Brand Switching Ted Mitchell

Switching & Loyalty Even The Most Brand Loyal Customer has Some Probability of Switching The Cost of Keeping a Profitable Customer is Almost Always Lower than the Cost of Attracting a New Profitable Customer

Switching Switching brands –Coke - Pepsi –Tide - Sun Light Switching Customer Classification –Heavy user - Light user - Non-User –Prime Account - Non-Prime Account –Believer - Non-Believer

Visualize Switching POOL of people who bought coke last time Pool of people Who bought pepsi Last time

Visualize Switching

Visual Switching

Eventually 62.5% 37.5%

Calculation (Coke Share, Pepsi Share) Coke Loyal, Coke Switch Pepsi Switch, Pepsi Loyal [ ] (.5.5) [] = (.5x.7)+(.5x.5) =.6 Coke ’ s Share Next Period Current Shares

Calculation (Coke Share, Pepsi Share) Coke Loyal, Coke Switch Pepsi Switch, Pepsi Loyal [ ] (.6.4) [] = (.6x.7)+(.4x.5) =.62 Coke ’ s Share Next Period Period 1

Calculation (Coke Share, Pepsi Share) Coke Loyal, Coke Switch Pepsi Switch, Pepsi Loyal [ ] ( ) [] = (.625x.7) + (.375x.5) = =.625 Coke ’ s Share Long Term Period n

Eventually 62.5% 37.5%

Markov Switching Assumes probabilities are constant Size of market is constant Probabilities reflect the amount of marketing effort devoted to getting and keeping customers –Coupons, More Shelf Space, Advertising, Increasing satisfaction, etc.