The starting point in understanding brand equity is the extent to which a brand enjoys customer loyalty. It is important to discriminate between habitual buying and brand loyalty. For example a customer who buys a product repeatedly may not necessarily be loyal to it. The customer may be buying because the competitor brands are not available or may be out of habit.
The real issue in brand loyalty is whether the customer is a committed one and the test is if he or she will walk up a mile to get it. If the customer goes to another shop to purchase a product, is indifferent to the brand and he sees the features, price, or convenience, there is little equity in the brand.
In todayâ€™s market where no brand can distinctively claim differentiation on features (as all use, by and large, the same technology and inputs).All brands are available in all the markets including the remotest one. In todayâ€™s raging price war the firms must be committed to its customer base by suitable reduction in prices or offering more quantity or free gifts along with the purchase of one of their products.
-A research was conducted on some premium products of an internationally reputed firm. It was found that most of their customers were not committed to the brand despite the fact; that the reputed firmâ€™s product was the only branded product. The research has shown that the customers made purchases even from small firms for the sake of lower price and market location.
How to Measure Brand Loyalty
There are different approaches for measuring brand loyalty. One is observational, i.e. considering actual buyer behavior and the other involves creating economic and psychological barriers to brand switching. To understand this better let us consider these approaches:
One of the methods here is to observe actual buying behavior as represented by the customersâ€™ repeat purchase, the percent of last few purchases and the number of brands purchased by an average target customer during the last few shopping cycles. Another approach isâ€?forced choice methodâ€?. Here the researchers make only a particular brand available at the selected retail outlet/s for a fixed period of time. Customersâ€™ buying behavior is monitored. For example, does the customer accept what is being offered or does he or she refuse and go to the next store to buy his or her preferred brand; what percent of customers do that; and when the freedom of choice is restored, do they revert to their earlier brand or stay with the â€œnewâ€? brand .Such studies are difficult and can be conducted only in a limited area and over a limited time. The only longitudinal studies are repeat purchases, brands bought and percent of purchases. Operation Researches Group (ORG), one of the better known marketing research agency in the country does retail store audits and maintain customers on its panels whose purchase preferences are regularly monitored and brand shares data collected. Many pharma firms and consumer product companies have used this data in their marketing planning exercises.
The problem with these observational approaches is that they are expensive and have a limited diagnostic utility. For example, why did the customer shift from Brand A to Brand B of a color TV? Was it that brand B was heavily promoted, or pushed by the dealer, or the customerâ€™s reference group had bought it. These questions remain unanswered in this approach.
Psychological and Economic barriers
The most important barrier is economic i.e. creating high switching cost. For example a firm may have bought an HCL Computer system and so may resist buying another brand due to reasons of incompatability which involve high switching costs. Likewise, a housewife may resist buying a food processor due to high investment cost.
The sociological barriers consist of customer satisfaction, customersâ€™ liking for the brand and commitment to buy the preferred brand. Customer satisfaction surveys which are carried out periodically have become a common tool. Most of the reputed companies are adopting this method to retain their market share and to keep their prices competitive.