FROM EXCLUSIVES TO BRANDLESS - Grey Matter...

From Exclusives to Brandless: Exploring Brand Loyalty to Retail Stores

GREY MATTER RESEARCH & CONSULTING PHOENIX, ARIZONA

February 2009

FROM EXCLUSIVES TO

BRANDLESS:

Exploring Loyalty to Fast Food Restaurant Brands versus

Other Brand Categories

GREY MATTER RESEARCH REPORT – LOYALTY TO FAST FOOD RESTAURANT BRANDS 1

INTRODUCTION Collectively, corporations spend billions of dollars each year trying to establish their brand in the hearts and minds of consumers. From establishing brand awareness, to building brand preference, to eventually achieving brand loyalty and even brand advocacy, retailers seek to separate their brand from the competition. How successful are they? The answer depends on the individual brand, of course, but much of the answer also depends on the brand category. The loyalty and preference Americans show to brands is much different for fast food restaurants than for grocery stores or soft drink brands, for instance. Most brand managers and executives at individual companies have at least some idea about customer loyalty to their particular brand, and some also know how their own brand’s loyalty figures compare to those of direct competitors within their own category. But there is often relatively little “big picture” awareness across different categories. Over the years, Grey Matter Research & Consulting has had an opportunity to work with major brands across an array of categories: retail, automotive, entertainment, sports, financial services, and many others. Working in so many categories, rather than focusing on just one, has led us to a variety of anecdotal and observational comparisons of brand loyalty across categories. But, like true researchers, for us anecdotal and observational evidence simply serves as the basis for developing theories that we then try to prove or disprove through research. The result of our desire for knowledge is this brief report on how brand loyalty to fast food restaurants compares to other major brand categories.


STUDY BACKGROUND AND DETAILS This study was privately developed, conducted, and funded by Grey Matter Research. In the research, we compared Americans’ self-reported brand loyalty and consideration in a number of different major categories of retail stores, services, and products:

We used the following question:

Think about the brand names of different types of products you might buy. For each of the types of products listed below, which statement best describes how you choose what you buy?

We adjusted the question appropriately when dealing with stores or services rather than with products. For instance, we added a line when asking about retail stores that clarified that we were asking about store brands (e.g. Safeway vs. Kroger) and not specific store locations (e.g. the Safeway at 36th and Broadway), and that we were including local brands and not just national chains However, individual brands were not mentioned in relation to each category. In other words, the question did not ask about “drug stores such as CVS or Walgreens,” since using examples could have biased respondents based on their awareness of or reaction to those specific brands. Unfortunately, it’s impossible to include every brand category in a study such as this. The categories represented here were selected to include most of the major types of retail stores, along with a broad selection of individual products and services (general and specialty, small purchase and big ticket, regular purchase and infrequent purchase).

Drug stores Fast food restaurants Grocery stores Airlines Department stores Soft drinks Furniture stores Furniture Convenience stores Car rental companies Clothing stores Bathroom tissue Consumer electronics stores Toothpaste Shoe stores Automobiles Book stores Major appliances Home improvement stores Pain reliever Pet product stores Carpet Hotels Gasoline or diesel Athletic shoes Bottled water Light bulbs Hand tools Computers Vitamins/supplements


This study was conducted among a representative sample of 1,007 American adults, through a demographically balanced pre-recruited online panel. The final sample was further weighted by age, geography, race/ethnicity, and household income, to assure a completely representative sample. The margin of error for the total sample size is ±3.0 percentage points at a 95% confidence interval with a 50% response distribution. Within the study, we first determined whether respondents were users of each category. It’s important to note that “users” was not defined as “regular users” or “frequent users.” Essentially, people who said they don’t buy a particular kind of product “at all” were eliminated from the brand loyalty measurement for that category. Some categories, such as grocery stores or soft drinks, are likely to have many frequent users, while others, such as carpet or consumer electronic stores, are likely to see much less frequent shopping behavior. But only the people who said they don’t shop a particular category “at all” were excluded from that category’s loyalty measurement. This is important to remember, because all too often, repeat brand use is confused with actual brand loyalty. For instance, a consumer may stop at the same convenience store every morning for a cup of coffee, because it’s the first such store she encounters on her way to work. This person has frequent use of that brand, and she may even be fully satisfied as a consumer. However, that doesn’t mean she has any actual loyalty to that brand. She may not even be able to recall whether that particular store is a 7-Eleven, AM PM, or Circle K. One poor experience with the product or service could drive her to another nearby location for her coffee. An alternative opening up even closer to her house could get her to switch brands. A great experience at a competitor store could do the same thing, as could something as simple as a change in her daily route to work. Our example consumer may be a regular user of the brand, but that doesn’t mean she’s brand loyal at all, or even has a particular preference for the brand she uses. Because of the need to avoid confusing usage and loyalty, we did not include frequency of usage as part of the loyalty measurement. We simply asked people what is their general shopping preference for each category if they use that category at all, dividing category users into five unique groups:

THE EXCLUSIVES: Within a category, Exclusives have only one brand they will consider using. Example: “If they don’t have Diet Coke, I’ll just drink water.”

THE FAVORITES:

Within a category, Favorites have a favorite brand, but will also consider others. Example: “I prefer Pepsi, but sometimes for a change I drink RC Cola or Dr.

Pepper.”


THE SELECTIVES:

Within a category, Selectives have a small number of brands they will consider, with no particular favorite among those.

Example: “I’ll buy Pepsi, 7-Up, or Dr. Pepper – whichever of those three is on sale.”

THE AVOIDERS:

Avoiders have certain brands they avoid, but no particular brands they prefer. Example: “I don’t really have a favorite soda, but I will not drink Mountain Dew.

Anything but Mountain Dew.”

THE BRANDLESS: True to their name, the Brandless don’t really pay attention to the brand when

they shop within a particular category. Example: “I’ll drink anything with bubbles – it’s all the same.”


THE FAST FOOD CATEGORY The first thing we learned is that just 7% of all Americans said they are complete and total non-users of this category. Out of the 30 different categories included in this study, fast food restaurants were one of the 21 categories used by at least nine out of ten Americans. At first glance, the usage numbers may seem surprisingly high. But remember that this does not mean 93% of Americans eat at fast food restaurants on a regular basis, such as daily or weekly. What it means is that 93% of Americans either do eat there, have eaten there, or feel they may eat there in the future; therefore, they are unwilling to call themselves complete non-users of this category. This figure is not at all comparable to other studies that report frequency of use of the category.

Among users of the fast food category (both frequent and infrequent), there was only moderately strong loyalty to individual brands. Just 3% of all category users qualified as Exclusives, meaning they have one and only one brand of fast food restaurant where they will eat. Another 38% said they do have a favorite brand, but they are willing to eat at others. This means four out of ten category users (41%) could identify one favorite brand within this category. Thirty-eight percent were Selectives – they have a small group of restaurants

where they will eat, but no particular favorite. Fifteen percent were Avoiders, meaning while they have no particular favorite fast food restaurant brand, there is at least one they avoid completely. Finally, 6% of category users were truly Brandless. If they want a quick meal, they feel equally likely to walk into Burger King, KFC, McDonald’s, Taco Bell, a small regional or local chain, or any other brand within the category. They simply do not pay attention to the brand when it comes to fast food restaurants.

Users, 93%

Non-users,

7%

Use of Fast Food Restaurants


Exclusives: will only use one brand. Favorites: have a favorite brand, but will use others. Selectives:

have a small number of brands they will use, with no particular favorite. Avoiders: no favorite, but certain brands they avoid. Brandless: don’t pay attention to brands when usingthis category.

Projected onto the entire U.S. adult population, there are approximately 5,945,000 Americans who at least occasionally eat at fast food restaurants and are completely loyal to one brand – they won’t eat anywhere else. Another 80,688,000 do have a preferred fast food brand, but will eat at others. There are also 79,626,000 Selectives, with 32,487,000 Avoiders, and 13,590,000 who are truly Brandless – they’ll eat at any fast food restaurant when the need or mood arises, without selecting based on the brand. Again, these figures do not cover only regular or frequent category users, but people who do not say they are complete non-users of this category. Unlike some of the brand categories, loyalty to different fast food restaurant brands showed few real subgroup differences that are worth exploring. The only measurable difference was in the race or ethnicity of the customer, and that was a small one: Latino customers were somewhat more brand loyal to fast food restaurant brands than were non-Latino Caucasians. But even there, the difference was fairly small. There were no discernible differences in brand loyalty when demographics (age, gender, household income, household composition), lifestyle and worldview (political affiliation, religious involvement), or geography (community type or region of the country).

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Exclusives Favorites Selectives Avoiders Brandless

3%

38% 38%

15%6%

Brand Loyalty to Fast Food Restaurant Brands


COMPARISON WITH OTHER CATEGORIES Brand loyalty to fast food restaurants was fairly unique compared to the other brand categories included in this study. On one hand, the proportion who had one favorite brand was relatively low; on the other hand, the proportion who did not consider brands at all was also fairly low. The percentage of respondents who had a small set of brands that they favor equally was among the highest in the study. Relatively few consumers were Exclusives within any of the tested categories. The category most likely to have consumers say they will use one (and only one) brand was toothpaste (23%), followed by bathroom tissue (19%), pain reliever (17%), and soft drinks (16%). Fast food restaurants were among the categories least likely to have Exclusives, at only 3%. However, 18 of the 30 categories were in this same boat, with 5% or less of all users as Exclusives, so fast food restaurants are in very good company in this measurement. Forty-one percent of all users said they have one favorite brand among fast food restaurants, even if they eat at other brands (this is a combination of Exclusives and Favorites). The categories tested in this study grouped fairly cleanly into five tiers in this measure, and fast food restaurants clearly placed with 11 other categories in the third tier, as shown below: Tier 1 Grocery stores (69%) Soft drinks (68%) Toothpaste (66%)

Tier 2 Pain reliever (61%) Automobiles (60%) Bathroom tissue (59%) Computers (58%) Home improvement stores (56%) Drug stores (55%)

Tier 3 Pet product stores (47%) Consumer electronics stores (45%) Vitamins (44%) Bottled water (43%) Gasoline/diesel (43%) Clothing stores (43%) Athletic shoes (42%) Hand tools (42%) Major appliances (42%) Fast food restaurants (41%)


Airlines (41%) Book stores (41%)

Tier 4 Shoe stores (36%) Car rental companies (35%) Convenience stores (34%) Hotels (34%) Light bulbs (29%) Furniture stores (28%)

Tier 5 Carpet (21%) Furniture (20%)

On the negative side, it was rare that a fast food restaurant customer was truly Brandless. Just 6% pay no attention to brands when they eat fast food. Another 15% were Avoiders, meaning they have no particular favorites, but they do have some they refuse to patronize. One of the things that makes the fast food category relatively unique is how it compared to other Tier 3 categories. The 12 brand categories that had very similar numbers for Exclusives and Favorites – meaning people who could identify one favorite brand – also had an average of 14% who were completely Brandless. The numbers went as high as 20% Brandless for book stores, and 18% for bottled water. Fast food restaurants had less than half that average, at 6%. At the same time, fast food was one of the top categories for being Selectives (consumers who have a small set of equally favored brands). Thirty-eight percent of fast food customers were Selectives. This was not surpassed by any other brand category, and it was equaled by only five others: clothing stores, major appliances, hotels, department stores, and shoe stores. So the picture that emerges for brand loyalty to fast food restaurants is one of consumers who usually have a small set of brands from which they will select, regardless of whether they can name an actual favorite or not. Roughly four out of ten fast food customers can name one favorite brand, another four out of ten have a small set of equal favorites, and the remaining two out of ten have no favorite brand(s) at all.


2%

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4%

3%

3%

2%

3%

3%

9%

7%

5%

9%

26%

31%

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38%

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42%

38%

48%

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33%

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36%

33%

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28%

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21%

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4%

0% 20% 40% 60% 80% 100%

Furniture Stores

Convenience Stores

Shoe Stores

Fast Food Restaurants

General Book Stores

Department Stores

Clothing Stores

Consumer Electronics

Pet Products

Drug Stores

Home Improvement

Grocery Stores

Fast Food Compared to Retail Stores



2%

2%

2%

3%

4%

4%

4%

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5%

8%

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17%

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32%

38%

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47%

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52%

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43%

31%

29%

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5%

0% 20% 40% 60% 80% 100%

Furniture

Carpet

Hotels

Fast Food

Light Bulbs

Car Rental

Airlines

Major Appliances

Hand Tools

Athletic Shoes

Gas/Diesel

Bottled Water

Vitamins

Autos

Computers

Pain Reliever

Soft Drinks

Bathroom Tissue

Toothpaste

Fast Food Compared to Retail Brands



BRAND LOYALTY AMONG CONSUMERS Brand loyalty can vary widely from brand to brand and from category to category, but there are some common traits we can evaluate through this research. Although this study does not encompass every possible retail category, it does cover many different categories that are commonly used by American consumers. We wanted to test across categories to determine whether there were any patterns we could spot that would shed some light on overall brand loyalty, rather than just category-by-category. However, this study clearly did not include every possible category. It’s unreasonable to think that any study could include everything from kitty litter to luxury yachts. Yet in the retail store category, although the categories we included were not exhaustive of every possible type, they still captured a tremendous proportion of the daily spending by American consumers. The store categories included in this study captured a much greater proportion of all consumer activity than did the individual product or service categories we tested. Therefore, we decided to test across categories by using a regression model that evaluated a total of 10,801 observations across the 12 retail store categories. When we look beyond the findings for individual retail store categories and search for common themes about brand loyalty among U.S. consumers, one of the most notable findings is that there are few notable findings. What we mean is that when brand loyalty is viewed across all 12 retail store categories (among users of each category), there are not strong differences in levels of loyalty according to things such as age, gender, household income, race/ethnicity, marital status, or geography. For years, marketers have been looking for some sort of “Holy Grail” of loyalty. They’ve tried to find a particular type of person who has a high propensity for brand loyalty. Consultants who specialize in reaching certain segments of the population often like to tout how, if you just spend money reaching the segment they specialize in, that segment will be especially loyal (or how, since the segment they specialize in is rarely loyal to brands, you need their help to reach that segment effectively). You’ve probably heard generalizations such as, “Older consumers tend to be very brand loyal, while younger consumers have little loyalty.” Or maybe, “Latino consumers form much stronger loyalties to brands than do other types of consumers.” Unfortunately, at least when it comes to these 12 retail store categories, there was very little differentiation in brand loyalty likelihood among various demographic segments. Actually, there was no overall tendency to be more loyal or less loyal to store brands according to either age or race/ethnicity. And while there were differences according to gender, household income, region of the country, and education, these differences were relatively small.


In the regression model, the dependent variable (or outcome variable) in this case is ordered categories. An Exclusive in the drug store category, for example, was given the highest possible score (5), while a Brandless drug store shopper was given the lowest possible score (1). This same process was used to create the dependent variable, from all respondents across all of the tested retail categories. An ordered logit model was used to predict the outcome of the dependent variable (level of loyalty) given the range of independent variables (e.g. demographics, geography) in the model. In addition to the independent variables, each of the tested retail categories was controlled for in the model. This type of regression analysis allows for the prediction of probabilities, meaning the chances of someone exhibiting greater levels of brand loyalty across categories, based on the independent variables in the model. Of all the independent variables, five were found to be statistically significant. They were gender, educational attainment, household income, geographic region, and whether the respondent regularly attends religious worship services. Everything else equal, women were slightly more likely to be brand loyal than were men. Individuals with lower levels of education were more likely to be brand loyal than were people with higher levels of education. People with higher household incomes were more likely to be brand loyal than were those with lower household incomes. And respondents living in the Northeast and South were more likely to be brand loyal than were residents of the West or Midwest.

Cross-category Brand Loyalty Variable Chances of Being Exclusives/Favorites Net Difference

Gender Women Men

5 points or 12% 46% 41%

Education No High School Degree Graduate Degree

5 points or 13% 38% 43%

Household

Income Under $20K More than $149K

6 points or 15% 45% 39%

Region Northeast Region Non-Northeast Region

8 points or 20% 49% 41%

Region Southern Region Non-Southern Region

4 points or 10% 45% 41%

Worship Services

Attends Services Does Not Attend Services 4 points or 11%

41% 37%


The table above captures the probability that a respondent will be an Exclusive or a Favorite across the 12 retail categories, when all other independent variables are held constant at their respective means or medians. The data shows there are differences. But it also shows that these differences are relatively minor. For instance, women are 12% more likely than men to show loyalty to brands within these 12 tested categories. That is a statistically significant figure, but probably not enough of a difference on a practical level to make a dramatic change in most companies’ branding plans. The data is not suggesting that if an individual brand makes a targeted, concerted effort to reach a particular population segment that this effort will not be rewarded with greater brand loyalty. The branding process is full of anecdotal evidence that a determined effort to reach and speak relevantly to a particular population segment is often rewarded. The study is also not saying that there are no demographic differences in loyalty toward individual brands, or within individual categories. What the data is saying is that there are no demographic segments of the population that already tend toward dramatically greater levels of loyalty regardless of the retail store category or brand. This study helps explode the myth that older adults are naturally more brand loyal than younger adults, or that certain racial or ethnic groups tend towards greater levels of brand loyalty in general, or that higher-income consumers have very different levels of brand loyalty in general than do lower-income consumers – at least when it comes to retail store categories. There are a few demographic differences when we examine the big picture, but these differences are modest and have a relatively soft impact on the likelihood of brand loyalty within individual retail categories. In essence, if younger adults or African-Americans or any other demographic group is highly loyal to a store brand, it’s not because of their natural tendency toward brand loyalty – it’s because of their connection to one brand specifically. What this regression model confirms is that there are not that many individuals who are “brand loyal” or “not brand loyal” overall – loyalty depends largely on specific store brands, as well as on particular retail categories. It was not at all uncommon for a specific consumer to be an Avoider on drug stores, an Exclusive on book stores, a Favorite on fast food restaurants, and a total non-user on airlines, for example. Because someone has a high level of brand loyalty to Pepsi, Saab, and Home Depot (for instance) does not mean they’ll necessarily have any loyalty whatsoever to Taco Bell.


ALL ABOUT GREY MATTER Since 1996, Grey Matter Research & Consulting has been conducting both qualitative and quantitative research for a wide variety of clients, including numerous Fortune 500 companies. Our clients are highly diverse and our work is very broad-based, with experience in retail, financial services, grocery, publishing, automotive, health services, and a number of other sectors.

Results from these studies have been covered in the international media, such as USA Today, The Financial Times of London, Associated Press, MSNBC, Los Angeles Times, USA Radio Network, Dallas Morning News, Salem Radio Network, Manila Times, and many other outlets in the USA, China, England, Canada, Russia, New Zealand, Norway, Korea, Sweden, Hungary, the Philippines, Australia, and other parts of the world. Grey Matter Research is available to serve clients through privately commissioned research studies such as brand awareness, customer satisfaction, concept testing, and customer loyalty. More information on the company is available at www.greymatterresearch.com.

CLIENTS WE HAVE SERVED:

Coke Fountain Macy’s Department Stores Nestea General Motors PetSmart St. Jude Children’s Research Hospital BMW Pulte Homes Alzheimer’s Association American Red Cross Hancock Bank Navistar Herman Miller Samsung Electronics Goodwill Industries Suzuki Basha’s Supermarkets Dove Chocolates

FROM EXCLUSIVES TO BRANDLESS - Grey Matter...

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