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Brand Switching. Ted Mitchell. Switching & Loyalty. Even The Most Brand Loyal Customer has Some Probability of Switching The Cost of Keeping a Profitable Customer is Almost Always Lower than the Cost of Attracting a New Profitable Customer. Switching. Switching brands Coke - Pepsi
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Brand Switching Ted Mitchell
Switching & Loyalty • Even The Most Brand Loyal Customer has Some Probability of Switching • The Cost of Keeping a Profitable Customer is Almost Always Lower than the Cost of Attracting a New Profitable Customer
Switching • Switching brands • Coke - Pepsi • Tide - Sun Light • Switching Customer Classification • Heavy user - Light user - Non-User • Prime Account - Non-Prime Account • Believer - Non-Believer
Visualize Switching POOL of people who bought coke last time Pool of people Who bought pepsi Last time
Eventually 62.5% 37.5%
Calculation ] [ Coke Loyal, Coke Switch Pepsi Switch, Pepsi Loyal (Coke Share, Pepsi Share) [ ] Current Shares (.5 .5) .7 .3 .5 .5 Coke’s Share Next Period = (.5x.7)+(.5x.5) = .6
Calculation ] [ Coke Loyal, Coke Switch Pepsi Switch, Pepsi Loyal (Coke Share, Pepsi Share) [ ] Period 1 (.6 .4) .7 .3 .5 .5 Coke’s Share Next Period = (.6x.7)+(.4x.5) = .62
Calculation ] [ Coke Loyal, Coke Switch Pepsi Switch, Pepsi Loyal (Coke Share, Pepsi Share) [ ] Period n (.625 .375) .7 .3 .5 .5 Coke’s Share Long Term = (.625x.7) + (.375x.5) = .4375 + .1875 = .625
Eventually 62.5% 37.5%
Markov Switching • Assumes probabilities are constant • Size of market is constant • Probabilities reflect the amount of marketing effort devoted to getting and keeping customers • Coupons, More Shelf Space, Advertising, Increasing satisfaction, etc.