Over the years our evidence-based approach to marketing has occasionally attracted criticism, however our critics have always been few, and rather kind; nothing of substance has been raised.
Now and then a marketing consultant will issue make an attempt to discredit the laws and strategy conclusions in How Brands Grow. Rather than shying away from such criticisms, we have always openly encouraged them — indeed, we have a standing offer of a bottle of Vintage Champagne to anyone who can provide us with examples of data that contradict the laws we have enumerated. As scientists (of marketing) in the empirical-falsification tradition of Karl Popper, we welcome any chance to scrutinise, test, verify, or extend these laws and the conditions under which they do or do not hold.
Criticisms usually start with something like this:
“our data confirms that larger market share brands have much higher market penetration BUT our whizz-bang proprietary metric also correlates with market share, and this proves that it drives sales growth, profits, share price, and whether or not you will be promoted to CMO. Unfortunately we can’t tell you exactly what this metric is or how it is derived, because it’s in a black box”.
Often, some obscure statistical analysis is vaguely or deliberately opaquely mentioned, along with colourful charts, and buzzwords like:
algorithm
machine learning
emotional resonance
neuroscience
And using sexy sounding (but meaningless) metrics like:
brand love
growth keys
brand velocity
true commitment
loyalty intensity
All of this should raise warning bells amongst all but the most gullible.
Let me explain the common mistakes….
Ehrenberg-Bass say brands grow only by recruiting new customers.
This is a classic error of strawman argument. These critics somehow missed the word “double” in Double Jeopardy. Yes, larger brands have more customers (higher penetration), but all their loyalty metrics are also a bit higher too, including any attitudinal metrics like satisfaction, trust, bonding…you name it.
Brands with more sales in any time period, are bought by more people in that time period. So if you want to grow you must increase this penetration level. In subscription markets (like home loans, insurance, some medicines) where each buyer has a repertoire of around 1.0, then penetration growth must come entirely from recruiting new customers to the brand. In repertoire markets penetration growth comes from recruitment and increasing the buying frequency of the many extremely light customers who don’t buy you every period.
The “double” in Double Jeopardy tells us that some of the sales growth also comes from existing, heavier customers becoming a little more frequent, a little more brand loyal. Also their attitudes towards the brand will improve a bit, as attitudes follow behaviour (purchasing and usage).
Improved mental and physical availability across the whole market are the main real world causes of the changes in these metrics. The brand has become easier to buy for many of the buyers in the market, it is more regularly in their eyesight to be chosen, and more regularly present in their subconscious, ready to be recalled at the moment of choice.
Why does it matter anyway? Can’t we just build loyalty AND penetration?
Yes, that’s what Double Jeopardy says will happen if you grow.
Loyalty and penetration metrics are intrinsically linked. They reflect the buying propensities of people in the market – propensities that follow the NBD-Dirichlet distribution and Ehrenberg’s law of buying frequencies. Growth comes from nudging everyone’s propensity up just a little bit. Because the vast majority of buyers in the market are very light buyers of your brand this nudge in propensities is seen largely amongst this group – a lot go from buying zero times in the period to buying once, so the penetration metric moves upwards (as do all other metrics, including attitudes).
For a typical brand, hitting even modest sales/share growth targets requires doubling or tripling quarterly (or even annual) penetration, while doing so would only lift average purchase rate by a fraction of one purchase occasion. This tells us that we need to seriously reach out beyond ‘loyalists’, indeed beyond current customers, if a brand is to grow.
When budgets are limited (aren’t they always?) it’s tempting to think small and go for low reach on the premise of achieving high impact, but this isn’t a recipe for growth, nor even maintenance.
A focus on penetration ignores emotional decision making.
This is odd logic. A focus on mental and physical availability explicitly acknowledges that consumers are quick, emotional decision makers, who make fast largely unthinking decisions to buy, but who, if asked, will then rationalise their decision afterwards.
Ehrenberg-Bass say there is no loyalty.
This claim could not be more wrong. On page 92 of “How Brands Grow” we write:
“Brand loyalty – a natural part of buying behaviour. Brand loyalty is part of every market”.
On page 38 of our textbook “Marketing: theory, evidence, practice” we write:
“Loyalty is everywhere. We observe loyal behaviour in all categories” followed by extensive discussion of this natural behaviour.
In FMCG categories, buyers are regularly and measurably loyal – but to a repertoire of brands, not to a single brand. And they are more loyal to the brands they see a bit more regularly, and buy a bit more regularly.
All brands enjoy loyalty, even new brands, bigger brands enjoy a little bit more. It’s a bit like gravity – important to know about, silly to think you can change it.
Ehrenberg-Bass analysis was only cross-sectional.
Actually, we published our first longitudinal analysis way back in 2003 (McDonald & Ehrenberg) entitled “What happens when brands lose or gain share?”. This showed, unsurprisingly, that brands that grew or lost share mainly experienced large change in their penetration. This report also analysed which rival brands these customers were lost to or gained from.
In 2012 Charles Graham undertook probably the largest longitudinal analysis ever of buying behaviour, examining more than six years of changes in individual-level buying that accompanied brand growth and decline. As well as documenting once again the dominant impact of changes in penetration on growth, this analysis highlighted the sales importance of extremely light buyers.
In 2014 we published a landmark article in the Journal of Business Research showing that sales and profit growth/decline was largely due to over- or under-performance in customer acquisition, not performance in retaining customers. Far earlier we had explained that US car manufacturers did not experience a collapse in their customer retention when Japanese brands arrived, they each suffered a collapse in their customer acquisition rates.
But surely attitude changes unlock growth?
It’s rare that it’s a perceptual problem holding a brand back. Few buyers reject any particular brand (and even most of these can be converted without changing their minds first). The big impediment to growth is usually that most buyers seldom notice or think of a brand, and that the brand’s physical presence is less than ideal.
For more on “Marketing’s Attitude Problem” see chapter 2 of “Marketing: theory, evidence, practice” (Oxford University Press, 2013).
Attitudes can predict (some) behaviour change. Light buyers with strong brand attitude were more likely to increase their buying next year. And heavy buyers with weak brand attitude were more likely to decrease their buying next year.
The real discovery here is that a snapshot of buying behaviour (even a year) misclassifies quite a few people. Some of the lights who are normally heavier were light in that particular analysis snapshot. Likewise some of the heavies were just abnormally heavy in that analysis (kids party, friends visited, someone dropped a bottle) and in subsequent analyses revert closer to their normal behaviour. Note: for many product categories just a couple of purchases are needed to move someone into, or out of, the heavy buyer group.
Attitudes tend to reflect any buyer’s longer-term norm. So, someone who is oddly heavy in buying this year will tend to be less attitudinally loyal to the brand than ‘regular’ heavies. Someone who is oddly light this year will tend to be more strongly attitudinally loyal to the brand. Next year, odds are, their buying moves closer to their norm and their expressed attitude.
This statistical ‘regression to the mean’ is not real longer-term change in behaviour of the kind marketers try to create. Nor is this evidence that attitudes cause behaviour – their real influence is very weak, while the effect of behaviour on attitudes is much stronger.
Ehrenberg-Bass analysis is very linear, reductionist, whereas we take a quadratic holistic approach.
Really not sure what these critics are talking about, nor perhaps do they. This is pseudo-science.
I have a super large, super special data set.
Please put the data in the public domain, or at least show the world some easy-to-understand tables of data. If you want us to consider your claims seriously then please don’t hide behind obscure statistics and jargon.
I have data that shows Ehrenberg-Bass are wrong, but can’t let you see it.
MRDA.