Brand loyalty management

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Brand loyalty management: an introduction Prof. dr. Kristof De Wulf Managing partner, InSites Consulting Associate marketing professor, Vlerick Leuven Gent Management School March 20, 2008

description

Brand loyalty management is important given the enormous investments and impact on the bottom line taking into account the fact that generating new brand users costs 6-10 more than keeping existing brand users. In contexts where brands need to be supported heavily by employees / people (service, B2B, ...), big negative impact of employee turnover on customer brand loyalty. Short-term oriented vision hampers development of customer brand loyalty (e.g. focus on sales figures of current quarter).

Transcript of Brand loyalty management

Page 1: Brand loyalty management

Brand loyalty management: an introduction

Prof. dr. Kristof De Wulf Managing partner, InSites ConsultingAssociate marketing professor, Vlerick Leuven Gent Management School

March 20, 2008

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Content

1. How big is the challenge?

2. What have we learned?

3. Generating and keeping brand loyalty

4. Measuring brand loyalty

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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

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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

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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

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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

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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)

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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

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What have we learned?

Source: Henley Institute

Why are customer disloyal?

Indifference

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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

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Generating and keeping brand loyalty

Brandimage

Productexperience

Serviceexperience

Personalbonding

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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

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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)

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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

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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

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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

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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

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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

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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

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Measuring brand loyalty

Financial measures

Source: InterBrand

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Measuring brand loyalty

Financial measures

Source: InterBrand

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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

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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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