How to Measure and Increase Brand Loyalty

November 14, 2017

True story, (try not to judge!) but I walk a further 5 minutes down the road past one supermarket to another one, because only the second supermarket sells McCoy’s Flame Grilled Steak Flavour crisps. And I love those crisps.

This, in a nutshell, is the promise of brand loyalty. It drives human behaviour in favour of your particular products or services, even where there’s a seemingly more favourable alternative.

Think of people buying Coca-Cola even when Pepsi is on offer. Or driving 10 minutes out of their way to visit their favourite store. Or giving you the benefit of the doubt if you mess up just that once.

Defining brand loyalty

Here are two definitions we like, from Wikipedia and Forbes respectively.

Wikipedia:

‘Brand loyalty is defined as positive feelings towards a brand and dedication to purchase the same product or service repeatedly now and in the future from the same brand, regardless of a competitor’s actions or changes in the environment. It can also be demonstrated with other behaviors such as positive word of mouth advocacy.’

Positive feelings… now who wouldn’t want people to feel that way about their brand? And word of mouth advocacy...that’s free marketing and promotion from one individual to another. Pure gold!

Forbes describes brand loyalty as:

‘the tendency for customers to favor one brand, consistently, above its competitors for goods and services, even when new purchasing opportunities expose themselves.’

In other words, brand loyalty is about creating a defensible moat around your business, helping to insulate you from new competitors coming into the market.

Both definitions agree on one thing: that the loyalty to the brand remains intact in spite of the ‘new purchasing opportunities’, and ‘regardless of a competitor’s actions’. That is the one defining difference between popularity and loyalty - brand loyalty is about sticking with a brand, even when the market opportunities change.

In other words brand loyalty is defined by purchase intent and purchase behaviour, rather than just ‘liking’ a brand or being aware of it.

Read on to understand the 5 benefits of brand loyalty and how you can grow and measure your own loyal base of customers.

The 5 Benefits of Loyal Customers

#1 Defense against competitors’ price drops

One thing that’s killed many businesses is aggressive price competition, or a price war.

A price war is ‘when companies continuously lower prices to undercut the competition. A price war may be used to increase revenue in the short term or as a longer term strategy to gain market share,’ according to Investopedia.

In such cases, only the goliaths will survive, because who can compete with Coca-Cola or Amazon on price? If they want to lower their prices, they can, with little negative impact on the business.

Brand loyalty makes consumers less price sensitive, and, if there is a genuine brand loyalty, you will be able to retain customers even if you face stiff price competition.

This helps you to maintain margins (think of Apple’s continued hold on the premium end of the market), and increase profitability, which in turns allows you to invest more back into the business, producing a better, differentiated experience for customers.

This is the kind of positive cycle every brand wants.

#2 Your customers are willing to pay more to start with

As we touched on above, loyal customers are relatively price inelastic; a change in price will not affect their purchase behaviour to the same degree as non-loyal customers.

In fact in our in-depth report into the spending and behaviour patterns of food and drink consumers, we found that 28% of shoppers will accept a 10% price rise in order to keep buying the brands they love.

However this isn’t just about sensitivity to price rises, it’s also about selling your products or service at a premium to others in your market.

Think about supermarket own brand water, versus Highland Springs, Volvic, Evian and then Voss right at the top end of premium. They’re all essentially selling the same product. However the brands they’re building allows them to charge incrementally more. That’s great brand building!

#3 It creates barriers to entry

what brand loyalty means.jpg

New businesses are less likely to enter a market with fierce brand loyalty, and, therefore, you have more protection against loss of market share.

Imagine trying to dislodge Facebook at the preferred social network, or Google as the first-choice search engine. Not impossible, but a daunting task for sure.

Here it’s important to add a note of caution for incumbent brands - brand loyalty is never to be taken for granted - many once strong brands have succumbed to competition by assuming their market position and positive customer feelings would last forever.

#4 Existing customers cost less

New customers are more expensive to acquire than existing customers. They may also be more demanding -  requiring helplines and care because, firstly, they don’t know the company as well, and, secondly, they need to be treated well while they are shopping around; if you don’t give them good service, they can just go elsewhere. While this is true of all customers, it is particularly the case in new customers, because they are not yet invested in your company.

If you can keep customers coming back, and keep them loyal, your customer service costs should fall. Furthermore, entailed in this is the cost of onboarding new customers. This is traditionally an expensive procedure for any company; you do not need to market and sell quite so fervently to loyal customers.

#5 More new customers

The Wikipedia definition for Brand Loyalty brings in the concept of ‘word of mouth advocacy’.

Loyal customers can become your own marketing team. It is something we see more and more of today, as people become zealous about their favourite brands. How many people have you heard debate the benefits of Uber Eats over Deliveroo, or the other way around?

Jetblue, TOMs, Zappos, Amazon (who bought Zappos), Eventbrite, Ella’s Kitchen - there are so many diverse brands who built up leading market positions because of their relentless focus on customer service, which in turn translated into positive word of mouth promotion.

The potential for your customers to become advocates can be measured by Net Promoter Score (NPS). For more on this, check out our article on The Importance of NPS.

How do you increase Brand Loyalty?

brand loyalty expression.jpg

This is the multi-million pound question!

There are a few problems with the concept of Brand Loyalty that we must address in order to reach useful and actionable advice for increasing Brand Loyalty.

The problems and misunderstandings

Brand Loyalty is often misunderstood or mistaken, because it is hard to understand the reality, and extent, of loyalty; someone may shop at a certain supermarket every day because that’s the shop they pass on their way home from work. That is not necessarily loyalty.

The main problem with understanding Brand Loyalty is in making sure that what you view as ‘loyal’ customers are, in fact, ‘loyal’ by the definitions we gave earlier: i.e. they stick with you regardless of movements by competitors.

Wikipedia seems to stumble upon itself in its page on Brand Loyalty. At first, it cites ‘good feelings’ toward a brand as being the cornerstone of Brand Loyalty, and, yet, acknowledges the importance of ‘brand loyalty promotions’.

A brand loyalty promotion is a way in which a company goes about trying to get return business. An example of this is the Nectar Card, or Starbucks’ stamp card. These have often been a way to build loyalty.

The point is that ‘good feelings’ are an inadequate way to describe people’s affiliation with a brand, and, in fact, the term itself will lead us astray; it implies that good will, or emotion, drives the purchase, whereas the nature of brand loyalty promotions indicate that loyalty is, at least partially, bought by giving the customer a good deal.

The reason for this confusion is highlighted by William J.Allender and Timothy J.Richards in their study Brand Loyalty and Price Promotion Strategies: An Empirical Analysis. They say:

“the relationship between brand loyalty and retail pricing strategies is not well understood”

It is important to understand that price is still an important factor for customers, and it can actually help build loyalty.

In order to avoid misunderstanding your customers, it is important to evaluate the nature of the loyalty: is it a ‘good feeling’ they have with the brand, or is it simply because you are offering a better price?

Are they genuinely loyal, or are they just using your company while it offers the best option?

Remember, we would consider brand loyalty to be sticking with a brand in spite of new activity in the market; if someone switches from Coca Cola to Pepsi because Pepsi have a promotion on, they are not really a loyal customer.

I look at the business of promotions because they highlight the core of Brand Loyalty, and raise questions about the price sensitivity of customers.

This is not to say that price promotions cannot build loyalty; as Greg M. Allenby and Peter J. Lenk say in their study, Reassessing Brand Loyalty, Price Sensitivity, and Merchandising Effects on Consumer Brand Choice (Journal of Business & Economics Statistics):

“Profitability calculations should extend beyond the period of promotion and include expected future sales.”

Promotions actually bring people in, and for the long term; that is their purpose. They’re hopefully the first step in a long-term relationship and change of behaviour; not just a short term giveaway.

How to Build Lasting Loyalty:

This graphic, created by the Applied Psychology department at the University of Southern California, is a helpful tool for understanding the essentials of brand loyalty:

Brand Loyalty - Emotions.png

These things can be hard to measure; but they are the very nature of what makes people loyal to a brand - beyond price. In a sense, brand loyalty is about human emotion - it is about our imperfect, irrational way of making decisions, because, if we always took the ‘best deal’ on the market, the likelihood of any repeat business would be gone. But that’s not how most humans work. They create bonds, affiliations, and opinions out of feeling.

On ‘feeling’, there are a number of ways that a brand can create a strong image of itself, and one that aligns with its customer.

Language

Innocent Smoothies is a great example of this. The tone and language of their marketing is slightly childish and - unsurprisingly - innocent. Their brand is about honest, well sourced and healthy products, so bringing in that language has created a strong brand that people can relate to.

Colour

Almost every brand has a few core colours that define almost every piece of marketing. Apple is built on silvers, black and white denoting simplicity, technology, and a futuristic feel. Barclay’s calm their customers with baby blues to soften their ‘bankiness’; Monzo are flourescent orange to bring in younger crowds who want to define themselves by their bank card (but more on that later).

Belonging and achievement

This is something brands are moving towards more and more; adverts increasingly have a ‘you’ feel about them. They become so personal that you almost cease to care or remember what the company is selling, like the Natwest We are What We Do advert. Again, what is at the heart of it? Human emotion.

The experience

This is one of the most significant factors. You have to make people feel engaged in the brand. Nothing does that quite like making the customer associate personal experience with you, and, importantly, making an experience out of the brand interaction.

The changing landscape: what brand loyalty means today

Forbes recently published an article, Is The Concept Of Brand Loyalty Dying?, and the figures cited do raise some questions. For example:

“90 percent of common household goods brands are losing market share in certain low-growth categories”

Forbes, too, published an article titled: The Death Of Brand Loyalty: Cultural Shifts Mean It's Gone Forever.

While there is not sufficient evidence to say this is true, what we are seeing is a shift away from traditional brand loyalty.

As retail consultant Robert Burke says to Fashionista:

“The customer today is more curious and better informed than ever before. It's not just enough for them to run out and buy, say, a ruffle top. They want to know everything about it: what it stands for, who's behind it, how it was made, and the type of person it represents.”

Brand loyalty is stuck between two contesting forces: on the one hand, the internet, more information, and more availability mean that people are more likely buy rationally and therefore less likely to be loyal. On the other hand, millennials are identifying more strongly with brands. They are a generation who want to identify with brands, and express themselves through them.

In a recent report on the luxury goods industry by management consultancy Bain, it is stated that:

‘Bain expects this positive growth to continue at an estimated 4 to 5 percent annual growth rate in the next 3 years, with the market for personal luxury goods reaching €295-305 billion by 2020.’

Federica Levato explains one reason for this:

“The role of the store is definitely changing {...} The growth of the online channel is remarkable, boosted by the ‘millennial state of mind’ that has permeated the luxury industry. But this doesn’t mean stores have lost their purpose – brands need to reinvent them to create an on-going engagement with customers that transcends channels”

How to measure brand loyalty

measure brand loyalty.png

Aside from repeat sales, brand loyalty - tied up so often in emotional feelings towards a brand - is notoriously difficult to measure.

But if you can’t measure it, how can you manage (and improve) it?

We would suggest you take a blend of 3 critical metrics that - taken together - can help you provide a quantified and measurable view of your brand loyalty.

These are:

Net Promoter Score: How likely are consumers to recommend your brand/product/service to a friend or colleague?

Purchase Intent: How likely are consumers to choose your brand/product/service next time they need to solve a particular problem that your business helps to solve?

Sentiment analysis: How would consumers describe your company, and is the net sentiment of their words positive or negative?

This provides you with a robust, 3-point system for triangulating your brand loyalty, which can be tracked over time. Over time, are you enhancing and grow brand loyalty; or is it dipping and should you be concerned?

If brand loyalty is something you want to measure and improve, talk to us today and we’ll help you get an accurate picture before it’s too late, and your competitors have started to make inroads in your market.

Conclusion

Brand loyalty starts with knowing your customer, and your target audience. It is no good to simply drop prices and expect people to come back again and again; you need to carve out your niche, and engage with consumers in meaningful ways.

Ultimately, a brand needs to speak to its customers; not only will this develop that illusive ‘good feeling’, but it will help build an understanding of who your customers are, and what they value.

That, for the modern age, seems to be the key to developing brand loyalty. Those brands who can understand the softer side of that relationship, ultimately, are the ones who will build zealous, fiercely loyal customers.

Make a start today.

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