How to Increase Brand Loyalty
Imagine I’m the marketing manager at a bakery called Morecroft’s Buns (hey, now). I want to be successful, sell more baked goods and increase my profits. My bakery offers a loyalty scheme where every tenth bun purchased is free. Why do we offer this? Brand loyalty of course. It’s also more expensive to find new customers than to keep the ones you already have.
Unfortunately, this has turned out to be little more than a myth. What’s more, is that spending time and effort on loyalty schemes is mainly ineffective when it comes to growing a brand.
The Law of Double Jeopardy
Research into brands in many sectors across the world has shown that the larger the brand’s market penetration (the number of customers it reaches), the higher its retention rates are. Brands who have more buyers also tend to have buyers who purchase slightly more often from them (loyalty). Whereas, smaller brands with fewer buyers have customers who purchase less often.
The greater the market penetration, the greater the loyalty. Big brands are rewarded, smaller brands are punished.
It’s called the Law of Double Jeopardy. The research is available to read in the seminal book How Brands Grow by Byron Sharp. His work with the Ehrenberg-Bass Institute for Marketing Sciences was somewhat controversial as it challenged common perceptions about growing a business. Many brands have spent millions over decades focusing on improving customer loyalty. However, the scale of this research has shown that many loyalty schemes been somewhat a waste of time and money.
One of the main problems with loyalty schemes in that they reward people who were going to buy from the brand anyway. For example, Morecroft’s Buns offers every tenth bun free for loyal customers, all it’s doing is giving away a free bun when a customer probably would have paid full price anyway.
However, the Ehrenberg-Bass’s work has now allowed marketers to understand brand loyalty much more clearly. As brand loyalty grows with market penetration, to increase brand loyalty, we must target lighter buyers and users. What it means is that rather than spending time and effort on loyalty schemes, it would be more fruitful to reach new and light buyers, people who purchase from you every now and again (perhaps just once a year).
Even though loyalty schemes aren’t hugely helpful, people still do show a degree of loyalty. Though they don’t show devout loyalty to a single brand, but instead they have a repertoire of brands they usually buy from.
Morecroft’s Buns’ customers probably buy bread from small select choice bakeries. As Byron Sharp calls them: polyamorous buyers. They are loyal to their repertoire of brands, not a single brand.
A brand grows by improving brand equity and distribution, and thus, will recruit more new customers, who then tend to buy slightly more (loyalty).
Net Promotor Score
Though we do want to ensure that a customer is happy with their product or service, as an unhappy customer is unlikely to return. For this, we can use a tool called the Net Promoter Score (NPS). The NPS requires a statistically significant sample size of customers and asks them the following questions: “On a scale of zero to ten, how likely are you to recommend our business to a friend or colleague”.
Respondents who score 9 or a 10 are considered promoters; score 7 or 8 are passive; 0 to 6 are detractors. The score is calculated by subtracting the percentage of detractors from the percentage of promoters, which leaves a score somewhere between -100 and 100. Once the score is known, it is then benchmarked against the industry standard, which will show how the brand is performing and whether it satisfies its customer’s needs.
Typically, a follow-up question asks respondents why that specific score was given.
As the marketing manager for Morecroft’s Buns then, to increase brand loyalty, I don’t think I would use loyalty schemes or give away free bread to paying customers.
Instead, I would first ensure that my customers are satisfied using an NPS survey. Then, I would save my time and money and work out how to gain more new customers.
About BrandWerks —
BrandWerks is a design resource company focused on advancing the practice of brand strategy.
We know that brand strategy can be a difficult beast to master. We create brand strategy templates and resources that help designers, agencies, and brand strategists master brand strategy.
Our tools are actionable and fully customizable and founded in a commercial approach that helps guide you and your clients through the process.