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 SwitchingPOOL of people who bought coke

last time

Pool of peopleWho bought pepsi

Last time

Visualize Switching

Visualize Switching

Visual Switching

Eventually

62.5% 37.5%

Calculation

(Coke Share, Pepsi Share) Coke Loyal, Coke Switch

Pepsi Switch, Pepsi Loyal[ ](.5 .5) .7 .3

.5 .5[ ]= (.5x.7)+(.5x.5) = .6

Coke’s Share Next Period

Current Shares

Calculation

(Coke Share, Pepsi Share) Coke Loyal, Coke Switch

Pepsi Switch, Pepsi Loyal[ ](.6 .4) .7 .3

.5 .5[ ]= (.6x.7)+(.4x.5) = .62

Coke’s Share Next Period

Period 1

Calculation

(Coke Share, Pepsi Share) Coke Loyal, Coke Switch

Pepsi Switch, Pepsi Loyal[ ](.625 .375) .7 .3

.5 .5[ ]= (.625x.7) + (.375x.5) = .4375 + .1875 = .625

Coke’s Share Long Term

Period n

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.