Marketers have always known that acquiring new customers was significantly more expensive than retaining an existing one. Research has shown that it can be 5-25 times more expensive. At the same time, CPG marketers know that even their most loyal consumers buy other brands within their categories. A metric called share of requirements captures the percentage of sales a brand captures among buyers in a certain category. According to a study by Catalina, on average only 48% of high loyal consumers (those who had a share of requirements of 70%+ for 12 months) remained loyal year over year.
Why? The reason lies in several factors: high purchase frequency, low consideration, and promotion/trade practices. Lets explore each one for a second. High purchase frequency means consumers have the opportunity to make a choice over and over. Low consideration means that consumers don’t spend a lot of time thinking about the choice (a sales display or a sale price may be enough to sway them) while at the same time the repercussions of a bad choice (i.e. not liking the product) are low – they will just switch back next time. Finally, promotion/trade practices are best at driving buy rate and brand switching, but don’t provide incentive for consumers to stick with the brand for the long run.
How have successful brands over come these limitations and driven high loyalty? By owning the consumer relationship and incentivizing repeat purchase. Currently, CPGs have tried 3 different models:
- Direct to Consumer Subscriptions: Dollar Shave Club, My Muesli (in Europe) are examples of scaled executions, but there are thousands of smaller offerings. The pros are loyalty, while the cons are scale (how many consumers are interested), cost (operations & shipping).
- Traditional Loyalty Programs: L’Oreal’s Worth It Rewards, General Mills’ Box Tops for Education, Kellogg’s Family Rewards are a few of the examples. Again, the pros are loyalty, while the cons are changing consumer behavior (getting them to clip a box top, enter a code, or scan a receipt).
- Subscribe and Save: Programs like Amazon’s subscribe and save have provided new opportunities to drive loyalty. The pros are similar, while the cons are the brand not owning the consumer relationship (and data), the required change in behavior (managing subscriptions outside their regular shopping basket) and the cost.
With the rise of grocery eCommerce, we believe there is an opportunity for a 4th model – an offering where consumers can buy from the store of their choice (leveraging the efficiencies of the existing channels), not have to change their behavior (no clipping or scanning), while brands can own the consumer relationship, data, and learnings. We will explore how in future articles.
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