31/03/16&

Pa)erns&in&Repeat&Buying&&Part&2&
&&
&
Mul:;Brand&Buying&
NBD;Dirichlet&Theory&
&
Business
School

What&do&we&know&so&far&
The&:ming&and&rate&that&people&buy&the&category&
Poisson&&purchase&incidence&(:ming)&
Gamma&&purchase&frequency&(rate)&

That&our&customers&buy&other&brands&
And&what&this&means&for&the&distribu:on&of&:ming&and&buying&
rates&for&our&brand&

Business
School

Brand&purchasing&pa)erns&
Consumers&buy&from&a&repertoire&of&brands&(polygamous&loyalty&is&the&norm)&WHY?%

complete&awareness&is&impossible&
&buyers&seek&variety&
&buyers&buy&for&dierent&occasions/purposes&
&price&promo:ons&and&other&point&of&sale&
&availability&of&brands&
&household&include&many&buyers&...and&a&million&other&reasons&

Business
School

1&
 31/03/16&

What&we&havent&covered&yet...&
! How&oVen&are&they&buying&these&other&brands&?&
! Which&other&brands&?&
! How&loyal&are&they&to&our&brand&?&
! How&much&varia:on&(in&all&of&the&above)&is&there&between&customers&?&
! What&is&predictable&(and&therefore&not&controllable&by&us)&and&what&is&not&?&

Business
School

Remember&the&scien:c&approach?&

Observing&
buyer&
behaviour!&

Business
School

Remember&the&use&of&mathema:c&models&?&
Sta:onary&markets&are&predictable,&either&from&past&pa)erns&(empirical)&or&by&using&
mathema:cal&models&that&mimic&the&market&(theore,cal)&
If&markets&are&sta:onary,&measures&of&brand%performance&will&be&more&or&less&the&same&
for&each&period&
Mathema:cal&models&can&be&used&to&predict&these&measures,&and&use&them&as&
benchmarks&

1 + 2 always = 3

Business
School

2&
 31/03/16&

Remember&the&assump:ons&of&the&NBD;Dirichlet&model&?&
Stable&market&condi:ons&where&the&number&of&buyers&in&each&period&is&approximately&equal&(sta3onarity)&

Individual&consumers&have&steady&long;run&purchase%propensi3es&&

The&purchases&happen&irregularly&over&:me&

No&feedback&from&past&purchases&(zero;order)&

Compounded&by&a&set&of&sta,s,cal.distribu,ons.that&capture&some&key&aspects&of&how&people&buy&

Business
School

How$o%en$people$buy$(PURCHASE$TIMING$or$PURCHASE$INCIDENCE)&

Crucial$
aspects$
about$HOW$
people$buy$
observable$in$
staHonary$
markets&

Which$brands$people$buy$$(BRAND$CHOICE)&

Brand&Choice&
Which$brands$do$people$choose?$
$

Business
School

3&
 31/03/16&

Regularity&in&Brand&Choice&
Loyalty$levels$vary$liMle$from$brand$to$brand$(e.g.$similar$purchase$frequency$or$repeat$
purchase$rate,$as$well$as$defecHon$rate)$

Slight&gaps&(excess&or&decit&loyalty)&are&linked&to&the&SIZE.of.the.brand.(e.g.&their&
market&share&or&market&penetra:on),&which&inuence&also&compe:ng&dynamics&
(sharing&of&customers&between&brands)&
Brand&switching&is&quite&the&norm,&but&the&level&of&switching&changes&across&
categories&

Business
School

Assump:ons&about&Brand&Choice&
In&addi:on&to&the&earlier&NBD&assump:ons,&the&Dirichlet&
assumes&that:&&
Consumers$do$not$devote$their$category$purchases$solely$to$a$
brand&(mul:;brand&buying)&
Consumers$have$steady$propensiHes$to$buy$parHcular$brands,$but$a$
dierent$propensity$for$each$brand$(heterogeneity)&

& E.g.$40%$propensity$to$buy$Special$K,$
20%$to$buy$Weetbix,$10%$propensity$
to$buy$Rice$Bubbles$etc.$
&

Business
School

Assump:ons&about&Brand&Choice&
Brand&purchases&are&zero;order&events&
Successive&brand&purchases&are&independent&of&the&preceding&purchases&
$
For$example:$
Who&is&most&likely&to&buy&Mars&Bar&next?&&
Lara:&Snickers,&Snickers,&Picnic,&Mars&Bar&

Monica:&Snickers,&Mars&Bar,&Mars&Bar,&Twix&

Business
School

4&
 31/03/16&

As;if&at&random&

Consumers&behave&AS;IF&AT&RANDOM&

Business
School

Pa)erns&in&Repeat&Buying&&Part&2&
&
Double&Jeopardy&

Business
School

Loyalty&and&brand&size:&Double&Jeopardy&
Sta:s:cal&eect&caused&by&dierence&in&popularity&of&items&(rstly&observed&in&radio&presenters,&
McPhee,&1963)&

Ehrenberg&(1972)&observed&the&same&sta:s:cal&eect&in&brand&performance:&

Bigger&brands&(higher&market&share)&have&more&buyers&(higher&penetra:on)&and&are&bought&slightly&more&oVen&
(higher&purchase&frequency)&
&
Smaller&brands&(lower&market&share)&have&fewer&buyers&(lower&penetra:on)&and&are&bought&slightly&less&oVen&
(lower&purchase&frequency)&

5&
 31/03/16&

Double&Jeopardy&Pa)ern&
Brands. Market.Share. Penetra,on.. Average.Purchase.
.%. %. Frequency.
Brand&A& 11& 13& 2.3&
Brand&B& 9& 11& 2.3&
Brand&C& 5& 8& 1.8&
Brand&D& 5& 8& 1.9&
Brand&E& 5& 9& 1.6&
Brand&F& 5& 8& 1.7&
Brand&G& 2& 3& 1.7&
Average. 6. 9. 1.9.

How&can&you&dier&
You&can&have&many&more,&or&many&fewer,&
customers&than&the&other&brands&
But&you&cant&have&customers&who&are&much&
more/less&loyal&than&the&other&brands&
customers&

Business
School

What&does&that&mean&for...&

Business
School

6&
 31/03/16&

Bigger&Brands....&
Have&lots&more&customers,&who&are&slightly&more&loyal&
Many&more&loyal&customers,&not&customers&who&are&
much&more&loyal&&
Bigger$brands$have$more$of$all$kinds$of$buyers$

Business
School

Smaller&Brands...&
Have&far&fewer&customers...&but&these&customers&buy&
the&brand&at&much&the&same&rate&as&the&customers&of&
bigger&brands&
And&they&say&much&the&same&things&(same&altudes)&as&
customers&of&other&brands&say&about&their&brand&

Business
School

Heavy&&&Light&Buyers&
Smaller&brands&have&a&slightly&be)er&quality&customer&
base,&in&that&more&of&their&sales&come&from&their&
heavier&customers&
This$fact$is$counter$to$much$current$markeHng$wisdom$

Business
School

7&
 31/03/16&

Natural&Monopoly&Eect&
Big$brand$aMract$more$lighter$category$users$

Business
School

What&about&niche&brands?&
&
Dont&seem&to&exist...&
...the unicorns of marketing mythology
&

Business
School

Loyalty&Benchmarks&
Applica:ons:&
&&&&Brand&Tracking&
&&&&New&Brands&
&&&&Growth&
&&&&Posi:oning&
&&&&Loyalty&ini:a:ves&
&&&&and&more...&

Business
School

8&
 31/03/16&

Devia:ons&from&Double&Jeopardy& Business
School

Devia:ons&from&Double&Jeopardy&pa)ern&are&rare&and&oVen&fail&to&persist&over&
mul:ple&:me&periods&
&
The&following&typical&instances&of&devia:ons&can&be&observed&in&buying&behavior:&
Niche&brands&
Change&of&pace&brands&
Large&brands&
Private&labels&

Why&Double&Jeopardy&?&
Are&big&brands&stronger&?&&Are&they&more&dieren:ated,&niche;like&?&

NO!.
Brands&typically&compete&almost&head;on&
The&market&sees&them&all&as&compe:tors,&ie,&capable&of&doing&the&job&
There&are&simply&size&eects&however...&
&
Restaurant&
& &&example&

Business
School

Pa)erns&in&Repeat&Buying&&Part&2&
&
How&do&brands&compete?&
Duplica:on&of&Purchase&Law&

Business
School

9&
 31/03/16&

Do&brands&share&customers?&
&&Yes!&

Duplica:on&of&Purchase&Law&

Business
School

Sharing&customers&and&compe:ng&dynamics&
If&consumers&are&polygamous&(buying&more&than&one&brand)&
How$can$we$idenHfy$major$compeHtors$for$brands?$
&
&
&
&
DUPLICATION.OF.PURCHASE.LAW&(linked&to&Double&Jeopardy),&Ehrenberg,&1988:&
Customers$sharing$between$brands$takes$place$in$line$with$the$size$of$the$brand$
Smaller$brands$share$a$large$proporHon$of$their$customers$with$bigger$brands$
Key$compeHtors$are$market$leaders$

Business
School

Coke&shares&customers&as&predicted&
2000U2001.

Buyers&of& Coke& Diet&Coke& Pepsi& Tango& Lilt& Fanta& Dr&Pepper& Diet&Pepsi&

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&

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&

Source:&TNS,&UK,&Time&Period:&1&Year& *1.3&x&Penetra:on&
&

10&
 31/03/16&

Coke&shares&customers&as&predicted&
2000U2001.

Buyers&of& Coke& Diet&Coke& Pepsi& Tango& Lilt& Fanta& Dr&Pepper& Diet&Pepsi&

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&

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&

Source:&TNS,&UK,&Time&Period:&1&Year& *1.3&x&Penetra:on&
&

There&Are&Excep:ons& Business
School

called&Par::ons&&where&brands&share&more&or&
less&with&other&brands&than&normal/expected&

But&these&are&very&much&excep:ons&

Coke&shares&customers&as&predicted&
2000U2001.

Buyers&of& Coke& Diet&Coke& Pepsi& Tango& Lilt& Fanta& Dr&Pepper& Diet&Pepsi&

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&

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&

Source:&TNS,&UK,&Time&Period:&1&Year& *1.3&x&Penetra:on&
&

11&
 31/03/16&

What&does&a&par::on&mean?&
A&cluster&of&brands/&skus&compete&more&closely&&they&are&
more&likely&to&sell&to&the&same&people&(poten:ally&
complimentary)&

OVen&associated&with&func:onal&dierences&
Or&seen&with&some&segmenta:on&

Business
School

Par::oning&vs&Segmenta:on&
Par::oning&is&about&oerings&(func:onality)&
Segmenta:on&is&about&people&(types&of&people)&

They&can&coincide&but&they&do&not&have&to&(rst&class&vs&bu)er)&

Business
School

Think&about&&
Examples&of&par::ons&in&the&following&categories&

Coee&? & & & & &Bread&?&

Chocolate&? & & & &Cereal&?&

Washing&detergent&?&

Business
School

12&
 31/03/16&

So&use&DoP&
1. To&develop&understanding&of&compe::ve&structure&
2. To&iden:fy&par::ons&&check&you&have&full&category&coverage&
3. To&give&a&benchmark&for&cannibilisa:on&
4. To&assist&in&analysis&to&determine&which&brand/&SKU&to&cut&when&
retailers&demand&range&ra:onalisa:on&

Business
School

Managerial&Implica:ons&
Brands&compete&in&a&largely&un;par33oned%market:&the&ba)le&is&to&be&considered&by&more&customers&
more&oVen,&NOT&to&change&your&customer&base&(more&loyal,&more&passionate)&;&but&to&enlarge&it&!!&

To&grow&a&brand&more%customers&are&needed&(mass&marke:ng,&here&I&am)&

About&compe:ng&dynamics:&brand&customers&are&occasional&and&they&buy&other&brands&even&more&
oVen;&to&be&successful,&it&is&necessary&to&capture&more&light&buyers&and&to&maintain%buying%
propensi3es&"&vital&role&of&adver:sing&(reach!)&

No&need&to&convince&buyers&the&brand&is&best%or%dierent,&no&point&in&trying&to&make&customers&solely&
loyal,&passionate,&advocates&etc.&

Business
School

Implica:ons&Of&DoP&Law&
If&it&holds&then&Double&Jeopardy&should&occur&
That&the&Duplica:on&of&Purchase&Law&should&exist&
suggests&that&brands&mostly&compete&almost&head&on&
Perhaps&brands&arent&seen&as&terribly&
&&&&&dierent&?& Restaurant&
But&some&are&much&more&popular&than& example&

&&&&&others&

Business
School

13&
 31/03/16&

This&was&all&predicted&!&
NBD;Dirichlet&theory&of&purchase&incidence&and&brand&choice&

The&key&use:&it&provides&a&NORM&for&judging&brand&loyalty&&it&allows&a&manager&to&
determine&what&their&brands&loyalty&level&should&be,&given&its&market&share.&&

The&Dirichlet&says:&
who&buys&what&and&how&oVen&
for&each&brand&

Business
School

Dirichlet&Says&
Buyers&have&steady&propensi:es&to&buy&(which&
brands&and&how&oVen)&
These&propensi:es&are&independent&of&what&they&
bought&previously&(zero&order)&
There&is&much&varia:on&between&buyers&

Business
School

Dirichlet&Inputs&

Business
School

14&
 31/03/16&

Dirichlet&Outputs&

Business
School

NBD;Dirichlet*&Model&Es:mates&For&&
Packaged&Goods&Market&In&China&

Business
School

And&much&more&
#&and&%&of&buyers&who&buy&once,&twice&etc&
sales&importance&of&buyers&who&buy&once,&twice&etc&
repeat;buying&from&one&period&to&another&
growth&over&:me&in&penetra:on,&purchase&frequency&etc&

Business
School

15&
 31/03/16&

Now&you&know&
How&oVen&are&they&buying&these&others&brands&?&

Which&other&brands&?&

How&loyal&are&they&to&our&brand&?&

How&much&varia:on&(in&all&of&the&above)&is&there&between&customers&?&

What&is&predictable&(and&therefore&not&controllable&by&us)&and&what&is&not&?&

Business
School

So&
Brand&loyalty&is&predictable&largely&outside&of&
the&direct&control&of&managers&
Imp
Managers&can&indirectly&best&aect&loyalty&only&if& orta
nt!
they&succeed&in&making&the&brand&more&popular&

Business
School

Implica:ons&
You&compete&in&a&largely&un;par::oned&market&
The&ba)le&is&to&be&considered&by&more&customers&
more&oVen...&& Imp
orta
nt!
Not&to&change&your&customer&base&(more&loyal,&
more&passionate)&;&but&to&enlarge&it&

Business
School

16&
 31/03/16&

More&implica:ons&
For&Growth&
To&grow,&you&need&lots&more&customers&
Mass&marke:ng&is&the&path&to&growth&
Imp
For&Maintenance/Compe::on& orta
nt!
Your&customers&are&occasional&and&they&buy&other&
brands&more&oVen&
Light&customers&ma)er&(because&there&are&so&many)&

Business
School

For&Adver:sing&
Successful&adver:sing&helps&maintain&loyalty&(buying&propensi:es)&
Stop&all&those&light&customers&from&forgelng&to&&
habitually&buy&
Imp
orta
nt!
For&maintenance,&and&especially&for&growth,&&
adver:sing&has&to&reach&customers&who&seldom,&&
if&ever,&buy&the&brand&

Business
School

Adver:sing&doesnt&need&to&
Convince&buyers&the&brand&is&best&;&what&chance&of&this&?&!&
Make&the&brand&dierent&from&compe:tors&;&it&has&to&be&
similar&in&order&to&be&considered&
Make&buyers&solely&loyal,&passionate,&advocates&;&against&
this&criteria&at&very&least&99.9%&of&all&adver:sing&fails&

Business
School

17&
 31/03/16&

Acknowledgements&
Remember&the&scien:c&approach& Do&Brands&Share&Customers?&
www.dollarphotoclub.com&(x2&images)& www.dollarphotoclub.com&&
Brand&Choice& Sharing&Customers&and&compe:ng&dynamics&
www.dollarphotoclub.com& www.dollarphotoclub.com&
Asump:ons&of&Brand&Choice& All&this&was&predicted&
Cereal&Aisle&by&axiomphotog& www.dollarphotoclub.com&
h)ps://www.ickr.com/photos/michelle_magnum/2375265252& So&/&Implica:ons/&More&Implica:ons&/&For&Adver:sing&
(CC&BY;NC;SA&2.0)& Powerpoint&clip&art&
www.photosforclass.com& &
As;if;at&random& &
www.dollarphotoclub.com&& &
Loyalty&and&brand&size:&Double&Jeopardy& &
www.dollarphotoclub.com&& &
What&about&niche&brands& &
www.dollarphotoclub.com&

Business
School

18&