Introduction
In the world of marketing, conventional wisdom often reigns supreme. But what if these long-held beliefs are actually holding brands back from reaching their full potential? Byron Sharp's "How Brands Grow" challenges the status quo of marketing practices, offering a fresh perspective based on empirical evidence and marketing science.
This book is a game-changer for marketers, brand managers, and business owners who want to understand the true mechanics of brand growth. Sharp argues that many common marketing practices are based on outdated or unfounded beliefs rather than scientific evidence. By examining real-world data and consumer behavior patterns, he presents a new framework for understanding how brands actually grow and what strategies are most effective for increasing market share.
Throughout this summary, we'll explore the key ideas presented in "How Brands Grow," debunking common marketing myths and offering evidence-based strategies for brand success. From the importance of customer acquisition to the true nature of brand loyalty, Sharp's insights will challenge your preconceptions and provide a roadmap for more effective marketing practices.
The Need for Evidence-Based Marketing
One of the central themes in "How Brands Grow" is the importance of basing marketing strategies on empirical evidence rather than traditional beliefs. Sharp draws a parallel between the outdated medical practice of bloodletting and many current marketing practices, suggesting that both persist despite a lack of scientific support.
For example, Sharp challenges the common belief that brands need an equal balance of loyal customers and "switchers" (those who alternate between brands). He cites a 1989 market analysis of toothpaste brands Colgate and Crest, which showed that Colgate had a lower percentage of loyal customers compared to Crest. While this data might have worried Colgate's marketing team, Sharp argues that this difference is actually a natural result of market share differences, not a reflection of marketing effectiveness.
This example introduces the concept of the "double jeopardy law" in marketing, which states that brands with smaller market shares not only have fewer customers but also less loyal ones. This pattern is a scientifically proven phenomenon, not a result of weak marketing strategies.
Sharp's message is clear: effective marketing should be grounded in marketing science, which can reveal the true causes and effects of various strategies. By relying on empirical evidence rather than conventional wisdom, marketers can make more informed decisions and achieve better results.
The Myth of Customer Retention
One of the most pervasive myths in marketing is the idea that retaining existing customers is more important and more profitable than acquiring new ones. Sharp challenges this belief, arguing that it's based on flawed logic and misrepresented data.
He references a widely cited 1990 business article that claimed company profits could increase by nearly 100% for every 5% of customers retained. However, Sharp points out that this conclusion was based on a thought experiment rather than real data. Moreover, the 5% figure was misrepresented – it actually referred to a decrease of 5 percentage points in customer defection, which is a much larger change than it appears.
In contrast to the focus on customer retention, Sharp argues that acquiring new customers is absolutely essential for brand growth. He explains that a company's customer defection rate is largely determined by its size and market share, making it difficult to control. Larger brands naturally have lower defection rates, while smaller brands have higher rates.
To illustrate this point, Sharp cites a study of Australian banks. The largest bank, CBA, with a 32% market share, had a defection rate of just 3.4%. In contrast, the smallest bank in the study, Adelaide Bank, with a 0.8% market share, had a much higher defection rate of 8%.
Given that brands have limited control over customer retention, Sharp argues that they should focus their efforts on acquiring new customers. This shift in focus challenges the conventional wisdom of many marketing strategies and suggests a new approach to brand growth.
The Importance of Light Buyers
Another key insight from "How Brands Grow" is the often-overlooked importance of light buyers to a brand's sales. Sharp challenges the common application of Pareto's Law to marketing, which suggests that 80% of a brand's sales come from 20% of its customers (the heavy buyers).
Instead, Sharp presents evidence that the ratio is closer to 60/20 – meaning that just over half of a brand's sales come from its heavy buyers, while light buyers are responsible for the remaining sales. This is a significant departure from the conventional wisdom that leads many brands to focus almost exclusively on their heavy buyers.
To support this claim, Sharp cites a 2007 study of body spray and deodorant brands like Dove, Nivea, and Adidas. The study found that the heaviest buyers (top 20%) were responsible for only 46-53% of sales, far less than the 80% suggested by Pareto's Law.
This insight has important implications for marketing strategies. While many brands focus their efforts on retaining and catering to heavy buyers, they may be neglecting a significant portion of their customer base – the light buyers who collectively account for up to 50% of sales.
Sharp argues that marketers should consider light buyers in their strategies, as they represent a significant opportunity for growth. This might involve adjusting marketing messages, distribution strategies, or product offerings to appeal to and reach these occasional purchasers.
The Reality of Brand Loyalty
Sharp also challenges the popular notion of strong brand loyalty among consumers. Many marketers believe that successful branding creates a strong emotional bond between customers and brands, leading to unwavering loyalty. However, Sharp argues that this bond is much weaker than conventional wisdom suggests.
He points out that people's beliefs and preferences are often inconsistent. To illustrate this, he cites a survey about Australian financial services brands where participants were asked the same question on two separate occasions. The results showed significant inconsistency in responses, with only about half of the participants giving the same answer both times.
Moreover, Sharp argues that most consumers don't actually care much about the brands they buy. While some customers may appear loyal to a particular brand, this is often more about liking the product itself rather than having a strong attachment to the brand.
This insight challenges the effectiveness of marketing strategies that focus heavily on building brand loyalty. Instead, Sharp suggests that brands should focus on being consistently present and available to customers, both mentally (through advertising and distinctive brand assets) and physically (through wide distribution).
The Power of Distinctiveness Over Differentiation
A common marketing strategy is to try to differentiate a brand by making its products or services unique. However, Sharp argues that this approach is less effective than making a brand distinctive and noticeable.
He points out that within a particular market sector, the differentiation between brands is often minimal. For example, while McDonald's, Pizza Hut, and KFC sell different types of food, they all compete in the broader fast food market. The logic of brand differentiation would suggest that McDonald's only competes with other burger restaurants, but in reality, it competes with all fast food chains.
Instead of focusing on product differentiation, Sharp suggests that brands should aim to be distinctive in the marketplace. This can be achieved through investing in recognizable brand assets such as logos, colors, or slogans. For instance, Coca-Cola's red background or McDonald's golden arches are instantly recognizable and help these brands stand out.
The goal is to make the brand easily noticeable and memorable, so that when a consumer is making a purchase decision, your brand comes to mind. This is particularly important in situations where consumers are making quick decisions or are in unfamiliar environments.
The Role of Advertising
While Sharp challenges many traditional marketing beliefs, he doesn't dismiss the importance of advertising. Instead, he offers a nuanced view of how advertising works and who it should target.
According to Sharp, the main purpose of advertising is to influence purchasing decisions by affecting consumer memory. Advertising works by constructing and renewing "memory structures" – the associations that a person has with a given brand. The more positive associations someone has, the more likely they are to purchase a brand's products.
Sharp emphasizes that these memory structures need to be continually renewed. Even well-established brands like Coca-Cola regularly update their advertisements to stay relevant to consumers. For example, Coca-Cola has evolved its advertising from associating the drink with drugstore visits during summer breaks to reminding consumers of fun nights out with friends.
Interestingly, Sharp argues that advertising doesn't need to target a brand's entire consumer base. Instead, it's mainly light buyers who are influenced by advertisements. Heavy buyers are already committed to the brand and don't need much persuasion to continue buying. Light buyers, on the other hand, are more susceptible to influence and need reminders about the brand.
For light buyers, advertisements work primarily by ensuring that the brand isn't forgotten. They keep the brand present in the consumer's mind, so when a purchasing decision arises, the brand is more likely to be considered.
The Double-Edged Sword of Price Promotions
Price promotions are a common marketing tactic, but Sharp cautions that they should be used carefully. While they can lead to a short-term spike in sales, their long-term effects can be problematic.
The immediate effect of price promotions is visible: they attract non-frequent buyers who tend to switch between brands based on price. However, this boost in sales is typically short-lived. Once the promotion ends and prices return to normal, sales usually revert to their previous levels.
Moreover, increased sales don't necessarily translate to higher profits. When a product's price is reduced, its profit margin also decreases. Sharp provides an example: if a sweater is usually sold with a 30% contribution margin, reducing its price by 10% means you'd need to sell 50% more sweaters to compensate for the discount.
Another issue with price promotions is their potential negative effects after the sale period. Consumers have a reference price for products – an expectation of what a product should cost. When a brand sells its products at a reduced price for an extended period, it can lower this reference price in consumers' minds. This can make customers reluctant to pay full price in the future.
While this might seem beneficial if a brand can maintain its profit margins at the lower price, it can be disastrous if production costs don't allow for sustained lower prices. In such cases, brands risk bankrupting themselves.
Sharp's message is clear: while price promotions can be an effective tool, they should be used strategically and with a clear understanding of their potential long-term impacts.
The Importance of Availability
One of the most crucial factors in brand growth, according to Sharp, is availability. He argues that brands increase their sales when more people find them easier to buy, and this ease of purchase has two main components: mental availability and physical availability.
Mental availability refers to the likelihood that a consumer will think of a particular brand when making a purchase decision. Brands with larger market shares naturally have an advantage here, as they're more likely to come to mind. For instance, when many people think of coffee, Starbucks is often the first brand that comes to mind.
Physical availability is equally important. It's not enough for consumers to think of your brand; your products need to be readily available when and where consumers want to make a purchase. This is why successful brands like Starbucks have so many locations – they aim to be physically present wherever their customers might want coffee.
Sharp emphasizes that both types of availability are crucial for brand growth. Brands need to invest in marketing and distinctive assets to increase their mental availability, while also focusing on distribution and accessibility to improve their physical availability.
This focus on availability challenges the traditional emphasis on brand loyalty and differentiation. Instead of trying to convince a small group of consumers to be fiercely loyal, Sharp suggests that brands should aim to be easily available to a large number of potential customers.
The Challenge of Media Saturation
In today's digital age, consumers are bombarded with more media content than ever before. Sharp cites a 2005 study which found that Americans spend about 30% of their day consuming various forms of media, from TV and online content to newspapers.
This media saturation presents a significant challenge for marketers. With hundreds of advertisements vying for attention each day, the impact of any single ad is greatly diminished. This reality underscores the importance of consistent, repeated exposure to keep a brand in consumers' minds.
Moreover, Sharp points out that consumers tend to "satisfice" rather than optimize their purchasing decisions. This means they often settle for products they consider satisfactory instead of spending time and energy searching for the perfect option. This behavior further emphasizes the importance of brand availability and visibility.
Given these challenges, Sharp suggests that effective marketing strategies should focus on making brands easy to buy and consistently present in consumers' lives. This might involve a combination of widespread distribution, distinctive branding, and frequent, memorable advertising.
Implications for Marketing Strategy
Based on the insights presented in "How Brands Grow," Sharp offers several key implications for marketing strategy:
Focus on customer acquisition: Instead of concentrating solely on retaining existing customers, brands should prioritize attracting new ones.
Don't neglect light buyers: While heavy buyers are important, light buyers collectively account for a significant portion of sales and represent a growth opportunity.
Build distinctive brand assets: Rather than striving for unique product differentiation, focus on creating memorable and distinctive brand elements.
Ensure wide availability: Both mental and physical availability are crucial for brand growth.
Use advertising to maintain presence: Advertising should aim to keep the brand present in consumers' minds, particularly for light buyers.
Be cautious with price promotions: While they can boost short-term sales, price promotions can have negative long-term effects if not used strategically.
Understand the limits of brand loyalty: Recognize that strong emotional bonds with brands are rare, and focus instead on being a satisfactory choice for a wide range of consumers.
Leverage marketing science: Base marketing decisions on empirical evidence rather than conventional wisdom or gut feelings.
Final Thoughts
"How Brands Grow" challenges many long-held beliefs in the marketing world, offering a fresh, evidence-based perspective on how brands actually expand their market share. Byron Sharp's work encourages marketers to question traditional practices and to base their strategies on empirical evidence rather than assumptions or outdated theories.
Key takeaways include the importance of customer acquisition over retention, the significant role of light buyers, the power of brand distinctiveness, and the crucial nature of both mental and physical availability. Sharp also highlights the limitations of brand loyalty and the potential pitfalls of price promotions.
By presenting these insights, Sharp provides a new framework for understanding brand growth. This approach emphasizes the importance of reaching a wide audience, maintaining consistent presence, and making brands easy to buy and remember.
For marketers, brand managers, and business owners, "How Brands Grow" offers a valuable roadmap for developing more effective marketing strategies. By aligning their practices with the empirical realities of consumer behavior and market dynamics, brands can position themselves for sustainable growth in an increasingly competitive marketplace.
Ultimately, Sharp's work serves as a call to action for the marketing industry to evolve beyond traditional beliefs and embrace a more scientific, evidence-based approach. As the marketing landscape continues to change rapidly, the insights presented in "How Brands Grow" provide a solid foundation for navigating these changes and driving brand success.