Monday, April 6, 2009

The Calculus of Loyalty

Many consumers, including me, have a tall stack of cards from the various loyalty programs they belong to. Between the cards for hotels, airlines, and car rental companies, I got so tired of the bulge they caused in my wallet that I bought a separate zippered pouch to carry them all. The one card that I still keep in my wallet is my grocery store loyalty card because I use it so often.

Loyalty programs aim to get consumers to buy one brand instead of another, or shop at one store instead of another, not just once, but over and over. They are one input into the price-quality-value calculus that consumers do in their heads every time they decide where to shop or what to buy. Different customers do the math differently, and even now, price alone does not always win, even in low-involvement categories.

In recent research with consumers about their preferred brand of canned goods, we saw the price-quality-value equation at work. Canned goods are far from the most innovative or exciting part of a grocery store’s offering. They pretty much define low-involvement in groceries. That said, consumers told us that the graphics on the can, the logo, the colors, all set quality expectations about the product inside and the experience of using or consuming it. Our research showed that the brand they preferred was the one they perceived as most expensive and highest quality. Why? They saw it as the best value.

Our findings are consistent with the just-released 2009 Brand Key Customer Loyalty Engagement Index. Based on research conducted earlier this year, they found that “consumers are not buying based on price alone. Instead, they are relying more on their perception of value when deciding which brands to stay loyal to during the recession.”

Despite the current economy, or because of it, some consumers still prefer (and pay more for) brand-name canned goods and other seemingly low involvement categories. Their loyalty stems from their own sense of what’s the best value for the money.

Store brands compete with branded goods manufacturers for consumers’ attention. Recently, Walmart announced plans to up its game, aggressively expanding and enhancing its own brands in quality and appeal. ALDI did, too.

Retailers have store loyalty programs to help with customer retention. Manufacturers have to find ways to engage customers and make them feel a connection to their brands and products – their own form of loyalty programs. Tools like social media offer an unparalleled platform on which to build customer connections that build loyalty.

Who do you think is doing a good job creating loyalty, and how are they doing it?

1 comment:

Steve said...

Great post in a very important topic area.
While I hate to say it, the loyalty program I most admire is United Airlines -- especially their "extra services" for people who reach annual membership milestones. It does affect my choice in airline -- both to cash in on my upgrades as well as to feed my miles.
I still cannot understand the motives behind the grocery loyalty program, other than to give me a club member discount and thus try to win a repeat store visit. I rarely change my shopping list to adapt to the club discounts. It is using customer data as a blunt instrument.