7 Rules of Marketing that Get Results

by Temel Aksoy

Viewing brand loyalty as a way people simplify their lives is a more realistic and sound approach to marketing. When marketers are rescued from the myth that people develop passionate relationships with brands, it paves the way for them to provide more beneficial services to companies they work for.

  47.  Lo

  yalty Programs Are a Marketing Myth

  Many companies implement loyalty programs by providing their customers with cards or tracking them via their cell phones. With the exception of those that market fast-moving consumer goods, almost all companies have customer relations management (CRM) and loyalty programs.

  What companies mostly expect from these programs—which require high initial investments and are expensive to operate—is growth fueled by higher sales to existing customers. Therefore, without using mass media channels, they propose that their own customers join these programs. Some points worth noting about these programs:

  As we know from our own lives, almost all of the loyalty programs that we agree to join are proposals from brands that we’re in the habit of purchasing already. We hardly ever use loyalty program cards given to us, sometimes forced on us, by brands that we aren’t in the habit of buying. This lack of interest by light users makes loyalty programs less effective than intended, and this represents a problem for growth because light purchasers constitute the vast majority of every brand’s base (details in chapter 43).

  What brands want most is for those who frequently purchase both their own and rivals’ brands to purchase their own brand even more. Unfortunately, because these buyers are the most experienced customers in the category, they take advantage of almost every brand’s loyalty program equally. Loyalty programs allow these customers to make even cheaper purchases from every brand. For this reason, loyalty programs don’t provide the benefit expected from this target group.

  The remaining users are those who purchase other brands less frequently but frequently use the brand in question. Because the brand provides better buying options for the product and services they’ll buy anyway, these users are happy to participate in loyalty programs. But this group of customers is the least wanted group to enroll because they’re already loyal customers. The program brings them a price advantage without a benefit to the company. (See Byron Sharp, How Brands Grow.)

  Most companies don’t realize that the effect of loyalty programs is negligible. This is because most companies don’t utilize objective metrics. Companies usually compare the expenditures of people who participate in the program against the expenditures of those who don’t. Without exception, every company finds that customers participating in the program spend more than those who don’t participate. However, this result is obviously misleading because these customers aren’t spending more because of their membership in the loyalty program. On the contrary, they joined the loyalty program because they already make heavy purchases. The fact that sales reports show higher spending by members of loyalty programs is already an expected result. As Edward Nevraumont says, the loyalty programs implemented by brands appear to generate positive results because of this “selection bias,” but most company executives are unaware that selection bias is the reason the numbers look so good.

  How can marketers measure the real effect of loyalty programs? An A/B test is a valid method. To do this, the company’s customer base should be randomly divided into two groups. One group (A) will be offered money-points, and the other group (B) will receive no special advantage. Both groups will then be tracked for a certain period of time to measure shopping volume. If, as a result of this test, we find that the revenues and profits achieved from group A are higher than those from group B, then we can conclude that the loyalty program is a success. Every company that conducts the A/B test on two samples of reasonable size before launching the loyalty program can predict whether or not the loyalty program they envision will be a success.

  In real life, rather than testing the loyalty program they’ve devised, most companies prefer to launch the program first and then report that those joining the program are spending more and that it’s having a positive effect on company sales. Consequently, they deceive themselves by concluding that they’ve devoted resources to the right area.

  An important justification given by companies that implement loyalty programs is that they’re responding to their competitors’ loyalty programs. Thus, in every category that introduces a loyalty program, all of the brands generally begin to imitate each other, and in the end all of the brands have similar programs. Today, it seems there are loyalty programs for every brand in nearly every category, especially supermarkets, clothing and airlines. Even if the companies who introduce these programs want to discontinue the practice, they’re unable to do so because of competitive pressure. As we see in the examples of airlines taking away free passenger perks, companies begin taking measures to alleviate the financial burden of these programs.

  Today, loyalty programs have turned into “defensive practices” companies use in response to competition. They are used so that the competition doesn’t get ahead of them. This practice is unhelpful. Loyalty programs don’t benefit the companies, and they have a negative effect on the profitability of the entire category.

  The biggest advantage of loyalty programs is the acquisition of customer information. This is undoubtedly invaluable, but companies can obtain this information without expending so many resources. (See Byron Sharp and Anne Sharp.)

  If loyalty programs aren’t the answer, perhaps it’s because marketers aren’t asking the right question. What brands should be asking is whether or not it’s possible to increase brand loyalty and, if so, how this can be achieved. According to the first law of marketing, the Double Jeopardy Law (details in chapter 26), the reason for the difference between large brands and small brands in all product and service categories is not the loyalty they achieve, but the number of customers (consumers) they have.

  However, the loyalty of every growing brand increases a little in accordance with the Double Jeopardy Law. Therefore, every brand that wants to generate more loyalty should first grow by acquiring new customers (consumers). As Byron Sharp and Anne Sharp point out in their research on loyalty programs, if a brand grows, the average loyalty will slightly increase, even though it won’t make quantum leaps. If a company grows its user base, loyalty will take care of itself.

  Thus, loyalty programs are a marketing myth and do not create loyalty; growth does.

  48.  Lo

  vemarks Are a Marketing Myth

  Most marketers and especially advertising agencies claim that people develop a passionate bond with certain brands, and they advocate that companies should implement strategies that will make people fall in love with their brands.

  In the early 2000s, Kevin Roberts (former Chairman of creative firm Saatchi & Saatchi) introduced the concept of “Lovemarks.” Roberts declared the beginning of the era of love brands: charismatic brands that people can’t do without. His claim is that the only way for companies to survive in today’s fiercely competitive market is to create brands that people are passionately devoted to. Roberts goes even further, saying that when an ordinary brand disappears, people will buy another brand, but that when a lovemark disappears, people will protest its disappearance.

  Before Roberts, branding expert Marc Gobé had drawn attention to the fact that brands possessed an emotional appeal; he posited that any brand that did not create an emotional bond with the consumer was doomed to disappear. As a result of the fervent advocacy of emotional branding, many brands have devoted a significant budget to advertising aimed at creating an emotive bond (like the “Subaru is love” campaign of the car maker Subaru) with their consumers (customers). “Passion marketing” was one of the most important ideas at one time, and it continues to influence the sector now.

  Obviously, emotions lead people to action. As in every other area of life, people’s buying decisions are driven by emotion. It�
�s true that whenever brands come in contact with consumers (customers), they must provide them with positive emotions and experiences.

  Emotions will always play a role in people’s relationship with brands, but insisting that people have a passionate connection with brands and want to have a love relationship with them is a myth brought to life by the marketing sector.

  In addition to “passion,” another word that comes up frequently in the marketing world today is “engagement”: an intense connection between people and a brand. However, the concept of engagement, which is considered so in vogue, is a situation rarely found in the real world. It applies only to a limited number of users for a small number of brands. Certain technology products and some hobby products certainly do have passionate consumers who can be described as “brand ambassadors,” but these people are a relatively small percentage of the brand’s users, and this unique situation can’t be generalized to include all brands or users.

  The brands that do generate significant loyalty among a small group of people are niche brands. Niche brands may create high loyalty, but none of them can grow, and for exactly the same reason: they can’t expand their user base. The concept of engagement, which describes an intense customer–brand relationship, might apply to a small group of users of these brands, but 80% of the users of all brands are first-time users or light users. Given that this is the typical distribution for every brand, any discussion of the concept of engagement is simply far-fetched.

  Marketers need to stop taking the easy route of borrowing a people-to-people relationship concept like love and applying it to people-to-brand relationships. Instead, they should think about more realistic avenues that will produce results. They should stop making invisible clothes for the emperor and instead focus their energy on making brands a part of people’s lives.

  The lovemarks concept has a special place among marketing myths. It’s so prevalent that it deserves the appellation “the king of myths.”

  BRAND LOYALTY

  49. 10

  0% Loyalty

  At first glance, the fact that a person is buying only one brand is a desirable sign of loyalty for that brand, but in fact this isn’t a realistic goal. As Ehrenberg put it in his article “What Brand Loyalty Can Tell Us”:

  In general there are relatively few 100% loyal or sole buyers of a brand, especially over any extended period of time. A typical and predictable finding for frequently bought grocery products is that in a week, 80% or 90% of buyers of a brand buy only that brand, that in half a year the proportion is down to 30%, and that in a year, only 10% of buyers are 100% loyal. To expect any substantial group or segment of consumers to be uniquely attracted to one particular selling proposition or advertising platform would therefore generally seem entirely beside the point.

  50. Lo

  yalty Pyramids Are a Marketing Myth

  According to traditional marketing authors like David Aaker and Philip Kotler, all brands should guide their buyers up the brand ladder by converting light buyers into regular buyers and ultimately regular buyers into brand advocates. If brands boost their number of loyal customers, they’ll experience a rise in both revenue and profit. David Aaker describes a brand’s user pyramid as follows:

  Traditional marketing argues that brands grow through loyal users, so almost all research companies do their calculations accordingly and make recommendations by referring to loyalty pyramid analyses of both their own brand and rival brands.

  Marketing executives make their to-do lists by looking at these analyses and then try to accomplish their objectives. After some time has passed, they repeat the same research and track their progress.

  But has progress actually occurred? According to Byron Sharp, user pyramid analysis is misleading for the following reasons:

  Executives who make decisions based on these pyramids believe the fallacy that 100% loyal users are more valuable and that the company should make them a higher priority. Yet most of the 100% loyal customers in repertoire markets are light users of the category. Light users are critical for every brand, but the reason they’re so important isn’t because of the revenues they generate individually, but because there are so many of them. It seems that the conception of loyalty, repeat buying and total revenue of traditional marketing is not well grounded.

  Traditional marketing defines brands with fewer loyal users as “weak” and those with more loyal users as “powerful.” This doesn’t reflect the reality; in fact, the number of loyal customers of a brand is a reflection of its size rather than its strength. For a brand to increase the number of loyal users, it must first grow. Brands with lots of users have a higher number of loyal customers (details in chapter 26 and 46). In practice, user pyramids show how large or small a brand is, not whether they’re strong or weak. But such an analysis is not necessary to obtain this information, because if the size of a brand relative to its competitors is known, so is the number of loyal users.

  If companies utilize this pyramid as an indicator and then measure their performance by conducting the research at regular intervals, the user pyramid structure will remain unchanged until the penetration ratio of the brand (number of users) changes. Most of the differences that occur between surveys will be differences that arise from sample distribution or other deviations intrinsic to the research.

  Executives who use this pyramid in decision-making don’t have a proper understanding of “brand recognition.” They think that those who know about the brand are people in whose minds the brand has gained a foothold, but this is a fallacy. Brands don’t leave a lasting impression in people’s minds when they advertise. On the contrary, the impression they leave is so weak it will soon evaporate. As a result, those who know or recognize a brand are not an audience that has been won over and no longer needs attention. Therefore, every brand must constantly refresh the brand memory present in people’s minds. When companies stop advertising, they begin to lose the brand memory they’ve created. Just because a person is aware of a brand’s presence doesn’t mean that the brand has gained a permanent place in their memory (details in chapter 69).

  Executives who make decisions based on this pyramid are duped into thinking that they must try to create more loyal customers from less loyal customers, when in fact it’s only possible to increase loyalty by increasing the total number of users, not with relationship management. The larger a brand’s user base is, the more users it will have at every level, which means that the number of loyal users at the very top will also be relatively greater. It’s impossible for any brand to increase the number of loyal users at the top of the pyramid without increasing its total number of users (details in chapter 26).

  Loyalty pyramid analysis essentially means that marketing directors are wasting their time on efforts that will yield no results. These ideas only lead them further away from the facts.

  There is no benefit to loyalty pyramid analysis. It is a marketing myth.

  51. NPS

  Is a Marketing Myth

  In addition to measuring customer loyalty, marketers and brand owners prioritize tracking customer satisfaction. There are some basic methods companies use to measure customer satisfaction:

  Tracking the positive and negative comments left by customers (consumers) directly on the company website or social media sites

  Conducting “satisfaction” surveys that ask users whether or not they’re satisfied with their experience and whether or not they would recommend the brand to their friends and acquaintances

  Measuring the performance of service employees by conducting mystery shopper research at sales points

  In such research companies measure not only their own performance, but also that of their competitors, in an effort to improve product and service features that score lower than the competition. Most companies set bonuses for sales and after-sales service employees based on the measurements obtained from the
aforementioned research.

  Today, the most popular method for measuring customer satisfaction in the business world is the Net Promoter Score (NPS) method advanced by Frederick Reichheld in the Harvard Business Review in 2003. Reichheld claimed that instead of conducting comprehensive customer satisfaction research, companies could simply ask their users whether or not they would recommend the product or service they purchased and score it with a number from 1 to 10. According to Reichheld, a score of 9 or 10 shows that a customer is very satisfied with the product or service they use and would recommend the brand in their circles; a score of 1 to 6 means they’re not at all satisfied and would criticize the brand; and a score of 7 to 8 means the user is undecided. Based on the calculation method Reichheld recommended, if the number of customers who gave a score of 9 or 10 is greater than those scoring the product from 1 to 6, then that brand’s word-of-mouth spread will be positive. Otherwise, the brand will have a negative word-of-mouth spread.

  Because NPS is a single-question survey format with scoring that’s easy to calculate, it quickly became the most widely used satisfaction measurement method in the world.

  After Reichheld made his claims, social scientists conducted numerous scientific studies to validate them. Research by Mohamed Zaki, Dalia Kandeil, Andy Neely and Janet R. McColl-Kennedy proved it’s impossible to measure customer satisfaction with a single question. The researchers explained that if you want to measure satisfaction, it’s necessary to conduct separate research at every point where customers come into contact with the brand and evaluate their experiences comprehensively.