Over the years, many studies have emphasized the advantages for consumer product companies of building brand loyalty: it has been said that having a more loyal consumer drives future purchasing and reduces the likelihood of brand switching. It allows companies to increase prices and margins, is a tool for negotiating with retailers and even shields brand owners from the advance of private label. So, it's no wonder that many marketing plans focus on how to increase brand loyalty: two out of three marketers consider it a very useful metric in managing their brands.
However, if we look at real data from the Spanish consumer market, only 15 percent of brands have been able to increase consumer loyalty in the past seven years. The vast majority, therefore, have seen reduced brand loyalty, despite all their efforts and investments. Our analysts have found that, on average, brands have only increased the number of completely loyal customers by about 6 percent in a year. Even Coca-Cola, an iconic brand with unrivalled distribution and an enviable advertising budget, has fewer than 5 percent of consumers in its category who buy only Coke.
The evidence also shows that the clientele we are able to maintain year after year is much smaller than brand managers usually admit: on average, brands lose about half of their customers each year, and make up for those losses with new consumers. If we look at the heavy users of a brand, who are usually considered more faithful, the data reveals that we lose more than a third of these people each year; three-quarters of our best customers today will be gone within just four years.
While logic suggests that it is cheaper to retain customers than to attract new ones, it seems the real market does not work that way. In reality, there is no dichotomy between attracting and retaining consumers. We can only reasonably influence the ability to attract consumers to a brand. Our consultants conclude that the loss of customers is a given constant. What's more, the rate of that loss for each brand is perfectly predictable. It depends on two factors: the penetration of the brand, and how often a consumer is exposed to the brand category.
No matter how hard we try to retain our consumers, brand loyalty does not deliver brand growth; it’s only by capturing new customers that we ensure future growth. In the last five years, we have analyzed more than 10,000 brands in 80 categories and 20 countries and conclude: brands that grow their sales win buyers, and those who lose turnover lose buyers. It is mostly a long-term truth, but it is true even within a year. According to Kantar Worldpanel's Brand Footprint, the ranking of the world´s most chosen FMCG brands, penetration accounts for between 80 and 90 percent of market share movements. It is a clear, strong and proven relationship.
Therefore, the data seems to contradict what we believe intuitively to be true. It suggests that rather than fighting for the loyalty of a small group of consumers, brands should take a broader perspective. All consumers are important, not just heavy users, and every time every consumer buys a product, there is a battle to be won. An individual’s past behavior – their loyalty – will only determine the probability of a given brand being selected; loyalty is not a guarantee.
If you want to grow, your marketing plan should focus on increasing that likelihood of being selected every time a choice is made. Managers should optimize every lever of such a plan – be it innovation, communication, or in-store activation – to maximize the ability of each element to attract new consumers to the brand. Every purchase counts. Every consumer counts.
* The complete study, coordinated by César Valencoso, Consumer Insight Director of Kantar Worldpanel, has been published by Profit Editorial under the title Drive your brand, increases sales: the data that denies the myths of marketing.