The Relationship Between Customer Loyalty and Purchase Incidence

Abstract

Little is known about customer loyalty to brands over many dozens or even hundreds of purchases. In this paper we describe, and seek to explain, such patterns of loyalty in two very different markets: a consumer market (laundry detergents), and a more frequently used service (physicians' prescribing of anti-hypertension drugs). Purchase incidence heterogeneity – a problem in most loyalty studies – is addressed by measuring loyalty at different rates of category purchase (rather than over time). Using share-based measures we expect that loyalty will decline as purchase incidence increases, however we clarify the shape of that decline. We find that, as the number of purchases rises, loyalty initially falls steeply, but after around 15 purchases it starts to stabilize, and from 60 to 200 purchases there is very little change in observed measures of customer loyalty. A comparison of the findings with those expected from a stationary market model (the Dirichlet), suggests that the decline in loyalty seen as the number of purchases rises is largely a statistical artifact, dependent on the number of purchases used to calculate loyalty. However, we also find that the higher loyalty exhibited by heavier buyers at low purchase levels is not captured well by the model. The implication here is that, contrary to a central assumption of the Dirichlet model, brand choice is partially dependent on purchase weight.