Brand loyalty

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Brand loyalty is where an individual buys products from the same manufacturer repeatedly rather than from other suppliers.[1]

In a survey of nearly 200 senior marketing managers, 68 percent responded that they found the "loyalty" metric very useful.[2]

True brand loyalty occurs when consumers are willing to pay higher prices for a certain brand, go out of their way for the brand, or think highly of it.[3]

Purpose

Brand loyalty, in marketing, consists of a consumer's commitment to repurchase or otherwise continue using the brand and can be demonstrated by repeated buying of a product or service, or other positive behaviors such as word of mouth advocacy.[4]

Examples of brand loyalty promotions

Construction

Lua error in package.lua at line 80: module 'strict' not found. Brand loyalty is more than simple repurchasing. Customers may repurchase a brand due to situational constraints (such as vendor lock-in), a lack of viable alternatives, or out of convenience.[5] Such loyalty is referred to as "spurious loyalty". A recent study showed that customer loyalty is affected by customer satisfaction, but the association differs based on customer switching costs (procedural, relational, and financial)[6] True brand loyalty exists when customers have a high relative attitude toward the brand which is then exhibited through repurchase behavior.[4][7] This type of loyalty can be a great asset to the firm: customers are willing to pay higher prices, they may cost less to serve, and can bring new customers to the firm.[8][9] For example, if Joe has brand loyalty to Company A he will purchase Company A's products even if Company B's are cheaper and/or of a higher quality. From the point of view of many marketers, loyalty to the brand — in terms of consumer usage — is a key factor. However, companies should ensure that they are not retaining loyal, but unprofitable customers.[10]

Usage rate

Most important is usually the 'rate' of usage, to which the Pareto 80-20 Rule applies. Kotler's 'heavy users' are likely to be disproportionately important to the brand (typically, 20 percent of users accounting for 80 percent of usage — and of suppliers' profit). As a result, suppliers often segment their customers into 'heavy', 'medium' and 'light' users; as far as they can, they target 'heavy users'. However, research shows that heavy users of a brand are not always the most profitable for a company.[10]

Loyalty

A second dimension, is whether the customer is committed to the brand. Philip Kotler, again, defines four patterns of behaviour:

  1. Hard-core Loyals - who buy the brand all the time.
  2. Split Loyals - loyal to two or three brands.
  3. Shifting Loyals - moving from one brand to another.
  4. Switchers - with no loyalty (possibly 'deal prone', constantly looking for bargains or 'vanity prone', looking for something different). Again, research shows that customer commitment is a more nuanced a fine-grained construct than what was previously thought. Specifically, customer commitment has five dimensions, and some commitment dimensions (forced commitment may even negatively impact customer loyalty).[11]

Factors influencing brand loyalty

It has been suggested[who?] that loyalty includes some degree of pre-dispositional commitment toward a brand. Brand loyalty is viewed as multidimensional construct. It is determined by several distinct psychological processes and it entails multivariate measurements. Customers' perceived value, brand trust, customers' satisfaction, repeat purchase behavior, and commitment are found to be the key influencing factors of brand loyalty. Commitment [11] and repeated purchase behavior are considered as necessary conditions for brand loyalty followed by perceived value, satisfaction, and brand trust.[12] Fred Reichheld,[13] One of the most influential writers on brand loyalty, claimed that enhancing customer loyalty could have dramatic effects on profitability. However, new research shows that that the association between customer loyalty and financial outcomes such as firm profitability and stock-market outcomes is not as straightforward as was once believed.[14] Many firms may overspend on customer loyalty, and then do not reap the intended benefits. Among the benefits from brand loyalty — specifically, longer tenure or staying as a customer for longer — was said to be lower sensitivity to price. This claim had not been empirically tested until recently. Recent research[15] found evidence that longer-term customers were indeed less sensitive to price increases. However, the claims of Reichheld have been empirically tested by Tim Keiningham and not found to hold.[16] Byron Sharp showed empirically that behaviour affects attitudinal response not the other way round. Longer term customers are less sensitive because it is harder for them to completely stop using the brand.[17] In another study Mittal and Kamakura showed that though satisfied customers were more likely to repurchase their previous brand of car, the relationship was not very strong, varied for different customer groups, showed non-linear patterns for different groups, and was virtually non-existent for some customer groups.[7]

Industrial markets

In industrial markets, organizations regard the 'heavy users' as 'major accounts' to be handled by senior sales personnel and even managers; whereas the 'light users' may be handled by the general salesforce or by a dealer.

Portfolios of brands

Andrew Ehrenberg, then of the London Business School said that consumers buy 'portfolios of brands'. They switch regularly between brands, often because they simply want a change. Thus, 'brand penetration' or 'brand share' reflects only a statistical chance that the majority of customers will buy that brand next time as part of a portfolio of brands they favour. It does not guarantee that they will stay loyal.

Influencing the statistical probabilities facing a consumer choosing from a portfolio of preferred brands, which is required in this context, is a very different role for a brand manager; compared with the — much simpler — one traditionally described of recruiting and holding dedicated customers. The concept also emphasises the need for managing continuity.

Cautions

One of the most prominent features of many markets is their overall stability — or marketing inertia. Thus, in their essential characteristics they change very slowly, often over decades — sometimes centuries — rather than over months.

This stability has two very important implications. The first is that those who are clear brand leaders are especially well placed in relation to their competitors and should want to further the inertia which lies behind that stable position. This, however, still demands a continuing pattern of minor changes to keep up with the marginal changes in consumer taste (which may be minor to the theorist but will still be crucial in terms of those consumers' purchasing patterns as markets do not favour the over-complacent). These minor investments are a small price to pay for the long term profits which brand leaders usually enjoy.

The second, and more important, is that someone who wishes to overturn this stability and change the market (or significantly change one's position in it), massive investments must be expected to be made in order to succeed. Even though stability is the natural state of markets, sudden changes can still occur, and the environment must be constantly scanned for signs of these.

See also

References

  1. ↑ American Marketing Association Dictionary. Retrieved 2011-07-09. The Marketing Accountability Standards Board (MASB) endorses this definition as part of its ongoing Common Language: Marketing Activities and Metrics Project.
  2. ↑ Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, New Jersey: Pearson Education, Inc. ISBN 0-13-705829-2. The Marketing Accountability Standards Board (MASB) endorses the definitions, purposes, and constructs of classes of measures that appear in Marketing Metrics as part of its ongoing Common Language: Marketing Activities and Metrics Project.
  3. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  4. ↑ 4.0 4.1 Dick, Alan S. and Kunal Basu (1994), "Customer Loyalty: Toward an Integrated Conceptual Framework," Journal of the Academy of Marketing Science, 22 (2), 99-113.
  5. ↑ Jones, Michael A., David L. Mothersbaugh, and Sharon E. Beatty (2002), "Why Customers Stay: Measuring the Underlying Dimensions of Services Switching Costs and Managing Their Differential Strategic Outcomes," Journal of Business Research, 55, 441-50.
  6. ↑ Blut, Markus and Frennea, Carly and Mittal, Vikas and Mothersbaugh, David L., How Procedural, Financial and Relational Switching Costs Affect Customer Satisfaction, Repurchase Intentions, and Repurchase Behavior: A Meta-Analysis (January 20, 2015). International Journal of Research in Marketing, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2553402
  7. ↑ 7.0 7.1 Vikas Mittal and Wagner Kamakura. (2001) "Satisfaction, Repurchase Intent, and Repurchase Behavior: Investigating the Moderating Effect of Customer Characteristics". Journal of Marketing Research, 38(1): 131-142. Available at SSRN: http://ssrn.com/abstract=2344925
  8. ↑ Reichheld, Frederick F. and W. Earl Jr. Sasser (1990), "Zero Defections: Quality Comes to Services," Harvard Business Review (September–October), 105-11.
  9. ↑ Reichheld, Frederick F. (1993), "Loyalty-Based Management," Harvard Business Review, 71 (2), 64-73.
  10. ↑ 10.0 10.1 Reinartz, Werner J., and Vita Kumar. "The impact of customer relationship characteristics on profitable lifetime duration." Journal of marketing 67.1 (2003): 77-99.
  11. ↑ 11.0 11.1 Keiningham, Timothy L. and Frennea, Carly and Aksoy, Lerzan and Alexander and Mittal, Vikas, A Five-Component Customer Commitment Model: Implications for Repurchase Intentions in Goods and Services Industries (2015). Journal of Service Research, 1-18, 2015 . Available at SSRN: http://ssrn.com/abstract=2593914
  12. ↑ Punniyamoorthy, M and Prasanna Mohan Raj, "An empirical model for brand loyalty measurement", Journal of Targeting, Measurement and Analysis for Marketing, Volume 15, Number 4, September 2007 , pp. 222-233(12)
  13. ↑ Reichheld, F. The Loyalty Effect 1996
  14. ↑ Reinartz, Werner, and V. I. S. W. A. N. A. T. H. A. N. Kumar. "The mismanagement of customer loyalty." Harvard business review 80.7 (2002): 86-95.
  15. ↑ Dawes, J. "The Effect of Service Price Increases on Customer Retention: The Moderating Role of Customer Tenure and Relationship Breadth". Journal of Service Research, Vol 11, 2009.
  16. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  17. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  • P. Kotler, 'Marketing Management ' (Prentice-Hall, 7th edn, 1991)
  • Jacoby, J. and Chestnut, R.W., 1978, Brand Loyalty: Measurement Management (John Wiley & Sons, New York).
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