Introduction
Sole brand loyalty is one of the behavioural measures of loyalty, along with repeat purchase rate, share of category requirements, and purchase rate (Ehrenberg, 2000).
This Ehrenberg-Bass Institute report explores the validity of one of the more commonly cited beliefs in buyer behaviour – that the best consumer is one that only buys your brand.
In this Report we will examine three key areas regarding 100% brand loyals: How common are they? How valuable are they? And how does loyalty status change over time? We explore this issue by firstly answering these questions in packaged goods markets, such as soft drinks and washing powder. The second stage of the report extends the results into subscription markets such as banking and telecommunications.
Packaged Goods Markets
Marketers need benchmarks regarding how many 100% brand loyals to expect, how much they buy, and for those that aren’t 100% loyal, how easy/expensive is it to change their buying patterns?
To document how many customers are 100% brand loyal, we looked at figures from panel data collected in 19 different product categories over a period of one year1. An example, from the washing powder market (Table 1), shows that among the 7 leading brands, the incidence of 100% brand loyalty is on average 6%, ranging from 15% to 2% of a brand’s consumer base.
Table 1: Average Penetration of Leading UK Detergent Brands Variants (one year)
Across 19 different categories (Table 2) we find the average proportion of any brand’s customer base that is 100% loyal to a brand is 11%. This percentage does vary across markets, but in line with how often the category is bought. For example coffee is purchased only 7 times per year and 33% is 100% loyal. In contrast biscuits are bought 70 times a year, and the average brand has less than 1% of its customer base as 100% brand loyal. In general, the more purchase opportunities analysed, the lower the proportion of 100% loyals.
Table 2: 100% Loyals in Multiple UK Packaged Good Markets (one year)
Buying Rate
The buying rate of any buyer is important to know, as it is directly linked to the dollar value generated from that consumer. Our results show that those buyers who are 100% loyal to a brand are typically light buyers of the whole category. They buy much less frequently than the average buyer. Table 2 shows this pattern across the same 19 markets, the category purchase rate of the 100% loyal buyer is less than 1/5th that of the entire market.
Buying less often makes it easier to be seen as 100% loyal.
Service Markets
While the low incidence and value of 100%-loyals has been quite well documented in repertoire markets (see Ehrenberg-Bass Institute Report 1 for Corporate Members), very little similar analysis has been conducted in service markets. To consider the incidence and value of 100% brand loyals in service markets, we investigate banking, telecommunications and insurance markets across both personal and business customers.
In service markets, perhaps unsurprisingly, there is a higher incidence of 100% brand loyal clients than we would find in repertoire markets. Insurance tops the list (see Table 3), with 60% of buyers in this market using the same provider for all of their house and car insurance requirements. In the remaining markets, one half to one third were only using one brand for all of their category requirements.
Table 3: Average Penetration of 100% loyals across service markets (one year)
Customer Value
Purchase frequency is an appropriate way to assess the value of 100% loyals in packaged goods markets because customers purchase on a regular basis. However for service markets, dollars spent becomes a more useful way to assess client value. To be able to compare across multiple markets, we categorised buyers into high, medium and low value based on their category spend (annual for some markets, monthly for others).
From Table 4 we can see that 100% loyals are more likely to be low value consumers (50% v 41%) and less likely to be high value consumers (28% v 38%).
Table 4: % of Low Value customers across service markets
Possible to Convert?
The proportion of 100% loyal buyers depends on the time period under consideration. As light buyers of the category, 100% loyals have fewer opportunities to buy other brands. In this way, most 100% brand loyal buyers come about as a result of a purely statistical effect. For instance, if a customer only buys once – they must by definition be 100% loyal. However, over time further purchases are possible and we find as these opportunities to buy increase, the proportion of a brand’s customers who only buy that brand decreases. This leads us to conclude that the vast majority of this (often quite small) segment are 100% loyal by chance, and not by desire.
To illustrate this we look at panel data over 12 weeks for TV news viewing and fast food (Table 5). For TV news viewing in week one where respondents have 7 opportunities to view news, the proportion of 100% loyals is on average 46% across five channels. As the time frame is extended to 84 opportunities to view, this proportion falls to 3%. The results for fast food follow a similar pattern.
Table 5: Proportion (%) of 100% loyals over 12 weeks
Marketing implications
In this report we have highlighted problems that may be associated with choosing a marketing strategy that focuses on 100% loyal buyers.
In packaged goods markets 100% loyal buyers are not common, and even in service markets they are less common than might be expected.
The main characteristic of these buyers is that they purchase less than the average buyer. Therefore the cost of successfully acquiring them should be weighed up against the alternative of attracting a share of the purchases made by those buyers who buy more generally.
It is also unlikely that 100% loyal buyers would be easy to identify and target. This is further complicated by the fact that the incidence of 100% brand loyals decreases as there are more opportunities to buy. This suggests that much of what we see behaviourally recorded as 100% loyal is just ‘luck’. Sometimes you can toss a coin 10 times and get heads 10 times – that doesn’t mean the 11th toss will also be heads. Purchasing more often and buying from a wider repertoire of brands go hand in hand. This suggests that efforts that try to change this pattern are likely to be unsuccessful and/or costly (and thereby unprofitable).
So What is the Right Path?
Marketing seems obsessed with finding the latest ‘niche’ to aim for in order to get that marketing edge, whether that be 100% loyals, heavy buyers, committed buyers, those who have a preference for national brands etc. However, our evidence, over many markets, looking at how brands compete and the characteristics of each brand’s buyers (see Ehrenberg-Bass Institute Report 7 for Corporate Members) shows that the difference between large and small brands is that large brands have more of every type of buyer.
Therefore, the marketing goal should be to change the size, not the make-up of a brand’s consumer base. That is, gaining more of “the market”, rather than any one specific part of it. This thinking goes against much segmentation and targeting work but it has vast empirical evidence to back it up (some of which is detailed in this article). The costly failures of most segmentation exercises notwithstanding!
If you’d like to hear more on this we have Ehrenberg-Bass Institute seminars on segmentation and targeting, and soon there will be a report on “smart targeting”.
