Risk & Brand Loyalty

Customers may resort to various approaches in order to cope with the risk they perceive with a product or service. Essentially they endeavor to diminish the level of perceived risk to proceed to making purchase decisions. The strategy adopted by many customers is turning into loyal customers who are mentally committed to buying a brand. Because of having a favorable experience of using and consuming a good or service offered by that specific brand, customers would feel lower level of risk associated with buying a product produced by that known brand. It has been found that risk averse customers are more prone to becoming loyal customers as they always seek a solution to high perceived risk and try to lessen it. As a result they exhibit more tendency for becoming loyal to a brand in stark contrast to what risk taker customers do. Risk takers possess characteristics like variety seeking so they love experiencing new brands and products. They do not want to be bound to a set of brands because loyalty to brands would deprive them from trying a more diverse range of brands. Brand loyalty is been identified as a very common risk reduction behavior which suites segments of customers who do not like uncertainties accompanied with buying a brand new to them. The more customers trust a brand and recall a good experience of that, the more likely they are to become loyal customers who are happy to ignore all marketing messages of other brands and select the brand they are brandloyal to without any doubt (Matzler et al 2008).

My Experience

When I started writing this post, I remembered the time when I had finished my undergraduate course at Deakin and was considering doing a master degree in a university in Australia but not at Deakin because I wanted to experience a new environment. I did lots of search about course content, tuition fee and many other variables in regard to more than 10 universities across Australia but finally on the contrary of my initial aim I choose Deakin again. This decision even surprised myself let alone my friends and family but the reason for that weird decision boils down to the word “risk”. I noticed high level of risk attached to moving to another university specially those located in other cities. I started thinking about many uncertainties that I could face and started comparing my familiarity with Deakin with all unknown things about other universities. What type of people I would have to deal with? How long it would take me to get used to the new environment and how different lectures and teaching style would be? These are just examples of issues I was contemplating about but finally high level of Perceived risk and high switching cost were two important contributing factors that made me a loyal student to Deakin.

Matzler, K., Grabner-Kräuter, S. & Bidmon, S. 2008, “Risk aversion and brand loyalty: the mediating role of brand trust and brand affect”, The Journal of Product and Brand Management, vol. 17, no. 3, pp. 154-162.

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21 thoughts on “Risk & Brand Loyalty

  1. Hi All,

    A very interesting case and interesting.

    I do agree that customers’ loyalty is very important in marketing role,which probably as the customers do not want to take risk to try new things or they may have good experiences on purchasing and they prefer to repeated purchasing next time.Apple products are very good example in this area.As a consumer,I bought my first apple smartphone in 2009 and after that I become a loyal apple consumer.My all laptops,iPads and phones are apple brand,because apple gave good shopping experience and provided excellent products for me time and time again.Every time when I was thinking about buying new phones or laptops,my sensory and perceptual told me that apple is the best choice.

    Since consumers’ loyalty can increase desire for purchase as well as reduing shopping risks and also customers’ bahaviour is very preticatable,many companies consider loyalty programs as an important marketing development strategy.They try to make different marketing events to enhance customers’ loyalty,yet in my views to make loyalty programs succeed,products are the most important things,which means no matter how excellent events are,without good products,the cusomers will be not become real loyal customers.

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  2. The good products are the first priority factor that impact customer loyalty, and also the service is important as well. Once customers have already used to enjoy the products and services, it is hard for them to choose other product because it is hard to change their buying behaviour or buying habit. For example the commitment made by Tinahuawang, especially in electronic market, once customer get used to use Apple product, it is difficult for customers to change to another brand because of they need to learn different system, and they don’t know whether they can enjoy the features of other brand or system. That’s the uncertain risk for customers.

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    • Thanks for mentioning the word “learning” as it is a critical factors when discussing brand loyalty and risk.When customers have already spent huge amount of time and effort to learn all the functions and capabilities of an Apple product,it would not be easy for them to go for a new brand.In addition one element that should be considered here is age,educational level and readiness for adapting to change which varies hugely among customers and all these variables can influence speed and desire for learning.

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  3. Hi All,
    Consumers are no longer making their buying decisions based on brand loyalty, but rather which companies can match their desired experience at a time of their choosing. In other words, consumers want what they want when they want it, and if your company can’t meet their needs when they’re ready to pay for it, brand loyalty isn’t going to sway them.

    Liked by 2 people

  4. People are sometimes blind to go for the rotating roaster by seeing the risk factor. Though its human nature to avoid risk but when to taste a new fruits and some people tailgate themselves to go for same product which are popular among the region or culture. Apart from risk analysis, Branding is a main area where consumers are getting involved and mainly their confidence level will get increase and on my personal experience some of my friends who used to identify the range of people through their brands which they consume. For example if you compare mercedes guys with Ford guys. Its makes lots of difference. Mercedes guys will consider themselves as they are in safe zone of driving compare with other manufatures of cars. Consumers are more attracted towards brands and brands eliminating risks.

    Liked by 1 person

    • Hi and thanks for your contribution to this discussion.And nowadays we see huge investments of companies like Harley Davidson for development and maintenance of the brand community created around the brand.They have wisely identified the inner needs of consumers for identifying with others who have had the same experience of buying a product or service.

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  5. Hi all,
    I would rather support kdhawan2015 on this. Its not something that I am not loyal to any brands with the products I buy in. Just a matter of experience I have seen with many such brand loyalty programs.

    Taking an example of Groupon and LivingSocial, both of the companies provide discount coupons and offers at various restaurants in and across the globe. People usually do not resort to any one of these but both of them, infact they are not loyal any of the restaurant even. If they find a better deal in a different outlet, they would resort for that. At such times, people usually adopt the ones which gives them better deals at a better chance.

    The next argument would be on the very specific “Electronic Devices” as clearly mentioned in the above blogs and several comments, I would stand in difference with the loyalty that Nokia provided with its sudden deprivation in quality and performance in the initial launch of Windows System Operated phones. Myself, being a loyal nokia customer had to change into Sony just because of the lack of quality.

    I would like to say, its basically not the people who are trying to be loyal to the brand, but the brand providing features and offers to grab loyalty with the customers. Its a company which makes such a thing happen between several different consumers.

    Branding does makes a big difference, and people are loyal to several ones, but people shall shift from one to another depending on them and their need. Risk reduction may not be an apt word for loyalty towards branding but just a notion created amongst “WE” the customers..

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    • Hi and thanks for your contribution to this discussion.I do agree with your point that in many instances customers may not be locked in by companies’ loyalty programs and I think your example about restaurants is very good for clarifying how we(me & Gin) think there is a link between risk & brand loyalty.Customers do not perceive high level of risk in trying different restaurants specially financial and time risk because in majority of times it does not cost them too much and also it is not really a time consuming experience to make customers worried about loosing time with out receiving any benefit.But when it comes to high involvement decisions,potential buyers go through a different type of information processing experience which includes extensive analysis of cues and information to reach a decision and that is exactly the time consumers try to simplify decision making by resorting to brands they are familiar with.Yes,for many low involvement purchases drawing a link between brand loyalty and risk is not reasonable but as the purchase type varies ,customers’ behaviors and reactions would vary accordingly.

      I should also touch briefly on the motivations of companies for designing and implementing brand loyalty programs.Businesses have realized the aforementioned facts about consumers’ behaviors and their desire for simplification of decision making and reducing risk and that is one of the reasons for initiating loyalty programs.Certainly there are other reasons but helping customers to meet their objective of risk reduction to make an easy and safe purchase decision is a prominent underlying reason.

      Liked by 1 person

  6. I agree that trust and satisfaction are the important factors in the development of marketing relationship. In order to achieve that, one of the important thing is to reduce the perceived risk.
    When risk averse customer trust and be familiar with the brand, they will not change to other. It is understandable that some people do not would like to face the “risk”.
    Personally, I am the person of people who use IOS smart phone such as iPhone or ipad and I do not want to change to android or windows for smart phone because I do not want to learn a new system and it must take a time to be accustomed to it as well as I have been familiared with ios system rather that android or windows. I really concern about performance risk. Customer loyalty and perceived risk have significant relationship to customer involvement.

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  7. From personal experience, I find that with certain products I very much prefer to be risk adverse and others risk taking. When it comes to everyday goods, I am generally happy to alternate brands depending on price or what be new on the market. Generally I find I know essentially what I am getting and slight differences in quality probably won’t bug me too much. However, on specialty items say a computer or projector, I would typically prefer to stick to brands I know and therefore trust. However, with this in mind, irrespective of a high level of brand loyalty, I still will always research other options on specialty items. In doing so, I feel more comfortable and believe I have conducted a more informed purchase choice. This brings me to the point that firms should always strive to keep their customers informed.

    The more aware a customer is of a brand and what that brand represents the better. I would hypothesis that for a higher degree of trust, a brand/business’ perceived values must coincide to a customer’s values and beliefs. Interestingly, in publication from the Journal of Marketing Management, the authors mentioned that in regards to e-commerce/online business that “Crosby et al. (1990) claim that customers’ perceived uncertainty is reduced as their relationship satisfaction with a firm improves.” (Fulford, Lu, Rafiq, 2013, p. 499). I find the term ‘relationship satisfaction’ interesting and this begs the question as to what develops relationship satisfaction between a firm and a customer? I find myself asking what makes myself trust a brand? Perhaps the trust lays in reliability or the products a business sell or the efficiency in service? Perhaps even simply whether the goods a business sell are locally produced? I deem customers judge their shopping experiences and exchanges between with a business in a multitude of ways.

    Developed loyalty I doubt can be simply narrowed to something as simple as because they make good products. Shopper’s loyalty and trust I suggest can be altered and easily changed depending on a customer’s values/beliefs at a given time. For example, a customer who has recently been exposed to an advertising campaign based on supporting locally grown products may in fact have been previously very loyal to a particular brand (brand x) – but if brand x, does not grow locally, this may then taint the relationship altogether. Simply put, if the customer’s values at a given point do not coincide with the practices of a business, then I propose trust cannot be established. This is why in some industries where the majority of customers are not likely familiar with industry practice or product options it is integral for business to establish a perception of matching values to a customer.

    Businesses must attempt to make their customers informed about who they, what they represent and how they differentiate to competitors. Take for example motor mechanics, there is a good chance many customers are not familiar with practices or how their cars function, but if a business perhaps emphasis being environmentally friendly, then a customer may feel a greater level of trust if they too believe in that type of practice. Despite the fact that being environmentally friendly (generally speaking) is not at the core of the exchange between the customer and mechanic, it’s the perceived values the customer see in the motor mechanic that can help improve potential customer loyalty.

    Bibliography:
    Fulford, H, Lu, X and Rafiq, M 2013, ‘Journal of Marketing Management, 2013 Vol. 29, Nos. 3–4, 494–517, p. 499.

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  8. Your statement that Risk averse consumers are more likely to be loyal customers within your blog had me question whether the job for marketers would be easier or harder with generation Y and generation Z starting to mature into fully fledged consumers.

    My initial thoughts were that Generation Y and Generation Z would naturally be greater risk takers. And hence this would make the life of marketers more difficult as they would need to be more creative in maintaining brand loyalty. My view that Generation Y and Z were greater risk takers than previous generations were based on my own experience with the younger generation.

    I thought I better try and back this hypothesis up with some empirical studies. My very quick trawl didn’t assist me in finding anything concrete but I was surprised to find a few articles relating to financial risk aversity between generations which indicated that Generation Y and Z were actually more risk averse to previous generations. It was believed that the great recession of 2008 was a significant event that had a bearing on this younger generation. However, I am not sure if that could simply be transferred to their consumer behaviour as well. However, if it did it actually may see Generation Y and Z to be more loyal to their brands than previous generations.

    Would be interested if anyone had come across Risk Aversity across generations from a consumers point of view.

    Resource:
    2015 ‘The risk appetite paradox of Generation Z:Has the Great Recession reshaped financial risk attitudes amongst the young?’ Allianz Website, 19th February 2015 retrieved 4th April 2015 from http://knowledge.allianz.com/finance/behavioral_finance/?2956/Hungarian-millenials-are-risk-averse

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    • What I have read in several articles is that young customers are less brand loyal because they do not see much value in being loyal to a brand and this reluctance could be partly explained by their inclination to take risk.But about your question that whether marketers job has become easier or more difficult,I think it depends on the goal a marketers is pursuing.If he or she is in charge of designing or optimizing a loyalty program then it would be more difficult due the characteristics of Z & Y generations but if the goal is selling new products and services then it would be easier for marketers as these generations love variety.

      Liked by 1 person

  9. To expand a little further on Asgreen’s opening comments and personal example provided….

    I think it is an important point for marketers to understand that that the ‘risk-aversion’ driver that Soheil2015 contends increases brand loyalty – is likely to diminish for lower cost goods. Fundamentally, for low cost products the consumer is not putting as much at risk (eg money and possibly time etc) and therefore on balance may be more influenced by flashy new brands/products offering some enhancement to the tried & true brand the customer had been using.
    From a ‘segment’ perspective it would stand to reason that the size of the risk-adverse/brand loyal market segment is large at the high-cost product end and then decreases commensurate with the lowering product costs (ie. alternative value propositions begin to hold greater sway than that of brand safety/consistency).

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  10. Brand loyalty makes me think about my relationship with Qantas. Loyalty is not earned through excellent in-flight service, as many of their competitors provide an equal if not better service. Flying with Qantas is simply about collecting points and status rewards, so I can use the Qantas Clubs and upgrade flights. Even when Qantas’s service is poor, they still have me hooked as they know switching to another airline means starting at the bottom, which isn’t an option.

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  11. Hi,

    Thanks for this interesting blog. The relationship of Risk and Brand Loyalty is a very good point to analyze consumer behaviours.

    In my opinion, the higher the Risk (consumers think), the more the Brand Loyalty. Why do I emphasize ‘consumers think’ here? Different people have very different attitudes, perceptions, values, experiences, etc. As mentioned in Iacobucci (2013), attitudes are a mix of beliefs and importance weights. Beliefs are options and importance weights are like the concept of customer involvement. For example, lots of women like luxury handbags which are the specialty purchases for them. They usually spend much more time and effort to research such as go to the boutiques, search the reviews online, ask friends, etc. Because luxury handbags are big investments, high risk and need high consumer involvement. Therefore, in this case lots of women will stick to a couple of famous Brands they trust and had very good experiences with. But for men, many of them may not care the brand of their briefcases as long as the briefcases are suitable and good size. I will say briefcases here are shopping purchases with medium risk and consumer involvement, which leads to less Brand Loyalty.

    Cheers,
    Ivy

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  12. After reading the above posts, it seems that the old adadge that it is easier to keep an existing customer than obtain a new one may not be as true these days and it has been in the past. It seems that brand loyalty is not so much about the customer being loyal but rather about the brand being able to meets its customer’s ongoing needs and wants. In the case where a brand is not perceived to be delivering its existing customer’s needs or wants then the risk to move to another brand is small for the customer; this is when customers will change brands.
    Cheers
    Dan

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  13. Excellent post about risk and brad loyalty.

    As per the first post people that are loyal have many things in common like: experience risk, don’t want surprises and the customers are loyal due to past experiences and good service.

    The first impression matters a great deal and this is not just a saying, research supports this theory people remember the good experiences to become loyal to a brand or a service in particular! This means when a product or service is being launched it needs to be as perfect as possible due the first impression.

    Brand loyalty exist but unfortunately there are people out there that are not so loyal, also known as “risk takers” according to the research there is no much company can do about this issue as it is type of behaviour. The risk takers enjoy variety and therefore ‘shop around’. Nothing said that these risk takers can be ‘hooked’ with a certain brand and become brand loyal.

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  14. Great and informative post.

    I agree that brand loyalty is important for a marketer, however, in this changing environment it goes well beyond this. While some customers will remain true to a particular brand, I believe more and more customers are also looking at other factors. This includes primarily price.

    I work in an environment dealing with B2B customers. Through my own personal experience, while a lot of customers show brand loyalty a lot in these times are driven by price. Therefore, if they are able to source the same/similar product at a cheaper price, they often will switch to that particular brand/company.

    I agree with Dan’s post that “where a brand is not perceived to be delivering its existing customer’s needs or wants then the risk to move to another brand is small for the customer; this is when customers will change brands.”

    I think times are changing and businesses now more than ever need to evolve and look for new strategies to keep existing customers.

    Monique

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  15. Loyalty is key for retention, but how businesses achieve this is going to change as e-commerce develops. Accenture completed research in 2014 showing that customers are not as ‘loyal’ as they once were with 56% of them considering more brands in the last 10 years. So I agree their appetite for risk may impact their loyalty towards brands but the technical revolution must be considered as well.

    Information is more available to consumers therefore consumers may be making decisions based on the product rather than brand. Accenture also advise that 78% of consumers look online when conducting their search for a product or service.

    So if a business does not have an online presence would this impact the consumers decision to purchase or would their risk appetite be the primary driver in their decision making?

    More food for thought.

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  16. Hi

    Thank you to write such a good article.

    Talk about my understanding of the brand and risks, first of all I would choose some high-profile brand because brand value is relatively high risk factor will be in a safe range. History and quality of the second brand is relatively important, but the quality of its materials, teaching quality, size and so on. Finally, the discovery of the road is the brand today.

    Cheers

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  17. Hi,

    Thanks for your good blog and interesting experience.

    However, I think people always loyally in some special brand not just because of risk such as some luxury brand. Customers loyally to luxury brand might be determine by different psychology. They might be like, need and even vanity.

    Cheers

    Like

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