Efficient Marketing Spend ASVO 2014 Professor Larry Lockshin Ehrenberg-Bass Institute for Marketing Science University of South Australia COMMERCIAL IN CONFIDENCE
S U P P O R T E D B Y S O M E O F T H E W O R L D S B I G G E S T B R A N D S COMMERCIAL IN CONFIDENCE 2
Thanks to our corporate sponsors from many countries Asia Pacific AMBA Communications ANZ Australia Barossa Co-op Carlton & United Breweries Department of Environment, Water & Natural Resources Foxtel GlaxoSmithKline Google (Singapore) Kantar Worldpanel (Malaysia) Kmart kwp! Advertising Lion Dairy & Drinks Mondelez (Australia) Mondelez (Japan) Parmalat Australia People s Choice Credit Union PepsiCo PHD Red Rooster Foods Roy Morgan Research Sanitarium Health & Wellbeing (Australia) Schweppes Australia United Spirits Limited University of South Australia Global Sponsors Coca-Cola Colgate-Palmolive Mars Nielsen Procter & Gamble Unilever North America Anheuser-Busch InBev Bristol-Myers Squibb CBS ESPN General Mills General Motors Kraft Foods Group Mondelez International SC Johnson Sun Products Corporation Turner Broadcasting System Europe Britvic D.E Master Blenders 1753 Diageo Europe Edrington FrieslandCampina (Netherlands) Kantar Worldpanel (Spain) Kantar Worldpanel (UK) Kellogg s Leo Burnett Mountainview Learning Red Bull (Austria) TNT Express ZenithOptimedia Africa Caxton Publishers & Printers Distell FirstRand South African Breweries COMMERCIAL IN CONFIDENCE 3
Overall Agenda How to understand and predict consumer choices Laws of Marketing Law 1: must gain new customers to grow Law 2: loyal (heavy) buyers decrease over time Law 3: all brands share customers with other brands How to spend efficiently a few recommendations
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
Laws are the vital building blocks Empirical laws simply say how things are related. And under what conditions... which tells us what matters and what doesn t.
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
Law 1: Grow by gaining new customers Because 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). Therefore: it is impossible to get already loyal (heavy) buyers to buy more. Focus on getting occasional (light) buyers and non-buyers
Law 1: growing your wine brand Panel data purchases (Lockshin, Jarvis, Cohen) Individual level records Repeat purchase analysis Loyalty card data from national liquor store chain 5000 card members purchases over 3 years Use of attributes instead of brands
Brands differ in penetration not in purchase frequency Market share and penetration decrease much more than purchase frequency 10
Market share and related measures for grape variety in Australia Market share and penetration decrease much more than purchase frequency
Wine regions follow the same pattern Market share and penetration decrease much more than purchase frequency
Double Jeopardy law Smaller brands have smaller customer bases and those customers buy the brand slightly less often. More popular brands are known by more people. And those people are slightly more likely to say they like the brand. w = wo/(1-b) To grow you must substantially increase the size of your customer base. Targets to lift purchase frequency (substantially) are a fantasy.
Law 2: The number of loyal customers shrinks over time Loyal (top 20% of buyers) = about 55% - 60% of sales: BUT Across 139 brands in 15 categories Only 50% of current heavy buyers remain heavy brand buyers the next year Sales contribution of those remaining drops 15% At the category level 65% of heavy (loyal) buyers remained after 1 year Heavy buyers of the category buy a wider range of brands 14
There are very few heavy/loyal buyers, even of Coca-Cola 40 32 % of cola buyers buying Coke x times 24 16 If you buy yourself a Coca-cola more than 3 times a year then you are one of Coke s heavy buyers! 8 0 0 2 4... 12................... 52 Source: TNS Impulse Panel (UK, 2005) 15
Frequency Number of buyers Wine purchasing is the same, Most buyers are light buyers 225 200 175 150 125 100 There are many more light buyers than heavy buyers overall. 75 50 25 0 1 51.00 101.00 152.00 210.00 330.00 26.00 76.00 126.00 178.00 252.00 953.00 Quantity Number of bottles
Key implications Think heavy half; light half Focusing on heavy buyers means ignoring half of your sales!!! Look for tactics to (cost effectively) reach many light buyers or non-buying wine drinkers
Who do you compete with?
Law 3: Duplication of Purchase law In any time period, you share much of your customer base with the big brands, and a little of your customer base with the smaller brands. You share customers with all the rival brands in line with their size. by/x = DbY (D = ave.duplication/ave.b) b = penetration
But do Coke buyers really buy Pepsi? Do Pinot buyers buy Shiraz?
Coke shares customers as predicted 2000-2001 % who also bought: Buyers of: Coke Diet Coke Pepsi Tango Lilt Fanta Dr Pepper Coke 43 41 31 29 25 25 17 Diet Coke 65 38 29 25 22 25 29 Pepsi 72 44 37 33 29 29 26 Tango 68 42 46 41 36 35 20 Lilt 67 38 43 43 39 32 14 Fanta 70 40 46 45 46 35 20 Dr Pepper 72 48 49 47 41 36 20 70 Diet Pepsi 61 70 56 33 22 26 25 Average 68 46 43 38 33 29 29 21 Expected 69 46 40 32 30 25 24 19 Diet Pepsi 29 *1.3 x Penetration
Duplication of purchase by wine brand 22
Duplication of purchase by grape variety Grape varieties share buyers in relation to their overall size
So, how do we spend efficiently on marketing? 1. Don t change packaging 2. Use same logo/colours in all communication
Evolution not revolution
Do you recognise these?
So, how do we spend efficiently on marketing? 3. Consider each promotion opportunity: tastings, sponsorships, wine dinners, road shows.in terms of penetration- how many new or light buyers will I reach on top of my heavy/loyal buyers?
Communication: what to focus on? Media that cost effectively reaches many light/non-buyers (who are essential for maintenance as well as growth) regular intervals (not 1 or 2X per year) What about social media? Isn t this a cheap way to reach consumers? What about engagement? Doesn t this create strong mental structures?
Illustration of media planning for wine $100,000 spent on 3 different campaigns Aiming for reach (not frequency) Increase the total number seeing the brand One viewing increases purchase probability Repeat viewing has little effect
Alternative 1 TV advertising Media Class TV Freq per Week Position Weeks On Air Reach (%) Reach Cost ($000s) Channel 10 Wed - Fri 1 Brisbane Prime-time 11 3 116,000 40 Channel 10 Wed - Fri 1 Perth Prime-time 12 5 88,000 33 Channel 10 Wed - Fri 1 Adelaide Prime-time 12 7 83,000 26 Average 1 5 95,667 33 Total Cost $98,810
Alternative 2 Print advertising Media Class Newspaper Sydney Morning Herald The Weekend Australian Freq per Week 1 Position Good Food supplement Weeks On Air Reach (%) Reach Cost ($000s) 12 14 1,004,000 25 1 Run-of-press 12 2 761,000 18 Courier Mail 1 Run-of-press 12 5 488,000 25 Freq per Months On Magazine month Air Australian Gourmet Traveler 1 Within magazine 6 2 295,000 30 Average 1 8 635,000 25 Total Cost $98,000
Alternative 3 print and online advertising
Thank you Larry.Lockshin@unisa.edu.au