Deal Loyalty Versus Real Loyalty
This is a brand-business truth. To be considered fair value and not be perceived as cheap, brands must avoid excessive marketing communications that emphasize price as the reason to buy. Excessive emphasis on price builds deal loyalty.
Building deal loyalty does not build brand loyalty. Deal loyalty is not real loyalty. True brand loyalty cannot be bought with bribes. When you consistently lure customers with incentives, all you do is make the customer loyal to the deal instead of loyal to the brand. If there is a better deal elsewhere, deal-loyal customers are out your door and in through the competitor’s door. If a customer does not prefer your brand’s experience, then making it cheaper and easier will not build brand strength.
Occasionally reminding people that a brand is affordable is important. But, undue, extreme stress on price alone destroys real loyalty and builds deal loyalty. Instead of the dominant message being price, brand-business communications must emphasize brand-business-relevant differentiation. Tell customers that this is a great brand at a great price rather than just communicating that this is a great deal.
And yet, even C-suite executives seem to be unclear as to the difference between brand-business-building price promotions and discounting. And, in most cases, to be fair, executives tend to be vague about the distinctions between value and price are synonymous.
For example, here is an exchange that took place during the recent Dine Brands Global Q2 Earnings Call. Dine Brands Global owns Applebee’s, IHOP and Fuzzy’s Tacos. Applebee’s and IHOP are iconic American brands that grew with strong relevant differentiated brand promises. And, Applebee’s and IHOP managed through the COVID era.
In the Dine Equity Earnings Call Q&A section, one analyst asked this question:
“Mine (my question) is really about the approach to value. And, I think there’s a general concern among the investment community is (sic) that the industry might kind of slip back into deep discounting. And, so, I am wondering how would you characterize the level of value now? And, I think that the two for $25 with the steak (transcript mis-typed as stake) whatever’s coming on Monday, it’s a bit like deep discounting. And, I’m just wondering how you’d characterize the level of discounting now, what you expect versus kind of some of the pre-COVID levels, which were so margin destructive. I think industrywide, just any comment would be helpful to start.”
The analyst’s question was a fair one to ask. In the Dine Equity’s Earnings Call opening comments, executives referenced declines in restaurant traffic at Applebee’s relative to the consistency of the average check size. In other words, fewer people were visiting Applebee’s but due to higher ticket prices, the amount spent per food stayed the same, on average. Dine Equity stated that when guests come for a promotion, they tend to spend more. On the other hand, Dine Equity did confirm that customers were now cutting back on monies spent at its restaurants such as reverting to pick-up versus delivery, saving money on fees. And, Dine Equity executives did reference that this traffic issue and the cut-back-mentality seemed more applicable to Applebee’s. IHOP was performing marginally better even though with less than stellar performance.
As reported in the Earnings Call transcript, here are the verbatim Dine Equity executives’ responses* to the analyst’s question:
“What’s the value? I think an important thing to keep in mind is that both of our brands work very closely with it, with our franchisees to determine what these value promotions look like or what an LTO (limited time offer) looks like. And, that includes not only the marketing behind it, but the margins behind it as well…”
“… so when our guests are with us, they continue to enjoy the full offerings of both brands – Applebee’s and IHOP – when they’re in the restaurants. So that’s a great data point for us that demonstrates that it’s not discounting but we’re using the value offers to bring in guests in a way that resonates with them. So, they maintain that average check.”
“Value remains incredibly important right now, but honestly, it’s … it remains the same across all economic cycles. Applebee’s is built for the average American, eating good in the neighborhood is more than just a tagline. It means we’re providing good food at an affordable price in an environment where everybody can come and be themselves. That’s value that’s the value that the American consumer is seeking and expects from Applebee’s.”
“An example you mentioned in Q2, we delivered value through affordability through campaigns such as our two for $25, which we ran in June with strong results. It’s compelling and it provides the value again, that the guests are seeking in this environment, which is why we have outpaced our direct competitors from a value attribute perspective. For many years.”
(*It is important to keep in mind that these are real time responses that are most probably unrehearsed.)
Is there a strategic demarcation between brand-business-building promotions and discounting? Is there a clear articulation differentiating price from value?
Look at Applebee’s. For quite some time, Applebee’s has advertised a food offering at a price with music followed by its tagline about eating good in the neighborhood. The Applebee’s communications have been, and still are, “Here are yummy foods at this great price that happen to be at Applebee’s.” Currently, the promotion is wings with 6 sauces at $12.99.
Applebee’s has a relevant differentiated promise. But, that promise has not been articulated to the customer in ages. Applebee’s has spent a lot of money communicating food at a price. So, it may not surprise that traffic is down. Deal customers are loyal to the deal. If a competitor has a better deal, that deal loyal customer is eating at the place with the best deal.
Perhaps Dine Equity assumes that just by stating the eating-good-in-the-neighborhood tag line will be enough to remind customers of Applebee’s promise. However, there may be younger guests who have no idea what eating-good-in-the-neighborhood really means other than good price at a local hub. And, there could be guests who may have known the relevant differentiated promise of Applebee’s but have forgotten. Applebee’s excessive, consistent reliance on price promotions without providing a brand promise may reinforce that Applebee’s is a great place for a deal.
Dine Equity executives are not alone. Many executives buy into the idea that price and value are one and the same. This is a problem. If executives cannot define the difference between deal loyalty rather than real loyalty, there is an overarching strategic challenge. And, if there is a reluctance to separate price and value then the likelihood a promotion is a discount is probably real.
Analysts as well as brand-business owners should not let this confusion pass unaddressed.
Every consumer has a mental value equation in their head. Value is the numerator divided by the denominator. Value is the brand-business’ total brand experience numerator – the relevant, differentiated functional, emotional and social benefits – relative to the brand-business’ total costs denominator – money, effort and time.
When the emphasis on is on the denominator of the equation – the costs, specifically money – and there is no mention of the numerator (the total brand experience), the brand-business’ costs overwhelm the experience. In other words, when the denominator is greater than the numerator, then the brand-business is a poor value.. If the numerator is greater than the denominator than the brand-business is a good or great value.
This means that customers must understand what the numerator – the brand-business’ total brand experience – is all about. The brand-business must remind customers what the brand-business stands for: is this a relevant, differentiated brand-business promise or a deal? Real loyalty builds when brand-businesses emphasize what they deliver to the customer relative to the cost of the customer’s expenditures.
Additionally, the entire equation is subject to the customer’s assessment of trustworthiness. Trust is a multiplier of the value equation: do I trust the brand-business to deliver up to my expectations? If there is not trust than there is no value. Anything multiplied by zero is zero.
Based on the Dine Equity Earnings Call responses, both Applebee’s and IHOP appear to have a similar approach to value as a “price deal”. Both brands tend to neglect mention of the great benefits each brand has to offer. For example, what is the relevant differentiator at IHOP? Is it a brand with abundant food at a good price? Or is the brand promise about a special brand-business experience? Do the IHOP promotions generate deal loyal or real loyal guests?
One executive highlighted a crepe roll-out buy-one-get-one-free promotion. The executive phrased this example this way:
“We rolled out brand new crepes. And, when we rolled those out, we did those with a buy one get one promotion. And, while that may seem like a deep discounting, the purpose of that really was to get trial by two people at a time when they came in to try our new menu and try the new crepes. And, it worked to perfection. It not only provided great value for guests coming in, but when the buy one get one promotion went off, crepes sales actually went up, compared level (sic) was when they were coming in and people were getting on for free also.”
The real success indicator would be how many of those crepe customers came back to IHOP. Were these deal customers or loyal customers? Did the promotion build the brand-business long-term or not?
Financial consultant and author, Adrian J. Slywotzky, wrote that one of the most crucial set of questions for value creation leading to market value focuses on differentiation. “What is my basis for differentiation; my unique value proposition? Why should the customer want to buy from me? Who are my key competitors? How convincing is my differentiation relative to theirs?”
Many brands have price or affordability as part of their brand-business promise. H&M and Zara are known for fast, chic, young- spirited fashion at affordable prices. IKEA provides furniture, bath- room fixtures, kitchen layouts, lamps, and other home accessories at affordable prices; you just need to assemble them yourself. Sam Walton built a retail empire making shopping for every- day needs affordable and available in small town America. Ray Kroc democratized eating out. His vision was a restaurant that made eating out so affordable that more people could eat out more often. Superior availability and affordability were key contributors to the success of McDonald’s.
Value and price are not the same. Value is much more than a price point. Price is important. But, leaders must remember that although marketers set price, customers set value. Brand-business value decisions must be strategic. What is the customer-perceived trustworthy value for our brand? Are our marketing efforts affecting customer-perceived value? Is price sensitivity increasing or decreasing?
To increase shareholder value, a brand-business must be the most efficient and productive provider of a branded offer that customers value. Customers need to perceive the brand-business as great value, not merely appreciate the brand’s price point.
In this increasingly competitive world, excessive emphasis on price incentives – the generator of deal loyalty – may severely damaged brand loyalty and brand value. Brand-business leaders must ensure that the organization clearly understands the difference between value and price. Brand-business leaders must ensure that communications focus on great brand at a great price. Affordability is a feature. This feature supports the benefits of the brand. Leaders have the responsibility to keep a brand-business’ promise top-of-mind with customers while reminding customers of its value.
