Four Reasons To Switch

As the chief marketing officer for your company, you have already, or will soon face one of the following four business problem scenarios:

1. Imagine you are the CMO of a big Fortune 500 company and have more than 50% market share. Yet, something is nagging you. There is this small brand that has something that you don't. Do they have it in them to un-seat your brand? How can you defend your market share?
2. Alternatively, you are the CMO of a small company up against a few powerful and reputable firms. How do you survive, let alone grow? The business question is not only "How can I win market share?", but also, "How can I win market share efficiently, even if my marketing budget isn't as large as my competitors?"
3. Your brand is competing in a crowded market (think cars, credit cards, fast food chains, car insurance, kitchen appliances, beer, pet food, etc.). In these markets your insights need to go further, you need to understand your direct competition so you can adequately position yourself against them. You need to understand which customers are at risk of defecting to each competitor, and from which competitors are you going to attract most likely customers from?
4. Lastly, when you have lots of heterogeneous customers: some are going to be more valuable than others. You need to keep your most valuable customers. Likewise, you need to understand which new customers are going to be easiest to acquire.

The above four business questions can be answered with an integrated framework of analytics that we refer to as competition models and the switchable consumer.

Let's start with the first question: how can we win or defend market share? The insights needed to tackle this marketing challenge come from what is referred to as compete models. A compete model1 has the following components:

• A measure of a consumer's preferred choice over an alternative choice. For example:
  • Some consumers prefer Bank of America over Wells Fargo
  • Some IT professionals prefer Linux over Windows
  • Some mothers prefer Graco over Britax
  • Some people prefer Coors over Miller, and
  • Some eat more Mars bars than Hershey's bars
• The competing brand alternatives can be compared on a set of measures.

We first applied this approach in the enterprise software market, where we were interested in understanding if a juggernaut brand (more than 70% market share) would have to take a small entry brand (less than 3% market share) seriously. It turned out they would. In the first step of the compete model, consumer brand preference choices were modeled as a function of about 15 brand perceptions (using a logit model). Each of the two brands were rated on 15 perceptions, yielding a total initial set of 30 potential driver variables (15 for each of the brands). The result of this modeling exercise was that we found about six significant perception drivers. Next we did simulations: we simulated the impact on market share if one competitor could catch up with another competitor on each of the six perception drivers. The results were astounding in two ways:

1. The key driver, with the biggest surprising impact was a perception no one had suspected to have a significant impact, let alone the largest impact.
2. Surprisingly, the results showed that the juggernaut brand stood to lose 25% market share. On top of that, we identified a trend that showed that the performance of the small brand on the key driver would automatically catch up.

Click here to download Exhibit 1 and our detailed paper on this topic.