COMMERCIAL IN CONFIDENCE

Efficient Marketing Spend ASVO 2014

Professor Larry Lockshin

Ehrenberg-Bass Institute for Marketing Science

University of South Australia

COMMERCIAL IN CONFIDENCE

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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

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Thanks to our corporate sponsors from many countries

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

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

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

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

Overall Agenda – How to understand and

predict consumer choices

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

• Loyalty card data from national liquor store chain

• 5000 card members’ purchases over 3 years

• Use of attributes instead of brands

Panel data purchases (Lockshin, Jarvis, Cohen)

Individual level records

Repeat purchase analysis

Brands differ in penetration not

in purchase frequency

10

Market share and

penetration decrease

much more than

purchase frequency

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

w = wo/(1-b)

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.

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

0

8

16

24

32

40

0 2 4 . . . 12 . . . . . . . . . . . . . . . . . . . 52

% of cola buyers buying Coke x times

If you buy yourself a Coca-cola more

than 3 times a year then you are one of

Coke’s heavy buyers!

Source: TNS Impulse Panel (UK,

2005)

15

There are very few heavy/loyal buyers,

even of Coca-Cola

Wine purchasing is the same,

Most buyers are light buyers N

um

be

r o

f b

uye

rs

Quantity

953.00

330.00

252.00

210.00

178.00

152.00

126.00

101.00

76.00

51.00

26.00

1

Fre

quen

cy

225

200

175

150

125

100

75

50

25

0

Number of bottles

There are many more light buyers than heavy

buyers overall.

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.

bY/X = DbY (D = ave.duplication/ave.b) b = penetration

You share customers with all the rival brands in line with

their size.

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

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

*1.3 x Penetration

29

70

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

Brisbane 1

Wed - Fri

Prime-time 11 3 116,000 40

Channel 10

Perth 1

Wed - Fri

Prime-time 12 5 88,000 33

Channel 10

Adelaide 1

Wed - Fri

Prime-time 12 7 83,000 26

Average 1 5 95,667 33

Total Cost $98,810

Media Class

Newspaper Freq per

Week Position

Weeks On

Air

Reach

(%)

Reach

Cost

($000s)

Sydney

Morning Herald

1 Good Food

supplement 12 14 1,004,000 25

The Weekend Australian

1 Run-of-press 12 2 761,000 18

Courier Mail 1 Run-of-press 12 5 488,000 25

Magazine Freq per

month

Months On

Air

Australian

Gourmet Traveler

1 Within

magazine 6 2 295,000 30

Average 1 8 635,000 25

Total Cost $98,000

Alternative 2 – Print advertising

Alternative 3 –print and online

advertising

Thank you

Larry.Lockshin@unisa.edu.au