Behavioural economics can help you understand what are the reasons that motivate consumers to stick with a brand.
Insights from behavioural research are showing that customers like to buy what they are used to when people have enjoyed a brand or a taste for years; they tend to inflate its value. When calculating the pros and cons of purchasing a product or a service, emotional biases often cloud the ability to make rational choices (customers are influenced by their own personality and the feelings of attachment or obligation that they may have towards a brand). In fact, we can actually state that cognitive biases often prevent people from acting in their own best interest.
Consumers are loyal to a brand for different reasons, but before asking the question: how loyal are consumers? We should start by analysing the nature of that loyalty. Behavioural Economics can help understand what benefits are perceived by consumers towards brands and therefore contribute to defining the different types of brand loyalty.
1. Benefit and satisfaction – A series of studies published by Deloitte Insights suggested that there are multiple reasons why people feel locked in a relationship with a brand (and especially with services providers).
Regardless of whether they judged their current relationship to be positive or negative, 68% of people interviewed mentioned that they are staying in a service relationship because they consider the relationship ‘positive’. Following by relationship length, history and investment, and sunk cost (68 %). It’s also important to mention that the costs associated with switching provider/brand came in as the third most common reason for keeping the current relationship (57 %).
Therefore, as expected, the most common reason why consumers stay in relationships with brands is the feeling of satisfaction. ‘Based on Milton Friedman’s economic rational choice theory, this would suggest that, as long as the perceived benefits outweigh the negatives in a relationship, consumers should be more likely to stay. Conversely, if the negatives outweigh the benefits, consumers would be likely to exit a relationship.’
2. Lock in phenomenon – Even if customers are in a positive and satisfactory relationship with a brand they can still feel ‘lock-in’.
Exiting a contract while feeling satisfied it’s a very difficult decision to make for consumers. Here are three common obligatory factors that keep consumers tide in.
Relationship length and investments; consumers feel obliged to respond to previous investments by becoming increasingly willing to invest additional resources. In other words, when people invested time, energy, and resources in a relationship, they feel that the past commitment justifies future investment—regardless of how promising future outcomes appear.
Social pressures; the subjective norms theory suggest that individuals perceive the behaviours that others desire and expect from them as important. More often than not, people stay in a relationship because they believe that their friends and family (or people close to them) want them to stay in these relationships.
Reciprocity theory: In this situation, consumers believe that a provider did them a “favour” such as coming in on a day off or otherwise going out of their way. Accordingly, with this theory, people feel guilty about the idea of moving on to someone else after having received a “favour.”
3. Loss aversion – From the behavioural economic principles, we know that people experience more pain from losing something than pleasure from gaining something. Therefore, human beings are loss averse.
Loyalty to a brand can also be based on fear and the associated risks of the unknown. One of the most common risks is wasting money. If a new product does not deliver to the same level as the regular product people feel like they have wasted their money.
However, there are other types of risk associated with the consequences of trying something new, as the emotional feelings of disappointment, let down or satisfaction.
The loss of aversion loyalty relies on consumers a natural tendency to play it safe and a fear of rocking the boat by taking a risk.
4. Status quo loyalty – The fundamental benefit that status quo loyalty provides is that it makes life easy.
A status quo loyalty saves time and effort, and it provides mental ease and convenience – which is extremely motivating in our increasingly busy lives.
In order to maintain the status quo, companies should not distract the actual buying process, for instance by radically changing packaging or prices which may confuse the buying decision and interrupt the habit.
The golden rule is to keep the purchase process simple and consistent, building and reinforcing the distinctive brand assets which deliver the security and convenience is part of the process of maintaining the status quo. In fact, businesses should also keep in mind that people tend not to change their behaviour unless given a strong incentive to do so.
5. Switching barriers – Switching barriers have a very powerful influence on encouraging consumers brand loyalty.
In order to find new brand customers, have to overcome adversities such as time, effort, and pain. For consumers switching brand often means an investment of time and effort to research and find better alternatives.
Human beings are naturally placing more emphasis on payoffs occurring closer to the present than those taking place further in the future. In fact, sometimes customers are willing to stay loyal to a brand even if their relationship with it is less than optimal.
6. Do not take long term customers for granted – As we mentioned in point number four, the tendency to stick with the status quo get stronger over time. This may make companies lazy and encourage them to adopt a propensity to abuse existing relationship for the sake of new prospects.
While companies that employ this tactic may keep existing customers, there is a price to be paid in terms of those customers’ attitudes toward the company’s offerings. Instead, a more advisable technique for businesses should be to nourish existing relationships and viewing long-term customers as a brand advocate—as opposed to cash cows.
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