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Brand Switching

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

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Brand Switching

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  1. Brand Switching Ted Mitchell

  2. 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

  3. 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

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

  5. Visualize Switching

  6. Visualize Switching

  7. Visual Switching

  8. Eventually 62.5% 37.5%

  9. Calculation ] [ Coke Loyal, Coke Switch Pepsi Switch, Pepsi Loyal (Coke Share, Pepsi Share) [ ] Current Shares (.5 .5) .7 .3 .5 .5 Coke’s Share Next Period = (.5x.7)+(.5x.5) = .6

  10. Calculation ] [ Coke Loyal, Coke Switch Pepsi Switch, Pepsi Loyal (Coke Share, Pepsi Share) [ ] Period 1 (.6 .4) .7 .3 .5 .5 Coke’s Share Next Period = (.6x.7)+(.4x.5) = .62

  11. Calculation ] [ Coke Loyal, Coke Switch Pepsi Switch, Pepsi Loyal (Coke Share, Pepsi Share) [ ] Period n (.625 .375) .7 .3 .5 .5 Coke’s Share Long Term = (.625x.7) + (.375x.5) = .4375 + .1875 = .625

  12. Eventually 62.5% 37.5%

  13. 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.

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