In one line
Most purchases in a category come from habitual buyers who pick the brand they know. The rest come from switchers who react to price, deals and ads. Habit means part of last period's buying carries into this one.
What it does
- Latent-class models split buyers into segments. Loyal buyers respond weakly to price and not at all to deals; switchers respond to everything.
- State dependence: having bought a brand makes you more likely to buy it again. Part of each change in share carries forward, so a change keeps building for a few quarters.
- A big move runs out of switchers, so response is smaller per euro the bigger the move.
Business and brand
Impact on the businessP&L, cash, share price
- A plan's full effect shows a few quarters later, not in the quarter it runs.
- Most deal money goes to loyal buyers who would have bought anyway.
- Share is stable, so forecasts based on last year are usually close.
Impact on the brandMemory, loyalty, pricing power
- Habit protects a brand's base when a rival attacks.
- Winning switchers is easy; turning them into habitual buyers takes memory and distribution.
- The more loyal the category, the slower share moves, both up and down.
Try it
Make the market more or less loyal
Cut Brightwater's price 10% and hold it. Set the share of habitual buying in the category and watch how far and how fast share moves.
Points of value share gained after a 10% price cut held from Q1
Notice: With 70% of buying habitual, the price cut adds 1.5 points of share in Q1 and 2.7 by Q8. Only 55% of the final gain arrives at once; habit carries the rest in over the following quarters.
Runs Countermove's market engine: the reference soft-drinks market, three brands, rivals holding their plans so only your change moves the result.
Sources
- Kamakura & Russell (1989), Journal of Marketing Research: loyal and switching segments
- Guadagni & Little (1983), Marketing Science: a logit model of brand choice with purchase habit
- Seetharaman (2004), Marketing Science: state dependence
- Dickson & Sawyer (1990), Journal of Marketing: few shoppers check prices