, share of wallet, and promotional and competitive actions, we may attain the kind of insights that are truly actionable. System 2 – I love that.
Joel a raises some excellent observations here (at least equal to his usual superb standard). But how would this line of reasoning be transformed if we deleted the word and concept of “loyalty” throughout and instead substituted “repeat patronage,” “most frequently purchased brand,” “share of wallet,” “consideration set,” “decision simplification,” and other descriptors that reflect actual measures of behavior?
I admit I get impatient with some experts who chug-a-lug the consumer loyalty KoolAid (Joel, I do not include you in that list). Churn is the normal state. Repeat purchase is the happy exception. Loyalty is a quality that brands may exhibit toward consumers in order to encourage repeat purchases. And I firmly agree with Rubinson and Kahneman that marketers need to be more empirical and less heuristic about this.
Yes, marketers may generally overestimate how loyal customers are to brands. That’s why I like to take the “gut feel” out of that metric and use unbiased brand value measurement organizations, like InterBrand. Building engagement and preventing churn is being done by many innovative CPG & retail brands through analytics tools and good, old-fashioned consumer insights activities. For instance, when was the last time your marketing department listened to customer service help desk call recordings? They can offer huge insights into brand value drivers.
Will brand churn ever stop? Well, if you look at brands outside retail, like BMW, Coca-Cola, Google and GE, you see that brand value is as strong as ever, and the customer loyalty following those brands is rock-solid.
I’d like to add a few points to the discussion:
1. Even if brands know this they still seem to spend more time and money on acquisition-based approaches. To Ryan’s point, marketers are not being loyal to their consumers/shoppers.
2. The numbers are different for each brand and they do change over time. Probably very few brands know what their current loyalty is. With the excuse of not having the data and the legacy approaches and metrics in place, brands generally have the wriggle-room to merrily avoid doing anything about it!
3. Too many businesses see loyalty as a marketing tactic. It should be part of the values and beliefs of a business or brand. I use the analogy of “my best friends” to explain this: I spend time with friends because it is very rewarding and I grow my friendships by doing this. I don’t spend most of my time and money trawling the streets looking for friend “look-a-likes.” I also know that if I don’t spend time with my friends then they lose interest in my friendship. Loyalty in business is really the same. Most brands have access to the data and levers to be able to act on this today … if they wanted to!
Good marketers, and those with the budget to do so, will include research in the marketing plan to evaluate brand loyalty and retention.
I want to know the period of time covered in the research mentioned in the article. Brand loyalty should never be evaluated on data gathered from a snap-shot. Brand loyalty is a fluid value and for marketers an on-going relationship with consumers.
As a marketer, I want to know what other micro and macro factors — such as economy, employment status, lifestyle changes, and so forth are affecting the ultimate purchase decision of consumers. Armed with comprehensive data and trends marketers can tweak variables (offers, price, discounts…) to reduce churn.
Marketers do overestimate how loyal customers are, and how much loyalty matters. One reason is that “regression to the mean” acts like gravity that brings heavy buyers in one period back closer to the norm in the next. Furthermore, only the very heaviest buyers (<5%) disproportionately drive business, and they’re the ones who don’t need marketing.
This can be disappointing for brand marketers because we like to believe our heavy buyers are special, and can be motivated with stories and other emotional triggers. The reality is that my heavy buyers are often just like my competitor’s.
A healthier way than narratives is to use loyalty programs and similar tools to encourage heavy users to raise their hands. When they identify themselves, we can reach them with relevant offers at relevant times to choose our brands instead of our competitors’.
I think the article above seems to dismiss simplifying heuristics too quickly. If the definition of brand loyalty is that you can count on the consumer to return to your brand again and again, simplicity is key. The tired and time-stressed shopper grabs the brand they are familiar with, the brand that consistently performs and delivers value to the consumer. You can talk about viral marketing and telling stories all you want, but the bottom line is how that customer distributes their dollars at the point of decision. If they’re choosing your brand on a consistent basis, you’ve got their loyalty.
A brilliant article and premise for discussion. The same bent toward storytelling vs. facts that drives purchasing decisions also drives professionals’ actions around buying and selling ideas and strategies. This is true in all business interactions because we are all human and susceptible to the same emotional responses at work that we do as consumers.
It is critical to provide the space for reflective thought that balances the power of the ‘story’ to the reality of whatever factual data is available.