The direct link between profits and brand loyalty should force European advertisers to move beyond traditional techniques in their efforts to reduce brand promiscuity. By John Shannon
During the past few years, customer loyalty has emerged as the most important factor for building long-term brand profitability.
UK retailers have been quick to recognise the relationship between profit and loyalty and have pioneered schemes, such as loyalty cards, to stem customer defections.
In contrast, Europe’s advertisers have found it harder to develop communication techniques specifically designed to build brand loyalty and have thus witnessed the gradual but relentless erosion of loyalty among their core consumer groups.
Research from Grey’s global loyalty measurement and evaluation programme, Brand Loyalty +, shows the issue is more pressing in Europe than in the rest of the world and that German consumers are the most likely to switch between brands regularly. So serious is the problem of Germany’s “brand promiscuity” that it is threatening the commercial viability of some major brands.
In the late Eighties, before Europe’s economy began to slow, many brand manufacturers tended to underestimate the importance of retaining customers. After all, with consumers spending at un-precedented levels, any signs of brand erosion could be quickly redressed as new products were launched and therefore new customers attracted.
However, in the more frugal and more competitive post-recession era it is becoming clear that the most cost-effective way to increase profits is to find new methods of strengthening customer loyalty. A recent study by Frederick Reichheld of Bain & Company showed a five per cent decrease in customer defections can boost profits by as much as 85 per cent.
The question advertisers now face is how to use commercial communications to directly influence loyalty levels. Traditionally, agencies use a combination of brand share and satisfaction measurements to help them develop relevant advertising. But these tools are too crude to provide sufficiently penetrating insight into the complex intricacies of loyalty.
To build strong, sustainable brands, advertisers must move beyond traditional techniques and focus on the key drivers and barriers to loyalty. They must equip themselves to exploit this knowledge with advertising designed specifically to enhance loyalty.
The challenge of using commercial communications to build consumer loyalty to brands and their core values is arguably the most important priority facing today’s advertisers in Europe.
Success re-quires nothing less than a complete reappraisal of the ways in which brand performance and consumer satisfaction are evaluated.