Why online shopping is enough loyalty 1% of buyers
Forget everything you knew about brand loyalty. Over the past 10 years, consumers have turned this concept upside down, and so cleverly that it was almost impossible to trace such gradual changes.
The culprits of change can not be clearly called representatives of the generation Z or the millennials. It would be more correct to say that this phenomenon does not depend on age, income level and geographic location. The loyalty we are talking about is the result of what consumers are used to buying and sticking to the retail brands that they have tried.
The vaunted combo of coupons, promotional codes and discount programs, firmly embedded in the strategies of marketers, did not play any role in the transformations of loyalty. In fact, brand loyal consumers pay an average of 3-4% more for their favorite products and focus on it even more than their purchasing power.
What about these preferred brands?
They are not some super-nameplaced, nationally recognized names. They do not have large budgets for TV advertising. They do not lead in their categories. Therefore, it is impossible to measure loyalty using the usual indicators of occupied market share or audience.
Consumers today prefer niche brands that have gained popularity due to one or another successful solutions.
The modern buyer likes to search and select new products, even if they are much more expensive than those things that should be replaced.
This is the modern concept of loyalty.
And the relationship between brand and consumer lasts until the next more suitable product is found.
All wealth in niches
These are some of the discoveries made in the course of the study , which in May 2018 were published by professors Brent Neumann and Joseph Vavra from the business school for them. Booth at the University of Chicago.
Neumann and Vavra examined the store receipts collected by Nielsen by 160 thousand families, as well as the data of 700 million transactions made between 2004 and 2015.
The analysis has shown that with customer loyalty, everything is in order. Surprise was the focus of this loyalty. It turned out that buyers increasingly prefer the unbeaten paths of retail - they choose products that have not yet had time to become hits, and brands that are just conquering their niches. And all this without regard to prices. At least, people are willing to pay 3-4% more for such products.
Neumann and Vavra also found out that consumers cannot be bribed by loyalty.
Contrary to popular beliefs and omnipresent best practices, sales and coupons, which are designed to motivate customers to try products, did not affect the emerging new type of brand loyalty in 91 out of 107 product categories studied by researchers over a 10-year period.
That is, this picture is observed in almost all categories, including tangible consumer goods, which are considered interchangeable. According to Neumann and Vavra, in price-sensitive groups, such as sodas, oil, or laundry detergents, the costs of loyal consumers increased by 6%.
The study showed that the choice is not so much dependent on favorable price offers, as previously thought. The buyer does not mind paying more for the thing that best meets his needs.
The findings of scientists also demonstrate that customer loyalty is as diverse as all other aspects of their lives. Of course, it was always like this - the contents of the shopping carts of two people differed greatly in all conditions.
But in this case we are talking about the diversity of goods among all buyers in general.
People still buy more or less the same set of 150-250 groceries every year. However, the assortment in the shops today is almost five times more compared to 20 years ago.
In a world with a high level of diversity in the range and consumer preferences, the status of a national megabrend is no longer required either for success in general or for attracting regular customers.
And therefore we can say that all wealth for consumers, brands and retailers is now in niches. Provided that they have enough regular customers.
This is probably one of the reasons Walmart gives people the choice between buying a pound of Irish branded Kerrygold Irish oil for $ 23 ($ 4.99 + $ 18 for delivery) on Walmart.com and a pound of American Land O'Lakes for $ 5. 64 at the Walmart store. Both of these options have their own audience, so Kerrygold oil continues to be sold on Walmart virtual shelves to meet the needs of one percent of loyal consumers.
Getting used to the new realities of loyalty
This 1% of loyal consumers place high value on finding innovative brands that add value or eliminate any shortcomings inherent in more mass products. It does not matter whose name is written on the packaging, how well known is the brand, and whether the price of a new product is high compared to what people have already paid for the goods in their storerooms, living rooms, kitchens or latrines.
For such novelties, consumers are sent to retailers, which turns the optimization of product search and innovation around them into a new retail strategy.
For this reason, progressive online retailers will lead, which will allow niche and little-known players to come to the attention of one percent of loyal consumers. This is where modern technology, machine learning and artificial intelligence are used to search for popular purchasing patterns and to inform about prices in real time.
Optimization of product search and innovation are the reasons why vertical marketplaces are transformed into ecosystems that help consumers find interesting proposals in context. For example, the Houzz service is not only a place to search for inspiring ideas for the home, but also the opportunity to see new products and thematic services at the same time, which makes it easy to get acquainted with them and buy. And all this in the conditions of a huge site, the range of which is replenished daily.
Another example is the Farfetch service, whose market value is estimated at $ 6 billion. This is a marketplace for products from designer boutiques around the world. The website aggregates their range and offers a search on it. So, not only tourists from other countries or residents of a particular city are among the buyers of boutiques, but also representatives of that same loyal one percent, who thus find a new brand and subsequently buy more and more of its products.
A variety of algorithms for displaying new products and innovations - this is what progressive brands now focus on.
Coca-cola - this is no longer just a regular or diet "cola". The company combines 350 brands and 5 thousand products. Coca-cola's recent financial results exceeded expectations.analysts, even despite the previous 17 quarters of the continuous drop in sales of carbonated beverages.
And let Coca-Cola be less than its competitor Pepsi, which, in addition to drinks, produces salty snacks, but its operating profitability is higher (27% compared to 16% for Pepsi), and the projected annual growth rate is slightly lower (7.23% against 7 , 54% for Pepsi). According to analysts, this difference is explained by rising prices and higher operating efficiency.
Representatives of loyal one percent, consuming the products of 350 company brands, played an important role in ensuring the growth of Coca-cola's income and profits.
For the same reason, some traditional physical retailers quickly adapt their old loyalty models, seeking, for example, to become a platform for new designers and capsular limited collections to create a sense of exclusivity and urgency with the consumer. Prices at the same time grow as much as possible, but not necessarily to the level of high fashion.
This concept was popularized a few years ago by retail giants such as Target and H & M. They presented limited editions from designer brands in their stores, and this idea “shot”. Earlier, Barney's and Nordstrom presented similar initiatives called The Drop and The Space, respectively, aimed at attracting consumers who prefer their brand and are indifferent to discounts.
This is good news for retailers who dream of loyal brand buyers who are not afraid of price fluctuations. And for innovators seeking to create any new product that will win consumer hearts.
But there are questions that remain unanswered. For example, what happens when representatives of a loyal one percent discover and love a new brand? Will they remain faithful to the seller, who previously helped to find what they wanted?
Or maybe progressive brands will take advantage of technology, new business models and payment streams to eliminate retail intermediaries altogether and act directly?
Or will there appear intermediaries like Alexa and Google Assistant, who will offer consumers completely different ways to find brands that will make familiar channels less significant?
Neumann and Vavra in their study conclude that if consumers find a brand that they like, they stay with it for a long time. Of course, there is a downside: as soon as the consumer gives preference to a new brand, he abandons the previous one. This means that niche competition for the sympathies of buyers will become tougher.
Competition among manufacturers will grow.
And success for retailers from small to large will now depend on the ability to find and offer popular niche products, interesting enough to attract the cherished one percent.
Long live the variety!