Let’s start with a classic setting: You decide to open a lemonade state on your front lawn.
Your neighbors seem to like your lemonade, you make enough to pay back your parent the inventory money you borrowed earlier and you have some extra cash to invest. You compute your options: Get a larger stand. Buy more lemons. Or do some marketing to get more eyeballs.
You decide to reinvest your profit in marketing.
Why, because at the corner of your street stood another Lemonade Stand - operated by a much older kid, so
A. it’s been there for a while and already has some loyal customers and
B. it has the majority of the market share. They sell 80 cups of lemonade, for every 20 cups you sell.
Marketing is an obvious choice - you want to gain more market share and make your cash register sing louder. How’d you do it?
In theory, you’d just need to get your customers to buy more often. Instead of buying a cup of iced lemonade once a week, you get your customers to buy 5th times a week. So now instead of having 20% of the market, you have more than 50% of it.
But in practice that is impossible.
We know it’s impossible because the Double Jeopardy law in marketing tells us so - and it has been empirically proven, by Byron Sharp - Professor of Marketing Science and Director of the Ehrenberg-Bass Institute – the world's largest center for research into marketing.
This law states this brand with less market share because they have far fewer buyers (first strike), and these buyers are slightly less loyal (second strike).
Our lemonade drinkers currently only buy one cup every week, therefore you’d have to command 100% loyalty just to achieve 05 purchases per week per customer. But no lemonade brand is bought 05 times a week (people are not that thirsty) and no lemonade brand commands 100% loyalty.
There are 02 significant implications following this law:
1/ Brand growth comes primarily from market penetration. Double Jeopardy law tells you that you can’t expect to have significant growth from growing loyalty only - you need to emphasize penetration alongside loyalty or buy rate.
2/ Loyalty and market share change together - so it’s nigh-impossible to grow loyalty without gaining more market shares. Therefore, loyalty gains are a result of market penetration, not the other way around - which shows that improving loyalty is a weak growth driver. I know this would not sit right with a lot of marketing professionals - as it seems to be common knowledge that it is always cheaper and easier to sell one more unit to an existing customer than to find a new one.
But if you want proof that this is not BS - check out Byron Sharp's How Brand Grows. It’s revolutionary!