LONDON: There is a popular school of thought that regards brand penetration as the main factor in brand growth, but a leading researcher says loyalty is more important.
Writing in Admap, Oliver Hupp, Global Director Brand Strategy & Tracking with GfK's global brand and customer experience team, takes issue with Professor Byron Sharp's thesis that increased penetration and more occasional buyers are central to brand growth and argues that loyalty is the key driver.
"Expanding your customer base and finding ways to increase your revenues from existing consumers is, undoubtedly, a good venture for any marketer," he allows, but argues – citing evidence from two studies – that "these endeavours are only part of the whole story".
For example, a 2015 GfK analysis of more than 100 leading consumer packaged goods (CPG) brands in Germany found that brands with a higher penetration also enjoyed stronger (value-based) market shares and loyalty.
It was also the case that brands with a higher penetration enjoyed better scores on some attitudinal brand measures.
But, "market share and loyalty do not always correlate with brand penetration", Hupp notes. "There are brands with a relatively low penetration that enjoy higher market share and loyalty than brands with a conversely higher penetration."
In a complex environment where many factors can affect a brand's top-line performance, "the emotional quality of the relationships that a brand has with its customers is every bit as important (and arguably more so) as the number of relationships it holds", he says.
Evidence for that assertion comes from GfK's analysis of a longitudinal study of 2,217 German CPG brands and their performance over two consecutive years.
This showed that under half (45%) of the overall brand growth was explained by an increase in penetration (i.e. new customer acquisitions).
There is "ample evidence to show that brand success requires more than a one-size-fits-all approach to brand strategies that focuses on volume at the expense of the quality of customer relationships," Hupp states.
"Only brands that successfully build a higher number of positive emotional relationships with consumers will enjoy higher penetration and loyalty in the long run."
Data sourced from Admap