What have we learnt from 50+ years of shopper panel research?Carl.Driesener@MarketingScience.info

www.marketingscience.info

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Things marketers want to know :

‣ How do brands grow?

‣ Through retaining customers or winning new customers?

‣ What will happen when I change price?

‣ What is a ‘good’ brand image for my brand?

‣ Will loyalty initiatives build my market share?

‣ When should I advertise?

‣ If my sales don’t rise, does this mean my brand advertising has failed? If not, how can I tell it is doing anything?

Our data sources:

In-house surveys, experiments, in-store observations, executive interviews, marketing mix modelling, choice modelling.

‣ We do $1 million per year on original data collection.

Consumer repeat purchase panels.‣ Kantar, Nielsen, IRI, GfK, RI.

Media sources.‣ BARB (UK), AC Nielsen (US, AUS, CHINA), OzTAM (AUS), Roy Morgan (AUS).

Buying, Attitudes, Intentions, Psychographics, Perceptions.‣ Roy Morgan, TCI, Brand Asset Valuator, IPSOS.

The Scientific Revolution

How Science Works

Repeated empirical observations, across a wide range of conditions ...

Scientific “laws” - prediction & explanation

Theory: weaves laws together into a story ... a view of the world

History has taught us that theories without laws nearly always turn out to be wrong ... often costly, sometimes fatal

Ancient GreeceA pinnacle of civilisation

Hippocrates: the father of Western medicine

4 humors: blood, phlegm, black & yellow bile

4 elements: earth, air, fire, water

If a patient is ill, the humors are out of balance and must be restored…by bleeding, inducing vomiting &/or

diarrhoea. • an application of dried beetles to his throat

• gargling vinegar

• applied poultices of wheat bran to his legs

• an emetic to ensure vomiting

• two rectal administrations of calomel & tartar (laxatives?)

... and Doctors bled Washington 5 times in 10 hours extracting 3.75 litres (out of a possible 7)

The fate of an American President

See http://en.wikipedia.org/wiki/Elisha_C._Dick and "Doctors Craik and Dick's Account of Washington's Last Illness and Death". The Papers of George Washington. University of Virginia.

A revelation:Many of the theories in your head …

which drive your intuition … are wrong

Theories need to be built on the

bedrock of empirical laws

Laws of marketinggive meaning to metrics.

And now, some laws...

‣ Developed from analysing panel data from the 1950’s onward

‣ Law-like patterns based on millions of observed brand purchases - that is, real behaviour.

‣ Myth-busting ... that thoroughly undermines “anything goes” marketing planning.

In the real world ...

‣ Brands vary tremendously in market share.

‣With large variations in penetration (size of customer base).

‣ But vary little in their loyalty metrics (behavioural and attitudinal).

Big brands have more customers ... but it need not have been this way

In theory... but not in practice.

Hypothetical brands

(of equal size)

Annual market penetration (%)

Theoretical purchases per

buyer per annum

Resulting market share

Dell-icious 32 3 14%

AppleCore 16 6 14%

Petrol Brand share % buying how often SCR % 100% loyal

ANY 100 88 13.5 100 100

Mobil 25 51 5.9 40 13

Shell 25 46 6.3 42 11

BP 19 43 5.3 35 8

Caltex 14 35 4.6 30 8

Ampol 11 30 4.1 27 6

Southern Cross 4 11 4.0 27 5

Others 3 12 3.2 22 7

Average 14 33 4.8 32 8

Brands:

Market ShareCereal Anti-

DepressantsCars TV

(USA, 2002)

Purchase Frequency Purchase Frequency Repeat Rate Repeat Rate

A (13%) 5.0 4 61 38

B (8%) 4.5 4 55 36

C (4%) 3.8 4 55 28

D (4%) 3.6 2 51 28

E (2%) 3.4 2 52 23

F (1%) 3.1 3 44 21

H (1%) 3.0 2 36 20

Average 3.6 3 51 27

Loyalty hardly varies Double Jeopardy law

‣ More popular brands are known by more people.‣ And those people are slightly more likely to say they like the

brand.

Smaller brands have smaller customer bases and those customers buy the brand slightly less often.

Brands Market shareAnnual

penetration (%)

Purchase Frequency (Ave.)

11 13 2.3

9 11 2.3

5 8 1.8

5 8 1.9

5 9 1.6

5 8 1.7

2 3 1.7

Double Jeopardy law in actionShampoo category (UK, 2005)

But Vosene buyers

aren’t 100% loyal, and

even if they were, they

buy shampoo only 6

times a year.

Vosene could reach the

share of Head &

Shoulders or Pantene if it

were bought 8 times a

year by it’s buyers.

what marketers don’t know

• To grow you must substantially increase the size of your customer base.

• Targets to substantially or only lift purchase frequency are a fantasy.

• If your customer base is already very large, growth requires everybody to buy slightly more often.

So grow your base. But how?

Retain or acquire?

Textbooks say:

“retention is cheaper than acquisition”

“reducing defection delivers more profits”

“Companies can boost profits by almost 100

percent by retaining just 5 percent more of their

... which has been cited 3000+

Retain or acquire?

Textbooks say:

“retention is cheaper than acquisition”

“reducing defection delivers more profits”

“Companies can boost profits by almost 100 percent by retaining

just 5 percent more of their customers” - Harvard Business

Review (1990)

... which has been cited 3000+ times!!

MYTH

How did they work this out?

Suppose a company loses 10% of its customers each year. This means the average customer stays 10 years. And over that time profitability equals, say, $10,000.

If defection were lowered to 5%.Then average life becomes 20 years. And the current value of profits (over 20 years) rises to $15,000.

Decreasing defection from 10% to 5%

is halving defection!!(Reduction of 50%)

Some minor issues ...

• They are talking about customer profitability, not company profitability (which depends on lots of other things).

• And they assume halving defections is possible ....MARKE

TING

Defection rates followDouble Jeopardy too (UK, 1986-1989)

Penetration

(%)

Defection

(%)

Ford 27 31

Rover 16 46

GM 14 42

Nissan 6 45

VW/Audi 5 46

Peugeot 5 57

Renault 4 52

Fiat 3 50

Citroen 2 48

Toyota 2 50

Honda 1 53

Brand Defection (%)

A 3.4

B 7.0

C 5.3

D 4.3

G 4.3

H 5.0

I 4.3

Who wouldn’t worry if they were Brand B ?

Brand Market share

Defection (%)

A 32 3.4

I 13 4.3

C 11 5.3

D 10 4.3

G 6 4.3

H 1.4 5.0

B 0.8 7.0

Context: Double Jeopardy

Brand Market share

Defection (%)

Commonwealth Bank 32 3.4

Westpac 13 4.3

NAB 11 5.3

ANZ 10 4.3

St George 6 4.3

BankSA 1.4 5.0

Adelaide Bank 0.8 7.0

Context: Regional distribution

All brands lose customers,

even growing brands.

Smaller brands have to lose

a greater %.

So grow your customer base. But which buyers matter most?

The death of mass marketing?

Coca-Cola: Case Study

70% of people who bought cola in the year purchased Coca-cola at least once.

30% of cola buyers didn’t even buy one Coke (that year).

The average Coke buyer bought it about 12 times.

But less than 5% of Coke buyers were around this average rate.

About half of Coca-cola buyers bought Coke only once or twice.

32Source: TNS Impulse Panel (UK, 2005)

0

4

8

12

16

20

1 3 . . . . . . . . . . . . . . . . . . . . . . . .

% of cola buyers buying Coke x times

Source: TNS Impulse Panel (UK, 2005) 33

If you buy yourself a Coca-cola more than 3 times a year then you are

one of Coke’s heavy buyers!

34

0

14

28

42

56

70

0 1 2 3 4 5 6 . . . . . 12 . . . . . . . 20

% of population buying Mars ... times pa

If you buy yourself a Mars bar more than twice a year then you are one of its heavy buyers

Source: TNS Impulse Panel, UK, 2005

35

0

16

32

48

64

80

0 1 2 3 4 5 6 . . . . . 12 . . . . . . . 20

% of population buying Galaxy ... times pa

If you buy yourself a Galaxy bar more than twice a year then you are one of Galaxy’s heavy buyers

Source: TNS Impulse Panel, UK, 2005 36

0

15

30

45

60

75

0 1 2 3 4 . . . . . . . 12 . . . . . . . .

Dolmio (Penetration=55%)

0

15

30

45

60

75

0 3 . . 12 . .

0

15

30

45

60

75

0 1 2 3 4 . . . . . . . 12 . . . . . . . .

Leggos (Penetration=55%)

Raguletto (Penetration=34%)

0

15

30

45

60

75

0 1 2 3 4 . . . . . . . 12 . . . . . . . .

Bertolli (Penetration=28%)

Source: Nielsen (Australia, 2007)

All brands are like this

37

0 1 2 3 4 . . . . . . . 12 . . . . . . . .

Fabulo

0 1 2 3 4 . . . . . . . 12 . . . . . . . .

Fantastico

Never like this

38

0

20

40

60

80

0 1 2 3 4 . . . . . . . 12 . . . . . . . .

Leggos : Penetration = 37%Bertolli : Penetration = 19%

Source: Nielsen (Australia, 2007)

Known as the Negative Binomial Distribution (NBD)Each brand has the same distribution of purchases!Lots of buyers who buy 1 or 2 times. Hardly any who buy 10+ times.The shape is remarkably similar.Andrew Ehrenberg discovered this law in the 1950s.

So reaching all types of buyers matters for growth, and for

maintenance.

So we need to develop deep relationships with our customers...MYTH

So we need to develop deep relationships with our customers...

Source: Omar Mahmoud “What’s love got to do with

it?”, Research World (May, 2008)

How well does this fit?

Man: Of course, darling I love you.

Woman: Then why did you cheat on me?

Man: I stopped by your place sweetheart, didn’t find you, and your neighbour was on promotion, so I took her instead.

Man in front of a soap shelf in a supermarket, discovering his favourite brand is out of stock.

Man: Where are you darling?

Shelf voice: I am out of stock.

Man: Nooooo, don’t do this to me.

Please come back. I need you, your

perfume, your lather...

Shelf voice: No

Man: I can’t live without you. I

won’t take any showers until you

come back.

Reality check :

‣ People are busy, cognitive misers.

‣ They think and care little about most brands.

‣ There are dozens of brands vying for their attention

(and supposedly love).

‣ This shows in their behaviour - polygamous loyalty!!

Your brand is

not here...

... your brand is here

100% loyals

‣ Are very light buyers of the category (not lovers of the brand).

‣ The more purchases someone makes, the less likely they are to be 100% loyal.

May 18, 2011“US man to eat 25,000th Big Mac”

“Mr Gorske’s habitual consumption of the burgers - as

well as his need to document his diet - can be

attributed in part to obsessive-compulsive disorder.”

i.e., He records every burger in a diary.

Meet Don Gorske ...

Source - “Supersize Me” http://www.youtube.com/watch?v=yr-bI9qzFQk

The 80/20 law says we should target our heavier customers.

Buying

frequency% of buyers

% of volume

contribution

1+ 100 100

2+ 41 70

3+ 20 50

Source: Anschuetz (1997) Source: Sharp and Romaniuk (2007)

Category Avg Brand

Big Brands Small Brands

Hair Conditioner 44 47 42

Body Sprays & Deodorants 50 54 48

RTE Cereals 51 57 61

Analgesics 54 58 51

Still Water 55 70 69

Automatic Washing Powders 56 56 55

Fresh & Wet Soup 58 62 56

Fruit Drinks 59 63 55

Chocolate Confectionary 60 64 59

Ice Cream 61 57 54

Sauces & Ketchup 62 48 50

Fruit Carbonates 64 70 61

Carbonated Water 64 66 61

Yoghurt 66 68 67

Carbonates with Lemonade 67 72 62

Dog Food 67 68 66

Spirits 68 63 59

AVERAGE 59 61 57

Heaviest 20% of buyers accounted for...

what marketers don’t know

If your aim is to grow your brand…

then you must be aiming for more light buyers, more medium buyers, and a few more heavy buyers – volumes distributed more evenly across the total spectrum of buyers.

So reaching all types of buyers matters for growth, & for maintenance.

The laws you’ve learnt

‣ Double Jeopardy Law‣ Polygamous loyalty‣ NBD distribution of buying rates‣ 60/20

Implications

You compete practically ‘head on’

with everyone

Your buyers are loyal, but

polygamous

You mean little to most of them

Bigger brands have greater mental and physical availability.

And turning shoppers into buyers?Marketing is importantTarget the marketWide reach is vitalBranding is paramount (clear identification)Distinctive assets are importantMake it easy for shoppers to get what they want from you

what marketers don’t know

Questions?www.marketingscience.info

what marketers don’t knowByron Sharp

2

Ehrenberg-Bass

Institute