Every business, marketer or retailer wants to keep existing customers for as long as possible. Organizations invest significantly to increase the lifetime value of every customer relationship, but few achieve their objective. Consider the case of a pension funds administrator (PFA) in Lagos, Nigeria that had one of the highest assets under management. Everything appeared to be going well. The firm spent aggressively by offering a portfolio of services that locked in its customers and attracted new ones. Surprisingly, market research showed that 30% of its customer base planned to switch to a competing PFA within one year while 60% planned to switch within five years. Brand portfolio leakage is real and inevitable in Africa. Businesses lose customers faster than they can replace them. Even organizations with strong and extended portfolios of products and services suffer potential leakage. The big question is why does brand portfolio leakage happen in Africa? Insights from our industry engagement suggest three main reasons behind brand portfolio leakage on the continent.
Ignoring aspirational values of customers
A common and yet overlooked source of portfolio leakage is the inability of organizations to match the aspirational values of the target audience. African customers are extremely aspirational and arguably more aspirational than customers in other continents. For instance, the authors of this article conducted a large-scale survey mapping the aspirational value of customers in some selected cities of West and East Africa. Findings revealed that Nigerians and Ugandans earning meagre incomes and living in single room apartments aspired to move to duplexes, villas, or mansions in less than five years. These high aspirations were based on the positive feeling and hope that their income levels would significantly change in a short period. The authors also obtained similar results after surveying other respondents who aspired to move from having no cars to driving Toyota, Lexus and Mercedes cars over a short time horizon. The unstructured and unpredictable nature of African markets predisposes its customers to have a higher aspirational value than stable markets in Western economies. Yet, organizations on the continent selling products and services focus on present customer needs without including future aspirational needs. Ignoring the aspirational levels of target customers is a costly mistake that triggers portfolio leakage.
Not linking Aspirational values to shifts in income profiles
Aspirational values evolve as the income levels of customers change. As income levels improve, customers aspire to move to higher brands outside the portfolio of current brands they consume. The lead author of this article developed a brand travel index to evaluate how long customers would stay with a brand after their income level changes. Insights from deploying this index in Nigeria show that customers move to more premium brands of competitors when their income levels rise. The transition to higher-level brands signals a new stage in the consumption journey of customers whose incomes rise. A study conducted on consumers of alcoholic beverages in Nigeria revealed that customers communicate their new social status when they transit to more premium brands. Rising income levels trigger new consumption patterns that express the aspirational levels of consumers.
Assuming it costs less to keep existing customers than acquire new ones
Businesses fixate on keeping existing customers because they believe that it is cheaper than acquiring new ones. This assertion does not apply in Africa. Existing customers have high aspirational values and neglecting how these values affect portfolio leakage makes customer retention more costly than customer acquisition. This common scenario makes customer attrition a perennial problem which businesses will struggle with unless a mechanism for minimizing portfolio leakage is deployed.
What can business leaders, brand managers, advertisers, salespeople, and retailers do to minimize brand portfolio leakage in Africa? Four recommendations are worth considering.
- Develop a way to monitor portfolio leakage and its drivers: Stakeholders recognize that portfolio leakage is a problem that hampers customer lifetime value. Recognizing the problem is not enough. It is necessary to develop a rubric for measuring leakage in the present and future. The rubric will make it possible to track the effect of aspirational values and other drivers on portfolio leakage.
- Monitor the aspirational levels of target customers: The aspirational horizons of customers reflect the direction of the leakage. It is important for stakeholders to be one step ahead of their customers in understanding and predicting aspirational levels. Metrics such as the brand travel index as well as other analytical tools can improve the predictive capacity of stakeholders.
- Profile the portfolio of competing brands: Stakeholders must also keep an eye on portfolios of competing brands. Competitive intelligence can provide useful insights on brand portfolios of competitors and the aspirational values attached to the brands. Such factors as the strength of competitors portfolios’ span of command must be closely monitored.
- Revamp your portfolio strategy: Stakeholders require a different mindset to address portfolio leakage. Some questions may be useful for rethinking the approach to portfolio leakage. Is there an excessive focus on customer acquisition rather than retention? Would it suffice to compensate for portfolio leakage? How can one balance customer retention and recruitment strategies to minimize portfolio leakage? For example, Heineken (a global beer brand) may prefer to have a large consumer base that drinks three bottles of Heineken over 50 years than have a smaller consumer base that drinks 10 bottles over 20 years. Every company wants to minimize portfolio leakage, but this requires committing to a strategic direction.
Adopting these strategies have implications for multiple stakeholders and it is important to discuss them.
Implications to brand managers and advertisers: It is common for brand managers and advertisers on the continent to build brand propositions from the brand owner’s perspective rather than consider the customer’s perspective. The message of this article is that brand promotions and propositions should emphasize messages that align with the aspirational horizons of target customers. The failure to consider aspirational values and future consumption habits may lead to failure and costly campaigns.
Implications for salespeople: This article implies that salespeople must rethink their approach to selling products and services. Aspirational values matter and it is important to include them in sales pitches to customers. Not all aspirational values are achievable or ethical. However, it is the duty of the salesperson and the organization she serves to decide on the aspirational values to promote or discard.
Implications for retailers: Owners and managers of retail outlets must consider the aspirational values linked to the products they sell. Customers may also attach aspirational values to patronizing retail outlets. Retailers also need to know which products can attract or minimize high portfolio leakage. An intricate understanding of these issues will position retail outlets to serve their customers better.