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August | 2014 | Lockwood Research
1989 – 2014: 25-YEARS IN MARKET RESEARCH. The Cost of Brand Loyalty

August 1989

 

I think I’ve known it all along. I’m a “Brand Believer,” according to a Life Style study conducted by advertising agency DDB Needham Worldwide and reported in Quirk’s August 1989 article, “Brand names offer emotional and psychological benefits”. The Life Style study was a mail panel survey of a nationally representative sample of 2000 women and 2000 men, in separate households. Using questions regarding attitudes towards brand loyalty, a profile of the “Brand Believer” segment emerged.  What resonated with me was the study findings that suggested, “for Brand Believers, brand names satisfy nostalgic longings by evoking pleasant memories associated with past product usage.” You betchya, that is me. I had recently experienced those nostalgic brand feelings on a visit to my hometown. I felt this strange sense of pride as I passed the Best Buy headquarters, knowing I have been a loyal customer ever since they set up shop next to my old junior high school. Later, driving past Dairy Queen’s headquarters, I smiled knowing that I am still a loyal DQ customer, five decades strong. The other brand that I am nostalgic about is Target. I grew up with store number eleven – out of what is now a chain of 1,916 stores (as of May, 2014). I guess it’s not surprising that shopping brings back feelings of nostalgia; only one row of houses and a field separated me from Southdale Center, the oldest indoor, multi-store shopping center in the US.

 

 

August 2014

 

My brand loyalty can’t be bought; however, I am a member of several brand loyalty programs. According to The 2014 Loyalty Report US Edition, a fourth edition report produced by Bond Brand Loyalty, “Loyalty today is not (just) the program, rather it’s the relationship and the sentiment elicited by the brand. It’s time for brands to look beyond points to establish deep, meaningful relationships, even bonds, with their customers in ways that are engaging, emotionally rich, and brand aligned.”

 

Key take-aways from the 2014 Loyalty Report is that 63% of brands have a higher percent of customers who love the brand than who love the program. So, I’m not alone. The study showed that for Target and Best Buy, the percent of customers who love the brand is higher among members of the program. And, that the most loyal customers are more likely to enroll in the brand loyalty program, and the program is fostering brand loyalty among enrolled customers. However, this is not the case for all brands studied. The study found that for Amazon, Safeway, Regal Theaters and others, “the opposite is true: the percent of non-Members who love the brand is higher than the percent of Members who love the brand.”

 

This brings up the question, “Can a program actually damage a strong brand?” One case in point is Amazon who is struggling right now with their Amazon Prime brand loyalty program. The customer loyalty program introduced in 2005 was a new approach. Rather than offering a free program, Amazon introduced a new concept to appeal to repeat customers by charging an annual fee of $79 to get free two-day shipping with no minimum order size. According to the article, Amazon Prime, the future of customer loyalty programs, “by 2009, Amazon Prime had 2 million members, according to some estimates. That number tripled to 6 million members by 2010.” According to one analyst, the service will have 10 million subscribers by year-end 2014. The success of the program has had an adverse affect on Amazon’s bottom line. According to the Wall Street Journal article, “Amazon ‘Primes’ pump for loyalty”, the company is willing to lose hundreds of millions of dollars a year on the program because Prime drives business. Piper Jaffray Senior Research Analyst, Gene Munster told the Journal he thinks “Amazon spends more than $90 a year for each Prime customer, even though it charged just $79 annually. They’re going deeper (with Prime) on the thesis that if they can make (customers) more loyal, they can make more profit, even if they have to subsidize.”

 

According to a recent article, “Why the Prime program’s success is driving Amazon’s growth”, Amazon hiked its Prime membership fees from $79 to $99 in March for the first time since its launch nine years ago, and added new services like a digital book and digital video-lending service. The article cites, “The main reasons for the price increase was the higher shipping costs to deliver products to customers and exclusive subscriptions for some popular TV shows and movies.” Despite the price hike, Amazon reported more Prime subscribers in 2Q14 compared to the same quarter last year. That number is expected to get another boost when Amazon begins shipping the Kindle Fire with a free 30-day trial of Prime. Even though Prime members are shown to spend two to four times more than non-Prime members, according to a Consumer Intelligence Research Partners survey mentioned in the article, the hugely successful program is causing delivery problems. According to a recent article, “Amazon has a Prime number problem”, Amazon is now offering a $1 credit toward an Amazon Instant Video for Prime members willing to wait five to seven days to receive their shipment instead of the typical two. The article also mentioned that Amazon reported a loss for its second quarter of $126 million. Since the 2014 Loyalty Report indicates non-members are in love with the brand more than members, it will be interesting to see what Amazon will do to stop this erosion of brand love among members.  And, at what cost.