Smartphone Smugness

The announcement that AT&T will buy T-Mobile for $39 billion ends 10 years of Deutsche Telekon’s sortie into the United States. T-Mobile generated respectable sales, but ultimately it wasn’t clever competitive advertising or creative call & data plans that undermined their efforts. In large part it was the hardware, specifically the iPhone that did them in.

Once the touch screen iPhone went on sale, T-Mobile’s customer churn – the industry’s term for disloyalty and defection – dialed up to more than twice the rate of AT&T and Verizon Wireless, their most profitable contract customers moving to their competitors. Because no matter how providers talked about their network, it turned out the hardware carriers were able to offer, the phones, made a very significant contribution to customer engagement and loyalty. And without access to the iPhone, T-Mobile were in an untenable competitive position.

Since a smartphone plays such a large part in how consumers view, compare, and choose wireless options, we thought it would be interesting to see how smartphone brands rank on the 2011 Customer Loyalty Engagement Index:

Apple

Samsung

Blackberry

LG

Nokia

Motorola

Palm

Someone once said that a “smartphone” is just a cellphone that’s gotten smug! You’ll have your own opinion about that, of course, but it’s interesting to note that in the Smartphone Category, the wireless network attribute, makes a much, much smaller contribution than the equipment a carrier can offer customers does in the Wireless Category.

And it may be that when you are the world’s leading smartphone and #1 in loyalty you have a right to feel a little smug.

So Loyal They’ll Buy the Shirts Off Their Backs

In the just-released list from Major League Baseball of bestselling jerseys, 9 of the top-10 players are from teams with the highest fan loyalty, showing up in the top six in our 2011 Brand Keys Sports Loyalty Index. There were 3 Phillies, 2 Yankees (Jeter was #1 on the list), and one player each for the Giants, Sox, Cardinals, and Twins. The only outlier was Josh Hamilton of the Rangers (#12 in fan loyalty). But when you rack up 32 home runs and 100 RBIs, some small variances are to be expected!

The Sports Loyalty Index isn’t just a list. It’s created by interviewing self-classified league and team fans within the teams’ SMSAs, and uses a combination of emotional and rational metrics to measure real loyalty. The overall team rankings correlate very, very highly with TV viewership, and more importantly, sales of licensed merchandise, a behavioral measure where fans vote with their wallets.

This year the fans decided that the top-6 in the MLB in terms of loyalty and engagement going into the 2011 season are:

1. Philadelphia Phillies

2. New York Yankees

3. Boston Red Sox

4. San Francisco Giants

5. Los Angeles Dodgers

6. Cardinals/Twins

At the bottom of the loyalty list are:

1. Pittsburgh Pirates (last)

2. Baltimore Orioles

3. Kansas City Royals

4. Arizona Diamondbacks

5. Seattle Mariners

Loyalty diagnostics allow teams to identify areas that need strategic coaching and rankings can be influenced depending upon how loyalty drivers are managed. Manage loyalty correctly and you’ll see an increase in game viewership – and as the marketplace itself has just confirmed – licensed merchandise purchase. And while everybody loves a winner, it’s important to note that neither win/loss ratios nor a history with the team alone entirely govern fan loyalty. Fan loyalty is driven in four ways; and in combination with one another including:

• Pure Entertainment: How well a team does, but more importantly, how exciting is their play?

• Authenticity: How well they play as a team. A new stadium always helps on this driver. New managers can help. Crazy owners can hurt.

• Fan Bonding: Are players respected and admired? And do fans want to wear their names on their backs, and finally,

• History and Tradition: Is the game and the team part of a fan’s and a community’s rituals, institutions and beliefs?

For rankings of other the teams in the National Football League, the National Basketball Association, and the National Hockey League, we invite you to visit www.brandkeys.com/awards/sports

They call baseball America’s “National Pastime,” and there are very few fans that don’t get excited about attending a game wearing a favorite player’s jersey. Game attendance correlates with fan loyalty too, but loyalty is a complex matter. Remember what Yogi Berra said. “If the fans don't come out to the ball park, you can't stop them.”

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Adult Branding

A word that comes up fairly regularly when we are talking with brands is “evolution,” as it is an inescapable reality of doing business with changing consumers at the other end of the transaction. Brands must continually examine how to stay relevant and grow, if they are to stay profitable, or even be around to complain about profits. In a recent Time magazine article on the changing role of Ronald McDonald the clown, this point was emphasized, symbolic of the change in a brand once centered on children that has fundamentally widened its focus. As Ronald is given an office in the brand basement, McDonald’s continues its march into a more mature market, one not all that in love with clowns.

McDonald’s entry into the coffee category has caught serious traction with adults. Though late to the coffee table, an incredible distribution network and getting to a good strategy has to be giving the Starbuck’s the jitters, as the McCafes sent revenue growth in six out of the past seven quarters to a record high of $24 billion in sales last year. However, Starbucks same store sales are up 7% for end of fiscal year 2010, so it continues its bounce back from a tough 2009 when the chain was down 6%. As Starbuck’s CEO, Howard Schultz, said to the brand’s employees in a year-end message, “We must continue to earn our success every day.”

Starbucks, a rare brand that revolutionized an entire category with its approach to what many marketers once claimed was an unchangeable landscape, knows better than anyone how things can morph. “What a difference two years makes,” said Mr. Schultz in that same message, determined to both celebrate the brand’s resurgence but not take its success for granted. The category continues to shift, as we see in our metrics. As 2011 began, the top three US coffee brands, when it comes to their own customer’s report of their degree of brand loyalty and engagement, are:

1. Dunkin Donuts,
2. Starbucks, and
3. McDonalds

Mr. Schultz’s new book, “Pour Your Heart into It,” tells his story of how the brand was built “one cup at a time.” We could not agree more with that sentiment, as every brand comes to thrive by a build of individual positive transactions. As brand engagement and loyalty specialists, we’ve seen too many brands take consumers for granted once the stores are in place—the old “if you build it they will come” strategy that offers no guarantees.

Without knowing exactly what’s making loyalty happen, brands may experience a Venti-size jolt that wakes them up, but it may be one that leaves them with the shakes.

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A Non-Cynical View of Return-On-Investments

Back in the 18th century, Benjamin Franklin optimistically noted, “An investment in knowledge always pays the best interest.” Even in simpler times that was advice well taken. But in today’s more complex marketplace, where marketers are discovering that the newest member of their teams is the CFO, having actual knowledge about your ROI have taken on greater import.

People are cynical about ROI, but after years of validated research we can confidently say that loyalty-based engagement metrics are always a leading-indicator, predictive measure of consumer behavior. And this week we’re presenting just that – a 21st century view of predictive ROI – at the 75th Anniversary Annual Conference for the Advertising Research Foundation, the results of a 12-category, in-market validation study.

ABC TV and Brand Keys define “engagement” as the consequence of any marketing, media, or communication effort that results in increased levels of brand equity, where consumers end up “seeing” the brand as better meeting their conception of the category Ideal. This approach has been independently proven to be a leading-indicator of behavior and, axiomatically, since more positive consumer behavior should produce more returns on efforts, can provide marketers with a real proxy for ROI.

Happily, any brand, ad, media platform, or consumer consumption model can be measured for engagement in this manner. Engagement metrics can even identify a suitable medium and combinations of media platforms for brands, providing value above and beyond exposure, audience numbers and CPMs. By adopting a new engagement-powered ROI paradigm, marketers, media companies, and planners can not only guarantee that brands will better connect with consumers but can now predict returns on their investments.

Oh, and finally resolve that thorny definition of a cynic, the one about being a person who has knowledge of the price of everything and the value of nothing.

With real engagement metrics marketers can now know both.

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Changing Brand Keys

USA Today has just reported that PepsiCo has created a new plastic bottle made entirely of plant material. Made from things like switch grass, pine bark, corn husks and other materials, the company claims the bottle performs exactly like its ugly predecessor: plastic. Named as the keys to the future in one of the most famous lines from that classic film, "The Graduate," plastic has long since lost its shimmer, dulled by the costs to our environment.

But what about the future? A look at our predictive metrics of what's driving loyalty and engagement among consumers in the soda category, we see that "green" increasingly plays a role. how do the brands stack up as "green" against the consumer's Ideal? Let's take a look:

1. Pepsi
2. Coca-Cola
3. 7-Up
4. Mountain Dew/ Dr. Pepper

However, values are subtle and very different things, as we in the brand business have long understood. What happens when you shuffle the deck on another value -- in fact, one closer to home on the subject: Recycling?

1. Coca-Cola
2. Pepsi
3. 7-Up
4. Mountain Dew/ Dr. Pepper

It turns out, PepsiCo is indeed short of a full liter bottle when it comes to what the bottles are made of, so this move would appear to be going in the right direction for creating more powerful brand engagement. At least in this value, though there are others, bubbling up in the consumer's hierarchy, that may cause all the brands in the category to swallow harder, like what's inside the bottle. That's why a view of the consumer Ideal matters most of all. Brands that have those metrics hold the card to the future.


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Have You Driven A Ford Lately?

These days when someone refers to the Big Two US automakers, they might actually be talking about Ford’s Executive Chairman, Bill Ford, and CEO, Alan Mulally. Oh, and their bonus of nearly $100 million in stock.

Well deserved? Well, Ford was the only one of the Big Three to avoid government-sponsored bankruptcy in 2008, while rivals General Motors and Chrysler received billions in bailouts. The Ford payout was – according to a company spokesperson – “an indication of the performance that the company has experienced” under the two leaders.

According to this year’s Customer Loyalty Engagement Index, Ford has moved up from 11th place in 2008, to 9th in 2009, to 4th place last year, and now is ranked #2 in brand engagement and customer loyalty. It’s gratifying to see such brand acceleration, particularly since these metrics always correlate high with consumer behavior in the marketplace. Currently, the top-5 automotive brands with the highest levels of customer loyalty are:

1. Hyundai

2. Ford

3. Honda/Nissan

4. Mercedes/BMW

5. GM/Kia

The nice thing about loyalty is not only is it a leading-indicator of sales and profitability, it also identifies customer values and expectations well ahead of traditional research ventures. That’s very useful because it lets you know how (and in what ways) particular insights should be driven to optimize brand marketing and communications.

The company sold 1.9 million vehicles in the US last year, a 19% increase from 2009. Ford's January retail sales climbed 27% versus a year ago - the largest retail sales increase to begin a year in more than a decade, so it would seem that the stock awards were warranted.

Success is, after all, doing the right thing, the right way, and at the right time. Any business, like an automobile, has to be driven properly in order to get real market mileage.

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1 + 1 (doesn’t always) = 2

It appears that Sprint and Deutsche Telekom are back in discussions about merging Sprint and T-Mobile, the thought being that a combination of the 3rd and 4th largest wireless carriers would create a plausible competitor to AT&T and Verizon.

This is not as simple as it sounds. Rumor has it that Sprint wants to own more than 50% of the company, thus giving them a real ego boost and the power to effectively run the business, the board, and the brand. And then there are all those financing issues to work out. And a new name for the merged company. And possibly a new brand. With a logo!

Before the battle of boardroom egos begins, let’s take a look at how the major US wireless carriers rank, according to the 2011 Customer Loyalty Engagement Index:

1. AT&T Wireless
2. Verizon Wireless
3. Sprint PCS
4. T-Mobile

Not so surprisingly – because real loyalty metrics always correlate so very highly with positive behavior in the marketplace – these rankings correspond 100% to the carriers’ degree of annual churn – from lowest to highest—that is to say, their levels of customer “disloyalty,” and, as it turns out, according to the numbers of customers they have too.

But customer loyalty isn’t additive. One plus one doesn’t always equal 2 and almost never equals 3 no matter how much the merging brands wish it, so it isn’t as simple as just adding the customer bases together or doubling the ad budget. Oh, you might, of course, start out with more customers than you had before the merger, but that’s no guarantee customers will stick around. Remember customer churn? Customers only remain loyal to brands that are able to meet – even exceed – their expectations. And that stand for something that’s meaningful to them. Just merging two companies guarantees neither.

So, mergers aren’t easy. From a business or a brand loyalty perspective. But there are three business-based criteria that must be met if companies want to ensure that their calls for amalgamation aren’t disconnected after the first ring:

1. The brands have to contribute something to one another,
2. The must share resonating values, and
3. There must be mutual respect and meaning between the brands.

Oh, and these days, when two brands merge they have to be sure the new entity can not just advertise more, but must be able to truly delight the consumer.

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Cost of Flying Soars

American, United, Continental, and US Airways all boosted fares on flights within the lower 48 states by $10 per round trip. Delta is raising fares too, in the $10-$20 range depending upon the flight length. All this in the face of increased costs for jet fuel. So far, none of the low-cost carriers – AirTran, JetBlue, or Southwest – have raised fares. Yet.

According to the 2011 Customer Loyalty Engagement Index, expectations regarding “Rates & Extra Charges” have gone up again this year. And although flyers don’t expect their flights to be free, when it comes to fares even the budget airlines are only rated fair by their own customers, their value-for-dollar assessments looking like this:

Southwest 77%

JetBlue 75%

Delta 72%

United 69%

Continental 68%

Northwest 68%

US Airways 67%

American 65%

Business is business, after all, but it’s the 6th time this year carriers have raised rates. The recent hike follows an industry profit of more than $15 billion last year, but in fairness, the industry had lost $10 billion in 2009, and $16 billion the year before that.

In response to passenger complaints, airlines are rationalizing the increased fares by pointing out that they are only associated with how long a trip you’re taking. Of course, you might follow the advice offered by George Carlin: “Kilometers are shorter than miles. Save money and book your trip in kilometers.”

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To Treat Your Facts With Imagination Is One Thing, But to Imagine Your Facts Is Another

Do you ever find yourself confused by a TV commercial? We don't mean you watched and didn't understand what they were saying. And we don't mean that it was advertising something in which you had no interest. Or that you found the commercial mindboggelingly awful. No, we mean that the commercial was telling you a "fact" that seemed suspect, where the advertiser seemed to expect you to throw your belief system out and cede all truth to the pretty spokeswoman in the clingy, wraparound dress.

This seems especially true in technology areas, where a good deal of what brands discuss are things about which consumers probably have opinions, but almost certainly don’t have the real facts to hand, which is a problem if you want your advertising to engage and be believable. Take the wireless category, for example. Statements like “we have more coverage” or “we have fewer dropped calls” or “they have more dropped calls.” You know the kind. How does one discern opinion from fact?

There’s a difference between opinion and fact, at least according to the Oxford English Dictionary, regarded as the premier dictionary of the English language that comes in 20 volumes. They know from whence they speak. “Opinion” is defined as “ a view or judgement formed about something not necessarily based on fact or knowledge.” “Fact,” on the other hand, is “a thing known or proved to be true,” the operative phrase being “proved to be true.” It’s a phrase we like a lot since our Brand Keys loyalty and engagement metrics prove to be true in the marketplace. You know, facts. Or as Daniel Patrick Moynihan, the American sociologist and politician once observed, “You’re entitled to your own opinions, but not your own facts,” and in any category, but perhaps more so in the complex world of technology it’s probably a bad idea to confuse opinion with reality.

We like dealing with facts. Ours are generalizable at the 95% confidence level and they’re 100% customer-driven. Most of the factual brand rankings and statements we make about them come from our Customer Loyalty Engagement Index (CLEI), this January’s being our 15^th Index. We talked to 46,000 men and women, 18-65 years of age, drawn from the 9 US Census Regions. These are true measures of how customers see their brands versus the category Ideal. We ask the right questions – a combination of psychological inquiry and direct assessments, and use a battery of higher order statistical analyses – where the results consistently are shown to line up with what happens in the marketplace and are predictive of consumer behavior 12-18 months before they show up on traditional research radar screens. And waaaay ahead of statements based on questionable research or just plain opinions. So when we look at a category or a brand we go with the loyalty ratings because they’re category facts and not subjective opinion.

That said, we were amazed to see a Consumer Reports statement to the effect that AT&T was the worst wireless carrier scoring lowest in virtually every respect. We were amazed because this was at odds with the CLEI findings; which showed AT&T as rated #1, with the national wireless brands ranked as follows:

1. ATT Wireless
2. Verizon Wireless
3. Sprint PCS
4. T-Mobile

The fact is that if you were to correlate the CLEI rankings with churn numbers – the wireless industry’s term for customer disloyalty – you’d find a 1:1 relationship. For those of you without a statistical app on your phone, that’s a 100% correlation! It’s nice to have facts that reflect real consumer behavior.

Also there’s been a lot of talk about the power of the hardware driving wireless carrier selection and loyalty. The iPhone being made available on the Verizon network was supposed to create a massive and long-anticipated “anti-loyalty” paradigm shift, with AT&T folks, unwilling to give up their phones, now free to run to another carrier. What happened?

According to Boy Genius Report, Verizon sales underperformed and certainly didn’t mirror the predicted avalanche of iPhone loving-AT&T hating customers shifting their accounts to Verizon. 30% ended up being android users and 25% were BlackBerry owners, and only 14% were AT&T customers, so how desperately dissatisfied could they have really been? Not much according to the facts, so how did Consumer Reports come to opine as they did?

Well, first they’re only talking about satisfaction and not loyalty. There’s lots of satisfaction measures out there. Consumer Reports isn’t the only one, but they all suffer from the same limitations: to be reflective of the real marketplace you need to measure the degree of consonance – or alternatively, the gap – between expectations and performance. Satisfaction metrics usually don’t measure expectations the way real loyalty measures do because it’s difficult to translate real consumer expectations to a 1-to-7 scale. So we do it by fusing emotional and rational aspects of the category via a psychological questionnaire (with a test/re-test reliability of 0.93, used in 3o countries in B2B and B2C categories) that tell us how consumers are going to behave. Satisfaction measures tell you what happened last time. They’re lagging-indicators. And sticking within the category, it’s worth remembering that there are an awful lot of iPhone users out there who used to be some other brand’s “satisfied” customer.

Also, Consumer Reports relied only on their own subscribers’ overall satisfaction, so to be fair you have to call it a lagging-indicator among a really limited group of customers. And the survey was conducted in September 2010, 7 months ago, so to be really accurate you’d have to call it a limited, lagging, lagging-indicator study. The voice and texting scores were based on the week previous to the survey being conducted so add another “lagging” to the list.

To be fair, at the very, very end of the article, in very, very tiny type, Consumer Reports states, “respondents might not reflect the general U.S. population.” You think? So basically it’s some group’s opinion of the wireless services that you really can’t generalize to wireless customers – unless you’re a subscriber to Consumer Reports.

Author Aldous Huxley astutely wrote, “Facts do not cease to exist because they are ignored.” We would add or because they get printed in a magazine or advertised on TV.

And a word of warning to those competitive brands that may feel a touch of complacency as they read Consumer Reports rankings: AT&T Wireless was #1 in the 2010 CLEI too. Beware of misleading metrics that simply don’t connect!

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Not buying this

We usually wait until year-end to take a look back at our blogs and see how they mirrored in-market realities. Happily, for our clients, their prescience is consistently proven out. But today we can’t help but bring up our posting from this January on the recalls of J&J brands in the OTC Allergy and Pain Relief categories, where we predicted an avalanche of a fall for the brand from its 2010 first place ranking. Indeed, when we surveyed consumers in these categories for this year’s Customer Loyalty Engagement Index, J&J’s own customers took the brand from first place to last, not feeling the love for a brand that delivered contamination instead of a cure.

We are revisiting this fall from grace in light of the release of Buyology’s first annual report of the Most Desired Brands in the U.S. The press reported on 2 February that Buyology’s report was the result of an $8 million investment, with Gary Singer, Founding Partner and CEO, quoted as saying that “brands with strong relationships are going to prosper.” Apparently, their methodology can be used to assess the impact of a brands current marketing activities, and determine which activities will be more effective to connect with customers in the future.

Sounds good. We too feel it is critical for a brand to have a strong relationship with consumers if they are going to flourish—and, in fact, we are in the business of giving brands guidance on just how to make that happen. You can imagine our surprise then when we read that the most desired brand in the world for women is J&J, according to Buyology’s neuromarketing-based approach.

One might be able to explain such a ridiculous finding if J&J’s troubles took place before Buyology’s research was conducted. However, according to CNN’s reporting this January, J&J has been dogged for over a year by a series of product recalls and critical oversight actions by the Food and Drug Administration and federal lawmakers. J&J’s customers were willing to extend some forgiveness to the brand initially—that’s how loyalty works, buying a brand not only customers, but customers that give the brand the benefit of the doubt in difficult situations. But when a brand that once acted with class in the face of its product being poisoned lowers its standards for manufacturing, class turns to class action suits; no amount of advertising spend can assuage that brand betrayal. Especially among women, whose children were put at risk and paying more for J&J than buying a generic out of a trust the brand would care for their babies as its own.

While we make it a policy to keep our opinions about specific methodologies to ourselves, we are making an exception in this case. As an active member of industry organizations that are seriously examining how neuroscience might contribute something beyond highly-subjective brain maps to marketers struggling to help their brands thrive in a ceaselessly evolving world, we have some sensitivity to results so flagrantly disconnected from marketplace realities.

Not only is it impossible to imagine that female consumers most desire a relationship with J&J above any brand in the world, but other rankings from this study similarly lack simple face validity—our own contrary, and validated, rankings aside. Even if one disconnects this research from accountability with sales—though why anyone would do that escapes us—to claim that the rabid loyalty that characterizes Apple is not as strong as that of Microsoft is, in a word, unbelievable. Not to mention is the claim that women find National Geographic more desirable than they do Target, and men desire Crest more than BMW.

For those who read our blogs on a regular basis, you know we have a fondness for bringing wit to the discussions of brands and measurement. But we find it difficult to find the humor in this, and hope that Buyology’s next annual attempt will inject accountability into its methodology, before brands that so nakedly abuse their customers’ trust are given laurels they don’t deserve.

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Groeten van België Salutations de Belgique Grüße van Belgien

Or “greetings from Belgium” in all three of its official languages, Dutch, French, and German. Brand Keys is in Brussels, its capital, presenting at the international ESOMAR Insights 2011 Conference, this year an examination of the new world order in shopper insights. The data we’ll be presenting in today’s interactive session is from our Customer Loyalty Engagement Index and has been proven to correlate most highly with behavior, preference, and profitability, which is meaningful to brands no matter what language you speak.

When people hear you’re going to Brussels the first thing they think about is the Council of the European Union. Well, actually, the first think they think of is “sprouts.” Then they think of chocolate, and then they think of beer. After that they eventually get around to mentioning the European Union. But beer is really big here, particularly Stella Artois.

Stella Artois is a Pilsner lager, which is very smooth and is marketed, priced, and sold as a regular, blue-collar (or “proletariat,” as they say in French) lager. On the other side of the Atlantic, it’s promoted as an international brand (or “internationaal merk,” as it’s said in Dutch) by its brewer AB InBev. The “AB” stands for Anheuser-Busch, which is said exactly the same in German.

Anyway, InBev bought Anhesuser-Busch for about $46 billion, and while Stella Artois doesn’t show up on our Customer Loyalty Engagement Index radar screen, some of their other brands do. Here’s this year’s ranking in the Regular Beer category:

1. Sam Adams/Coors (tie)

2. Guinness

3. Budweiser/Corona (tie)

4. Heineken/Michelob (tie)

5. Miller

Belgium beer varies from smooth, like the Stella Artois lager to lambic beer (a beer produced by spontaneous fermentation) to very sharp beer, like a Flemish red (a beer often aged in oak barrels). Currently there are about 125 breweries in Belgium, which is likely the origin of the Dutch adage, “Een fijn bier kan rechters met één slokje zijn, maar het is beter grondig zeker te zijn,” which translates to “a fine beer may be judged with one sip, but it’s better to be thoroughly sure,” a sentiment that goes down smoothly in any language!

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