Wednesday, June 24, 2009

Losing Loyalty

The CMO Council in association with Pointer Media Network recently published a white paper entitled "Losing Loyalty: the Consumer Defection Dilemma." In the white paper they present some startling statistics based on an analysis of the individual buying patterns of more than 32 million consumers in 2007 and 2008 across 685 leading CPG (consumer packaged goods) brands. All consumers tracked in the study were consistent shoppers who shopped at least twice in every eight weeks.

Some of the more dramatic statistics are:
1. Only 48% of high loyal consumers in 2007 remained highly loyal in 2008.
2. Only four out of ten brands retained 50% or more of their highly loyal consumers from year to year.
3. About one-third of all highly loyal consumers in 2007 completely defected to another brand in the same category in 2008.
4. Some of the major brands could have increased revenues by 20% in 2008 if they had eliminated brand defection.

These statistics indicate that much of the lost loyalty is due to churn rather than defection. They make the point that the two leading drivers of loyalty churn are variety and value. Consumers seek new experiences in terms of product attribute and are likely to try new products which may include switching brands. During this economic downturn, consumers are interested in saving money and are more likely to switch brands if lower cost alternatives are available.

Customer churn and defection can be found even in the best economy. However, the current economy is driving churn and defection to unforeseen high levels. The report suggests that both manufacturers and retailers need to take direct actions to increase loyalty, retention and customer value. This translates into a marketing strategy with a focus on better communications to their high value customers to demonstrate the real value of their products. This may include incentives, rewards and targeted advertising.

The bottom line is that churn and defection are always present. it just so happens that this economy is exacerbating the magnitude of churn and defection. The good news is that companies that survive and prosper in this economy, will be well positioned when the economy turns around. The bad news for those companies that do not manage the churn and defection well in this economy, may find that their lost customers have found new loyalties.

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