The persistence of excess brand loyaltyover multiple years

Vipul Pare & John Dawes

Published online: 29 July 2011# Springer Science+Business Media, LLC 2011

Abstract This study examines the extent to which packaged-goods brands exhibitexcess loyalty over a multi-year period. Brand loyalty for 300 brands in 20 UKproduct categories are compared to theoretically expected loyalty levels calculatedusing the Dirichlet model. Results show that while many brands show excess loyaltyin a particular year (31%), fewer of them (25% and 22%) exhibit excess loyalty over2 and 3 years, respectively. Almost all the brands that do show persistent excessloyalty are private-label brands or are market-share leaders (either the biggest or thesecond-biggest brand in the market). Therefore, excess loyalty over multiple years isa rare occurrence for a brand unless it is a market leader or a private-label brand. Thestudy also shows that 38% of all high-share brands have consistent excess loyalty,and 37% of all private-label brands have consistent excess loyalty. These resultssuggest that existing explanations in the literature as to the sources of excess loyaltyneed further investigation. The reason is that those explanations relate to distributioneffects, which should be similar across such brands. They therefore imply that mosthigh-share and private-label brands should exhibit excess loyalty. The study suggestsseveral avenues for further research to identify the reasons why some high-share orprivate-label brands show excess loyalty and others do not.

Keywords Brand loyalty . Private labels . Double jeopardy . Dirichlet model

1 Introduction

Brand loyalty is of intense interest to academic researchers as well as marketingpractitioners. Hundreds of research studies have been published on the topic, and

Mark Lett (2012) 23:163–175DOI 10.1007/s11002-011-9144-3

V. Pare (*) : J. DawesEhrenberg–Bass Institute for Marketing Science, University of South Australia, 70 North Terrace,Adelaide, South Australia, Australia 5000e-mail: vipul.pare@marketingscience.info

J. Dawese-mail: John.dawes@marketingscience.info

each year large sums are spent building, maintaining, and studying brand loyalty inindustry (e.g. Baldinger and Rubinson 1996; Farr and Hollis 1997). The presentstudy concerns behavioural brand loyalty, that is, the repetitive buying of a brand byits customers over time.

A widely observed pattern in competitive markets is that large brands tend toenjoy more loyalty, and smaller brands tend to have lower loyalty, called the doublejeopardy pattern (Ehrenberg et al. 1990; McPhee 1963). The double jeopardy patternis reported in numerous consumer goods categories (Ehrenberg et al. 1990), indifferent geographic markets (Ehrenberg et al. 2004; Keng et al. 1998), for televisionshows (Barwise and Ehrenberg 1987; Barwise 1986; Ehrenberg et al. 1988), radiostations (McDowell and Dick 2005), forestry products (Michael and Smith 1999)and even for politicians (Ehrenberg 1991). While the double jeopardy effect isubiquitous, some brands deviate from the general pattern (Scriven and Bound 2004).Exceptions to double jeopardy can be exhibited as a deficit of loyalty, where thebrand is bought less often than expected given the number of people buying it, orexcess loyalty, where the brand is bought more often than expected given its numberof buyers. Deficits in loyalty and excess loyalty are both likely to be of interest tomanagers and researchers. However, the present study focuses on excess loyalty,given the stated importance of achieving high loyalty (e.g. Krishnamurthi and Raj1991; Raj 1985).

To illustrate the phenomena we are investigating, Table 1 presents an example ofthe double jeopardy pattern and several apparent instances of excess loyalty, in thebottled beer/ale category.1 We only show the top eight brands due to spaceconsiderations.

Table 1 is ordered by penetration—the percentage of people who bought the brandat least once in a year. The rightmost column shows the average number of timesthose consumers bought the brand in the year. Table 1 shows that 12.3% ofconsumers bought Stella Artois, at an average rate of 2.2 purchases annually. On theother hand, only 2.3% of buyers bought Guinness, and these buyers boughtGuinness on an average of 1.8 times per year. This is an example of the doublejeopardy pattern—fewer buyers buy the smaller brand and those who do, buy it lessoften compared to a big brand.

For those brands that are placed in between Stella Artois and Guinness, we see adeclining number of buyers and a declining rate of purchase. Badger and Asda,however, are different in that their purchase frequency is higher than expected giventhe general pattern. Badger and Asda’s purchase frequencies suggest they enjoyaround 70–80% additional sales volume than would be expected given theirpenetration level. This study examines the extent to which such deviations occur ona persistent basis. That is, whether brands such as Badger and Asda have higherpurchase frequency than expected in the following 2 years as well.

This study uses the well-known Dirichlet model (e.g. Ehrenberg et al. 2004; Faderand Schmittlein 1993) to derive the expected loyalty values for brands in a variety ofconsumer goods categories. The brands that show more than 10% excess loyalty inthe first year are noted. The study then examines the extent to which those brandscontinue to show excess loyalty for the following 2 years. Examining brand loyalty

1 Note these figures relate to bottled beer and ale sold through grocery outlets.

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for up to three consecutive years represents an adequate time period to conclude thatthe brands in question do exhibit persistent excess loyalty. Random error ortemporary market or marketing phenomena are unlikely to exert an influence oversuch a long period.

To contextualize the study, the next section reviews past research that hasidentified instances of excess loyalty and the most commonly presented explanationsfor why excess loyalty occurs. Three research questions are proposed. The datasources and analysis methods are described, then the results of a multi-category,multi-year study are reported.

2 Excess loyalty: literature overview

There are four major conditions or factors reported to be associated with excess loyalty.They are: private-label brands, market-leading brands, partitions or sub-markets, andfinally marketing mix causes. Each is discussed in turn.

2.1 Private-label brands

Private-label brands (PLs) have often been reported as showing excess loyalty ofapproximately 20% (e.g. Ehrenberg et al. 1990). In some cases, the effect is reportedas somewhat weaker (Uncles and Ellis 1989), but nevertheless excess loyalty for PLsis reported over a wide range of packaged-goods categories (Ehrenberg et al. 2004).An explanation for PL excess loyalty is that the PL brand has restricted distribution,being available only in the stores of its own retailer. This restricted distributionmeans the PL is a bigger brand in its own stores than in the market generally, whichartificially inflates the buying frequency for the PL brand relative to its number ofbuyers (e.g. Bound and Ehrenberg 1997).

2.2 Partitions or sub-markets

Uncles et al. (1994) examined 34 categories and reported several instances of excessor deficit loyalty. The authors speculated these cases could be partly due to marketpartitions, or sub-markets. In other words, excess loyalty could arise when a market

Brands (by size) Penetration(% buying in a year)

Purchase frequency(avg. purchases in a year)

Stella Artois 12.3 2.2

Budweiser 6.1 1.9

Carlsberg 5.8 2.0

Grolsch Beer 5.1 1.8

Kronenbourg 4.7 1.6

Badger 4.3 3.3a

Guinness 2.3 1.8

Asda 2.2 3.3a

Table 1 Annual penetration andpurchase frequency for bottledbeer/ale, U.K. 2007

a Excess loyalty

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is defined to include functionally different product types that really compriseseparate markets. For example, diet drinks are bought more frequently than normaldrinks, so the metrics for diet brands could consequently exhibit excess loyalty—asreported by Kahn et al. (1988). Related to the idea of market partitions is that somebrands may appeal to a select buyer group. Barwise and Ehrenberg (1988) give anexample of certain US television stations that exhibit excess loyalty because theyappeal to a specific ethnic or religious group.

2.3 High-share brands/market leaders

A number of studies report that market-leading brands tend to enjoy higher loyaltythan predicted by the Dirichlet model (Danaher et al. 2003; Fader and Schmittlein1993; Scriven and Bound 2004). Fader and Schmittlein (1993) tested a variety ofpotential explanations for high-share excess loyalty, and found that the most likelycause pertained to distribution advantages. They argued that if some stores carry alimited range of brands, the brands they carry are more likely to be market leaders.Furthermore, if a segment of consumers exist that is loyal to those particular stores,the combination of store loyalty and exclusive in-store presence for market leaderswill cause excess loyalty for the high-share brands.

2.4 Marketing mix/product factors

Bhattacharya (1997) found excess loyalty (measured as share of requirements(SCR)) was related to higher quantity per purchase occasion, but that the effects ofprice and promotion in explaining higher or lower than expected SCR were fairlyweak. The study also found market share still corresponded to excess loyalty, evenwith the other marketing mix variables included in a multiple model. Jung et al.(2010) extended Bhattacharya’s study across over 400 product categories to findbrands that were more frequently discounted or promoted in-store, or that were soldat lower prices, were less likely to show excess loyalty (Danaher et al. 2003 foundhigher-priced brands showed less loyalty, possibly because they tend to discountmore). Jung et al. also found that brands sold in larger purchase quantities peroccasion were more likely to exhibit excess loyalty, and that most large-share brandsexhibited excess loyalty in a 12-month period.

To summarize, prior research has established two consistent themes: first, market-leading brands (#1 or #2 ranked in size) usually enjoy excess loyalty when examinedin a time period such as 12 months. Second, private-label brands are also likely toshow excess loyalty, posited to be due to their restricted distribution, which inflatestheir purchase frequency for their level of penetration. In addition to these twothemes, there are indications that market partitions or sub-markets can cause unusualloyalty levels for certain brands; and that brands purchased in larger quantities peroccasion tend to exhibit higher than expected share of category requirements.

Given that brand loyalty is a key metric for marketing managers (e.g. Munoz andKumar 2004), a brand that attains a higher than expected level of brand loyalty islikely to capture the interest of its own management, and that of competitors. Buthow many brands exhibiting excess loyalty in 1 year do so the next year, or the oneafter? The reasons given for excess loyalty outlined above generally imply some

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permanent feature of the brand. Private-label brands, market-share leaders, appealingto a specific sub-group, or having a functional feature that is distinct from competingbrands are all permanent or semi-permanent brand features. Therefore it isreasonable to think that brands with excess loyalty should enjoy it persistently.However, no prior study has examined the extent to which excess loyalty persistsover time. Identifying the level of persistence for excess loyalty is potentiallyimportant for several reasons. First, cases of persistent excess loyalty that persist areinteresting because they do imply that a permanent feature of the brand is inducingthe loyalty. Knowing about brands with excessive loyalty over time could lead to amore informed search for the causal factors underpinning loyalty. Second,persistence offers a way of testing the two prime explanations identified in theliterature as corresponding to excess loyalty. These two factors are the combinationof availability advantages and store loyalty proposed by Fader and Schmittlein(1993) as an explanation for high-share brands having excess loyalty; and therestricted availability of private-label brands causing them to exhibit higher loyaltythan expected for their penetration levels. As mentioned above, both theseexplanations relate to long-term features of the brands: the restricted availability ofPLs does not change over time, and market shares tend to be reasonably stable overtime (Dekimpe and Hanssens 1995; Nijs et al. 2001). Therefore, persistent, multi-year excess loyalty for high-share brands and private-label brands are expected if theexplanations outlined here are accurate. Conversely, if many high-share and private-label brands do not show excess loyalty consistently for multiple years, theseexplanations become less tenable.

Based on the preceding discussion, the following research questions are posed:

1. What proportion of brands that show excess loyalty in 1 year, continue to do soconsistently over multiple years?

2. What proportion of private-label brands exhibit excess loyalty in 1 year, andconsistently over multiple years?

3. What proportion of high-share brands (#1 or #2 for market share) exhibit excessloyalty in 1 year, and consistently over multiple years?

3 Method

The method involves identifying actual loyalty levels for each brand in a series ofcategories, and comparing them to the expected values generated by the Dirichletmodel. Before proceeding to the actual analysis, we provide a synopsis of theDirichlet.

3.1 Dirichlet model

The Dirichlet model, or sometimes called the negative binomial distribution (NBD)–Dirichlet is a combination of two main distributions—the NBD and the Dirichletmultinomial distribution (DMD)—see Goodhardt et al. (1984). The NBD models thecategory-buying rate, and the DMD models brand choice. The inputs to the modelare, category penetration and purchase frequency, and brand market shares. From

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those inputs the NBD–Dirichlet model provides estimates of brand penetration andpurchase frequency, the incidence of 100% loyal buyers, and the extent of overlap orduplication that occurs across each brand’s customer base. The accuracy of Dirichletestimates has been reported in numerous studies (e.g. Ehrenberg et al. 2004; Faderand Schmittlein 1993; Uncles et al. 1995). Once the Dirichlet estimates have beencomputed it is a straightforward task to compare actual loyalty levels to the modelestimates.

3.2 Data

The data used in this study is Superpanel data provided by Taylor Nelson Sofres(TNS). The data is gathered from a selected panel of 15,000 households across theUK. Participating consumers record their purchases using electronic scannersimmediately after shopping trips. The panel is geographically and demographicallyrepresentative of the UK consumer population (TNS 2008). As with any consumerpanel, some panellists drop out over time therefore we use specific 52-week periods,selecting only the panellists reporting for that full 52 weeks. This approach avoidsthe downward bias in repeat-purchasing metrics that would otherwise occur ifpanellists present for only part of the 52 weeks were included. The year-on-yearcomparisons of brand loyalty therefore draw on the panellists reporting for eachrespective year.

We obtained data for 20 diverse categories. They include six personal-care categories(shampoo, conditioner, deodorant, soap, toothpaste and mouthwash), one laundrycategory (fabric conditioner), two pet food categories (dog and cat food), five foodcategories (breakfast cereals, yoghurt, crisps, margarine and ice cream), four beveragecategories (tea, instant coffee, cola, and fruit juice) and two alcoholic drinks categories(bottled beer and bottled wine). This diversity should help produce results that areapplicable to packaged good categories in general. The categories are grouped togetherin six broad classifications: food, personal care, beverages, pet food, alcoholic drinksand laundry. Data for 12 categories are for the period 2002–2004; three categories,namely fruit juice, bottled beer and bottled wine are for 2005–2007 and for crisps,toothpaste, mouthwash, dog food and margarine the time period is 2008–2010. Using arange of different time periods ensures against the results being idiosyncratic to any oneperiod. Note that the product categories we used were what could reasonably beclassified as such, rather than what could be termed a ‘mega-category’ encompassingquite different product formats. For example, we applied the Dirichlet model to fruitjuices rather than a broader soft drinks mega-category also encompassing colas andlemonade; likewise we used margarine rather than the mega yellow spreads categoryencompassing butter.

The study only analysed brands that were present in the market for all 3 years. Atotal of 300 brands were examined. In some categories the largest brand was verydominant with over half of all households buying it in a year (Colgate in toothpaste,Coca Cola in soft drinks, Nescafe in instant coffee). In other categories, the marketleader was not as dominant, for example the largest shampoo brand, Pantene, wasbought by only 13% of households; and Sure, the largest deodorant brand wasbought by only 24% of households in a year. The market shares of the brands rangedfrom 30% to below 1%. Past studies recommend only using brands with more than

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1% share to avoid outliers skewing the results (e.g. Baldinger et al. 2002). We used asimilar approach, namely to use brands with more than 2.5% penetration, which inthe panel equates to approximately 400 buyers purchasing annually. Brands with lessthan 2.5% penetration were combined into a single brand labelled ‘all others’. Thisaggregation approach is consistent with prior studies (Bhattacharya 1997; Fader andSchmittlein 1993). The other advantage of using only brands with over 2.5%penetration is that the 95% confidence interval for the point estimate of loyalty for abrand of that size is 10% (Trivedi 2002 ch. 10). Therefore, we can be confident thatusing a threshold of 10% from the Dirichlet estimate to classify brands as excessloyalty, distinguishes excess loyalty from random error.

Of the 300 brands analysed, 117 (39%) were classified as private label. Note thatin some categories, the retailer offers multiple PL brands such as Tesco Value, Tesco,and Tesco Finest. In some other categories, there is only a single PL brand offered byeach retailer. The level of aggregation for the group of items comprising each PLbrand is comparable to that of the national brands in all categories.

Next, for high-share brands we used a slightly more restrictive criterion than inpast studies. In past studies, the two largest brands have been classified as high-share. We imposed an additional restriction that a brand had to be #1 or #2 in size,and also be 1.25 times the size of the next largest. In two categories, namely cola andcat food, there were three brands with similarly high penetrations while the rest ofthe brands were more than 25% smaller than the top three. In these two categories,we classified the three biggest brands as high share. This approach avoidedarbitrarily classifying a brand as high share that was only marginally bigger than thenext biggest. In total, there were 32 high-share brands (11% of the sample). Only onebrand was both private label and high share, this being Tesco fruit juice.

3.3 Observed and theoretical loyalty values

The observed brand performance data was entered into excel-based Dirichletsoftware (Kearns 2002). This software uses the full NBD–Dirichlet model ratherthan the Empirical Dirichlet (Bound 2009). Comparisons between the observed andmodel-generated expected values identified those brands that sit very close to theexpected loyalty level, and those that are exceptions. All 20 categories were quitestable in terms of penetration, with penetration change averaging only 1% point percategory (maximum 1.4% points) over the 3 years. This stationarity makes thedatasets ideal to model using the Dirichlet (Goodhardt et al. 1984).

3.4 Specific steps taken to identify excess loyalty

The first step was to tabulate actual brand performance measures for each brand. Weused two measures, both for 12-month periods. The first measure was penetration,representing the number of consumers who bought the brand at least once a year.The second measure was average purchase frequency—the number of occasions theconsumer bought the brand in the 12-month period.

Once the observed values were tabulated, we obtained the model estimates fromthe Dirichlet software. We then compared actual loyalty to the model estimates.Brands with over 10% greater loyalty than model estimates are considered to be

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cases of excess loyalty, as per Kahn et al. (1988). The same procedure was thenapplied for the subsequent year, then the subsequent 2 years. Brands that had morethan 10% excess loyalty over 2 years, and over 3 years, were accordinglycategorised as persistent excess loyalty. Brands not classified as excess or deficitloyalty had an average deviation from the Dirichlet estimate of 4.8%.

4 Results

4.1 Excess loyalty: how often and how persistent?

Table 2 shows the number of brands that deviated in each category. The table isordered by category, according to the percentage of brands that consistently showedexcess loyalty. The table lists the respective category, the total number of brands inthat category, the number of brands that had excess loyalty in the first year, and thenumber of brands that did so consistently over three consecutive years.

Table 2 shows that 31% (94 out of 300) brands show excess loyalty compared totheir expected levels in the first 12-month period. However, of those 94 brands, 75showed excess loyalty over a second year and fewer (65) showed excess loyaltyconsistently over 3 years. Therefore, of the total number of brands (n=300), 25%showed excess loyalty for 2 years and fewer again, 22%, for 3 years.

We checked that our results were not sensitive to the level of aggregation used toform the brands. To do so, we analysed six categories that exhibit high numbers of‘sub-brands’—cereal, yoghurt, instant coffee, crisps, dog food and cat food. We ranthe same analysis for the sub-brands in these categories (for example, in coffee—Nescafe Original, Nescafe Gold Blend; in yoghurt—Muller light, Muller Crunch,Ski, Ski Extra Fruit). Results for 217 such sub-brands showed very similar results tothe main results, namely that 31% showed excess loyalty in the first year but fewerdid so in the second year (24%) or consistently over the 3 years (22%). Of those that

Table 2 Number of brands showing excess loyalty and persistence over 3 years

Categories Total number of brands Number andpercentage ofbrands that showedexcess loyalty inthe first year

Number andpercentage of allbrands thatshowed excessloyalty for 2 years

Number andpercentage of allbrands thatshowed excessloyalty for 3 years

N % N % N %

Food 87 25 29 19 22 18 21

Personal care 71 21 30 16 23 11 15

Drinks/beverages 70 21 30 18 26 17 24

Pet food 34 13 38 11 32 10 29

Alcoholic drinks 25 9 36 8 32 7 28

Laundry 13 5 38 3 23 2 15

Totals 300 94 31 75 25 65 22

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did show excess loyalty for 3 years, 74% were either private label or the major sub-brand of a market leader. We also checked that the changes in excess loyalty wereactually changes in buying behaviour, not changes in the model-generated loyaltyestimates to which actual loyalty is compared. The model-generated loyaltyestimates for each brand were extremely stable, with an average range of 0.24purchase occasions per brand over the 3 years. This is in-line with a small amount ofexpected year-to-year variation, reflecting minor changes in category penetration andbuying rates. Furthermore, the variation in the estimates is much smaller than what itis for actual buying rates (0.52 occasions). Therefore the results do indeed reflectbrand-level loyalty change, not random fluctuation in the model estimates. Finally,we examined the extent to which our results are sensitive to the threshold of 10% forexcess loyalty. Accordingly we reduced the threshold for excess loyalty to 5%, andobtained a higher incidence of excess loyalty in 1 year (37%) which reduces to 29%and 26% over 2 and 3 years, respectively. This is the same pattern as found using a10% threshold; therefore, the pattern of results is not contingent on the specificthreshold used.

As discussed earlier, the two main factors linked with excess loyalty are private-labelbrands (e.g. Ehrenberg et al. 1990) and high-share brands (Fader and Schmittlein1993). The extent to which these factors are associated with consistent excess loyaltyover time is investigated next.

4.2 Private-label brands as an explanation for excess loyalty

Some private-label brands are popular and widely advertised, similar to a nationalbrand. Private label popularity is particularly high in the U.K. However, even in theUK, private label availability is somewhat restricted as compared to a national brand.For example, Tesco Instant Coffee is a private-label brand with high market share,but it is still only available in Tesco stores. On the other hand, Café Direct has a lowmarket share compared to Tesco Instant Coffee but is available in Tesco, Sainsburyand other stores. Table 3 shows the number of private-label brands with excessloyalty.

Among the 117 private-label brands, 50 exhibited excess loyalty persistently over2 years, and 43 over 3 years, equating to 37%. Therefore, the majority of private-label brands do not show excess loyalty consistently over time. It is noteworthy thatcases of PL excess loyalty are higher in food and drinks/beverages than in categoriessuch as personal care and laundry. We next examine high-share brands.

4.3 Excess loyalty amongst high-share brands

Table 3 also shows the results for the two largest brands in each category. There were32 high-share brands across the 20 categories studied. Of these 32, 12 showedexcess loyalty over 2 years, and the same number again over 3 years. The resultsupports the arguments of Ehrenberg et al. (1990) that while some high-share brandsdo achieve higher purchase frequency than expected, the phenomenon is notuniversal. The analysis also found that of the high-share brands that did show excessloyalty in the first year, all of them exhibited it over the full 2 and 3 years. Therefore,excess loyalty appears to be a phenomenon that high-share brands tend to have either

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long-term, or not at all. We also endeavoured to test the theoretical rationale thatexcess loyalty for high-share brands involves a combination of distributionadvantages for the high-share brand coupled with store loyalty for the stores thatfavour those brands (Fader and Schmittlein 1993). We tested this by examining thedistribution coverage of high-share brands with excess loyalty, and without.2 Wefound no differences in distribution between them—high-share brands in thesedatasets all tend to be available in almost every retailer.

While the focus of the paper is on excess loyalty, we now also briefly mention theissue of deficit loyalty—when a brand earns less loyalty than it should, given itspenetration level. We found that the incidence of deficit loyalty was 36% in the firstyear, 29% over 2 years and 25% over 3 years. However, unlike excess loyalty thereappears to be no identifiable characteristic linking the brands that show deficitloyalty, apart from it having a low incidence among PL and high-share brands (11%and 6% persistent deficit loyalty, respectively).

5 Discussion

Overall, the results show that 75 brands of the 300 brands studied showed consistentexcess loyalty over 2 years, and fewer (65) over three consecutive years. Of these 65brands, 43 were private-label brands and 12 were high-share brands. Therefore, only 10of the 65 cases of multi-year excess loyalty were neither a private label nor a high-sharebrand. The results suggest that achieving excess loyalty over a multi-year period—for abrand that is neither a private label nor a market leader—is a rare occurrence.

The study also identified that many private-label brands do not exhibit excessloyalty. Therefore, the rationale that restricted distribution causes excess loyalty for

2 Distribution coverage was measured as the number of retail chains that stock the brand.

Table 3 Private label and high-share brands with excess loyalty over 3 years

Categories Private-label brands High-share brands

Total No. ofprivate-label brandsin these categories

Excessloyaltyfor 2years

Excessloyaltyfor 3years

Total number ofhigh-share brandsin these categories

No. Excessloyalty for2 years

No. Excessloyalty for3 years

Food 37 13 12 7 2 2

Personal care 16 6 3 10 5 5

Drinks/beverages

34 15 14 8 1 1

Pet food 14 7 6 4 3 3

Alcoholicdrinks

9 7 6 1 1 1

Laundry 7 2 2 2 0 0

Total 117 50 43 32 12 12

% – 43 37 – 38 38

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private labels cannot be the full explanation, since all private-label brands sell onlyin their own retailer outlets. The answer may lie in the extent to which PLdistribution is limited—some retailers such as Tesco have so many stores in the UKthat the distribution of Tesco PL is arguably very widespread, rather than restricted.Another possibility explaining the variation in excess loyalty for PLs pertains tolimits or restrictions on manufacturer brands imposed by the retailer to favour itsown PL. That is, if the retailer limits its stockholding of national brands in an attemptto boost the sales of its own PL brand, this policy could inflate the market share ofthe PL brand within that retailer. Given that market share and loyalty are statisticallyrelated (Ehrenberg et al. 1990) the loyalty levels for that PL brand could therefore beinflated.

Our results indicate that a fairly large proportion of brands show excess loyalty ina 12-month period. This large proportion may suggest that applying the Dirichletmodel to these product categories is inappropriate—if there are so many exceptionsto the model in these datasets, why use that model? One answer is that theexceptions are systematic, because they comprise almost all private labels and high-share brands. Second, the majority of exceptions are consistent with past studies.However, given the prevalence of private labels showing excess loyalty, theappropriateness of the Dirichlet to these categories should be assessed in a formalexamination of ‘fit’. To do so, we constructed a multiple regression model with thedependent variable being observed brand loyalty. The three independent variablesare the Dirichlet loyalty estimates, with Private Label and high-share brands codedas 0,1 dummy variables. The resultant OLS regression across the 300 brands has anadjusted R2 of 0.863 with all three variables significant at p<0.001. The signs of thePL and high-share dummy variables were positive, as expected. The regressionresult supports the use of the Dirichlet for modelling the datasets used here, but alsohighlights the impact of private label and high-share brands in the resultant loyaltyestimates.

6 Contribution and implications

Many studies have examined brand loyalty and the possible factors that underlieexcesses or deficits of loyalty. This study makes a unique contribution by examiningthe persistence of brand loyalty over multiple years, and to the author’s knowledge isthe first study to have done so.

The managerial implications of the results are, first if a brand manager noticestheir brand shows excess loyalty in a particular time period this is not grounds forcelebration—the brand will likely revert to its normal level in the following year ortwo unless it is a PL or a market-leading brand. Likewise, managers should not beoverly concerned with a competing national brand that shows excess loyalty in atime period—the results here suggest such exceptions to Dirichlet norms are oftentemporary. The results also offer guidance for marketing managers consideringwhether to invest in activities to boost brand loyalty. The study findings suggest it is3 Using only the Dirichlet estimates produces an R2 of 0.84. While the dummy variables add a smallincrement to the adjusted R2 of 2%, they are statistically significant at p<0.001. The regression equation isLoyalty=−0.6+1×Dirichlet estimate+0.9×PL+0.8×High Share.

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very difficult for such activities to boost and maintain loyalty above what is expectedgiven the brand’s market share (again, unless the brand is a PL or a market leader).

7 Limitations and directions for future research

There are some limitations of the study that bear mention. First, the research onlybriefly examined loyalty deficits, choosing to focus on brands that enjoy higher thanexpected loyalty. However, if certain brands do suffer lower than expected loyaltylevels over long time periods, they are of academic and managerial interest.Therefore, a direction for future research is to more fully examine the persistenceand correlates of low brand loyalty. A second limitation is that market partitions orsub-markets, and marketing mix factors, were not examined as possible causes forconsistent excess loyalty. However, the results showed that private labels and high-share brands accounted for the majority (85%) cases of consistent excess loyaltyover 3 years.

A promising avenue for further investigation is why some high-share brandsenjoy excess loyalty year after year, but other high-share brands do not. We foundhigh-share brands, either with or without excess loyalty, did not differ markedly intheir distribution coverage. Therefore, finding the reason for loyalty differencesamong high-share brands could look to broader explanations. Related to the issue ofhigh-share brands and excess loyalty is the question of whether brands with excessloyalty in one country-market enjoy that favourable situation in other countrieswhere they are sold. For example, Pantene conditioner has consistent excess loyaltyin the UK, and is a leading brand in many other countries—does it have excessloyalty in those other countries too? The answer to this question could identify ifloyalty is intrinsically tied to brand qualities, or perhaps linked to local marketfactors.

A second direction for future research is to investigate why some private-labelbrands do show excess loyalty, and some do not. The discussion section of this studynominated two potential factors that could help answer the question. The first factorpertains to the distribution breadth of the retailer, and the second relates to stockingpolicies of the retailer that limit the sales of national brands to favour the retailer’sprivate-label brand. Testing these potential explanations would be of interest to bothmanufacturer brand managers and retailers alike.

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