Title image for article About loyalty

About loyalty

Byron Sharp trusts no one when it comes to loyalty. That's why the marketing professor from southern Australia stopped counting on customer retention and regular guests a long time ago: they're too inefficient and expensive. Instead, he's focusing on scientific data analysis, which is telling him that market share can only be gained with chance customers.

Mr Sharp, what's more important for a guest: a hotel brand's programme for regular customers or simply getting a good deal? 
A good deal. But I'm not suggesting that low prices are the only thing that counts. I just want to emphasise that so-called loyalty schemes have very little impact on the behaviour of regular customers. If you operate one, you're mainly rewarding guests who would have stayed with you anyway. 

When your book "How Brands Grow" was first published in 2010, you caused a bit of a stir in the marketing sector because you questioned the importance of loyal customers in terms of noticeable sales growth. How did you come to that conclusion? 
If you want to know where your sales growth is coming from, just look at the figures. Is growth tending to come from the fact that I have more new guests, or from more repeat bookings? The right answer is, of course, that the increase in sales has come from both groups. However, the impact of customer loyalty is definitely overestimated. Every brand, and this also applies to hotels, can grow only if it succeeds in gaining new buyers.

Can you back up your hypothesis? 
Oh yes, my theories have been demonstrated for many brands in all segments in many countries over many years. I can show you, based on scientific evidence, that the success of a brand depends above all on how many "light buyers" it appeals to.

How do you define "light buyers"? 
They're best described as "rare" buyers, i.e. people who only book a few nights in a hotel once every few years. You could also talk about occasional customers. Most people belong to this category.

The impact of customer loyalty is definitely overestimated.

According to the international management consultancy McKinsey, 58 per cent of participants in loyalty schemes don't actually use the benefits of membership. So why do so many marketing experts swear by having a regular clientele? 
Many are continuing to bank on customer retention and brand loyalty, because they think it's a risk-free way to increase sales. They know how these loyal guests behave, they have their data and addresses. But deep customer loyalty to a product is hokum, if you examine it from a scientific viewpoint.

So that means that one of the most commonly held assumptions in marketing – that regular guests should be nurtured and cherished – is a waste of time, because customers will be loyal anyway? 
In principle, buyers and guests like to be loyal. It's part of our natural behaviour. Loyalty is regarded as a virtue in itself in every society. But if you look at the demonstrable reality of whether everyone in a community adheres to this or whether a buyer always remains true to a brand, you'll realise that we're polygamous when it comes to loyalty.

You have written, "every customer is a customer of other brands that he buys occasionally". Does this sentence also apply to the hotel sector? And does that mean that loyalty schemes are becoming less important? 
Of course, hotel guests are polygamous too. There's pretty much no one who is one hundred per cent loyal to just one hotel brand. Even your most faithful guest will look at what competitors are offering and make comparisons. 

Does that therefore mean that managers and marketing experts should stop wasting their time and money on loyalty schemes and regular guests straight away? 
No, I don't mean that categorically. But hoteliers should definitely be careful not to spend too much money on this type of marketing. If you treat your guests well, you'll get the regulars you deserve. After that you should stop worrying about these guests, and you're better off thinking about how to gain more new customers. 

If sales efforts are no longer focusing on regular customers, which customer groups should we be looking at instead? 
Everyone who needs or books hotel rooms.

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Byron Sharp: New customers are more important than regular guests

You talk in this context about "light buyers" who only buy something now and then. You cite the example of Coca-Cola, saying that the growth of this global brand does not come from regular consumers, but from people who only drink Coke a few times a year. Can this example be transferred to hotel brands?
Definitely. I only named Coca-Cola because even this quintessential example of a strong global brand depends on occasional buyers. Smaller, less well-known brands – and this also applies to the hotel sector – are even more dependent on sporadic buyers to increase their share of the market.

Coca-Cola relies above all on the attention of the masses. Are you really convinced that this strategy will also work for selling beds?
aturally there are specific differences between the individual sectors, but the marketing challenges are similar. Only if you can manage to be constantly present both mentally and physically as a hotel brand will you gain the occasional guests you need to provide growth on one hand and to offset the loss of regular guests who have not been loyal on the other. When someone is thinking about booking a hotel, yours must be the first one that comes to mind and ideally should also be bookable. 

The market research institute Forrester Research has discovered that, although a lot of consumers will register on a brand's Facebook page, they almost never visit the page again afterwards. Are social media suitable for achieving the mental presence you consider so important in attracting "light buyers"? 
Every medium has its advantages and disadvantages in principle. The key thing is to use it in the right way, so that it can take effect. To be able to do that, everyone must look very closely at the data and the cost-benefit effect. They must get into the heads of potential buyers. You should therefore think about how you can attract the attention of new groups of customers.


Byron Sharp is Professor of Marketing Science and Director of the Ehrenberg-Bass Institute at the University of South Australia in Adelaide. His book "How Brands Grow: What Marketers Don’t Know" has become one of the most influential reference works on the subject. When the book was published 18 years ago it sparked a lot of debate among well-known marketing gurus, as it challenged many unshakeable assumptions, including the importance of brand loyalty and the precise targeting of specific groups. The second volume, "How Brands Grow: Part 2", co-authored by Jenni Romaniuk, followed in 2015.

One of the major advantages of digitalisation is that it also allows smaller companies that do not have a budget of millions to advertise. What should they watch out for?
Please don't automatically assume that online advertising – just because it's cheaper – is actually money well spent! Don't waste your energy on target groups that are far too specific either. The important thing is to ensure a broad awareness of your brand with as ubiquitous a presence as possible. 

You're an advocate of good old-fashioned advertising in classic media such as television and printed materials. Why is that?
Because TV, newspapers and magazines still have the biggest reach. A spot on a major channel before the evening news will ensure more awareness for your brand than any internet medium.

But nobody can avoid the internet. Everyone wants those much sought-after millennials to know about them, and they no longer appear to be using classic media, do they?
I think that's a myth. The first generation of digital natives still watch a lot of television, read magazines and listen to the radio. But what's to stop you from advertising online at the same time, for example with a spin-off of a well-known print product, or from having a presence on leading platforms?

Mr Sharp, thank you for talking to us.