Building Brand Loyalty

Building Brand Loyalty

One of the most important reasons for building brand equity is to win brand-loyal customers. In marketing, brand loyalty refers to a consumer’s commitment to repurchase or otherwise continue using a particular brand by repeatedly buying a product or service.

The American Marketing Association defines brand loyalty in the following ways:

Aside from a consumer’s ability to repurchase a brand, true brand loyalty exists when the customer is committed to the brand and has a high relative attitude toward the brand, which is then demonstrated through repurchase behavior. For example, if Joe has brand loyalty to Company A, he will purchase Company A’s products even if Company B’s products are cheaper and/or of a higher quality. As an organization increases its number of brand-loyal customers, it develops a stronger and more predictable position in the market. As noted above, brand equity and brand loyalty enable an organization to enjoy price premiums over competitors.

Like brand equity, brand loyalty is multidimensional. It is determined by several distinct psychological processes, such as the customers’ perception of value, brand trust, satisfaction, repeat-purchase behavior, and commitment. Commitment and repeated-purchase behavior are considered necessary conditions for brand loyalty, followed by perceived value, satisfaction, and brand trust.

Philip Kotler identifies the following four customer types that exhibit similar patterns of behavior:

1. Hard-core Loyals, who buy the brand all the time
2. Split Loyals, who are loyal to two or three brands
3. Shifting Loyals, who move from one brand to another
4. Switchers, who have no loyalty (are possibly “deal-prone,” constantly looking for bargains, or are “vanity prone,” looking for something different)

Understanding the dynamics of these audiences can be very important for marketers, so they know what’s happening among their target segments and where to focus their attention and marketing investment. A large-scale 2013 study across 14 million store visits by 1 million customers found that loyal customers (those visiting the stores 10+times) accounted for about 20 percent of all customers but 80 percent of revenue and 72 percent of all store visits. Obviously, knowing and growing your loyal customer base makes a huge difference.^[3]

Benefits of Brand Loyalty

The benefits of brand loyalty are longer tenure, or staying a customer for longer, and lower sensitivity to price. Recent research found evidence that longer-term customers were indeed less sensitive to price increases.

According to Andrew Ehrenberg, consumers buy “portfolios of brands.” They regularly switch between brands, often because they simply want a change. Thus, “brand penetration” or “brand share” reflects only a statistical chance that the majority of customers will buy that brand next time as part of a portfolio of brands. It does not guarantee that they will remain loyal.

By creating promotions and loyalty programs that encourage the consumer to take some sort of action, companies are building brand loyalty by offering more than just an advertisement. Offering incentives like big prizes creates an environment in which customers see the advertiser as more than just the advertiser. Individuals are far more likely to come back to a company that uses interesting promotions or loyalty programs than a company with a static message of “buy our brand because we’re the best.”

Popular Loyalty Programs

Below are some of the most popular customer loyalty programs used today by many companies. These programs allow organizations to engage their customers beyond traditional advertising and create incentives for consumers to become brand-loyal, repeat customers.

• Sweepstakes and Advergames
• Points-based loyalty programs, awarding prizes for incremental purchase behavior (e.g., frequent-flyer programs
• Branded digital games that engage consumers with prize incentives
• Contests
• Skill tests and user-generated promotions such as video and photo contests
• Social media applications and management
• Social media promotions and offers
• Customer rewards programs (e.g., pay lower prices using a frequent-buyer card)
• Coupons (hard copy and/or digital)
• Promotional auctions—bid for prizes with points earned from incremental purchase behavior
• Email clubs
• Subscription databases—national and/or segmented by market
• SMS Promotions
• Phone apps
• Branded Web apps

As you’ll see in the following video, customers are well aware that companies are using loyalty programs to court them and win their repeat business—but it doesn’t seem to matter. Customers have come to expect something in exchange for their loyalty.