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Brands left to ponder price of loyalty
By Andrew Edgecliffe-Johnson in New York
Big brands’ best customers have been defecting in droves since the beginning of the US recession, according to a study. By this year, more than half of a typical US brand’s most loyal shoppers in 2007 had switched to rival products.
Brand loyaltyA two-year analysis of 685 grocery and pharmacy-stocked brands, using data from 32m consumers’ supermarket loyalty cards, found that in 2008 the average brand lost a third of its formerly highly loyal customers.
The study will alarm packaged goods groups, as the most loyal customers – those choosing one brand for more than 70 per cent of their purchases in a category – should also be their most lucrative.
“Defection is top of mind for brand managers now because they’re the most profitable customers,” said Eric Anderson, associate professor of marketing at Kellogg School of Management, Northwestern University.
“Price and promotion have become so salient at retail, that what we thought was the loyal customer can be moved with discounts,” he added.
Past recessions have seen similar defections from top-tier national brands to stores’ private-label goods, Mr Anderson said. Academic research showed that customers could be quickly persuaded to switch by a cheaper price but took far longer to switch back.
The study was conducted by the CMO Council, which represents chief marketing officers, and Catalina Marketing’s Pointer Media Network, which has equipment in 25,000 stores analysing buying behaviour. Catalina can provide a two-year anonymous purchasing history on individual customers. Brand managers and retailers who had seen the data had been startled by it, said Todd Morris, senior vice-president at Catalina.
“They’ve always known there was churn but could never put their finger on how big the issue is.”
The study comes as marketers are leaning more heavily on research and on targeted advertising, as they seek to improve on the “spray and pray” approach of mass media marketing formats, such as 30-second television advertisements.
Copyright The Financial Times Limited 2009
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It's interesting to note the relative performances of the major CPG brands vis-a-vis their advertising spending. As reported today in Advertising Age, a number of major consumer brands have lost significant brand loyalty at the same time they've cut back on their advertising. More at http://domusinc.blogspot.com/2009/06/advertising-and-brand-loyalty-in.html.
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