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?

Four Themes That Cross Categories

Since last Fall, the economic news has been uniformly grim. People losing their homes, deferring maintenance, unable to afford heat. Food banks and soup kitchens overflowing with “customers.” Donors to thrift stores in years past now shopping at them. As a November story on mightbargainhunter.com points out so clearly, “we may think that we need a lot of things. The stuff we really need — after breathing — are food (and clean water) in our stomachs, clothes on our backs, and a roof over our heads.”

This past year, we’ve talked to hundreds of consumers on behalf of clients. We’ve talked about food and eating at home vs. away from home. We’ve talked about shoes and clothing. And we’ve talked about home improvement and home maintenance. In these conversations, we heard several common themes:

• DIY is booming
  
  
• Pretense and conspicuous consumption are out
  
  
• Coupons are back
  
  
• At least in some categories, people believe they’re spending smarter, not necessarily spending less

So, I thought it would be interesting, and possibly instructive, to share what we heard. In this 3-part series, I'll start with the Food category, then Shelter, and in last installment, will talk about Clothing. Compare notes with your own experience, and let us know where we got it wrong…or right!

The problems at Whole Foods and other upscale grocery retailers started long before Q4. Food prices surged in the first half, and organic produce took a hit. Consumers shifted to private label and shopping the club stores for food and groceries in a big way early in the year. Big winners in the category were ALDI whose no frills, private label offering fits the current environment well, and the various 99-cent and dollar stores, for their low prices.

Coupon use is also factoring into food purchases. As market researcher ICOM found, “Households of two adults and two children who use coupons wisely can save 25% on their grocery bill annually, without cutting purchases.” And online coupons were the runaway hit of the year. Consumers of all ages told us they used them, and said would be more inclined to use them if they were electronic. The availability of electronic coupons would most influence the shopping behavior of 18-34 year olds, 77% of whom said they are much more likely or somewhat more likely to use coupons if given access to this paperless technology.

The other thing about food is that more people are eating at home. According to a story on NPR’s Sunday Weekend Edition, cooking skills may have atrophied during the eat-out/take-out days, so we’re seeing increased interest in cooking classes. Cook book sales are also surging. Whether thanks to the Food Network, the recession, both or something else, cookbooks were a bright spot in publishers' lineup.

In this recession, all four themes are at work in the food category.

Next up: Shelter.