Efficient Marketing Spend
ASVO 2014
Professor Larry Lockshin
Ehrenberg-Bass Institute for Marketing Science
University of South Australia
COMMERCIAL IN CONFIDENCE
SUPPORTED BY SOME OF THE
WORLD’S BIGGEST BRANDS
2
COMMERCIAL IN CONFIDENCE
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
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COMMERCIAL IN CONFIDENCE
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
% of cola buyers buying Coke x times
32
24
If you buy yourself a Coca-cola more
than 3 times a year then you are one of
Coke’s heavy buyers!
16
8
0
0 2 4 . . . 12 . . . . . . . . . . . . . . . . . . . 52
15
Source: TNS Impulse Panel (UK,
2005)
Wine purchasing is the same,
Most buyers are light buyers
225
200
150
There are many more light buyers than heavy
buyers overall.
125
100
75
Frequency
Number of buyers
175
50
25
0
1
51.00
26.00
Quantity
101.00
76.00
126.00
152.00
178.00
Number of bottles
210.00
252.00
330.00
953.00
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
Coke
Diet
Coke
Pepsi
Tango
Lilt
Fanta
Dr
Pepper
Diet
Pepsi
43
41
31
29
25
25
17
38
29
25
22
25
29
29
37
33
29
29
26
41
36
35
20
39
32
14
35
20
Diet Coke
65
Pepsi
72
44
Tango
68
42
46
Lilt
67
38
43
43
Fanta
70
40
46
45
46
Dr Pepper
72
48
49
47
41
36
Diet Pepsi
61
70
70
56
33
22
26
25
Average
68
46
43
38
33
29
29
21
Expected
69
46
40
32
30
25
24
19
*1.3 x Penetration
20
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
Channel 10
Brisbane
Channel 10
Perth
Channel 10
Adelaide
Average
Total Cost
Freq per
Week
1
1
1
1
Position
Wed - Fri
Prime-time
Wed - Fri
Prime-time
Wed - Fri
Prime-time
Weeks On
Air
Reach
(%)
Reach
Cost
($000s)
11
3
116,000
40
12
5
88,000
33
12
7
83,000
26
5
95,667
33
$98,810
Alternative 2 – Print advertising
Media Class
Newspaper
Sydney
Morning
Herald
The Weekend
Australian
Courier Mail
Magazine
Australian
Gourmet
Traveler
Average
Total Cost
Freq per
Week
Position
Weeks On
Air
Reach
(%)
Reach
Cost
($000s)
1
Good Food
supplement
12
14
1,004,000
25
1
Run-of-press
12
2
761,000
18
1
Freq per
month
Run-of-press
12
Months On
Air
5
488,000
25
6
2
295,000
30
8
635,000
25
$98,000
1
1
Within
magazine
Alternative 3 –print and online
advertising
Thank you
Larry.Lockshin@unisa.edu.au