Churn Takes Almost Half of CPG Brands’ Most Loyal Buyers: Study
A study of shopper behavior by Catalina Marketing finds that the average CPG brand saw 46% of its most loyal shoppers fall away in the last year.
Catalina’s “2011 Mid-year Performance Review” tracked sales and individual consumer buying at the 21,000 U.S. grocery, drug and mass-merchant stores in the Catalina Network, using data on the purchase behaviors of some 90 million U.S. households. The study, the agency’s first of its kind, looks at revenue changes and buyer loyalty changes among the top 100 CPG brand names over the course of a year, from July 2010 through July 2011.
The average Top 100 brand saw a 46% decline in the customer segment Catalina defines as “high loyals”—described as customers who make at least 70% of their category purchases from a single brand name over the course of a year. In other words, almost half of the customers who were highly loyal for 52 weeks leading to July 2010 fell back from that level of brand commitment in the year leading to July 2011.
Of those “high loyal” defectors, most—26% of the high-loyal total — simply reduced their loyalty by purchasing rival products more than one third of the time. But another 20% left their former favorite brand completely for a competing product.
The study also attempted to quantify the opportunity cost representing by those once-loyal departees. Catalina found that those same top 100 brands were able to grow revenues 2.2% between July 2010 and July 2011. While former loyalists were to some degree replaced by new advocates, that level of erosion represents lost revenue potential for those brands, Todd Morris, Catalina Marketing’s executive vice president of brand development, said.
“We know from previous research that the high loyals who make up one out of every 40 shoppers for the average CPG brand represent 80% of that brand’s volume,” Morris said. “That 2.2% average revenue gain would actually have been larger by 8.5 percentage points if those brands had been able to keep those high-loyals from falling off. That constitutes lost revenue of about $25.8 million per brand.”
“These Top 100 brands could have grown four times faster if they’d done just one thing: retain their loyal customers,” he said. “CPG brand marketers are all looking for the edge that will let them make an impact. This data suggests that the edge that matters most is deeply connecting to your most loyal customers.”
Among those Top 100 brands in the Catalina study, 43 declined in revenue in the year ending in July 2011, for an average drop of $23.6 million. Fifty-seven brands increased sales during that period by an average $23.3 million.
The study also found that the fastest-growing brands tended to retain more of their loyal customers, while those falling the farthest in revenue over the year studied also tended to shed more loyal customers than the average. The five biggest revenue gainers in the study managed to keep churn among their high loyals to an average level equivalent to only 6% of their sales. On the other hand, the five largest revenue losers saw an average loyalty churn that amounted to 11.1% of their revenue for the period.
On the category level too, product groups that beat the 2.2% average revenue increase for the year also tended to keep the churn among their high loyals below the 46% average. For example top brands in the beverage category saw a 65% average sales increase from July 2010 to July 2011, and only a 37% defection of high loyals. Shelf stable goods, produce and dairy also paired larger than average sales increases with smaller than average loyalty churn.
On the other hand, leading brands in the alcohol, frozen-food and bakery categories saw sales growth below that 2.2% annual average and also saw higher rates of loyalty erosion.
The CPG space is less accustomed than other marketing segments to focus on consumer loyalty simply because of a lack of aggregated buying data, Morris said. “Are CPG over-the-counter marketers wired to understand churn and lifetime value as marketers in other industries such as telecom, banking, finance and cable? Because they have exact purchase histories, marketers in those segments have their fingers on the pulse of consumer movements and a deeper understanding of their lifetime value. This [study] is a call to action for CPG marketers to put consumer lifetime value at the forefront.”
One early insight for CPG marketers from the Catalina 2011 Performance Review is how fragile consumer loyalty can be in their field. Of that average 46% who reduced their high loyalty to a brand, the largest portion—one in 3 defectors–did so after trying a rival brand only once.
St. Petersburg FL-based Catalina Marketing offers solutions that let brands and retailers deliver shopper rewards both in stores and out of them, including the CouponNetwork online couponing platform.v