How most consumers are disloyal and most sales come from disloyal consumers.
Most consumers are disloyal
I have been in a number of conversations recently which have become a discussion on consumer loyalty to FMCG brands.
In these conversations I have referenced the Nielsen data provided by Professor John Dawes in ‘Predictable patterns in buyer behaviour and brand metrics: Implications for brand managers’ published in 2011.
In this research, Dawes shows the various levels of loyalty amongst Pantene’s consumers. For example:
- Almost 12,500 consumers bought Pantene once a year
- Around 4,000 consumers bought Pantene twice a year
- Around 1,500 consumers bought Pantene three times a year
And so on:
Two things are immediately clear:
- Many people buy the products infrequently (left hand side)
- Few people buy the products frequently (right hand side)
Or in a sentence, most consumers are disloyal to Pantene.
The same is, according to Dawes, true for Fructis products.
In fact the same is true of any brand in any category. Martin Weigel, Head of Planning at W+K Amsterdam, makes this point in his article, ‘The Participation Paradox: How To Survive It. How To Prosper From It’.
“Irrespective of the category, the shape of any brand’s buying frequencies is a skewed distribution with a long tail. That is, a large number of people buy you occasionally, and an increasingly smaller number of people buy you more often. First identified by Andrew Ehrenberg it’s known as a negative binomial distribution (NBD).”
Most sales come from disloyal consumers
During one of the conversations, I had a thought:
An individual, loyal consumer is worth more than an individual, disloyal consumer.
Taking this idea a stage further:
A consumer who buys a brand twice a year is worth twice as much (in terms of sales value) as a consumer who buys once a year. Although the group of consumers who buy Pantene twice a year is much smaller, the group’s members are twice as valuable.
It struck me that the same set of data could garner a second set of insights.
By understanding how many people bought Pantene at different frequencies, we can work out how many units were sold:
- If Pantene was bought once a year by 12,500 people then we know that this group of consumers accounted for 12,500 units sold in that year.
- If it was bought twice a year by 4000 people then the units sold would be 8000.
- If it was bought three times a year by 1500 people then the units sold would be 4500.
Plotting this data into a new graph would depict the value (in sales) of each loyalty group.
In the updated graph, Pantene looked like this:
The graph’s decline may be shallower than the first, but it is a constant decline none the less.
- Most consumers are disloyal.
- Consumers with higher loyalty are individually worth more to the brand than consumers with low loyalty.
- The sheer size of the low loyalty groups means they hold most of the sales value despite being individually less valuable.