Brand loyalty means that customers trust the brand which filters to the products produced by the brand or distributed under the brand name. Brand loyalty is derived from customer satisfaction and brand consistency which results in the all-important trust. Loyalty results in repeat purchases however a customer repeat purchasing does not necessarily mean that that customer is loyal. High switching-costs are often associated with loyalty however if customers don’t have a choice then this also does not necessarily mean that they are loyal to a brand.
Let’s compare two technology companies to decide whether their customers are loyal; Microsoft has market dominance as they have raised the switching costs for customers; customers repeat purchase from Microsoft because it is often too difficult to switch. Microsoft customers are therefore not generally loyal. Apple however have a very loyal customer base; their customers are willing to spend more on Apple products even when products may be more expensive or offer limited functionality.
Consistency of brand positioning is very important in building brand loyalty; Band & Olufsen (B&O), for example have a loyal customer base and all their products are consistent in their target market and aesthetics; their hi-fis, televisions and other products are all simple in design, high quality and easy to use.
Brands and Pricing
Low price does not result in loyalty and, in fact, brand loyalty enables companies to attain a higher price for their products than competitors. Michael Porter, the Harvard professor, highlighted the dangers of competing on price in his book Competitive Strategy. Are people loyal to Target, Kmart or other low cost retailers i.e. if they charged more than their competitors would people still shop there? Most likely not.
Here in Australia for example the Mitsubishi Outlander is also sold with minor amendments as the Peugeot 4007. The Peugeot sells at a premium price to the Mitsubishi because consumers generally perceive the Peugeot brand as superior and Peugeot have a loyal customer base. Another two car brands with very loyal customer bases are BMW and Honda.
Loyalty is often Misunderstood
Coca Cola introduced New Coke in the 1980’s and faced a customer backlash (even although extensive taste-tests showed an overwhelming preference for the taste of new Coke). Coca Cola stood for consistency and by changing the taste alienated a bond of trust between customers and the brand. Only then did the Coca Cola Company realise that loyalty was stronger than just product features.
Coca Cola is not the first company to misunderstand why customers are loyal to their brand.
Trust and Loyalty
Trust is significantly important in building loyalty; for example many hospitals provide free essentials to new parents. The companies that provide the free nappies/diapers etc. for distribution are creating an association for the new parents between health and their brand (this is generally a positive association). The new parents often become loyal to the brands of the ‘freebies’ as the belief is ‘if the experts use this brand then it must be good’ (for free nappies go to Drynites, Babylove and Huggies or for U.K. residents).
Protecting a Brand Image
Disney has great brand value built upon the perception of ‘wholesomeness’ and being ‘child friendly’. People pay more for Disney products as they trust that Disney has the interests of kids in mind. If Disney were to start an adult entertainment division this would reposition the brand in the mind of the consumer and Disney would suffer significant loss of brand loyalty. Protecting the image of the brand is essential to the value of brands as Burberry experienced a few years back when their clothing became the ‘uniform’ of football hooligans in England.
A brand image is often destroyed through brand dilution. For example, in the 1980’s Pierre Cardin licensed the use of the name to over 800 products (even toilet seat covers). The value of the Pierre Cardin brand was diluted as a result of this shift from exclusive clothing to all sorts of associated products (even in the 1970s the Cardin brand was lent to all sorts of products such as the MC Javelin AMX Pierre Cardin Edition interior).
Brand loyalty is of extreme value to organizations and leads to increased demand and higher profits. Brand loyalty needs to be protected however as brand dilution and loss of consumer trust may quickly eliminate loyalty.