The big brand loyalty theory is history

Shoppers are a fickle bunch when it comes to brand loyalty, which has been perpetuated by a retail environment increasingly driven by promotions. In fact, on average 50 per cent of a brand’s ‘loyal’ users will not be with them the following year, according to Bain & Company and Kantar Worldpanel’s UK Shopper Survey 2012.

As heavy shoppers change so frequently, brands have to keep talking to loyal users while trying to recruit new customers. Price promotions have always been an important part of the marketing mix, but they have become more of a concern for marketers over the past five years as the number of products sold on deals continues to climb. Promotions now account for 40 per cent of branded product sales, which “has to be influencing the way people shop,” warns Phil Dorsett, expert services director at Kantar Worldpanel.

Bain surveyed 3,500 UK shoppers as part of the research, which looked at more than 450 brands across 17 categories and all price tiers, equating to around 90 per cent of branded FMCG spend. This data has been combined with Kantar’s consumer panel, which tracks the purchases of 30,000 consumers throughout the year.

On average, only 42 per cent of consumers have a brand in mind before they go shopping, leading to consumers buying at least two brands in the majority of categories.

Richard Webster, partner at Bain & Company, believes the high level of transparency among the major grocers and the fact consumers can easily compare prices – which has led to more price-matching – has had a major effect on the promotional landscape.

“[It] has led to retailers following each other on promotional strategies,” he says. “In certain highly promoted categories that can mean

a continuing increase in the level of promotions. If one does a deal, then everyone else copies it and adds one of their own.”

However, the dynamics do differ between categories and the role of promotions can vary considerably. “As a result, manufacturers and retailers are getting smarter about using promotions to drive the category and boost value rather than just increase the share of purchase from a branded goods perspective,” says Webster.

He singles out beer, particularly lager, as a sector where purchase behaviour is influenced by what is on offer. Only 39 per cent of shoppers plan which brand of beer they are going to buy prior to going shopping. Consumers are also happy to buy across price tiers, so the same shoppers will buy mainstream, premium and luxury brands, depending on what is on offer, resulting in consumers buying an average of 3.3 beer brands a month.

Webster says: “The mainstream lager brands are very highly promoted. The majority of purchases are made on promotion and we find relatively little loyalty, so the consumer will choose what is on offer before their preferred brand.”

This behaviour is reinforced by the layout of products in store with both mainstream and premium lagers stocked on the same shelf and in similar packaging, blurring the lines between the different price tiers.

However, the way consumers buy alcohol could be about to change if the Government’s proposed 45p minimum price per unit comes into force. It launched a 10-week consultation

in November 2012 as part of its alcohol strategy to lower irresponsible drinking. During the review it will also assess whether multi-buy promotions have an effect on binge drinking, which could see deals of this kind banned.

Bain and Kantar’s research was conducted ahead of the Government’s announcement, but if things do not change, Dorsett believes it is difficult to imagine a world where promotions are significantly reduced.

He says: “Everyone is a little too scared to pull back. People are trying to quantify the risk of doing so and there would be significant risk in being the first [to make a move]. Before, marketers always asked ‘If I promote, what does it do for my brand in the long-term?’ But now it’s more about how much profit and how much a promotion can deliver in the short-term.

It’s more tactical in nature rather than a strategic long-term view.”

Webster believes the clever manufacturers have recognised that just because part of the market is highly deal-led, not all sub-sectors need to be treated the same. So while lager is heavily promoted, there are other parts of the category where the brand is still important. World and craft beer, for example, are driven by brand selection rather than deals so manufacturers can work with retailers to increase purchases from this part of the category.

Cider is another example. Webster says: “If you go back five or so years, most of the category was deal driven, high volume, low price cider. Through thoughtful marketing and product innovation, both the retailers and manufacturers have been able to create almost a new sub-category of premium cider. They have a separate space in store and manufacturers are investing more in building those brands and creating excitement for the shop.”

Even in categories where consumers are found to be more loyal and the overall number of brands purchased is smaller, there is still a high level of promotion. In laundry, for example, 51 per cent of shoppers pre-plan which brand they are going to buy prior to setting foot in a shop (12 percentage points more than in beer), and on average shoppers buy just 1.9 different brands per month (1.4 fewer than in beer), yet promotions still account for 41 per cent of sales on branded products.

Marketers should also pay close attention to the types of deal they offer because a higher level of discount does not mean a higher return on investment. Dorsett highlights one example where a discount of between 10 and 24 per cent created a 14 per cent incremental increase in shopper expenditure, while a discount of 40+ per cent actually had a negative effect of five per cent.

He says: “The implication is that you can encourage people to spend more on the category with lower discounts. You don’t need to necessarily drive people with very high discounts and when you do it’s very difficult to get sufficient volume to offset that discount.”

Manufacturers should also consider whether they discount their ‘hero’ brand – the one that performs best regardless of promotion – or support a weaker performing brand in the hope of increasing sales. The research finds that during one week-long promotion it was possible for the hero product to perform more than three times better than the smaller brand.

“The uplift has a magnifying effect not just an absolute effect,” says Webster. “So actually you get a bigger bang for your buck by putting your best brand and the promotional mechanic together, rather than propping up a weaker brand.”