US brands are not losing their loyal customers – even more misleading metrics

Oops they did it again. Catalina Marketing have announced that packaged goods brands in the US have lost about half of their loyalty customers – AGAIN. Oh no how horrific. It’s a wonder they have any customers left. It’s a wonder that major brands aren’t tumbling out of the market. Sell your shares in Kraft, P&G, Unilever, Coke….

Of course it is complete nonsense. There is nothing wrong with the data, just faulty analysis.

This is the 2nd time Catalina Marketing have made this mistake. They are misinterpreting the natural wobble in people’s purchasing histories as real change in their loyalties.

Marketing scientists have know about this wobble for decades, it can actually be quantified using the NBD-Dirichlet. But Catalina in ignorance instead report that brands have lost nearly half their loyal customers. Oh no the sky is falling!!! Nice headline but it is wrong, plain wrong.

A few years ago when they reported this they said it was an unusual event, due to the GFC. Now having noticed it happens each year they say it is just a terrible indictment on marketing.

All of this is wrong, because this would still happen even in perfectly stationary conditions where no brands are growing or declining, and no consumers are changing their propensity to buy the category nor their loyalties to the particular brands in the category.

Let me explain. Each of us has a tendency to buy from the category, some of us are heavy category buyers and most of us are light. On top of this we each have our own particular loyalties so we buy some brands more often than others. These two mixed distributions mean that there is a lot of diversity between consumers of any product category. Diversity which is modelled extremely well by the Dirichlet.

On top of this we don’t buy like robots. I might have a tendency to buy chocolate bars 5 times a year, and have loyalties so that I buy Snickers 30% of the time, so that’s once or twice a year. But some years I’ll buy chocolate bars more than 5 times a year, and some years less – for thousands of random potential reasons. Plus some years I’ll give Snickers more than 30% of my purchasing and some years less.

So even if I don’t make any changes to my tastes, habits and loyalties I could buy zero Snickers in a year or 5+.

If we classify people into “loyals” or “heavies”, or whatever, based on what they do in one year then a lot of people are going to be misclassified. They aren’t really super-loyals it’s just that in that year they were – perhaps they had a party, some friends visited…a thousand potential reasons. Next year they are likely to revert to closer to their normal purchasing. It looks like they have changed when they haven’t. This is behind the phenomenon statisticians call regression to the mean. Catalina Marketing don’t seem to have learnt their basic statistics.

Catalina categorised someone as loyal if they gave 70% of their purchasing to the brand. If they didn’t in the next year they said they were lost. This means it is largely an analysis of lighter category buyers, as heavier buyers are less to give one brand such weight. So it’s people who bought the brand once out of one category purchase, 2 out of 2, 3 out of 3, or 3 out of 4, or 4 out of 5. So buying the brand just once less, or buying the category just once more means you get classed as lost, defected, no longer loyal. That’s why they get such a high figures as 50% being ‘lost’.

So It’s all an illusion. I explained this back in 2009. Sad that I have to say it again. I’ll repeat what I said then: Catalina Marketing sell targeted marketing services based on using this loyalty program data – which is a bit odd because this fluctuation seriously undermines the capacity to target consumers based on their past buying.

Byron

Professor of Marketing Science

Director, Ehrenberg-Bass Institute

University of South Australia

See the official website for the book “How Brands Grow”
http://marketinglawsofgrowth.com/

Advertisements

Please comment on this article if you wish

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s