Companies Creating "Loyal" Customers with Low Prices

For the company, a customer loyalty program strives to retain existing customers and increase the profits they bring with repeat purchases. The customer wants to save money by purchasing from the same company over and over again.

At least that is the primary and growing customer motivation according to a 2007 research study conducted by Forrester Research.

In the report entitled “Building Lasting Customer Loyalty,” Lisa Bradner writes:

“Fifty percent of consumers say that price is more important to them than brand. Retail customers asked to cite why they are loyal to their chosen retailer put price ahead of all other metrics.”

The research indicates that this customer behavior means that they endorse private label products across many categories because they are cheaper than national brands. National brands must work harder to build sufficient trust to counter this movement.

In other words, brands no longer automatically own quality. Product parity reinforces the customer’s attention away from quality concerns to price.

If you’re like me, you have noticed continuing improvement in private label products putting further pressure on brands in virtually all product lines.

My interpretation of this Forrester report: customers sign up for loyalty programs primarily for lower prices.   

So for those companies wanting loyal customers, understand that these customers are trained or naturally inclined to want a share of the profits you get from them for themselves. In the end, the plan requires that both the customer and the company win. The prize? Why money, of course.

But are these truly loyal customers?

We know that competing on price alone has no future. Or does it? Does this mean the eventual death of the brand? What advice do you have for companies as they face this new, sophisticated buyer? How can a company differentiate itself in the face of this reality? How do companies engender true loyalty instead of focusing primarily on price? Is that even possible in today's market place?   

Posted on December 26, 2007 and filed under Branding, Database Marketing.