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Factor for customer Retention

Factor for customer Retention

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Factors that Affect Repeat Buying Loyalty

Dag Bennett, London South Bank University

Abstract This paper describes repeat brand-buying behavior across a variety of frequently purchased consumer goods categories. The main finding is that overall repeat buying tends to be higher in categories where the market shares of brands are either very stable or the category is very much dominated by a large brand. In contrast, low repeat-buying associates with unstable market shares and competition amongst many smaller brands. In addition, brands that are much bigger than their nearest rivals tend to have higher repeat buying—or loyalty premiums. These repeat buying rates are predictable using the Duplication of Purchase law (DoP).

1. Introduction --Brand Buying Behavior for Individual Brands For many firms, branding is critical, helping establish the firm’s identity in the marketplace or build a solid customer franchise (Kapferer 1997, Keller 1998). Brand strength also provides a tool to counter growing retailer power (Barwise & Robertson 1992) even as retailers use private-label brands to build store loyalty (Corstjens & Lal 2000). The ongoing academic and industry discussion surrounding branding often focuses on the benefits of brand loyalty and has evolved from how to measure and assess loyalty (e.g., Cunningham 1956, Fader & Schmittlein 1993, Bhattacharya 1997) to building and managing loyalty (e.g. Reichheld & Sasser 1996, Baldinger & Rubinson 1996, Aaker & Joachimsthaler 2002). And yet, there is little research into the underlying market conditions that might affect repeat buying loyalty. Why should one category have high repeat buying and another low? What should marketers reasonably expect repeat buying to be for their brand, and why? If 40% of customers buy a brand twice in a row, is that high, low or just average? While much has been written about loyalty this research draws on well-established empirical generalizations (Ehrenberg 1972) that primarily focus on within category brand buying regularities as described with the NBD-Dirichlet model (Ehrenberg, Uncles & Goodhardt 2004), the Duplication of purchase law (DoP), (Colombo & Morrison 1989) and by the twopurchase technique (Bennett, Ehrenberg & Goodhardt 2000, Bennett 2004). This new research was one of the first attempts to look at brand buying patterns between categories. It did so by examining factors that might be associated with repeat-buying loyalty levels. The first step was to calculate weighted average repeat buying rates over two consecutive purchases drawn from panel data (TNS superpanel with 15,000 UK households) covering 72 FMCG categories. Each buyer who had made two category purchases was counted as either a repeat-buyer or a switcher. Repeat buying levels could then be compared, as could other measures such as, the average interval between purchases in weeks, market share of the largest brand in the category, the number of brands with over 3% share, the HerfindahlHirschman Index (HHI) (www.dti.gov.uk/files/file17173.pd), and the weighted average percentage change in market share between purchases.


Baldinger & Rubinson 1996. 42% of all customers bought the same brand twice in a row when making purchases within a category. Ehrenberg & Sabavala 2000). D is thus a measure of the extent to which individual brands share category buyers and can be used to calculate brand repeat buying with the formula: Repeat Buying Rate = (D * brand penetration) + (1. middle and low end for repeat buying. column 1 which presents selected categories at the high. For example if 30% of the population buy brand B. Ehrenberg.2. when people buy a brand they are more likely to buy one with high penetration. 670 . Uncles & Goodhardt 2004).D) The second column in Table 1 shows predicted average repeat buying rates (labeled “T” for theoretical) made using the D values calculated for each category. Individual category repeat rates ranged from 58% down to 24% as shown in Table 1. and 45% of brand A’s buyers buy brand B. relative to how many people bought B at all. across all categories. Repeat buying behavior for brands On average. irrespective of which brand they bought before.5.g. the duplication coefficient D. is 45%/30% = 1. an empirical law-like relationship that says that the proportion of buyers of Brand A who also buy Brand B (denoted bB|A) can be expressed as: bB|A = D x bB In practice. One test for whether these data fit with existing theory is the Duplication of Purchase law (Colombo. The proportionality factor “D” or “Duplication Coefficient” reflects the likelihood of switching from the previous brand A to a new brand B. These category repeat buying levels were consistent with previous work (e.

With the information on hand a correlation matrix was constructed to examine what factors might be associated with repeat purchase rates. Packet Tea and Margarine have high repeat buying rates.Table 1 Weighted Average Repeat Purchase Rates and Other Measures Wtd Ave % Repeat O (T) 58 (60) 56 (58) 56 (56) 55 (57) 54 (56) 43 42 42 41 41 41 29 28 25 25 24 (44) (41) (44) (40) (35) (40) (30) (30) (25) (25) (26) Ave % Share change 9 7 5 8 7 13 10 17 6 10 8 25 26 17 18 24 12% Largest Brand % share 20 24 26 68 55 24 18 26 14 21 11 22 43 24 19 16 24% Purchase Interval (weeks) 8 5 5 3 32 2 1 14 3 15 16 9 13 11 26 12 9 Brands over 3% share 11 9 8 5 8 7 9 12 12 9 13 11 8 11 10 10 9 Product Category Packet Tea Margarine Butter Crisps Thick Brown Sauce Sugar Confectionary Carbonates with lemonade Instant porridge Everyday Biscuits Marmalade Shampoo Premium Ice Cream Body Sprays Child Lollies Cough lozenges Ice-cream filled Cones Overall Average 42% (42%) At first sight Table 1 shows that observed and theoretical repeat buying levels are close. Thus whether a category is characterized by high or low repeat buying.97. 3. shown in Table 2 below. and in fact the correlation between the two is r = . 671 . what accounts for the variation in loyalty? For example. the level is closely predicted by the duplication of purchase law. Factors associated with lower repeat buying rates One question raised by Table 1 is. negative ones shaded. while Ice-Cream filled Cones and Cough Lozenges have low rates. Higher positive correlations are outlined. which is based on the measurement of penetration and so brand share.

09 .23 . This relationship was hinted at in Table 1.16 .70 1.00 -.16 1.00 -.17 .18 .Table 2.23 .78 . Habel & Rungie 2005. These associations between largest brand and HHI and the number of brands of over 3% share are largely autocorrelation. brands >3% Domination Premium 1.83) with 672 . Graph 1.03 -. 1997) and with meta analysis of survey data (Bennett.58 1.83 .00 . This shows that categories in which brand shares are unstable tend to have lower repeat purchase rates.00 .91 -.g. The second and third columns show that weighted average percent share change and weeks per purchase interval have no strong associations—it matters little to FMCG repeat buying whether a customer buys weekly or yearly.18 .00 .38 -.06 -.00 -.04 . 2007). both positive and negative as does the HHI column (the Herfindahl-Hirschman Index is the sum of the brand shares squared and is used to assess industry concentration.73 -. Factors Associated with Higher Repeat Rates The largest brand column shows high associations.32 1.35 -. But there is also a high correlation (r = . where lower repeat categories also had higher average share changes and can be seen clearly in Graph 1.56 .11 Wt ave % change 1. This negative association between share instability and repeat buying is consistent with other work on dynamics (e.05 . usually to decide whether a merger or acquisition should be allowed).00 In the first column the only high correlation is between the weighted average repeat rate and weighted average percent change in brand share (r = -.19 .00 .00 . Correlations between Repeat Purchase and other Category Measures wt ave rep 1.73).50 1. Dekimpe et al. Kato & Honjo 2006. Weighted Average Category Repeat Buying Declines with Brand Instability Weighted Ave Repeat 70 60 50 40 30 20 10 0 0 5 10 15 20 25 30 Weighted Ave % Change in Shares Repeat Buying and Change in Brand Share 4.01 Wks/ ints lgst brand HHI no >3% Dom prem wt ave repeat wt ave % change wks/interval largest brand HHI No.56 .

but weakly.0 8.4 1. in terms of loyalty premium it is better to be bigger than one’s rivals. Graph 2.0 3. the category’s largest brand also tends to have a repeat rate higher than its competitors. Highly dominated categories are not necessarily high repeat rate categories.6 0. if a 10% brand is twice as big as its nearest rival. Fader and Schmittlein (1993) argued that heterogeneity in brand choice is the likely cause of the excess brand loyalty (i. For example if the largest brand was much larger than its rivals. and therefore high HHI. 673 . In other words. indicating there might be a loyalty premium for very big brands. That larger brands have higher repeat rates was not unexpected. Uncles & Goodhardt 2004).0 1. This is a standard Double Jeopardy effect (Ehrenberg. as opposed to a 20% share brand with an 18% competitor. there was a strong positive relationship (r = .0 0. did not have a huge brand (the mode for largest brand was 24%). and the higher the dominance.0 6. Most categories however. Nor was it surprising that the effect was sometimes higher than predicted. the higher the premium (see Graph 2).2 0.70) between domination and loyalty premium.e. and the effect was probably overshadowed by the simple size effect. what might be expected for category repeat rate. That is.0 1.4 0.16.0 0.8 1. greater than double jeopardy predicts) and that this effect is accentuated for larger brands.0 5. The question then focused on whether there was an association between the relative size of the largest brand (domination) and repeat buying.58) (repeat rate of the largest brand divided by the average repeat rate). while it is good to be big.0 Share of Largest Brand divided by Share of next largest Domination and Loyalty Premium However. The degree of domination when correlated against the weighted average category repeat rate for each category gave a weak positive correlation of r = .8 0. showing that when categories have very large brands.0 10.0 9.6 1.Domination (share of the largest brand divided by the next largest) and Loyalty Premium (r=. Note that the calculations for loyalty premium and dominance are independent of whether the category has high or low overall repeat rate and show that for brands.0 2.0 7.0 4.2 1. So domination was associated with repeat buying. brands that are much bigger than their nearest rivals tend to have above average repeat buying rates. Brands that Dominate their Rivals Tend to Enjoy Loyalty Premiums Repeat Rate of largest brand divided by repeat of next largest 2.

It also sets the stage for further analysis—for example. Instead. dominance was strongly associated with the largest brand obtaining a loyalty premium. it might be possible to explore whether repeat buying rates for brands indicate any market polarization. Despite wide academic and practitioner focus on customer retention and loyalty. the results were difficult to interpret.Multiple regression analysis was performed to examine further the relationship between variables. the analysis lays out simple descriptive regularities associated with repeat buying. while others had many weeks between purchases. The results show that repeat buying is largely a function of brand size. In addition. This will be explored further in future. 674 . In practical terms. Conclusions These brand repurchase findings are new because they compare repeat buying rates across categories. Conceptually. However. the comparative study of widely differing markets or categories may lead to a greater understanding of brand buying behaviour and to broader generalizations about consumer behavior. The findings have both conceptual and practical significance. The analysis was greatly assisted by the availability of prior knowledge of loyalty and switching patterns and serves to confirm those patterns through differentiated replication. dynamic categories where shares were unstable had lower average repurchase rates. Some categories had average inter-purchase times of two or three days. while categories with very large or dominant brands had higher repurchase rates. little had previously been done to analyze factors associated with high or low levels of repeat buying. moderated by the stability of the category. they are predictable using the DoP law. 5. but this had little affect on repurchasing. except insofar as they confirmed the overall importance of (in)stability of market share in determining overall category repeat purchase rates. or the presence of niche brands. Moreover.

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