Discovering how brands grow

Abstract

The paper explains that there are observable, regular patterns of aggregate consumer behaviour of buying competitive brands in markets to the extent that they can be taken as scientifically derived laws of market behaviour. These laws have been found to apply to a myriad of markets in many countries. The paper sets out these laws, many of which are contrary to accepted wisdom, but they allow a sound basis for what can be expected for brand performance metrics given a brand's market share. Chief among the conclusions about achieving brand growth is that aiming to increase the loyalty of customers should not be the goal, extending the customer base is what the laws tell us and is what happens in practice. Many examples from well-known product categories are cited in the paper to illustrate the various laws and the courses of action drawn from them.

Full text

AUTHOR COPY
What we actually know about how brands grow
A recently published book by Sharp (2010) has caused a stir in some
marketing circles and among some CEOs, and so it should. For too long
marketing has been allowed to be managed along medieval lines, on
intuition, pronouncements from gurus and what is currently fashionable.
However, as Joseph Tripodi (2010), Chief Marketing and Commercial Officer,
Executive VP of The Coca-Cola Company, has said “Science has revolutionised
every discipline it has touched; now it is marketing’s turn”. While Jack
Wakshlag (2010), Chief Research Officer, Turner Broadcasting, adds “there
is a competitive advantage here for those who understand and follow this
book’s lessons”. What are they?
What science can teach us about marketing
For the past 10 years a group of progressive corporations around the world
including CBS, Mars, Colgate, Kraft, Procter & Gamble and others have been
funding an R&D program to discover and apply marketing laws leading to
evidence-based knowledge on how brands grow, among other things.
The Marketing Review, 2011, Vol. 11, No. 4, pp. 337-345
http://dx.doi.org/10.1362/146934711X13210328715867
ISSN1469-347X print / ISSN 1472-1384 online ©Westburn Publishers Ltd.
Discovering how brands grow
David Corkindale, University of South Australia, Australia*
The paper explains that there are observable, regular patterns of aggregate
consumer behaviour of buying competitive brands in markets to the extent that
they can be taken as scientifically derived laws of market behaviour. These laws
have been found to apply to a myriad of markets in many countries. The paper
sets out these laws, many of which are contrary to accepted wisdom, but they
allow a sound basis for what can be expected for brand performance metrics
given a brand’s market share. Chief among the conclusions about achieving brand
growth is that aiming to increase the loyalty of customers should not be the goal,
extending the customer base is what the laws tell us and is what happens in
practice. Many examples from well-known product categories are cited in the
paper to illustrate the various laws and the courses of action drawn from them.
Keywords Brand growth, Laws of marketing, Customer base, Acquisition
*Correspondence details and a biography for the author are located at the end of the article.

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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 of market behaviour.
Science’s systematic approach to discovery is a relatively recent practice
that took off around the 1700s. Prior to that, knowledge largely came from
myth, folk-tale, and from experts in authority like chiefs, priests, kings and
queens. How these ‘experts’ acquired their knowledge was unknown and
no one dared to ask. Most of the time their understandings were 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 - due to the scientific revolution. It is marketing’s
turn to benefit from the application of science.
Many of the findings of applying science to marketing are emotionally
confronting to marketers because they clash with conventional wisdom. As
in other disciplines, science has delivered findings that upset conventional
theory and it’s no surprise that the same has happened for marketing.
Let’s look at what we can learn about how brands grow from accumulated
observations of what actually happens across multiple markets.
How Brands Grow
What is the secret key to growth? The answer is that over time in various
markets we can see that many brands have attempted to grow - some have
been successful and some not. Can we use these trillions of dollars worth of
natural experiments to discover something universal about the differences
between large and small brands? Yes - the difference between large and
small brands, and growing and declining brands, is very revealing. Again
and again it appears in numerous product categories, markets and countries,
that there is a fundamental law of brand size:
Big brands have markedly larger customer bases
Much of the research to establish this was conducted by Andrew Ehrenberg
and Gerald Goodhardt and associated colleagues from the 1960s onwards.
It has also been verified by commercial analysts within large marketing firms
such as Kraft, P & G and Unilever and the large research houses such as TNS
and Nielsen. Recently, the law has also been rediscovered independently in an
analysis of 10,000 brands in the US by researchers with no prior knowledge
of the law (Hall & Stamp, 2004).
This seems obvious - more sales equal more customers - yet it need
not be this way. The number of times a brand is bought is largely driven by
two things: how many buyers it has, and how often they buy the brand.
One multiplied by the other equals sales occasions. Theoretically there could
be two brands of equal size, one with many buyers who buy the brand
The Marketing Review, 2011, Vol. 11, No. 4
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Corkindale Discovering how brands grow
occasionally, while the other brand has half the number of buyers but they
buy it twice as often. The former case is found invariably in practice.
There is another related discovery: when you look at brands of markedly
different sizes you typically see that their penetration metrics differ a lot,
while their average purchase rate varies little. Put another way: loyalty
doesn’t vary much (Uncles, Ehrenberg & Hammond, 1995). This is not what
fashionable marketing literature implies. We’ve all been taught that brands
vary tremendously in loyalty but let’s just look at the discovery that loyalty
metrics for competing brands are quite similar.
Loyalty doesn’t vary much
If you look at marketing metrics (i.e., from consumer panels run by global
market research agencies such as Nielsen and TNS) you’ll see that the big
brands have much higher penetrations and they also get bought slightly
more often by their buyers - but not much more. Penetration is a metric that
records how many people bought the brand, at least once, in a particular
time period.
Table 1 deconstructs the market shares of major washing machine
detergent brands. You can see that all brands are bought by their buyers
slightly less often than four times a year. The largest brand, Persil, gets
bought almost four times a year. Surf, the smallest, has fewer than half the
number of buyers as Persil and these buyers buy Surf around three and a half
times a year.
Small brands suffer disproportionally
The pattern in Table 1 is known as the ‘double jeopardy’ law because smaller
brands get ‘hit twice’: their sales are lower because they have fewer buyers
who buy the brand less often.
Table 2 shows a slightly more glamorous category: shampoo. This table
is interesting because both the market leader (P & G’s Head & Shoulders) and
the smallest brand (Wella’s Vosene) are functionally different from the other
brands - they are formulated to reduce dandruff. However, this does not
substantively affect the double jeopardy law. All the brands get purchased
about two times, with the market leaders being purchased slightly more
often.
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Table 1 Double jeopardy law - washing powder UK 2005 (Source: TNS)
Washing powder
brands
Market share % Annual market
penetration
Average purchase
frequency
Persil 22 41 3.9
Ariel 14 26 3.9
Bold 10 19 3.8
Daz 9 17 3.7
Surf 8 17 3.4
Average 3.7
(TNS = Taylor, Nelson, Sofres)

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In 2005, Head & Shoulders was purchased by more than four times as many
buyers as Vosene. This much larger customer base largely explains why Head
& Shoulders had five times the sales of Vosene. Another small contributing
factor is that buyers of Head & Shoulders were more loyal, buying it 0.6
times more often per annum.
Data from Nielsen shows that the US shampoo category exhibits the
same pattern. Different brands, market shares, consumers, time period,
consumer panel and analysts - but the same familiar double jeopardy pattern.
Later we’ll discuss why this occurs and what the loyalty implications are, but
for now let’s continue to focus on the implications of this scientific law for
brand growth.
Snapshots of market share shifts over time (in the US, Canada and UK)
also show double jeopardy: brands grow primarily by increasing their market
penetration (Anschuetz, 2002; Stern & Ehrenberg, 2003). Shorter-term
dynamic analysis by McDonald and Ehrenberg (2003), showed that in 157
cases of small annual market share change the double jeopardy law was clear:
both rising and declining brands displayed more change in their penetration
than in their purchase frequency. Among the submissions for the Advertising
Effectiveness Awards - run by the Institute of Practitioners in Advertising (IPA)
- 82% reported large penetration growth, 6% reported both penetration
and loyalty growth, and only 2% reported loyalty growth alone. While a
meta-analysis of 207 US split-cable advertising weight tests concluded that
only one of the measured strategy variables was correlated with larger sales
effects - this winning strategy was that of having an objective of increasing
penetration (Lodish et al., 1995).
A quantitative guide for growth targets
The double jeopardy law tells us what our marketing metrics will look like - if
we are successful in gaining sales and market share. If Finesse (see Table 3)
were to catapult up to the sales level of Suave Naturals or Pantene, it would
be substantially more popular with millions more households buying it each
year. But these households would not, on average, buy it much more often
than current Finesse households buy the brand.
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Table 2 Double jeopardy law - shampoo UK 2005 (Source: TNS)
Brands Market
share (%)
Annual market
penetration (%)
Purchase frequency
(average)
Head & Shoulders 11 13 2.3
Pantene 9 11 2.3
Herbal Essences 5 8 1.8
L’Oreal Elvive 5 8 1.9
Dove 5 9 1.6
Sunsilk 5 8 1.7
Vosene 2 3 1.7
Average 1.9

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Corkindale Discovering how brands grow
Finesse’s brand manager could plan to reach market leadership by getting
current customers to buy eight times a year. That would be enough to do
it - in theory. But in practice that is impossible. Finesse-buying households
currently only buy shampoo six times a year; therefore Finesse would need to
command 100% loyalty just to achieve six purchases per year per customer.
But no shampoo brand in the US is bought six times a year and no shampoo
brand commands 100% loyalty. Such a marketing plan is fantasy. Double
jeopardy tells us what is, and what isn’t, achievable.
In the same way that engineers work with gravity, rather than hoping to
change it, it is a better strategy to go with double jeopardy than against it.
Jim Nyce, previously Insights Director at Kraft, describes this as “swimming
downstream”. An analysis by his Consumer Insight & Strategy department
showed that 56% of their brand plans were trying to “swim upstream” by
raising purchase frequency, while an internal study of the growth and decline
patterns of 67 Kraft brands showed that penetration was the dominant
driver of sales and share, in line with the double jeopardy law.
So the double jeopardy law tells us over and over again that market
share increases depend on substantially growing the size of your customer
base. But how do customer bases grow?
How to grow your customer base
Double jeopardy tells us that when brands improve their market share their
buyer base enlarges. This increase in customer franchise could be due to
improvements in customer acquisition, but it could also be the result of
reduced customer defection. It’s a fact of marketing life that each year you
lose buyers. If a brand can improve its retention levels then it should grow
its customer base.
So in theory it’s possible to grow your customer base by improving either
retention or acquisition, or a combination of both. We’d expect that making
customers more satisfied might bring about both, especially retention. There
is now a large body of literature based on this assumption.
This raises the strategic question of whether marketers should emphasise
retention or acquisition. Modern marketing ideology says retention is
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Table 3 Double jeopardy law - shampoo US 2005 (Source: Nielsen)
Shampoo brands Market share
(%)
Annual market
penetration (%)
Purchase frequency
(average)
Suave Naturals 12 19 2.0
Pantene Pro-V 10 16 1.9
Alberto VO5 6 11 1.6
Garnier Fructis 5 9 1.7
Dove 4 8 1.5
Finesse 1 2 1.4
Average 1.7
Note that smaller US shampoo brands suffer from only slightly lower loyalty.

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cheaper than acquisition. But is it? And what returns are possible? How
much emphasis should be placed on retention versus acquisition?
Even growing brands lose customers
Reducing defections is neither easy nor cheap, and permanently reducing
customer defection to zero is fantasy. Also, the growth potential from
customer acquisition is much higher.
Consider the data in Table 4 on annual defection rates from financial
institutions in Australia. This data shows a very typical double jeopardy
pattern: loyalty declines with market share. In comparison to the huge
variation in market shares (a thirtyfold difference between Adelaide Bank
and CBA), defection rates vary little.
The smallest brand, Adelaide Bank, is a small regional bank with branches
essentially only in Adelaide. CBA, the largest bank by a considerable margin,
is thoroughly national with branches in every main city and regional centre.
If someone moves from Adelaide to Sydney (about 20% of Australians move
house each year) and if they banked with Adelaide Bank they now find
themselves a very long way from the nearest Adelaide Bank branch. Hence,
they are likely to switch to another bank, one with branches convenient
to their new Sydney home. But if they had previously banked with CBA
in Adelaide, odds are that they will have Sydney branches that are just as
convenient as ever.
These differences in physical distribution seem to almost entirely explain
the double jeopardy pattern in bank defection rates.
So Adelaide Bank’s comparatively high defection level (double CBA’s)
is probably nothing to do with differences in customer satisfaction, nor
any indicator of CBA having a superior retention program. It’s simply that
Adelaide Bank is smaller than CBA and has fewer branches, so it must have
more defection. Therefore, Adelaide Bank should not worry about its higher
defection rate; there is practically nothing that can be done about it unless
Adelaide Bank dramatically increases its market share.
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Table 4 Defection rates (Australian financial institutions) (Source: Roy
Morgan)
Financial Bank Market share (%) Defection (%)
CBA 32.0 3.4
Westpac 13.0 4.3
NAB 11.0 5.3
ANZ 10.0 4.3
STG 6.0 4.3
Bank SA 1.4 5.0
Adelaide Bank 0.8 7.0
Average defection rate 4.8

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Corkindale Discovering how brands grow
Acquisition is not optional
It seems hardly revolutionary that customer acquisition should be essential
for growth, yet this seems to often get forgotten with today’s emphasis on
targeting, database marketing, and CRM and loyalty programs. The real-
world evidence is very clear: it is essential to acquire customers even to just
maintain your brand.
The truth about how to grow your brands
Some of the insights presented above show some of the principles necessary
to apply to achieve growth and how marketing, when it is successful, affects
buying rates. The implications counter much fashionable marketing thought,
and yet are clear and simple:
1 Acquisition is vital for growth and maintenance.
2 Reaching all buyers is vital, especially light, occasional buyers of the
brand.
This is a recipe for clever mass marketing, which is not surprising because it
was mass marketing not CRM (relationship marketing) or loyalty programs
that built the majority of today’s leading brands. But it need not be a recipe
for unsophisticated mass marketing. Reaching all potential buyers of a
brand, at the right time and at low cost, is tricky and there is much to learn.
The digital revolution is creating new opportunities to reach consumers in
different ways, at different times - to be more relevant, and fit in better
to their heterogeneous lives. There are great opportunities for sophisticated
mass marketing.
Careful analysis of the patterns in aggregate data from many markets
enables you to establish:
1 Who you really compete with in a market
2 Why distinctiveness is the aim for brand marketing not differentiation
3 How advertising really works
4 What price promotions really do
5 Why loyalty programs do not achieve what is usually hoped for
The 5 things that companies should appreciate in order to grow
their brands
The key marketing task is to make a brand easy to buy; this requires building
mental and physical availability. Everything else is secondary. Brands largely
compete in terms of physical and mental availability. Even product/service
innovation largely works (when it works) through enhancing mental
availability and gaining further distribution. Building mental availability
requires distinctiveness and clear branding. Building physical availability
requires breadth and depth of distribution in space and in time. Together,
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mental and physical availability make a brand easier to buy for more people,
in more situations.
The overall lessons from the applying science to the marketing of brands
(Sharp, 2010) are:
1 Brands grow largely by increasing their customer base.
2 Patterns of buyer behaviour in a market are not random - they
are predictable and this allows norms and benchmarks for brand
performance metrics to be set.
3 Brand performance metrics like the sharing of customers, repeat
purchasing, defections, acquisitions and satisfaction are driven by the
level of penetration of a brand, not the other way round. Measures of
performance should be adjusted for this.
4 Competing brands have much the same profile of customers - so
brands aren’t stuck in niches, they can grow.
5 Competition is largely a battle to win mental and physical availability.
Acknowledgement
The tables and other material in this paper are reproduced from the book
How Brands Grow by Byron Sharp, Oxford University Press, whose permission
is gratefully acknowledged.
References
Anschuetz, N. (2002). Why a brand’s most valuable customer is the next one it adds.
Journal of Advertising Research, 42, 15-21.
Hall, D., & Stamp, J. (2004). Meaningful Marketing: 100 Data-proven Truths and 402
Practical Ideas for Selling More with Less Effort. Ohio: Brain Brew Books.
Lodish, L., Abraham, M., Kalmenson, S., Livelsberger, J., Lubetkin, B., Richardson, B.,
& Stevens, M. (1995). How TV advertising works: A meta-analysis of 389 real
world split cable TV advertising experiments. Journal of Marketing Research, 32,
125-139.
McDonald, C., & Ehrenberg, A. (2003). What happens when brands gain or lose
share? Customer acquisition or increased loyalty? Adelaide, South Australia:
Ehrenberg-Bass Institute for Marketing Science.
Sharp, B. (2010). How Brands Grow. South Melbourne: Oxford University Press,
Australia & New Zealand.
Stern, P., & Ehrenberg, A.S.C. (2003). Expectations versus reality. Marketing Insights,
American Marketing Association, (Spring), 40-43.
Tripodi, J. (2010). Cited on back cover of B. Sharp (2010) How Brands Grow. South
Melbourne: Oxford University Press, Australia & New Zealand.
Uncles, M., Ehrenberg, A., & Hammond, K. (1995). Patterns of Buyer Behavior:
Regularities, Models and Extensions. Marketing Science, 14(3, part 2), G76.
Wakshlag, J. (2010). Cited on back cover of B. Sharp (2010) How Brands Grow. South
Melbourne: Oxford University Press. Australia & New Sealand.
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About the Author and Correspondence
Dr David Corkindale is Professor of Marketing Management at the
University of South Australia in Adelaide. A scientist by original training he
worked for a pharmaceutical company and then in the steel industry before
discovering marketing and working in research for the advertising agencies
JWT and BBDO in London for some years. He holds a PhD in Marketing and a
Masters in OR and was, for a number of years, on the faculty of the Cranfield
School of Management and that of Commerce at UBC in Vancouver, Canada.
He has written four books on marketing and numerous papers in learned
journals, most recently on the role of marketing in commercialising new
technologies.
Dr David Corkindale, International Graduate School of Business, The
University of South Australia, Waylee Bu, North Terrace, Adelaide, SA
5000, Australia.
E david.corkindale@unisa.edu.au
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