Do brands compete or coexist? How persistence of brand loyalty segments the market

Abstract

Purpose This study aims to question the conventional wisdom that brands compete for customers, especially in mature industries such as soft drinks. Rather than engaging in price wars or promotion wars, brands coexist in the markets by focusing on their own brand loyal customers. Design/methodology/approach Consumer panel data of carbonated beverages are examined using Markov chains to measure switching between two brands: Coke and Pepsi. Switching rates are conducted for all Coke households (n = 10,474) and Pepsi households (n = 7,227). This is further examined with respect to heavy half (upper median) consumers of each brand who make up approximately 86 per cent of volume purchases. Findings Households that made a majority of their purchase volume in either Coke or Pepsi products stayed with their preferred brands in subsequent quarters: 85 to 97 per cent of households. These findings are validated at all levels of the brand architecture (family brands, product brands and modified brands), even though both brands engage in similar marketing mix tactics (advertising, price cuts, distribution, product offerings). Loyalty was even higher among the heavy user households. Research limitations/implications The research was conducted using two well-known brands in a mature industry. Services or non-mature markets may exhibit different loyalty patterns. Originality/value The study extends prior research on competition, loyalty and branded offerings to show that brand loyalty remains high despite marketing efforts to switch the brand buying behavior.