CPG Brands: Is Customer Loyalty Dead, or ‘Just Restin’?

CPG Brands: Is Customer Loyalty Dead, or ‘Just Restin’?

CPG Brands

How has the pandemic changed consumer-buying behavior, purchase drivers, and brand loyalty?

One of the more quoted studies, by McKinsey, talks about an observation that 75% of U.S. consumers switched brands or stores during the pandemic; 60% of these consumers plan on incorporating those new patterns into their future buying habits post-Covid. The quick math on those numbers shows a 45% shift of loyalty over the long term.

Clearly, the pandemic has caused consumers to reconsider their brand loyalties. But data-driven marketers might ask, “How much brand-switching was caused by supply and distribution issues, not customer preferences?”

It’s hard to be loyal to a preferred brand when every store is out of stock. But even if supply issues drove a large share of the brand switching over the past 14 months, some consumers will still prefer the new brands and change their preferences permanently.

If we take a look at the situation before the pandemic, consumer fickleness was already evident in the marketplace. The lack of brand loyalty among millennials became an overused trope; they were accused of “killing” everything from mayonnaise to beer.

Within the consumer packaged goods (CPG) industry, brand loyalty can be an extremely elusive goal. The cost to consumers to try a new brand or a product in a new category is low. Additionally, demand drivers have shifted over the past decade to product attributes and characteristics such as sustainability, non-GMO, locally sourced, etc.

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How Can CPG Companies Keep Up with Shifting Customer Trends?

CPGs have been under tremendous pressure to innovate and address these new consumer needs. In some cases, the shifts in demand drivers have been quite profound. For example, in the area of sustainability, a Capgemini study found that sustainability concerns are now influencing behavior for 53% of all consumers. Sustainability is even more important to Gen Z; 57% in the 18-24 age group have switched to brands because they were sustainable.

To stay relevant, CPG brands need to focus their new product research and development strategies on these trending demand drivers. Consumers are expecting more from CPG brands. Unfortunately, much of the “innovation” in the marketplace has been limited to packaging changes or variety/flavor extensions. Most true innovation (defined as a new product or a new formulation) has come from emerging brands and start-ups rather than established big brands. The lack of innovation provides an opportunity for new brands to steal market share as well as grow the overall category. McKinsey found that leading brands have contributed only 25% of the growth in their respective categories; 45% has come from small and medium brands and 30% from private labels.

Customers Evaluate the Whole Brand Experience Before They Become Fans

In addition, consumer expectations go beyond the attributes of the product—they extend to the behavior of the brand. The same Capgemini study found that 79% of consumers are changing their purchase preferences based on a brand’s social responsibility, inclusiveness, or environmental impact. Back in the early 2000s, P&G defined the two “moments of truth” that are critical to drive consumer-purchase and repeat-purchase behavior.

These two moments of truth were foundational for brand building a decade ago, but so much has changed. Digital interactions are pervasive—the consumer is “always on.” Engagement and interactions have evolved so there are few singular moments of truth per se; rather, there is a constant requirement of truth.

As a result, consumers expect an authentic brand experience with every interaction. The experience needs to connect with consumers’ belief systems and align with their emotions and attitudes about issues such as inclusiveness, diversity, and climate change.

So what can we conclude from these observations and their impact on loyalty?

  1. Pandemic-induced supply chain disruptions—coupled with limited access to traditional retail channels—forced consumers to change their purchase behaviors and brand loyalties.
  2. New demand drivers are influencing the brand selections and loyalties of consumers, especially Gen Z and millennials. These new demand drivers require an increased focus on innovation and consumer needs.
  3. Consumers want the products and brands they buy to reflect their beliefs and values.

So I would say loyalty isn’t dead; nor has it declined. But the drivers of loyalty have changed, and CPGs that aren’t building and managing their brands based on these new dynamics are losing share and revenue to the brands that are. From that perspective, for those brands, customer loyalty really is as dead as Polly in Monty Python’s famous dead-parrot sketch.

The question then becomes how to proactively manage your brands to succeed in this new and volatile environment—we will take a look at that next week in our blog, “I’m not dead yet!”

For more on the CPG industry, subscribe to CPG Bytes and watch David’s 2021 predictions.

David McCarty
David McCarty
David McCarty has over 30 years of experience in the CPG industry. He consults with CPG and retail clients to develop and implement strategic, digital transformation initiatives. David’s areas of focus include marketing, trade promotion, ecommerce, new product innovation, and supply chain. His passion and motivation are driven by helping his clients leverage innovative technology to drive profitable growth.
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