Brand loyalty is one of the great enigmas of business: it’s tricky to build, perhaps even more difficult to maintain, and it can be lost in an instant. For companies in the fast-moving consumer goods (FMCG) sector, to take just one example, it can also be the difference between outperforming their peer group and falling behind.
Loyalty to a brand-name product is inevitably tested during times of economic stress, when price inflation will lead consumers to seek cheaper alternatives. You’d expect this pattern, known as trading down, to be writ large across the income statements of firms such as Unilever (ULVR) and Haleon (HLN) in recent quarters. For the most part, this hasn't happened. And while the proportion of Unilever's business lines gaining market share has fallen from over 50 per cent to less than 38 per cent in the past two years – a sign that consumer staples businesses are not immune to shifts in consumer preference – its solution is to double down on its best products.
In the fourth quarter of last year, Unilever’s portfolio of 30 "power brands", on which its new management team is now concentrating, posted underlying sales growth of 6.5 per cent, while sales across the group were up 4.7 per cent. In short, the star cohort, which also accounts for around three-quarters of group turnover, collectively performed far better than the rest of the business. Haleon, for its part, has shown itself able to hike prices on some of its most recognisable products without harming sales volumes, another testament to the value of brand loyalty.