Market Research and the Loyalty Myth

Sep 28 2015

Is customer loyalty a myth? While loyalty research and customer relationship management have grown, clear evidence that customer loyalty drives commercial success is difficult to find. And as the world and businesses become more short-term in their thinking, is it time to reevaluate the reality of “loyalty”?

My Concise Oxford English Dictionary defines loyalty as, “the state of being loyal” or, less tautologically, as, “strong feeling of support or allegiance”. Marketing scientists, such as Byron Sharp, define loyalty strictly in behavioural terms: “Restricting buying to a personal repertoire of brands, which is relatively stable over time. This means buying some brands more often than others.”

Behavioural loyalty doesn’t imply a thoughtful loyalty, and Byron Sharp also points out that the majority of buying is repeat buying. When confronted with the complexity of a supermarket with 40,000 SKUs we mentally “default” to buying what we bought on our last shopping trip. Decision-making made simple!

The majority of our purchase decisions are habitual and when there is no existing habit we default to heuristics (mental shortcuts) to find the right brand. Our brain is very good at automating decision-making, and when we have found a reasonable brand choice for a particular “job”, our brain moves decision-making to System 2 so we don’t have to spend time and effort making the decision again.  Whenever we find ourselves in the same context again, then we automatically know the right choice to make.

Thus, habits are not conscious. They are not based on any sense of “relationship” with the brand, nor are they driven by reasoning and logic. They are purely and simply automated decisions.

Even when we need to make a choice for a new context, our preference is to find a “rule of thumb” that will make the decision simpler. This rule of thumb often comes from a different but related decision from the past. This might be to “choose the brand that you recognize” or “choose the market leader”.  Even for the most important decisions, we often replace difficult questions with easier rules of thumb. Rather than vote for the political candidate with the best balance of, we are likely to vote for “the person I like more”.

Are behavioural loyalists important for your brand? The evidence shows they are not. Most sales come from light buyers not heavy buyers or loyalists (the 80/20 rule is generally not true). Most buyers are polygamists rather than loyalists, buying from a repertoire of brands (perhaps for different occasions) rather than one single brand. Byron Sharp shows that heavy buyers or loyalists rarely make up more than 5% of brand buyers and certainly nothing like 80% of sales across a wide range of categories (from Marketing: Theory, Evidence, Practice).

Even in “high involvement” categories the evidence for loyalty is weak. That doesn’t mean that there is no behavioural loyalty. Almost 50% of car purchases are repeat-purchases (half of new car buyers buy the same brand as they bought last time). But this is laziness rather than loyalty. The evidence is that most people consider two car brands when buying a new car and around 20% only consider one, because it’s too much work to evaluate all the potential options. Even high involvement categories are not as involving as we imagine.

Behavioural loyalty is seen even where there is no differentiation, advertising or distribution differences. This is the basis of the “double jeopardy law” which shows that brands with larger market share have more buyers and brands with smaller market share have fewer buyers, but there are only relatively small differences in the “loyalty” of those buyers. To quote Byron Sharp, “every brand gets is share of loyal customers, seldom more or less than others”.

Thus loyalty is a human truth, unrelated to the specific features of a brand. Loyalty happens whatever assets your brand has and there is relatively little that business can do to make customers more loyal than customers of other brands.

What does that mean for loyalty schemes? They are good ways to incentivise customers to buy your brand more often, but that’s all they are: incentive schemes. And what does that mean for the idea of focusing on your core customers? You would be much better investing in acquiring new customers than in trying to sell more to your existing customers.

Finally, what does this mean for loyalty research? While it seems very attractive to focus research efforts on your best customers, business growth is more likely to come from acquiring new customers. And that means talking to those people who don’t currently buy your brand, rather than focusing on those who do. The success of the Wii shows that if you only talk to loyalists (heavy gamers) you miss the bigger picture of what might attract other people to game consoles.

While loyalty research seems plausible, is it really just the lazy choice?

REFERENCES

Thinking, Fast and Slow by Daniel Kahneman

How Brands Grow: What Marketers Don’t Know by Byron Sharp

Marketing: Theory, Evidence, Practice by Byron Sharp

[This article was originally written for the Q4 edition of Asia Research Magazine.]

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