How Brands Grow is a book written by Byron Sharp, a professor from Ehrenberg-Bass Institute specializing in Marketing science. The institute is the largest establishment for research into marketing.
Conventional marketing wisdom is challenged in this book with evidence-based research. This book applies science to marketing by presenting real-world results that have been verified, proven, and turned into reliable “rules.” Up until every marketer uses these lessons, those that do will have a competitive advantage.
Table of Contents
- Key principles and laws of marketing
- Common marketing myths and misconceptions
- Does loyalty marketing really work?
- Brands grow by increasing the number of customers
- Which target customers should you focus on?
- Brands have the same customers as their competitors
- Who is your largest competitor?
- Consumers are not loyal
- Don’t differentiate, be distinct
- The key to marketing success: Mental and physical availability
- Summary of learnings
Key principles and laws of marketing
Just like gravity, theses are marketing principles that are fixed and unchangeable. Defy these laws and your company will risk losing market share.
Law of double jeopardy
The law of double jeopardy states that smaller brands (brands with lower market share) will have a smaller customer base, who are also more loyal. This means smaller brands get hit twice. They are less common in their respective markets, and therefore less likely to maintain a loyal following. Why does this matter? This impacts how you go to market and plan your strategy. To avoid this law, you’ll need to focus on growing your customer base instead of “loyalty” programs.
Double jeopardy law for retention
Each brand loses clients in roughly direct proportion to the size of their brand; in other words, larger brands lose more customers than smaller businesses.
Buyer moderation law
According to this “rule,” over time, the heaviest buying consumers will spend less, the lightest buying consumers will buy more, and the non-users will start to buy. This is an example of “regression to the mean” in marketing that shows extreme purchases on both ends moving toward the average over time. How will this impact your marketing? This means your marketing shouldn’t only target heavy users (as what marketing conventional wisdom always says), instead you should be targeting your entire category of users (From light, heavy and even non-users who could be potentials).
Natural monopoly law
This law states that Big brands have more light and infrequent buyers than smaller brands. The implication is if you want to grow from small to big, it must target and appeal to light buyers, instead of focusing only on heavy buyers.
The user base is rarely different between brands
Despite efforts to segment and differentiate, competing brands sell to the same types of customers (i.e., there is less differentiation and user base segmentation than we believe). Thus, focusing on strategies such as product features or pricing differentiation isn’t the best strategy. Instead, being distinctive is more important than differentiation.
Attitudes and brand beliefs reflect buying behavior
Consumers like and are more knowledgeable about the brands they purchase on a regular basis (and know very little about brands they do not buy). Because larger brands have more regular clients, they consistently outperform other brands in brand attitude surveys.
Consumers will rate what they buy higher
The attitudes and perceptions of a brand’s users are very similar, regardless of the brand – since we all like the brands we use.
Duplication of purchase law
A brand will always have a segment of customers that are most similar to the largest brand and have the least similar customers with the smaller brands, for example. If 30% of a brand’s buyers also purchased brand A during a given period, then 30% of every rival brand’s customers also purchased brand A.
Common marketing myths and misconceptions
Many marketing gurus and textbooks advocate for marketing methods that have not been scientifically proven or replicated. In this book, empirical evidence is used to demonstrate that these methods are not as important or correct for brand growth.
Do you think changing the design of your packaging, hyper-targeting your audience, loyalty programs and discounts will help grow your brand? Contrary to popular belief, this does not lead to brand growth.
Here’s a great summary table of the myths vs reality from the book
|From (old myths)
|To (the facts)
|Getting noticed; Emotional response
|Unique selling proposition
|Refreshing & building memory structures
|Rational involved viewers
|Emotionally distracted viewers
|Attitudes drive behavior
|Behavior drives attitude
|Heuristics (i.e. short cuts to meaning)
|Growth through driving loyalty
|Growth through driving penetration (of light users)
|Price promotions win customers
|Price promotion rewards existing users
|Sophisticated mass marketing
|We compete on positioning
|We compete with all brands in the category
|Getting noticed, emotional response
|Unique selling proposition
You hear the phrase “Unique selling proposition” being asked a lot. But differentiation isn’t as important as being distinct, remembered, always on, and getting noticed. That’s how brands without a unique selling proposition or a unique value proposition still thrive.
Does loyalty marketing really work?
The books ran studies to show that loyalty campaigns do not boost loyalty levels in customers. Instead, focusing on growing the user base itself will organically boost loyalty.
While in theory, two brands of the same size could exist, one with a few buyers who buy frequently and another with a large number of buyers who buy infrequently, the plain fact reveals that all brands follow the same rules – they all have a large number of buyers who buy the brand infrequently.
Loyalty varies closely to the market share of a brand. Bigger brands tend to have more loyal customers.
|Washing powder brands (UK)
|Market share (2005)
|Annual penetration (2005)
|Average purchase frequency (2005)
We can see the Persil 22% market share (vs 8% for Surf), 41% annual penetration rate (vs 17% for Surf), and 3.9x average purchase frequency (vs 3.4x for Surf).
This shows that the higher the market share, the higher the average purchase frequency. Focusing on loyalty programs will not grow loyalty, instead, focus on growing brand share.
|Defection rates Car brands in UK & France (1986-1989)
Defection rates and customer churn also increases when the brand’s market share is small.
Brands grow by increasing the number of customers
Ehrenberg examined the success of 157 brands and discovered that the factor most closely associated with their growth or decline was an increase (or decrease) in their user base. According to the IPA advertising effectiveness awards, 82% of the 880 papers submitted reported growth from penetration (and only 2% from loyalty).
|No medal awarded
The study shows that penetrating new customers, audiences, and industries is a more effective growth strategy than cross-selling, or focusing on niche audiences. Growth comes from gaining new customers, and as more customers are gained, the level of cross-selling/up-selling will naturally increase. Focusing on finding new customers is key.
Which target customers should you focus on?
All marketing books advocate for targeted marketing rather than mass targeting. That is counter-productive. Besides, all brands have a large number of lighter users, who contribute significantly to sales volume.
Even for a brand like Coca-Cola, light users outnumber heavy users. This is also true for smaller brands. Marketers frequently overlook how infrequently their average buyer purchases (for example, 30% of Coca-Cola buyers do not even purchase once a year). It’s 50% for Pepsi,
On the other hand, only 4% of Coca-total Cola’s buyers account for nearly 25% of total sales. These people are simple to sell to (because they are often in your aisle, and are more likely to notice your advertising). You could argue that targeting these people is not the best use of marketing funds because they are already committed buyers. The majority of your users are infrequent purchasers.
Moreover, we have a misunderstanding of what light users are. Approximately 14% of annual sales come from people who had not purchased the brand the previous year (these are light users but would be classified as ‘non-users’). Similarly, heavier buyers tend to buy less than the previous year, implying that lighter buyers get heavier and heavier buyers to get lighter (= a regression to the mean for all buyers).
|% brand sales year 1
|% brand sales year 2
(i.e. 0 purchase year 1)
(i.e. 1 purchase in year 1)
(i.e. 2-4 purchases in year 1)
(i.e. 5+ purchases in year 1)
Marketing to a large number of infrequent users and/or non-buyers has been shown to be more effective; thus, with broad reach, mass marketing is the best way to build a brand.
Brands have the same customers as their competitors
All brands erroneously believe that their product stands out from those in its category and appeals to a specific target market. Sadly, this is untrue. For all the major brands, the buyer profile is the same.
An old study analyzed the psychological profiles of Chevrolet and Ford customers and discovered that they were nearly identical. In more recent studies, primarily by Ehrenberg & Kennedy, hundreds of brands from numerous categories (from mortgages to cigarettes) have been studied through time. The investigations looked at a huge number of variables (demographics, psychographics, values, etc).
The most important finding was that similar demographics are served by competing brands.
Customers of various brands share similar perceptions, attitudes, and intents, as evidenced by the phenomenon known as “I love my mom, and you love your mom”: As a result, consumers of Brand A and Brand B have similar perceptions of their brands. People who frequently rent a Hertz agree that it is clean and offers affordable rates, as do those who frequently rent an Avis, etc. Versace sells the quite identical audiences of Gucci.
Who is your largest competitor?
With segmentation, marketing has transitioned from mass marketing to target marketing. According to the data, customers rarely stick to one brand when they shop.
|Buyers of Brand
|% of buyers who also bought regular Coke
Therefore, it is unlikely that any brand has a distinct customer base. The majority of brands share type of customers. According to the Law of Duplication of Purchase, a brand will eventually lose more clients to the leading brand in its category (and conversely, will also gain the most number of users from them). This again indicates a return to mass market media, particularly television, in order to reach as many customers who fall into the target market as feasible. The distinct messaging highlight a brand’s distinction, which might momentarily persuade consumers to prefer that brand (but we know they will also buy other brands later on).
Consumers are not loyal
87% of consumers purchase multiple brands). Additionally, we are aware that smaller brands will have fewer buyers and larger brands will have more thanks to the Double Jeopardy Law.
|Annual Category purchase rate
|100% loyal buyers
Due to the statistical nature of higher numbers, larger brands typically have a higher percentage of light users. For instance, if you only purchased one can of soda each year, it would most likely be Coca-Cola.
The likelihood of buying more brands is also higher among frequent category buyers. Smaller brands are therefore more likely to be purchased by heavy-category consumers (who will by definition be the most common buyers of the larger brands as well). Because of this, consumers who buy more frequently in a given category are more likely to purchase smaller brands. To give an example, despite only purchasing Cross & Blackwell sauce 1.2 times per year, customers buy tomato sauce on average 8 times per year (i.e., twice as frequently as the average purchase rate).
|Tomato Ketchup brands
|Frequency of buying this brand each year
|Frequency of buying any tomato sauce each year
|Cross & Blackwell
Creating value, satisfying customers, fostering relationships, and encouraging engagement are all topics that frequently appear in marketing texts. This forces us to “see” their actions through these prisms, i.e., the reason a person purchases a brand is because of the emotional bond the company has built with that person. These theories, however—particularly those advanced by Kevin Robert’s Lovemarks—are largely presumptions.
Most brands do not ‘identify’ with us the same way that our sports team does. Due to their busy schedules, customers do not always have time to reconsider their choices. Furthermore, there isn’t a seriously bad choice when it comes to a tin of soup because the risk of making a bad choice is so low.
Most people rarely obsess and think constantly about a brand.
To prove that consumers are not loyal, let’s consider Harley-Davidson, Apple, and Nike, which are touted to be companies with a loyal customer base.
Buyers of Harley-Davidson actually also purchase other brands in their category (Buyers of Harley-Davidson buy other brands twice as often as they buy a Harley).
The loyalty of Apple customers in 2002–2003 was only marginally above average (and significantly less than Dell). Considering its size of the market, Nike has no greater brand loyalty than other companies.
This is not to say that these brands don’t have ardent fans, but they only make up a small portion of their overall customer base and, consequently, revenue (and may not be any larger than many other brands).
Don’t differentiate, be distinct
Textbooks rarely provide empirical proof that a differentiation strategy actually results in brand growth (yet there is evidence that most brands in a category have similar rivals). The majority of consumers purchase products within a category because they all offer the same general benefits. Because these points of differentiation are minor (and transient) for many brands, they have little impact on consumer behavior. Any differences are frequently quite functional.
According to studies, 89% of consumers do not perceive their brand as being significantly different from its rivals. Including names like Apple. According to 77% of its customers, the brand is not unique or different from others in their eyes. Although we may discuss Apple’s design, user interface, and unique operating system, for the majority of people, it still allows them to browse the internet, send emails, store photos, and create documents—just like any other computer. Therefore, if they do not perceive these brands as being distinctive, it cannot significantly affect their purchase.
The majority of consumers don’t actually require a point of differentiation to purchase a brand.
|Current users who perceive their brand as being DIFFERENT %
|Current users who perceive their brand as being UNIQUE %
Instead, distinctiveness is a better approach according to the book.
A brand is more likely to “stand out” in our memories if it is distinctive.
Colors (like Vodafone red), Logos (like McDonald’s arches), Shapes (like Toblerone), Taglines (like Nike’s “Just do it”), Symbols/Characters (like Micky Mouse’s ears), Celebrities (like Tiger Woods for Nike), and Advertising Styles are some factors that contribute to distinctiveness (e.g. Priceless campaign by Mastercard). If you have a unique quality, you should consistently highlight it in all written and verbal communications to help people remember it. Additionally, this contributes to the development of familiarity, which fosters an emotional assurance of the brand (and this in turn helps nudge purchase).
Given that most brands have a large base of irregular customers, being distinctive aids in brand recall and promoting repeat purchases. When a brand fades from memory, it has less chance of being taken into account by the consumer when they make a purchase in that category.
It takes time to build distinctive associations with consumers. For e.g. Nike’s swoosh first started in 1970. It doesn’t happen overnight which is what many marketers today expect, immediate success. This is why many leaders and marketers do not invest in brand building.
The key to marketing success: Mental and physical availability
Making a brand simple to purchase is one of marketing’s fundamental tenets. Physical, as well as mental availability, is necessary for this.
Brands are a very small part of people’s lives. Additionally, the world is very cluttered, with a lot of “impacts” from TV, digital, etc. competing for your attention. The average supermarket carries over 30,000 different items. Because we simply do not have the time or resources to consider every option, our brains are more likely to “satisfice” and choose a brand that “will do” rather than one that is necessary “the best.”. As a result, most brand loyalty is passive rather than active. Instead, consumers actively reject brands when they find them to be too complex or difficult to evaluate, and they prefer to stick with what they know works.
So why do some brands have a larger following than others? It has to do with the ease with which some brands are recalled compared to everyone else. According to the book’s research, light and non-customer groups are the largest opportunities for brands. So the trick is to get these two groups to think of your brand more frequently.
How do we do get these consumers to continuously think of your brand?
There are information nodes associated with a brand in the brain (such as McDonald’s having hamburgers and golden arches, etc.).
Through activities like restaurant visibility, visiting, consuming, advertising, etc., these links are continuously updated. The saliency of a brand increases with the size and freshness of its network of memory associations.
The more frequently these memories can be brought up, the more frequently the brand will be remembered. These brand assets have a better chance of standing out and being remembered the more distinctive they are. Imagine if a consumer is in a buying moment/situation, and the first brand they think about is you, that’s powerful.
Your brand’s physical availability refers to the breadth and depth of your distribution in time and space. Simply put, this refers to how simple it is for a customer to buy your goods when they require it.
Brands have to continuously work to find a solution to this issue. It’s not only B2C or CPG brands that face difficulties. How, for instance, do SaaS providers develop, and manage their software such that it is always accessible to users and that the distribution network between purchase and implementation is seamless? The difficulty is global because every firm has a distribution network of some kind, whether it be internal or external, physical or not.
Summary of learnings
To grow your brand, the book provides scientific evidence to follow these rules:
- Penetration and acquiring new customers is needed for growth, as compared to loyalty, upselling, and retention programs.
- Most of a brand’s users are light and non-users. This further exemplifies the need for penetration of new users for growth.
- Brands need physical availability to ensure it’s easy for customers to buy and gain value from their products when they are in need.
- Brands need mental availability (brand salience) so that consumers think of the brand when in specific buying situations.
- Differentiation isn’t as important as distinction. Why? Because features and products are often copied and similar across similar industry peers. Consumers still react and buy even if these whether or not the perceived differences are large. At the end, consumers will buy the brand they remember first (and most) when in need, regardless of the differentiation.
- Advertising is important as it helps to refresh memories and associations consumers have with the brand. Target the entire category of audiences rather than a small hyper-targeted group.
You might also be interested in how you can build a marketing strategy, which is what this article dives into. Also, Marketing made simple and Free Prize Inside summaries would add further context to the research above.