How Brands Grow

How Brands Grow

by Byron Sharp

This excellent, clearly-written book is based on empirical research covering market share, brand equity, price promotions, and advertising. It includes some counter-intuitive conclusions regarding customer retention, loyalty programs, segmentation, and competitor differentiation. Byron Sharp is the director of the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia.

“All brands have many lighter buyers. While these people are only occasional buyers of a brand, there are so many of them that they significantly contribute to sales volume.”

“The 4% or so of Coca-Cola’s buyers who purchase Coke once a week or more (52+ times year) deliver almost a quarter of its yearly sales volume… At the other end of the buying spectrum are the typical, very infrequent buyers… who are most of your consumers… A brand needs to reach out to these masses of buyers [because] there are so many of them [and] they buy so infrequently and could easily forget about you.”

“When market research shows that a brand is selling to a different customer profile than competitor brands it’s common practice for marketers to say, ‘We skew towards young women, so that’s our media target.’ But this thinking is incorrect. What you should be saying is, ‘Why?’ Is there something wrong with our marketing? Are we failing to reach some demographics (and therefore overweighting in others)?”

“Mass marketing is essential for both brand maintenance and growth.”

Sharp explains how negative binomial distribution (NBD) and the double-jeopardy law affect market share.

Differentiation versus Distinctiveness

“In spite of nearly every textbook telling marketers to strive for differentiation, real-world competition is largely about competitive matching rather than avoiding competitors by delivering differences… What marketers should worry about is whether or not their brands are distinctive. Are they easy to recognize and distinguish from others?”

“Paradoxically, the reduced emphasis on meaningful differentiation makes branding even more important. Loyalty is underpinned by salience not love/hate. To encourage brand loyalty a brand must stand out so that buyers can easily, and without confusion, identify it.”

“The purpose of building strong, distinctive assets is to increase the number of stimuli that can act as identification triggers for a brand. Distinctive assets improve advertising effectiveness by making it more likely for viewers to identify which brand the advertising belongs to. In a shopping environment, distinctive assets make it easier for consumers to notice and purchase a brand.”

“Until the links between distinctive elements and the brands are learned they cannot function as a substitute for the brand. To successfully teach the link requires a commitment over many years, even decades… To build strong, distinctive elements the brand must be consistently communicated to consumers across all media and over time.”

Sharp also points out that distinctive brand assets can be trademarked, whereas differentiation can cannot.

Advertising

“The purpose of brand advertising is to affect the buying behavior of consumers. Don’t let anyone tell you otherwise.”

“For large brands that have the biggest advertising budgets, sales seldom rise when advertising starts, nor slump when it stops… The aim of most advertising is to maintain market share. Few companies spend enough (or create good enough advertising) to increase market share or accelerate an upwards trend. Mostly, advertising is used to prevent what (without any advertising) would be a very gentle decline in sales… Advertising’s sales effects are spread out in time.”

“Consider what happens to the buying behavior of a person who drinks Coke several times a day after seeing the Coca-Cola ad—nothing changes. So who is Coke’s advertising aimed at? It’s aimed at the millions of people who occasionally buy Coca-Cola, who scarcely ever think of Coke and who seldom buy it.”

“Consider the people who, after being exposed to a Coke ad, increase their propensity to buy Coke tomorrow from 1 in 300 to 2 in 300. This means they will now make a purchase every 150 days, rather than once every 300 days. So these extra purchases take a long while to occur.”

“Coke’s advertising tries to… remind us that Coke is fun, that we’ve had it before and we like it—Coke’s advertisements are mostly reminding us of things we already know…  Therefore, even advertising that says nothing persuasive and gives no new reasons to buy can have a dramatic impact of sales.”

Categories with strong “recency effects” are a little different. “This is in categories where buyers show very little interest until they actively start searching; for example, mortgages, insurance, furniture, computers, and cars. In these categories, when consumers are not ready to buy they screen out much advertising; but, shortly before they do buy, they become dramatically more receptive to advertising. Thus advertising in these categories has a more immediate effect. An equally good way of describing this is to say that it has less of a longer term effect (little effect on buyers not ready to buy yet).”

“Marketers need to understand the memory structures that have already been built for their brand. They need to use these, and ensure their advertising refreshes these structures.”

Mental and Physical Availability

“The key marketing task is to make a brand easy to buy; this requires building mental and physical availability… [i.e.] enhancing brand salience and gaining further distribution.”

“Distinctive, consistent icons and imagery build memory associations that allow a brand to be noticed and recalled in a range of buying situations… iPod’s white headphones (earbuds) are a distinctive asset; even by themselves in any ad they say ‘iPod’.” Other examples include the Jolly Green Giant, the M&M characters, Nike’s swoosh, and Mastercard’s priceless.

“Physical availability means making a brand as easy to notice and buy as possible, for as many consumers as possible, across as wide a range of potential buying situations as possible.”

“Mental and physical availability, and the brand’s distinctive iconography… are brand equity… Advertising works better when there are existing memory structures in viewers’ heads—so long as the advertising works with these memory structures. Advertising also works better when the brand has plenty of physical availability.”

Pricing

“Price promotions… do increase sales, but they are also skewed towards heavier buyers… Many of the sales would have occurred anyway… When the promotion ends, sales instantly collapse back to their normal level.”  Additionally, frequent price promotions also reduce the consumer’s “reference price” making it harder to sell at the regular piece.

Are price promotions profitable? “A brand selling at the normal price and earning a 30% contribution margin and employing a 10% price cut must sell 50% more to just make the same amount of money. If the promotion creates an increase in sales of only 40%, the brand will lose money!”

“Too many brands are over-priced and also over-discounted… A brand should be priced competitively: this doesn’t mean cheap and it doesn’t mean it needs to be given away on special.”

Loyalty Programs

Loyalty programs are ineffective because “they essentially reward existing buyers for what they already do… Buyers are polygamously loyal; they have personal repertoires of brands that they purchase repeatedly.”

Sharp refutes a 1990 Harvard Business Review article by Frederick F. Reichheld and W. Earl Sasser Jr. which stated, customer defections can have a “surprisingly powerful impact on the bottom line… Companies can boost profits by almost 100% by retaining just 5% more of their customers.”  Sharp points out that “their 5% drop in defection is actually a drop of 5 percentage points, i.e. from 10% to 5%, which is a 50% decrease.” He also points out they were referring to customer profitability—not company profitability. Fuzzy math indeed.

Sharp seems to go out of his way to take jabs at Philip Kotler numerous times in this book. “The Kotlerian worldview is not the opposite of reality, but it is a very poor representation of it. It’s similar to the view that the world is flat—it isn’t, though there are flattish parts… Some patients of medieval blood-letting doctors survived and returned to health in spite of their doctoring.” Ouch.

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Sharp, Byron. How Brands Grow: What Marketers Don’t Know. South Melbourne, Australia: Oxford University Press, 2010. Buy from Amazon.com

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Note: I have modified the spelling to appease my American spellchecker.
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