Loyalty is more than a bonus

In the competitive packaged goods industries the best growth route is to retain and increase customer loyalty. Lynn Driver investigates. Lynn Driver is manager of the consumer services team at AC Nielsen

Loyalty is moving to the top of the marketer’s agenda, as the fast moving consumer goods industry becomes ever more competitive. The importance of the customer is critical, and the route to continued growth is to retain and increase your loyal consumer base.

In a recent Homescan survey, 75 per cent of consumers say they will stick to a brand they like. However, consumers are also conscious of value, and the chances of shoppers switching from their normal brand to a competitor which is on promotion is 50 per cent. Price and value are key aspects of loyalty.

Consistency and quality also play an essential part in building and maintaining brand loyalty. Persil Power, for example, not only failed to live up to the reassuring Persil brand image Lever Brothers had built over the years, but it was also alleged to damage clothes. When looking to build brand loyalty, consistency and quality are key factors – consumers want to know they can depend on the product to meet their needs. If the consumer has any doubts about this, one can expect loyalty to fall.

There are, however, a number of misleading definitions of loyalty. According to some marketing academics, loyalty is share of occasions, share of transactions, repeat buying and so on.

But fundamentally all these definitions suffer from the same problem – they look at the issue in one dimension. Without taking into account a range of other factors measuring success or failure, loyalty as an indicator can be very misleading.

For example, shopper’s loyalty to the Co-op has increased over the past few years. While it may have lost market share, those now shopping in the Co-op are more loyal to the company. In this instance, loyalty increase is only part of the story.

Conversely, Tropicana Fruit Juice has shown declining loyalty over the past year. But in this case the brand is showing strong growth and attracting increasing numbers of new buyers to try it. This expands sales, but also dilutes overall loyalty figures.

There are two points worth mentioning when assessing these standard measures of loyalty. First, that a brand will have loyalty at least as high as its brand share, so a leading brand like Nescafé will always have relatively strong loyalty. But which comes first? Has Nescafé got high loyalty because of its high share, or has it a high share because of its high loyalty?

Second, the more chances there are to be disloyal, the more likely it is that individual brand loyalty will be lower. Brands in the yogurt market, where choice is wide, will tend to have lower loyalty than brands in, for example, the dishwasher powder category, where choice is more limited.

Of course you may say that brand variants are essential, as they offer the means of keeping consumers within the brand fold by meeting their full range of needs. However, by offering a wider choice, consumers are actively encouraged to try something different when they shop. Which is the best route to take to keep your consumer?

Innovation too, can drive loyalty. For example, in the yogurt market, the introduction of the new Mller split pot in 1988, made the grocery brand the 12th largest in 1995. Not only did it differentiate itself in a fragmented market, but through constant innovation, it has continued to increase in share and loyalty over the past few years.

Another notable change in the grocery marketing world is starting to take place. In a climate where margins are being squeezed, advertising costs are high, new product development budgets are under pressure, and computer power is getting cheaper, retailers and manufacturers are waking up to direct communication with customers as the latest weapon in the loyalty war. Relationship marketing is becoming the issue of the Nineties.

Redemption rates for coupons delivered by direct mail are 13 per cent, second only to the rates achieved by on-pack offers, and significantly ahead of rates achieved by door-to-door and in-store couponing activity. Indeed, mail campaigns for fmcg categories have increased by over 80 per cent in the past year.

Currently a debilitating factor in maximising the potential customer databases lies in their sheer size, and the limitations of many database management and market analysis systems when trying to cope with the volume.

But in a fast-moving technological world, this barrier will soon be removed in the stampede to talk on a one-to-one level with every customer and build that bond of loyalty.

The loyalty battle will continue, and it is those manufacturers and retailers that understand their consumer needs who will be the winners.

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