CPG brand loyalty under pressure from global recession

Posted by Daniel Palmer on 24th June 2009

The global recession has taken a toll on brand loyalty in the grocery sector, according to new research from the United States.

A study by Catalina Marketing’s Pointer Media Network and the Chief Marketing Officer (CMO) Council identified the purchasing patterns of over 34 million US shoppers purchasing patterns for two-years across 685 leading CPG brands and 24,000 retail stores and discovered a rise in brand defection. The milestone study, entitled Losing
Loyalty, The Consumer Defection Dilemma
, found one-third of the average CPG brand’s most loyal US consumers defected from the brand between 2007 and 2008, and many more reduced share of category spend with the brand.

For the average brand, only 48 per cent of highly loyal* consumers in 2007 remained highly loyal in 2008, and, alarmingly, 33 per cent of these highly loyal consumers completely stopped buying the brand even while they continued to make purchases in the same product category.

“CPG manufacturers are facing a formidable challenge to brand loyalty further inflamed by the economic downturn,” Todd Morris, Senior Vice President of Catalina Marketing, advised. “However, these findings also demonstrate that consumer defection and churn are persistent problems for brands, even during good economic times.”

Defection levels were high for most brands even in 2007-before the start of the current recession. A financial analysis of select leading brands demonstrated revenues could have increased between four and 25 per cent if highly loyal consumers in 2007 had not reduced loyalty or defected from the brand. The study also showed that the total number of highly loyal consumers declined for many major brands in 2008, not just because of churn and defection, but because brands were having greater difficulty winning new loyal brand buyers. This phenomenon has increased the impact of defection for the packaged goods industry.

“Building long-term customer loyalty is arguably the most pressing issue marketers are facing,” added Dave Murray, Executive VP of the CMO Council. “A lack of insight has previously challenged CPG companies ability to precisely connect with customers. However, as this study demonstrates, granular-level, predictive modeling advancements offer new opportunities for relevant and personalised consumer interactions.”

“CPG brand managers must take action to address the financial impact of loyalty erosion by identifying and engaging with today’s at-risk loyal consumers,” he concluded.

* Highly loyal consumers were defined as shoppers who made 70 per cent of their categorypurchases with a single brand during a 12-month period.