Loyalty lives - it's just been reinvented | KPMG | PK

Loyalty lives - it's just been reinvented

Loyalty lives - it's just been reinvented

In an age when technologically empowered customers increasingly expect instant gratification, how do companies ensure their brands remain relevant?


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Do consumers care about your brand?

Brands are wasting time fighting for loyalty in a digital age where competition is fierce, unpredictable and plentiful. That’s the view of Roberto Meir, CEO of Brazilian media agency Grupo Padrão: “It’s dead. Brand loyalty is impossible. In an era of instant gratification, it’s about who gives me more now. It’s about rewarding me, rewarding my loyalty and trying to be a fair company.”

With consumers increasingly time-poor, deluged with information of varying veracity, and, through the magic of e-commerce, faced with a choice of goods that is almost stupefying, it is much harder for brands to cut through the clutter.

The rise of mass production in the 20th century forced companies to think about ways to differentiate their products. This was good for consumers too – it reassured them that if they bought a bottle of Coke, it was the real thing, that the quality and the taste would always be exactly the same.

Companies that did this well, invested heavily in quality, consistency and visibility, created iconic brands that became assets in their own right and delivered sustained profits decade after decade.

Mass communication – TV, radio and print – drove the globalization of brands, owned by companies that spent millions of dollars on ‘share of voice’ advertising. If the product broadly met expectations – remember all those detergents that promised to clean shirts ‘whiter than white’? – shoppers stuck with it.

That is a slightly simplified history but it is a useful reminder of how complex the relationship between consumers and brands has become. The dispute now, in essence, is about how much consumers genuinely care about brands. Some experts insist that for many consumers, their engagement with a brand begins and ends with remembering the name. Others argue that all a product needs to do is fulfil the practical need it was designed for. Yet many consumers – particularly Millennials and Generation Z – see brands as an extension of themselves and seek an authentic connection with them.

“Brand is no longer this mass-advertised statement about a product. It is much more about being able to build a connection with the individual customer in the way he or she wants,” says Matthew Hamory, Consumer & Retail Strategy Practice Lead and Principal at KPMG in the US. “Loyalty is now driven by the experience of and interaction with the brand, not just the product.”

Meir says: “Now that you must do business in the light of the day, naked, everything is much more difficult. In the good old days, the consumer didn’t participate in any kind of decision. Now they do. They follow everything. So, they want to participate, to be engaged. It’s not just about what you want. The brand belongs to the consumer.”

The challenge for brands is to develop compelling, persuasive stories to attract them. Damian Ferrar, Executive Creative Director of advertising agency Jack Morton Worldwide, says: “The consumer market continues to shift, shaped by the socio-political landscape. The significant recent shifts are driven by more audacious audiences. What I want, when I want it and where I want mindsets are augmenting the values people have historically focused on.”

Understanding those mindsets is not easy. The digital age has enabled brands to develop a relationship with consumers through channels that never existed before. If you are selling baby products, you can, through digital technology and big data, target parents of babies of a certain age and tailor your messages. Every message is relevant, there is no wastage and you have the statistics to quantify effectiveness.

The counterblast to this approach is that, to succeed in the long term, brands need to attract new customers, not just delight existing ones. Byron Sharp, Professor of Marketing Science and Director of the Ehrenberg-Bass Institute likens many ideas that are considered “sound marketing practice” to “Roman generals consulting pecking chickens”. Marketers who worry about the right digital channel – and whether it fits the brand’s personality – are missing the simplest of marketing skills, such as making the product visible on the shelf. “An industry feeds off this misplaced idea that if we just crack the code and convince people we are best for them, sales will come flooding in,” says Sharp. His research suggests that the ‘light buyers’ – who purchase a product or service once or twice a year – are more important to a brand’s long-term prosperity than loyalists.

Ferrar disagrees with elements of this analysis, saying: “Loyalty isn’t dead, but where our loyalties lie is shifting. It’s no longer about what a brand looks like, but how it makes you feel that’s important.”

A personalized experience

Customers require a different relationship with brands. Research by KPMG suggests that brands must go beyond offering purely economic rewards and develop a deeper understanding of their customers to deliver broader benefits. Loyalty programs enable businesses to break through the ‘noise’ to achieve differentiation – 60 percent of consumers said they would shop at a store with slightly higher prices to earn rewards for loyalty.

Brands that harness their customer data to deliver a personalized loyalty experience that is accessed across multiple channels, and offers customers clear opportunities to progress and redeem their rewards, will achieve what KPMG calls ‘smart loyalty’. Getting this right can pay off: repeat customers typically spend 33 percent more compared to new customers.

The old demographic divisions are blurring as digital natives dominate consumer markets. There are more 23-year-olds in the world now than any other age. Global subscription-video service Netflix no longer categorizes customers by age, gender or geography, creating 1,300 ‘taste communities’ based entirely on past viewing behavior.

Harley-Davidson used to target the middle-class but as household wages stagnated, began offering customers with no experience a chance to shift gears in store by fixing a Fat Boy to a dyno roller. UFC fans see Harley’s logo pasted onto the middle of the caged octagon every week. This blend of experiential and targeted marketing partly explains why they sold four times as many bikes to 18-34-year-olds as their closest competitor. Even so, this iconic brand has to keep finding ways to attract the next generation of riders.

So how can a brand stay relevant? “We’re living in the expectation economy where data and technology have redefined service and connectivity. If you simply meet expectations, you will become irrelevant. If you shape expectations you can transform the market, your businesses and the world around you,” says Ferrar.

“It’s easy for companies to mistake high market share for brand loyalty,” says Hamory. “They’re not the same thing. A lot of brands with very small market share have stratospherically high loyalty, because they target very particular segments.

“We ask companies to really honestly look in the mirror and think if your brand disappeared tomorrow, what would happen to your customers? Would they switch to something else, which implies you’re pretty replaceable or would there actually be a hole in the market to be addressed?”

Hamory believes brands have to think more broadly about the customer experience, and that begins with pinpointing when consumers are in exploration mode – browsing for ideas or in need of advice. This stage gives brands the chance to capture awareness and convert potential customers.

Hamory says that it is crucial not to neglect the post-purchase phase either, and simply assume that if a consumer has bought the prduct once, they’ll buy it again. “We see a lot of good innovation recently from direct to consumer start-ups making sure they engage with the customer after purchase, which tends to be through digital and social channels. That engagement is a powerful opportunity to keep people involved with you and be top of mind.”

Act innovatively

Brands that focus on delivering innovative ways of disrupting goods and services are flourishing. For example, Houzz, a platform connecting 40 million homeowners and home improvement professionals cleverly combines a social network with an online marketplace. Its success has prompted IKEA and the John Lewis Partnership to offer similar services.

Leveraging influencers is important too – people are more likely to trust people than brands. Chinese consumers rely heavily on social media and user-based content. Shanghai-based makeup retailer, Lily & Beauty, paid US$3.4m for a video advertisement created by Papi Jiang, a satirical video maker who has amassed a following of over 10 million. (To add context, a 30-second Super Bowl spot costs US$5m.)

People prefer to search the internet, listen to friends and family and read review sites before purchasing. Meir sees this as a trend brands must heed: “On social media, people can report any kind of news and those words grow much faster than something reliable and so, tomorrow you can report anything about a company because you saw something in real time on the internet. How will companies manage this kind of crisis?”

Research by US tech company Podium said that 93 percent of consumers admitted to checking online reviews. Most wouldn’t touch a business with less than 3.3 stars on their favorite review website.

“Many companies act as though they can control their message through social media but you need to be part of the conversation,” says Hamory. “You have to be authentic and when you make mistakes, you can’t just brush them under the rug in the way you could even 10 years ago. You need to participate in the conversation along with your customers.”

Authenticity is paramount for many consumers. Peter Freedman, Managing Director of The Consumer Goods Forum, says: “In a world where people have less time to engage with a multitude of brands, social media plays a big part in getting that message of authenticity across – word of mouth being arguably the strongest advocate of a product or service. These two-way interactions are an opportunity to represent the brand on a human level, show personality and give an insight into the lives of customers.”

Consumers want brands to be more accountable for the actions they take – in terms of their products and services, and their brand proposition, but also how they respond to wider socio-economic changes.

Greenpeace launched the Detox Catwalk 2020 in 2011 and asked fashion brands, retailers and suppliers to shun hazardous chemicals. Brands like H&M, Burberry and Nike signed up. The first Green Carpet Fashion Awards were launched earlier this year in Italy, organized by Livia Firth, with Gucci, Tom Ford and Giorgio Armani among the winners.

Big data can improve the consumer experience yet the volume of data can perplex brand owners. Customers are not dots on the screen. You need to understand what kind of relationship customers want with you – not what kind of relationship you create through hyper-targeting and data collection.

The emphasis on data mining can obscure the fact that, sometimes, it is better to look wider than deeper. Emmanuel Faber, CEO of food and beverage group Danone told the KPMG 2017 Top of Mind survey: “You get a lot of tactical information: that person is located there – which means I have a selling opportunity – but I’m not sure how much strategic information you get, in terms of consumers’ longer-term behavior that would dictate a significant shift in brand positioning. Food is about human science, so it’s vital to keep an eye on sociology, food styles and habits.”

Ensuring a brand’s relevance in the 21st century is tough. In the past five years, brands that once looked impregnable have lost significant market share. The question brand owners need to keep answering, Roberto Meir says, is: “How are you going to build something different with consumers and bring solutions that improve their daily lives?”

Also in this issue of ConsumerCurrents

  • The power of touch: Shoppers are more likely to purchase a product they've held in their hands
  • Metro: Metro CEO, Olaf Koch, on how local decision making drives the company forward
  • Connected homes: What do consumer companies need to know about the smart home revolution?
  • Deal or no deal?: How CEOs can ensure their M&A deals create value  B
  • Case Study: Japanese Konbini stores - how Japan revolutionized the convenience format
  • Lessons from other industries: When start-ups need to grow up

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