Out of the Box

Loyalty vs. the Numbers: A Challenging Dilemma

By Menachem Lubinsky on July 17 2007

A popular radio station that had for years targeted the baby boomer generation suddenly switched to a format that is more fitting for younger listeners. The station had simply calculated that the numbers favored the younger set and that they would do best to change their format. Two years and millions of dollars in losses later, the station reverted back to its old format.

A well-known lady’s handbag store in Manhattan followed a similar path, when it suddenly announced that it was now carrying less expensive fashionable bags for younger women rather than the exclusive brands that were preferred by the many rich and famous that had patronized the store. A year later, the store announced that it was returning to its old line of expensive bags.

Many businesses are often faced with the dilemma of whom to target, which includes age, wealth and other demographics. The savvy business executive will look at the numbers, calculating where the best potential lies. A local store selling surgical supplies would want to determine just how many elderly live in the vicinity of the store. But as I have seen in many instances, the numbers do not always tell the real story, which is precisely what happened to the radio station and the handbag store.

A fundamental objective of marketing is to achieve brand loyalty. Businesses spend significant parts of their budgets to secure brand loyal customers. They will even go to great lengths to assure that the loyalty transcends generations. Department stores today are assigning special personnel to act as personal shoppers with repeat customers to assure that they remain loyal to the store. The less they shop around and the more they rely on the store for their purchases, the more money there is to be made from a narrower base of customers, which is key to the principle of loyalty vs. the numbers.

The radio station, for example, may have done the math correctly, but they missed the nuances of the audience that they were targeting as opposed to the baby boomers that they already had. The younger set, it turned out, do not commit to one or even two radio stations. With the many choices that technology offers them, they could not be expected to replace the loyal baby boomers that took ownership in the station and developed an affinity that is hard to replace.

Two years later, the station learned that replacing a loyal base is a colossal mistake that can cost a company millions. That raises yet another question that marketers often grapple with. If a brand loyal audience is of a certain age, how do you replenish losses due to natural attrition? The answer lies in tweaking the image somewhat periodically to assure that the loyal base grows and that it includes younger consumers. It is important to preserve the identity and concept that is of value to the loyal base, but at the same time to make some slight modifications to attract the next generation of loyal consumers.

Striking the right balance is a tricky but necessary exercise. Many businesses fail precisely because they do not at some point refresh and renew their image so that they appear to be making strides along with the other forces of progress. Just because you’ve updated your store twenty years ago does not mean that you are in tune with the look of today.

Marketers weigh these variables very carefully since a misstep may be fatal to a business. It usually requires a thorough analysis of the customer base, understanding their background and linking their loyalty with some of the product’s attributes. Once the researcher has identified the markers that are responsible for the loyalty, they can begin to tweak the image to fit both the core loyal audience and the potential future generation of consumers.

Marketers frequently caution about complacency even with a core loyal audience. Many businesses are so convinced that the base will not abandon them that they invest little in keeping the loyal customer happy. In today’s modern marketing world, the opposite is true. Once a business smells a potential loyal customer, they will invest heavily into keeping that customer. Auto makers know that from experience. Once a customer has driven your car, you have do everything in your power to keep the customer from defecting to a competing brand the next time they’re up for a new car.

One of the reasons that businesses often spend so much capital in maintaining contact with the loyal customer is pure economics. They probably calculated that it cost less to keep an old customer than it does to recruit a new one. Try to cancel a credit card and they may ask you why you want to cancel. They may try to match the rate if you say that you can get better terms elsewhere, all with the calculation that they already have you and it may be worth even reducing the rate by a few percentage points just to keep a brand loyal customer like you.

So when you hear the common expression of “numbers don’t lie”, they just may if you are replacing the loyalists. Or you might say that the security of knowing that there is a return from a fixed smaller base is more valuable than betting on futures.

Out of the Box is a collection of strategic marketing articles that Lubicom has published on various topics, trends and ideas in the marketing world. The articles have been published in the Hamodia weekly newspaper circulated on three continents to a readership of well over 100,000.

The name, "Out of the Box" is a term used frequently in business nowadays to describe creative thinking that is not the norm. It is meant to help a business pull away from the pack or separate oneself from the competition. It is to some extent fraught with risk, simply because it is not the run of the mill thinking, but it is at the same time the key to reaching the next opportunity.