Unit 3 Micro: Brand Loyalty in Mobile Phones
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Brand loyalty is hugely important in all kinds of industries and markets. The costs of acquiring a new customer vastly outweigh the expense of selling more to existing buyers and most of the mobile phone suppliers in this oligopolistic industry focus an enormous effort in building brand identity and brand loyalty to reduce the rate of customer churn (people who switch brands).
According to a new report, over eight in ten iPhone users said they would pick iPhone again when they replace their mobile, while 60 per cent of consumers who use smartphones running Google’s Android said they would stick with phones using the same software. Blackberry users have notably less attachment to their mobiles - and I speak as a Blackberry use of several years standing! Here is the link.
When brand loyalty is strong, the cross-price elasticity of demand for price changes between two substitutes weakens, fewer consumers will switch their demand when there is a change in relative prices in the market. Robust brand loyalty makes it easier to charge premium prices and enjoy supernormal profits in the long run because loyalty is a barrier to entry.
When we become strongly attached to a brand, our purchasing decisions are more likely to stay in default mode and we may no longer even consider rival products.
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