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Beware all premium brands!


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Received wisdom has always suggested that strong brands will withstand a recession. The argument goes that in a recession there is a flight to safety and strong brands represent safety.

An interesting study carried out amongst consumers in the US suggests exactly the opposite. A half of all the people who had previously been loyal to a brand appear to have reduced their loyalty or defected during 2008. They are switching to the value brands offered by major supermarkets.

This raises the question, “will the same thing happen in business to business markets?”.

There is a possibility that it will not – at least not in quite the same way. Supermarket brands have now become some of the most trusted in their own right.  For a number of years there has been a general migration to supermarket brands as people have recognised that the products in the supermarket packaging are quite probably made by the same companies that make premium brand products that cost 30% more.

Things are slightly different in industrial markets. The closest you get to the “supermarket brand” in industrial markets is usually referred to as a generic brand, a Chinese brand, an Eastern European brand etc. In fact, the word “reputation” is used just as often as brand.

However, it would be foolish and naive to think that business to business buyers and specifiers are slavishly buying products from their favoured suppliers at any price, without looking around. In the heady days before the recession it was not untypical to research a market and find that only 20% of companies were “price buyers”.  Today it would be unusual to find less than 30% price buyers in any business to business market. The shift to value is occurring everywhere.

Brands left to ponder price of loyalty

By Andrew Edgecliffe-Johnson in New York
Published: June 22 2009 03:00

Big brands’ best customers have been defecting in droves since the beginning of the US recession, according to a study. By this year, more than half of a typical US brand’s most loyal shoppers in 2007 had switched to rival products.

A two-year analysis of 685 grocery and pharmacy-stocked brands, using data from 32m consumers’ supermarket loyalty cards, found that in 2008 the average brand lost a third of its formerly highly loyal customers.

The study will alarm packaged goods groups, as the most loyal customers – those choosing one brand for more than 70 per cent of their purchases in a category – should also be their most lucrative.

"Defection is top of mind for brand managers now because they’re the most profitable customers," said Eric Anderson, associate professor of marketing at Kellogg School of Management, Northwestern University.

"Price and promotion have become so salient at retail, that what we thought was the loyal customer can be moved with discounts," he added.

Past recessions have seen similar defections from top-tier national brands to stores’ private-label goods, Mr Anderson said. Academic research showed that customers could be quickly persuaded to switch by a cheaper price but took far longer to switch back.

The study was conducted by the CMO Council, which represents chief marketing officers, and Catalina Marketing’s Pointer Media Network, which has equipment in 25,000 stores analysing buying behaviour.

Catalina can provide a two-year anonymous purchasing history on individual customers. Brand managers and retailers who had seen the data had been startled by it, said Todd Morris, senior vice-president at Catalina.

"They’ve always known there was churn but could never put their finger on how big the issue is."

The study comes as marketers are leaning more heavily on research and on targeted advertising, as they seek to improve on the "spray and pray" approach of mass media marketing formats, such as 30-second television advertisements.

The Financial Times Limited 2009


This entry was posted on Tuesday, June 23rd, 2009 at 8:31 am and is filed under B2B Marketing, Branding, Business To Business, Customer Retention, Economic Downturn, Value. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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