Category Growth

Definition

One of the biggest factors affecting a brand’s growth is the health of the categories it operates within. Sustaining long term brand growth requires senior management to focus on how to unlock industry / category growth. This means moving from fighting for market share – usually stealing and shifting, to thinking how can we enlarge the whole pie.

We can have the best knowledge on how to grow brands, we can have the best knowledge on how to invest in those brands, but without really knowing where to invest or in what to invest we can waste some of our resources. But science is helping us increase the predictability of outcomes. Over the last few years, the Ehrenberg-Bass Institute has pioneered new research into how industries grow and how to drive that growth under different conditions. By understanding what category growth to expect for categories in a number of different conditions, resources can be directed in an evidence based way to increase the chances of category growth.

Key Findings

  • Firms have two sources of revenue growth: market share gains and growth of the category. The importance of these two growth sources differs for firms according to their size. 
  • Category expansion is the main source of revenue growth for market leaders and larger firms. Growth through market share is smaller and less sustainable than many assume. 
  • Share gains and losses are more likely to influence the revenue growth and decline of small firms.
  • The maturity of a category (as determined by quarterly penetration) is a key factor in determining the odds of category growth and the likely levers for that growth. 
  • Mature categories are more likely to have a modest growth and a low risk of large decline. Categories with lower levels of maturity are much more volatile, experiencing more growth but also more decline. 
  • Identifying opportunities for growth should involve de-averaging data to understand performance across different regions, channels and growth levers.  
  • A category can grow (or decline) through a combination of three main levers:
    > Penetration – letting more buyers in
    > Consumption – increasing the volume purchased per buyer
    > Value – increasing the price paid per weight of category purchased
  • The penetration and value levers are greater contributors to category growth than consumption. The relative importance of penetration compared to value varies by category maturity stage. 
  • In less mature categories, the main driver of growth is increases in penetration. The category buyers are few and our aim is to get into get repertoires and stay there – enable repeat purchase. 
  • In more mature markets, with high quarterly penetration, category growth will come mainly from increasing the category value – price per volume. However, it is important that activities to increase value do not lead to losses in penetration.
  • Portfolio and investments should be audited against the lever which needs to be prioritised for category growth. 
  • Changes in category value can occur through price/pack architecture and coverage across channels that are able to sell at different price points. Other main ways to increase category value include:
    > Price increases (but only on items that sell a lot)
    > Shifting volumes to higher priced part of our portfolio
    > Introducing/acquiring something which will allow us to charge higher prices.

Best Practice