Ad agencies hit back at customer loyalty

Advertising agencies have long been annoyed by the loyalty bandwagon, especially the way it allowed hoi polloi in other disciplines such as direct marketing (now rebranded “relationship” or “one-to-one marketing”) and sales promotion (rebranded the “loyalty scheme”) to usurp marketing directors’ attention and budgets.

This week, however, the agencies launch a fightback. A pamphlet published by the Institute of Practitioners in Advertising (IPA) – How Advertising Affects Customer Loyalty, by former EURO RSCG Wnek planner turned consultant Andrew Crosthwaite – presents their counterblast.

He warns that loyalty measures such as repeat purchase can be misleading because they overlook factors such as habit and inertia. And loyalty schemes, which address only behavioural loyalty, present a number of disadvantages, such as generating loyalty to a price point or promotional mechanism.

Crosthwaite points to a study by Millward Brown Research which shows how powerful emotional and attitudinal bonding to a brand can be. In the study, emotionally bonded consumers accounted for ten per cent of all customers but 55 per cent of sales value. Brands with more than their fair share of bonded customers have a 60 per cent chance of increasing their share. Crosthwaite concludes that true loyalty is generated by building an emotional, rather than a mechanical, relationship with a brand and believes well targeted advertising is the most effective medium to deliver this.

With a few years of loyalty under their belts, it’s about time marketers took stock. Here’s one assessment: brand loyalty is a chimera, and a lot of loyalty-speak is positively dangerous. Nevertheless the quest for this chimera is surprisingly fruitful. Take the chimera bit first. As the IPA pamphlet points out, by using innovation to differentiate and by driving endless product proliferation, marketers themselves constantly undermine brand loyalty. As Crosthwaite remarks, marketers drive experimentation and then bemoan declining loyalty.

This is the heart of the paradox of wanting everyone else’s customers to be promiscuous while our own remain committed.

Meanwhile, as the IPA implies, good old fashioned brand building and loyalty have always been one and the same. The things that make people want to buy a brand are the things that make them want to buy it again, and that make them feel a bond or affinity with that brand. Therefore, inventing new categories such as true loyalty is futile.

Most brand users are floating voters, as Crosthwaite calls them, and they are arranged on a sliding scale of commitment. Some are more loyal than others. But concepts like true loyalty encourage brand hubris. Most attempts to define true loyalty, which goes beyond repeat purchase, follow the line adopted by former Heinz chief executive Tony O’Reilly. He said the acid test of brand loyalty is whether a housewife intending to buy Heinz Tomato Ketchup in a store, finding it to be out of stock, will walk out of the store to buy it elsewhere or switch to an alternative product.

Such definitions can point marketers in precisely the wrong direction. They frantically search for the elusive element they think will send that housewife charging out of the store looking for Heinz ketchup. They should rather be getting their basics right, by making sure they are in stock in the first place.

Similarly, petrol forecourt and grocery marketers say the real test of customer loyalty is whether customers will drive past a rival’s store to go to theirs. Perhaps, but if convenience is so high on their customers’ list of priorities, why not make sure they are the most convenient?

Worse, O’Reilly’s style definitions of true loyalty imply that the real acid test is the sacrifices customers make for the brand: like searching for it from store to store, paying more for it, or staying loyal to it even when faced with a palpably better offer.

Crosthwaite teeters on the edge of this precipice when, commenting on the high street banks’ loss of market share to the young First Direct bank, he concludes that a brand can be vulnerable to competitive initiative when the foundations of goodwill or emotional affinity are too weak to fall back onto. Pardon? Is emotional affinity meant to help incumbents get away with making worse offers? This is not emotional bonding or branding as added value, but a means of camouflaging a lack of value. It is one-way street loyalty, doomed to fail.

What about the unexpected useful stuff, then? Well, loyalty schemes may have nothing to do with loyalty, but they can improve the productivity of promotional spend by focusing on the right customers with clear objectives such as repeat purchase.

Likewise, loyalty cards may be a complete misnomer, but they do allow retailers and airlines, for example, to identify their most important customers and gather information about them – which is invaluable.

Meanwhile, look at the insights researchers such as Millward Brown, Jannie Hofmeyr and his conversion model, and Ogilvy & Mather’s Garth Hallberg are uncovering and the profound new questions they are raising. Is a 20/80 profile of loyal and less loyal customers an iron law for brands? Can marketers ever significantly change this profile? According to Millward Brown’s Andy Farr, some brands have tried, with mixed results. But most haven’t. We simply don’t know the answer.

The IPA pamphlet cites the case of a group of brands where 37 per cent of customers account for 87 per cent value share. But how do you interpret this? If this 37 per cent represents the stable core of the brand, perhaps it’s the other 63 per cent of customers that account for the extra 13 per cent share that makes the difference between profit and loss. Perhaps managing promiscuity affects results more directly than loyalty.

If it’s common for 40 per cent of customers with high attitudinal loyalty to defect within a year, as the IPA pamphlet reports, churn may simply be an unavoidable fact of life. On the other hand, the measure “high attitudinal loyalty” may be missing true loyalty. And so on.

The IPA is right to remind us that emotion and advertising play an important part in brand loyalty, however defined. But that’s not news. It’s hard science where the next breakthroughs are most likely to come from.

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