Not all loyal consumers are equally profitable. While loyal consumers purchase more frequently and spread positive word of mouth, light consumers who are highly loyal to a single brand may not be as profitable as heavier spending consumers with less brand loyalty. Loyalty, defined as percentage of category spending on a brand, is best measured using household panel data that tracks consumer purchasing patterns over time. Such data from Pakistan is available from Foresight Research and can help brands identify truly profitable loyal consumers and determine if competition is gaining among their customer base. Maintaining high levels of loyal, heavy spending consumers appears to be key for brands to achieve strong, sustainable growth.

1. A question of loyalty:
Not all loyal consumers are profitable
Muhammad Zubair is CEO of Foresight Research (Pvt.) Ltd. He can be reached at
muhammad.zubair@foresight.com.pk
Land line: (+92-213) 4527302, 4527402 Ext. 100
Cell: (+92) 321-2007179
We all are fully aware with the importance of loyalty in building and growing brands.
Loyal consumers purchase your brand in larger quantity and more frequently. They
also spread positive word of mouth for you, and make purchases to your brands in
other product categories. They fight with the competition on your behalf (serves as a
strong barrier to entry and provides your brand security/guarantee), and for the
finance guys, they are the one who are willing to a pay a little extra for your brands.
If above are not enough to prove the importance of the loyal consumers, it is a well
established fact that it costs 7-10 times more to recruit a new customer than to keep
an existing one.
What is Brand Loyalty?
It is not surprising that there exists so many definitions of loyalty – naturally given its
importance; both academics and professionals have given it their attention. In
literature on consumer behavior, we find debates on attitudinal loyalty vs. behavioral
loyalty. However, marketers around the world have always been more interested in
behavioral loyalty – something that’s easily translates into dollar value.
We define loyalty in the context of FMCG as “the percentage of total category spend
which users of the brand allocate to the brand.” To explain this definition, let’s take
the hypothetical data of 5 households in table 1:
Table 1: household spending on skin cleansing by 5 households
Household # Lux Dettol Safeguard Total
1 2 1 2 5
2 - - 4 4
3 - 5 - 5
4 3 1 1 5
5 1 3 2 6
Total 6 10 9 25

2. So, household 1 spends total of 5 rupees on the category and she distributes them
between 3 brands (Lux: 2 rupees, Dettol: 1 rupee and Safeguard: 2 rupees). While
household 3 also spends 5 rupees on the category but spend it all on Dettol – this
difference is the basis of loyalty, i.e. how consumers allocate their spending on
different brands.
So, loyalty for Lux is: total spending on Lux * 100
total category spending by Lux users
= 6 * 100 = 37.5%,
16
(To arrive at total category spending by Lux users, add the total category
consumption by Lux users, i.e. total consumption of households’ number 1,4 & 5:
5+5+6 = 16).
Similarly loyalty for Dettol is: 47.6% and for Safeguard it remained 45%. So, Dettol
users were more loyal to it than both of Lux and Safeguard.
Globally this is called SOR (share of requirement). This looks into the household
purchase pattern to analyze if the household is using a single brand or multiple
brands at a time.
Typically, consumers start with a trial purchase of the brand and, after satisfaction,
tend to form habits and continue purchasing the same brand because the product is
safe and familiar.
Loyalty is not repeat purchase
Quite often marketers take repeat purchase as a synonym of loyalty. While all loyal
consumers are repeat purchasers, reverse is not true. Let’s take an example from
detergents category. A consumer could be buying a sachet of Ariel every month – so
she is a repeat purchaser of the brand. However, she uses it only for washing her
expensive clothes, while for her regular laundry she uses Bonus. So, every month
she spends about 10 rupees on Ariel while about 60 rupees on Bonus. Which brand
is she loyal to? Definitely not to Ariel!

3. Is loyalty (SOR) data for FMCG products available in Pakistan?
Foresight Research (Pvt.) Ltd. runs the only household panel in Pakistan. The panel
currently covers about 25 FMCG categories on the National Pakistan basis, i.e. both
urban and rural Pakistan are covered. It provides facts on household behavior like
penetration, loyalty, source of gain/loss, retained/lapsed users, etc.
Loyalty for all brands/ skus/ variants is available with Foresight for the 25 product
categories.
How loyalty (SOR) explains brand strength?
We looked at household panel data and compared the loyalty distribution of 3
detergents brand: Surf Excel, Ariel and Brite. The splits were 0-50, 51+%, where 0-
50 shows the percentage of buyers who allocate 0-50% of their category spending
on the analyzed product. These groups were labeled as; non-loyal and loyal buyers,
respectively.
Volume share of these brands as per Foresight household panel, are shown in chart
A below.
Chart A: Volume share trend: Foresight Household Panel
40.0
35.0 33.8
30.0
25.0 Surf Excel
20.0 Ariel
17.5
15.0 Brite
10.0 9.1
8.2 5.6
5.0 5.7 6.1 5.0 4.8
1.9 2.9 2.7
0.0
Oct 03 Oct 05 Oct 07 Oct 09
Over the period of 6 years, Surf Excel has increased its volume share 4 times
(33.8% up from 8.2% in October 2003), Brite has also increased its volume share
while Ariel had declined. (Market definition also includes loose/ unbranded and
home-kit powders). In below we analyze how loyalty has contributed in brand growth/
decline.

4. Table 2 below shows the distribution of brand users into loyal and non-loyal users.
For example, 56% of Ariel users were loyal to it in October 2003, while only 43%
remained loyal to the brand in the October 2009.
Table 2: Distribution of users into Loyal/ Non-loyal consumers
Ariel Brite SXL
Penetration %
Oct 03 Oct 09 Oct 03 Oct 09 Oct 03 Oct 09
Monthly penetration - % 14 7 13 17 19 52
% of:
Loyal 56 43 39 31 63 60
Non-Loyal 44 57 61 69 37 40
Table 3 shows the volume contribution to the brand from loyal and non-loyal
consumers. In October 2003, loyal consumers account for 75% of Ariel volume,
which shrunk to 65% in October 2009.
Table 3: Volume contribution from Loyal/ Non-loyal consumers
Ariel Brite SXL
Penetration %
Oct 03 Oct 09 Oct 03 Oct 09 Oct 03 Oct 09
% of brand volume from:
Loyal 75 65 26 61 81 80
Non-Loyal 25 35 74 39 19 20
Comparing tables 2 and 3, we can very easily comprehend the factors behind Surf
Excel phenomenal growth: while it increased its user base (from 19% to 52%: table
2), it maintained the proportion of loyal users in its repertoire and 4/5th of its volume
continues to come from such consumers.
Brite’s volume share had also increased - brand is increasingly dependent on its
loyal consumers (contribution of loyal users gas increased to 61% from 26%).
In case of Ariel, both the proportion of loyal users and their contribution in Arial
volume have declined – resulting in the share loss for the brand.

5. Is there a competition brand becoming a potential threat – SOR Matrix?
Few consumers use a single brand – even loyal consumers do flirt with other brands
occasionally. So, it is important to monitor what other products fill your consumer
shopping basket. This is also important, as loyalty for your brand may remain the
same over the period of time, a competition brand may become stronger in your
households. For instance, we produce Foresight Household Panel data for skin
cleansing category for the period of Q2’ 04 till Q2’ 05 in table 4 below.
Reading table 4: in quarter II ‘04, share of various brands in Lifebuoy households
were: Lifebuoy 45%, Lux 18%, Safeguard 6% share, etc.
Table 4: SOR matrix Lifebuoy (share of other brands in Lifebuoy-user households)
Qtr II 04 Qtr III 04 Qtr IV 04 Qtr I 05 Qtr II 05
Lifebuoy SOR - % 45 44 45 44 45
Share of other brands in Lifebuoy users households - %
Lux 18 17 18 18 15
Safeguard 6 8 10 11 15
Capri 3 3 3 3 3
Palmolive 2 3 2 2 2
Tibet 5 5 4 5 7
Dettol 1 2 2 3 4
SOR matrix above rings the early alarm for Lifebuoy: while its loyalty remained un-
changed, Safeguard is becoming very active among its users, at the moment it is
eating up other brands from the Lifebuoy repertoire – however, if the trend continues
it will start challenging Lifebuoy in its own households. This is what exactly happened
in later years. So, this kind of analysis actually warns you if you are heading to a
disaster.

6. Does all loyal consumers equally important?
Not necessarily all loyal consumers are important. There is a direct relationship
between heaviness of spend and number of brands purchased, i.e. heavy users of
the category will buy more number of brands than light users of the category. So, a
light category buyer is more likely to be the loyal user of the brand, but not
necessarily as profitable to the company as a heavy category buyer with relatively
lower loyalty towards brand.
So, while designing strategies to reward your loyal users – think to reward only
profitable loyal consumers.
Conclusion
Loyalty is how much you spend on the brand vis-à-vis total category; it is definitely
not the repeat purchase only. For FMCG categories, it is usually measured via SOR
which is derived from household panel data – this data is available in Pakistan from
Foresight Research (Pvt.) Ltd.