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Reicheld’s loyalty myth

A 5% reduction in customer defections does not result in amazing profit increases.

I exposed this myth some years ago in this article. Here is a video presentation covering the same loyalty myth content.

Does advertising only work via driving intentions and preference ? No!

Apart from a very small amount of direct response advertising, advertising works (to generate sales) through memories.  This is an uncontroversial statement, yet it’s common for marketers and academics to forget the essential role of memory and instead think advertising works largely through persuasive, rational or emotional, arguments that shift brand evaluations.

The dominant way that advertising works is by refreshing, and occasionally building, memory structures that improve the chance of the brand being recalled and/or noticed in buying situations and hence bought.  Memory structures such as what the brand does, what it looks like, where it’s available, when it’s consumed, where it is consumed, by who, with whom and so on.  Associations with cues that can bring the brand to mind.

Some advertising creates a purchase intention, gaining a reaction like “I should buy that” or “that’s interesting, I must check that out”.  It’s commonly assumed that such advertising must be more sales effective, but this does not follow.  Memory structures, even if they don’t result in intentions, still cause sales – decades of research shows that most sales typically come from people who had not formed an intention (Juster, 1960).  One reason is that intentions are memories too, and subject to faulty recall, so even firm intentions are weakly motivational.

A similar point can be made about brand preference or attitude.  Some advertising, much of it being quite similar or identical in style to intention forming advertising, generates a reaction like “that’s good” or “that’s the brand for me”.  Again, it is commonly assumed that such advertising must be more sales effective.  But again such attitudes are usually weakly motivational, because they are often not recalled in buying situations.

In fact there is typically only around a 50% chance that a person will state an attitude about a brand twice in two surveys (Dall’Olmo Riley, 1997; Sharp, 2002) – sometimes they recall their attitude, sometimes they don’t.  Either that or they are rather unsure of their attitude (it’s not like brand attitudes are very important).  Of course many of our intentions are rather vague and weak, e.g. “One day I must start eating more healthy foods and getting more exercise”.  We like a good many rival brands, including some we haven’t heard of yet, and we attitudinally reject very few of the many available options.

So it is quite misplaced to conclude that advertising that affects intentions or attitude works better than advertising that simply refreshes and/or builds memories.  This fact undermines much academic advertising research that derived rules about effectiveness by examining the effect of advertising exposure on stated intentions.  Similarly, advertising pre-tests (copy tests) that use intentions or intention shift are biased towards particular types of advertising content, and very often reach incorrect conclusions about the sales effectiveness of particular commercials.

Many firms are still trapped in the intentions/preference paradigm.  They brief their agencies and evaluate their advertising in line with this mental model.  As a consequence they produce unoriginal advertising filled with persuasive arguments (often about trivial benefits) that are rejected or fail to engage consumers.  They often produce advertising that fails miserably to refresh or build appropriate mental structures – because management attention is on the selling message. They take their ‘eye off the ball’ failing to consistently communicate the distinctive aspects of the brand.  Consequently many firms produce campaign after campaign where each looks and feels different – as if each were for a different brand.

Somewhat ironically, firms operating to this model of how advertising works will sometimes produce what they call “image advertising” or “awareness advertising” yet they do not expect this to produce sales.  Why on earth anyone should spend money on advertising that isn’t expected to deliver a behavioural response is beyond me.

In summary, advertising largely drives sales by refreshing memory structures.  Occasionally it works to (slowly) build memory structures.  Occasionally it works by also creating a purchase intention or preference.
So marketers need to understand the memory structures that have already been built for their brand.  They need to use these, and ensure their advertising refreshes these structures.  Then they need to research what other memory structures might be useful to the brand, and then work to build these.

Over decades leading brands have done stellar jobs at building relevant memory structures.  Coke is a great example, this was once a brand that sold in drug stores it was something associated with drug store visits in Summer by teenagers.  Today Coke is associated with a host of memories…Coke and the beach…Coke and nightclubs…Coke and pizza…Coke at parties…Coke…Coke red…Coke swirl… and so on.  These memories make it more likely that Coke will come to mind, they make it easier to notice, and they make is easier to process Coke advertising.

In Summary, advertising largely generates sales by refreshing memory structures.  Occasionally it works by (usually slowly) building memory structures.  Occasionally it works by also creating a purchase intention or preference.  The way you commision, judge and research your advertising should reflect this.

References:

Juster, F. Thomas (1960), “Prediction and Consumer Buying Intentions,” American Economic Review, 50, 604 -22.

Ehrenberg-Bass Institute report 3 “Advertising and Brand Attitudes“.

Ehrenberg-Bass Institute report 13 “Brand Advertising as Creative Publicity“.

Sharp, Anne (2002), “Searching for boundary conditions for an empirical generalisation concerning the temporal stability of individual’s perceptual responses,” Doctor of Philosophy, University of South Australia.

Do TV commercials need a USP ?

The answer would appear to be no, given that much advertising does not even make the slightest attempt at saying the brand is better than others.  But a fair amount of advertising does – so is this particularly good advertising ?  Does it work better ?

David Stewart, a Professor at University of Southern California, has published several important large content analyses of TV advertising.  The 1980s US TV ads (more than 2000)  were analysed in terms of 160 aspects of content, e.g.

• appeal based on enjoying life
• surrealistic visuals
• male principal character/ female principal character
• demonstration of results using product
• number of times brand name is mentioned
• health related information
• presence of a brand differentiating message

Such aspects of creative design were then correlated against the advertisements performance in laboratory pre-tests, specifically in terms of recall, comprehension and ‘persuasion shift’ (the difference in the % of respondents selecting the brand in a lottery before and then after exposure to the commercial).

With such a large list of creative design aspects many featured in too few ads to allow for meaningful analysis.  So only aspects that occurred reasonably frequently were reported, and they had to perform across product categories and new and established brands.  In some analyses these executional aspects were collapsed into about 25 factors.

Stewart and his co-authors concluded that “presence of a brand differentiating message” was the aspect of content that was most associated with the three measures of ad quality.  This would seem to be powerful empirical evidence of the value of a brand differentiating message.

Ahh, if only the secret to quality commericals were this simple.

The main reason that “presence of a brand differentiating message” came out well was that it was a very general (i.e. non specific) aspect.  One would hardly expected specific tactical aspects such as “photographic stills used in part of the commercial” or “number of camera cuts” to have been the key to effective advertising.  And it would be difficult for aspects such as “contained nutritional or health information” to perform across product categories.

And when the authors said that “brand differentiating message” performed best, they mean it was able to explain a tiny amount (a few percentge points) of the variation in the effectiveness variables.  Yes, the correlation was that weak.

So what are we to conclude ?  Advertising that you are better and different from the other brands is probably sometimes useful.  Probably when you really do have something believable and important to say.  Then it is relevant news, and your ad will be of more interest and better liked for it.

But a brand differentiating message is not essential for every ad, nor is it guaranteed to improve a TV commercial.

References:

Stewart, David W and David H Furse (1985), “The Effects of Television Advertising Execution on Recall, Comprehension, and Persuasion,” Psychology and Marketing, 2 (3), 135-60.

Stewart, David W and David H Furse (1986), Effective television advertising: a study of 1000 commercials. Lexington, MA: Lexington Books.

Stewart, D. W. and S. Koslow (1989), “Executional Factors and Advertising Effectiveness: A Replication,” Journal of Advertising, 18, 21-32.

Do different awareness measures measure the same thing ?

There is a history of discussion amongst marketers about the relative merits and meaning of different awareness measures. Then in 1995 an article was published that appeared to lay all this debate to rest:

Laurent, Gilles, Jean-Noel Kapferer, and Francoise Roussel (1995), “The Underlying Structure of Brand Awareness Scores,” Marketing Science, 14 (No. 3, Part 2), G170-G79.

Gilles Laurent and colleagues appeared to show that different brand awareness measures were systematically related, simply reflecting different levels of difficulty for respondents (i.e. brand prompted being easier than unprompted). So the different measures all tapped one construct, and a score on one measure could be used to accurately predict a score on another measure. We thought that was an incredibly important and practical finding. However, not was all that it seemed.

Nearly a decade later we replicated this research, and extended it to ad awareness. We achieved the same empirical results, but in doing so we were able to more clearly see what the previous research had, and had not, found. The measures tend to vary together, brand to brand, because some brands are much larger and more salient than others, so all their awareness metrics are higher too. However, we also examined the relationships between the loyalty metrics for each brand over time. Contrary to Laurent’s conclusion we empirically found that it isn’t possible to use their model to predict a brand’s score on one metric from its score on another.

So while all these brand awareness measures share something in common they do not perfectly tap one underlying construct. That’s as important a finding as Laurent’s might have been (if it had turned out to be true). Different awareness measures measure (somewhat) different things, even if they are all loosely related to the brand’s overall salience (and market share).

Romaniuk, Jenni, Byron Sharp, Samantha Paech, and Carl Driesener (2004) “Brand and advertising awareness: A replication and extension of a known empirical generalisation” Australasian Marketing Journal, 12 (3), 70-80.

The power of familiarity

I few years ago Emma Macdonald and I published this work showing the power of familiarity. When we did this in the late 1990s there wasn’t a great deal of interest in heuristics, snap judgements, and gut feeling. But today psychologists and behavioural economists are gaining a great deal of attention for their work showing how reluctant consumers are undertake a lot of cognitive effort when buying.

I’ve often said it is wrong to call much buying “consumer decision making”, it’s more buying (doing) than decision making (thinking).

Macdonald, Emma and Byron Sharp (2000) “Brand Awareness Effects on Consumer Decision Making for a Common, Repeat Purchase Product: A Replication” Journal of Business Research, 48 (Number 1, April), 5-15.

Snake (oil) and loyalty ladders

Many market research houses now market a “loyalty ladder” or “loyalty pyramid” product. These dissect a brand’s customer base into 4-6 groups, starting with something like “no awareness” at the bottom and ending with something like “passionate loyals” at the top. This classification is usually based on behaviour (or claimed behaviour) such as share of category purchases devoted to the brand in question. Some add attitudinal statements into the customer classification. Others, like The Conversion Model, claim to be entirely attitidudinal.

All these do is reflect the brand’s relative popularity (i.e. market share) and random sampling error (which looms large when you have 4-6 groups).

Marketing Science has known for decades that loyal behaviours and attitudes follow a set statistical distribution, and so any brand’s true loyalty ladder can be accurately predicted simply from knowing its size compared to rivals. And if it has 100% relative share, then all customers will be at the top of the ladder, but not until then.

I suppose these ladders are attractive because intuitively marketers feel it’s their job to move people along this path, sorry up this ladder. Yet I notice that my practitioner colleagues rarely draw any practical insights from these ladder metrics, they provide more entertainment value (”that looks interesting”) than knowledge. Which is fine, because that’s all they are, an entertaining expensive way of presenting, and obscuring, loyalty metrics.

Differentiation vs Distinctiveness

Differentiation’s role in marketing strategy is rethought in this journal article (which builds on an earlier report for corporate members). It presents a small mountain of varied empirical evidence, including direct measures of perceived difference:

Romaniuk, Jenni, Byron Sharp, and Andrew Ehrenberg (2007), “Evidence concerning the importance of perceived brand differentiation,” Australasian Marketing Journal, Vol.15 (2), pages 42-54.

(Download journal version of differentiation)

Differentiation (a benefit or “reason to buy” for the consumer) and Distinctiveness (a brand looking like itself) are different things. This isn’t just semantics, as any lawyer or judge will tell you. Distinctiveness (branding) is legally defensible, while differentiation is not (other than time limited patent protection).

Do 9 out of 10 new product launches fail ?

You’ve heard this line ? Or maybe something more conservative, say 7 out of ten ?

It sounds awful, but gives solace to marketers who have an under-performing new brand. It’s used by consultants to stress the importance of marketing (and the advice or services they are selling).

But is this claim supported by empirical evidence – it seems not. More than half of real-world (i.e. not test) launches succeed. As Cooper in 1996 wrote“sources citing the failure rate at launch to be as high as 90% tend to be unsubstantiated and are likely wildly overstated”.

The full article can be downloaded from this journal, here is the abstract:

“Managers’ Knowledge of Marketing Principles: The Case of New Product Development”, Steven Cierpicki, Malcolm Wright, and Byron Sharp , Journal of Empirical Generalisations in Marketing Science, 2000, Vol. 5, p.771-790.

Abstract: Do marketing managers have well-established marketing principles to guide decision making? We addressed this question by examining 15 principles of new product development obtained from an expert panel of Australian senior marketing practitioners. Of these 15, three turned out to be tautologies, six had at least some empirical support, and six were partly or fully contradicted by empirical studies. In examining the literature for evidence, we were also able to identify five wellestablished ‘empirical generalisations’ about new product development. These results indicate that while principles of new product development do exist, there are fewer of them than we might have thought, and practitioners appear unable to distinguish between good and bad principles.

Oops, Net Promoter Downunder

Melbourne Business School has released a survey of Australian businesses using the now infamous Net Promoter score.

And now their marketing department are using it to promote the business school with full page ads in the Qantas inflight magazine.

But this comes six months after the Journal of Marketing article discrediting the Net Promoter method. The article that debunks the Net Promoter’s silly claims just awarded the Marketing Science Institute / H. Paul Root Award.

Hmm, not a good way for a business school to promote themselves as ‘leading edge’ or even practical.