Loyalty’s New One Percenters

Throw out everything you’ve ever learned about what makes a consumer loyal to a brand.

Consumers, over the last 10 years, have turned loyalty on its head.

And they’ve done it in ways so subtle that it was almost imperceptible as this loyalty evolution was taking shape.

It wasn’t the coveted Gen Z’ers, millennials or even the Bridge Millennials who drove this shift.

Rather, this loyalty redux is age- and generation-independent, income-independent and geography- independent.

In other words, it’s the result of how all consumers are buying and sticking with just about every retail purchase they make.

This shift also wasn’t influenced by the de facto coupon, promo code, discount loyalty program triumvirate long revered as retail gospel and enshrined on the pages of loyalty playbooks.

In fact, these loyal consumers pay, on average, 3 to 4 percent more for the products they love and are consolidating even more of their product purchasing power on those brands than before.

And those brands?

They aren’t the uber-mega-superstar brands with national acclaim, the ones that come with big TV ad budgets and category leadership that typically defined how loyalty was measured — in market and audience share.

Instead, consumers are pledging their loyalty to those long tail brands that enough shoppers like enough to make and keep as their “go-to.”

Today, consumers like finding and buying new products, even if they’re more expensive than the product they’re replacing.

Now that’s loyalty.

That is, until these consumers discover the next new product that suits them more.

The Riches in the Niches

These are some of the findings of a new piece of research, published in May of this year by Professors Brent Neiman and Joseph Vavra at the University of Chicago Booth School.

Neiman and Vavra studied Nielsen receipt data from 160,000 households and 700 million transactions for the decade between 2004 and 2015.

Their analysis revealed that consumers are loyal all right, but not to the usual suspects. The long tail of retail products is what increasingly drives brand preference and loyalty — without regard to price.

As in, consumers — all of them — will pay more and do to buy those products: 3 to 4 percent more, on average.

Neiman and Vavra also found that consumer loyalty can’t be bribed.

Contrary to popular belief and pervasive best practices, Neiman and Vavra discovered that this new flavor of brand loyalty isn’t influenced by sales or coupons to incent trial across 91 of the 107 product categories they examined over that 10-year period.

That would be just about all of them, including many categories once regarded as fungible “commodities.” In price-sensitive categories like soda, butter and laundry supplies, Neiman and Vavra reported that household spending on those product categories, specifically, increased by 6 percent.

Consumers, they found, don’t appear to be as price-sensitive as once thought and don’t mind paying more to get what they believe best meets their needs.

Neiman’s and Vavra’s research also suggests that all consumers are as diverse in their brand loyalty as they are in just about every other aspect of their lives. Sure, it’s always been that way — what’s in one person’s shopping cart differs widely from what’s in someone else’s.

What’s different is the diversity of those items across all of those shoppers.

Consumers may still only buy more or less the same 150 to 250 grocery items in any given year, but those baskets today are curated from a selection that is nearly five times larger than those same stores carried on their store shelves just 20 years ago.

In a world in which this level of consumer and product diversity reigns, mega brand status at a national level isn’t required for success — and certainly isn’t a precursor for tapping the consumer’s loyalty vein.

The riches for consumers, brands and the retailers who’ve introduced them to those brands are in the brand niches. Provided those niches have enough loyal consumers who keep buying.

It’s probably one of the reasons why grocery shoppers at Walmart can choose to pay $22.99 for a pound of Kerrygold Irish butter from grass-fed cows ($4.99 plus $18.00 in shipping) from or pay $5.64 for a pound of Land O’Lakes at a Walmart store. Recognizing those different strokes for (enough) different folks is why Kerrygold butter remains an option on Walmart’s virtual shelves.

To meet the needs of loyalty’s new one percenters.

Rolling with Loyalty’s New Punches

What appeals to loyalty’s one percenters is the opportunity to find innovative new brands that add value or remove a friction, regardless of whose name is on the package, whether that consumer has ever heard of that brand before or whether it costs a little more to buy than what’s occupying that space currently in that consumer’s pantry, closet, living room, bathroom or kitchen.

Retailers are where these consumers go to find these new products. That makes product discovery coupled with product innovation retail’s new playbook.

It’s why savvy online retailers have an edge — those with marketplaces that give long tail sellers an opportunity to be discovered and find those loyalty one percenters. It’s where technology, machine learning and artificial intelligence (AI) are used to find buying patterns and inform purchasing and pricing decisions — almost in real time.

Discovery and product innovation is why many vertical marketplaces are becoming lifestyle ecosystems that help consumers discover things to buy in context. Houzz isn’t only a place to find inspiring ideas for the home but to discover new products and related services in a context that makes it easy to buy — and all from one gigantic marketplace in which inventory is replenished daily.

Farfetch, which will soon go public with a reported $6 billion market cap, is a marketplace of products from designer boutiques all over the world. The site aggregates that product inventory and makes it searchable. Sales are no longer limited to the tourists in that city or the residents who live in that town but to loyalty’s many one percenters who will stumble upon a new brand to buy and buy more from later.

Diversity, discovery and product innovation is where savvy brands are focused too.

Coca-Cola isn’t just about Coke and Diet Coke anymore. Coca-Cola today is a company of 350 brands and 5,000 products. It’s one that, after nearly 17 straight quarters of declining carbonated beverage sales, beat analyst’s expectations last quarter.

Coca-Cola may be a smaller company than rival Pepsi, which also produces salty snacks in addition to beverages, but it’s one with higher operating margins (27 percent to Pepsi’s 16 percent) and roughly the same projected annual growth rate (7.23 percent to Pepsi’s 7.54 percent) on the basis, analysts say, of price increases and operational efficiencies.

Enough of loyalty’s one percenters are buying enough of those 350 brands to drive their top- and bottom-line growth.

It’s why some traditional brick-and-mortar retailers are quickly rewriting their own consumer loyalty playbooks to reflect this shift and becoming platforms for new designers and capsule collections of limited inventory to create urgency and exclusivity.

At full price, but not necessarily at haute couture price points.

It’s the concept that Target and H&M popularized years ago when they introduced limited edition designer brands in their stores — cranked up a few decibels. Barney’s introduced The Drop earlier this year and Nordstrom introduced The Space — both efforts to entice a brand-loyal, not discount-driven, consumer into their storefronts.

All of this should be good news for retailers who dream of brand-loyal customers who are price-insensitive.

And for all of the innovators who want to be that next new product with which consumers will fall in love.

The question that remains unanswered is what happens once these loyalty one percenters find their new go-to brands.

Will they remain loyal to the retailer who helped make the match?

Or will savvy brands use technology, new business models and payments flows to cut out the retailer middleman and deal direct?

Or will new middlemen emerge, like Alexa and Google Assistant, to help consumers discover the brands in entirely new ways that reduce the importance of the more traditional retail discovery channels?

What Neiman and Vavra’s research concludes is that once consumers find a brand they love, they’ll stick with it.

Of course, the flip side of this is that when consumers find a new go-to brand, it means they dumped another. So that means the competition to come is with another niche product that can steal their love.

And that’s what’s driving competition among manufacturers.

And finding those niche products that enough consumers love is what’s making the difference between retail success and failure — regardless of where those retailers play.

Viva la difference!


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