A new study on the weakness of brand loyalty among American consumers is worth the cable industry’s attention. Its conclusion is that targeted advertising can pay off in spades for national brands.
That conclusion provides a strong rationale for cable’s continued backing of Canoe Ventures and the ongoing adoption of technology that makes targeted advertising possible.
The study, “Losing Loyalty: The Consumer Defection Dilemma,” covers grocery items or, in the parlance of marketing professionals, consumer packaged goods (CPG) – toothpaste, cola, coffee, canned tuna, pain relievers, etc.
The study showed that consumers tend to be very loyal to their favorite brands, which is consistent with what marketers have always assumed. But this study dug a bit deeper and discovered that for brand after brand after brand, the members in the pool of loyal customers in 2007 were different than the pool of loyal customers in 2009. There’s an enormous amount of churn among supposedly loyal customers.
These and other findings show that brand loyalty is not nearly as strong as we’ve been led to believe – and perhaps never was, although the study finds clear indication that the recession has exacerbated the problem.
The researchers document how incredibly expensive churn is for CPG brands, and they note “it is far easier to retain loyal consumers who are in the early stages of switching brands than after they have completely defected.”
Happily for marketers, it turns out that consumers frequently exhibit behaviors that are highly indicative that they’re about to churn. Better yet, there are demonstrably effective steps that will induce some customers to remain loyal to their brands.
Happily for service providers, these methods rely on targeted advertising.
The researchers conducted an experiment in which they delivered a coupon to at-risk consumers – shoppers that predictive analysis suggested would switch brands on a certain category purchase. The delivery of a single coupon “resulted in a 2 percent improvement in category share purchases compared to what would have occurred without the intervention of precision marketing,” the report said.
The report continues that predictive modeling is also being used to win new loyal consumers. The researchers say they have hundreds of instances where they have successfully increased sales by identifying likely loyal buyers and by delivering relevant advertising followed by coupons to specific households.
The study says predictive analysis and targeted advertising can similarly be used to increase consumption and purchasing among loyal consumers.
Those espousing technology to enable targeted advertising originally assumed national brands would be delighted by the ability. In recent years, the focus moved to local advertisers – car dealers and grocery chains, for example. Cable could not offer a national buy, and national brands found little rationale for targeted advertising.
But cable should be able to take this new data to validate efforts, like Canoe Ventures, and to sharpen national advertisers’ interest in targeted advertising.
The study was published by the CMO council and conducted by Pointer Media Network. Download the full text of the study here  (registration required).
The results of the study might also serve as a data point for service providers as they evaluate their own brand strategies. Canned tomatoes and other CPG may be an entirely different market than video, broadband data and telephony, but buying behavior is buying behavior.
Cable will need to proceed with due caution, as it has been doing. The technique that marketers are increasingly relying on to identify at-risk consumers is predictive modeling. That should ring alarm bells – behavioral modeling has been a hot-button issue with consumer groups.
From a consumer standpoint, there’s a lot to object to. While more and more Americans are delighted to be tagged, tracked and have their behavior analyzed, some people still find it incredibly creepy that Big Brother isn’t a government employee – he’s working for our friendly neighborhood grocers.
Furthermore, the way this is going, there’s a risk that Americans – excuse me, consumers – are going to be divided into two groups: one group that started out less privileged and is going to get less so, and the other with people who started out privileged and will get more so.
Once upon a time, everyone (everyone with access to a newspaper, anyway) got the same coupon – the same incentive – as everyone else. That’s less frequently the case.
The writers of “Losing Loyalty: The Consumer Defection Dilemma” report a new finding that just 2.5 percent of the shoppers for the average brand make up 80 percent of brand sales.
“These findings underscore the critical need for marketers to protect their loyals,” the report says, “while also developing effective strategies for identifying and engaging with consumers who have a high potential to become loyal, high-value brand buyers.”
In other words, “loyals” – people who can afford to spend a lot of money on groceries and who exhibit brand loyalty – are going to get rewarded with incentives, while the rest of us get relegated to the status of second-class shoppers.
But I digress. …