Why Are Big Brands Losing Customers?

Leaving Customer

Today Pointer Media Network released their study: “Losing Loyalty: The Consumer Defection Dilemma.” It shows many large well-known brands have lost a lot of loyal customers in the last year. According to the report, less than half (48%)of customers considered highly loyal remained highly loyal   from 2007 to 2008, for the brands included in this study. The rest either reduced loyalty or defected entirely.  In the same period, only 4 out of ten brands in the study retained 50% or more of their highly loyal customers.

And it gets worse.

Pointer Media Network also found that, for many brands, a tiny fraction of the customer base accounts for much of the revenue. The report states: “…just 2.5% of shoppers for the average brand make up 80% of brand sales.”

You don’t need a Harvard MBA to realize how this might impact the financial performance of a brand. If 2.5% of your customers produce 80% of your revenue then you’re on a slippery slope if your brand loyalty starts to drop. It won’t take many of these highly loyal customers (what Pointer Media Network calls Pivotal Point Consumers) to hammer your revenue.

So, why is this happening to big brands? While there are many possible answers, one that comes to mind flows directly from what I call the Customer Loyalty Formula. This formula works like this:

Customer Loyalty = Connection * Value  * Experience

(Or CL=C*V*E for short.)

In this formula, “connection” means, as a customer, how connected you are with the brand? Can you easily and conveniently communicate with people who represent the brand?

Value” means your perception of what the brand offers you in the context of what you want and expect. Are you getting what you want or more? Do you feel the brand offers you the best combination of features and benefits for the price?

Finally, “experience” here means how have you experienced this brand? Have you been treated well by the people involved? Do you have a positive emotional feeling associated with the brand?

This formula tells us where many big brands have failed in this recession.  They have failed to redefine their “V”.

The recession is causing us to spend our money more wisely. We put more thought into our buying choices. And we demand more than we did a few years ago. We want to get more for our money. Our buying preferences and values have changed. Our value perception has changed. The hurdles have been set higher.

For a brand to keep our loyalty it has to change with us. It needs to show us it offers more value than before.

But brands can also increase the “C” and “E” to increase loyalty.

Consumers may be focusing more on the “V” right now but they will still respond to the other factors. By engaging their customers more and communicating with them better, brands can increase loyalty. By showing consumers they are creating products they want, they can build the trust needed to increase loyalty.

This recession will not last forever. And even though our value-conscious ways might carry on well beyond the recession, we will still respond to brands that reach out to us and that offer us a positive experience.

If you want to position your brand or your business to thrive in the coming years, engage your customers, connect with them and offer them a great experience. This, plus giving them more than they expect, should ensure customer loyalty for a long time.