Joseph Tripodi – the CMO, The Coca Cola Company
It is common sense. It makes sense that a heavy user accounts for more sales than a light user then they are more important buyers. It is also said to be much more expensive to acquire a new customer than to retain an existing customer. So to grow we should focus our efforts on getting the loyal customers to buy more or buy more often. This group offer easier pickings for more growth.
The problem with this argument is that it is a theory built on anecdotal evidence and hypothesis. But it is not based on any empirical evidence of how buyers behave and which types of buyers contribute the most to brand growth.
This post brings some science to analyse this theory. What science does is to use empirical evidence to discover patterns that repeat themselves. This validates or contradicts the theory. Then we understand what actually happens, not our own projection of how it works. We can develop scientific laws. It is surprising how little marketers refer to scientific analysis. But maybe the tide is turning.
Andrew Ehrenberg pioneered bringing science into marketing. He started this as long ago as the 1960’s using scientific research to explore patterns of buyer behaviour. Read about Ehrenberg here.
One discovery he made is that bigger brands always have far more buyers than smaller brands. Buyers are also a little bit less loyal to the smaller brands. The difference in brand size is almost entirely explained by the different number of buyers. Bigger brands have higher penetration. Differences in levels of loyalty are small.
There was further evidence of this truth revealed in an IPA report called “Marketing in the Era of Accountability”. Les Binet and Peter Field used the IPA Effectiveness Awards dataBANK to identify the marketing practices and metrics that truly increase profitability create growth. Campaigns that aimed to increase penetration were more than twice as likely to report very large improvements in sales and profitability
Target to increase
Pentration % Loyalty %
Gold 21 2
Silver 20 6
Bronze 18 3
No Medal 41 89
This has important implications for us as marketers. Focus on loyalty and persuading existing customers to buy more is not the best way to grow a brand. Customer behaviour and attitudes mean that ‘loyalty’ does not work as might be expected.
This means there is the right and the wrong way to use customer loyalty schemes and other types of ‘relationship management’. This means we need to assess all marketing programmes based on their ability to attract more buyers and increase market penetration. To keep it simple.
Increasing penetration is the most important objective to get growth
But what about creating customer delight so that we keep our customers? Surely this is important. Well it is. We also need to distinguish between buying customer loyalty with promotions and schemes and creating loyalty through customer delight. Buying loyalty will not contribute much to increasing penetration. Whereas creating customer delight, builds advocates who recommend our products. A powerful way to increase penetration is to create word of mouth referrals. So customer delight is a tool to build penetration and attract more buyers.
Despite the evidence, Ehrenberg was often ignored by marketers and sometimes dismissed or criticised for trying to bring the rigours of science into the creative world of marketing. Fortunately for us all, his great work is now carried on by the Ehrenberg Bass Institute for Marketing Science.
If you want to see why understanding the science of customer behaviour is important. Please watch this video of Byron Sharp explaining his view at a Tedx event. (it is also good fun to watch)
We will develop this theme further. For the moment we leave you with the thought that we should all
Bring more science into the art of marketing