Article: Monday, 14 November 2016
What happens after a brand is taken off the market, or is withdrawn from sale by a retailer? Baris Depecik of Rotterdam School of Management, Erasmus University (RSM) discovered how competitors benefit when a brand exits the retail arena. He also found that price promotions are ineffective at making customers switch to a new brand. On the other hand, non-price promotions can help firms to claim the share of the market that was recently vacated by a withdrawn brand.
It’s expensive to keep a brand economically viable in a fast-changing and competitive consumer market, with high costs for marketing and product development. That’s why firms often decide to just remove a brand from the market when they simplify or renew their brand portfolio. Likewise, retailers also continually optimise their brand portfolios to make the most of limited shelf space, and to make room for profitable private labels. This is why brands come and go all the time.
Researcher Baris Depecik studied the effects of the exits of 96 brands in two different product categories: milk and deodorant. He found that on average it takes consumers between two and four weeks to make a new choice and stick with it after their preferred brand disappears. Other firms can use this two-to-four-week window to benefit from the exiting brand’s departure, and gain market share for themselves. In his study Depecik tried to find out who benefits most from a brand’s exit from the supermarket shelves, and why.
As you would expect, customers will look for a similar product to substitute for their favourite brand when it disappears. But what type of similarity are they looking for? When it comes to deodorants, Depecik’s results showed people will look for the same type and form. People accustomed to using a spray are likely to choose another brand of spray for their next purchase. Milk buyers often choose to buy products with similar packaging after their favoured brand leaves the supermarket shelves, the researcher found.
People shopping for another brand of milk typically looked for a product in the same price range, his results show. For deodorant the picture was more complicated. The greater the price difference compared to the discontinued brand, the more market share was gained, the researcher discovered. Depecik explains that deodorants are bought for a positive experience. After a brand exits, some people are willing to pay for a more expensive brand, expecting this will lead to a similarly positive experience. Other people are unsure what other brands will work for them, so they start experimenting with cheaper brands before they make their final switch.
Disappearing big brands give up market share that can be redistributed among competitors. But disappearing brands also have loyal customers that might hunt elsewhere for their favourite brand, thus decreasing overall sales in that product category in that store. When the disappearing brand is milk – something that’s bought almost daily – Depecik found that customers are generally willing to look in the same store for an alternative brand of milk. But after a brand of deodorant disappears, customers are more inclined to look for the same brand of deodorant in another shop. Loyalty stems from how often you buy a product, says Depecik. With products that are bought infrequently – as is the case with deodorant – customers tend to be even more attached to a particular brand, explains Depecik.
They identified that restaurants in State 3 – those with wildly fluctuating reviews, some very positive and some very negative – are most at risk, and have a likelihood of failure which is twice as high as restaurants in the other two states. Their model can detect 7 out of 10 business failures, even months ahead.
Finally, he discovered that after brand leaves the shelves of a particular store, competing brands do well when they jump in and use non-price promotions to gain market share. Expanding a brand’s product line in that store is also an effective way to attract customers of the deleted brand. By contrast, discounts and other price-promotions are not so effective in the long-run after a brand exits, Depecik’s results showed.
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