Brand loyalty management: an introduction
Prof. dr. Kristof De Wulf Managing partner, InSites ConsultingAssociate marketing professor, Vlerick Leuven Gent Management School
March 20, 2008
2Brand loyalty management: an introduction
Content
1. How big is the challenge?
2. What have we learned?
3. Generating and keeping brand loyalty
4. Measuring brand loyalty
3Brand loyalty management: an introduction
How big is the challenge?
541
541
In years, 50% of customers leave
In years, 50% of employees leave
In year, 50% of investors leave
Source: The Loyalty Effect, Frederick Reichheld
CUSTOMER BRAND LOYALTY
INTERNAL BRAND LOYALTY
INVESTOR BRAND LOYALTY
4Brand loyalty management: an introduction
How big is the challenge?
Source: Carlson Marketing Group / Vlerick Leuven Gent Management School
Belgian brand net promoter scores are not looking great ...
% of detractors substracted from the % of promoters
Recommendation to a friend or colleague can be seen as an ultimate act of loyalty
Displays results of “Would recommend” answers in a clear manner
Ten-point scale
– Ten means “extremely likely” to recommend
– Five means “neutral”
– Zero means “not at all likely” to recommend
1 2 3 4 5 6 7 8 9 10
Detractors Neutral Promoters
→ Mobile operators: -34.8%
→ Banking/insurance: -34.1%
→ Supermarkets: -12.7%
→ Fixed phone/TV/internet: -42.3%
→ Utilities: -70.8%
→ Automotive: -5%
Belgian findings
5Brand loyalty management: an introduction
How big is the challenge?
Source: Ogilvy Loyalty Index, 2000-2003
% loyal % price-driven % repertoire
Globally Belgium
46%
12%
42%47%
17%
36%
Consumers don’t think of themselves as loyal ...“Consumers mostly have habitual on-going or polygamous split-loyalties to a ‘repertoire’ of several brands.” – Ehrenberg & Scriven
6Brand loyalty management: an introduction
What have we learned?
Source: Samson A. (2006), “Understanding the Buzz That Matters: Negativevs Positive Word of Mouth,” International Journal of Market Research
Brand loyalty is connected with revenues and profits
7Brand loyalty management: an introduction
What have we learned?
Non-competitive zone: regulated monopoly, few substitutes, dominant brand equity, high switching costs, powerful loyalty program, proprietary technology
Highly competitive zone: many substitutes, fierce competition, low switching costs, commodization of low differentiation, consumer indifference
Satisfactionlow high
Beh
avio
ur
high
low
NMBS
Airlines
Hospitals
PC’s
Cars
Spuriousloyal
Spuriousloyal
TrueloyalTrueloyal
NotloyalNotloyal
Latentloyal
Latentloyal
Loyal to the brand is MORE than satisfied with the brand !
Source: Adapted from Heskett et al. (Service Profit Chain)
8Brand loyalty management: an introduction
What have we learned?
Smaller brands are punished twice for being small, following the well-known “Double Jeopardy” pattern (Ehrenberg)
Source: Ehrenberg
Buyin
g v
olu
me
Buying frequency
Weak Strong
Weak
Str
ong
Small brands
Large brands
9Brand loyalty management: an introduction
What have we learned?
Source: Henley Institute
Why are customer disloyal?
Indifference
10Brand loyalty management: an introduction
What have we learned?
Building brand loyalty is less and less in your hands ...
EVERYONE IS A
CRITIC
NOW
POWERFUL
HUMAN TO HUMAN
CONVERSATIONS
MAKE
BREAK
11Brand loyalty management: an introduction
Generating and keeping brand loyalty
Brandimage
Productexperience
Serviceexperience
Personalbonding
12Brand loyalty management: an introduction
Measuring brand loyalty
“The good news is that all the different loyalty-related measures tend to vary together. Crucially, they therefore measure something, which conveniently may be labeled ‘loyalty’.” – Ehrenberg & Scriven
13Brand loyalty management: an introduction
Measuring brand loyalty
“Retention is for wimps. We measure the percent of customers who have our name tattooed on one of their body parts.” (Harley Davidson Annual report)
14Brand loyalty management: an introduction
Morgan (1999/2000)
Authority - trust and respect commanded by the brand and perceived by the customer
Identification - convergence of brand's values with that of the person, and the degree to which the brand is regarded as having personal relevance
Approval - perception that the use/purchase of the brand will achieve a result that is likely to meet a person's perceived needs in a social sense
Belen del Rio, Vazquez and Iglesias (2001b)
Willingness to recommend the brand
Pay a price premium for it
Accept brand extensions
Measuring brand loyalty
Customer-based measures
15Brand loyalty management: an introduction
Customers retained after x years (as a
% of first year customers)
0
20
40
60
8077%
67%
43%
35%
29%
25%
17%
11%
0-1 2 3 4 5 6-7 10-11 20-40
53%
21%
8-9 12-14 15-19
67%
62%
57%
53%
46%
41%
37%
32%28%
All types of defection
Controllable defection only
9%
27%
Tenure (years)
Measuring brand loyalty
Customer churn
16Brand loyalty management: an introduction
A negative experience with a brand decreases loyalty to a greater degree than a positive experience increases loyalty
The double whammy:
Consumers find NWOM more useful in making purchase decisions than PWOM or positive word-of-mouth (advocacy, acquisition)
NWOM captures better true loyalty than PWOM (loyalty, retention)
– High commitment and low competition (less alternatives) will lower the threshold for engaging in PWOM
E.g. When you buy a car that just meets expectations but does not exceed expectations, you will rationalise your poor choice (‘cognitive dissonance reduction’) and engage in PWOM out of necessity (you are stuck with your car, so you might as well consider it a good buy…)
– In contrast to PWOM, NWOM is more strongly correlated with both satisfaction and recommendation likelihood
Negative word-of-mouth
Source: Samson A. (2006), “Understanding the Buzz That Matters: Negativevs Positive Word of Mouth,” International Journal of Market Research
Measuring brand loyalty
17Brand loyalty management: an introduction
The best of both worlds:
NPS: measures intention to promote: ‘would-be promoters’
NWOM: measures reported negative word-of-mouth
LSE Net Advocacy Score = NPS promoters - NWOM
NPS Promoters = % responding 9-10 on NPS scale
NWOM = % responding having done very negative WOM about the brand in the last 12 months
A 2-point increase in this ‘LSE Net Advocacy Score’ roughly corresponds to a 1% increase in revenue growth
Measuring brand loyalty
Net advocacy score
Source: Samson A. (2006), “Understanding the Buzz That Matters: Negativevs Positive Word of Mouth,” International Journal of Market Research
18Brand loyalty management: an introduction
On a scale of 0–10, how likely is it that you would recommend [company/brand x] to a friend or colleague?
Not at all
likely
Very likely
0 1 2 3 4 5 6 7 8 9 10
On a scale of 0–10, how likely are you going to continue to use/purchase [company/brand x]?
Not at all
likely
Very likely
0 1 2 3 4 5 6 7 8 9 10
On a scale of 0–10, how does [company/brand x] overall meets your requirements?
Not at all Very
0 1 2 3 4 5 6 7 8 9 10
Measuring brand loyalty
Loyal / at risk profiling
Source: Etter, B. (2005), “Loyalty Leverage: Measure andIncrease Customer Retention,” Marketing Research
19Brand loyalty management: an introduction
If customer scores 9 or 10 on all three questions: LOYAL
If customer scores 0 to 6 on at least one question: AT RISK
If not Loyal nor At Risk: NEUTRAL
Measuring brand loyalty
Loyal / at risk profiling
Source: Etter, B. (2005), “Loyalty Leverage: Measure andIncrease Customer Retention,” Marketing Research
20Brand loyalty management: an introduction
Measuring brand loyalty
Financial measures
Source: InterBrand
21Brand loyalty management: an introduction
Measuring brand loyalty
Financial measures
Source: InterBrand
22Brand loyalty management: an introduction
Concluding remarks
Brand loyalty drives revenues and profits, but ...
Generating and keeping brand loyalty is increasingly difficult
Brand loyalty is a matter of behaviour AND attitude
Indifference is the biggest explanatory factor behind attrition
Connect with your customers
Create great brand experiences (image, product, service, relationship)
Understand the new reality: everyone can be a critic or a fan
Brand size matters
Smaller brands have a lower buying frequency and volume
Select a relevant brand loyalty KPI
Benchmark performance over time
Develop an action plan for brand loyalty enhancement
23Brand loyalty management: an introduction
Kristof De WulfManaging [email protected]. +32 9 269.15.03Mobile +32 496 23.29.20
InSites ConsultingEvergemsesteenweg 195B-9032 GentBelgiumTel. +32 9 269 15 00Fax. +32 9 269 16 [email protected]
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