Chinese customers' lack of loyalty puts pressure on brands

PUBLISHED : Wednesday, 11 June, 2014, 1:15am
UPDATED : Wednesday, 11 June, 2014, 1:15am

Top consumer brands in the mainland market have to constantly recruit new customers because of low customer loyalty, according to a study by research firm Bain & Company.

"The more [mainland consumers] buy a category, the more brands they buy. It's the exact opposite of what marketers want to hear. There's an enormous pressure to re-recruit new shoppers every single year," Bain partner James Root said.

The joint study released yesterday by Bain and Kantar Worldpanel analysed the behaviour of 40,000 mainland households from 373 cities over two years. It looked at shopping behaviour covering 26 consumer staples from milk, confectionery, baby products to shampoo.

It found that brands, with the exception of baby milk formula, demonstrated a high rate of "churn". A look at the top five brands in each space saw that anywhere from 40 to 80 per cent of customers were new.

For example, shampoo brand Head & Shoulders' top-line customer base numbers seemed stable, increasing 3 per cent from 2011 to 2012. However, 45 per cent of the brand's buyers in 2011 did not return the following year.

The study also concluded that penetration is the ultimate driver of repurchase rates and thus market share. The leading brands always correlated with the highest penetration. For example, instant noodle brand Master Kong's penetration was seven times that of 20 competitors.

"There is overwhelming evidence that if I want to win, I'll need penetration. It's not going to work if I try to get a small group of people to buy more often," Root said. "There are no niche brands. There are only small brands."

The survey recommends retailers build consideration first, marketing through the likes of television commercials on the brand's assets, then create "constant confrontation" with the shoppers at the point of sale.

The in-store focus should be on visibility and distinctiveness which entails being present at multiple high-profile locations at the shop such as shelf ends and check-out counters.

So far, local brands have been more successful at increasing penetration. They dominated in food and beverage categories - unless those categories were created by foreign players such as baby milk powder and gum. Foreign brands lost share in 15 of 26 categories, most notably in oral care, cosmetics, and juice.

"As competition intensifies, we expect to see more consolidation in both the retail and [fast-moving consumer goods] sectors but this does not mean that multinational companies will absorb local players. In fact, in recent deals between Tesco and China Resources Enterprise, Danone and China Mengniu Dairy, and Pepsi and Master Kong, the local companies have become the dominant partners," the study said.