Brand Loyalty – What Is The Cost Of Disappointment?
February 22, 2012 Leave a Comment
You know how if feels, last minute purchasing, ordering the product too late, rushed delivery, hurry to the store – all to receive a less than attractive product package. Maybe the package is dented, torn or crushed; or it could have been previously opened or it is missing critical components. Maybe you are a manufacturer waiting for inputs to your process and half of the product is lying on the floor of the truck. This is disappointment. Disappointing experiences are remembered, repeated and attached to our brands.
To those of us familiar with the concept of brand loyalty, we understand that when brand loyalty is damaged, there are consequences. Yet, the concept and its ramifications seem to be intangible, emotional and difficult to express in mathematical terms. When this is the case, it becomes challenging to create a business case for investing and improving processes that directly influence brand loyalty.
Interestingly, I recently came across a study on consumer behavior when presented with damaged packaging. The information I found most fascinating include:
- Perception of a product as a “brand you trust” dropped from 73% to 41% when packages were even slightly damaged
- 25% of the most brand-loyal shoppers question the safety of the product when the package is damaged
- Up to 55% of shoppers discarded the brand, and 36% opted to purchase another brand
These numbers presented are eye opening, but what, then is the financial impact of these data? Taking the information in the study, we applied a hypothetical percentage of damaged packaging into the model and based on the following assumptions, we arrive at the model below.
Sales price = $5
Percent of users switching brands = 36%
Annual Revenue = one $100,000 project per month
| Revenue | Quantity | Percent Damaged Product Packaging | QTY Damaged | Return Cost | Customers Lost Due to Brand Switch | Revenue Lost Due to Brand Switch | Annual Revenue Lost Due to Brand Switch |
| $100,000 | 20,000 | 1% | 200 | $1,000.00 | 72 | $360.00 | $4,320.00 |
| $100,000 | 20,000 | 2% | 400 | $2,000.00 | 144 | $720.00 | $8,640.00 |
| $100,000 | 20,000 | 3% | 600 | $3,000.00 | 216 | $1,080.00 | $12,960.00 |
| $100,000 | 20,000 | 4% | 800 | $4,000.00 | 288 | $1,440.00 | $17,280.00 |
| $100,000 | 20,000 | 5% | 1,000 | $5,000.00 | 360 | $1,800.00 | $21,600.00 |
| $100,000 | 20,000 | 10% | 2,000 | $10,000.00 | 720 | $3,600.00 | $43,200.00 |
Reviewing this model, I notice at the 1% defect rate, my damage is only costing $4,320 per year. While the observation is correct from a GAAP accounting perspective, it does not take into account the costs to acquire new customers, the lifetime value of customers, and attrition rates. Additionally, the perspective does not count the number of people with whom the 72 lost customers discuss their disappointment.
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So, what is the total cost of disappointment? It seems to me, the answer lies more in our approach to the question, than the articulated dollar amount. When we engage in a process that allows us to explore different perspectives including, sales and marketing data, operational data and the experiences our customers are having, we might then obtain an accurate account of the cost of disappointment.
Defining what a successful B2B relationship entails may differ depending on many factors. Some of those factors can include corporate mission, vision and values. Other influences might be determined by our particular role within our organizations. For me, I notice I feel and perform best when trust, transparency and commitment are present in the relationship.
Whether launching a new product or expanding capabilities to accommodate our clients growing needs, meeting the target price is a significant barrier to earning new revenue streams and potential profits. Sometimes we take on new business opportunities as a way to gain market share, deepen relationships or to gain an advantage over the competition. While these strategies for new business serve their purposes well, it remains essential not only to meet the target price, but also to be profitable at the target price.
This iterative process continues to deepen, creating an improvement perspective and can continue until all potential waste is removed, or can be finished when a desired target price and profit is met. The data gathered from the process can then be integrated into our decision-making models.
Assembly and packaging processes, sometimes referred to as secondary processes, can be difficult to define, measure, analyze and control. Labor-intensive, secondary processes performed by us humans seem to present the most challenges. The unpredictable nature of human performance can be overwhelming, making it seem impossible to feel confident about the accuracy and consistency of our processing methods.
Meeting sales goals is one of our highest priorities, and productivity is a determining factor in whether or not we meet those goals. The degree to which our manufacturing processes are productive affects our capacity to generate revenue. Since our organizations exist to serve the demands of our customers, measuring productivity and understanding the degree to which productivity affects sales performance is worth exploring.
Damaged product is simply not acceptable. Whether our products are OEM or retail, customer interaction with product packaging and the product is critical. Retail customers, like you and me, do not buy products that have dents, broken shrink-wrap, or torn labels. Likewise, OEM customers do not want to deal with fallen over pallets, banged-up outer cartons or ripped open bags. This kind of damage greatly reduces an OEM’s ability to be efficient and creates questions about the quality of the goods received.
