persistent economic ties

There’s been a bit of a slow roll through the (mostly) academic blogs discussing a recent paper by Bronnenberg, Dhar & Dube from The Journal of Political Economy called “Brand History, Geography, and the Persistence of Brand Shares”. Here’s the abstract:

We document evidence of a persistent “early entry” advantage for brands in 34 consumer packaged goods industries across the 50 largest U.S. cities. Current market shares are higher in markets closest to a brand’s historic city of origin than in those farthest. For six industries, we know the order of entry among the top brands in each of the markets. We find an early entry effect on a brand’s current market share and perceived quality across U.S. cities. The magnitude of this effect typically drives the rank order of market shares and perceived quality levels across cities.

In other words, brands of consumer goods tend to be stronger in regions closer to where they were originally made, and this effect persists for a long time. Richard Florida was the first to discuss the paper. Tyler Cowen then picked up their example of Miller Beer, which was basically the first beer launched in Chicago (in 1856!), and which is still the number one beer there 150+ years later. Matt Yglesias was next, and showed the effect graphically using data from Andrew Gelman showing Starbucks per capita:


and Wal-Marts per capita:


Gelman himself then entered the discussion, pondering the possibility that social networks are playing a role in this. I think that his take is exactly right, and it ties in to another of the themes I keep coming back to – network ties are persistent, and difficult to break.

This is a critical point for innovators to understand. When you are trying to get a new idea to spread, it isn’t enough to get people to hear it, or like it. Most of the time, you also have to get them to break an existing tie if they are going to adopt your idea. This is true whether your idea is a new product, a new service, a new way of doing things or a new way of thinking about things. This reminds me of Seth Godin’s angle on aspirin advertising – it doesn’t matter how frequently a new aspirin is advertised, or even how good it is, because he doesn’t have an aspirin problem. He’s got a brand that he’s used for years, and it works. So why invest any time, effort or money into learning about alternative aspirins, let alone going to the trouble of actually switching?

Innovations are generally destructive – in order to create new ties of their own, they have to break old ones. And as the examples of Miller Beer in Chicago, Starbucks around Seattle and Wal-Mart around Arkansas show, breaking existing ties is often harder than you expect. It’s not enough to come up with a great new idea, you have to get it to spread. And that means not just connecting with people, but connecting with them strongly enough that they are willing to continue to give you their time, attention and/or money. Since we all have plenty of choice in how we spend these things, you better have a good strategy for doing this!

Student and teacher of innovation - University of Queensland Business School - links to academic papers, twitter, and so on can be found here.

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4 thoughts on “persistent economic ties

  1. This sounds right. In my own experience (running an organisation where social ties are paramount), entering the market as a second mover is very challenging as it is very hard to break long-established social links — offering a better product does not necessarily change old habits.
    The only reasonable way to go is to find pristine territories and pristine customer base. Both of which, unfortunately, are endangered species.
    On the long term, though, things get tricky for the first mover too since there is more competition for pristine territories and clientele and a continuing pressure on its customer base to break ties. It seems that there are two possible outcomes here: domination of the first mover or fragmentation of the market into niches as each player would rather invest in strengthening its existing social ties than competing for increasingly scarce new opportunities.

  2. I think you’re mostly right Marco. Although, we also know that first movers often get tipped over relatively rapidly – as in Christenson’s disruptive innovation model. But part of that is a case of the incumbent actually having weak ties with the marginal niches within the market, so maybe that fits with what you’re saying anyway…

  3. Some not-well-formed thoughts:

    I don’t know if I agree the destructive act – the conscious breaking of a tie – is always necessary to get people to move on to the next phase. But if you meant that there’ll always be a breaking (mostly of the unconscious sort in my experience) I agree with that. Take Friendster, MySpace, and Facebook, for instance. People gradually shifted focus from one to the next because they saw that the new product offered them what they’d really been looking for that the previous didn’t. The reason people continue to use Brand X 150 years later is not because they’re rooted to the spot, but that they get what they really want from the product. Wal-Mart offers the people in Oklahoma something they want – a single place they can pick up practically any good that suits their desires – and people in California go to Starbucks because it suits their needs for what the microculture Starbucks conjures offers them. The Oklahomans do not want or need what Starbucks has; the urban dwellers elsewhere do not want the level of products that Wal-Mart has (in massive generalities).

    Both Walmart and Starbucks are pretty recent. Walmart replaced Kmart (at least in my/our corner of the country) because it offered a better shopping experience of the type busy blue-collar folk wanted, with goods in quantity, wide aisles to accommodate strollers and gaggles of kids, and rock-bottom prices. It offered its target customer base what they really wanted better than their previous provider had. Starbucks, on the other hand, offered what we can overgeneralize as yuppies a place to indulge in their desire to be attached to something cultural with their caffeine boost – they can read, listen to soft music, converse, and meet with friends in an environment suited to the middle-upper-middle and upper-middle class tastes. Both of these things can be supplanted yet again if someone can do it offering exactly what the customer base wants even better.

    • I agree with you that the ties aren’t necessarily consciously broken. The friendster/myspace/facebook example is a good one. But I think from the standpoint of someone trying to introduce something new – you do have to figure out a way to break those ties. So it’s more conscious on the part of the innovator than on the part of the consumer. You see it with ideas too – what’s the number response to the introduction of a new idea for how to do things? ‘That won’t work.’ ‘Why?’ ‘Because we’ve always done it this other way…’ Those are persistent ties!

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