Actual evidence and research take the place of opinion and faith-based belief in marketing. Pretty shocking it took so long for us to get here. Extraordinarily valuable.
“There is much to learn about marketing. Even educated and very senior marketers believe many things that are wrong, and there are many important facts that simply aren't widely known. Many well-paid marketers are operating with wrong assumptions, so they are making mistakes, and wasting money, without even knowing it.” (Page 7)
Many assumptions about marketing are wrong. Above all, the assumption that there are no “laws” of marketing has meant that there has been historically little hard research.
Genuine research has revealed much, though:
It is difficult to find answers to practical questions in marketing texts. “What happens if …” questions are never posed, nor answered. Instead, we are routinely led astray with many instructions on what to go out and do, but seldom with any evidence and alongside many myths.
Professor Sharp then quickly establishes what some of those myths are (page 10):
We are mostly fed and/or working with “impressions, assumptions, common sense, accepted wisdom, and scattered bits of data," that have been floating around in the marketing world for years. There is a comparison here to doctors who used to bleed their patients. Better to be seen to be doing something than be doing nothing at all.
Big brands have large customer bases. That is, they are not large because of extreme loyalty and purchasing volume, but because they have much higher market penetration.
Penetration varies a lot, but the average purchase rate varies little. So loyalty doesn’t vary much and is quite similar for competing brands.
The Double Jeopardy Law: brands with less market share have less because they have fewer buyers, and (this is the double part) these buyers are also less loyal.
It is the size of the customer base that matters the most: brands grow by increasing their market penetration, not the loyalty of their customers. After all, you can’t really ask people to buy more of your product more often. You only need so much shampoo, coffee, or software licenses.
Cross-selling is another strategy, but this is just another measure of loyalty. (Also, loyalty programs don’t work either.)
Is retention really that much cheaper than acquiring new customers?
“A widely read Harvard Business Review article by Reichheld and Sasser (1990) states that 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'. This is a surprising, fantastic claim, and it turns out to be just that—pure fantasy.” (Page 29)
“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.” (Page 30)
Worth repeating: there is no empirical evidence to support the “five times cheaper to retain” claim.
This is where The Retention Double Jeopardy Law applies: everyone loses customers. Larger brands have more customers to lose, so they lose more in proportion to their size. But they also gain more customers because of their size!
The effect of market share dwarfs defection rates with regard to growth, and vice versa. Companies grow because they are great at acquiring new customers.
Light buyers matter most. They seldom purchase any given brand, but there are many of them. This means the “average” is misleading.
“Around 30% of cola buyers don't even buy themselves a single Coca-Cola each year. Note that these are people who do buy cola (not just soft drinks)—so most of these people do indeed buy Coca-Cola, just very occasionally and not every year! Therefore, from Coca-Cola's perspective, a heavy buyer is anyone who buys herself three or more cans or bottles of Coke a year.” (Page 41)
The vast majority of buyers only buy very occasionally, and “this pattern generalises around the world, over time, across product categories, and for all the different market research providers.” (Page 42)
This group is hard to market to directly, yet it’s very important for growing and maintaining sales volume.
The Pareto Law (60/20) applies here. Slightly more than half of a brand’s sales come from the top 20% of the brand’s customers. The rest of the sales come from the remaining 80%.
“The logic of targeting heavy buyers is undermined further by the fact that the future sales potential of individuals is different than their current buying suggests. This is true even when you have perfectly reliable sales data on your individual buyers, and even when there is no real change in their behaviour. Non-buyers and light buyers are heavier buyers than you think, and heavy buyers are lighter.” (Page 50)
This is what Sharp calls The Law of Buyer Moderation: regression to the mean means that heavy buyers eventually trend lighter, and lighter buyers eventually trend heavier.
“Put simply, next period your heaviest 20% of customers won't be so heavy, the light buyers will be heavier, and some of the nonbuyers will buy. This is the law of buyer moderation.” (Page 52)
Targeting marketing toward heavier buyers rarely works because they regress toward the mean. Reaching lighter and non-buyers is more effective, therefore reach as much of the market as possible:
“Your customers are just like your competitor's customers, and their customers are like yours. This means their buyers are up for grabs. So, target the whole market.” (Page 56)
In 1959, a study showed that Ford and Chevrolet owner personalities were more or less the same. Competing brands sell to the same sorts of people.
There is something that we might call the “my mum” phenomenon: we all say roughly the same things about the brands we favour, even though they’re all different in different ways. Just like we might say the same things about our mums.
If market research says you skew to one demographic more than competitors, you should ask if something is wrong with your overall marketing strategy. Don’t assume you should target that group even more.
“The very good news is that there is nothing structural standing in the way of your brand growing; your competitor's customers could be yours. The only problem is that you have competitors who are trying to do the same as you. Therefore, brands need capable marketing departments to defend them.” (Page 73)
This is the User Bases Seldom Vary law.
There are surprisingly high levels of sharing between brands. This is The Duplication of Purchase Law:
“All brands, within a category, share their customer base with other brands in line with the size of those other brands. In other words, everyone shares a lot with big brands and a little with small brands.” (Page 79)
“Targeting” a specific customer base is seldom worth doing because there is always going to be overlap.
The Natural Monopoly Law is the statistical effect that lighter buyers will tend to buy the market leader. One for reason this is because people who buy less often have fewer chances to be disloyal.
“The choice of brand is trivial compared to the decision of whether or not to purchase from the category. And aside from cars, houses, and a minority of other categories, even the decision to buy from the category is a minor one, 'Shall I have a snack or wait until lunch?' Brands are a necessary evil: they add a layer of complexity to the buying decision, but they also allow for routines ('Ah, there's my brand' or, 'Oh yes, I've heard of that one'); such habits make buying easier-automatic even.” (Page 101)
We hold probabilistic attitudes about things, including brands, which vary depending on many factors. Something we say or choose today will—probably—change tomorrow.
“Most of a brand's customers think and care little about the brand, but the brand manager should care about these people because they represent most of the brand's sales; the brand needs these people if it is to increase its sales.” (Page 111)
“Rather than striving for meaningful, perceived differentiation, marketers should seek meaningless distinctiveness. Branding lasts, differentiation doesn't.” (Page 112)
Two key questions:
Some evidence/research-based facts to consider:
Situational differentiation is important (“I’m here right now, I like the color red, I want chocolate” etc) but, outside of that, it’s not a big deal.
Differentiation also has no effect on loyalty. Loyalty is a factor of consumer behaviour.
“If there is substantial differentiation at the brand level, then why doesn't loyalty differ much between brands? Why are niche brands, with small but highly loyal customer bases, not commonplace?” (Page 120)
“Differentiation theory is like the neo-classical, economic, perfect competition model, in that it describes an abstract ideal world and not the one that real brands compete within.” (Page 122)
“Icon” brands like Nike conform to all the same laws. Their customers are no more loyal than any other.
“The main implication for marketing practice is that it isn't essential for marketers to convince buyers that a product is different before they buy it. This should take a considerable weight off marketers' shoulders, because our data shows that such a task must be near impossible. Instead, marketers should focus on achieving the things that do make customers buy a product.” (Page 127)
This makes branding, and brand assets, more important. They can take many forms:
The purpose of brand is to identify the source of the product or service. People should be able to notice and recognize the brand as fast as possible. If they can’t, there’s no impression left. This is achieved through uniqueness and prevalence.
“A distinctive element is anything that shows people what brand a product is. These can be used on packaging and in advertising, in-store displays and sponsorships-they can be used in any marketing activity where the marketer wants the consumer to be able to identify the brand. This might be to build, refresh or reinforce consumer memory structures or to facilitate purchasing by making the brand easier to locate. The stronger and fresher the links between these distinctive elements and the brand name, the easier it is for the consumer to identify the brand.” (Page 129)
“Distinctive assets are not inherent; they need to be learned by consumers. Until the links between distinctive elements and the brand are learned they can not function as a substitute for the brand. To successfully teach the link requires a commitment over many years, even decades.” (Page 131)
“Just as much attention should be placed on making sure the branding elements are similar and consistent; someone who saw the last marketing campaign should understand that the new campaign comes from the same brand. It is only when there is discipline in this consistency that distinctive brand assets build.” (Page 132)
It has long been unclear if advertising worked or not. There’s no direct correlation between advertising and sales. However, with research, this has now become much clearer:
“The purpose of brand advertising is to affect the buying behaviour of consumers. Don't let anyone tell you otherwise. The billions of dollars spent on brand advertising are spent to protect and build sales; logically, this can only happen by affecting buying behaviour and by enhancing and restoring purchase probabilities.” (Page 136)
The effects of advertising are hard to see:
With advertising, Coca Cola does not hope to change buying behaviour in heavy buyers: they’ll carry on buying loads of Coke regardless. However, they do want to increase the chances of light buyers maybe making a purchase.
There are many more light buyers than heavy buyers. If we increase the chance of the entire group of light buyers from (e.g.) 1:300 to 2:300 then we have potentially doubled our sales from that group. This is doable, and huge when considered in aggregate.
However, these same buyers are also affected by the ads and promotions of other brands active in that same time.
“Any marketing intervention, if it succeeds, works by increasing the probability that customers will purchase a product. ... Successful advertising, in particular, reaches the millions of consumers who have a very low probability of buying a brand next week or month. If a brand's advertising reaches them, if they notice it, if it refreshes, reinforces, or builds the memory structures that make the brand more likely to be noticed or come to mind in a buying situation (i.e. enhancing brand salience and mental availability), then it nudges their propensity to buy the brand. This is the sales effect.” (Page 141)
Further evidence-based advertising information provided by Professor Sharp:
“An ad cannot build memory structures if it is not processed; memory structures cannot generate sales if they are not associated with the brand that is being advertised. Most advertising exposures fail these two hurdles, so the money spent is wasted, or worse, the ad refreshes memories for competitor brands. As discussed in Chapter 1, less than 20% of television advertisements are noticed and correctly branded (i.e. there is over 80% wastage).” (Page 144)
People screen things out all the time. If an ad is to have a chance of even working it has to do two things:
It’s not about persuasion, or emotion, even though those things might be helpful. If you can’t be remembered, you can’t be considered. After all, it may be many months between exposure to an advert and readiness to buy.
The job of advertising is to build and refresh memory structures. This increases salience:
“Memory structures that relate to a brand include what the brand does, what it looks like, where it is available, when and where it is consumed, by who and with whom. Memories are associations with cues that can bring a brand to mind.” (Page 146)
The problem with persuasion is that it can be rejected, misunderstood, or ignored. And the items over which we aim to persuade are often trivial.
There are other ways in which advertising may (or may not) affect people:
“Price promotions have an immediate and positive effect on sales. But the effect does not last; it ends when the price discount ends. This is because price promotions largely reward customers who have bought the discounted brand in the past (and who are lucky enough to find it on sale). Price promotions do not alter underlying propensities to buy in the future; they lack reach and usually fail to bring new customers to a brand.” (Page 153)
Consumers buy across a range of price levels. That is, many purchases for a “budget” brand will come from people who normally buy luxury or higher end products. People are not dedicated to buying at one tier.
Ultimately: there is little evidence that price promotions attract new customers. They may bump sales temporarily and lower stock levels (which may be desirable), but they also may affect price reference points in the long term.
“The key marketing task is to make a brand easy to buy; this requires building mental and physical availability. Everything else is secondary.” (Page 180)
People are busy, they don’t think about your brand that much (if they ever do). Time is limited, people are distracted, and getting attention is hard.
Often, people are usually just “satisficing” instead of optimizing. That is, they just want something good enough to do the job. It saves time, and headaches.
“Often we don't want to make choices; we are pressed for time, or tired, or really just don't care. We seldom ever want a large selection from which to choose as it's too difficult. So we restrict our consideration set down to a few favoured brands.” (Page 186)
There is far less “evaluation” going on than we think:
“Buyers don't care that there are many brands they do not consider, because the ones they do consider perform well enough. However, it matters enormously to marketers-their brands need to be noticed and considered. Being noticed and considered is often the biggest factor in why a brand is bought or not. Given how small buyers' consideration sets are, a brand has more than a 'sporting chance' of being bought if it is noticed and considered. So, a brand's sales are primarily determined by how many consideration sets it failed to enter.” (Page 187)
Simply being remembered makes a huge difference. And while recall is important, recall in a specific situation is more important. We need to be able to link the brand to certain attributes or scenarios.
“Building mental availability is about developing different memory links (that relate to a brand) to increase the scope of the brand-related network in people's memories—the brand's share of mind.” (Page 193)
“The maintenance of brand salience depends on the quality of branding and advertising. Distinctive, consistent icons and imagery build memory associations that allow a brand to be noticed and recalled in a range of buying situations. This is a huge part of brand custodianship, yet it is often overlooked; marketers often fail to deploy a brand's distinctive assets and, in effect, they sabotage them.” (Page 195)
Strong physical availability means making a brand:
You can always make your brand more physically available. But how? It takes a long time to build and a lon time to fade, so this is really about assets.
But, when you get into a consideration set,the last thing you want is to be rejected for something so trivial as a basic missing feature. So don’t give people reasons not to buy your product.
Prof Sharp proposes seven strategic guidelines:
“For new brands, the emphasis must be on building the memories that consumers need to buy the brand; for example, what the brand actually does, what it looks like, what the brand name is, where it is sold and where and when it is consumed. These are simple, but essential. Forgetting to tell consumers these things is a marketing sin, as is underestimating how difficult this task will be and how long it may take.” (Page 207)
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