Professor Wildner, a rather controversial theory is currently being discussed in the world of marketing, put forward by Byron Sharp, who claims that all loyalty programs are an expensive waste. In other words, the long-standing marketing rule that it is more cost-effective to improve customer loyalty than focus on attracting new customers no longer applies. Is this true? Does marketing need a rethink?
From various discussions, we know that many marketing professionals are taking the book “How Brands Grow” by Byron Sharp very seriously. You may find his theories credible or completely over-the-top, but they certainly will get you thinking. Whether he is right or wrong, this discussion is of significant importance for marketing. That is why we wanted to find out more and launched our own investigation.
What did this involve and what conclusions have you drawn?
We surveyed 2,217 established manufacturer brands in the market for packaged food and drugstore goods between mid-2012 and mid-2014. Byron Sharp also draws on many examples from this segment. Each brand was observed in the 30,000-strong GfK Household Panel survey.
Let’s look at the correlation between the number of buyers and a brand’s volume growth. This reveals that the change in the number of buyers is the reason for 69% of the sales quantity spread and the remaining 31% is attributable to changes in loyalty with regard to purchase intensity. The purchase intensity is a sign of brand loyalty.
However, it must be remembered that buyers are not just new but also include loyal customers. Taking this into account, the weighting of the influence that loyalty has once again increases considerably. A regression analysis shows that the two components of loyalty had a 55% influence and are therefore in fact is a little more important than new customer acquisition, which only accounts for 45% of the change in sales quantity.
In addition, we found that even with above-average new customer acquisition, a brand with below-average customer loyalty will only grow by 3.6%. In contrast, brands with higher levels of loyalty are 3.5 times stronger.
So customer loyalty and new customer acquisition are of equal importance. Ultimately, brand managers who only focus on new customer acquisition are only doing half of their job.
Marketing should therefore focus on both new customer acquisition and strengthening the loyalty of existing customers. To what extent are loyalty and new customer acquisition determined by factors which can be influenced by marketing?
Loyalty undoubtedly depends on factors which are hard to influence quickly through marketing, such as the circumstances of a specific product group. For example, average customer loyalty for chocolate Easter bunnies is just 27%, which is to say that 27% of those who bought one of the monitored brands in the first year did so again in the second year. Periodic changes in the range of products makes it difficult to build a clear image of routine purchase behavior. It is different for product groups such as butter, for which customer loyalty is 49%. This is a figure a marketing manager for chocolate bunnies would find impossible to achieve. The size of the brand, as measured by the number of buyers in year one, can have a short-term, stable influence on loyalty. Buyers of larger brands tend to be more loyal than those of smaller brands.
These factors also impact new customer acquisition. On the whole, new customer acquisition and loyalty can both be influenced by marketing to similar degrees, although the measures must of course be different. Advertising and distribution play a significant role in new customer acquisition, while product quality and price are aspects that affect loyalty.
Finally, I would like to ask you a more personal question. What marketing campaigns or measures would help a brand gain you as a new customer?How would a brand best go about keeping your loyalty?
I would say I am quite a loyal customer. As long as I feel a brand has been treating me well, a different brand would struggle to break up this relationship. It really would have to offer something exceptional. However, I do get very angry when a brand fails to deliver as promised. I would then avoid this brand and actively look for a replacement. This is where there is an opportunity for competitors to step in.
Thank you for your time!