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Is brand loyalty on life support? The warning signals are everywhere. But for every Chicken Little who's concerned, there's a Pollyanna armed with statistics that purport to prove that customers are as loyal as they ever were. Who's right? They both are. During the past 15 years, the brand loyalty of the minority of consumers who control the majority of sales and profit has fallen off a cliff. In the late 1970s, about half of consumers in the high-profit segment (the 20% of "80/20 rule" fame) bought their favorite packaged goods brand on at least 50% of purchase occasions. By the early 1990s, that number had dropped to less than 1 in 4. Meanwhile, the loyalty of the much larger group of medium-profit and low-profit consumers-who, at most, produce a third of category volume-remained relatively stable, obscuring the precipitous decline among the small group of consumers who really count.

Common sense should lead us to the conclusion that we should not treat all consumers the same, at least when it comes to parceling out our precious loyalty-building budgets. The 80/20 rule is operative-and leveragable-for every category and every brand. For example only 16% of all households account for 79% of all yogurt purchases, and 8% of households are responsible for 84% of the sales of Diet Coke.

Unfortunately, traditional demographic targeting of con-ventional media cannot direct an appreciably greater percentage of total impressions to the high-profit segment than their percentage of population. A wiser plan is to target by profit potential and adopt a differential marketing strategy that directs more loyalty-building impressions against the high-profit segment. The key to accomplishing this goal is the intelligent and strategic use of a consumer database of high-profit consumers.

The database can be used to drive selective advertising in magazines. Instead of buying the entire circulation, or some geographic or demographic subset, innovative marketers such as Seagram select only those subscribers who have been identified as high-profit, or those who have a great likelihood of being so. Several marketers in the U.K. and the U.S. are experi-menting with extending the con-cept of targeting by profitability in today's TV environment by monitoring the actual viewing of high-profit consumers.

But the most flexible and focused technique of increasing advertising pressure on the high-profit segment is the integration of direct marketing into the communications mix by means of a brand-loyalty pro-gram. Brand-loyalty programs are not frequent-flier programs redux. They motivate consumers with information, not with free trips.

The information may be about the brand itself, its use or the lifestyle of the user-recipes for a food product, for example, or beauty tips for a cosmetic. It is designed to make the brand more relevant and to strengthen the relationship with the consumer.

Tests in the U.S. and Europe show significant gains in sales volume among high-profit consumers who receive these kinds of programs-averaging 25% for established brands. When treated in this unconventional fashion, the future health of brand loyalty would seem to be very rosy indeed.

Garth R. Hallberg is worldwide director of differential marketing at Ogilvy & Mather Worldwide. His recent book is "All Consumers Are NOT Created Equal, The Differential Marketing Strategy for Brand Loyalty and Profits," John Wiley & Sons.

Garth R. Hallberg

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