by Byron Sharp
However, as more brand managers realise how brands really compete, their attention should turn towards activities that build mental and physical availability. Their attention will then shift to branding, media strategy and distribution – there is a great deal of research, development and experimentation that needs to be done in these areas to improve marketing effectiveness.
Marketing today largely functions as a specialist part of the production department; it produces advertising and promotions rather than experimenting and learning about strategy. Development of specialist knowledge of these market-based assets should lead to greater respect for marketing as a crucial function of business. It is a significant opportunity because no other part of the organisation measures and therefore can claim to manage these intangible assets. The same cannot be said for other areas of a business, such as product development, customer service and pricing.
The future for marketing departments and for consumer brands is bright – if they adapt to the more complex and media-fragmented world we live in; if they become sophisticated mass marketers working with the empirical laws of marketing; and if they reject 'anything goes' lawless marketing strategy.
Chapter 13:
The Scientific Laws
Byron Sharp
One thing that emerges from the law-like patterns discussed in this book is that everything varies together. As brands get bigger (i.e. gain market share) their metrics move in the opposite direction to the metrics of brands that are shrinking. Bigger brands have higher penetration and loyalty metrics (both attitudinal and behavioural). This pattern doesn't fit with many old theories of how markets work. But this is the way the real world works. This suggests that marketing metrics, including market share, all reflect one thing: popularity. Therefore, brands vary in their popularity, and everything flows from that. Also, two rival brands with similar levels of popularity will have very similar metrics.
These patterns are so robust that a single mathematical model predicts many of the laws in this book. This model is the NBD-Dirichlet model of brand choice and purchase rates (usually simply called 'the Dirichlet') developed by Gerald Goodhardt, Andrew Ehrenberg and Chris Chatfield (see Ehrenberg, Uncles Goodhardt, 2004; Goodhardt, Ehrenberg Chatfield, 1984). It is a model about consumers/buyers. It assumes that buying behaviour is heterogeneous and probabilistic; in other words, we each have a certain propensity to buy (some of us buy more often than others) and a certain propensity to buy particular brands (we each have our own preferences or personal repertoires). The Dirichlet is 30 years old and has survived 30 years of testing. It is one of marketing science's greatest achievements; for more information, see www.MarketingScience.info.
The law-like patterns (empirical laws) that are introduced in this book are:
•Double jeopardy law: Brands with less market share have far fewer buyers, and these buyers are slightly less loyal (in their buying and attitudes). For implications see Chapter 2.
•Retention double jeopardy: All brands lose some buyers; this loss is proportionate to their market share (i.e. big brands lose more customers; though these represent a smaller proportion of their total customer base). For implications see Chapter 3.
•Pareto law: 60/20: Slightly more than half of a brand's sales come from the top 20% of its customers. The remaining sales come from the bottom 80% of its customers (i.e. the Pareto law is not 80/20). For implications see Chapter 4.
•Law of buyer moderation: In subsequent time periods heavy buyers buy less often (than in the base period that was used to categorise them as heavy buyers). While light buyers buy more often and some non-buyers become buyers. This 'regression to the mean' phenomenon reflects no real change in buyer behaviour, and happens for stable brands. See Chapter 4.
•Natural monopoly law: Brands with more market share have a greater proportion of light category buyers in their customer base. See Chapter 7.
•Customer bases seldom vary: Rival brands sell to very similar customer bases. See Chapter 5.
•Attitudes reflect behavioural loyalty: Consumers know and say more about brands they use, and think and say little about brands they do not use. Therefore, larger brands always score higher on surveys of brand attitudes, simply because they have more users (who are also slightly more loyal).
•Usage drives attitude (or I love my Mum and you love yours): Buyers of different brands express very similar attitudes and quite similar perceptions about their respective brands. For implication see Chapter 5.
•Duplication of purchase law: A brand's customer base overlaps rival brands’ customer bases in line with their market share (i.e. in a time period a brand will share more of its customers with large brands and fewer with small brands). If 30% of a brand's buyers also bought brand A in a period, then around 30% of every rival brand's customers also bought brand A over that period. See Chapter 6.
•Non-linear relationship between physical availability and market share: 80%or more weighted physical distribution is necessary, but not sufficient, for a brand to have high market share.
•NBD-Dirichlet: A mathematical model of how buyers vary in their purchase propensities, i.e their loyalties (how often they buy the category and which brands they buy). It correctly describes and explains many of the above laws. ‘The Dirichlet’ as it is known was developed by Gerald Goodhardt, Andrew Ehrenberg and Chris Chatfield. It is one of marketing's few true scientific theories (i.e. based on empirical laws). For more technical information on this mathematical model (and related software) see Goodhardt et al (1984), and contact the Ehrenberg-Bass Institute www.MarketingScience.info
Chapter 14:
Frequently Asked Questions
Byron Sharp
So there is no such thing as loyalty?
Quite the opposite. Loyalty is natural behaviour, we see it in every product/service category. It’s just that there are scientific laws about a brand’s level of loyalty (in the same way as there are laws for gravity), and the double jeopardy law says that a brand’s loyalty metrics won’t rise unless it substantially increases its penetration (and thereby market share).
Is nudging someone from one purchase to two increasing their loyalty?
Yes exactly. And someone moving from buying once a quarter to twice a quarter is the same, this means that they now add to the brand’s quarterly penetration every quarter, whereas before they did so only every second quarter.
When a brand successfully nudges the market’s buying propensity (their loyalty for the brand) it shows up as a large change in penetration and a small improvement in loyalty metrics because most people don’t buy very often.
Double Jeopardy tells us that loyalty marketing goals that assume large changes in a brand’s loyalty metrics are misguided. And that targeting existing heavier more loyal customers is not a good growth path.
What about small brands?
The scientific laws apply to large and small brands, service brands, B2B brands and so on. I’ve used a range of examples to try to show this.
And I deliberately used Coca-Cola to illustrate the Negative Binominal Distribution (NBD) in chapter 4, because if that’s what the customer base of such a giant brand looks like then it’s not hard to see that small brands face the same sort of situation – most of their buyers buy very infrequently, and most people don’t buy them at all, so reach is essential.
What about large brands that already have high penetration?
How can a brand grow penetration if it already has near 100% penetration? Well, no brand has an absolute penetration metric, it depends on the time period. Brands with 70% or more penetration in a year will have vastly lower penetration in a quarter or month. Underpinning such metrics is the same NBD distribution seen in chapter X. All brands, even a huge brand like Facebook has mostly very light users, and plenty of non users (especially in a quarter or a month). So, again, reach is essential.
Is everyone who buys the category in our target market?
Essentially yes. With due considera
tion of your current physical availability, if you aren’t available in the North of the country then category buyers who live in the North fall, somewhat, outside of your target.
So if we have multiple brands or SKUs in the same category then they have the same target market?
Yes, which makes life much more simple, and can potentially save a great deal of money in not needing to undertake market research looking for differences. There is nothing wrong with your brands targeting identical markets - see “Implications for brand portfolio management” in chapter 6.
How can we make interesting, distinctive advertising if our target is everyone?
By employing a capable advertising agency. This is what great advertising does, it resonates with a broad cross section of people, it taps into our commonality as human beings. Disney is a fabulous example of this, it has crafted stories that appeal to people of different age, culture, race, religion and so on.
Resist the urge to admit defeat and retreat to concentrate on small winnable battles (e.g. social media campaigns based on ‘earned media’ that only reach heavy buyers). Resist customising your advertising unless you can see clear return for low cost – for example, global brands usually translate their ads into different languages.
Isn’t it expensive to try to reach light buyers?
This is a myth that holds marketers back.
Reaching millions of light buyers was the same challenge that faced marketers in the 20th Century and thanks to the emergence of mass media and national retail chains they were able to build brands, even global brands. Mass media and retail chains still exist, and are becoming increasingly global. They offer marketers great efficiency. In developed countries it still costs only around 2 cents to reach a person with a 30 second video using TV, in many countries it is far cheaper than this even. Today in the 21st Century we are in the golden age of mass media and mass distribution, and marketer who realise and exploit this will do very well.
Our commercials always features women, but we know that men make up a large chunk of our buyer base - should we change our advertising?
It’s important to distinguish between your targeting (you certainly have to reach and appeal to men) and your distinctive brand image – which may depend on using women in your advertising. But don’t assume, research your distinctive assets, check if the women in your advertising are an important part of your branding or not, and check if you are reaching and resonating with men or not.
Market partitions are just another name for segments aren’t they?
No, partitions are groups of brands that compete more directly with each other, and less directly with other brands in the category. Partitions may relate to different types of people (segments), for example sweeter breakfast cereals sell more to households with children, but such links may not always be obvious or of any practical consequence.
It’s important to remember that partitioning, while common, is usually slight. That’s why we call them partitions, not separate markets. They often require no marketing reaction, for example just because there is a partition does not mean you need to have a separate SKU or brand to service it, your existing brand may already compete very well in that partition as well as the rest of the market.
How can a new brand build mental availability when it has no distinctive assets?
It’s very difficult as everyone knows. My first advice is to follow the guidelines in this book closely, it’s risky enough launching a new brand there is isn’t the luxury of ‘breaking the rules’. There will be certain memory structures that have to be planted in consumers’ heads or they simply won’t notice the brand, don’t forget these in your efforts to tell people how wonderful your new brand is – stick to the fundamentals. See rule 4 in chapter 12.
A brand with no distinctive assets has to build some. One shortcut is to work with what already exists in people’s heads, that is, borrow memory structures where you can.
Should a brand seek to build mental or physical availability first?
Both work together, physical availability is of little value if consumers don’t notice the brand, and advertising is of little value if the brand is physically difficult to obtain. This is one advantage of big brands, their advertising works better because of their wide physical availability, and their physical availability is supported by efficient mass media.
One tactic for new brands is to grow gradually one geographical area at a time. If you can buy media to match your geographical availability then a small advertising budget can be put to use to buy large share-of-voice in that restrictive geographical region.
Hasn’t the internet and new media changed everything?
The digital revolution is certainly exciting, offering new ways of reaching consumers, new ways of building mental and physical availability, and new data on buying behaviour. However, there is mounting evidence that changes in consumer behaviour have been far more modest than ‘experts’ predicted. All the talk of ‘frictionless commerce’, perfect information, the death of brands has turned out to be as good as predictions of flying cars.
Ten years ago we told our Ehrenberg-Bass Institute sponsors that predictions of the death of TV were ridiculous, as we showed predictable patterns of TV viewing (scientific laws) that had held through massive social and technological change, and continued to hold. Since then TV viewing has not declined, in fact it has increased!
Meanwhile the advertising performance of many new media has turned out to be far less impressive than expected. Some, like Facebook, offer the potential of great reach in the sense of OTS (opportunities to see) but have turned out to be far less able to actually reach the brains of consumers which seem to be distracted by talking to their friends than viewing our advertising. More carefully controlled experimentation is needed to work out how to exploit these media.
Sadly much of what passes for research in this area is really disguised promotional material paid for by people seeking to sell advertising space to marketers.
For more information on what has and hasn’t changed see the special issue of the Journal of Advertising Research.
For insight into online video sharing and social media read Karen Nelson-Fields’ book ‘Viral Marketing: the science of sharing’ (Oxford University Press, 2013).
How do you maintain a consistent presence with a small advertising budget?
Whatever your budget, spend it evenly. Spread your spending over time, don’t bunch your advertising spots, this makes reach cheaper.
Remember, even the largest brands in the world complain that their advertising budgets are too small. Whatever your budget allocate it so you are as continuous as possible. Each month spend around one 12th of your annual budget.
There are many other media guidelines but these haven’t yet been released beyond sponsors of the Ehrenberg-Bass Institute. Our new university textbook, Marketing: Theory, Evidence, Practice (Oxford University Press, 2012), has a whole chapter on media, plus chapters on advertising and metrics.
To ask more questions:
Ehrenberg-Bass Institute, University of South Australia: www.MarketingScience.info
How Brands Grow official website: www.MarketingLawsofGrowth.com
Byron on twitter: @ProfByron
Byron on Linkedin: www.linkedin.com/in/professorbyronsharp
Bibliography
Aaker, David 2001, Strategic Market Management, John Wiley Sons, New York.
Aaker, Jennifer 1997, 'Dimensions of brand personality', Journal of Marketing Research, vol. 34, 347-56.
Alpert, Mark 1971, 'Identification of determinant attributes: a comparison of methods', Journal of' Marketing Research, vol. 8, pp. 184-91.
Anschuetz, Ned 2002, 'Why a brand's most valuable customer is the next one it adds', Journal of 'Advertising Research, vol. 42, pp. 15-21.
Armstrong, J. Scott & Collopy, Fred 1996, 'Competitor orientation: effects of objectives and information on managerial decisions and profitability', Journal of Marketing Research, vol. 33 (
May), pp. 188-99.
Armstrong, J. Scott & Green, Kesten 2007, Competitor-oriented objectives: The myth of market share. International Journal of Business, 12 (1), 117-136.
Armstrong, JS & Schultz, R 1992, 'Principles involving marketing policies: an empirical assessment', Marketing Letters, vol. 4, no. 3, pp. 253-65.
Ataman, M. B., Van Heerde, H. J. & Mela, C. F. 2010, 'The long-term effect of marketing strategy on brand sales.' Journal of Marketing Research, 47:5, 866-82.
Ataman, M. B., Mela, C. F. & Van Heerde, H. J. 2007, 'Consumer Packaged Goods in France: National Brands, Regional Chains, and Local Branding.' Journal of Marketing Research, 44:1, 14-20.
Ataman, M. B., Mela, C. F. & van Heerde, H. J. 2008, 'Building Brands.' Marketing Science, 27:6, 1036-54.
Baldinger, A, Blair, E & Echambadi, R 2002, 'Why brands grow', Journal of Advertising Research, pp. 7-14.
Barnard, Neil & Ehrenberg, Andrew 1990, 'Robust measures of consumer brand beliefs', Journal of Marketing Research, vol. 27, pp. 477-84.
Bass, Frank 1993, 'The future of research in marketing: marketing science', Journal of Marketing Research, 30th anniversary guest editorial, vol. 30, pp. 1-6.
Batra, R., Ahuvia, A. & Bagozzi, Richard 2012. 'Brand Love.' Journal of Marketing, 76:2, 1-16.
Belch, G & Belch, M 2008, Advertising and Promotion, McGraw Hill, Melbourne.
Bellizzi, J, Crowley, A & Hasty, R 1983, 'The effects of color in store design', Journal of Retailing, vol. 59 (Spring), pp. 21-45.