What causes the Double Jeopardy law?

I was recently asked for a causal explanation of marketing’s Double Jeopardy pattern.

This is discussed in How Brands Grow (e.g. table 3.3 and surrounding text). Also see page 113 of my textbook. Though the most complete explanation is in the forthcoming How Brands Grow in Emerging Markets.

It’s worth noting that causal explanations turn out to be ‘in the eye of the beholder’… e.g. what caused that window to break?
… the speed and mass of the ball resulting in sufficient force to break the molecular bonds in the glass of that window
… Jonny playing baseball on the front lawn when his Mum told him not to
… the wind, the pitch, the sun in Jonny’s eyes
… the Smith’s skimping and not installing double glazing ignoring their builder’s advice

All are better or worse explanations of the cause, depending on your point of view.

It’s the same for Double Jeopardy.

One explanation is simply that it’s a scientific law, it describes a bit of the universe, and that’s it… it’s simply how the world is. We don’t tend to ask why is there an opposite and equal reaction for every action (Newton’s first law), there just is.

The statistical explanation of Double Jeopardy is that it is a selection effect. This depends on the fact that brand share depends largely on mental and physical availability, rather than differentiated appeals of different brands.  And for marketers this is pretty important, we wouldn’t get Double Jeopardy if brands were highly differentiated appealing to different segments of the market.  Since we do see Double Jeopardy all over the place that suggests that real-world differentiation is pretty mild.  Mental and physical availability must be a much bigger story than differentiation.  That’s a very important insight.

Trade not boycotts helps poor people and the environment

There is far more trade between countries today than ever before.  And it has allowed countries that were terribly poor, with awful rates of childhood mortality, to transform themselves.

If you haven’t seen this superb video by Professor Hans Rosling then please do.  It shows the amazing progress that has been made.

This progress is often forgotten by people who instead give gloomy summations of the world today.  And worse, some of these people blame globalisation.  Trade is even presented as evil, forcing peasants to leave their (cold wet) rice farm to work in ugly city factories (better paid, warm, with healthcare, career prospects).  Somehow it’s thought that these dumb peasants don’t know what is good for them and their children – they are portrayed as victims of globalisation.

The statistics in Hans Rosling’s video help dispel this dystopian (patronising) fantasy.

I hope that facts like this help people to realise that trade gives people in poor countries a positive future.

If all the rich people in rich countries had agreed not to buy any goods from factories in Asia until they met our environmental and labour standards then Japan would be a poor backward country today. Child mortality in Asia would be atrocious, as it was only 50 years ago.  We must never forget this.

 

Conflicts in the marketing system

I do sometimes hear an ad agency people say “we don’t care about creative awards, we are totally dedicated to each client’s business objectives”, especially when in front of clients.  It makes me wonder whether they are lying (that’s bad), or that they are deluding themselves (which may even be worse), or if they are admitting that they simply aren’t good enough to win creative awards (and that’s not good either).

I think it is important to be grown-up, honest and up-front about conflicts of interest.e.g. Martin Sorrell wants to sell marketers stuff, his empire (like his competitors) will sell whatever marketers will buy that he can deliver profitably.  This matters far more to the agency than whether or not it is the best way to build their clients’ brands.

Creatives want to win awards.  And if this doesn’t sell a single extra of your product they aren’t really worried.

Media agencies want to do what they know, what’s easy, and they have to honour sell media they have committed to buy.

Market research agencies want to sell standardised products, ideally that use automated data collection and analysis, or low-level people.  They can’t make big profits from stuff that requires in-depth analysis by expensive people.  They do far more R&D into reducing data collection costs than into better research.

Retailers want to win share from other retailers.  They don’t care if this means selling another box of your product or not.

So partners yes.  But there are conflicts in the system.  This is fine, so long as everyone understands the conflicts then they can be managed – it’s possible for everyone to win.  But pretending these don’t exist is dangerous.

Professor Byron Sharp

July 2014.

Apple could charge a lot more – but should they?

Most of the things we own are OK, but a few special few are works of great craftsmanship, things of beauty. They give us pleasure in the same way that some houses, some architecture, is beautiful to look at. It’s something about being human that just looking at a building can be pleasurable yet we aren’t benefiting in any way from its function, we don’t own it, and may never even step inside it.

Beautifully crafted things usually cost more, which is understandable. In fact they often cost a great deal more – we have to pay a lot for small increases in quality, especially at the top end.

So luxury watches, handbags, wines (even business schools) cost an awful lot more even though functionally they may be rather similar to much cheaper alternatives. Luxury watches still cost tens of thousands of dollars more than throwaway watches that now are just as accurate at timekeeping.

Apple, under the guidance of chief designer Sir Jonathan Ives, makes beautifully crafted products. No tablet comes close to the build quality and sleek lines of the iPad Air, and the new Mac Pro looks like something developed using futuristic superior alien technology.

If these products came out from a company in the LMVH empire they would be priced many times higher. So why doesn’t Apple charge more? Even just a little bit more would do little to dampen demand and would add dramatically to profits. So why not?

Firstly, because Apple is in the technology business, where product features are very important and where it’s difficult to gain much of a technological advantage, certainly not one that lasts for any time. In handbags it’s taken for granted that they can all hold stuff, so design (both looks and build) matter enormously. In technology, basic functional factors like speed and screen size really matter, and Apple will never be far ahead of competitors.

Secondly, because Apple wants to build penetration and scale. They want lots of customers for their beautiful products who will then buy music, movies, books and apps from Apple – and of course future products. Getting an Apple product into someone’s pocket or bag gives Apple a medium through which to build mental availability for other Apple products. This is the same reason Amazon massively subsidies their Kindle price.

Thirdly, because Steve Jobs hated price premiums. He always wanted a lower price. Not a discount – he understood the need for profits to fund new product development and marketing, but as low a price as possible to still be profitable. He wanted his products to change the world, which meant getting them into as many hands as possible. Like Jonathan Ives he wanted people to see his art.

Anyone can have a price premium, it isn’t necessarily a sign of strength or good strategy.

So there are arguments in both directions, Apple should lower its prices and more aggressively chase share (closer to the Amazon Kindle strategy), or Apple should increase its prices and reap enormous profits. I guess from their perspective that means their prices are where they should be.

Out-take for marketers: a price premium might be nice for profits today but it holds back reach and scale, and that increases the riskiness of future profits.

PS A related interesting question is whether they should launch a cheap, minimal feature smartphone to bring kids and ‘light users’ into their fold? But they already sell the iPod touch and still have the iPhone 4S on the market so maybe this simply wouldn’t do much for them?

Does iPhone enjoy greater loyalty than Samsung Galaxy?

This is a short summary of an earlier more extensive analysis of this issue.

In short, no the iPhone doesn’t enjoy unexpected (magical) loyalty.

Essentially iPhone looks as if it has more loyalty than Android smartphones because we aren’t comparing apples with apples (pardon the pun). There are three reasons for iPhone’s higher loyalty than all android phones.

1) iPhone only plays in the premium end of the smartphone market, an area where users do use apps, and hence tend to be a bit more loyal because their purchases lock them into the platform.
2) People tend to trade up in smartphones, not down, so the premium end of the market has a bit higher loyalty than the lower end.
3) In this premium end of the market Apple is the market share leader, so in accordance with the Double Jeopardy law it gets higher loyalty.

So yes Apple has higher loyalty than all other smartphones, but its loyalty advantage over other premium smartphones (like Galaxy) is largely Double Jeopardy in action.

PS The “lock in” effect of iTunes and App Store is less than might be expected because buyers of premium smartphones are already so loyal.

Is advertising on Facebook better than TV?

This morning I received this interesting question in the mail:

Cadbury’s Social Media Manager claims a 7% sales increase in single Creme Egg sales over Easter after shifting from TV to Facebook (paid for and community management). Knowing that Facebook Fans are heavier buyers, do you know how they achieved such sales success?

My immediate reaction is that this is like medical stories of someone eating something [snake oil, placebo, vitamin C....whatever] and then feeling healthier. If it’s an outcome like cancer going into remission then it might feature on Oprah, but no sane medical practitioner will give the incident any credence because it’s an uncontrolled experiment, just one time, and with a single patient. I recall one claim of someone receiving an electric shock after a snake bite and being ‘cured’. When the story was investigated it was found that the man only thought he might have been bitten by a snake, all studies afterwards showed that electric shocks do NOT cure snake bite poisoning.

The story here looks very similar. Cadbury took a bit of their Creme Egg advertising money out of TV and put it into Facebook, after two years of dud campaigns (20% sales drop in 2011 and a further 19% in 2012) they posted a small improvement (up 7% from this now reduced sales level). So that’s one brand, in an uncontrolled experiment, in a market where there are a million other things going on that affect sales. Personally I’d be much more likely to put the effect down to the new creative than to Facebook.

Over the years I’ve seen many studies that claim that taking a bit of money out of one (large) medium and putting it into another (smaller medium) produces great results. These ‘research studies’ are usually paid for by that smaller medium. John Philip Jones used to explain them by saying that the first dollars you spend in any media are the most effective, so if you reduce your TV budget slightly you are taking out the least effective dollars, so spending them to another medium has a good chance of being effective. Maybe. It makes particular sense for a seasonal campaign like Cadbury Creme Eggs where you can quickly end up buying a lot of (less effective) frequency, hitting the same people on much the same evening, on TV. But just as likely explanation is that the result is a fluke, an untrustworthy piece of evidence.

And, of course, we don’t know what might have been achieved if they had just scheduled their TV better. Most advertisers do a terrible job, blowing money hitting people multiple times in single evenings. They could easily increase the effectiveness of their TV spend.

I couldn’t help but notice this line in the article:

As a result, this ‘Smell like a Crème Egg’ post was one of a number of posts that was promoted using news feed ads. It reached a natural audience of 188,000, but paid media helped it to reach 1.45m people.

Certainly this fits with the research in Karen’s new book ‘Viral Marketing:the science of sharing’. There is no such thing as a free lunch, and nothing drives social media exposure like paid-for advertising in big media like TV, radio and print.

As Cadbury put it “Facebook doesn’t just have to be a deep engagement platform for an audience it can be something that broadcasts an engaging marketing message en masse.” For a fee of course.

Finally it’s hard to trust the ROI research mentioned in the article. Comparing purchase intent among groups who recall exposure in different media is fraught with bias. People who recall both TV and Facebook exposures tend to be far heavier users of the brand so have higher purchase intentions (with or without the advertising).

In short, claims that one medium is more sales effective than another are simplistic. For the simple minded. And a single study shows nothing.

PS The Ehrenberg-Bass Institute is an independent research institute of the University of South Australia. We are financially supported by Mondelez (Cadbury) and a number of its competitors, but we stay very independent, free to critique.

The heavy buyer fallacy

It seems obvious, a brand’s currently heaviest buyers generate more sales and profits (per customer) so they should be the primary target for marketing.

This is commonly held misconception. The rise of direct marketing and CRM gave this fallacy a big plug, after all it can be hard to justify sending expensive letters to light customers.

But if our aim is to grow sales then our efforts should be directed at those most likely to increase their buying as a result of our attention. It takes only a moment of thought to realise that customers who already buy our brand frequently are going to be difficult to nudge even higher.

If, instead, our aim is to prevent sales losses then heavier customers would seem more promising – after all they represent a lot of sales we might lose. But then again, they are more loyal, other brands make up less of their repertoire, their habit to buy our brand is more ingrained, our brand has rather good mental and physical availability for them. In short, they aren’t particularly at great risk of defecting nor of downgrading.

So the idea that heavy buyers of your brand (“golden households” or “super consumers”) are your best target is flawed. Dangerously simplistic.