Marketers are routinely admonished for taking a short-term view of the world; managing brands by quarters, when it takes many years to build a brand (Lodish & Mela, 2007). In this report we analyse five and six year continuous-reporter data sets, to reveal the hidden sales importance of ultra-light buyers.

YES, I buy that brand, but not often

The Institute’s discoveries have often pointed out the importance of light buyers. They make up most of a brand’s customer base. Most buyers buy at less than the average rate, while a few are very heavy.

We’ve usually reported on annual data, as for most marketers key brand metrics are calculated for a year. This can lead to a misconception that annual metrics are somehow ‘absolute’, e.g. “my brand has 42% category penetration, is bought by 51 million households”. But apart from the metric of market share most other metrics reference a specific time period, e.g. a brand’s quarterly penetration is usually around half its annual penetration. If we look over a longer time period, the total number of households that buy the brand (penetration metric) is higher. A brand’s penetration score rises over time reaching a plateau only after several years. This rise is not because the brand is winning new customers (though this can of course happen) but because it has a very large number of buyers who buy it less often than once a year. Over longer time periods more of these ultra-light buyers will make a purchase, adding to the brand penetration score.

The vast majority of your brand’s buyers are only buying you about once a year or even less

We investigate (using Kantar World Panel data) three important questions about this evolution in a brand’s long-term customer base.

1. How much higher is brand penetration in longer time periods? i.e. how big is a brand’s customer base really?

To answer this question we firstly simulated NBD markets of consumers with stable brand loyalties. We did this deliberately to look at a world where no loyalties were changing, where no brand was recruiting or losing customers. We wanted to discover by how much penetration would grow over time under these conditions, so not from customer acquisition, but simply because a brand has consumers who buy it less often than once a year.

Figure 1: Penetration growth between one quarter & five years — source: Kantar World Panel

Our results revealed that over five years a typical brand would more than double its annual penetration (see figure one). That means that at least half its buyers do not buy it in the first year, simply because most do not buy it every year. We then looked at dozens of real brands in various consumer goods categories in Europe and the US and found the same pattern. That the real world matches the simulated NBD model shows that most brands are quite stable, being bought by consumers with remarkably stable loyalties.

A brand’s customer base is much larger than its annual penetration score suggests

The scale of penetration growth after the first year shows the hazards involved in defining absolute “segments” to target, based on a single year’s buying rates (even for heavy buyers; see Report 54).

So even without acquiring new customers, a brand faces the situation where most of its buyers, when they do buy, are doing something they haven’t done for a long time, perhaps a couple of years or even more – a finding with profound implications.

For example, if the packaging looks different from the last time they bought, then clearly they are at risk of missing the brand entirely or seeing it but not recognising it.

And figure one shows that brand penetrations are not expected to stop growing even after five years. The rate of growth slows, but the brand’s customer base continues to be boosted by the lightest of its ultra-light buyers – some of them expected to buy just once or twice in six years. That’s a long interval over which managers must maintain mental availability for all buyers, so it might be legitimate to ask if that investment pays back. Which we examine next…

2. How much of a brand’s annual revenue comes from buyers who didn’t buy it at all last year?

If cumulative penetration keeps growing over time, but market share stays stable – then the buyers in last year’s customer base cannot be entirely the same ones as those buying this year.

This shouldn’t be surprising – some buyers repeat purchase from one year to the next, but many others don’t. Their place is taken by some returning from the year before that, and some from even earlier. And many of last year’s ultra-light buyers may not come back for another year, two, or even three.

So each year there will be many buyers in the annual customer base who didn’t buy at all in the previous year. Because these are ultra-light buyers by definition, we wanted to find out just how important they are to annual brand sales.

For this analysis we investigated recent household purchasing records in fourteen categories of consumer goods, including coffee, shampoo, household cleaning products, frozen meals, spaghetti sauce and laundry detergent, using data collected in three countries: the US, the UK, and the Netherlands.

We found that in typical stationary categories about a quarter of annual brand sales usually came from buyers who hadn’t bought it in the previous year.

25% of a brand’s sales each year are made to customers who didn’t buy it in the year before

There is variation in the results across categories because some are bought more frequently than others. And some brands are bigger and so cumulative penetration growth slows sooner.

Few of these ultra-light brand buyers are buying the category for the first time – they are simply normal repertoire buyers who switch within their established set of familiar brands returning every so often, sometimes very infrequently, to each. In aggregate this long-term, ultra-light split loyalty is valuable for every brand and it must be nurtured to maintain year-on-year brand share.

So, 25% of this year’s sales revenue comes from returning ultra-light customers most of whom have not bought in some years, and will not do so again for some years to come. This is what has been referred to as topping up ‘the leaky bucket’, but these are not new customers who need to be won, they are simply ultra-light buyers – maintaining their loyalty requires maintaining mental and physical availability for all.
It is only by taking a long-term view of the customer base that the hidden importance of ultra-light buying becomes evident. What we found when we did this was astonishing…

3. Over the long term, how many brand buyers are ultra-light and how important are they?

We ran two long-term customer-base analyses in UK panel data, between 1999 and 2005 and 2009 to 2014. We wanted to know for each one what proportion of its total customer base over 5 years had bought once, twice, three times, up to the equivalent rate of once per year, which we defined as ultra-light buying. The evidence was consistent for over 400 consumer goods brands.

Results from the more recent analysis are summarised in the table. At the end of five years somewhere between one third and one half of every brands’ buyers had bought that brand just once. And of all the people who had bought it in that time, typically 80% had bought it at a rate of once a year or less. This is astounding! If four in five buyers are ultra-light the idea of any brand having significant numbers of dedicated, engaged, or “loving” customers seems impossible.

Table 1: Ultra-light buying by brand size in five years — source: Kantar World Panel

Ultra-lights were so numerous they broadly accounted for 40% of long-run brand sales & rather more for smaller brands.

We also found ultra-light category buyers too. They accounted for 40% of all category buyers, a smaller figure than for any brand – but as sponsors will already know, they were distributed across the competing brands (polygamous loyalty), largely in line with brand size. Ultra-light buyers typically made up twice that proportion in each brand’s customer base because of brand switching.

Summary

We summarise these discoveries in a chart – see Figure 2. It demonstrates a clear argument for long-term brand building.

Figure 2: The evolution of the five year customer base and category penetration for a leading UK detergent brand — source: Kantar World Panel

It compares detergent category penetration growth over five years with the cumulative penetration of the leading brand. In the first year, the category penetration rapidly reached about 90% as most households bought detergent at least once, but the brand found its way into just 35% of them during the same time (even though it is the leading brand).

The brand maintained its leading market share of 16% in quarters, years and across five years, and in any single year it reached around 35% of all households. Each year these were largely different buyers, its market share maintained by its ability to hold its share of its ultra-light buyers.

But it is also possible to see that brand growth could be achieved if it could accelerate its reach into the headroom of category buyers who have not yet bought; brand share and loyalty would both then rise (in line with the Double Jeopardy pattern).

Implications

In ‘How Brands Grow’ and our reports & seminars for our sponsors we’ve stressed the importance of light buyers – but these results show we understated the case. A brand’s typical buyer is less frequent than shown previously in our one year analyses. There are many more of these ultra-lights so they turn out to be even more important for sales maintenance and growth than even we previously thought.

By now, some readers might be wondering about the Pareto law; does this large group of ultra-lights mean the ‘heavies’ are worth proportionally more than we have previously reported?

We have pointed out that the Pareto share metric inflates with time but our new analysis shows that even over five years it still doesn’t reach 80% or anything like it. In one quarter 20% of a brand’s buyers typically contribute only 40% of sales, rising over a year to 50%. But this new data shows that our most valuable 20% of buyers will still only reach 60% of the five-year sales total. Smaller brands tend to have a higher Pareto share. As the ultra-light buyers contribute all the rest, they are almost as important.

This discovery highlights even more clearly that brand competition depends on maintaining and building mental & physical availability, to make it easier for all category buyers to buy your brand.

What should I do about my ultra-light buyers?

1. First, recognise that ultra-lights are far from being unusual – they are typical customers. The vast majority of your brand’s buyers are only buying you about once a year or even less. How easy is it for them to forget you if they have bought something else in the meantime or if you make your brand harder to remember or to identify? Lightness of buying in the customer base is a rationale for advertising, to remind and refresh memory for a large number of households. And remember: you are advertising, in the main, to people who don’t think about you at all, and who hardly ever buy you.
   

   Ultra-lights accounted for 40% of long-run brand sales & rather more for smaller brands.

2. Don’t think about the size of your customer base merely in terms of its annual penetration. Your customer base is actually much bigger when looked at over long time periods. One way to think about it is that most of your customers didn’t buy you this year.One hears statements like “heavy buyers are important”, and indeed they are individually very important, but just 3% of the average long-run customer base is made up of those who buy at a rate of 5 times or more per year. For these households your brand is highly salient, you are quite unlikely to lose them, but neither will their buying increase by much.
   It is every bit as important (but challenging) to activate the 25% of brand sales that come each year from the far higher number of households that didn’t buy you last year, and perhaps not even the year before that.If your marketing efforts are aimed at current buyers, or current heavy buyers you may be risking those important sales from ultra-lights, so it is essential to consider the impact of each new investment on your ultra-light buyers; for example a brand refresh, a packaging update or a change in merchandising location could all damage the mental availability you have established and are building.
3. Avoid using ROI to evaluate marketing campaigns. ROI encourages narrow campaigns that skew towards heavier (more regular) buyers. This risks harming future sales and reducing the value of your brand/company. Instead we advocate, more than ever, a focus on infrequent and non-buyers of the brand.
4. If your brand’s penetration is say, 20% in a year, it’s tempting to think 80% of the population don’t like it. But that’s far from the truth: over three years, your brand’s penetration is more like 40%, and if we look even longer, it gets even bigger. The point is that non-purchase in one year is not necessarily because the brand just doesn’t suit some people – it’s only because they haven’t got around to buying it over the past year or two. This is the unbearable lightness of buying which every brand must face.

So what can you do to prompt them to come back and buy it again a little bit sooner? How can you make it a little easier for ultra-lights to notice your brand? It’s asking questions like this that will lead you to activity that drives brand growth.

With thanks to Kantar World Panel for providing the data for this analysis.