Why loyalty doesn’t matter but brand rank does?

Almost every marketer worth their salt measures customer satisfaction and loyalty to their brand, believing it's the key to getting their customers to spend more with them over time.

Now a cutting edge research conducted by authors Keiningham, Aksoy, Buoy and Cooil and published in Harvard Business Review as recently as October 2011 blows this theory to bits.

What the research, a longitudinal study of 17,000 consumers across geographies suggests is that it isn’t satisfaction or loyalty that determines the share of business a company enjoys from a customer but perceived RANK of that brand in their mind relative to other brands in the category.

A great example is provided in the form of Project Impact, an exercise undertaken by Walmart in the US. Research apparently showed that customers didn’t like the unsightly stacks of pallets placed in the aisles. Armed with this intelligence, Walmart did what any marketer would – it removed them.

Unfortunately, while satisfaction scores rose, they also led to the company’s biggest sales decline in its history. The learning is this – satisfaction does not lead to traction – from a business or revenue - perspective.

Consumers see brands hierarchical
Like it or not, they rank them as 1, 2 or 3.

If a brand is ranked 1, it enjoys the maximum share of profit in the category. If it’s ranking slips, so do its profits.

What brands need to do as a result, is focus on RANK rather than satisfaction. I look at RANK as being a proxy variable for COMPETENCE. In other words, if you are seen as the best in your field (as I hope The Planning Agency is ), your brand will enjoy the lion’s share of revenues or profits in a category in time.

The Mathematical Equation
1 – rank/no. of brands + 1 X 2/ no of brands

If we consider banking in Singapore, we need to consider all the major brands in a customer’s consideration set. These might be DBS, OCBC, UOB, Stanchart and Citibank, The rank, relative to the other brands is what we need to input into the equation to arrive at the bank’s share of wallet. Once this is calculated, we can quantify the financial impact of a change in rank to the bank’s share of wallet.

In the cases studied, the researchers found a correlation of 0.9 (1 is a perfect score!) between brand rank and share of wallet (or business).

What’s significant about the Wallet Allocation Rule (WAR)
It turns existing thinking on customer satisfaction and loyalty on its head.

Satisfaction and loyalty alone will not drive incremental business. That’s because they are relative concepts. And only when their scores are viewed against competitors do they become meaningful in assessing business impact.

Do you measure customer satisfaction or loyalty?
What’s key is to measure this in relative terms and understand the rank your brand enjoys vis-à-vis the competition.

This, the most recent studies prove, is a much more accurate way to assess the share of business your brand is likely to enjoy compared to its competitors. 

 Patrick D’souza, CEO, The Planning Agency
The Planning Agency is a strategic marketing communications consultancy. Our belief – at the heart of every successful brand is an Idea. Our goal is to help our clients uncover this idea and impactfully bring it to life.