𝗧𝗵𝗲𝗿𝗲 𝗶𝘀 𝗮𝗻 “𝗜𝗻𝘃𝗲𝗿𝘀𝗲-𝗗𝗼𝘂𝗯𝗹𝗲-𝗝𝗲𝗼𝗽𝗮𝗿𝗱𝘆” 𝗥𝘂𝗹𝗲 𝘁𝗵𝗮𝘁 𝗡𝗲𝗴𝗮𝘁𝗶𝘃𝗲𝗹𝘆 𝗜𝗺𝗽𝗮𝗰𝘁𝘀 𝗟𝗮𝗿𝗴𝗲 𝗕𝗿𝗮𝗻𝗱𝘀

Everyone is familiar with the Double Jeopardy rule, first discovered and fully explained in the early 1960s.

In its application to brands, small brands suffer twice. They have fewer customers, and those customers are slightly less loyal.

But there’s another sort of “inverse” Double Jeopardy rule that negatively impacts larger brands over small brands that’s never been explicitly discussed before.

This is seen in recent data from Worldpanel by Numerator (see the graphic below). They examined 250 brands across 39 markets to assess whether they were gaining or losing market share based on brand size. Smaller brands had a decisive growth advantage over larger brands.

There’s a straightforward “first principles” explanation for this!

It’s the interplay of the convex nature of the ad-response curve and the convex nature of the effects of the Double Jeopardy rule.

By “convex,” I simply mean that there’s a diminishing return as more and more ad dollars are spent. The more dollars you spend, the less impact those dollars will have. The “ad-response curve” bends over and begins to flatten out.

So the key question is “how effective is the next dollar of marginal ad spend in attracting additional buyers?”

Each marginal dollar spent by a small brand is more effective than that same dollar if spent by a large brand.

At high spend levels, the ad-response curve is in the flattened region…at lower spend levels, you’re on the steeper slope of the convex curve (see the graphic below)

So smaller brands will have a higher marginal effect per additional ad dollar.

Btw…there’s an exactly equivalent effect for physical distribution!

The second negative impact on large brands comes from the “diminishing return” curve seen in the traditional “Double Jeopardy” pattern.

The traditional Double Jeopardy rule says that brands with a higher Share-of-Market (SoM) are capturing a slightly higher level of SCR (share of category requirements).

But the SCR vs SoM curve that falls out of the NBD-Dirichlet models (where the Double Jeopardy rules derive) is ALSO a convex curve with diminishing returns as brands get larger.

The larger the brand, the harder it is to capture higher levels of SCR because any additonal growth has to come from the hardest-to-convert customers (the long tail of category buyers).

As a result, large brands suffer twice compared to smaller brands. A different sort of “inverse” double-jeopardy rule.

Each additional dollar spent on reach buys a marginally smaller fraction of both additional penetration and additional SCR.

And this is why it’s significantly easier for large brands to defend their market share positions, but almost impossible to take additional market share.

The net effect is that relative market share tends to be locked in for both small and large brands!