Kylefindlay Power Laws Chaos Theory

THE FUNDAMENTALS
OF MARKET SHARE
Presented by Kyle Findlay

Kyle.Findlay@tnsglobal.com
The TNS Global Brand Equity Centre
SCTPLS Conference 2009
THIS PRESENTATION
TOUCHES ON
Why life isnt fair
and the best dont always win
How people group together
The role of social influence on

brand perceptions and market share
2
The Fundamentals of Market Share | Kyle Findlay
See notes pages for further elaborations on the topics covered in this presentation
MARKETS ARE
SOCIAL
MARKETS ARE SOCIAL
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]*
*Source:Engaging People in Their backyards. Research World, April 2009
SOCIAL INFLUENCE USED TO BE

CONFINED TO
conversation
peer pressure
gossip
BUT, WITH TECHNOLOGY,

ALL BETS ARE OFF
permanent connectivity
social networking
global penetration / ubiquity
Roughly 10,000 social

interactions daily*
increased inter-connectedness
*Source: Earls, M. (2007). Herd: How To Change Mass Behaviour By

Harnessing Our True Nature. p.113. John Wiley & Sons
User reviews
NOTHING IS
EVER REALLY
NEW
*Source: How Social is Amazon?

http://bokardo.com/archives/how-social-is-amazon/
WE EITHER DEFINE OURSELVES

BY SOCIETY
10
Source: www.exactitudes.com
OR AGAINST IT
punk
goth
emo
EITHER WAY,
WE DEFINE
OURSELVES
RELATIVE TO
SOCIETY
SOCIAL
INFLUENCE IS
INESCAPABLE
13
IN A SIMILAR WAY, BRANDS ARE

DEFINED BY THEIR CUSTOMERS
(and customers are defined by their brands)
14
BRANDS EXIST IN THE

MINDS OF CUSTOMERS
15
Liverpool
BRANDS EXIST IN THE

MINDS OF CUSTOMERS
16
Ferrari
EXTREME EXAMPLE
Read more: http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=101402

http://www.socialcustomer.com/2009/03/skittles-social-media-experiment.html
A THOUGHT EXPERIMENT
Market share
EXPONENTIAL SPREAD
OF WORD-OF-MOUTH
Source: Figure 1.2 in Duncan Watts 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."
EXPONENTIAL SPREAD
OF WORD-OF-MOUTH
A simple bar graph illustrating how the number of

advocates for a brand can grow at an accelerating rate
Source: Figure 1.2 in Duncan Watts 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."
SMALL INITIAL ADVANTAGE

>>> BIG EFFECT
Natural selection works like compound interest:
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 didnt this winnowing leave [] us with the best
version of every gene/product?
The world would be a duller place, but evolution doesnt go

out of its way to keep us entertained.
[Steven Pinker]*
Source: Pinker, S. (2009). My Genome, My Self. The New York Times. Published January 7, 2009.
Mmmmmm,
WHICH BRAND
SHOULD I BUY?
WHAT IS THIS
MECHANISM CALLED?
+
preference
attachment
(e.g. are you a dog or cat person?)
preferential attachment
WHAT IS THIS
MECHANISM CALLED?
There are many potential candidates, but for the

purposes of this talk, I will be focusing on
WHAT IS THIS
MECHANISM CALLED?
Some quantity that
is distributed among a number of individuals or
objects according to how much they already have
[Wikipedia, 2009]
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!
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!
A ROSE BY ANY
OTHER NAME
28
PARETO PRINCIPLE
Italian economist
Vilfredo Pareto
in 1906
80% of land owned by

20% of population
a.k.a. the 80/20 Rule
Source: Wikipedia, the Free Encyclopaedia
THE RICH-GETTING-RICHER
EFFECT
Richest 2% own
'half the wealth*
20%
80%
You need money

to make money
*Source: World Institute for Development Economics Research at the UN University

(http://news.bbc.co.uk/2/hi/business/6211250.stm)
THE MATTHEW EFFECT
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 LONG TAIL
Brick and
mortar
retailers
Warehouse
retailers
Digital retailers
Source: Wikipedia, the Free Encyclopaedia
DOUBLE JEOPARDY
William McPhee in the 1930s
33
Source: TNS data
CUMULATIVE ADVANTAGE
positive social influence
negative social influence
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
CUMULATIVE ADVANTAGE
positive social influence
negative social influence
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
Zipfs LAW
Source: Frequencies from 336,310 documents in the 1GB TREC Volume 3

Corpus 125,720,891 total word occurrences; 508,209 unique words
OTHER EPONYMOUS LAWS

Zipfs Law for
The Barabsi
Gibrats Law describes
frequency
of words
Albert model in
the growth
network theory
firms and
The Gompertz-
Kleibers Law which describes

the relationship between the
Makeham law of
metabolic rates
of animals (including
mortality
Bradford's Law describes
the diminishing returns
associated with widening a
search for references in
science journals
37
of
cities
Lotkas Law which
describes the
frequency of
publication by
humans) and their mass
authors
The Stefan
Stevens power law relating to
Boltzmann law in
thermodynamics
the magnitude of a wide range of
physical stimuli
such as brightness, sound,
roughness, etc.
GutenbergRichter law
describes the magnitude
and frequency of
earthquakes
Roberts law for
executive
compensation
The Yule distribution
in probability
and statistics
POWER LAWS
Source: Barabsi, A-L. (2002). Linked: How Everything Is Connected to

Everything Else. Plume. ISBN 0-452-28439-2
POWER LAWS
Source: Barabsi, A-L. (2002). Linked: How Everything Is Connected to

Everything Else. Plume. ISBN 0-452-28439-2
POWER LAWS
Degree distribution of
nodes in a scale-free
network (such as the

internet)
Stock market
activity: returns,
Protein family and
trading volume, and

trading frequency
genomes (human
Incoming links
Guild sizes in
to blogs
fold occurrence in
and other animals)
Heart rate
variability as a
predictor of mortality
in the elderly
Fractal geometry
the massively multiplayer
(see Benot
online role-playing game,
Mandelbrots work for
World of Warcraft
more on this)
The eponymous
laws listed earlier

refer to specific areas
where power laws
apply
POWER LAWS
Phenomenon
Assumed exponent
Frequency of use of word
1.2
Number of hits on websites
1.4
Number of books sold in the U.S.
1.5
Telephone calls received
1.22
Magnitude of earthquakes
2.8
Diameter of moon craters
2.14
Intensity of solar flares
0.8
Intensity of wars
0.8
Net worth of Americans
1.1
Number of persons per family

name
Population of U.S. cities
1.3
Market moves
3 (or lower)
Company size
1.5
People killed in terrorist attacks
2 (but possibly a much lower exponent)
A list of several power law scaling exponents, relating to specific phenomena*
*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 Zipfs Law. Complexity Digest 2005.02. p.1-27
SPOTTING A POWER LAW

Step 1: Rank the data
rank data

Step 2: Log-log linear transformation
log-log
transformation

Step 3: Curve fitting
NOTE: THIS IS AN
EXAMPLE FROM
GOOGLE IMAGES.
THE QUESTION:
DO POWER LAWS
EXIST IN OUR
MARKET DATA?
FINDINGS
Types of mustard
Types of cheese
FINDINGS
Types of mustard
Types of cheese
k = 2.08
k = 3.23
FINDINGS
46 datasets
WORST FIT
Goodness
of fit
BEST FIT
Studies
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
WHEN DO POWER LAWS FORM?
when the cost of

distributing a quantity is low
Or, in network terms, when the cost of creating
new links/edges between nodes is low
Image source: Figure 1.3 in Duncan Watts Six Degrees (2003)
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
Sources: Wikipedia, the Free Encyclopaedia

Barabsi, 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?
Sources: Wikipedia, the Free Encyclopaedia

Barabsi, A-L. (2002). Linked: How Everything Is Connected to Everything Else. Plume. ISBN 0-452-28439-2
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.*
*Source: Ball, P. 2005. Critical Mass: How One Thing Leads to Another. Random House
BRINGING IT BACK TO BRANDS
Power in
the mind
Power in
the market
Business
results
54
THE ROLE OF FRICTION

IN THE MARKET
55
THE ROLE OF FRICTION

IN THE MARKET
Attitudinal/
Preferential
Friction
End result
56
WHAT HAPPENS WHEN THERE IS

NO FRICTION?
Attitudinal
Power law
57
WHAT DOES IT MEAN FOR

MARKETS?
Double Jeopardy is most apparent in our data
Requirements:
1.
The market needs to have reached a level of stability and maturity
2.
Market big enough to support the formation of customer groups
3.
The benefit of branding needs to outweigh the cost
4.
Difference between the brands in the market
5.
The market cannot be a monopoly market
Sources: Ehrenberg, et.al., 1990; Ehrenberg, 2005, Date unknown; Wikipedia, 2009
THE NEXT QUESTION(S)
1
2
A measure of friction
Its correlation with goodness of fit?
AREAS OF THE FRAMEWORK

TO ELABORATE ON
1.
Generative mechanism preferential attachment is simplistic

e.g. it does not capture the decay of network nodes.
2.
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)
*See notes pages for further elaborations on the topics covered in this presentation
THE IMPORTANT THING TO

REMEMBER IS THAT
power laws are unlikely to be clearly
evident in markets.
What is more interesting is the biasing
process influencing these constantly
evolving systems.
This bias affects how people group
around brands and other ideas!
IN SUMMARY
1
Join us!
Markets are social
Preferential attachment*
Power laws
4
Role of friction
*As a candidate mechanism
THANK YOU!
Comments, questions, suggestions?

E-mail me if you would like a copy of this deck
kyle.findlay@tnsglobal.com

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THE FUNDAMENTALS

Presented by Kyle Findlay

How people group together

The role of social influence on

The Fundamentals of Market Share | Kyle Findlay

The Fundamentals of Market Share | Kyle Findlay

MARKETS ARE SOCIAL

consumers are in dialogue with each other more than

The Fundamentals of Market Share | Kyle Findlay

*Source:Engaging People in Their backyards. Research World, April 2009

SOCIAL INFLUENCE USED TO BE

The Fundamentals of Market Share | Kyle Findlay

BUT, WITH TECHNOLOGY,

global penetration / ubiquity

Roughly 10,000 social

*Source: Earls, M. (2007). Herd: How To Change Mass Behaviour By

The Fundamentals of Market Share | Kyle Findlay

*Source: How Social is Amazon?

WE EITHER DEFINE OURSELVES

The Fundamentals of Market Share | Kyle Findlay

The Fundamentals of Market Share | Kyle Findlay

The Fundamentals of Market Share | Kyle Findlay

The Fundamentals of Market Share | Kyle Findlay

IN A SIMILAR WAY, BRANDS ARE

(and customers are defined by their brands)

The Fundamentals of Market Share | Kyle Findlay

BRANDS EXIST IN THE

BRANDS EXIST IN THE

The Fundamentals of Market Share | Kyle Findlay

Read more: http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=101402

The Fundamentals of Market Share | Kyle Findlay

The Fundamentals of Market Share | Kyle Findlay

A simple bar graph illustrating how the number of

The Fundamentals of Market Share | Kyle Findlay

SMALL INITIAL ADVANTAGE

The world would be a duller place, but evolution doesnt go

The Fundamentals of Market Share | Kyle Findlay

The Fundamentals of Market Share | Kyle Findlay

(e.g. are you a dog or cat person?)

There are many potential candidates, but for the

HOW DOES IT WORK?

The Fundamentals of Market Share | Kyle Findlay

HOW DOES IT WORK?

Join us! Join us!

The Fundamentals of Market Share | Kyle Findlay

The Fundamentals of Market Share | Kyle Findlay

80% of land owned by

The Fundamentals of Market Share | Kyle Findlay

Source: Wikipedia, the Free Encyclopaedia

You need money

The Fundamentals of Market Share | Kyle Findlay

*Source: World Institute for Development Economics Research at the UN University

THE MATTHEW EFFECT

For unto every one that hath shall be given, and he

The Fundamentals of Market Share | Kyle Findlay

THE LONG TAIL

The Fundamentals of Market Share | Kyle Findlay

Source: Wikipedia, the Free Encyclopaedia