Brand Loyalty Is the New Holy Grail for Advertisers

When’s the best time to advertise? According to new research, it just may be after the sale.

And the end goal of advertising may go beyond making the sale at all. Some marketers are beginning to recognize that the new Holy Grail is brand loyalty, and that a sale is the first step in building it.

“There’s no such thing as product loyalty or trademark loyalty, only brand loyalty,” said Larry Light, chairman of the Coalition for Brand Equity, an industry group sponsored by the American Assn. of Advertising Agencies and Assn. of National Advertisers.

Studies show that as brand loyalty goes up, consumers grow less sensitive to changes in the brand’s price. And loyal customers are less likely to be sensitive to competitive promotions, driving down the brand’s marketing costs.

“As brand loyalty goes up, so does consumers’ interest in trying new products or services from that brand and most importantly, so does the brand’s profitability,” Light said.

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Advertising, of course, is key to nurturing brand loyalty. It not only prompts people to try a product; it reinforces brand loyalty, he said. “Study after study demonstrates that the reinforcement effect of advertising that follows the sale is at least as important as the effect of advertising that led to the sale.”

For decades, marketers have operated on the theory that by building awareness, advertising can generate interest and desire which prompts people to buy. But that ignored advertising’s crucial role: the half that happens after the sale, said Light. “Today the imperative is knowing how to identify, attract, defend and strengthen brand loyalty,” he said.

Cultivating loyalty saves companies money. Terry Vavra, president of Marketing Metrics, a Paramus, N.J., consulting firm, said it costs four to six times as much to attract a new customer as it does to retain an old one. “Ultimately this will mean a shift of funds out of advertising into customer service programs,” he predicted.

That’s what’s behind the welter of frequent-flier programs, Crest’s money-back anti-cavities guarantee and General Motors’ credit card, for example.

Companies can boost their profits almost 100% by retaining just 5% more of their customers, says Dennis Detzel, who with Robert Desatbick has written “Managing to Keep the Customer.” Detzel says that in the automobile world, lifetime loyalty is worth an average revenue of $140,000. In appliance manufacturing it’s worth $2,800, and in local supermarkets $4,440 a year.

One reason is that loyalists buy more. “An extraordinary share of sales can be traced to a tiny share of loyal heavy users,” said David Learner, chief executive of MRCA Information Services.

Campbell Soup Co. discovered that not all sales were equally valuable after it analyzed one brand. The soup giant found that only 4% of its consumers accounting for 15% of sales volume, were highly profitable and that all of the brand’s profits came from a mere 10% of its customers. Two thirds of purchasers were actually unprofitable, returning only 38 cents on every marketing dollar spent to reach them.

Kathleen MacDonnell, group president of Campbell’s frozen foods group, said that the most profitable group of brand loyalists “tend to pay more for your product, buy less frequently on cents-off deals and are very positively disposed toward your brand.” She cautioned against using cents-off deals to attract them: “That subsidizes their planned purchases,” she said.

It takes more than providing consumers with a good product or experience to build loyalty. Some 85% of Americans say they are at the very least satisfied with their cars, yet only 40% repurchase the same brand. At least two-thirds of those who defect say they’re satisfied or very satisfied with the car they have.

It takes reinforcement from ads. “In addition to creating awareness and expectations and inducing trial, advertising shapes attitudes and reinforces those attitudes so they mature into beliefs, which need to be reinforced again until they develop into loyalty,” Light said.

The most avid readers of a travel ad are those who just returned from the destination, Light said. “Ads reinforce that traveler’s perception. These people are seeking reinforcement of the wisdom of their behavior. It’s easier to reinforce attitudes than to change them.”

Information Resources analyzed 400 brands over eight years and found that increasing their ad budgets increased loyalty in existing customers more than they attracted new ones. For the average successful brand, Information Resources found, only 30% of a sales increase attributed to new advertising came from new customers; 70% of it came from increased loyalty of existing customers.

“Quality is only partly a result of a product or service’s performance,” Light said. “It’s the perception of quality that’s the most important determinant of brand strength, and that’s what advertising affects.”

Discounts and other promotions may be counterproductive, by making the brand appear to have less quality than others less promoted. “Consumers often become loyal to the deal rather than to the brand. Promotions often pump up sales in the short run but cause a real decline in brand loyalty by shifting the consumer’s focus from quality to price, from value to volume,” Light said.

Brand loyalty is a necessary component to brand domination, said Light. And that is the profitable place to be. James C. Crimmins, executive vice president of Omnicom Group’s DDB Needham ad agency, notes that the No. 1 brand enjoys a price premium of 10% over the No. 2 brand, and a 40% premium over store brands. Top brands not only sell more product; they sell them at higher prices.

Light said that marketers are evolving “from a transaction mentality to a relationship mentality. First was the mass marketing wave--when what got made got sold; build awareness and they will come. Then came targeted marketing when customers assumed more respect but still didn’t call the shots. Instead of being addressed en masse they were corralled into demographic or psychographic segments like women 18 to 34 or strugglers.

“Next came global marketing, and now we’re moving to the fourth wave, brand-loyalty marketing. Here, enduring, profitable growth is the goal, and the sale [is] just the beginning of an opportunity to turn the purchaser into a loyalist.”