The ‘Double Jeopardy’ law in Marketing
Have you ever met a Marketer who is not interested in sales growth?
Growth is an integral part of our business culture & Marketing departments are now expected to justify their activities in terms of growth potential and return on investment (ROI). Hence growth is presented as the solution to profitability.
However, retaining current market share position is difficult, let alone increasing it. Let's dive a bit deeper on this and understand why. A brand's sales volume depends on:
The number of buyers
The frequency that they buy the brand
Sales is given if we multiply those two factors. So, it is possible to have two brands of equal size that have the same sales volume – at least in theory; one with many buyers who buy the brand occasionally, while the other brand has half the number of buyers but they buy it twice as often.
In the real world, two brands of about equal market share have around equal market penetration (metric that records how many people bought the brand, at least once, in a particular period) and so they must also get bought by their buyers at a similar average rate.
Let’s get a specific example to understand how everything ties together; if we compare two shampoo brands X (big brand) and Y (small brand). How frequently do you wash your hair? Daily, you respond. Then, that is on average 22 bottles of shampoo per year. You may buy 25 or 30 bottles, but not 50. Hence, the frequency would be almost the same for all people. Why X brand is a big brand then? Well, you guess it right; more people are familiar with the X brand. This could be because X has more consistent marketing activities or more places where people can buy the brand (physical presence) etc. What is important to keep in your mind from all this is that big brands have higher penetrations and they also get bought slightly more often by their buyers.
So, what it the role of ‘Double Jeopardy’ law in all this?
Double Jeopardy is an empirical law that has been observed across multitude of product and service categories, showing that brands with lower market shares suffer both from low purchases and low brand loyalty. Simply put, smaller brands not only have fewer people buying the brand but also have fewer loyal customers compared to big brands. This theory is useful to differentiate the consumer’s preference between big and small brands.
People believe that big brands would give them good quality of products. Although the price of big brands' products may be higher than small brands' products, they don’t mind it as long as they are satisfied with the big brand. Actually, a brand is growing because consumers feel satisfied with its products and they recommend those to their friends. Thus, the impact of word-of-mouth is huge for a successful brand.
On the other hand, most people cannot stay loyal to a brand for various reasons, including advertising, change of habits, lack of physical presence of the brand, price discount, or advertising. Buyers have habitual behavior that makes them to share their loyalty to other competitors' brands. We often call them as ‘light’ buyers. Big brands could earn a lot from targeting and servicing these light buyers. Growth comes from nudging everyone’s propensity up just a little bit. Since the vast majority of buyers in the market are indeed light buyers of your brand, this nudge in propensities is seen largely among this group – going from buying your brand zero times in the period to buying it once, so your penetration metric moves upwards.
According to the double jeopardy law, big brands have ‘double advantage’ over the less popular brands which makes it very difficult for the latter group to convince their customers to buy the products consistently.
What is the lesson for Marketers?
We can use the same concept in online marketing to explain why a new blog/website is having a hard time to get noticed. An online marketer’s goal is to increase the number of followers/subscribers on her blogs and social networking groups. However, this rarely happens overnight, especially if you have a content-driven approach and you don’t have enough budget for paid advertising. Regular blog hoppers tend to visit sites which already have established their name or the one that they have already a connection with. For less popular blogs, the visitor is waiting for a trigger – an interesting article- that would make her engage with the blog.
Applying the double jeopardy law in the case above, a less popular blog would not have loyal visitors -that is normal- and only until it can establish a large market share would its visitors think of going back to visit the website. So, instead of worrying why your visitors don’t come back, accept it as a necessary step of your journey and improve your content and SEO strategy in the meantime. Just give them reasons to become loyal.
Bringing it all together, the double jeopardy law provides a practical guide to strategy formulation. It basically tells us that market share increases depend on substantially growing the size of your customer base. But how does your customer base grow? That is another topic that we will discuss on my next article. Stay tuned!
