Loyalty & Defection

Definition

Loyalty (in a behavioural sense) is the restricting of one’s buying to a personal repertoire of brands, which is relatively stable over time. This is an on-going propensity to buy one’s habitual brand or brands and it results in buying some brands much more often than others.

Defection is the opposite of loyalty and retention. It is those people whom the brand has lost. Defection is the proportion of the total customer base (all those who used to buy the brand in the past) who have stopped buying the brand.

Defection metrics are most commonly analysed within subscription markets, such as financial services, insurance or in expensive product categories such as durables.

Key Findings

  • Loyalty is a strong, innate natural tendency of human behaviour, and is very prevalent.
  • There are many different loyalty-related measures, and they all vary together.
  • In repertoire markets, where consumers continuously shuffle their purchases between brands, it is much more difficult to separate real change (defection or decreasing loyalty) from random variation in purchasing.
  • Consumers are rarely 100% loyal, but instead purchase from their own repertoire of brands.
  • For the majority of brand buying and store choice, habit and convenience overwhelmingly drives consumers’ behaviours and choices. Consumers form a stable repertoire of brands, or stores, and repeatedly buy from them; giving rise to ‘polygamous loyalty’, that is, ’loyal switchers’.
  • Consumer loyalty is more to do with consumers themselves than with specific features of the brand. Consumers seldom ever buy randomly, but instead show biased, non-random repeat purchasing, tendencies to favour some brands over others.
  • Loyalty measures for different brands with the same market share differ little — loyalty doesn’t vary much. The extent to which they do is entirely predictable from the ‘Law of Double Jeopardy’, which shows that brands with large and small market shares differ substantially in how many people buy them but far less in terms of how loyal their buyers are to them.
  • Loyalty-related measures follow regular patterns.
  • 100%-loyal buyers are few, and most are light buyers.
  • In buying brands, consumers are seldom monogamous (near-100%- loyal) nor are they promiscuous. They exhibit polygamous loyalty, with steady ongoing relationships with several serious brands, one usually consumed more often than the others. And occasionally they will try out a new brand or drop an established one.
  • Competing brands’ sales differ mainly by how many customers a brand has, and hardly by how “loyal” they are (e.g. their repeat buying). This has been found near-universally.
  • Loyalty to the a brand is near-instant: the new brands’ average purchase frequency at launch is already normal, i.e. at the same level as a year or two later and also as for competitive established brands. This is counter to the widely-held belief that loyalty to successful new brands or line-extensions evolves slowly.
  • Customer defection rates follow a Double Jeopardy pattern — large brands have lower defection rates and vice versa.
  • A brand’s defection rate is essentially a function of its market share, and the category it’s in.
  • There is no empirical support for the claim that it costs 5 times as much to win a new customer as it does to stop one leaving.
  • Customer loyalty and defection are largely outside of marketer control; at least in being able to alter it through marketing activity.

Best Practice

  • 100%-loyal and near-100%-loyal buyers are NOT especially important to one’s sales; they are always found to be few. Nor are they particularly heavy buyers of the brand or of the product. This is predictable and can therefore hardly be changed.
  • Marketing activities should not focus on trying to alter the stable, law-like loyalty metrics like purchase frequency and defection rate.
  • Marketing activity should not over-invest in already highly loyal consumers, while neglecting to reach new and light buyers.
  • Marketing activity should be focused on customer acquisition. It is essential to acquire customers even to just maintain your brand.