These posts are a collection of notes and summaries from the book “How Brands Grow: What marketers don’t know” by professor Byron Sharp. This work is a must read for any marketer. My personal goal when I embarked on this series of posts was to get a deeper understanding of the book and its lessons, and as I have worked through them I have not only gained that understanding, but also an idea of the areas I need to investigate more deeply in the future. Sharp is always very insightful, but I feel the need for more perspectives on many of the topics he covers. You can buy How Brands Grow here.
The seventh chapter of How Brands Grow is one of the most interesting.
It’s focused on loyalty and, specifically, how customers’ and marketers’ perception can be biased.
For people who want a raw definition of customer loyalty, we can define it as the customer behaviour of choosing the same brand, indeed being loyal and avoiding buying other brands in the same product category.
It’s a raw definition, and of course, every marketing guru has their own personal definition; but this is not a post on the ontology of marketing, and, moreover, I am not Heidegger, so the previous definition will be fine.
Although Byron Sharp gets straight to the point in this chapter, as ever I was sceptical and so wanted to get a different perspective. For this reason, I have already bought two other books to get two different points of view on the same topic.
If you are curious about the books they are “Winning on Purpose” and “The Ultimate Question 2.0: How Net Promoter Companies Thrive in a Customer-Driven World” both written by the Bain Fellow Fred Reichheld.
The Cola Experiment
Back to the book, the starting paragraph is definitely mind blowing.
Basically it describes an experiment made by McClure, Assistant Professor of Psychology at Stanford University, in 2004.
He took 67 volunteers and he monitored the brain activity while serving cola.
During the experiment the researchers told the volunteers when they were drinking Coca-cola, Pepsi or no-label cola.
What emerged from the MRI scan was that when they provided Coca-cola, the brain activity in the hippocampus was higher. The same did not occur with Pepsi.
Hippocampus is a fundamental area of the brain related to both short-term and long-term memory.
Before moving on the conclusions there was another key element in the research.
16 of the 67 volunteers undertook blind taste tests, roughly 50% chose Pepsi and 50% chose Coca-cola. What emerged was a poor correlation between the preference they stated prior to the test and the actual choice during the trial.
Other subjects, during the experiment, were given the same cola, but one was labelled as Coke or Pepsi, while the other was unlabelled.
When they asked which was best they largely said that the Coca-cola labelled coke was best even though it was the same!
For Pepsi this did not occur so much.
What’s the key point of this experiment?
First, people usually tend to trust more to their eyes than their taste.
Second, probably the higher brain activity is related to the psychological concept “familiarity breeds liking”. And this is also true for habits and frequency, they breed familiarity, brand knowledge and consequently liking.
Another key aspect is the power of habits, which can be related to loyalty.
People, and my father probably is the best example, in order to reduce any waste of time and risk will always use the same products.
Same shampoo, same deodorant etc, not because they are better or cheapest, just for habit.
Is this loyalty? Yes, but is not related to the brand value, but more to the consumer routine.
The TV Channels
Let’s see this incredible example.
Today if you have a tv you can choose from a massive amount of channels and the switching cost from one to another channel is merely zero. You just have to push a button.
Surprisingly people show the same pattern, they restrict their repertoire of favourite shows to the same few channels, regardless of the number of choices available to them.
The figure below is a plot from Ehrenberg-Bass Institute research made by Virginia Beal. Data are provided by Nielsen on US households in 2002 (I know it’s quite old).
It’s impressive how the graph seems “logarithmic” reaching a plateau quickly.
The behaviour between consumers who have access to 40 channels and consumers who have access to 80 channels is very similar.
It is astonishing how people even with 200 hundreds options and zero switching costs will always see the same channels.
In that case loyalty is just a consequence of habits.
The previous two examples are very powerful, and from this basis the author recall the Double Jeopardy law applied to loyalty:
“Brands with less market share have far fewer buyers, and these buyers are slightly less loyal.”
What does it mean practically/in practical terms?
Buyers are never 100% loyal.
In particular smaller brands have a smaller proportion of their customer base who are 100% loyal, this is because larger brands tend to have proportionately more light buyers in their user base.
The relationship between light buyers and loyalty is easily explained: occasionally buyers tend to favour bigger brands, this is also called “the natural monopoly law”.
Think about these products based on TNS data on UK market:
|Product||Annual Category Purchase rate||Brand size – Market Share (%)||100% loyal buyers among brand buyers|
The higher the market share, the higher the proportion of 100% loyal customers, but is still a minority of the entire brand customer base.
Customer opinions can change
The reading continues with another truly fascinating aspect, probably one of the most interesting in this chapter: how customer opinions can change based on different timings.
Basically what the authors evaluated for different product categories was how people agreed with a statement interviewing the same sample base in two different periods.
|Category||Brand Image Belief||Initial Agreement (%)||Repeated Agreement (%)|
|Fast food outlets||Good for snack||29||56|
|Banks||Expert in the areas it deals in||21||48|
|Insurance||Provides fast service||17||42|
|Supermarkets||Sells low-quality fruit||14||36|
Based on the author’s research this instability is not because respondents radically changed their opinion on the brand, but it’s just because sometimes they think they like it and sometimes they don’t.
“Brand memories, like our branding buying, are probabilistic.”
The chapter covers another interesting loyalty aspect: brand fanatics.
Brand fanatics are probably overrated.
In fact if we think about one of the most iconic brands like Apple based on the data provided by professor Sharp we can see that Apple Computer owners show a moderately higher loyalty compared with other brands.
What I got from this chapter is that loyalty is a very tricky aspect of marketing.
Some customers are loyal because of habit; some, opportunity; and some, their love of the product.
100% loyalty is rare; most of a brand’s sales come from light buyers (at least in FMCG).
So every marketing strategy–and this is the fil-rouge of the book–should be supported by data from properly designed (and, crucially, carefully evaluated) experiments, and this is also true for tactics such as loyalty programmes.