https://together.nbcuni.com/n/telemundo/?utm_source=Hispanic_TM&utm_medium=banner&utm_campaign=HispanicAd.com2021Banners
September 09, 2021

By Nigel Hollis

I think the Double Jeopardy empirical generalization is too often used to justify a simplistic recipe for brand growth. Double Jeopardy is a fact of marketing life, but does its existence justify the assertion that all a brand needs is to be easy to mind and easy to find? My experience suggests sustainable brand growth requires something more.

In marketing, Double Jeopardy refers to the relationship between brand size and repeat purchase, whereby penetration and repeat purchase rates are correlated. The bigger the brand is, the more repeat purchasers it will have, which puts small brands at a double disadvantage. But just knowing this fact does not tell you why the pattern exists or why it is so prevalent.

Beyond Double Jeopardy: the missing dimensions of brand building

Let me be clear, I am not arguing that Double Jeopardy does not exist, I never have (and as evidence I would propose this paper from 1997 that explores why the relationship exists). But I am arguing about what implications the relationship holds for brand growth. So…

  •     Yes, Double Jeopardy exists, but at its best all it tells us is that big brands have an inherent advantage over small ones (for further discussion check out this blog post from 2009.
  •     Yes, on average, growing penetration will also improve loyalty, but that does not mean that reducing defection is unimportant, nor does it explain how a brand can best grow its penetration.
  •     Yes, brands need to be easy to mind and easy to find, but that these are tables stakes, necessary but not the only requirements for sustainable growth. Salience alone will not help a brand get listed by a retailer, fend off new competition, or support a higher price point than existing competition.

Ehrenberg-Bass use the existence of Double Jeopardy to justify their growth recipe of being easy to mind, easy to find. But is successful brand building really that simple? In our everyday lives we experience three dimensions of space—length, width, and depth—and the fourth dimension of time. Ignoring the fact that there may be other dimensions we do not experience directly, does it not seem a little strange that the complex business of marketing can be reduced to just two basic dimensions?

My experience examining 40 years of data and thousands of case studies suggests that we are missing at least two dimensions from the brand building model: the equivalents of depth and time. But like the inhabitants of Flatland, where no one wanted to listen to the Square about the existence of a third dimension, adherents to the Ehrenberg-Bass growth philosophy may find it difficult to believe in dimensions which they do not perceive.

What evidence exists that there are important dimensions beyond penetration and repeat rate? Let’s start with depth. When I refer to depth, what I have in mind is the ability to charge a price that makes a good margin, one that returns enough profit that the brand can continue to innovate and invest in marketing. A brand with deep margins is much better placed to fund future investments than one with shallow margins and is well positioned to bootstrap itself into further growth. Now, of course we cannot assume that higher price points necessarily return better margins, but an analysis by McKinsey finds that a 1% price increase, provided it does not lower demand, will boost the net income of the typical U.S. corporation by at least 8%.

Several studies conducted by Millward Brown and Kantar integrating brand attitudes with volume share and actual price paid demonstrated a correlation between perceived differentiation and price paid. On average, a meaningful different brand - one that people agree meets their needs, is liked, and different or setting the trends for its category – can command a 22% price advantage over one that lacks meaningful difference. And an analysis by the University of Oxford's Saïd Business School, outlined in last year's BrandZ report (page 84- 89), finds that perceived difference makes the biggest contribution towards abnormal stock returns (those not predicted by standard financial models). Other evidence to support the power of meaningful difference includes a recent review on WARC which reports that Ehrenberg-Bass finds brands can premiumize within a product format “by creating discernible differences between price points that consumers will recognize as important.”

Being able to command a higher price and return a better margin than the competition is not going to make much difference to your growth prospects in the short-term (although all the evidence I have seen suggests that higher-priced brands can grow just as fast as lower-priced ones provided their price point is seen as justified). But what pricing power does is to ensure growth is sustainable over the longer-term, by funding the innovation and marketing necessary to attract new users and encourage existing ones to stick with the brand. Look at the continued success of the Apple iPhone, Tide detergent, Dyson vacuum cleaners, Dulux paints or Nespresso. Conversely, the demise of Sears, Debenhams and other retailers suggests that it is the inability to fund necessary innovation, renovation, and marketing from cash flow that results in over-borrowing, and, ultimately, causes the brand to enter bankruptcy because it cannot service its debt.

The second missing dimension is time. Last year, with the permission of the BrandZ team, I updated the Mastering Momentum analysis first conducted in 2018. The update now looks at 6,594 brands measured over a 3-year time frame. The average brand grew 2% over that time frame (the analysis uses claimed bought last as a surrogate for market share). Classifying the status of the brands in the first year of the analysis by their strength on meaning, difference, and salience relative to their competition identified three groups of brands that grew more strongly over the next three years, as follows,

  •     Strong on difference, grew 13% on average
  •     Strong on meaning and difference, grew 11% on average
  •     Weak on salience, grew 11% on average

Wait! What! Brands that were weak on Salience grew? Yes, because of all the marketing challenges weak salience is the easiest one to solve. Whether it is a TikTok, Instagram, or TV campaign, spending your fair share or more on effective advertising will help bring your brand to wider attention. And, if your brand is already perceived to be different in some way, your brand will respond that much faster to the investment. Why? Because perceived difference conveys three important benefits to a brand:

  •     Offers a reason to choose it over close alternatives
  •     Justifies paying the price asked
  •     Provides an easy justification for why the brand was chosen, leading to higher satisfaction

This latest BrandZ analysis simply confirms similar studies conducted over the last decade. Brands that are perceived as meaningful and different grow faster than the average when salience increases. They do not break the Double Jeopardy relationship; they simply increase penetration and repeat purchase faster than other brands because perceived differentiation makes it easier to justify paying the price asked.

Double Jeopardy is an empirical generalization. In other words, while it is found in every product or service category where a free market prevails, it describes the general relationship between penetration and repeat purchase rate in a product category. The problem is that if everyone assumes the relationship is the only one that matters, then many marketers will end up playing the same game. No one tries to differentiate their brand; they just try to make it meaninglessly distinctive and salient. That is a recipe for commoditization. A brand that plays by those rules may grow, but it will find it difficult to sustain its price point and growth may be slow. Far better to seek ways to make your brand meaningfully different from the competition and then boost its penetration. Sales will grow faster, return a better margin, and fund innovation and marketing for the years to come.

About Author: Analyst, author and "energetic speaker" regarding brands, media and marketing communications. Available for consulting, writing and speaking engagements.

 


 

 

Leave a reply

Image CAPTCHA
Enter the characters shown in the image.