Our critics have been few, and rather kind (nothing of substance has been raised).
Now and then a marketing guru issues a thinly disguised advertisement for their consulting services that tries to have a go at the laws and strategy conclusions in How Brands Grow. They usually say something like:
“Our data confirms that larger market share brands have much higher market penetration BUT our whizz-bang proprietary metric also correlates with market share, and this proves that it drives sales growth, profits, share price, and whether or not you will be promoted to CMO”.
Often some obscure statistical analysis is vaguely mentioned, along with colourful charts, and buzzwords like:
And sexy sounding (but meaningless) metrics along the lines of:
All of this should raise warning bells amongst all but the most gullible.
Let me explain the common mistakes….
Ehrenberg-Bass say brands grow only by recruiting new customers.
These critics somehow missed the word “double” in Double Jeopardy. Larger brands have higher penetration, and all their loyalty metrics are a bit higher too, including any attitudinal metrics like satisfaction, trust, bonding… you name it.
Brands with more sales in any time period, are bought by more people in that time period. So if you want to grow you must increase this penetration level. In subscription markets (like home loans, insurance, some medicines) where each buyer has a repertoire of around 1, then penetration growth comes entirely from recruiting new customers to the brand. In repertoire markets penetration growth comes from recruitment and increasing the buying frequency of the many extremely light customers who don’t buy you every period.
The “double” in Double Jeopardy tells us that some of the sales growth also comes from existing, heavier customers becoming a little more frequent, a little more brand loyal. Also their attitudes towards the brand will improve a bit, as attitudes follow behaviour.
Improved mental and physical availability across the whole market are the main real world causes of the changes in these metrics. The brand has become easier to buy for many of the buyers in the market, it is more regularly in their eyesight to be chosen, and more regularly present in their subconscious, ready to be recalled at the moment of choice.
Why does it matter anyway? Can’t we just build loyalty AND penetration?
Yes, that’s what Double Jeopardy says will happen if you grow.
Loyalty and penetration metrics are intrinsically linked. They reflect the buying propensities of people in the market – propensities that follow the NBD-Dirichlet distribution and Ehrenberg’s law of buying frequencies. Growth comes from nudging everyone’s propensity up just a little bit. Because the vast majority of buyers in the market are very light buyers of your brand this nudge in propensities is seen largely amongst this group – a lot go from buying you zero times in the period to buying you once, so your penetration metric moves upwards (as do all other metrics, including attitudes).
For a typical brand hitting even modest sales/share targets requires doubling or tripling quarterly penetration, while only lifting average purchase rate by a fraction of one purchase occasion. That tells us that we need to seriously reach out beyond ‘loyalists’, indeed beyond current customers, if we are to grow.
When budgets are limited (i.e. always) it’s tempting to think small and go for low reach, but this isn’t a recipe for growth, or even maintenance.
A focus on penetration ignores emotional decision making.
This is odd logic. A focus on mental and physical availability explicitly realises that consumers are quick emotional decision makers, who make fast largely unthinking decisions to buy, but who if asked will then rationalise their decision afterwards.
Ehrenberg-Bass say there is no loyalty.
On page 92 of “How Brands Grow” we write:
“Brand loyalty – a natural part of buying behaviour. Brand loyalty is part of every market”.
On page 38 of our textbook “Marketing: theory, evidence, practice” we write:
“Loyalty is everywhere. We observe loyal behaviour in all categories” followed by extensive discussion of this natural behaviour.
In FMCG categories, buyers are regularly and measurably loyal – but to a repertoire of brands, not to a single brand. And they are more loyal to the brands they see a bit more regularly, and buy a bit more regularly.
All brands enjoy loyalty, bigger brands enjoy a little bit more.
Ehrenberg-Bass analysis was only cross-sectional.
Actually, we published our first longitudinal analysis way back in 2003 (McDonald & Ehrenberg) titled “What happens when brands lose or gain share?”. This showed, unsurprisingly, that brands that grew or lost share mainly experienced large change in their penetration. This report also analysed which rival brands these customers were lost to or gained from.
In 2012 Charles Graham undertook probably the largest longitudinal analysis ever of buying behaviour, examining more than six years of changes in individual-level buying that accompanied brand growth and decline. This highlighted the sales importance of extremely light buyers.
In 2014 we published a landmark article in the Journal of Business Research showing that sales and profit growth/decline was largely due to over or under performance in customer acquisition, not performance in retaining customers. Far earlier we had explained that US car manufacturers did not experience a collapse in their customer retention when Japanese brands arrived, they each suffered a collapse in their customer acquisition rates.
But if we can change attitudes then surely that will unlock growth?
It’s rare that it’s a perceptual problem holding a brand back. Few buyers reject any particular brand (and even most of these can be converted without changing their minds first). The big impediment to growth is usually that most buyers seldom notice or think of our brand, and that the brand’s physical presence is less than ideal.
For more on “Marketing’s Attitude Problem” see chapter 2 of “Marketing: theory, evidence, practice” (Oxford University Press, 2013.
Attitudes can predict (some) behaviour change. Light buyers with strong brand attitude were more likely to increase their buying next year. And heavy buyers with weak brand attitude were more likely to decrease their buying next year.
The real discovery here is that a snapshot of buying behaviour (even a year) misclassifies quite a few people. Some of the lights are normally heavier but were light that particular year. Some of the heavies were just heavy that year (kids party, friends visited, someone dropped a bottle) and next year revert closer to their normal behaviour. Note: for many product categories just a couple of purchases is needed to move someone into, or out of, the heavy buyer group.
Attitudes tend to reflect any buyer’s longer-term norm. So someone who is oddly heavy in buying this year will tend to be less attitudinally loyal to the brand than ‘regular’ heavies. Someone who is oddly light this year will tend to be more attitudinally loyal to the brand. Next year, odds are, their buying moves closer to their norm and their expressed attitude.
This statistical ‘regression to the mean’ is not real longer-term change in behaviour of the kind marketers try to create. Nor does this show that attitudes cause behaviour – their real influence is very weak, while the effect of behaviour on attitudes is much stronger.
Ehrenberg-Bass analysis is very linear reductionist, whereas we take a quadratic holistic approach.
Really not sure what these critics are talking about, nor perhaps do they. This is pseudo-science.
I have a super large, super special data set.
Please put the data in the public domain, or at least show the world some easy-to-understand tables of data. If you want us to consider your claims seriously then please don’t hide behind obscure statistics and jargon.
I have data that shows Ehrenberg-Bass are wrong, but can’t show it.