The advent of social media, social responsibility, personal interests in causes beyond oneself — and just, generally, care for others — has suddenly and dramatically catapulted the whole subject of loyalty to a new and significantly more important plateau. Few would argue that “loyalty” has been more than overworked: as of this writing, a Google search turns up more than 6.5 million pages on the subject of brand loyalty and Amazon lists more than 600 books on the subject. However, no one has come close to equaling or bettering Frederick Reicheld’s brilliant foundational trilogy on loyalty, beginning with The Loyalty Effect, in 1996.
Traditionally, loyalty has been about price and performance. The formula was simple: make sure your brand offered the best value on the shelf and always performed up to expectations. Then run 200 GRPs a week, supplement these with coupons and occasionally offer reduced shelf prices to build pantry inventory. Throw in an occasional continuity program as a reward. At the other end of the phone, always have somebody with a generic name, like “Ann Gray,” to personally address the one or two complaints a year that would arise concerning product performance (usually people looking for a free coupon). As long as one was alert and responsive to competitive pressures, loyalty remained assured.
Now, however, we have a whole different situation. As a spokesperson for Tide recently put it, “Removing stains isn’t good enough anymore; it’s about what our brand is doing to give back that’s going to determine the choices they [consumers] make in the laundry aisle.”
So, what does this mean and why is it important? Consider the following:
• According to SymphonyIRI, the $34 billion spent by manufacturers on packaged-goods trade deals in 2010 “did not significantly shift the consumption needle.”
• Private Label is predicted to grow to 35 percent of unit sales by 2015.
• It costs 7-10 times more to recruit a new customer than to keep an existing one.
• An increase in customer loyalty of only five percent can lift lifetime profits per customer from 25 percent to 95 percent, depending on the category.
• In some categories, an increase of loyalty of only two percent can be the equivalent of a 10 percent across-the-board reduction in costs.
• Ninety-five percent of unsatisfied customers don’t complain but simply stop buying the brand.
On top of all this, Bain reports that although 80 percent of companies believe they deliver a superior customer experience, only eight percent of their customers agree. Why? Because expectations of what a brand must do to win a consumer’s loyalty have suddenly exploded. For example:
• Eighty percent of consumers are likely to switch brands, similar in price and quality, to one that supports a cause.
• Seventy-two percent of consumers say they have purchased a brand because it supports a cause they believe in.
• Eighty-six percent of consumers around the world now believe that business needs to place at least equal weight on societal interests as on business interests.
• Ninety percent of consumers want companies to tell them the ways they are supporting causes.
• Globally, 66 percent of people believe it’s no longer enough for corporations merely to give money away, but that they must also integrate good causes into their day-to-day business.
• One third of Hispanic and African-American consumers report that they almost always choose brands that support causes they believe in, compared to just one in five non-Hispanic whites.
If these expectations appear to be tough, just wait because here come the Millennials — all 80 million of them— a larger generation than the Baby Boomers! While they represent only four to five percent of the decision influencers today, it is the Millennials to whom one must learn how to market to achieve success within the next 10 years. Why will this be so challenging? Millennials are not known for their loyalty.
The 2007 CBS documentary on Millennials highlighted their lack of loyalty to their jobs if corporate integrity and working conditions did not live up to their expectations. As a matter of fact, several large marketing companies have even hired “Millennial consultants” to help their top managers learn how to deal with and motivate this highly talented, yet highly picky, segment.
Not only do the Millennials’ attitudes affect where they work, but also— not surprisingly— what they buy. To satisfy the archetype Millennial, the product of tomorrow has to be able to pass a literally bewildering set of societal, cultural and performance criteria that marketers never even dreamed of only a generation ago. For example:
• Millennials are technologically the most advanced generation in the world.
• There isn’t a brand or trend they aren’t aware of.
• They are the most advertised-to generation in history and are therefore resistant to traditional forms of marketing and advertising: one cannot “sell to” a Millennial; one must “engage” them.
• Millennials seek customization, community, fast and reliable service, frictionless interaction, a tailored approach, authenticity, a personal touch and “cool” as motivating factors. Think iPad 2.
• Millennials favor buying brands that are community-minded at heart. They perform research before they purchase — not only on product performance but also on overall corporate social and environmental responsibility.
• Millennials rely heavily on their friends (online communities, social networks and chat rooms) and their parents for advice in the decision-making process.
• Nearly eight out of 10 want to work for a company that cares about how it contributes to society.
• Nearly nine out of 10 Millennials state that they are likely or very likely to switch from one brand to another (price and quality being equal) if the second brand is associated with a good cause.
Given all these factors — potential barriers and very real considerations — it is critical for brands and their agency partners to develop an organized way to sort and address the loyalty-building process in ways that are relevant to their target consumers, authentic to their brand and responsive to society. In doing so, the following key elements of loyalty must be addressed.
Level One: Practical. This is the functional level of loyalty. The key building blocks at this level are the familiar loyalty factors of price, performance and a new factor that is now equally important — “transparency.” SymphonyIRI, in its August Executive Perspective, pegs price and performance as the top two influencers in brand decisions. In 2011, “item price” was important to 79 percent of shoppers and “previous usage and trust of the brands” was almost equal in importance at 76 percent.
But, why is “transparency” important? Forty-seven percent of people who go shopping for groceries or health-and-beauty items today visit the manufacturer’s website — not just for product coupons but also to research the products and the company that makes them. Of these, 30 percent say the information provided is inadequate.
On the flip side, 94 percent of consumers state that the research positively influenced their decision to make a purchase and 36 percent said they bought a product because of this research. Consumers at this level are looking for product information like sourcing, ingredients and nutritional values. This base must be in place before subsequent levels can be effective.
Level Two: Personal. Key components are “care for self” and “care for family.” This is the emotional level — understanding the needs of the consumer and her family and providing solutions that are relevant to her needs. These are elements that connect your brand with the consumer beyond price and performance alone — that enhance the consumer’s life and that of her family. Executions would benefit the consumer or her family personally (like programs that support her child’s school or benefit her personal health). Customization or product co-creation also play at this level — custom M&M’s would be an example. And sometimes, executions are based just on fun — like Office Depot’s “Elf Yourself.”
Level Three: Purposeful. This is the “values” level where the key components are broadly defined as “care for others” and “care for the environment.” These are causes that move beyond the consumer’s person and family and represent the broader responsibility of society — a cause greater than oneself or a higher purpose. While this was formerly considered to be a luxury, changes in societal culture and attitudes are rapidly moving this into the “essentials” category, wherein consideration of others is assuming the same level of importance, urgency and satisfaction as “care for self” or “care for family.”
One indication of this is simply the amount of money currently being spent on cause marketing, which this year is estimated to total approximately $1.7 billion in North America. Industry experts expect this figure to grow dramatically over the next five years, as more and more corporations focus on enhancing corporate social responsibility attitudes and initiatives.
Level Four: Passionate. This level is the nirvana of loyalty, which Bernard Cova, Robert Kozinets and Avi Shankar have dubbed “Consumer Tribes” and Seth Godin has popularized in his excellent series of lectures. This is the self-actualization level in which consumers define themselves by the brands they purchase and so, on a group basis, bond into a community with other consumers with shared passion. Examples: Patagonia, Clif Bars, Harley-Davidson, Toyota Prius, Burt’s Bees, Stonyfield Farms, Green Mountain Coffee and — the largest corporate example of this — Apple.
Space does not allow us to go into the many reasons why these companies have achieved their cult-like followings, but the short version would include words such as: authentic, integrity, consistency, relevant, caring, trust — essentially culturally-embedded values that span each company’s products, people and purpose.
One possible approach to the incorporation of these key elements into a loyalty-building process is a Passion Pyramid (see chart). Overall, this pyramid pulls together the aforementioned key elements of loyalty and organizes them in ascending order based on different levels of brand/consumer engagement. As the levels go up, the degree of engagement increases, but the size of the loyalist segments gets smaller.
The bottom line for the next ten years is simple: To win in the marketplace, price, performance and transparency — while always important — will not be enough. All companies — and brands — will be judged not just by what they make but by what they stand for.