by Ionut Rosca, Behaviour Planner at g7 Romania
Brand loyalty has been on everyone’s lips these past years, with some voices prophesizing a sense of impending doom in response to profound cultural shifts and to the ongoing digital disruption of the consumer journey. Dying or not, there is a general consensus that the never-ending proliferation of brands, the rapid rise of private labels and the steep price competitiveness generated by brands with little, if any, effective differentiation are wearing loyalty down.
This is big news for marketers and advertisers. Loyalty matters. This goes without saying for any customer centric business model, as loyalty saves costs, generates greater sales and creates an entry barrier for the competition by making consumers less sensitive to their marketing efforts. By cause of necessary consequence, brands are responding by creating loyalty programs, but so is everyone else, flooding the market with overchoice and that means many of these programs will seldomly be used or deliver meaningful and distinctive interactions.
So, if loyalty programs fail to deliver, it’s gloves off for marketers and time to return to oldest play in the book: promotions and discounts. This tactic has been an all-time marketing favourite, a double-edged tactic which uses better value for money as the argument to loyalize existing customers and to prompt others to switch. But what happens to loyalty when all players in a category start using this scheme?
To find out we conducted an inhouse loyalty research on the Romanian household care category, which had reported the largest share of promotions in 2017. We used a simple conceptual framework, defining loyalty as a biased positive attitude toward a brand or product triggered by satisfaction and measured empirically by repeated purchase over a given period of time.
Our data shows that the brands included in our research have an average share of 40% loyal consumers, which bought their brand of choice over a period of six months, while the remaining percentage switched between two or three brands in this period. What is really interesting in this category, where all players are cutting prices, is that switchers are not making bargains in terms of value versus satisfaction, as their levels of satisfaction were strikingly similar for all the brands in their consideration set.
The FMCG industry is notorious for its low levels of consumer involvement generated and this is doubled by short shopping cycles that allow consumers to experiment with brands all the time. When an environment of constant aggressive discounts is added to the equation what this does is corner loyalty even more.
Frequent discounts will make loyal consumers less loyal as they will begin to question the real price of their brand of choice, which is exactly what loyalty is supposed to counter, while switchers will be prompted to shop smart, by building a repertoire of brands that deliver similarly functional benefits and that are always available at the best prices on the market.
The effect of discounts over loyalty is nothing new. It has been researched since the 80s, with results similar to the ones mentioned earlier on, yet brands continue to apply the same tactics to this day, in response to a snowball effect of disruption and lack of optimal distinctiveness and despite the multitude of research-proven options for building consideration and loyalty.
I won’t call upon using the same tactics and expecting different results, instead I will resort to a quaint rule of thumb which precedes what we call marketing today:
Fidelity purchased with money, money can destroy”- Seneca.