Brand Loyalty Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Brand loyalty is defined as a consumer behavior whereby the consumer prefers to continually purchase the same product over time rather than purchase competing products. This behavior usually occurs when the customer believes the brand he or she is purchasing offers a better product or experience than those offered by competitors. This belief then becomes the basis for future purchases. Brand loyalty is usually attributed to a single product, rather than to the organization; hence, a customer’s loyalty to a brand does not automatically imply loyalty to the company’s other products.

There are three main reasons why brand loyalty is important: Brand loyalty usually decreases the cost of goods sold (through higher volumes), it allows companies to employ premium pricing, and it increases chances that consumers will recommend the product other consumers. In recent years, retail stores have introduced private labels with great success, but these products are counter-intuitive to the theory of brand loyalty. Whereas brands tend to cultivate image over price, private labels often cultivate the image of homogeneous products that offer lower prices with the same level of comfort.

Development

Most customers make their purchases through a trial-and-error process. If, after a few repeated purchases of the same product, they are convinced that the experience, quality, and features were overwhelmingly better than the products offered by competitors, they will tend to form a purchasing habit where they will favor the product. This happens because to the consumer, the purchase has become safe and familiar and few consumers want to constantly reexamine recurring purchasing decisions (especially for low value goods). Instead, they choose to stick with the brands that have delivered good results if the product stays within what are perceived as acceptable norms.

Generally, some products are more likely to elicit brand loyalty than others. For example, quickly consumed goods (which imply repeated purchases) are more likely to generate brand loyalty, while other products (such as durable goods) are less likely to do so. Also, brand loyalty is not restricted to physical products, and can occur with online products and other services.

For some researchers, brand loyalty is akin to consumer inertia because the consumer is quite content with his or her current purchasing habit and does not want to explore other product offerings. Others believe that brand loyalty occurs because there is limited competition in the current market structure, existing competing products are sufficiently different that they will not answer current needs, and because customers feel “trapped” with their current purchases.

Nonetheless, building brand loyalty usually requires more effort than just relying on consumer inertia or restrictive market conditions. Companies that want to build brand loyalty must be able to convince customers that there is an advantage in continuing to purchase the product by deploying adequate marketing and sales efforts. Furthermore, a company will try to leverage that customer loyalty onto other company products, or use customer loyalty to spread the advantages of its products by word of mouth.

Importance

There are three main reasons why brand loyalty is important. First, brand loyalty usually decreases the cost of goods sold. Companies that have brand-loyal customers find that they can dedicate less resources and effort to marketing to brand-loyal customers, as they are more likely to look for their brand by themselves when making a purchase (rather than purchasing the first product they find). Brand-loyal consumers are also less likely to be convinced to change brands by a competitor’s marketing effort. Finally, brand loyalty generates a higher sales volume due to higher retention of existing customers. The combination of these three factors usually translates into lower costs on a “per unit” basis.

Second, brand loyalty allows companies to employ premium pricing when selling their wares. Studies have shown that brand-loyal customers are more likely to accept a higher price in light of the higher quality they believe they will get, and are less likely to discriminate because of different costs. They are also less likely to purchase products that are on sale due to the perception of a “unique” premium attribute that competing products do not possess, and are less affected by the phenomenon of private labels as a viable purchasing alternative.

Finally, companies that have a loyal consumer base find that there is an increased chance that current consumers will recommend their favorite brand to other customers. They are far more likely to spread the word to other customers and convince them of the advantages of the product. Because a personal recommendation generates important volumes of sales, it is a desirable effect of brand loyalty.

Decline

The rapid rise of private labels has been pointed to as a prime example of the decline of brand loyalty, because consumers are most likely to purchase cheaper products rather than purchasing their favorite product. In many countries, private labels now account for 20–25 percent of retail sales. Also, studies demonstrate that customers who are satisfied with their brand are less likely to convert into repeat customers than they were just a few years ago.

Some companies have tried to attenuate this decline by increasing line extension, whereas different products (or improvements of an existing product) are sold to customers under the same brand. This strategy has met with mixed results, as customers do not always transfer their loyalty from one product to the next, even if there is an obvious relationship between the old and the new product. In many cases, line extensions disrupt existing purchasing habits and reopen the purchasing decision process.

Bibliography:

Hsiu-Yuan Tsao and Li-Wei Chen, “Exploring Brand Loyalty from the Perspective of Brand Switching Costs,” International Journal of Management (September 2005);
Miguel Villas-Boas, “Consumer Learning, Brand Loyalty, and Competition,” Marketing Science (Winter 2004);
Mary Werner and Richard Murphy, “On-line Business: Is There Loyalty?” The Business Review (December 2007).

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