by Byron Sharp
•pricing too high then trying to compensate with very regular price discounts
•teaching consumers to buy when the brand is discounted
•burning media dollars in advertising bursts then going silent for long periods (when consumers are still buying)
•paying premiums for low-reach ‘niche’ media.
It's not that there is anything wrong with the intelligence of marketers, but like all professionals they need some empirically grounded guidance.
Law-like reoccurring patterns
The research that underpins this book is different from commercial market research because it focuses on finding fundamental patterns, not one-off events. These are findings that have a long use-by date because they have been found to hold for long periods of time, across all sorts of conditions (including across product and service categories, and countries). This research is also very different from most academic research, where each study is typically based on one single set of data, collected in one particular set of conditions, and so tells us almost nothing about the generalisability of the finding (where it holds and where it does not). 9
Uncovering patterns that generalise is the fundamental work of science. It is only because we know that these scientific laws hold across a wide range of conditions that they can be used for prediction. And by knowing the many factors that do not affect the laws, and maybe the few that do, we gain deep explanatory insight into why things are the way they are, and how things work.
This is how science works.
Where do these discoveries come from?
This book draws largely from the work of researchers at the Ehrenberg-Bass Institute for Marketing Science. The early discoveries come from work started by Professor Andrew Ehrenberg and Professor Gerald Goodhardt five decades ago. Today this fundamental research continues at the Ehrenberg-Bass Institute at the University of South Australia. There are also plenty of like-minded researchers working inside and outside universities around the world. These efforts receive encouragement and financial support from progressive corporations around the world including Turner Broadcasting, Mars, Colgate, Kraft, Procter & Gamble, General Motors, CBS, ESPN, Mountainview Learning and many others. We are very grateful for this ongoing support.
Many of the findings in this book are emotionally confronting, because they clash with conventional wisdom. In order to make readers feel more psychologically comfortable with this 'myth busting' I have attempted to give a good feel for the empirical data10 and how the analysis was done. I've done this by completely avoiding complicated obscuring statistics and algebra; there are no 'black box' (or 'trust me') techniques used, and references are supplied so that interested readers can delve further.
There is much potential for science to improve the effectiveness of marketing. The great advances in marketing that will be made this century won't be due to computers or sophisticated statistics. As in other professions, the real advances will come from the development and application of well established scientific laws (empirical generalisations). On behalf of my colleagues and co-authors I hope you find the new knowledge presented in this book exciting; I hope it also changes the way you see, and do, marketing.
Chapter 2:
How Do Brands Grow?
Byron Sharp
What is the secret key to growth? All the global market research agencies claim to provide an exclusive service that can tell if your brand is heading up or down. Every strategy consultancy says that only it can take you on the path to profitable share growth. Econometric modellers say they can quantify precisely which marketing mix will deliver maximum growth. This is all nonsense. If growth were that easy then all marketing directors would be out of a job, or paid a pittance of their current salary. No one can guarantee growth.
That said, this book does reveal a great deal about how brands grow. Marketing science has been chipping away at the problem for decades. There have already been some breakthroughs that every professional marketing person should know about.
The desire for growth
Have you ever met a marketer who was not interested in sales growth or, at the very least, interested in preventing losses? Growth is an ingrained part of our business culture. Marketing departments are expected to plan for and deliver growth. Marketing initiatives have to be justified in terms of growth potential. The main reason for this obsession with growth is the substantial fixed costs of most firms; this means that companies experience dramatic increases in profitability if they increase sales, and profits can be wiped out by comparatively small sales losses. So growth is very attractive.
However, market share growth is difficult. Markets are more competitive than ever. Marketers have to work very hard just to retain their current market share position; run very fast just to stand still. For example, the scope for price promotions to deliver any more growth is limited by the fact that we are running about as many promotions as the retail system can handle.
There is plenty to debate about whether an obsession with sales growth is good for profits in the long run, but let's accept the idea that it would be good to know more about how to deliver market share growth and prevent decline.
The difference between large and small brands
A sensible starting point in understanding growth is to compare competing brands that have different market shares. A million brands have attempted to grow – some have been successful and some not. Can we use these trillions of dollars worth of natural experiments to discover something universal about the differences between large and small brands? Yes; the difference between large and small brands, and growing and declining brands, is very revealing.
Again and again it appears in numerous product categories, markets and countries that there is a fundamental law of brand size:11 big brands have markedly larger customer bases.
This seems obvious – more sales equals more customers – yet it need not be this way. A brand's sales volume depends on two things:
•how many buyers it has
•how often they buy the brand.
One multiplied by the other equals sales. So a brand could be large because it is bought very often by its buyers, without having many buyers. Theoretically there could be two brands of equal size, one with many buyers who buy the brand occasionally, while the other brand has half the number of buyers but they buy it twice as often12 See Table 2.1 for an illustration of this point.
Table 2.1: Different metrics that can result in equal sales volumes and shares
Hypothetical brands of equal size Annual market penetration (%) Number of purchases per buyer per annum Resulting market share (%)
Dell-icious 32 3 14
AppleCore 16 6 14
But this happens only in theory, never in practice. In the real world, two brands of about equal market share have around equal market penetration, and so they must also get bought by their buyers at a similar average rate.
There is another related discovery: when you look at brands of markedly different sizes you typically see that their penetration metrics differ a lot,13 while their average purchase rate varies little. Put another way: loyalty doesn't vary much.
This is not what traditional (or fashionable) marketing literature implies. We've all been taught that brands vary tremendously in loyalty, with brands like Apple held up as loyalty champions. We'll investigate Apple's loyalty levels further in Chapter 7 but for now let's just look at the discovery that loyalty metrics for competing brands are quite similar.
Loyalty doesn’t vary much
If you look at marketing metrics (i.e. from consumer panels14 run by global market research agencies such as Nielsen and Kantar) you'll see that the bigger brands have much higher penetrations and they also get bought slightly more often by their buyers – but not much more.
Table 2.2 deconstructs the market shares of major washing machine detergent brands. You can see that all brands are bought by their buyers slightly less often than four times a year. The largest brand, Persil, ge
ts bought almost four times a year. Surf, the smallest, has fewer than half the number of buyers as Persil and these buyers buy Surf around three and a half times a year. This pattern is known as the 'double jeopardy' law because smaller brands get 'hit twice': their sales are lower because they have fewer buyers who buy the brand less often.
Table 2.2: Double Jeopardy Law – washing powder, UK 2005
Double Jeopardy Law - washing powder (UK 2005)
Washing powder brands Market share
(%)
Annual market penetration (%) Purchase frequency (average)
Persil 22 41 3.9
Ariel 14 26 3.9
Bold 10 19 3.8
Daz 9 17 3.7
Surf 8 17 3.4
Note: Each brand's customers buy the brand at similar purchase rates.
Source: Kantar WorldPanel.
The next table (Table 2.3) shows a slightly more glamorous category: shampoo. This table is interesting because both the market leader (PG's Head & Shoulders) and the smallest brand (Wella's Vosene) are functionally different from the other brands – they are formulated to reduce dandruff. However, this does not substantively affect the double jeopardy law. All the brands get purchased about two times, with the market leaders being purchased slightly more often.
Table 2.3: Double Jeopardy Law – shampoo UK
Double Jeopardy Law - shampoo (UK 2010)
Shampoo brands Market Share
(%)
Annual market penetration (%) Purchase frequency (average)
Head & Shoulders 11 23 1.9
Pantene 9 19 1.8
Herbal Essences 8 18 1.7
Dove 5 10 1.7
L’Oreal Elvive 2 4 1.6
Sunsilk 2 4 1.5
Vosene 2 4 1.6
Average
1.7
Note: Smaller UK shampoo brands suffer from only slightly lower loyalty.
Source: Kantar Worldpanel.
In 2010, Head &Shoulders was bought by more than four times as many buyers as bought Vosene. This much larger customer base largely explains why Head & Shoulders had five times the sales of Vosene. Another small contributing factor is that buyers of Head & Shoulders were more loyal, buying it 0.3 times more often per annum.
Data from Nielsen shows that the US shampoo category exhibits the same pattern. Different brands, different market shares, different consumers, different time period, different consumer panel and analysts – but the same familiar double jeopardy pattern. Later we'll discuss why this occurs and what the loyalty implications are, but for now let's continue to focus on the implications of this scientific law for brand growth.
Table 2.4: Double Jeopardy Law – shampoo US
Double Jeopardy Law - shampoo (USA 2005)
Shampoo brands Market share (%) Annual market penetration (%) Purchase frequency (average)
Suave Naturals 12 19 2
Pantene Pro-V 10 16 1.9
Alberto V05 6 11 1.6
Garnier Fructis 5 9 1.7
Dove 4 8 1.5
Finesse 1 2 1.4
Average
1.7
Note: Smaller US shampoo brands suffer from only slightly lower loyalty.
Source: Nielsen.
Snapshots of market share shifts over time (in the US, Canada and UK) also show double jeopardy: brands grow primarily by increasing their market penetration (Anschuetz 2002; Baldinger, Blair & Echambadi, 2002; Stern & Ehrenberg 2003). Shorter-term dynamic analysis by Andrew Ehrenberg and Colin McDonald (2003) showed that in 157 cases of small annual market share change the double jeopardy law was clear: both rising and declining brands displayed more change in their penetration than in their purchase frequency. Among the submissions for the Advertising Effectiveness Awards – run by the Institute of Practitioners in Advertising (IPA) – 82% reported large penetration growth, 6% reported both penetration and loyalty growth, and only 2% reported loyalty growth alone.
Double Jeopardy was first observed in attitudes back in the 1960s, then later in behaviour like choosing which newspaper to read, voting, or store choice. Since then it has been observed everywhere from soap to soap operas - although it is still not well known about. It has been observed for industrial brands, luxury brands, services, stores, store chains, comic strips, newspapers, radio stations, TV networks, TV programs, politicians, and so on. Double Jeopardy has been documented in numerous countries, and local regional markets within them. Here is an example of industrial buying:
Table 2.5: Double Jeopardy in Ready Mix Concrete selling to building firms
Concrete suppliers
(West Yorkshire, UK)
Market penetration
(%)
Average number of purchases
in last 3 months
A 46 2.96
B 36 1.54
C 35 1.46
D 31 1.27
E 26 1.03
F 26 1.03
G 16 0.83
Source: Pickford, Chris & Goodhardt, Gerald (2000) 'An empirical study of buying behaviour in an industrial market.' Paper presented at UK Academy of Marketing Annual Conference. 5-7 July 2000.
Double Jeopardy - A quantitative guide for growth targets
The double jeopardy law tells us what our marketing metrics will look like, if we are successful in gaining sales and market share. If Finesse (in Table 2.4) were to catapult up to the sales level of Suave Naturals or Pantene, it would be substantially more popular with millions more households buying it each year. But these households would not, on average, buy it much more often than current Finesse households buy the brand.
Finesse's brand manager could plan to reach market leadership by getting current customers to buy eight times a year. That would be enough to do it – in theory. But in practice that is impossible. Finesse-buying households currently only buy shampoo six times a year; therefore Finesse would need to command 100% loyalty just to achieve six purchases per year per customer. But no shampoo brand in the US is bought six times a year and no shampoo brand commands 100% loyalty. Such a marketing plan is fantasy. Double jeopardy tells us what is, and what isn't achievable.
Some managers find it difficult to accept that there is a scientific law constraining what they can achieve. But the law leaves plenty of room for marketing creativity. In the same way that laws of physics constrain the creativity of architects in a good way (they wish to design buildings that stand up to gravity, wind and rain), the double jeopardy law simply provides a practical guide to strategy formulation.
What about new uses – growing the category?
Most of us learned at university that one avenue for sales growth is to show buyers new uses for our product. In an industrial setting, sales people certainly spend time doing this, helping teach clients how to fully use complicated products and services. But what about consumer markets where personal tuition is not affordable? Can a weak force like advertising teach buyers about new, non-obvious, uses for the product?
As a university student I was taught the Arm & Hammer case study. Arm & Hammer is an American brand of sodium bi-carbonate (baking soda), little known outside of the US; Church & Dwight, the company that markets it, controls 75% of the sodium bi-carbonate production in the US. Bi-carb of soda is used by consumers primarily as a raising agent in baking (or for kids to make volcano-type science experiments). The case study said that Arm & Hammer generated sales growth by telling consumers they could use their baking soda for things like absorbing bad smells in the fridge or exfoliating your skin. Arm & Hammer still today tell people about these uses (at least on their web site).
The Arm & Hammer case study was already an old example back when I was an undergraduate, yet I still hear it used, which is suspicious. Perhaps it's the only successful case? McDonald's teaching the market to think of them for breakfast is perhaps a more verifiable and current example. Though in this case the 'new use' was far from radical and easy to communicate.
It would seem logically possible for a brand to point out new uses for the categor
y (e.g. salt helps with red wine stains), and this might stimulate growth – though for all brands in the category. However, things that are logically possible can, in the real world, turn out to be practically extremely difficult or unlikely. In this case there are a number of growth impediments. First, it's hard to get people to change their habits. Consider that dentists have been telling people to brush their teeth at least twice a day but the average is stubbornly stuck at less than two, with the most common being once a day. Unilever tried to tell men to spray the body deodorant Axe all over (as a perfume in effect) but it failed to drive usage – people know you spray deodorant under arms, and habits are hard to change. Second, it's hard to build non-obvious mental structures, for example, if people think of your brand as a baking product then it's hard for them to think of it as a fridge deodorant. Hands up all of you who have a box of bi-carbonate soda in your fridge absorbing stray smells – I'm guessing not many of you. And, third, few brands have sufficient advertising budgets to change how the population thinks about a product category. Advertising works best when it tells us things we already believe. It's strongest at refreshing existing memory structures, not building new, non-obvious ones. Categories do grow, and shrink, over time; and consumers, do find uses for products that even their manufacturers didn't think of. But these changes are seldom driven by advertising, perhaps nudged along a bit, but seldom driven.
For a single brand, with its small ad budget, to change people's category habits seems very difficult. Certainly not without making changes to physical availability, for example, Arm & Hammer being stocked in the cleaning or cosmetic sections of supermarkets.
I wonder how successful Arm & Hammer was at increasing usage of baking soda. Certainly some people were using it for more than baking before they started promoting it that way (this was probably Arm & Hammer’s inspiration). I suspect that their gains were rather modest. Interestingly, Arm & Hammer have, over the years, entered new product categories, like cleaning products and toothpaste, with bicarbonate soda based formulations. Perhaps the real story here is that they found that they couldn't change people's habits to use that box of baking soda in different ways, so instead of trying to change people they brought the soda to the traditional products people used.