Study: Only 3 Shopping Categories Now Loyalty-Driven
March 13, 2017 | Contributed by: Joe Morsello
Expert marketers understand the importance of engaging existing customers in order to encourage consumer loyalty. This is true for brands and SMBs alike and one study says that 70% of revenue for SMBs comes from loyal (repeat) customers. However, this trend may be on the decline.
A new McKinsey study exploring the company’s Consumer Decision Journey (CDJ) database of 125,000 consumers, found that of the 30 business categories researched, only three were loyalty-driven. The rest were driven by “shopping around” with no particular brand in mind.
As the chart above shows, loyalty varies by business category, but only mobile carriers, auto insurance and investments are loyalty-driven. Shoes, cosmetics and personal computers are primarily driven by “shopping around.”
Of the 87% of consumers that fell into the “shopping around” category, only 13% were loyal to the last brand they purchased and 29% were called “vulnerable repurchasers” who ended up buying from the same brand but shopped around and considered other brands at least briefly. More compelling still, 58% were tempted away from the brand.
The study actually found that the consumer journey begins and ends in the same place as it relates to the brands being considered. According to the study:
Brands in the initial consideration set were more than two times as likely to be purchased as were brands considered only later in the decision journey…Overall, 69 percent of the brands purchased by consumers who switched brands were part of their initial consideration set when they started shopping.
Multiple studies in the past have shown that consumers are more loyal to local/small businesses. According to one study, 55% percent of consumers that shop at local retailers do so primarily to support the community. However, this doesn’t mean consumers are loyal to specific stores or retailers, but rather to the community as a whole.
While the study is looking at name brands, the behavior is interesting for businesses of all sizes. It suggests that being the first considered brand can pay off. The impulse or “trigger” to make a purchase is quickly followed by consideration and I would argue that “high-performing” marketers sometimes act as the trigger, kick-starting the purchase journey.
The study provided three tactical pieces of advice for businesses that want to succeed given this new view of the consumer journey:
- Resegment the consumers you don’t target: Loyalty-based marketing focuses on a narrow selection of your audience, but by growing consideration among new audiences you can reach a more diverse and wider set of consumer segments.
- Rebalance marketing budgets, giving more weight to what counts most: Deemphasize lower returning marketing investments, many of which may ignore initial consideration, and spend more to encourage it.
- Build a pipeline of innovative product, service, and brand news: While news must of course be relevant, it can range from announcements about new products or features to messages that position products creatively to new types of consumers who don’t have the brand in their consideration set.
This isn’t to say loyalty is dead. This is simply to say that the “loyalty loop” of the consumer journey is more like a sidewalk than a broad highway. Still, the entire journey needs to be researched and understood by businesses big and small in order to understand whether to focus on loyalty or generating new business and audience.