to me. They even just revamped my local store with a lovely bakery. So why am I done with them? Did they did piss us off? Did we have a bad customer experience? Too expensive? Nope. Nope. Nope. Nothing as dramatic. We’re moving house. Tesco was an eight-minute walk from my home. It will soon be a 60-minute drive. So, in a few weeks, our local supermarket will be Dunnes Stores, a well-known, national store.
Sure, Tesco may get the occasional scrap I throw their way, if I’m passing by. But, scraps aside, it is losing me as a customer. Well, for the next ten or 20 years anyway. Unless they are willing to move closer to my new house.
Tesco – it’s been good, but I’m moving on. I’ve already started correcting my boys when they say Tesco. Dunnes, boys. Dunnes.
I’ll also be ending my loyal relationships with my local pub and local coffee shop – the wonderful Butler’s Pantry and Browne’s, a lovely little restaurant in Sandymount, where I’m sitting right now tap-tapping away. If my new local pub does not stock Brewdog’s Punk IPA beer, it is quite possible I’ll be ending that relationship too. Reluctantly, I admit. They have all treated me exceptionally well. I’ve no complaints and would recommend them all. But I won’t be a customer of theirs for life, unfortunately.
Now, I accept that not every Tesco customer is moving house every year. But there is a more common reason why brands can’t rely on customers for life. It’s known as the leaky bucket.12 I asked the wise and wonderful Peter Field about this bucket. He explained that the leaky bucket is a fact of life for any brand. It needs to be replenished all the time. He advised me that, “if we just rely on selling back to our existing customers, we are going to be dealing with a dwindling customer base, and ultimately this is not a recipe for growth”.
So, I’m breaking up with Tesco, but what about my favourite retailer – Amazon? I’m a loyal Amazon customer. I buy almost all my books there. I just checked when I bought my first book from Amazon. February 2005. It was, Cracking the GMAT with sample tests on CD-ROM. A classic, I assure you.
So, 15 years of loyalty. And I suspect that unless Amazon closes down or stops making Kindles, I’ll be buying my books there for the next while. Jeff Bezos is, by all accounts, genuinely customer-obsessed. But Amazon seem to know about this damn leaky bucket too, given the amount of mass advertising it does now.13 This suggests that not even Amazon can rely solely on existing customers for growth.
Fox lesson: Don’t rely on existing customers for growth. Keep filling the leaky bucket.
9
Loyal. Just not faithful
So the leaky bucket is a reality for brands. But why? Why are we losing customers? Well, the answer is competition. Yep, our pesky competitors. We are always stealing from each other.
Actually, losing them is possibly misleading for most categories. Brands are sharing them. “Your customers are really other people’s customers who occasionally buy from you”, is how Andrew Ehrenberg explained it.
We are loyal to brands. We’re just not 100% faithful. We are polygamous, loyal shoppers.14 Essentially, your customers are sneaking around, behind your back, giving their business to your competitors too. We don’t buy the same shampoo, deodorant or soap brand on every shopping trip. In many categories, the top brand often gets bought no more than 30% of the time. No doubt Starbucks would love it if their customers bought coffee only from them every time, but this doesn’t happen.
Why don’t we buy the same brand every time? Depends on the category. One reason is we want variety. I saw this when working in online poker. Poker players like to mix it up and play in a few places. Try their luck at a different table. Meet a different group of players. So it was not unusual for customers to have a couple of poker apps on their laptops or phones.
Kevin Gray, a data scientist and marketing research expert, articulates consumer shopping behaviour with wonderful clarity. He explains, “I might buy a brand most often simply because it’s usually available where I shop. Or, I might buy it because I’m asked to, or because I’m shopping for someone else and know they like the brand. Things such as flavour and pack size matter too. My daughter loves green tea flavour ice cream – she doesn’t care about the brand. I prefer Pepsi to Coke, but size (500ml) matters more than brand. Because I buy it most often doesn’t mean it’s the brand I like most. Another brand might be my favourite, or I’m just the shopper and not the consumer. Some people decide mainly on price – brand doesn’t really matter to them.”15
This leads us to the famous law-like principle known as double jeopardy. We don’t have many laws in marketing, but this is perhaps as close as it gets.
I first discovered double jeopardy in 2010, when Professor Byron Sharp’s newly published How Brands Grow caused me some mild panic. Marketers have known about double jeopardy since 1969, and I was just learning about it in 2010. Clearly, I was late to the game. I blame my dad, of course. He was responsible for the reading list in my early years. Surely among all his correlation-causation bed time stories, he might have chucked in a few nuggets on the NBD-Dirichlet theory of repeat purchases. By 2010, I had been making marketing decisions for a good decade. And if you’d asked me about double jeopardy, my best guess would have been that it was some sort of legal loophole where you cannot be tried again for murder if found not guilty the first-time round.
Broadly, this principle tells us that brands in a category tend to have similar levels of loyalty. Behavioural loyalty. What this means in plain English, is that Starbucks customers visit Starbucks approximately as many times as Costa Coffee customers visit Costa. And Sure deodorant customers buy similar amounts of Sure as Nivea customers buy Nivea.
I’m simplifying it a little, I suspect, but the practical implications of double jeopardy are easy enough to understand. While repeat sales from existing customers are critical for most brands, what double jeopardy tells us is that we cannot vastly improve how much our customers buy from us, at least compared to the category average. The amount your customers will spend with you has a ceiling. In fact, you can often forecast it with reasonable accuracy.
If the average customer in our category buys their favourite brand, say, 12 times a year, this is approximately what we can hope for. Maybe we can improve on this. Maybe 14 purchases. Perhaps even 16. But we are not going to double the category average. Our customers won’t be buying our brand 24 times, no matter how customer-focused we are. It’s just not happening. This is a characteristic of many markets. Not much we can do about it apparently. If we are writing up marketing plans that are dependent on far higher levels of purchase loyalty than the category norm, we may be setting ourselves up for failure.
If this is depressing – unless you are the market leader – it gets worse. It’s called double jeopardy for a reason. Smaller brands get a double whammy. They are hurt twice. So, while the number of times customers buy the various brands tends to be about the same – the larger brands actually get bought slightly more often. So, if the brand leader is getting 12 purchases a year, chances are, you’re not even notching up 12. Sorry.
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