Packaged goods customers are not brand loyal…

Garth Hallberg, a former Ogilvy & Mather Direct colleague in NY, wrote an excellent book called Differential Marketing. Using about 15 years of scanning data from supermarkets, he proved what we know in our guts – all customers are not created equal and should not be treated as such.

differential marketing

In his research, he discovered something fascinating about packaged goods highest value customers.

Take the yoghurt market for example. The big consumers of yoghurt buy a repertoire of brands, but they have a favourite they buy most often. For every dollar these high volume consumers spend on buying yoghurt, about $0.40 per dollar is spent on their favourite brand, while they spend $0.60 on competitive brands.

That is, they spend $0.40 on their favourite brand, $0.25 on a second brand, $0.20 on a third brand and $0.15 on a fourth brand.

So the best yoghurt customer is more loyal to competitive brands than their favourite brand.

If you are the yoghurt marketing manager, you have to decide if your strategy will be to get more customers who will spend $0.40 on your brand (and at what cost?) or if you are to get your best customers to spend more than $0.40 on your brand and possibly give up a competitive brand. These are two very different marketing strategies.

More importantly, how do you reach these customers? Different customers buy yoghurt for different reasons and in different quantities. If you promote your website, or possibly a social site on your packaging, and encourage your best customers to opt-in for a newsletter and special offers, you’ll be able to speak directly to the people who make you the most profit. The more of these people you talk to, the less money you have to waste hoping to reach them with mass-media advertising.

Such is the case with the majority of fast moving consumer goods brands. One size advertisement doesn’t fit all. Marketers have to consider different executions for different markets if they really want to build market share.

When pondering life, I’m sure you’ve wondered why so many new packaged goods brands fail to succeed in relatively mature western economies – where the population growth is minor – and there has been decades of marketing education?

If it’s a food item, there is a simple reason new products fail. It’s because there is only a finite amount of stomach capacity and pantry space in the market, so people have to give up eating something to use the new product. Most marketers don’t consider what people will have to give up – they just advertise in a vacuum and hope customers will add the product to their diet and eat more. (Maybe marketers hold some responsibility for the obesity epidemic?)

If it’s a household brand such as a cleaning product, the same applies. Customers have to give up something to use your product – they’re certainly not going to increase the amount of time they spend cleaning, or clean with their existing preferred brand and then do it again with a new brand. And there is only a limited storage capacity in homes, so something has to go – we usually don’t consider what it should be or how to encourage its disposal?

This is often reflected in market research. A focus group is asked if they would buy a particular new brand. In such an artificial environment, if the agency has done its job well, the brand will appeal to the group. The question is the wrong question though.

The question that should be asked is “what would you give up to purchase this new brand?” This puts the new brand in a competitive frame of reference. It provides guidance to the marketing team for positioning of the product in the mind of the potential customers – those customers that are not created equal, who buy for different reasons and who use different amounts of the products.

All this talk of dairy delights makes me hungry for a yoghurt. Hmmm the fat-free or organic? With fruit or without? Will I add some nuts? Maybe some prunes…

One comment

  1. Greek-style yogurt is the thing up here, Malcolm. Nice to see you using Garth’s data. He analyzed some of our early tracking service data and sourced it in his book; I served as a reader for an early draft. Ed Nash also helped popularize our service by sourcing us in one of his books focusing on FMCG.

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