How Brands Grow

These metrics don’t show why it is half the size; they are what they are because of Colgate’s size.
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.
Poor marketing wastes an incalculable amount of resources, and it prevents and slows the uptake of life-enhancing products and social initiatives.
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.
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, commonsense, accepted wisdom, and scattered bits of data. This is very similar to the working practice of marketing managers today.
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.
this means that companies experience dramatic increases in profitability if they increase sales, and profits can be wiped out by comparatively small sales losses.
There is another related discovery: when you look at brands of markedly different sizes you typically see that their penetration metrics differ a lot,13 while their average purchase rate varies little. Put another way: loyalty doesn’t vary much.
This pattern 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.
First, it’s hard to get people to change their habits.
Advertising works best when it tells us things we already believe. It’s strongest at refreshing existing memory structures, not building new, non-obvious ones.
In short, the aim of growing category purchases through presenting new uses often turns out to be a pipe-dream.
Campaigns that, unfashionably, aimed to increase penetration were more than twice as likely to report very large improvements in all hard measures of effectiveness including sales and profits.
The term ‘niche’ is used loosely in marketing; often it is used simply to mean small.15 This turns out to be appropriate because most niche brands are small. Technically, a niche brand in a category should, for its market share, have an unusually small base of buyers who are unusually loyal.16
In other words, we see no evidence of excellence in cross-selling, though we do see some brands excelling at selling a particular product to additional customers.
None of this says that cross-selling is impossible, but it does imply that it’s nowhere near as easy as textbooks make out, and certainly not a route to huge sales gains. The lack of difference among the brands shown in Tables 2.6 and 2.7 suggests that dramatically changing cross-selling metrics is difficult and expensive (some brands have tried, but you wouldn’t know it from looking at their results).
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 – in fact one could say that the marketing literature for more than a decade has championed retention management.
No doubt you have heard the old maxim that it costs five times as much to win a new customer as it does to stop one leaving. There is no empirical support for this idea. In reality, permanently reducing defection rates is difficult and expensive, because defection rates (another loyalty measure) also follow the double jeopardy law.
Larger brands therefore can, and do, lose more customers each year, and they also gain more customers. But as a proportion of their customer base they lose (and gain) less than smaller brands, i.e. their defection percentage is lower. Imagine a two-brand market. One brand is smaller with 20% market share (a customer base of 200 customers); the other larger brand has 80% market share (a customer base of 800 customers). If the two brands maintain their respective share of customers, then each brand’s defections must equal its acquisitions. Imagine the large brand loses (and gains) 100 customers each year. Then, in this two-brand market, the small brand must also lose and gain 100 customers (see Figure 3.1). The small brand’s defection level is 50% (100 divided by 200) while the larger brand’s defection level is only 12.5% (100 divided by 800).
It turns out that the answer to these questions is very simple: growth is due to extraordinary acquisition. Contraction is due to dismal acquisition.
She expected that growing brands might show excess acquisition and lower-than-expected defection. That is, together these two factors would contribute to the growth in the customer base. Surprisingly, she found that growth was almost entirely due to particularly high acquisition. The declining brands showed a similar pattern but in reverse: their defection rates were healthy and matched stable brands of similar market share, but their acquisition rates were poor.
So Adelaide Bank’s comparatively high defection level (double CBA’s) is probably nothing to do with differences in customer satisfaction, brand equity, 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 share19.
When marketing succeeds in increasing a brand’s market share, then buying propensities change across the board. This tells us that marketing has the best chance of being successful when it has as much reach as possible. Marketing is particularly successful when it reaches light and non-buyers of a brand.
Now you know how brands grow 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.
Barclays MasterCard has a customer base that is 60% male compared to the average of 54%, but this is a small difference that has no practical marketing significance. No sensible marketer would alter their marketing strategy based on this data.
By definition, the more market share they gain, the more normal their customer base becomes.26
If a new soft drink company could choose to own and market any two global brands, should it choose Coke and Fanta? No, it should choose Coke and Pepsi, because these are the biggest brands globally, with the most valuable market-based assets.
Colgate does not use different distribution channels for their tartar control product. In fact their products are all on the same shelf, in the same stores, put there by the same merchandisers. The products’ prices are often within cents of one another and, while there might be different ads for some products (alongside much corporate brand advertising), these ads typically appear in the same (mass) media

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