Brand loyalty

Brand loyalty

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Encyclopedia
The American Marketing Association
American Marketing Association
The American Marketing Association is a professional association for marketers. As of 2008 it had approximately 40,000 members. There are 76 professional chapters and 250 collegiate chapters across the United States....

 defines brand loyalty as:
  1. The situation in which a consumer generally buys the same manufacturer-originated product or service repeatedly over time rather than buying from multiple suppliers within the category (sales promotion definition).
  2. The degree to which a consumer consistently purchases the same brand within a product class (consumer behavior definition).


In a survey of nearly 200 senior marketing managers, 69 percent responded that they found the "loyalty" metric very useful.

Purpose


Brand loyalty, in marketing, consists of a consumer
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...

's commitment to repurchase or otherwise continue using the brand
Brand
The American Marketing Association defines a brand as a "Name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers."...

 and can be demonstrated by repeated buying of a product or service, or other positive behaviors such as word of mouth advocacy.

Examples of brand loyalty promotions
  • My Coke Rewards
    My Coke Rewards
    My Coke Rewards is a customer loyalty marketing program for Coca-Cola soft drinks. Customers enter codes found on specially marked packages of Coca-Cola products on a website. Codes can also be entered "on the go" by texting them from a cell phone...

  • Pepsi Stuff
    Pepsi Stuff
    Pepsi Stuff was a major loyalty program launched by PepsiCo, first in North America on March 28, 1996 and then around the world, featuring premiums — such as T-shirts, hats, denim and leather jackets, bags and mountain bikes — that could be purchased with Pepsi Points through the Pepsi Stuff...

  • Marriott Rewards


Construction


Brand loyalty is more than simple repurchasing, however. Customers may repurchase a brand due to situational constraints (such as vendor lock-in
Vendor lock-in
In economics, vendor lock-in, also known as proprietary lock-in or customer lock-in, makes a customer dependent on a vendor for products and services, unable to use another vendor without substantial switching costs...

), a lack of viable alternatives, or out of convenience. Such loyalty is referred to as "spurious loyalty". True brand loyalty exists when customers have a high relative attitude toward the brand which is then exhibited through repurchase behavior. 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. 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.
Usage rate

Most important of all, in this context, is usually the 'rate' of usage, to which the Pareto 80-20 Rule
Pareto principle
The Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes.Business-management consultant Joseph M...

 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'.
Loyalty

A second dimension, however, 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
    Bargaining
    Bargaining or haggling is a type of negotiation in which the buyer and seller of a good or service dispute the price which will be paid and the exact nature of the transaction that will take place, and eventually come to an agreement. Bargaining is an alternative pricing strategy to fixed prices...

     or 'vanity
    Vanity
    In conventional parlance, vanity is the excessive belief in one's own abilities or attractiveness to others. Prior to the 14th century it did not have such narcissistic undertones, and merely meant futility. The related term vainglory is now often seen as an archaic synonym for vanity, but...

     prone', looking for something different).

Factors influencing brand loyalty

It has been suggested 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
Value (economics)
An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...

, brand trust, customers' satisfaction
Contentment
"Contentment" seems realistically defined as "enjoyment of whatever may be desired". That definition is realistic because the more contented an individual or community becomes the less extreme so more acceptable their desires will be...

, repeat purchase behavior, and commitment are found to be the key influencing factors of brand loyalty. Commitment and repeated purchase behavior are considered as necessary conditions for brand loyalty followed by perceived value, satisfaction, and brand trust.
Fred Reichheld
Fred Reichheld
Frederick F. Reichheld is a United States business author and business strategist best known for his research and writing on the loyalty business model and Loyalty Marketing. His books include The Loyalty Effect , Loyalty Rules! , and The Ultimate Question: Driving Good Profits and True Growth...

, One of the most influential writers on brand loyalty, claimed that enhancing customer loyalty could have dramatic effects on profitability
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...

. 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 found evidence that longer-term customers were indeed less sensitive to price increases.
Industrial markets

In industrial markets
Industrial marketing
Industrial marketing is the marketing of goods and services by one business to another. Industrial goods are those an industry uses to produce an end product from one or more raw materials....

, 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
London Business School
London Business School is an international business school and a constituent college of the federal University of London, located in central London, beside Regent's Park...

 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
Portfolio (finance)
Portfolio is a financial term denoting a collection of investments held by an investment company, hedge fund, financial institution or individual.-Definition:The term portfolio refers to any collection of financial assets such as stocks, bonds and cash...

 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
Continuity
Continuity may refer to:In mathematics:* The opposing concept to discreteness; common examples include:** Continuous probability distribution or random variable in probability and statistics...

.

Cautions


One of the most prominent features of many markets is their overall stability — or marketing inertia
Inertia
Inertia is the resistance of any physical object to a change in its state of motion or rest, or the tendency of an object to resist any change in its motion. It is proportional to an object's mass. The principle of inertia is one of the fundamental principles of classical physics which are used to...

.
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

  • Brand architecture
    Brand architecture
    Brand architecture is the structure of brands within an organizational entity. It is the way in which the brands within a company’s portfolio are related to, and differentiated from, one another...

  • Brand aversion
    Brand aversion
    Brand aversion is an antonym of brand loyalty. It is when a consumer experiences distrust or a disliking of products from a particular brand based on past experiences with that brand and its products, similar to taste aversion....

  • Brand equity
    Brand equity
    Brand equity is the marketing effects and outcomes that accrue to a product with its brand name compared with those that would accrue if the same product did not have the brand name. Fact of the well-known brand name is that, the company can sometimes charge premium prices from the consumer . And,...

  • Brand management
    Brand management
    Brand management is the application of marketing techniques to a specific product, product line, or brand.The discipline of brand management was started at Procter & Gamble as a result of a famous memo by Neil H...

  • Brand language
    Brand language
    Brand language is the body of words and systems for their use in written and verbal communication associated with an organisation and/or its separate product offerings or business units. Brand Language consists of brand vocabulary and brand tone of voice...

  • Brand tribalism
    Brand tribalism
    A brand tribe can be defined as a network of varied persons -who are linked by a shared belief around a brand; its members are not simple consumers, they are also believers and promoters...

  • Customer engagement
    Customer engagement
    Customer engagement refers to the engagement of customers with one another, with a company or a brand. The initiative for engagement can be either consumer- or company-led and the medium of engagement can be on or offline....

  • Employer branding
    Employer branding
    The term employer brand was first used in the early 1990s to denote an organisation’s reputation as an employer. Since then, it has become widely adopted by the global management community...

  • Evangelism marketing
    Evangelism marketing
    Evangelism marketing is an advanced form of word of mouth marketing in which companies develop customers who believe so strongly in a particular product or service that they freely try to convince others to buy and use it...

  • Visual brand language
    Visual brand language
    Visual brand language is branding terminology for a unique "alphabet" of design elements – such as shape, color, materials, finish, typography and composition – which directly and subliminally communicate a company's values and personality through compelling imagery and design style...