Page 1 of 10
ANZMAC 2009
Differentiation in a Branded Commodity Category: Tapping into Behavioural Data Jaywant Singh*, Kingston University,
[email protected] Chris Hand, Kingston University,
[email protected] Hsin Chen, Kingston University,
[email protected]
Abstract Brand positioning strategies are primarily meant for creating differentiations or unique brand images. This study aims to understand whether this works in a highly branded commodity category – bottled water, with respect to the differentiation created by marketing actions. The purpose of this study is to examine empirically whether these differences could affect buying for branded water. Brand performance data from Tesco panel is analysed using Dirichlet approach. Purchase duplications of branded water show multi-brand buying behaviour that is influenced mainly by the size of a brand. The results show what varies between commodity brands is their market share and not the loyalties which they might attract. The study has implications for marketers in understanding the nature of competitive markets. Keywords: Branded Commodity; Brand Positioning; Dirichlet model; Differentiation
ANZMAC 2009
Page 2 of 10
Differentiation in a Branded Commodity Category: Tapping into Behavioural Data Introduction and Background Brand positioning strategies are aimed at creating differentiation or a unique brand image (Kapferer, 2008). The concepts of customer-based brand equity (Keller, 1993) and of brand strength (Keller, 2001) are reliant upon the notion of consumers choosing brands on the basis of a perceived differentiation and of strong attitudinal attachment towards the brands they are loyal to. This also finds application in the market research industry where organisations such as Mintel and Keynote frequently capture consumers’ attitudes as part of their analysis of individual markets or industry sectors. Many brands are able to leverage from consumer perceptions, often based on their customer-based equity or unique product characteristics and build them into their brand communication (e.g. BMW, Coca Cola, Sony, Apple, etc). However brands in many categories face limitations in creating clear or strong differentiation because of the nature of the product. For instance, categories such as water, lager, lemonade, petrol, etc., are commodity-like and they tend to rely mainly on differentiation created by brand positioning. A relevant question then, is - does brand positioning seem effective in creating perceived brand differentiation in commodity categories that may influence buyers’ brand choice? Further, what is ‘different’ in branded commodity categories that may affect their market performance? While brand positioning and differentiation are key concepts in the branding literature (e.g. Keller, 1993 and 2001; Kapferer, 2008) there is little empirical research specifically investigating the relationship between positioning, perceived brand differentiation and purchase behaviour, particularly in commodity-type markets. A recent study by Dawes (2008) explored the regularities consistent with Dirichlet-type markets in the apparently more differentiated beer category. The study, however, was based on survey data related to consumption recall rather than panel data which is based on actual usage. Other studies (e.g. Kennedy and Ehrenberg, 2001; Dawes, 2009) have examined the profiles of brand users in different categories, suggesting that there is a lack of fit between who the brands are targeted at and whether they were actually bought by those customers. A highly branded commodity category is bottled water – the focus of this study. Our study aims to investigate whether the results for branded bottled water could be empirically generalised for other commodity-like product categories which are differentiated primarily, if not totally, by branding. The UK market for bottled mineral water has been growing at a phenomenal rate over the past few years. Recent Mintel forecast suggests that the UK bottled water market will grow by an estimated 30% to reach a value of £2.6 billion over the period 2007-12, showing a 19% growth rate (Mintel 2007). While water can been seen as carrying a commodity image, branding of bottled water is strong and has a long history. Marketing experts suggest that a commodity such as water can be branded effectively and the key to success is differentiation, but creating it is also the challenge. After all, water is water. Leading brands - such as Evian, Volvic, Perrier, Highland Spring - invest heavily in brand positioning and creating differentiation on the basis of source of the water, taste, bottle shapes and sizes, contests, social responsibility activities, etc. Often manufacturers use catchy slogans aimed at creation of a specific brand image, e.g. ‘untouched by man, perfect by nature'(Evian), ‘the water from organic land’ (Highland Spring), '1L = 10L for Africa' (Volvic), ‘a drop of pure Britain’ (Buxton). This marketing orientation of creating and managing buyers’ perceptions of branded bottled water could be seen largely as management driven. But what does the data for past purchases of bottled water show? Does apparent differentiation by branding impact buying of branded water? In this study we examine the 1
Page 3 of 10
ANZMAC 2009
empirical patterns of buying behaviour for branded bottled water and discuss whether the brand positioning and differentiation might show any impact on the way consumers buy their bottled water. We use the well-known Dirichlet model to benchmark the brand performance measures for UK bottled water brands. The Dirichlet is a statistical model that describes and predicts the patterns of buyer behaviour (e.g. see Goodhardt et al.,1984; Ehrenberg, 1988; Barwise, 1995; Stern and Hammond, 2004; Danaher et al., 2003; Ehrenberg et al., 2004). The model is robust and its predictions have been found to hold across more than 50 different product categories. The theoretical brand performance measures are calculated by computer software (Kearns 2000). There are also practical approximations, especially for the Double Jeopardy effect and the Duplication of Purchase Law (e.g. see Ehrenberg et al., 1990; MacDonald et al., 1994; Colombo et al., 2000; Ehrenberg and Goodhardt, 2002; Allsopp et al., 2004), that substantiate whether the results hold. We juxtapose the brand positioning (i.e. differentiation) vis-à-vis the patterns of brand purchase for bottled water. Our hypothesis is that the results from behavioural data will demonstrate a lack of brand differentiation. The Data and Study The data is provided by UK-based panel data analysis firm Dunnhumby that collate the Tesco Clubcard data. The data provided by the firm contains 1000 Tesco Clubcard holders and covers the period February 2003-January 2005. The panel include Tesco customers who buy both online and offline from the store. The data is purchase records collected on a continuous basis. The bottled water market is fragmented, with a few brands at the top followed by numerous smaller brands. The smaller brands are often not available nationally because of their limited distribution. We consider the top eight brands, selected according to their market shares, for our analysis. Brand performance results from the consumer panel are benchmarked against Dirichlet model predictions. Results and Discussion We calculate brand performance measures for the branded bottled water category and compare these to Dirichlet predictions. The results are summarized in Table 1 below. Brand Performance Measures are denoted by O (Observed) and Dirichlet predictions by T (Theoretical). The table shows results for a range of brand performance measures, such as market shares, penetrations, purchase frequencies, exclusive buyers (100%-loyal buyers) and Share of Category Requirement (SCR). The brands here are tabulated in market share order.
2
ANZMAC 2009
Page 4 of 10
Table 1 Bottled Water: Brand Performance Measures (Observed O and Theoretical T Performance Measures) Bottled Water UK 2005
MarketShare %
Purchase Penetration % Frequency
100%loyal %
O O T O T T T 27 19 Tesco 37 41 42 9.5 9.2 Evian 21 19 29 11.4 7.3 12 13 Highland Spring 10 18 16 5.4 6.2 12 10 9 Volvic 7 15 12 4.8 6.0 14 11 9 Buxton 6 15 11 4.5 5.9 16 8 Aqua Pura 2 6 3.8 5.5 4 8 Vittel 2 6 3.8 5.5 11 4 23 10 Tesco value 10 10 18 13.6 6.3 Average* 12 17 17 6.2 6.5 15 11 Correlation .9 .8 .8 * The averages and correlations calculated excluding Tesco Value
SCR% O 60 45 38 34 33 34 26 57 39
T 44 36 26 24 24 22 22 26 28 .9
The patterns in Table 1 are discussed below. Double Jeopardy Table 1 has average purchase frequency which is the average number of purchases made by households who buy at all in a given period. The purchase frequency of market leader Tesco is 9.5 with 37% market share whereas the smallest brand Vittel (with 2% market share) has a purchase frequency of 3.8. The purchase frequency is found to be generally lower for smaller market share brands. This phenomenon, termed by McPhee (1963) as ‘double jeopardy’, which suggests that smaller brands are bought by less number of people (lower penetration) and they are bought less often (Ehrenberg et al., 1990). Double jeopardy is a statistical selection effect that occurs because of the differences in market share of competing brands. It is a well-established trend that occurs across a wide variety of frequently bought consumer products and has been demonstrated in various studies such as Ehrenberg (1988), Castleberry et al. (1994), Ehrenberg et al. (1990), Uncles and Hammond (1995), Dall’Olmo Riley et al. (1997) and Ehrenberg et al. (2004), etc. Table 1 has some exceptions to the trend discussed above. The brand Evian has a high purchase frequency of 11.4, along with Tesco Value’s 13.6 (an outlier). In fact, the two brands’ unusual behaviour is also shown in a lack of fit with the Dirichlet estimates. Both brands also have Share of Category Requirements higher than the normal. These deviations could suggest that while Evian’s high figures are evidently due to its position as the leading national brand. Tesco Value is Tesco’s own low-priced brand, which might be expected to record higher level of SCR. Share of Category Requirement Share of category requirement is one of the most commonly used measures of brand loyalty. It measures each brand’s market share among the group of householders that bought the brand at least once during the time period under consideration. The SCR, in Table 1 above, is much the same from brand to brand, except for Tesco and Tesco Value brands. The two exceptions are possibly because of these being Tesco’s own labels, rather than excessive loyalty. The data is from Tesco panel, which rewards buyers for buying its own brands. The SCR figures 3
Page 5 of 10
ANZMAC 2009
here show multi-brand buying. Even for a high share brand such as Evian, more than half of the purchases are being made for other brands. There is also a downward trend with market share, with SCR being low for smaller brands (with the exception of Tesco Value). 100%-loyal Buyers Most customers would buy from a number of different brands. There is a small group of customers who buy only one single brand of that product throughout the time period of analysis. These are called the 100%-loyals or sole buyers of a brand. In Table 1, few customers of a brand are exclusively loyal to that one brand within a given analysis period (except again for the Tesco brands, bought perhaps to collect reward points). The 100%-loyal buyers or sole buyers are low for all brands, ranging between 11-16%. Even for a well-known brand as Evian, the incidence of exclusive loyalty is a low 12%, a figure similar to a smaller brand Vittel for which the figure is a close 11%. The low incidence of sole buyers even for larger brands indicates that consumers have a repertoire of brands that they choose from; a very small percentage buys only one brand during the time period. Duplication of Purchase Since only some customers of a brand tend to be 100%-loyal to it in the chosen analysisperiod, its other customers are also buying other brands. The levels of such switching are commonly interpreted in terms of which brands are more or less competitive with each other. Buying X and then Y need not mean that the consumer is totally giving up brand X in favour of brand Y, but may have both X and Y in their ongoing brand repertoire. This phenomenon is known as Brand Duplication of Purchase. A duplication table tabulates the numbers of purchasers of each of a number of entities who also purchase in the same period each of the same entities. The analysis is carried out on the number of buyers, not the number or volume of purchases. The number of purchases is immaterial because any purchase at all qualifies the consumer as a buyer of that brand. The duplication coefficient in Table 2 is 1.8. The predicted duplication is therefore 1.8 times the penetration for each brand. There is a linear relationship between average and the predicted duplication with a high correlation of .9. Table 2 Duplication of Purchase: Bottled Water Bottled Water UK 2005 % who also Bought
Tesco Evian High Spring Volv-ic Buxton Tesco Value Aqua Pura Vitt-el Buyers of
4
ANZMAC 2009
Page 6 of 10
Tesco
29 30 23 23 12 11 9
Evian 62 40 39 37 10 8 15
Highland Spring 67 41 30 35 9 12 13
Volvic 62 48 36 32 9 9 14
Buxton 62 46 44 33
5
Page 7 of 10
ANZMAC 2009
11 13 11
Tesco Value 62 23 22 16 20 10 8
Aqua Pura 72 25 36 21 31 13 13
Vittel 67 51 42 37 28 11 14
Average Duplication% 65 38 36 28 29 11 11 12
Predicted Duplication% 84 39 38 31 30 16
6
ANZMAC 2009
Page 8 of 10
13 12 Penetration % 41 19 18 15 15 8 6 6
Coefficient D 1.8
The above features of figures in Table 2 can thus be summarised as having two main patterns: a. Figures in the columns are fairly constant, with a few exceptions. b. Average duplication is closely predicted by penetration times the duplication co-efficient, with a correlation of .98. The first main pattern is seen along the columns in Table 2. The figures are mostly similar with the exception of Tesco Value which shows a slightly lower duplication than other brands, possibly due to price sensitive customers of Tesco Value. More buyers of Evian (62%) also bought Tesco, on average 65% buyers of Tesco also bought other brands. This is directly related to their respective popularity, i.e. penetration, of these brands. For instance, Tesco is the market leader with 41% penetration, and this is reflected in higher duplication figures for Tesco in the column, averaging at 65%. There is a remarkably close fit between average and the predicted duplications across all product categories. There are few small exceptions here, more likely due to the averaging of duplication coefficients, with correlations of .9+. Overall the patterns here show cross-purchasing across brands, with buyers of bigger brands also buying other brands, pointing to repertoire buying. Conclusion and Implications A brand’s positioning strategies may affect attitudinal aspects to the brand, but this does not reflect in our analysis of purchase data in the previous section. Instead the purchase data displays patterns consistent with Dirichlet, which strongly indicates a lack of brand differentiation. This could be due to the fact that buying of these brands are not influenced by
7
Page 9 of 10
ANZMAC 2009
attribute-based differentiating factors (such as taste), or the points of differentiation as suggested by Keller (2008). There might possibly be subtle differentiating attributes operating in this category, such as the source of water, e.g. Peak District (Buxton) or the Alps (Evian). However this does not reflect in our results which show buying resulting from stochastic purchasing rather than positioning of water brands. The duplication results further substantiate our findings. The exception of Tesco Value suggests there might be a partitioned market for the lower priced brands. The results show that even highly branded commodity brands follow the Dirichlet-type empirically generalisable patterns. Investigation across more branded commodity categories is required to examine whether this pattern holds and to what extent. The findings in this study have important implications for marketers. Branding and positioning of bottled water might aim to create a distinctive image in the minds of buyers. However what matters is the fact that buyers show repertoire buying even in this rather aggressively branded category, and their loyalties are reflected in brands’ market shares and their penetrations. This also confirms the long history of the Dirichlet approach for brands where individual characteristics of brands (those ‘influenced’ by marketing-mix variables such as advertising, packaging, positioning, promotions, etc.) did not affect their propensities to be bought, other than as predicted through their market share. This means buying of branded water is stochastic and there is no exclusive loyalty to any particular brand. Buyers are likely to buy a brand of water not because they are attached to it because of its ‘unique’ positioning, rather because of their ongoing propensities towards a repertoire of brands from which they choose to buy a particular brand on a purchase occasion. Marketers of existing brands can benefit from this knowledge by understanding the nature of competition in stationary markets, i.e. success of a brand depends upon the number of buyers it has, not the levels of attitudinal loyalties or creation of unique brand identities. The spend on marketingmix factors could be carefully monitored, and directed mostly towards maintaining market shares, rather than setting unachievable targets for increasing loyalty. A realistic way of increasing market shares would be to increase penetrations with the help of better distribution and, advertising that constantly reminds the buyers about their presence. References Allsopp, J., Sharp, B., Dawes, J., 2004. The double jeopardy line – empirical results. Proceedings of the ANZMAC Conference, Victoria University of Wellington, NZ. Ehrenberg, A.S.C., 1988. Repeat-Buying: Facts, Theory and Applications. 2nd edition. London: Griffin; New York: Oxford University Press. Ehrenberg, A.S.C., G. Goodhardt and Barwise P.,1990. Double Jeopardy Revisited. Journal of Marketing 54, 82-91. Ehrenberg, A., Goodhardt, G., 2002. Double jeopardy revisited, again. Marketing Insights. Marketing Research 14, Spring, 40-42. Ehrenberg, A., Uncles, M.D., Goodhardt, G.J., 2004. Understanding Brand Performance Measures: Using Dirichlet Benchmarks. Journal of Business Research 57(12), 13071325. Barwise, Patrick, 1995. Good Empirical Generalisations. Marketing Science 14(3), Part 2 of 2. Bass, Frank, 1995. Empirical Generalisations and Marketing Science: A Personal View. Marketing Science 14(3), G6-G19. Castleberry, S.B., Barnard, N.R., Barwise, T.P., Ehrenberg, A., Dall’Olmo Riley, F., 1994. Individual Attitude Variations Over Time. Journal of Marketing Management 10, 153-162. Colombo, R., Ehrenberg, A., Sabavala, D., 2000. Diversity in analyzing brand-switching
8
ANZMAC 2009
Page 10 of 10
tables: the car challenge. Canadian Journal of Marketing Research 19, 23-36. Dall'Olmo Riley, F., Ehrenberg, A., Castleberry, S. B., Barwise, P. T., Barnard, N. R., 1997. The Variability of Attitudinal Repeat-Rates. International Journal of Research in Marketing 14 (5), 437-450. Danaher, P.J., Wilson, I. Davis, R., 2003. A Comparison of Online and Offline Consumer Brand Loyalty. Marketing Science 22(4), 461-476. Dawes, J., 2008. Regularities in buyer behaviour and brand performance: the case of Australian beer. Journal of Brand Management. January 15(3), 198-208. Dawes, J., 2009. Brand Loyalty in the UK Sportswear Market. International Journal of Market Research 51(4), 499-463. Goodhardt, G.J., Ehrenberg, A., Chatfield, C., 1984. The Dirichlet: A Comprehensive Model of Buying Behaviour. Journal of the Royal Statistical Society A 147, 621-655. Hammond, K., Ehrenberg, Goodhardt, G.J., 1996. Market Segmentation for Competitive Brands. European Journal of Marketing 30(12), 39-49. Kapferer, J.N., 2008. The New Strategic Brand Management. 4th ed., London: Kogan Page Kearns, Zane, 2000. Dirichlet No Solver Software. Massey University, New Zealand: Working Paper. Keller, K.L., 1993. Conceptualising, Measuring and Managing Customer-Based Brand Equity. Journal of Marketing 57, January, 1-22. Keller, K.L., 2001. Building customer-based brand equity: a blueprint for creating strong brands. Marketing Management 10, July-August, 15-19. Keller, K.L., 2008. Strategic Brand Management: Building, Measuring and Managing Brand Equity. 3rd ed., Prentice Hall, NJ. Kennedy, R., Ehrenberg, A., 2001. Competing retailers generally have the same sorts of shoppers. Journal of Marketing Communications 7, 19-26. MacDonald, E., Sharp, B., Vieceli, J., 1994. An investigation into the double jeopardy effect for brand awareness and salience. Proceedings of the ANZMAC Conference, University of Waikatoo, Hamilton, NZ. Mcphee, W. N., 1963. Formal Theories of Mass Behaviour, Glencoe, Ill: Free Press. Michael, J.H., Smith, P.M., 1999. The theory of double jeopardy: an example from a forest products industry. Forest Products Journal 49(3), 21-26. Mintel, 2007. Bottled Water – UK Stern, P., Hammond, K., 2004. The relationship between customer loyalty and purchase Incidence. Marketing Letters 15(1), 5-19. Uncles, M., Hammond, K., 1995. Grocery Store Patronage. International Journal of Retailing, Distribution and Consumer Research 5(3), 287-302.
9
