The Ehrenberg-Bass Buyer Moderation Model: A Foundational Framework for Customer Acquisition
As marketing professionals, understanding consumer behavior is paramount to effectively acquiring and retaining customers.
One of the most influential theories in this domain is the Ehrenberg-Bass Buyer Moderation Model, developed by Andrew Ehrenberg and Gerald Goodhardt in the 1960s. This groundbreaking work has stood the test of time and remains highly relevant in today’s complex marketing landscape.
The Ehrenberg-Bass Model challenges the traditional assumption that customers are highly loyal to specific brands.
Instead, it posits that most consumer markets are characterized by a pattern of “buyer moderation,” where most customers exhibit a relatively stable level of brand loyalty but also a willingness to switch brands or try new products.
The Fundamental Principles of the Ehrenberg-Bass Model are:
1. The Double Jeopardy Law: This principle states that smaller brands suffer a “double jeopardy” – they not only have fewer buyers than more prominent brands, but their buyers also tend to be slightly less loyal.
2. The Duplication of Purchase Law: This principle suggests that for any given product category, a brand’s customer base is roughly proportional to its market share. In other words, more prominent brands tend to have more customers, but the average purchase frequency is similar across brands.
3. The Negative Binomial Distribution: The model proposes that the distribution of purchase frequency among a brand’s customer base follows a Negative Binomial Distribution, with a few very loyal customers at one extreme and many occasional buyers at the other.
Boylan Soda Versus Coke – An Example and Three Implications
Consider the beverage market to illustrate these principles. The Double Jeopardy Law would suggest that a smaller brand like Boylan’s Soda has fewer customers than industry giants like Coca-Cola or Pepsi, and those customers are slightly less loyal.
The Duplication of Purchase Law would imply that Coca-Cola, with its more significant market share, has a more extensive customer base than Boylan’s. Still, the average purchase frequency among their respective customers may be similar.
The Ehrenberg-Bass Model’s implications for marketing strategy are profound.
First, it challenges the notion of highly segmented, niche marketing strategies. Instead, it suggests that brands should aim for broad appeal and focus on attracting new customers rather than solely relying on cultivating loyalty among existing customers.
Second, the model highlights the importance of achieving a critical mass of customers and market share. According to the Double Jeopardy Law, smaller brands face an uphill battle in terms of both customer acquisition and retention. This underscores the need for effective customer acquisition strategies, a strong value proposition, and a consistent brand experience to maintain loyalty.
Third, the Negative Binomial Distribution principle suggests that even for successful brands, there will always be a significant portion of occasional buyers. This reinforces the need for continuous marketing efforts to attract and retain customers rather than relying solely on a small base of highly loyal customers.
The Ehrenberg-Bass Model has also significantly impacted how we think about advertising and customer acquisition costs (CAC).
Traditional marketing wisdom often emphasizes the importance of targeted advertising to specific customer segments. However, the Ehrenberg-Bass principles suggest that broad-reach advertising may be more effective in attracting new customers and maintaining market share.
Furthermore, the model provides a framework for understanding the relationship between market share, customer base, and acquisition cost. Brands with larger market shares may achieve lower CAC due to their broader customer base and potential for word-of-mouth and repeat business. On the other hand, smaller brands may face higher CAC as they need help attracting new customers and overcoming the Double Jeopardy effect.
Choosing to Focus on Heavy and Frequent Users versus Light and Infrequent Users
The choice between focusing on heavy users versus infrequent users depends on several factors and market conditions. Here’s an analysis of when each strategy might be more appropriate:
Focus on heavy users when:
- Market maturity: In a mature market with limited growth potential, focusing on heavy users can help maintain market share and profitability.
- High customer lifetime value: If the lifetime value of heavy users significantly outweighs that of infrequent users, it may be more cost-effective to focus on them.
- Limited resources: With constrained marketing budgets, targeting heavy users can provide better ROI as they’re already familiar with the product.
- Brand loyalty is crucial: In markets where brand loyalty drives purchasing decisions, nurturing relationships with heavy users can create strong brand advocates.
- Competitive pressure: In highly competitive markets, retaining and growing heavy users can be vital for maintaining market position.
- Product complexity: For products that require significant knowledge or investment, focusing on experienced heavy users might be more effective.
Focus on infrequent users when:
- Market growth: In growing or emerging markets, attracting new, infrequent users can help expand market share and establish brand presence.
- Product lifecycle: For new products or those in early stages of their lifecycle, attracting a broad base of infrequent users can help build awareness and acceptance.
- Changing consumer trends: If market trends are shifting towards more occasional consumption (e.g., health consciousness in soft drinks), focusing on infrequent users aligns with these trends.
- Brand rejuvenation: To refresh an aging brand image, attracting younger or new demographic groups as infrequent users can be beneficial.
- Category expansion: When trying to expand into new product categories or use cases, attracting infrequent users from diverse backgrounds can provide valuable insights and opportunities.
- Regulatory pressure: In industries facing regulatory scrutiny over heavy consumption, shifting focus to infrequent users can help mitigate risks.
- Digital transformation: If the brand is undergoing digital transformation, focusing on infrequent users might be easier as they may be more adaptable to new purchasing channels.
The most effective strategy often involves a balanced approach, adjusting the focus based on current market conditions and long-term goals. It’s also worth noting that these strategies aren’t mutually exclusive – a brand can simultaneously work on converting infrequent users to heavy users while also attracting new infrequent users.
Profound Impact
The Ehrenberg-Bass Buyer Moderation Model has profoundly impacted our understanding of consumer behavior and marketing strategy.
While it may challenge some long-held assumptions, its principles provide a robust framework for thinking about customer acquisition, loyalty, and the role of advertising in building brand equity.
As marketing professionals, it is essential to understand and apply these principles to develop effective strategies for acquiring and retaining customers in an increasingly competitive marketplace.
What myth are you busting these days?
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