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How Brands Grow

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"More than anything else, however, I'm just plain envious. It's a book I wish I had the intelligence to write... Reading Sharp's critique of the cult of differentiation made me smile. And I laughed out loud at his characterisation of supposedly committed consumers as "uncaring cognitive misers"."--Marketing Week "...marketers need to move beyond the psycho-babble and read this book... or be left hopelessly behind."--Joseph Tripodi, The Coca-Cola Company "Until every marketer applies these learnings, there will be a competitive advantage for those who do."--Mitch Barnes,The Nielsen Company "A scientific journey that reveals and explains with great rigour the Laws of Growth."--Bruce McColl, Mars Incorporated "This book puts marketing's myth-makers, of which there are many, in their proper place."--Thomas Bayne, MountainView Learning "A truly thought-provoking book."--Timothy Keiningham, IPSOS Loyalty "The evidence in this book should make any marketer think hard about how they manage their brands."--Kevin Brennan, General Manager, Snacks and Marketing Director, Kellogg UK "This book should be required reading on any marketing course."--Colin McDonald, the 'father' of Single-Source analysis and author of Tracking Advertising & Monitoring Brands "There is competitive advantage here for those who understand and follow this book's lessons."--Jack Wakshlag, Chief Research Officer, Turner Broadcasting Systems, Inc.
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How Brands Grow
by Byron Sharp
e-Book Edition
!
Originally published in hardback by Oxford University Press!
OXFORD is a trademark of Oxford University Press in the UK and in certain other countries
Copyright © Byron Sharp 2010!
First published 2010, reprinted 2010, 2011, 2012!
Revised e-book version 2014
National Library of Australia Cataloguing-in-Publication entry Sharp, Byron.!
How brands grow: what marketers don't know / Byron Sharp.
Includes bibliography.!
ISBN 978 0 19 557356 5 (pbk) !
1. Marketing. 2. Advertising. 3. Branding (Marketing). 4.Consumer Behavior. 5. Market Research.!
658.83
Reviews of How Brands Grow
"Highly practical...includes many groundbreaking ideas."
CHOICE
“More than anything else, I’m just plain envious. It’s a book I wish I had the intelligence to write.... !
Reading Sharp's critique of the cult of differentiation made me smile. And I laughed out loud at his characterisation of
supposedly committed consumers as uncaring cognitive misers.”
Marketing Week (UK)
"Marketers need to move beyond the psycho-babble and read this book... or be left hopelessly behind."
Joseph Tripodi, Chief Marketing & Commercial Officer!
The Coca-Cola Company, Atlanta USA
"Until every marketer applies these learnings, there will be a competitive advantage for those who do."
Mitch Barns, CEO!
The Nielsen Company
"A scientific journey that reveals and explains with great rigour the Laws of Growth."
Bruce McColl, Chief Marketing Officer!
Mars Inc.
"This book puts marketing's myth-makers, of which there are many, in their proper place."
Thomas Bayne, CEO!
MountainView Learning, London.
Author
Byron Sharp
Dr Byron Sharp is Professor of Marketing Science, and the Director of the Ehrenberg-Bass
Institute, at the University of South Australia. The Ehrenberg-Bass Institute's research is used and
financially supported by many of the world's leading corporations, including Coca-Cola, Colgate-
Palmolive, First National Bank, General Motors, Procter & Gamble, Turner Broadcasting, ESPN,
and Unilever.
Byron has published over 100 academic papers and is on the editorial board of five journals. He
recently co-hosted with Professor Jerry Wind two conferences at the Wharton Business School on
the laws of advertising, and co-edited the 2009 and 2013 special issues of the Journal of Advertising
Research on scientific laws of advertising.
His university textbook “Marketing: theory, evidence, practice” (Oxford University Press) was
released in 2013.
www.ByronSharp.com
!
Contributors
John Dawes
Dr John Dawes is Associate Professor at the Ehrenberg-Bass Institute, University of South Australia.
John has an extensive background in sales and marketing prior to becoming an academic researcher.
He has published in journals such as the Journal of Services Research, Wa ll St ree t Jo ur na l, International
Journal of Market Research, and the Journal of Brand Management. John is the editor of the Jour nal of
Empirical Generalisations in Marketing Science (EMPGENS) www.empgens.com.
www.JohnDawes.com.au
Jenni Romaniuk
Dr Jenni Romaniuk is Research Professor and Associate Director (International) of the Ehrenberg-
Bass Institute, at the University of South Australia. Jenni's research covers brand equity, brand
image tracking, how to use advertising to build brands, and how to understand and use the brand
perception-behaviour link.
Jenni has published in journals such as the Journal of Business Research, Journal of Marketing Management,
Marketing Theory, European Journal of Marketing, International Journal of Market Research, and the Jour nal of
Financial Services Marketing. She is executive editor (International) of the Journal of Advertising Research.
For the past ten years she has been providing research on brand strategy to companies in
government, retail, food, tourism, financial services, insurance, telecommunications, and event
management.
www.JenniRomaniuk.com
John Scriven
John Scriven was previously director of the Ehrenberg Centre at London South Bank University.
John specialises in the study of brand performance measures and the effects of marketing inputs,
particularly price and advertising. He has over 20 years experience in marketing, market research
and marketing planning having held marketing positions with three major corporations: United
Biscuits, RJR/Nabisco and Pepsico.
Preface
Marketing is a creative profession. So is architecture: architects design masterpieces like the Taj
Mahal and the Sydney Opera House, but architects use their creativity within a framework of
physical laws. Architects must design buildings that will not collapse under their own weight or blow
over in a breeze; they cannot choose to ignore the law of gravity, or hope their building is immune
to the laws of physics.
Marketers, even senior marketing academics, like to say that there can be no laws concerned with
marketing. These people argue that consumers are far too individual and unpredictable. Research
has shown this is utter nonsense. This ill-founded belief stops academics doing their job and
searching for law-like patterns in buying behaviour and marketing effects. It also allows marketers to
carry on with 'anything goes' marketing plans. Imagine if architects designed 'anything goes' plans –
“Let's build out of fairy-floss', 'Let's add another 68 floors!”
Marketers argue with each other about things that have nothing to do with the creativity of the
discipline; about things that should be known for certain. It's time for this to stop. This book reveals
the predictable patterns in how buyers buy, and how sales grow – things all marketers should know,
not argue about.
These patterns are valuable knowledge. It's often thought that great marketing strategy is obvious
with hindsight everyone can see what you did and copy you. This might be true for new products or
some advertising campaigns, but in reality marketing offers the ability to outperform competitors
while they scratch their heads wondering why on earth you are doing so well. Unfortunately,
marketers themselves often have no idea why one of their own campaigns worked and others did
not. Their explanations as to what they got right or wrong are often wide of the mark because their
assumptions (the theories in their head) are wrong.
This book is for marketers who are willing to learn new things based on classical science, and to
shake off the superstition (and unfounded speculation) that today passes for marketing theory.
Read the assumptions in Table 1.
Table 1: Marketing assumptions
If you believe that most of these are true, you are operating under many false assumptions. This
book will give you the evidence. If it changes your mind it might revolutionise your marketing.
Table 2: Towards a new view of marketing priorities
The most important knowledge contained in this book
No marketing activity, including innovation, should be seen as a goal in itself, its goal is to hold on to or improve mental
and physical availability.
Decades of research into how buyers buy and how brands compete has led to these surprising
conclusions:
1. Growth in market share comes by increasing popularity; that is, by gaining many more buyers
(of all types), most of whom are light customers buying the brand only very occasionally.
Strategic Assumptions
True, False,
or
Don’t Know?
Differentiating our brand is a vital marketing task?
Loyalty metrics reflect the strength, not size, of our brand?
Customer retention is cheaper than acquisition?
Price promotions boost penetration not loyalty?
Who we compete with depends on the positioning of our brand image?
Mass marketing is dead, no longer competitive?
Our buyers have a special reason why they buy our brand?
Our consumers are a distinctive type of person?
Our heaviest 20% of customers deliver at least 80% of our sales?
Past World View
Positioning
Differentiation
Message Comprehension
Unique Selling Propositions
Persuasion
Teaching
Rational involved viewers
2. Brands, even though they are usually slightly differentiated, mainly compete as if they are near
lookalikes; though they vary in popularity (and hence market share).
3. Brand competition and growth is largely about building two market-based assets: physical
availability and mental availability. Brands that are easier to buy for more people, in more
situations – have more market share. Innovation and differentiation (when they work) build
market-based assets, which last after competitors copy the innovation.
Therefore, marketers need to improve the branding of their product (i.e. it needs to look like them
and only them) and to continuously reach large audiences of light buyers cost effectively. Marketers
need to research what their distinctive brand assets are (colours, logos, tone, fonts, etc.); they need to
use and protect these. Managers also need to research how buyers buy their brand, when they think
of and notice it, and how it fits into their lives (and shopping). Marketers need to manage media and
distribution in line with this knowledge.
Advertising works largely by refreshing, and occasionally building, memory structures (and less by
convincing rational minds or winning emotional hearts). Marketers need to research these memory
structures and ensure that their advertising refreshes these structures by consistently using the
brand's distinctive assets.
In short, there is a great deal to learn, and much to be discovered, about sophisticated mass
marketing.
Tables 3, 4 and 5 summarise old and new aspects of marketing.
Table 3: Consumer behaviour
Table 4: Brand performance
Consumer Behavior
Past World
View
Attitude Drives
Behavior
Brand !
Loyals
Brand !
Switchers
Deeply
Committed
Buyers
Involvement
Rational
Involved
Viewers
New World
View
Behavior !
Drives Attitude
Loyal !
Switchers
Loyal !
Switchers
Uncaring
Cognitive
Misers
Heuristics
Emotional
Distracted
Viewers
Brand Performance
Past World
View
Growth Through
Targeting !
Brand Loyals
Obscure
Proprietary
Metrics
Price Promotions !
Win New
Customers
Target Marketing
Differentiation
New World
View
Growth !
Through
Penetration
Predictable
Transparent
Metrics
Price Promotions
Only Reach
Existing Loyal
Customers
Sophisticated Mass
Marketing
Distinctiveness
Table 5: Advertising
Examples in this book
The scientific laws presented in this book apply to many categories:
products and services
industrial products
supermarket packaged goods
national and retailer brands
brand buyingand store choice.
The laws apply across countries and have held for decades. This is why they can provide useful
predictions.
I've tried to demonstrate the breadth of generalisation by deliberately using diverse examples; for
example, retention levels for both cars in France and banks in Australia. I am grateful to Nielsen and
Kantar for providing data spanning many countries. Please don't infer that just because the
example refers to, say, UK store brands, that the law doesn't apply to your category. If you are in
doubt, please refer to the cited references, as these will provide further examples that illustrate the
breadth of the law.
Acknowledgements
The empirical laws in this book might not have been discovered without the years of research that
has been funded by corporations around the world. In particular I would like to thank the following
corporations for their many years of continuing support of the Ehrenberg-Bass Institute:
Advertising
Past World
View
Positioning
Message
Comprehension
Unique Selling
Propositions
Persuasion
Teaching
Campaign
Bursts
New World
View
Salience
Getting Noticed,
Emotional
Response
Relevant
Associations
Refreshing &
Building
Memory
Structures
Reaching
Continuous
Presence
ABC
ANZ Bank
Bristol-Myers Squibb
CBS
Coca-Cola
ConAgra Foods
Elders
Fonterra Brands
Advertising Research Foundation
Australian Research Council
British Airways
Colgate-Palmolive
Distell
ESPN
General Mills
Highland Distillers
AkzoNobel
BASES
Caxton Publishing
Commonwealth Bank of Australia
Dulux
FirstRand
General Motors
Hills Industries
Special thanks
Thank you to the readers of the original version of this book for making it such a success. Thank
you for your kind words, and your very interesting questions - please keep asking them, you can
contact me through the book’s official website.
I would like especially to thank my wife Anne and daughter Lilith, and my colleagues in the
Ehrenberg-Bass Institute, University of South Australia. I would also like to thank our collaborators
at universities around the world – especially Professor Jerry Wind at Wharton.
Special thanks also are due to Dr Thomas Bayne at Mountainview Learning for working with me to
introduce behavioural science to marketing executives around the world. The graduates from this
training are ushering in a new era of evidence-based marketing for the corporations they work for.
E-book version
Hundreds of small improvements have been made to this new version. New material has been
added on:
category growth
profitability and loyalty
industrial buying
an additional law on physical availability and growth
a ‘Frequently Asked Questions’ chapter
an expanded bibliography pointing readers to the many relevant peer-reviewed scientific
publications.
There are new examples and data, for example, new tables showing Apple’s brand loyalty. A
number of tables have been updated. This should allay any fears that the scientific laws might not
continue to apply.
Chapter 1:!
Evidence-based Marketing
Byron Sharp
!
Imagine you are the Insights Director of Colgate Palmolive. Margaret, the Senior Category
Manager for toothpaste, is standing at your office door and she is obviously distressed. She is waving
a recently received report from your global market research supplier, and this is what it shows:
1
Figure 1.1: Toothpaste brands: US market shares (volume)
!
Data source: Spaeth & Hess 1989.
The market research shows that Procter & Gamble's Crest brand of toothpaste has double the
market share of Colgate in the US. However, this has long been known and is not the reason why
Margaret is upset. It's the next couple of graphs that have her worried (see Figures 1.2 and 1.3).
Figure 1.2: Crest consumer base
This is real data from a Chicago panel reported in Spaeth and Hess (1989).
Data source: Spaeth & Hess 1989.
Figure 1.3: Colgate consumer base
Data source: Spaeth & Hess 1989.
These charts decompose the sales volume of each rival brand according to the recent repeat-buying
behaviour of their consumers.
The percentage of Colgate's sales that came from loyal customers is almost half that of Crest's loyals
('loyals' being people who bought the brand for the majority of their toothpaste purchasing during
the analysis period). Colgate's sales come much more from 'switchers' – people who bought Colgate
at least once in the analysis period, although most of their buying was of other brands.
Margaret is demanding an explanation. What does this mean? Why is Colgate's sales base so
unhealthy? Is the brand doomed? What does this mean for her ambitious growth targets?
One time buyers
16%
Loyals
38%
Switchers
46%
One time buyers
11%
Loyals
21%
Switchers
68%
How would you answer?
Of course, you would call for more research. It's an Insight Director's prerogative.
!
The additional research further breaks down the market share of each company by analysing the
switchers within both the Crest and Colgate customer bases.
The additional research consists of a survey; the first question of which asks customers about their
attitudinal loyalty. Figure 1.4 reports the percentage of switchers who agree with the statement:
“This is my preferred brand”, (the switcher group is the interesting one, as we can safely assume that
both Crest's and Colgate's loyals will report that their brand is their preferred one.) As you can see,
Figure 1.4 shows that Crest switchers are substantially more likely to say that Crest is their preferred
brand.
The survey's second question asks customers about their perceptions of quality. Figure 1.5 reports
the quality perceptions of the switchers in each customer base. Both Crest and Colgate buyers
perceive both brands to be quality products – as they should, because these are both well researched
and well-made products.
Figure 1.4: Percentage of brand buyers who say “This is my preferred brand”
! !
Data source: Spaeth & Hess 1989.
Figure 1.5: Percentage of brand buyers who say “This is a quality product”
Disagree
32%
Agree
68%
Disagree
57%
Agree
43%
Crest switchers
Colgate switchers
!
!
Data source: Spaeth & Hess 1989.
Here are the 'brand insights' the market research agency reports:
Colgate's sales volume comes mostly from non-loyal buyers
Colgate is 50% more dependent on switchers than Crest
Colgate buyers are less loyal, both behaviourally and attitudinally
Even Colgate buyers think Crest is a quality product
Colgate is a quality product but it has perception problems and lacks loyalty
Colgate is attracting the wrong sort of buyer.
These insights are translated into the following action recommendations. Colgate needs:
more persuasive advertising that stresses Colgate's quality
comparative advertisements against Crest (common in the USA)
media schedules that emphasise frequency of exposure (to shift attitudes)
research to profile Colgate 'loyals' with the aim of attracting more people like this.
All this sounds perfectly normal. It happens in marketing departments around the world every day.
You personally may have come up with a somewhat different marketing strategy, depending on your
0
20
40
60
80
100
Crest switchers
Crest Colgate
0
20
40
60
80
100
Colgate switchers
own experience, preferences, and creativity, but the insights and the strategy appear reasonable, and
not unusual. Except that they are wrong.
The 'insights' suggested here reflect ignorance of relevant scientific laws about buyer behaviour and
marketing metrics, laws that we'll cover in this book.
Consequently, Colgate's fictional Insights Director is jumping at shadows, and overly worrying
Margaret. Colgate's loyalty metrics, both attitudinal and behavioural, are normal for a brand with
half the market share of Crest. Indeed all the other research findings are essentially repeating the
findings of the first graph (Figure 1.1), that is, that Colgate is half the size of Crest in this market.
These metrics don't show why it is half the size; they are what they are because of Colgate's size. All
will be explained in the forthcoming chapters (if you can't wait, turn to the end of the book for a list
of laws including those that relate to this Colgate case study)
Note: this case study could have been written from the Crest (Procter & Gamble) perspective, where the danger would
be in patting oneself on the back for having such a ‘strong’ brand with highly loyal buyers. Brand equity consultancies
make money flattering owners of large market share brands that they are not just large but also strong with attitudinally
committed consumers.
Are marketers bleeding the companies that employ them?
I am in awe of the modern market economy and the diversity and quality of products that
marketers deliver. This modern economy is the product of one of the most incredible social
experiments: in the twentieth century classical, planned economies were tried alongside market
economies (Hunt & Morgan 1995). The results were startling. Market economies won by a mile, as
they provide people with more choice, fewer queues, and better, cheaper products and services . For
2
example, within a few hundred metres of where I am sitting I have a choice of multiple grocery
stores, bakeries, pharmacies, cafes, wine stores, even several fine chocolate shops. Not bad!
Once when I was in Thailand my charming host Professor Tasman Smith asked if we had many
Thai restaurants back home in Adelaide, Australia. I did a quick mental count and tactlessly replied,
“Yes, there are four within a short walk from our house”. My faux pas illustrates the fact that those
who live in developed market economies are spoilt for choice we can eat pizza in Thailand, or
order a curry in Paris, if we want to. This is because today's marketers do an amazing job of getting
attractive goods to market.
Yet marketing is far from perfect; there is much waste. This matters because marketing activities
consume a vast amount of our time. As Robert Louis Stevenson said, “Everybody lives by selling
something”. Poor marketing wastes an incalculable amount of resources, and it prevents and slows
the uptake of life-enhancing products and social initiatives.
Yet the world’s largest selling economics textbook by Paul Samuelson (the first American economist to win the Nobel prize) even
2
as late as its 13th edition said “The Soviet economy is proof to the contrary to what many skeptics had earlier believed, a Socialist
command economy can function and even thrive”. This in 1989 the year that the Berlin wall fell! It seems university textbooks
can be hopelessly out-of-date, and stubbornly cling to theory in spite of the facts. The facts in this case being the tens of millions
who starved as the historic command economies of Russia and China failed to produce and distribute enough of even basic
necessities.
Marketing practice, for all its advances, has never been strong on R&D into marketing practices;
there is plenty of ineffectiveness and room for improvement. Response rates to advertising are
perhaps in indicator of inefficiency. However you define a consumer response from clicking on a
web ad to driving to a store – response levels are extremely low, and in some places falling. It's even
more scary if you look at the impact of advertising on memory. For example, one of our yet-to-be-
published studies on advertising productivity examined 143 ads on Australian television that were
3
screened on consecutive weeknight evenings. That weekend respondents were telephoned and those
who watched the programs during which the ads were played were asked if they recognised the
particular television commercial (i.e. each ad was verbally described to only those people who had
an opportunity to see it). The average recognition score for a television ad was barely 40% (i.e. 40%
of potential viewers noticed the ad when it aired). Those respondents who recognised the ad were
then asked what brand it was for, and on average the correct brand was linked to only
approximately 40% of the ads. Consider that for an ad to work, at the very least, it needs to be
noticed, processed and be linked to the correct brand. So only around 16% of these advertising
exposures passed the two necessary hurdles; put another way, there was 84% wastage!
4
Note that the effectiveness of the ads varied widely. Some were noticed by more viewers, and
correctly branded too. But most were not. This suggests that there is much to gain from learning
how to make better advertising.
!
Though hard to see, the advertiser here is actually ASB Bank, they are trying to knock a competitor
Kiwi Bank (who should be laughing...all the way to the bank)
There is much to learn about marketing. Even very senior marketers (and marketing academics)
believe many things that are wrong, and there are many important facts that simply aren't widely
known. Many well-paid marketers are operating with wrong assumptions, so they are making
mistakes and wasting money, without even knowing it.
Study led by Kate Newstead & Jenni Romaniuk.
3
Near identical results are reported 15 years ago in du Plessis (1994). A figure around 16% is also not uncommon in
4
advertising recall (i.e. where the brand name is the cue for recalling the ad). And in 2015 Nielsen reported an average of 25%
being able to recall the ad and the brand that was advertised (the day after potential exposure) based on Nielsen’s measurement of
1.7 million TV ads over the past 13 years (Beard 2015, http://www.nielsen.com/us/en/insights/news/2015/uncommon-
sense-the-case-for-resonance.html).
Marketing professionals today are better educated than in the past, and they have access to much
more data on buying behaviour. But the study of marketing is so young that we would be arrogant
to believe that we know it all, or even that we have got the basics right yet. We can draw an analogy
with medical practice. For centuries this noble profession has attracted some of the best and
brightest people in society, who were typically far better educated than other professionals. Yet for
2,500 years these experts enthusiastically and universally taught and practised bloodletting (a
generally useless and often fatal 'cure'). Only very recently, about 80 years ago, medical professionals
started doing the very opposite, and today blood transfusions save numerous lives each and every
day. Marketing managers operate a bit like medieval doctors working on anecdotal experience,
impressions and myth-based explanations.
It would be arrogant to think that the current marketing 'best practice' does not contain many
mistakes and erroneous assumptions. I used to teach some erroneous stuff to my university students;
I know how easy it is to parrot a falsehood simply because that's what we were taught to think and
because it appears to make sense. This book challenges some of the conventional wisdom with
empirical evidence. I hope you find this 'myth-busting' knowledge as liberating as it is useful.
Marketing textbooks
Marketing prides itself on being a practical discipline, so marketing texts (textbooks, marketing
magazines, consultant reports, etc.) should be full of answers to practical questions, such as:
What will happen to sales if I change the price of the product?
Why can I see the effect of price promotions in the sales data, but the advertising campaigns
"barely show up, if at all? Is advertising not generating sales?
What is a reasonable cross-selling target?
Will the new brand cannibalise sales from the current brand? If so, by how much?
Should I pay double for a full-page newspaper ad or buy the half-page ad instead?
When should 15-second television ads be used?
Yet it is difficult to find answers to such practical questions, let alone to find explanatory and
predictive theories that can be used to provide the solutions.
A good colleague of mine, Scott Armstrong, Professor at the Wharton School, once put marketing
principles texts to the test (Armstrong & Schultz 1992, pp. 253-65). He asked four doctoral students
to independently go through nine leading texts looking for managerial principles. They found many
(566) normative ('you should do') statements, but the texts failed to accompany the statements with
supporting empirical evidence. The students only found twenty statements that were clear and
meaningful. When these twenty statements were sent to marketing professors they rated only half as
true, and said they knew of supporting evidence for only two. Only one single statement was
universally rated as true, supported by evidence, as well as being considered managerially useful. But
this principle was also rated as “unsurprising, even to someone who had never taken a marketing
course”.
5
The statement said that in conducting advertising experiments, test cities should be isolated so that promotions in one city don't
5
influence sales in another.
We could dismiss our texts as harmless introductions to marketing practice, but marketing texts
aren't harmless, because they routinely lead managers astray. Texts tell us what to worry about
(customer satisfaction, image perceptions, brand equity, loyalty), what we should be doing
(segmentation, targeting), what techniques to use, and what metrics to measure. Marketing texts
largely reflect and reinforce current practice and existing beliefs. They contain a lot of good basic
information, like telling us that if we want to advertise we should remember to book the media. But
texts are also full of myths; the sort of myths that sap the effectiveness and productivity of
marketing departments.
Many of the things that we’ve been told are important, such as loyalty programs, are not (see
Chapter 11). Many of the 'facts' marketing people believe, particularly about brand buying, are
incorrect. Furthermore, many marketers lack the deep knowledge necessary to ask the questions that
will lead to new valuable insights.
Take the following test on strategic assumptions (Table 1.1). Marketing professionals agree that these
assumptions really matter and underpin strategic marketing decisions that are linked to substantial
expenditure. How would you and your marketing colleagues answer these questions? Would there
be consensus? If your answers were questioned, could you point to anything more than anecdotes to
support your view?
Table 1.1: Strategic assumptions test
Strategic Assumptions
True, False, or
Don’t Know?
Differentiating our brand is a vital marketing task?
Loyalty metrics reflect the strength, not size, of our brand?
Customer retention is cheaper than acquisition?
Price promotions boost penetration not loyalty?
Who we compete with depends on the positioning of our brand image?
Mass marketing is dead, no longer competitive?
Our buyers have a special reason why they buy our brand?
Our consumers are distinctive type of person?
Our heaviest 20% of our customers deliver at least 80% of our sales?
If you answer true to most of the questions above then you are operating under false assumptions. This book
will give you the evidence. As Mark Twain wrote in his notebook in 1898: “Education consists mainly of what
we have unlearned”.
False assumptions have led us astray in the past
“a theory requires some facts, Captain”
- Mr Spock, Star Trek episode ‘Space Seed’
Science's systematic approach to discovery is a relatively recent practice that didn't really get going
until around the 1700s. Prior to that, knowledge largely came from myth, folk-tale, and from experts
in authority (chiefs, priests, kings and queens). How these 'experts' acquired their knowledge no-one
knew or dared ask. Most of the time their understanding was wrong and there were glaring gaps.
This lack of accurate knowledge meant we didn't think to ask useful questions. So for millions of
years humans made little progress; life was typically short, painful and we were hungry and cold
much of the time. In the past few hundred years we've made extraordinary progress. Our combined
knowledge has grown in leaps and bounds, and we live in comparative luxury.
Let's return for a moment to the case of our learned but bloodletting doctors. For centuries they
bled patients for almost every possible ailment, indeed many advocated bleeding simply to maintain
good health. For most of the last millennium bloodletting was as trusted and popular in Europe as
aspirin is today (Starr 1998).
6
Over the years, doctors must have killed hundreds of thousands of patients. Among them was US
President George Washington, who died when his doctors bled him vigorously to cure a sore throat.
The doctor of another US legislator once wrote that he had treated his patient by relieving him of
165 ounces of blood in five days (almost all the blood in his body!). The doctor wrote, 'he died ...
had we taken a still greater quantity [of blood] the event might perhaps have been more
fortunate' (Starr, 1998). Apart from a few rare medical conditions, bleeding does no good
whatsoever. So how did these well-meaning and well-educated doctors get it so terribly wrong for so
long?
First, it was because they believed untested theories that advocated bleeding. Like all practitioners
they were, probably without realising it, deeply theoretical. The ancient Greeks (e.g. Hippocrates)
developed a theory that all illness resulted from an imbalance of humours; bleeding and purging
were common ways of addressing such imbalances. This humoural imbalance theory dominated
medical thinking in Europe and the Middle East for 2000 years because no one tested if this really
was the cause of illness.
Second, bleeding continued because no-one conducted systematic research into its effects. If
patients recovered from their illness then bleeding was credited as the cure; if they died ... well they
were sick after all! Doctors worked using their impressions, assumptions, common-sense, accepted
Aspirin was not only one of the very first drugs to actually have proven affect, it was also the first to benefit from mass
6
marketing. Every doctor in the UK was mailed information on the new drug which dramatically sped its adoption, much to the
relief of early patients.
wisdom, and scattered bits of data. This is very similar to the working practice of marketing
managers today.
Adding to the danger, doctors overestimated how much blood was in the human body no-one
checked properly. And they underestimated how long it would take the body to manufacture new
blood – again no one checked.
Douglas Starr (1998) argues that bleeding was also popular because it gave doctors a sense of
control. It produced dramatic results – patients fainted (for a long while this was considered a good
thing). Patients demanded that doctors be seen to do something, and bleeding fulfilled this
requirement. It's not hard to see similarities with many marketing interventions (like price
promotions, bursts of advertising, and rushing into 'new media' like proverbial lemmings ).
7
The scientific revolution transformed medical practice as doctors, and statisticians such as Florence
Nightingale, started compiling detailed records and case histories. The numbers they recorded
started to generate insight into causes and effects, and germ theory eventually triumphed over
humoural imbalance theory. Medical experiments gradually started separating the effectual from the
ineffectual and the downright dangerous.
Today marketing managers operate a bit like nineteenth century doctors; they are affected by the
scientific revolution, but are not yet governed by it. Even 'best practice' is still dominated by
impressions and untested assumptions. Texts still contain untested, ungrounded theories and myths.
And serious experimentation is rare.
The marketing equivalent of humoural imbalance theory may be the Kotlerian 'differentiate or die'
world view where marketing success is entirely about creating superior products, selling these at a
premium price, targeting the most likely buyers, and advertising to bring people's minds around to
the product's superiority.
You are reading a book about real-world facts and law-like relationships that challenge the
fundamental tenets of modern marketing theory; the widespread beliefs that affect not just the
decisions of marketing managers, but also how marketers see the world.
Commonplace marketing mistakes
Even the most intelligent marketers, in the best organisations, routinely make mistakes. Because
many marketers operate using incorrect assumptions about how buyers buy and how marketing
works, they emphasise the wrong things and ignore important points, consequently making mistakes
such as:
changing packaging in ways that reduce the brand's ability to be noticed
creating advertising that doesn't build or refresh relevant memory structures
failing to research what memory structures are devoted to the brand
failing to research what makes the brand distinctive and noticeable
Actually it is a myth that lemmings commit mass suicide, but it is a useful analogy.
7
creating advertising that isn't branded (other than a flash of the brand name)
investing countless hours and many dollars on pointless tracking research that informs no
decisions
over-investing in already highly loyal consumers, while neglecting to reach new buyers
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).
8
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
It's a common mistake, made even by senior academics, to think that statistical significance tests tell us something about
8
generalisability, i.e. if or where the result will hold again. They don't, and this isn't their purpose. Rather, they merely tell us
something about the possibility that our result was merely an artefact of random sampling variation, that is, because we examined
a small sample not a population census. Statistical significance tests don't tell us which population our result might represent, or
anything about the conditions where the result would vary. A highly (statistically) significant result may apply only in the
particular conditions that the study was done, e.g. in one place and time.
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 data and how the analysis was done. I've done
9
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
!
All the tables in this book try to conform to Andrew Ehrenberg's principles of data reduction; see Ehrenberg (1998, 1999,
9
2000).
... Advertising and ready availability re-inforces habitual behavior, by keeping the brand salient in memory and apt to be noticed in buying situations (Miller and Berry, 1998;Vieceli and Shaw, 2010). Brands that can better build mental availability and physical availability grow their market share, and also enjoy higher levels of re-purchase (Romaniuk and Sharp, 2021). ...
... While higher loyalty may at face value sound positive, the flip side of this finding is that price promotions for large brands are less likely to attract new-brand buyers. Evidence suggests new-buyer acquisition is a requirement for brand growth (Romaniuk and Sharp, 2021;Riebe et al., 2014). ...
This study examines the factors that are linked to consumer goods brands having unusually high or low behavioral loyalty, after controlling for the association between brand size and loyalty that occurs due to the ‘double jeopardy’ effect. Behavioral, or repeat-purchase loyalty is measured as the brand's average share of category requirements (in volume) among its buyers over a 12-month period. We examine a range of factors that theory or past evidence suggests are associated with higher or lower behavioral loyalty, including brand type (store brand/manufacturer brand), price level, promotion intensity, as well as average brand volume per occasion and pack size. Using extensive US panel purchasing data, we find that store brands exhibit relatively higher behavioral loyalty than manufacturer brands. We explain the theory behind this result. We also find that the brand's average pack size and volume bought per occasion has a markedly positive association with behavioral loyalty. Finally, we find that the effect of low price on excess loyalty is moderated via a positive association with average volume purchase per occasion. These findings add to the body of knowledge relating to patterns in behavioral brand loyalty for both manufacturer and store brands, as well as the marketing-mix factors that influence it.
... Finally, in terms of apps attached to existing brands, future research could evaluate the impact on brand sales and/or other brand performance indicators. For example, future studies could consider the effects of apps as a tool to enhance a brand's availability in consumer's memory, ultimately impacting brand purchase intentions (see Sharp 2010;Romaniuk and Sharp 2016). ...
... Therefore, building upon these past studies and their implications, future research could focus on the psychological mechanisms that increment brand loyalty via app usage. For example, keeping in mind the established conventions of how brands grow (Sharp 2010;Romaniuk and Sharp 2016), there is scope for investigating app characteristics likely to enhance brand loyalty for different customer segments. There is also scope for Kim and Yu (2016) attribute consumer's willingness to spread positive WOM about the brand powering an app to the holistic brand experience resulting from using the app. ...
Article
We present an integrative review of existing marketing research on mobile apps, clarifying and expanding what is known around how apps shape customer experiences and value across iterative customer journeys, leading to the attainment of competitive advantage, via apps (in instances of apps attached to an existing brand) and for apps (when the app is the brand). To synthetize relevant knowledge, we integrate different conceptual bases into a unified framework, which simplifies the results of an in-depth bibliographic analysis of 471 studies. The synthesis advances marketing research by combining customer experience, customer journey, value creation and co-creation, digital customer orientation, market orientation, and competitive advantage. This integration of knowledge also furthers scientific marketing research on apps, facilitating future developments on the topic and promoting expertise exchange between academia and industry.
... The higher level of customer sharing between complementary categories may be explained by category entry point research. Category entry points are specific association cues which lead to consumers to purchasing from a category (e.g. a motivation), prior to selecting a brand (Romaniuk and Sharp, 2016). These cues are motivators or reasons for consumers to enter a category (Romaniuk and Sharp, 2016). ...
... Category entry points are specific association cues which lead to consumers to purchasing from a category (e.g. a motivation), prior to selecting a brand (Romaniuk and Sharp, 2016). These cues are motivators or reasons for consumers to enter a category (Romaniuk and Sharp, 2016). One example would be 'to style my hair'. ...
Article
Fifty years ago, Gerald Goodhardt's analysis of audience duplication across television programs led to the discovery of the Duplication of Viewing law. This law was then extended to describe and predict customer sharing within product categories: the Duplication of Purchase Law. Many replications and extensions documented the law‐like status of this generalisation, providing important insight into how brands compete and the composition of consumers' repertoires. In this article we build on that seminal research, using Duplication of Purchase as an analytical method to measure loyalty across categories, or, in other words, the purchasing of brand extensions. Brand extensions are commonly cited as a way to capitalise on brand equity, and when asked, respondents often report high intentions to purchase brand extensions. However, the actual cross category buying of brand extensions has not been systematically examined. In this research we analyse panel data to understand whether purchasing a brand in one category does in fact increase the likelihood of a brand being bought in a second category. The study finds that a consumer who purchases from two categories is on average 2.4 times more likely to purchase a brand extension in the second category if they had purchased the same brand in the other category. This effect is larger for brands spanning similar, or complementary categories. Therefore, for many brand extensions the cross‐category loyalty effect is much more modest.
... The number of duplicated viewers (i.e., people watching any pair of programs) is predictable from the programs' audience size-irrespective of other factors, including day or program content (Goodhardt, 1966;Goodhardt & Ehrenberg, 1969a). The DoP pattern occurs within other media, including radio listening (Lees & Wright, 2013), and across media, including social media (Romaniuk & Sharp, 2016). ...
Article
Brands share more of their customers with bigger competitors and fewer with smaller ones. However, there are occasional deviations to this predictable Duplication of Purchase (DoP) pattern. When two or more brands share excess customers because of functional or nonfunctional differences—it is called a partition. While past research using the NBD-Dirichlet model demonstrates partitions in annual or shorter data, there is no empirical evidence for partition persistency over the longer term, although some other NBD-Dirichlet deviations are known to persist over time. Examining expected partitions in 10 consumer goods categories in the United Kingdom, the authors show partitions overwhelmingly persist over 3 years. The findings contribute support to Dirichlet theory, especially on market stability, boundary conditions, and provide practical implications for portfolio management.
Article
The advice to musicians and marketers is to focus on what they love: a truism for practitioners is to find 1000 ‘true fans’ and make $100 from each of them (Kelly, 2008. 1000 True fans. The Technium). If this advice is correct, we should see musicians with loyal user bases engaging more with their favourite artists and less with other music, suggesting a narrow targeting strategy would suffice. On the other hand, the established marketing laws indicate that the listeners of very different genres should overlap more than conventional wisdom would suggest, supporting the need for a much broader approach to targeting potential audiences. Given these conflicting views, musicians need to know if they should market to their existing listeners, the listeners of music similar to theirs (i.e., the same genre), or if they should try to reach a much wider audience. We turn to established choice patterns from the marketing literature to address these questions in the music context. This study examines 84,000,000 observations of music listening from 27,000 unique global users between 2013 and 2014 and survey data from 2019 containing music listening from over 1000 representative respondents in the United States. The results show that listening follows the Duplication of Purchase law for genres, artists, albums, and songs, at an annual, 6‐months, 3‐months, 1‐month, and 1‐week period, with no indication of partitioned music listening. The implication is that musicians should try to reach all potential listeners, regardless of what they already listen to. These findings contribute to the theoretical knowledge about duplication analyses of various durations, extend the contexts of choice behaviour that exhibit this pattern, and managerially, to knowledge about the extent of potential audiences and ‘share of ear’ competition.
Article
E-fashion brand competition has historically been studied from an attitudinal lens, through surveys and theory-based approaches. These studies generally examine consumer attitudes, satisfaction and loyalty; highlighting that trust, satisfaction and reputation are key e-commerce success elements. However, the empirical consumer behaviour literature rebuts the use of attitudes to explain brand performance, criticising their subjectivity and the overall ineffectiveness of loyalty as a brand growth tool. The article presents Gerald Goodhardt and colleagues' Dirichlet model as an alternative approach to understanding e-fashion buyer behaviour. The Dirichlet model is a robust, stochastic model that has reliably predicted well-established law-like patterns of buyer behaviour and brand competition. We apply Dirichlet modelling to a new, non-fast moving consumer goods category to extend consumer behaviour research in the online environment. The study uses consumer panel data from the United Kingdom, across two consecutive years. We conclude that the Dirichlet model has an excellent fit within the eBay fashion brand market. The study also identifies that the well-known double jeopardy pattern exists within this market, demonstrating that e-fashion brands grow through acquisition rather than retention of customers. This provides a different viewpoint than most e-fashion brand growth literature. In addition to this, we examine the predictive capability of the Dirichlet model. We use a holdout sample to show that the model can predict future brand performance metrics, which is an exciting new development in consumer behaviour research.
Article
We extend the utility of Goodhardt's negative binomial distribution‐Dirichlet model to demonstrate how it can be used to support portfolio decisions relating to retail assortments. The approach is based on analysing polarisation of loyalty, , obtained via a transformation of the model's S parameter, to investigate loyalty to attributes. Prior research on loyalty to attributes suffers from limitations of method or application, so we develop a full treatment of the statistical basis and analytical methods required for ongoing research in this area. We then demonstrate the utility of our approach through application to four subcategories of coffee in the USA over 2 years. Importantly, we reveal the specific attribute levels (features) that generate the least and most loyalty, and show how this, when combined with market share, can be used to respond to the strategic context. Specifically, those attribute levels with low loyalty may be more suitable for seasonal or limited time offers for which maximising short‐term custom is more important than repeat purchase; conversely, attribute levels with high loyalty may be more suitable for achieving long‐term growth of brand share. In both cases, attribute levels with higher market share are preferable.
Article
Marketers who want to protect their brand's share or grow it need to know who to reach and nudge with advertising. This paper uses continuous household panel data for 55 leading, advertised brands in 12 CPG categories to quantify their target market over different time frames and conditions (market type, brand size and dynamism). Results demonstrate that the customer base (brand penetration) must swell dramatically over time to maintain, let alone grow, market share. For stable brands, penetration typically doubles from its level in one quarter to a year, then again from 1 to 5 years as brands continue to attract lighter buyers who underpin long run sales. Over 5 years, over a third of brand buyers are so light that they buy the brand just once, but such buyers are vital to sales and critical to growth. As well as quantifying the 5‐year target audience for brands across these conditions, we test the predictive accuracy of the NBD‐Dirichlet as a benchmark. The implications for advertising and media strategy are detailed. The long‐term lessons for targeting become clear—unless brands “target the market”, they have adopted a counter growth strategy.
Article
This study investigates consumers' perceived differentiation of branded commodities. Using data from three countries, across four commodity categories, the study examines consumers' brand/attribute associations, brand commitment, and loyalty‐related brand performance measures that are benchmarked against the output from the well‐established NBD‐Dirichlet model. The brand perceptions and brand performance data provide convergent evidence of systematic variations with market share (or brand penetration), rather than idiosyncratic brand differentiation related to the characteristics or equity of individual commodity brands. Overall, the results show that even commodity brands follow the well‐established Dirichlet‐type empirical patterns. The implication is that communication and other marketing‐mix activities should aim to constantly remind consumers of the brand, maintaining the market shares, rather than setting unrealistic targets for increasing loyalty or accentuating brand differentiation.
Article
Full-text available
We present a review of Gerald Goodhardt's most famous contribution to marketing science—the NBD‐Dirichlet model. This provides a powerful illustration of the complex pathway and useful associated discoveries that over 25 years lead to the specification and application of a key marketing model. We identify the process that started with the negative binomial distribution (NBD) applied to purchase incidence, examined alternatives such as the logarithmic series distribution (LSD) and the beta binomial distribution (BBD), and along the way developed conditional trend analysis (CTA). We then explore the development of brand choice beginning with duplication of purchase as a method for understanding the underlying patterns, before moving into various approaches to modelling choice including a multivariate NBD, and eventually a multivariate BBD—the Dirichlet multinomial distribution (DMD). We discuss key events in modelling consumer behaviour and outline the model's implications for how marketers should think about consumers, or more specifically the Dirichlet consumer. Finally, we provide a survey of the model's applications uncovering a rich recent history and bright future for Goodhardt's legacy.
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