Packaged-Goods Brands Lose Loyalists in Recession

Brand loyalty appears to have taken a beating in the recession, at least in packaged goods. A study from Catalina Marketing and the CMO Council finds that for the average brand, more than half of consumers (52%) who were highly loyal to certain brands became markedly less so last year.

Churn of brand loyalists has long existed, but the recession appears to mean most brands didn't gain enough new loyalists last year to replace those they lost, said Todd Morris, senior VP of Catalina's Pointer Media Network. "We tend to think as marketers that once you get loyalty, it's carved in stone," Mr. Morris said. "This probably says it's written in sand."

For the purposes of the study, Catalina defined loyalists as those who made 70% or more of their category purchases from a brand.

Biggest winners and losers

Among the big losers of loyalists last year were P&G’s Crest toothpaste, ConAgra Foods' Hunt's canned tomatoes, Clorox Co.'s PineSol cleaners, and J&J's Tylenol, each of which lost more than a third of their highly loyal consumers, according to the study. The study did not indicate whether the brand switchers were migrating to private label or to rival marketers of similar brands.

Brands that fared better were Coca-Cola Classic, J.M. Smuckers' Folgers, and Thomas' English Muffins, a unit of George Weston Bakeries. Each kept more than 60% of their highly loyal consumers from 2007; Coke and Thomas' retained more than three-quarters.

Hunt's was an unusual case, because while it had lost loyalists, it gained even more new ones in 2008, making it one of only three among 12 brands in one portion of the study to increase its number of highly loyal buyers in 2008. The other two were General Mills' Cheerios and Domino Sugar. “Those brands were probably helped by the recession”, Mr. Morris said. “They benefited from more people eating or preparing meals at home.”

Well-supported brands fared better

In general, stronger, better-supported brands held loyalty better than others, for example in laundry, where Tide held onto its loyalists better than Cheer or Wisk, Mr. Morris said. Tide vastly outspends those brands on advertising. But, Mr. Morris said, "Tide is also on deal a lot more than Wisk or Cheer," allowing some of its loyalists to stay loyal even if they're more price-sensitive.

Brands that dominate their categories also tend to do better at holding loyalty, he said, pointing to Kraft's Philadelphia Cream Cheese and McCormick spices, which have relatively little competition from other national brands. "In those categories where there are many viable brands and reasonable substitutes, there's more churn."

Superpremium products also tended to do better, even in categories, such as margarine, seen by many as commodities. Premium and health-focused brands as Olivio, Smart Balance, Land O' Lakes and Brummel & Brown held 66% to 81% of their loyalists year to year. "In those categories where there are many viable brands and reasonable substitutes, there's more churn."

Cost is always high

The cost to brands from defections is high, as even Coke Classic, which held onto its loyalists better than most, saw revenue decline 6% due to the loyalists it did lose, according to the study. P&G's Cheer detergent saw revenue drop 19% from loss of loyalists. Sibling Tide fared far better, down only 5%, and Sun Products' Wisk lost 25% of its sales to the flight by loyalists in the study.

“Past academic research has found that consumers who traded down to store brands in past recessions tend not to come back to the major brands", said Eric Anderson, associate professor of marketing at the Kellogg School of Management at Northwestern, who reviewed the study. But Mr. Morris said the study found that even private labels have seen declines in loyalists, possibly because brands have stepped up price promotions.

Whatever brands do to counter loyalists defection, however, it should be "through non-price mechanisms," Mr. Anderson said, though brands are almost always tempted to use price promotion in hard times. Temporary price reductions are more likely to reduce loyalty and encourage brand switching long term than to combat it, he said.