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.
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.
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.
A lot of time and resources are spent on branding efforts. Brand recognition and brand loyalty are considered assets and are tracked and measured. We chose images; colors, shapes and text that we believe will help communicate the kind of experience our target market is going to have when they purchase our products. In short, we are making promising to our customers and working to earn their trust.
When designing for manufacturability one of the perceived downfalls is an increase in the cost of materials required for the design. Consider a master carton. Various designs of a master carton with similar dimensions, flute, and paperweight specifications have separate manufacturing costs. One design may require more board and another may require a more complicated die cut. Often design is viewed from a minimization of board and die cutting, leading to a cost only perspective.
“A customer is the most important visitor on our premise. He is not dependent on us. We are dependent on him. He is not an interruption in our work. He is the purpose of it. We are not doing him a favor by serving him. He is doing us a favor by giving us an opportunity to do so.”
Validating all product packaging material is a critical step to ensure our product launches occur on time and within budget. Imagine, successfully navigating a very long and rigorous new product launch process only to discover, the launch is delayed by several weeks simply because the packaging material, such as a master carton, was not validated.
Choosing a carton that maximizes your product’s protection without paying extra for an over-specified solution requires that you understand corrugated box construction. The first place to find out how the carton was designed is to understand the Box Certificate that is printed on most cartons.
Edge Crush Test – This is a new standard that is sometimes used in place of the Bursting Test. This measurement indicates the stacking strength of the carton by measuring the minimum pounds per linear inch needed to compress the edge of the corrugate board. This method of measurement allows manufacturers to use less expensive, lighter weight board than what is required for a Burst Test certified carton.
