Marketing is fundamental for South Australian businesses

By Dr Justin Cohen and Professor John Dawes, University of South Australia (UniSA)

Summary
Researchers at UniSA’s Ehrenberg-Bass Institute have distilled a series of basic marketing facts about brands and buyer behaviour, that apply for South Australian businesses, as well as nationally and internationally. These ​‘laws of marketing’ are the product of research spanning over fifty years. 

Key facts are: 

1. Brands vary a lot in how many buyers they have, but they don’t vary very much in loyalty.
2. The variation in loyalty between brands is in-line with their size: bigger brands get a bit more loyalty, smaller brands get a bit less. This is called the ​‘law of double jeopardy’.
3. What double jeopardy tells us is that for a brand to grow, it has to increase the size of its customer base – its ​‘penetration’. Trying to focus just on increasing loyalty doesn’t work.
4. Another marketing law is that brands have many more ​‘light’ or infrequent buyers than heavy ones. This means as a brand grows, its customer base increases and most of those new customers will be ​‘light’, they won’t buy the brand much. 

Businesses that want to grow need to understand and embrace these ​‘laws of marketing’. 

Evidence-based marketing for growth

The Ehrenberg-Bass Institute has developed an evidence-based framework for sustainable growth. This framework is based on decades of study into buyer behaviour and patterns in brand metrics. A key finding from all this research is what is called ​‘the law of double jeopardy’ (Sharp 2010). This ​‘law of marketing’ is that brands and businesses differ greatly in the size of their customer base, but the variation in loyalty is much smaller. 

Yes, bigger brands and businesses have slightly higher levels of loyalty than smaller brands and businesses – but not much more. 

Double jeopardy tells us that brands grow by increasing the size of their customer base. A common myth in business is that you must primarily focus on loyalty to grow. This is wrong. Having loyal customers is obviously a good thing, but all the evidence, over decades, different countries and categories (including B2B, services and luxury) shows that brands – and firms – grow via more customers, not more loyalty. 

Given that so much has been written on the importance of loyalty, let’s elaborate. A key fact about buyer behaviour is that people purchase from a repertoire of brands or business suppliers. That is, a small selection, often 2 – 3 brands and each buyer can have their own repertoire. And this is the case in business to business, or business to consumer markets. Next, it is also the case that it is fairly rare to see buyers who are solely loyal, in other words 100% loyal to one brand. And, these 100% loyal buyers are typically very small users of the category and therefore do not contribute much to the bottom line (Sharp 2010). 

What we also observe across countless markets and countries is that growth strategies focusing on loyalty alone are infeasible. Rather, strategies that focus on new-customer acquisition are what leads to growth. 

Another important ​‘marketing law’ is Ehrenberg’s Law of Buying Frequency (Sharp, 2010). Here, we look at the pattern in the number of buyers who buy a brand once, twice, three times and so on in a time period. And what we always see is the same pattern: brands have many infrequent or ​‘light’ buyers, fewer medium buyers, and fewer again frequent or ​‘heavy’ buyers. Although most businesses have a small percentage of heavy buyers, we often see a lot of resources invested into this small group. Yes, they are important, but sales increases do not come from these existing heavy buyers. 

You have hopefully learned a few critical laws about brand and business growth from this article. But you may have trepidation, as you have not seen the evidence of these ​‘marketing laws’ in Australia. To allay your concerns here are some simple examples from a survey conducted by the Ehrenberg-Bass Institute, in the liquor retail category. We show penetration and loyalty for five retailers in Table 1. The retailers are presented in descending size order. The big difference is in their penetration – but there is very little difference in loyalty, with the smaller brands getting slightly less. This is double jeopardy in action. 

Table 1: Brand performance, liquor retailers 

Next, we show the law of buying frequencies, for the top three liquor retailers. The pattern is the same for all three – in fact startlingly similar. They all have mostly infrequent buyers, fewer medium buyers, and fewer again heavy or very frequent buyers. So even for a category like alcohol, retailers have few frequent buyers – less than 5% of buyers bought at these retailers every week over the three months. 

This pattern is a ​‘fact of life’ for businesses – so decision makers should stop over-investing in heavy buyers. Rather, managers need to realise that brand growth comes from attracting more new buyers – most of whom will be light, or infrequent. 

Buying frequencies over three months – liquor retailers

“mostly light buyers … fewer medium .. far fewer heavy – and the same for all brands”

This article has provided some foundational knowledge that relates to the Ehrenberg-Bass Institute’s framework for sustainable growth. Future articles shared with the South Australian Business Chamber will discuss how to implement those strategies, through building mental and physical availability which make your brand or business easier to think of and easier to find and buy. Both are important and specific tactics for media and advertising and distribution and sales are needed to grow your brand. It is also critical that business align those investments with recognisable and consistent branding elements which we call Distinctive Assets (Romaniuk and Sharp 2016). 

We look forward to sharing more evidence and strategies in the future that can help SA businesses grow and realise their full potential. 

For more information, please reach out to us >

About the Ehrenberg-Bass Institute

The Ehrenberg-Bass Institute for Marketing Science is a research centre based at University of South Australia School of Business. The Institute supports some of the world’s biggest brands across a range of categories and markets in both business-to-consumer and business-to-business environments. We conduct research, develop strategy and deliver executive education to our corporate sponsors. All of which is based on the fundamentals of brand growth published in Professor Byron Sharp’s (2010) book – How Brands Grow. These laws are further validated in more diverse markets and contexts in Romaniuk and Sharp’s (2016) book – How Brands Grow: Part 2. 

References:

Sharp (2010) How brands grow. Melbourne, Oxford University Press.

Romaniuk and Sharp (2016) How brands grow: Part 2. Melbourne, Oxford University Press.