CONSUMERS LOYALITY IN ECONOMIC DOWN TURN
CONSUMERS LOYALITY IN ECONOMIC DOWN TURN
Submitted By
Mariam Hashmi
CONTENT
. Summery 3
2. Methodologies 3
3. What's a brand 3
4. What's a loyalty 5
5. Consumer becomes loyal 6
6. Why marketer's invest in brand loyalty 7
7. Loyalty for by brand and small brand 7
8. Brand loyalty a question in economic downturn 8
9. Conclusion 10
0. References 11
SUMMERY
This project discusses a very important issue of brand loyalty in economic downturn. Companies invest a lot in building brand equity and they rely a lot on loyalty. My theory was that consumer doesn't remain loyal for a long as they are searching for better option and added value in any item they purchase. Its money and desire to try new things which makes them shift their loyalty. I have analysed many literature review of different companies and researcher. I have explained how a loyalty is built and how it can deviate at different situation. I have tried develop a method to which may help in increasing the loyalty of consumer for a company or brand.
INTRODUCTION
In last few decades market has become quite competitive and economic downturn has made it very unpredictable. It is difficult for consumer to differentiate products. Companies are centring their marketing strategy and tactics on brand loyalty (Fournier and Yao, 1997). Brand Loyalty brings greater sales and revenues, act fairly as barrier for new entrants and can response to competitive threats the customer's lower sensitivity to marketing efforts of competitors (Delgado-Ballester and Munuera-Alema´n, 1999). Brand loyal customers can also be a good future referent power. Marketer invests lot of money energy and time in developing brand equity to build loyalty. Today's society is much more transient than in before. They get exposure to many new brands, discounts, sale and offers. Companies argue that consumers are prison of habits and once they get used to one brand they don't like to change as they feel loyal towards it and they get used to it, but I think when one find any deal under the sun which is cheap with great offer I will go for because cost becomes the bottom line.
Methodologies
Qualitative method is the most basic form of research in social studies. An exploratory method based on secondary research of collecting online data, text books ,surveys have been used .Research papers from journals were read and data was analyzed. Many companies' web sites and annual report were studies. Hypothesis was questioned and researched. While some theories agreed with the hypothesis some completely went in the opposite direction.
What's a brand?
A brand is an identity, a trademark, a name of a product or company. It is a symbol, sign, term, design or combination of all these to make the goods or service distinctive. It allows the consumer to distinguish the product among the crowd and allows the consumer to recommend, specify or reject. It is an easier way to communicate with the customers. Brands provide information of their users' taste, wealth and styles (The Economist, 1994).
Brand names brings the image of the product, distinguish it from competitor. Brandings add extra value to the product or services. This value arises by experienced gained from using the brand. It brings trust, confidence and pride in customers and familiarity belongingness with others who used the same brand. A brand is built on perception as well on its physical entity. A brand specifies the attributes attached with its name. The loyalty make a consumer repeatedly go and sought the same brand over another, although he has many option and thus brand makes a consumer loyal.
Marketer's goal used to be to attract new customer, but now focus has been shifted to company's existing customers. It is very important to convert one time buyer into regular loyal customer. Retention of customer has become a very important mission for the marketers as it can be shown that there are more expenses in attracting a new customer than to sell to a loyal customer.
As there has been mass introduction of product there was fight between products for the same niche at that time branding played a very important role and it evolved down the time. Companies invested lot of money and effort to develop a brand than later to keep its place and image. Its still a mystery that why and how different brand attract different consumers
Why someone will choose "Pepsi" over "coco-cola" or "Tesco" over "Sainsbury" But as the consumers are getting more and more brand aware as they are bombarded by different marketing mix strategy they have more choice and they take their own time to decide.
'Instead of trying to secure new business, marketers are focused on retaining existing clients and growing existing client relationships in order to minimize the impact of the weak economy on their business.' Perry added: 'Establishing a good relationship with target audiences and creating brand loyalty is essential in ensuring that your business remains buoyant despite the market conditions, and the results emphasize this.
Recent research done By Gyro International it was found that more and more marketer are investing in developing brand loyalty as they feel the credit crunch they feel consumer who are brand loyal will keep their business going. As per their survey it has been found that more and more marketer 51% confirmed that they are focusing on loyalty marketing and among these 38% said that they have significantly increased their investment for that purpose. (Gyro presee release)
What's Loyalty?
Fisher (1985) states "Marketers battling to keep competitors from grabbing off customers complain that there ...
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Recent research done By Gyro International it was found that more and more marketer are investing in developing brand loyalty as they feel the credit crunch they feel consumer who are brand loyal will keep their business going. As per their survey it has been found that more and more marketer 51% confirmed that they are focusing on loyalty marketing and among these 38% said that they have significantly increased their investment for that purpose. (Gyro presee release)
What's Loyalty?
Fisher (1985) states "Marketers battling to keep competitors from grabbing off customers complain that there just doesn't seem to be as much brand loyalty around as there used to be." .Jacoby and Chestnut (1978) implies that researcher have focused studies of brand loyalty on repetitive purchase of a brand but now time has come to check cognitive response and cognitive aspect of brand loyalty as one can predict the purchase behavior by a particular brand e.g. A bad impression of about certain brand will make him switch over to another brand. Customer loyalty has been focus of many marketing strategy Brand loyalty offers brings competitive advantages which can be realized with marketing (Dick and Basu, 1994). Brand loyalty has been measured in context with behavioral aspect i.e. repeat purchases of same brand. Fader and Schmittlein (1993) found in their research that that high share brands have higher loyalty than low share brands.
Figure 1 A dynamic model of customer loyalty
For their research they didn't consider cognitive aspects of brand loyalty. Bayus (1992) also measured brand loyalty by a probability of buying the same appliance brand as the one bought previously. Brand loyalty is not a just a one dimensional concept, but a very complex multi-dimensional concept. Wilkie (1994) defines brand loyalty as "a favorable attitude toward, and consistent purchase of, a particular brand". One thing is very clear from all above definition that Brand loyalty in context with Consumer behavior is not an easy thing to state in few words as behavior is based on perceptual ideas being recorded in subconscious. Today's consumer is very intelligent he has different medias to check on brands internet has made it easier for him to learn about different brands and what are they offering . He will be loyal when both attitude and behavior are favorable. Sometime brand loyalty is just superficial when his attitude is unfavorable. Price promotion can make a consumer switch brands (Bawa and Shoemaker, 1987; Rothschild and Gaidis, 1981; Winer, 1986).
Consumer becomes Loyal
Marketers spend loads to build brand image brand is build on quality, its position in market it can reposition according to need of consumer different communication mix is used to build an image. Brand brings credibility and trust in consumers
Why marketers invest in brand loyalty:
There are many reasons why a marketer should invest to build brand equity which n turns bring loyalty. A brand loyal customer is an asset, an investment which goes on giving returns. He reduces the further cost of marketer mix (Reichheld, 1996) It is always cheaper to keep existing customer than to attract new (Aaker, 1992). This can be explain by a simple example a bank invest a lot in selling a credit card but if a customer continue for the second year the investment of back is zero ( Reichheld, 1993), it can be seen as investment which saves a marketer cost (Jones, et.al 1995, Aaker, 1991, Arnold, 1992)
Loyalty brings market shares and increase marketing share and in turns brings more market returns (Buzzell et.al. 1975, Buzzell, Gale, B.T. 1987) Purchasing behavior is thought to be a habitual in nature and thus loyalty brings assertions in quality of brand( Solomon, 1994). So one can say that loyalty means repetitive purchase (Ehrenberg, 1988), commitment ( Hawks, 19950 and preferences (Guest, 1994)
Branding makes the task smooth and easier to differentiate product (Macr ae, 1996) Strong loyalty is seen in consumers especially in merchandise supermarket especially towards their favoured brand. But it can be seen that many campaign which require unique positioning lack substance long term impact an emotion of brand building activity( Doyle,1998) and it has been seen that branding for business to business is still less persuasive. Marketing mix is still based on Mc McCarthy's "4p" Product, promotion, pricing and place and they are still considered as main marketing tools and manipulated well by many marketer (Dibb and Simkin, 1997). It will be very interesting to study that what motivate consumer to certain product and make him loyal towards one product.
Loyalty For Big Brand and Small Brands
Building of brand does bring lot of benefits to the companies the most important are "trust" and " no risk" theory as Consumers think that being loyal to a particular brand is no risk as its tried and tested. It is the cosmetic industries which get affected a lot by brand image. Big brand bring lots of loyal customer. A person using L'Oreal hair colour will stick to it even though cost is high because consumers think it to contain quality ingredient and they remain loyal to it for a long time. Small brand in any product category faces two disadvantages against the big brands; one is frequencies of purchasing and then fewer buyers and lower purchase Mc Phee (1963), termed this as "double jeopardy". Consider two completely different case of two different consumers and both are extremely loyal (every time they buy the same brand) to two different brands, a small brand A and another buys a big and famous brand B Research (see, for example, Fazio et al., 1982; Fazio et al., 1983; Fazio et al., 1989) proved that "strength of the attitude-behavior relationship is tied to the frequency of activation of an attitude". Again marketing mix plays very important role small brands have less promotions and advertisements to attract the consumers while big brands spends more. Average customer of small brands buys less, and shops less often (Uncles et al., 1995; Ehrenberg, 1991), expresses a less favorable attitude (Ehrenberg, 1988; Barwise and Ehrenberg, 1987; Ehrenberg et al., 1990; Martin, 1973; Barwise and Ehrenberg, 1985), and manifests lower loyalty (McPhee, 1963; Ehrenberg et al., 1990; Dekimpe et al., 1997 than the average customer of big brands.
Brand loyalty a question in economic downturn
Brand loyalty runs deep, but it can't overcome economic realities. Loyalty is an attitude which makes a relationship of brand and consumer it's a strong "attitudinal commitment"which leads to strong loyalty (Day, 1969; Jacoby and Chestnut, 1978; Foxall and Goldsmith, 1994; Mellens et al., 1996; Reichheld, 1996).
What appear to be brand-loyal purchase may be just habit a low cost, indifference or the non availability of other brands( kotler, Marketing management , 11 Ed).many companies tries to increase customer loyalty by distributing discount card or loyalty cards( Retailer stores , Hotels). The question is whether it increases the loyalty. What if they get more discounts in some other place will they still be interested in the same and will prove their loyalty
As the economic plunging downward and people are panicking that when will it the bottom line, everyone wondering how to make ends meet? Housewives re-evaluating their budgets but "does that mean brand loyalty goes south when times get tough?" Brand loyalty is nothing but a psychological behavior and when it is mixed with complicated finance it tends to become more complicated and marketers are scratching their heads to find the clue which way will consumer will turn.
Maslow is famous for his theory based on need .he talked about five levels of need of need and it's famous as Maslow's Hierarchy (Maslow, 1995)
It's important to understand each need of an individual according to Maslow if basic need is understood and satisfy higher need of self fulfilment will arise. Physiological needs are basic needs required to survive e.g. food shelter, higher need of self esteem will not be felt unless this basic needs are satisfied. Now if we relate this with brand loyalty we can understand why a customer will attract to a brand, because he trusts, because he has tried. But what if it does not fulfil his basic need. In credit crunch whole community is suffering of shortage of money in this s scenario we cannot expect loyalty. With the falling money, inflation rising fuel prices, tumbling mortgages rate everyone looks for saving money. Sharyn et.al researched brand loyalty in service industries where 8 loyalty was measured in telecommunication industry, four in fuel industry and 3 in credit card industry, they found that customer will switch its loyalty if cost is increased by 5% (Sharyn et .al, 2001).Today's consumer have many choice he search for any deal under the sun if it's cheap enough because cost becomes the bottom line and not quality. Though I don't totally agree with 'quality' thing. Cause sometime quality means added value.
Any company when research to quote the price they adjust it according to location, customer and also the product. They adjust it according to "segmented pricing or differential pricing" (Strauss and Frost, 1999). It is not unusual to offer different prices for different age groups e.g. student discounts or senior citizens offer. As I said earlier cost in today's economic crises is playing a very important role shall I buy my groceries from 'Tesco' or 'Sainsbury'? I have seen people keeping loyalty cards of many stores and they use it according to what they are planning to buy. Loyalty for daily product does vary a lot. Even my neighborhood shop suddenly became important as they are cheap for daily vegetables and milk.
This loyalty shift is also seen in hospitality services. Different Hotels are offering different discounts and added room services. Same goes for Airlines.
Some hotels are also trying to market via online service and attracting more customers (Strauss et.al, 1999)
As I have tried to explain earlier that consumer shifts their loyalty not just for cost but for the value of the product they are purchasing. Sometime they don't mind taking out extra money if they are getting long term, or good value benefits.
One very interesting example which comes to my mind is the war between Mozilla Firefox and Microsoft's Internet Explorer. Mozilla was supported and marketed not by a PR firm or any experience marketers are volunteers not even employees. They linked 60,000 web sites with Mozilla's site to encouraged customers to download the browser and loyalty of people shifted from Microsoft Internet explorer to Mozilla's as they got more benefits and extra accessories with Mozilla (Jeffrey Gangemi, Business week, Aug 2006).
Lucy Neville-Rolfe executive director of corporate and legal affairs at Tesco, recently stated that customer have shifted their purchase from premium to value or economy
( Theeconomictimes.com 10 Sep, 2008, 0553 hrs IST). Mintel research shows that only 19% were ready to spend more for more expensive environmentally friendly product while 58% said that they will opt for cheaper product.
Many a good brand has gone down in this economic downturn era Woolworth is closing down soon and others are following. Harley-Davidson Inc. motorcycle sales have plummeted in one of the toughest times in decades several Harley analysts said the company's U.S motorcycle sales were down 15% to 25% in October and November from a year earlier. Unemployment and recession have kept people away from Harley showroom. According to one Harley dealership sales were down 35% from a year ago. Sales of expensive Cars and bikes have hurt a lot and stated by Mischler's Harley-Davidson and BMW motorcycle dealership in Beaver Dam.( Economic downturn hurts Harley-Davidson( Rick Barrett, 2008)
Personally when I went last week to buy a shampoo instead of buying the brand which I have been using I bought store-brand shampoo. I just checked the ingredient and they were almost same.
Many have changed their everyday purchases and are abandoning brand loyalty, due to continue financial pressure of rising cost of gasoline, food, and electricity prices. Over the past 24 months, consumer prices have risen 7.8% according to the U.S. Bureau of Labor Statistics.
Conclusion
I don't believe that brand loyalty gets built because your elder sister or mom wore the same brand of makeup or your dad wore the same brand of shoes, one become loyal because a particular brand offered something special to you may be trust, quality, good customer service. Regardless of rising price that should have some added value something which one will weigh before taking the decision to change your loyalty for a brand in lieu of something cheaper.
CEO of Sanani Coffee, Tariq Ausaf (sanani.com) says that that though present state of the economy is discouraging for consumers who occasionally loved to treat themselves to high end products, but he explain that his company is not just built on the class positioning, but on delivering a gourmet coffee on the basis of value and good customer service. According to him, this has been the main factor in customer brand loyalty to Sanani coffee in this economic downturn.
When there is insecurity and risk involve. When the economy tumbles, consumers tend to purchase products that make him feel secure. People remain brand loyal if quality and value is involve as they don't want to try a brand Y which may be less expensive but possibly may be less effective, less in quality or may have a poor customer service.
It will be very interesting to check the Customer Loyalty Engagement Index for 2008. Where famous brands can be seen topping the list Apple in computers and Estee lauder in cosmetics.
We can conclude that brand loyalty has gone strayed with economic downturn but some brand still enjoyed a good sale in 2008 in spite of economic downturn due to brand equity which they have developed down the year with quality and good customer service, strong referent power. Marketers and companies should follow the rule of quality and good marketing mix.
Ask yourself today" Have you been brand loyal during this economic downturn" and why?
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