What will the future of brand loyalty look like?

Data suggests that investing in lovable brands is a virtuous cycle and today, brands such as Airbnb and Starbucks are starting to leverage stock ownership to instill loyalty. Bits is at the forefront of helping brands build loyalty by turning their customers into shareholders.

A “New” Currency for Reward Programs

Recent studies have analyzed the psychological switching costs associated with the top-of-the-wallet mindshare of customers. Specifically, researchers have investigated whether individuals’ brand loyalty, quantified by repeat purchases and larger basket size, increase the likelihood they would purchase the company’s stocks and vice versa. The results suggest that individuals tend to repeatedly buy from companies they hold stock in and may buy stocks of companies they have good experiences with. Brand loyalty may manifest in customer’s concentration of purchases in a product/service category — an increased share of customers’ wallet and decreased willingness/tendency to switch product/service providers.

It is a virtuous cycle indeed.

Marketing Meets Finance

Individuals’ consumption and investment psychology have been traditionally viewed as rather separate realms. This separation coincides with the isolation of the fields of marketing vs finance. Nevertheless, leaders in marketing and finance have recently begun to notice that individuals who engage in buying and using products of certain companies may also engage in investing in those companies. One interesting phenomenon is the potential influence of a consumer’s stock ownership in a company on his/her loyalty towards the company. As it turns out, becoming a stock owner of a company not only leads to positive, increased motivation to exhibit brand loyalty in terms of purchases, but often leads to activities in other brand-supporting behaviors, such as positive word-of-mouth. The vested interest can be explained as the individual’s willingness to support the company whose stocks he/she owns and, hence, motivation to buy its products.

Cognitive-Emotional Bonding and Dissonance

In theoretical terms, there is a special kind of economic/financial bond that motivates the customer relationship of a stock owner and brand loyalty therein. Namely, by repeatedly buying products of a company whose shares one own (and not switching to a competitor), an individual can make a contribution to the sales and cash flows of the company and thus wealth as a stock owner. Yet, since the actual contribution of one individual to the sales of a (large) company is usually very small, the stock owner, acting as a customer, is likely to be to a great extent psychologically motivated, i.e., manifest cognitive-emotional bonding. Foremost, the stock owner will obtain a feeling that they're supporting the company’s business, sales, and cash flows when they repeatedly buy its products — even if the actual contribution is minimal. Owning shares of one company but not buying its products (but, e.g., those of competitors’ instead) would likely elicit feelings of cognitive dissonance, which the individual will try to avoid in order to maintain the feeling of consistency between their cognition and behavior.

Second, according to the principles of self-perception theory (Bem, 1972), people look for consistency between their behaviors and investments — that is, they see their investment in a company as an indication they view the company positively, and in turn may positively influence their purchasing decisions. It is a virtuous cycle indeed.