Brand loyalty has been a hot topic in recent years, with some voices prophesying impending doom due to profound cultural shifts in the market and to the ongoing digital disruption of the consumer journey. Doomed or not, there is a general consensus that with the never-ending proliferation of brands, the rapid rise of private labels and the steep increase in price competitiveness generated by brands, with little, if any, effective brand differentiation, brand loyalty is being eroded.
This is big news for marketers and advertisers. Loyalty matters. For any customer centric business model, loyalty saves costs, generates greater sales and creates a barrier to entry for the competition by making consumers less sensitive to their marketing efforts. As a necessary consequence to the erosion of brand loyalty, brands are responding by creating loyalty programs. The market, however, is flooded with excessive choice of several different brands of a particular product, many of which offer loyalty programs, and as a result many of these programs will seldom be used or deliver meaningful and distinctive interactions with one particular brand.
So, if loyalty programs fail to deliver, it’s gloves off for marketers and time to return to the oldest play in the book: promotions and discounts. This tactic has been an all-time marketing favourite, a double-edged tactic which uses better value for money as the argument to create loyalty from existing customers and to prompt others to switch.
But what happens to loyalty when all players in a category start using this scheme?
To find out we conducted in-house research into brand loyalty in the Romanian household-care category, which was the sector that reported the largest number of promotional offers in 2017. We used a simple conceptual framework which defined loyalty as a biased positive attitude towards a brand or product which was triggered by customer satisfaction and measured empirically by repeated purchase of a product, or from a particular brand, over a given period of time.
Our data shows that the brands included in our research have an average of 40% loyal consumers, who bought their brand of choice consistently over a period of six months, while the remaining percentage switched between two or three brands in this period. What is really interesting in this category, is that switchers are not making bargains in terms of value versus satisfaction, as their levels of satisfaction were strikingly similar for all the brands in their consideration set, so price appeared to be the deciding factor.
The FMCG industry is notorious for its low levels of consumer involvement and this is increased by short shopping cycles that allow consumers to experiment with brands all the time. When an environment of constant aggressive discounts is added to the equation what this does is corner loyalty based on price of product even more.
However, there is a danger that frequent discounts will make loyal consumers less loyal over time, as they may begin to question the real price of their brand of choice and they may begin to question whether they are, in fact, getting a good deal, which is exactly what loyalty is supposed to counter. While switchers will be prompted to shop smart, by building a repertoire of brands which deliver similarly functional benefits and are always available at the best prices on the market.
The effect of discounts over loyalty is nothing new. It has been researched since the 80s, with results similar to the ones mentioned earlier on, yet brands continue to apply the same tactics to this day, in response to a snowball effect of disruption and lack of optimal distinctiveness, and despite the multitude of research-proven options for building consideration and loyalty.
Rather than using the same tactics and expecting different results, consider heeding some sage advice which precedes what we call marketing today:
“Fidelity purchased with money, money can destroy”- Seneca.
For more insight into establishing brand loyalty get in touch with our Romania partners g7.