CPG Customers- Loyal No Longer

Customer loyalty is about attracting the right customer, getting them to buy, buy often, buy in higher quantities and bring even more customers to your brand. However not all loyal customers are equal. Research by Catalina Marketing and Pointer Media Network showed that a surprisingly small number of loyal consumers – just 2.5% of shoppers for the average brand – make up 80% of brand sales. These frequent purchasing highly loyal customers are critical to the sales success of a product. The challenge for todays CPG marketers is that there is a large and increasing erosion of customer loyalty. A study by the CMO Council and Pointer Media Network found:

• Loyalty erosion and consumer defection are pervasive and costly problems for CPG brands, and their impact is increasing dramatically in the current economy.
• For the average brand in this study, 52% of highly loyal consumers in 2007 either reduced loyalty or completely defected from the brand in 2008.
• Only four out of ten brands retained 50% or more of their highly loyal consumers from year to year.
• For the average brand, approximately one-third of all highly loyal consumers in 2007 completely defected to another brand in the same category in 2008.
• The current economic downturn is having a significant impact on brand loyalty. Many leading brands experienced a drop in the total number of highly loyal consumers between 2007 and 2008.
• Loyalty and consumer churn have a huge impact on brand revenue and value. Some major brands could have increased overall revenues by more than 20% in 2008 if they had eliminated churn among high loyal consumers.
• Precision marketing strategies for engaging loyal and high volume brand buyers are now playing a major role in improving consumer loyalty and value.

The cause for loyalty erosion are varied. Many brand marketers and retailers place the majority of the cause on financial strains and economic worries which they believe are driving once loyal consumers away from their brands. These marketers and retailers note that coupon redemption rates, after several years of decline, are now increasing again, indicating consumers have become more cost and value conscious in the current economic downturn. Store brands are also contributing to erosion of loyalty among loyal private brand customers. Store brands prices as well as an improving perception of quality has lead to a steady migration of loyal customers from private brands to store brands.

A new and as yet un-studied factor is customer's exposure to a wider range of brands online. E-retailers, such as Amazon, stock a wider selection of brands in almost all CPG categories than can be found in a bricks and mortar store. These new brands market themselves with defection causing characteristics such as “organic”,“heart-healthy” or “family-size”. These smaller brands, can compete with major brands for page placement, most popular, best selling, and quality reviews. Coupled with convenient and often free home delivery, defection to these brands is just a mouse click away.

Customer churn is a large and growing challenge for todays leading CPG brands. Not only do they have to manager brick and mortar retailers but they need to get ahead of the loyalty challenges connected to e-retailers as well. With consumer's ability to get product ratings, price compare, and order products directly from their mobile phones maintaining loyal customers is changing as quickly as 4G networks can deliver data.