I’ve written before about how silly loyalty ladders are. I’ve been asked, aren’t they harmless, just showing the heterogeneity within any brand’s customer base or market (from non buyers to highly loyals) ?
Here is what is wrong with loyalty (conversion) ladders:
The ratios of non-buyers, to light buyers, to medium, to heavy, are perfectly predictable (by the NBD-Dirichlet). So they are set. If a brand gains in share/sales, the ratios all move in a predictable way.
All loyalty ladders do is show these ratios – but they imply that you can change the ratios through particular strategies. This is wrong, they will only change if you increase or decrease in market share.
– Loyalty ladders imply that you should target particular levels of the ladder. This is wrong.
– Loyalty ladders imply that some brands are stronger or weaker – when really they are reporting brand size.
– Loyalty ladders are a waste of money spent on market research and reporting. Most of the tiny changes and differences they report are sampling (and other) error.
– Loyalty ladders imply that awareness is a “once off battle”, that once someone is aware they always notice, recognise, recall your brand – this is nonsense.
– Loyalty ladders imply that 100% loyals are a brand’s most valuable customers, whereas far more volume comes from heavy category buyers who buy a number of brands.
– AND REALLY IMPORTANTLY…..Loyalty ladders distract marketers from the real issue which is how to grow penetration (reach all sorts of category buyers).
I’ve read a bit about Ehrenberg’s double jeopardy. I understand that the ratios of heavy/medium/light buyers is predictable but but I get stuck with the direction of causation.
You say that “If a brand gains in share/sales, the ratios all move in a predictable way” but could it not be that if the ratios change the brands market share must move in a predictable way? Or for that matter that their is some other mechanism that causes both to move in a related manner?
if the ladder is the only measure of brand viability I agree with the argument. But if a brand is also measured on consumer commitment (loyalty to brand versus alternatives, etc) advocacy dimensions, the ladder might be useful. The additional cost for the ladder may negate any added value.
Jim, If attitudes (commitment) are included in the ladder it makes little difference because they largely reflect behavioural loyalty.
Anon, it’s not about causal direction, market share is made up of buying, the two just have to move together.
I agree that ladders are usually not very helpful. Only sometimes for diagnosis.
Concerning the value of a real commitment-measure compared to the NBD-Dirichlet check this:
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