Tuesday, February 7, 2012

The Consideration-Purchase Gap

Many blog posts ago, I did a write-up on “Defining Brand.”  I want to expand on that concept by connecting it to research and analysis.  To recap, I touched on brand being made up of five components:  1.) Brand Awareness, 2.) Brand Position, 3.) Brand Knowledge, 4.) Brand Experience and 5.) Brand Loyalty.  Click here for the original Defining Brand post: defining-brand
I’ve learned there are ways to apply this brand concept in analysis of businesses.  If you have access to information rating retailers or businesses on shopping or buying consideration and actual shopping or buying data than you’ll be able to provide the following simple analytical concept.
The Calculations:
I’ll use the automotive industry for this hypothetical example.  Where I work, we have access to information on where local consumers would consider buying a new vehicle.  Since consumers can consider multiple dealers, the sum of Exhibit A’s consideration percentages clearly exceeds 100%. 

In this example, consumers initially consider at least one and half different dealers provided from the survey data.  We also have access the new vehicle sales by dealer within the same geography measured in the consideration survey data.  In this instance, we are able to calculate the share of total new vehicles sold by dealer (these percentages do add up to 100%).  The first calculation I apply is the “Percentage of Total Consideration.”  Simply put, this is the percentage consideration of each dealer from the overall consideration (which is 152% in this example).  I want to make sure the gaps calculated are on equal footing in each respective percentage range (0-100%).
The gap calculation is simple: Purchase % minus the Recalculate Consideration %.  (See Exhibit B for final charts.)

Insight and Analysis:
A zero or small gap simple means the dealer was able to generate an equal amount of buyers compared to the number initially considering them.  They are effectively converting prospects into buyers.
A positive gap means the dealer was able to generate more buyers than they had from initial consideration.  They are converting competitors’ prospects into buyers.
A negative gap means the dealer produced fewer buyers than initially considered them.  They are not effectively converting prospects into buyers (In fact, competitors are taking prospects).
So what does this hypothetical example tell us?  First, consideration or awareness doesn’t equate to buyers.  I would categorize the consideration measure as our “Brand Position” metric, the purchase measure as our “Brand Experience” metric, and the gap as our “Brand Knowledge” metric.  To review, “Brand Knowledge” is only as good as your products, service, price, selection, and the business’ ability to communicate these elements effectively so consumers choose them over competitors.  When the consumer starts evaluating options, the first and second positioned brands may begin to fall out of the possible selection.  In fact, brands not even initial considered may replace them.
In our example, First Choice Auto is clearly the winning in initial consideration, but they are faltering on conversion.  Lower quality, higher prices, lower section, or poor service may be some factors impacting this gap calculation, but also consider looking at the media placement and messaging.  If they play heavily in awareness media, like television, yet have a terrible website, this may be another reason they are unable to convert prospects.  First Choice Auto sits in the best position to capture sales, but they’ll need to make business, product, service, or marketing moves that will help improve conversion.
At the other end of the spectrum we have Winning Team Auto whose consideration was slightly below average, but they are leading the pack in sales.  Again, components like product, price, selection, locations, or quality are likely impacting results.  Further analysis revealed they have one of the most diverse media-mixes, some of the strongest messaging and one of the best websites.  Awareness is only as good as your ability to convert.  When the day is done I’d rather be in Winning Team Auto’s shoes and not First Choice Auto’s.  Winning Team Auto could also consider ways to increase their current brand position.  If their “Brand Knowledge” is this strong, it’s likely that additional awareness would help build even greater market share.
An exercise like this worth performing to understand who’s delivering better “Brand Knowledge” metric and will likely steer strategic planning, marketing improvements and identifying new media mix models.