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Four Losers in the Brand Wars


Customer loyalty just ain't what it used to be.

The recession is taking a bite out of brand-name products.

Only 48% of a brand's highly loyal customers in 2007 stuck with the label in 2008, a study conducted by Catalina Marketing's Pointer Media Network concluded.

A highly loyal customer is one who made 70% or more of their category purchases with a single brand during a 12-month period. The 2-year study reviewed the buying habits of about 32 million consumers and 685 grocery and pharmacy products by looking at data provided by their supermarket loyalty cards.

Brands taking a hit include:

1. Coca-Cola (KO), one of the nation's most recognizable brands, suffered a 25% decline in customer loyalty in the study period.

2. Proctor & Gamble (PG), maker of Crest toothpaste, had about 59% of its repeat customers become less loyal to the brand.

3. Advil, a product of Wyeth (WYE), suffered a 7% drop in customer loyalty between 2007 and 2008.

4. JM Smucker's (SJM) Jif peanut butter lost 7% of its once-loyal customers between 2007 and 2008.

But at least one trusted brand gained market share: Cheerios, a product of General Mills (GIS), rose 6% in the study period.

"Manufacturers are facing a formidable challenge to brand loyalty further inflamed by the economic downturn," Todd Morris, senior vice president of Catalina Marketing, said in a prepared statement. "However, these findings also demonstrate that consumer defection and churn are persistent problems for brands, even during good economic times."

Defection levels were high for most brands in 2007, before the start of the current economic downturn. Researchers say revenue for the brands could have increased between 4% and 25% had highly loyal buyers in 2007 not reduced their buying or abandoned the brand the following year.

This is a problem for marketers, but a boon for consumers. Major supermarkets, including Safeway (SWY), Kroger (KR), and Wal-Mart (WMT) -- the world's largest retailer -- offer quality store brands. The savvy buyer, and certainly the cash-strapped consumer, ask: What's the difference? For many, the answer is price, not quality. And that makes the switch easy.

It's not just the difference between Crest (PG) and Colgate (CL). Most toothpaste has fluoride -- a key element in fighting tooth decay. And anyone brushing regularly with baking soda will achieve good results, despite the wretched taste. Consumers rightly conclude that a brand name matters little, and they buy on price.

So, who needs brand-name products?

Brand names pitch quality and consistency and typically deliver. But why pay extra for the marketing when a store brand will do?

This is likely to be an increasing problem for marketers, especially if the recession deepens. The upside: It will keep the Madison Avenue crowd busy and may pump a little life into sagging advertising revenue.

If brands can't command a premium, why have them? Fickle buyers may force some brand names to discount to retain market share, but that's a short-term solution and undercuts the entire marketing program.

To this, most consumers say, "So?" as they reach for high-quality, low-cost Brand X products.
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