…because I believe brands should only invest in marketing
communications through existing users of their brand

Loyalty is dead

Ehrenberg showed us that loyalty has never existed.  In a retrospective of his research in
marketing he notes that within all the categories he has examined, brand-buying
is polygamous; consumers have “several steady partners (brands), some [of which
are] consumed more often than others … Very few buyers are 100% loyal.  Nor do they do it often.  They therefore have few opportunities for
being disloyal.  Marketing’s common
target of more loyal buyers is deeply unreachable” (see note 1).

Ehrenberg’s position is reinforced by the very nature of
loyalty in the context of free market economics.  Adam Smith writing in the 18th Century
commented that “It is not from the benevolence of the butcher, the brewer, or
the baker that we expect our dinner, but from their regard to their own interest”
(see note 2).

In other words, corporations don’t work in the interests of
consumers.  “For the market to function
well it is not necessary to be altruistic; indeed, it is even counterproductive
to be so.  Altruists ruin the functioning
of the market … What is needed is competition, non-violent rivalry between
producers and consumers” (see note 3).

In this context it’s hardly surprising that consumer brand
loyalty isn’t observed by Ehrenberg.  It
is simply not in the best interest of consumers to be loyal to a brand;
something that has been reinforced by the paradigm shifts in consumer
behaviours that have emerged as a result of the internet.

One example of this shift in behaviour is the extent to
which consumers are increasingly researching brands and purchases online.  A shift highlighted by the observation that
car showroom footfall has significantly decreased whilst conversions have
significantly increased; consumers increasingly enter already armed with a
plethora of research, information and opinions (see note 4).

Not only can empowered consumers now investigate and
challenge the motivations, behaviours and offerings of brands, but our
marketing investment encourages them to do so. 
Any loyalties that did exist are increasingly tested in a market where
moneysupermarket and Uswitch empower consumers to be price rather than brand
sensitive (see note 5).  The irony is
that the brands being undermined are the very same brands that are funding
their own demise.

The ‘myth’ of loyalty has most recently by highlighted in
analysis of the IPA’s databank (see note 6). 
The dataMINE analysis (see note 7) showed that whilst campaigns in the
dataBANK more often sought to increase loyalty than increase penetration, the
success rate in doing so was a mere 24% (see note 8).

 

Long live loyalty

Loyalty is alive and well. 
Read Adam Smith carefully and you’ll see that two of his major
provisions have been severely undermined; one, that information will be local
and complete, and two, that foreign investment will never happen.  Our world is quite different from the one
that Smith and his counterparts explained.

Findings of game theory such as the prisoner’s dilemma
demonstrate that cooperation is required to promote self-interest.  In fact evidence points to the emergence of
increasingly co-operative behaviour.  In
Wikinomics, Tapscott and Williams observe that “billions of connected
individuals can now actively participate in innovation, wealth creation, and
social development in ways we once only dreamed of.  And when these masses of people collaborate
they collectively can advance … the economy in surprising but ultimately
profitable ways” (see note 9).

People co-operate when they have a shared goal or
belief.  It is this observation that
points to a very contemporary case for the emergence of loyalty to brands.  In John Grant’s ‘after image’ world, the goal
for marketers is to create ideas with which their brands can be associated (see
note 10).  Jon Alexander comments that “I
would rather argue that loyalty never existed before, but is starting to now,
as brands for the first time develop values in a meaningful – as opposed to
superficial, advertising-related – way. 
Howies is a brand I am able to be loyal to, because I know everything
they stand for” (see note 11).

Of course we are repertoire consumers.  Of course we can defect.  But a brand imbued with an ethic to which we
can relate gives us a stronger emotional reason to be loyal than any comprehensively-developed
rational benefit.  The logical extreme of
this is seen in crowd-managed (see note 12) brands such as MyFootballClub’s
purchase of Ebbsfleet FC (see note 13). 
How long before we all have a couple of side-interests in brands?  These brands will not only occupy a small –
very engaged – part of our mind, but a considerable share of our wallet too
(see note 14).

The success in building loyalty isn’t reflected in the IPA’s
dataMINE study because you can’t examine loyalty in isolation.  The concept of brand loyalty can only be
understood in the context of other factors. 
In another analysis of the IPA dataBANK, Peter Field identified that
what was so remarkable about O2’s ‘World that revolves around you’ campaign
(see note 15) was not just that it increased loyalty by reducing defections –
or churn – “from 35% to 29% at a time when competitors' churn rates were rising
… Rather the real achievement of this remarkable piece of marketing was to
double recruitment rates, in part by turning existing customers into advocates
for the brand … Twice as much share gain resulted from recruitment as retention
… to characterise the success of O2 as loyalty growth is like describing Dom
Pérignon as a fizzy drink” (see note 16).

This is the key to understanding brand Loyalty; we must
place it in the context of the inter-related factors with which it sits.  Loyalty is inextricably linked to encouraging
customer retention through combating defections.  Loyalty is in effect the opposite of
defections – if you have a 10% defection rate you have, by definition a 90%
loyalty rate.  Not only does loyalty
exist, but it has for each and every brand, a number.

More crucially, the case study demonstrates the extent to
which both loyalty and retention are themselves intrinsically bound to advocacy
– the active support (see note 17) for a brand by a customer; but more of that tomorrow…

Notes

1. Andrew Ehrenberg. 
My Research In Marketing.  Admap –
May 2005, Issue 461

2. Adam Smith.  The
Wealth of Nations (1776).  http://en.wikipedia.org/wiki/Adam_Smith

3. A.A.M. Kinneging.  Loyalty in the modern world.  Modern Age; 
Wntr-Spring, 2004 http://findarticles.com/p/articles/mi_m0354/is_1-2_46/ai_n6140578/pg_1?tag=artBody;col1

4. Observation made by Dennis Woodside, Vice President of
Google Region One, in a recent talk entitled ‘Chasing the Consumer’

5. At the time of writing, consumer price-sensitivity is
being further instigated by rising inflation and an economic slowdown in part
as a result of the global credit crunch

6. The IPA case study dataBANK is comprised of papers
submitted to the IPA Effectiveness Awards competitions since 1980

7. The IPA dataMINE project aims to use the dataBANK to
produce general learnings about how marketing works.  For more information visit: http://www.ipa.co.uk/Content/Marketing-in-the-Era-of-Accountability-published-today

8. Only 24% of campaigns succeeded in increasing loyalty
compared to 73% success rate for those campaigns which sought to increase
penetration and 88% success rate for those campaigns which sought to increase
both loyalty and penetration.

9. Don
Tapscott (Author), Anthony
D. Williams.  Wikinomics: How Mass
Collaboration Changes Everything

10. John Grant.  After
Image.  Grant observes that ownership of
ideas is far more valuable than the ‘personalities’ from which brands were
previously carefully constructed using insights and aspirations of brand users

11. Jon Alexander, Planner at Fallon – as quoted in an
conversation for this essay

12. Crowd-managed refers to consumers tangibly owning a
share in a brand.  For more see: http://www.coolbusinessideas.com/archives/from_crowdsourced_ideas_to_a_crowdowned_crowdmanaged_business_entity.html

13. MyFootballClub consists of 30,000 members who own
Ebbsfleet United and vote on all key decisions from team selection to financial
budgets.  See more at: http://www.myfootballclub.co.uk/

14. After all, if the brand was so good that you bought and
continue to buy into it, why – when you get to the shelf – would you buy
anything else?!

15. O2 – The best way to win new customers? Talk to the ones
you already have: the story of O2.  IPA,
2006

16. Peter Field.  The
quest for loyalty.  Admap MagazineMarch
2008, Issue 492

17. Advocacy: n active support of a cause or course of
action – Collins English Dictionary

Friday: Advocacy and the power of word of mouth
Monday: A new way of approaching comms planning