Double Jeopardy is one of the fundamental laws of growth. Very simply this law tells us that it is not possible to sustainably grow by focusing on loyalty alone, especially if you are not the market leader. A company with higher market share will have more buyers who are slightly more loyal. So if we want to grow, we need to get more customers.
“More customers” is one of the two areas where marketing can contribute most to value creation in a company – the other being increased willingness to pay/pricing power. Research is unequivocal in its conclusion that marketing aimed at generating more new customers is significantly more profitable than marketing that seeks to increase the loyalty and repurchase frequency among existing customers.
At the same time, there is another truth that says that “existing customers are significantly more profitable than new customers.” Both truths are correct, but the difference lies in how marketing – and above all marketing communication – makes a difference. Retaining customers and getting them to buy again is primarily about the utility, functionality, and perceived value for money of the product or service being offered, including service, support and similar offerings. Of course, marketing communication also has a role to play in repurchase frequency, but its importance relative to other initiatives is more limited than to create leads and new customers.
The Double Jeopardy Law pinpoints that small brands face dual challenges. Because they are small, they have both low market share and low penetration, and will therefore have lower repurchase frequency/loyalty than large brands. The fact that large brands have somewhat higher repeat-purchase shares is largely due to the fact that they have more customers – especially more light buyers.
A customer who buys the product less frequently is reasonably less involved in the category and therefore tends to choose large and well-known brands to a greater extent when purchasing. These brands are both better known and easier to buy, since they tend to have broader distribution/higher availability.
According to a report from Ehrenberg-Bass published by LinkedIn B2B Institute there are four steps to use the knowledge about Double Jeopardy to grow your business:
1. Recognise that in order to grow, your business needs to expand the size of its customer base – this is not optional.
Double Jeopardy tells us that growth comes primarily from new customer acquisition. Just marketing to your own customer base will not achieve this objective. Review your marketing plans – how much effort is directed at (only) your customer base versus reaching the wider base of category buyers?
Is that allocation indicative of a company that is going to grow by getting more customers? It could be easy to interpret this as saying the loyalty from existing customers isn’t important.
We’re not saying that. Of course the fact that you have existing customers who buy from you repetitively over time is important – you need to look after your existing clients – that is necessary, but not sufficient to grow. Instead of being preoccupied with loyalty, look to removing barriers to penetration that will ease the path for acquisition, as this is more likely provide opportunities to grow. Barriers to penetration can be mental (what you are salient for offering) or physical (where, how or what potential customers can buy from you).
2. Set evidence-based KPIs with the right focus
The results tell us that there are natural ceilings to any loyalty metric. Senior managers cannot just say, we want to increase loyalty by 50% or, we could grow a lot by simply selling all our buyers one more product.
An easily missed (and misinterpreted) point about Double Jeopardy is that while big brands get some more loyalty, it’s not really about the brand, but the brand’s market share. If certain big brands got substantially more loyalty than their littler competition, this could imply there are some that are just much better – higher levels of product quality, greater expertise, for example. But they don’t.
Product quality is not unimportant, it is just not all-important such that you can neglect other areas of marketing and expect to win simply with the best product. This take-out is surprising for many senior managers who assume that the reason some companies are so successful is to do with being better than competitors (better product, better service, better technology etc). But the ubiquity of Double Jeopardy says this isn’t the reason. You have more loyalty because you are big, rather than you are big because you have more loyalty.
Double Jeopardy tells you what your loyalty should be (which is usually what it actually is). Not just now, but in the future too, should your company grow or decline in share. This allows you to set realistic, evidence based, KPIs and forecasts for growth goals.
3. Put yourself (and your marketing) in the mind of your non-customers
You need to reach and build the brand among businesses who are category buyers but who do not buy your brand currently, to make them start buying from you. The ways you can do this range from wide reaching advertising and/or setting KPIs for the sales force to talking to prospects. Think about all of the mechanisms you have to connect with non-customers and then look at how they can be changed to reach more/different non-customers.
For example, advertising in an industry magazine might reach a different set of non-customers than a mail out from your existing marketing database. Also switching out one in four calls to existing customers to be to non-customers will expand your reach to non-customers. Now, you might be concerned that this reduced contact will cost you customers, so to reduce this risk you might space out the contact you have with existing customers so there are no large gaps or replace the phone call with an email.
There is no single formula for this, it’s simply about working out how to use the resources you have in the next quarter to reach more non-customers than you did last quarter.
It’s crucial you don’t waste that reach because of poor branding quality. It’s vital to have clear and prominent branding, so your company is easily identifiable to the most disinterested potential customer. Building strong Distinctive Brand Assets is important here. These are the visual and/or audio elements that automatically trigger the brand, when the brand is not present
4. Prioritise “Mental and Physical Availability”
Overall, the business implication is that to grow, one needs to invest more in making the brand easier to think of in buying situations (Mental Availability), and easier to buy (Physical Availability). They are about:
- Mental availability: Being thought of, by more customers, in more buying situations. This is a function of the communication, branding and message quality of your customer interactions via market communications or in person via your sales force.
- Physical availability: Being easy to find and buy from. This is a function of the brand’s presence and prominence in buying channels (including sales force coverage) as well as the product portfolio on offer.
Each amplify the effect of the other, and are essential for brand growth in B2B.
And if you want to discuss growth communication, you are always welcome to contact ulf@sfinxconsulting.se
