Brand loyalty not enough to guarantee custom

05 July 2017 Consultancy.uk

Top companies holding onto customers through brand loyalty alone are facing an uphill challenge, according to a new report. The research suggests digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly outdated, strategies as modern customers wield an increasingly impressive array of digital tools and online databases, and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The paper from McKinsey & Company, titled ‘The new battleground for marketing-led growth’, considers whether one of the traditional ways of keeping customers buying a particular product or service, which largely involves creating loyalty-reward programmes, is still feasible in the 21st century.

Waning loyalties

The strategy consulting firm has tracked consumer behaviour in relation to their consumer decision journeys (CDJs) since 2009. These journeys, which tend to be relatively complex and continent on a number of external factors, have a number of key ‘battle ground’ points in which brand decisions are made.

The consumer decision journey has four key battlegrounds

The first is the initial consideration, of a set of possible brands to choose between, followed by the second, the evaluation of the set of possible choices. The third is the ultimate selection of the product or services, and finally the fourth is the consumer repurchasing current brands without shopping for others.

One of the traditional methods to secure the fourth step is brand loyalty schemes. These schemes, are continuing to be deployed by companies, with the number of users increasing 26% between 2013 and 2015. The programmes may, however, not be having the planned effect. Research shows that over the same period, active engagement in programmes has fallen 2 percentage points, which 58% of those in loyalty programmes are not engaged. Digital disruptions, according to the firm, are changing consumer behaviour.

Purchase in most categories are driven more by shopping than loyalty

To better understand consumer behaviour across a range of shopping categories, in relation to loyalty, the firm used its CDJ database – which include 350 brands and the choices of 125,000 consumers regarding their recent purchasing decisions regarding those brands across 30 categories.

According to the research only three of the thirty categories are loyalty driven, with mobile network providers and auto insurance companies both well positioned to retain customers through brand reputation. In other categories, however, consumers are considerably keener to shop around before making a definite decision. 67% of consumers surveyed shopped around for new cereal options, 31% for personal-care retail item sellers, and 25% for telecom handsets. Shoes shoppers were particularly fickle, with 97% not tied to a particular brand, while for a number of high-value items consumer loyalty remains almost out of reach; 90% of consumers shopped around for a new automobile manufacturer and 88% for laptops.

The most important list

When it comes to the definitive decisions of the shoppers, as an average, across the categories considered, the research found that 13% of respondents are loyalists, while a further 29% - after shopping around – decided to return to their previous brand choice. The majority of consumers (58%), however, decided to switch brand.

Loyalty is elusive in today’s market

According to the research, following the decision to switch or re-research a brand choice, consumers again find themselves needing to make an initial set of brands to consider. The firm notes that being in the set of initial brands is key to the likelihood (more than twice as likely) of making it through the active evaluation to final selection. In total almost 70% of the brands purchased by consumers who switched brands were part of their initial consideration set when they started shopping.

Correlation between initial set and growth

The paper further sought to identify in how far brands that found themselves in the initial set for consideration, were able to achieve growth. The research found that in most shopping driven categories, the ratio of being in the initial consideration set to market share explains 60% of the variance in growth - with particularly strong correlation in automobiles and personal computers.

Summarising the findings in the report, McKinsey concluded, “Every company we know is sweating out efforts to increase revenue from their brands. Earning a spot in consumer’ highly valuable initial consideration sets has never been more crucial. Measures like the initial consideration index can help companies understand how their brands stack up against those of competitors while offering a way to track progress as they encourage consumers to consider their brands first.”

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