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The Fundamentals of Market Share | Kyle Findlay

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This presentation outlines how market share forms from a network perspective.

It is based on an oldish paper I wrote for the 2009 Southern African Marketing Research Association (SAMRA) Conference. It subsequently won the WPP Atticus "Research in Practice" award.

Please drop me an e-mail if you have any questions, comments or would like a copy of the deck.

Note that the SlideShare conversion process has corrupted some of the slides (e.g. slides 20, 26)

Published in: Business
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The Fundamentals of Market Share | Kyle Findlay

  1. THE FUNDAMENTALS OF MARKET SHARE Presented by Kyle Findlay [email_address] The TNS Global Brand Equity Centre SCTPLS Conference 2009
  2. THIS PRESENTATION TOUCHES ON… How people group together See notes pages for further elaborations on the topics covered in this presentation Why life isn’t fair … and the best don’t always win The role of social influence on brand perceptions and market share
  3. MARKETS ARE SOCIAL
  4. MARKETS ARE SOCIAL *Source:”Engaging People in Their backyards”. Research World, April 2009 “… consumers are in dialogue with each other more than ever before, creating and sharing ideas about products and services that can have as much, and sometimes more , impact on opinions as the messages paid for by advertisers.” [Joan Lewis and Kim Dedeker of Consumer and Market Knowledge at Procter and Gamble ]*
  5. SOCIAL INFLUENCE USED TO BE CONFINED TO… conversation peer pressure gossip
  6. BUT, WITH TECHNOLOGY, ALL BETS ARE OFF Roughly 10,000 social interactions daily * *Source: Earls, M. (2007). Herd: How To Change Mass Behaviour By Harnessing Our True Nature. p.113. John Wiley & Sons permanent connectivity global penetration / ubiquity increased inter-connectedness social networking
  7.  
  8. User reviews
  9. *Source: How Social is Amazon? http://bokardo.com/archives/how-social-is-amazon/ NOTHING IS EVER REALLY NEW 
  10. WE EITHER DEFINE OURSELVES BY SOCIETY… Source: www.exactitudes.com
  11. … OR AGAINST IT goth emo punk
  12. EITHER WAY, WE DEFINE OURSELVES RELATIVE TO SOCIETY
  13. SOCIAL INFLUENCE IS INESCAPABLE
  14. IN A SIMILAR WAY, BRANDS ARE DEFINED BY THEIR CUSTOMERS (and customers are defined by their brands)
  15. BRANDS EXIST IN THE MINDS OF CUSTOMERS Liverpool
  16. BRANDS EXIST IN THE MINDS OF CUSTOMERS Ferrari
  17. Read more: http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=101402 http://www.socialcustomer.com/2009/03/skittles-social-media-experiment.html EXTREME EXAMPLE
  18. A THOUGHT EXPERIMENT… Market share
  19. EXPONENTIAL SPREAD OF WORD-OF-MOUTH Source: Figure 1.2 in Duncan Watt’s Six Degrees (2003): "A pure branching network. Ego knows only 5 people, but within two degrees of separation, Ego can reach 25; within three degrees, 105; and so on."
  20. EXPONENTIAL SPREAD OF WORD-OF-MOUTH Source: Figure 1.2 in Duncan Watt’s Six Degrees (2003): "A pure branching network. Ego knows only 5 people, but within two degrees of separation, Ego can reach 25; within three degrees, 105; and so on." A simple bar graph illustrating how the number of advocates for a brand can grow at an accelerating rate
  21. “ Natural selection works like compound interest: Source: Pinker, S. (2009). My Genome, My Self. The New York Times. Published January 7, 2009. SMALL INITIAL ADVANTAGE >>> BIG EFFECT A gene / brand with even a 1% advantage in the number of surviving offspring / advocates it yields will expand geometrically over a few hundred generations, and quickly crowd out its less fecund alternatives / competitors . Why didn’t this winnowing leave […] us with the best version of every gene / product ? … The world would be a duller place, but evolution doesn’t go out of its way to keep us entertained.” [Steven Pinker]*
  22. Mmmmmm, WHICH BRAND SHOULD I BUY?
  23. <ul><li>“ preferential attachment” </li></ul>WHAT IS THIS MECHANISM CALLED? “ preference” + “ attachment” (e.g. are you a dog or cat person?)
  24. <ul><li>“ preferential attachment” </li></ul>There are many potential candidates , but for the purposes of this talk, I will be focusing on… WHAT IS THIS MECHANISM CALLED?
  25. <ul><li>“ preferential attachment” </li></ul>Some quantity that… “… is distributed among a number of individuals or objects according to how much they already have ” [Wikipedia, 2009] WHAT IS THIS MECHANISM CALLED?
  26. HOW DOES IT WORK? Join us! Join us! Join us! Join us! Join us! Join us! Join us! Join us! Join us! Join us! Join us! Join us!
  27. HOW DOES IT WORK? Join us! Join us! Join us! Join us! Join us! Join us! Join us! Join us! Join us! Join us! Join us! Join us!
  28. A ROSE BY ANY OTHER NAME…
  29. <ul><li>Italian economist Vilfredo Pareto in 1906 </li></ul>PARETO PRINCIPLE 80% of land owned by 20% of population a.k.a. the 80/20 Rule Source: Wikipedia, the Free Encyclopaedia
  30. <ul><li>“ You need money to make money” </li></ul>THE RICH-GETTING-RICHER EFFECT *Source: World Institute for Development Economics Research at the UN University (http://news.bbc.co.uk/2/hi/business/6211250.stm) “ Richest 2% own 'half the wealth” * 20% 80%
  31. “ For unto every one that hath shall be given , and he shall have abundance: but from him that hath not shall be taken away even that which he hath.” [Matthew 25:29, King James Version] THE MATTHEW EFFECT
  32. THE LONG TAIL Source: Wikipedia, the Free Encyclopaedia Digital retailers Warehouse retailers Brick and mortar retailers
  33. DOUBLE JEOPARDY William McPhee in the 1930s Source: TNS data
  34. CUMULATIVE ADVANTAGE Source: Campbell, J; Liddle, N. (2008) Why Brands Succeed: Luck or Skill?. Presented at SAMRA conference, at the Swazi Sun and Spa in Swaziland, May 2008 positive social influence negative social influence
  35. CUMULATIVE ADVANTAGE Source: Campbell, J; Liddle, N. (2008) Why Brands Succeed: Luck or Skill?. Presented at SAMRA conference, at the Swazi Sun and Spa in Swaziland, May 2008 positive social influence negative social influence
  36. Zipf’s LAW Source: Frequencies from 336,310 documents in the 1GB TREC Volume 3 Corpus 125,720,891 total word occurrences; 508,209 unique words
  37. OTHER EPONYMOUS ‘LAWS’ Zipf’s Law for frequency of words The Barabási–Albert model in network theory Gibrat’s Law describes the growth of firms and cities Gutenberg–Richter law describes the magnitude and frequency of earthquakes The Gompertz-Makeham law of mortality Kleiber’s Law which describes the relationship between the metabolic rates of animals (including humans) and their mass Lotka’s Law which describes the frequency of publication by authors Robert’s law for executive compensation The Stefan–Boltzmann law in thermodynamics Steven’s power law relating to the magnitude of a wide range of physical stimuli such as brightness, sound, roughness, etc. The Yule distribution in probability and statistics Bradford's Law describes the diminishing returns associated with widening a search for references in science journals
  38. POWER LAWS Source: Barabási, A-L. (2002). Linked: How Everything Is Connected to Everything Else. Plume. ISBN 0-452-28439-2
  39. POWER LAWS Source: Barabási, A-L. (2002). Linked: How Everything Is Connected to Everything Else. Plume. ISBN 0-452-28439-2
  40. POWER LAWS Stock market activity : returns, trading volume, and trading frequency Protein family and fold occurrence in genomes (human and other animals) Heart rate variability as a predictor of mortality in the elderly Degree distribution of nodes in a scale-free network (such as the internet) Incoming links to blogs Guild sizes in the massively multiplayer online role-playing game, World of Warcraft Fractal geometry (see Benoît Mandelbrot’s work for more on this) The eponymous ‘laws’ listed earlier refer to specific areas where power laws apply
  41. A list of several power law scaling exponents, relating to specific phenomena* POWER LAWS *Sources: Taleb, N. N. (2007). The Black Swan: The Impact of the Highly Improbable. p.264. Allen Lane. Newman, M.E.J.. (2005). Power Laws, Pareto Distributions, and Zipf’s Law. Complexity Digest 2005.02. p.1-27 2 (but possibly a much lower exponent) People killed in terrorist attacks 1.5 Company size 3 (or lower) Market moves 1.3 Population of U.S. cities 1 Number of persons per family name 1.1 Net worth of Americans 0.8 Intensity of wars 0.8 Intensity of solar flares 2.14 Diameter of moon craters 2.8 Magnitude of earthquakes 1.22 Telephone calls received 1.5 Number of books sold in the U.S. 1.4 Number of hits on websites 1.2 Frequency of use of word Assumed exponent Phenomenon
  42. Step 1: Rank the data SPOTTING A POWER LAW rank data
  43. Step 2: Log-log linear transformation SPOTTING A POWER LAW log-log transformation
  44. Step 3: Curve fitting SPOTTING A POWER LAW NOTE: THIS IS AN EXAMPLE FROM GOOGLE IMAGES.
  45. THE QUESTION: DO POWER LAWS EXIST IN OUR MARKET DATA?
  46. FINDINGS Types of cheese Types of mustard
  47. k = 2.08 k = 3.23 FINDINGS Types of cheese Types of mustard
  48. A chart summarising the goodness of fit scores we found across the 46 datasets. A smaller distance indicates a better fit. Average distance = 0.32 FINDINGS Goodness of fit Studies BEST FIT WORST FIT 46 datasets
  49. WHEN DO POWER LAWS FORM? … when the “ cost ” of distributing a quantity is low O r, in network terms, when the cost of creating new links/edges between nodes is low Image source: Figure 1.3 in Duncan Watt’s Six Degrees (2003)
  50. WHEN DO POWER LAWS FORM? “ The essential limitation of scale-free networks is that everything is assumed to come for free …without regard for the difficulty of creating or maintaining them [links between nodes]”. [Duncan Watts, 2003]* *Source: Watts, D. (2003). Six Degrees: The Science of a Connected Age. W. W. Norton & Company
  51. WHEN DO POWER LAWS FORM? Sources: Wikipedia, the Free Encyclopaedia Barabási, A-L. (2002). Linked: How Everything Is Connected to Everything Else. Plume. ISBN 0-452-28439-2
  52. WHEN DO POWER LAWS FORM? Sources: Wikipedia, the Free Encyclopaedia Barabási, A-L. (2002). Linked: How Everything Is Connected to Everything Else. Plume. ISBN 0-452-28439-2 Scale-free networks are not random Non-random process? Preferential attachment?
  53. WHEN DO POWER LAWS FORM? *Source: Ball, P. 2005. Critical Mass: How One Thing Leads to Another . Random House “ In this computer simulation, black regions would represent a liquid and white regions a gas… The size of these regions spans all scales – from the size of a single particle to the size of the entire system. There is no typical scale to this unevenness: it is scale-free.”*
  54. BRINGING IT BACK TO BRANDS Business results Power in the market Power in the mind
  55. THE ROLE OF FRICTION IN THE MARKET
  56. THE ROLE OF FRICTION IN THE MARKET Attitudinal/Preferential End result Friction
  57. WHAT HAPPENS WHEN THERE IS NO FRICTION? Power law Attitudinal
  58. <ul><li>Double Jeopardy is most apparent in our data </li></ul><ul><li>Requirements: </li></ul><ul><ul><li>The market needs to have reached a level of stability and maturity </li></ul></ul><ul><ul><li>Market big enough to support the formation of customer groups </li></ul></ul><ul><ul><li>The benefit of branding needs to outweigh the cost </li></ul></ul><ul><ul><li>Difference between the brands in the market </li></ul></ul><ul><ul><li>The market cannot be a monopoly market </li></ul></ul>WHAT DOES IT MEAN FOR MARKETS? Sources: Ehrenberg, et.al., 1990; Ehrenberg, 2005, Date unknown; Wikipedia, 2009
  59. <ul><li>A measure of friction </li></ul><ul><li>Its correlation with goodness of fit? </li></ul>THE NEXT QUESTION(S) 1 2
  60. <ul><ul><li>Generative mechanism – preferential attachment is simplistic e.g. it does not capture the decay of network nodes. </li></ul></ul><ul><ul><li>Accounting for interaction effects – this framework looks at brands/ideas in isolation when we know that they are continually interacting with other systems in their environment (“ meta-networks ”) </li></ul></ul>AREAS OF THE FRAMEWORK TO ELABORATE ON… *See notes pages for further elaborations on the topics covered in this presentation
  61. <ul><ul><li>… power laws are unlikely to be clearly evident in markets. </li></ul></ul><ul><ul><li>What is more interesting is the biasing process influencing these constantly evolving systems. </li></ul></ul><ul><ul><li>This bias affects how people group around brands and other ideas! </li></ul></ul>THE IMPORTANT THING TO REMEMBER IS THAT…
  62. <ul><li>Markets are social </li></ul><ul><li>Preferential attachment* </li></ul><ul><li>Power laws </li></ul><ul><li>Role of friction </li></ul>IN SUMMARY 1 2 3 4 *As a candidate mechanism Join us!
  63. THANK YOU! Comments, questions, suggestions? E-mail me if you would like a copy of this deck [email_address]

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