How Brands Grow | Jenni Romaniuk

Summary of: How Brands Grow: Part 2: Emerging Markets, Services, Durables, New and Luxury Brands
By: Jenni Romaniuk

Introduction

Welcome to the enthralling world of ‘How Brands Grow: Part 2’, where author Jenni Romaniuk uncovers the complex world of marketing and buyer behavior. This summary highlights the patterns in consumer purchasing decisions, exposes myths about brand differentiation, and underlines the importance of reaching light buyers for long-term growth. Learn how the double jeopardy law affects smaller brands and understand the real impact of customer defection on a brand’s health. Dive into mass marketing versus target marketing strategies, discover the truth behind brand loyalty, and grasp the significance of mental and physical availability in building a successful brand.

Understanding Consumer Behavior

The success of a brand depends on understanding how consumers buy and how marketing works. While most corporate marketers lack this understanding, research reveals patterns in the purchasing decisions of consumers and the growth of brands. The loyalty of consumers is stable across different-sized brands. Market penetration and purchase frequency are the two factors that determine the size of a brand. The “double jeopardy law” suggests that smaller brands are more vulnerable as they have fewer buyers who buy less frequently. The key to success is not assuming that a brand appeals to a particular type of buyer.

Increasing Brand Penetration

Expanding a brand requires increasing its penetration and gaining occasional buyers. Retaining existing customers, recruiting new ones, or both can help boost the customer base and market share. Retention is cheaper than acquisition, and defection rates follow the double jeopardy law. Marketers have little control over customer defection, which may happen due to several reasons. The book presents a survey that measures car-defection rates among 10,000 Americans, which found that smaller brands have higher defection rates and fewer loyal customers. By understanding the double jeopardy law, marketers can outperform competitors and gain market share. The book emphasizes the importance of expanding the customer base by increasing the brand penetration.

The Importance of Light Buyers in Brand Growth

Marketers often ignore light buyers, but they make up the typical consumer and are essential for brand growth. While heavy buyers are easier to attract, light buyers increase sales volume and contribute significantly to brand growth. The “Pareto law” or “80/20 rule” may justify targeting strategies that focus on heavy buyers, but ignoring light buyers inhibits brand growth. The law of buyer moderation applies to all brands and predicts that light buyers and non-buyers can become heavy buyers, while heavy buyers can become light buyers. Success in marketing requires reaching all purchasers and potential purchasers, including light buyers.

Brand Loyalty and Competition

The similarity in customer bases among competing brands makes it challenging to penetrate a new market segment. Brand managers face the dilemma of ignoring the light buyers who contribute to a significant portion of annual sales or include them in their marketing campaigns. Surveys show that brands within the same category share their customer base with similar proportions, highlighting the duplication of purchase law. Directly competing brands have higher levels of shared customers, while brands targeting different product categories share fewer buyers. Adding variants to the brands might attract different consumers, but the base remains the same.

In a competitive market, brand loyalty plays a crucial role in keeping the business afloat. However, with similar customer bases among rival brands, it becomes challenging to tap into new markets. Each brand has a set of regular customers who may or may not be equally loyal. Hence, brand managers face the conundrum of whether to ignore their light buyers or target them to attract new consumers. In such a scenario, adding variants to the brands might be a viable option to reach different consumers, but it may not necessarily increase the overall customer base.

Surveys indicate that brands in the same category share a considerable percentage of their customer base. The duplication of purchase law comes into play, which states that all brands within a category share their customer base with other brands in line with the size of those other brands. The law implies that brands directly competing for the same product category have a higher level of shared buyers. In contrast, brands targeting different product categories share fewer buyers. Therefore, brand managers need to rethink their marketing strategies to attract new consumers and expand their customer base.

The Myth of Brand Loyalty

Most consumers are not loyal to any one brand, despite marketers’ efforts to create value and build relationships. Smaller brands have fewer loyal customers according to the double jeopardy law. But brand instability exists across all sectors. While some brands claim to have passionate, loyal customers like Apple and Harley-Davidson, the evidence to back up their claims is scant. Apple buyers exhibit slightly higher loyalty but are not 100% loyal, with only 55% making repeat purchases compared to Dell’s 71%. Similarly, only 3.5% of Harley-Davidson’s total sales revenue comes from the famously loyal customer base. The largest segment of US Harley-Davidson riders reports that their motorcycles are “just parked most of the time,” and they “didn’t know” many other bike riders. Marketers shouldn’t worry too much about convincing buyers that the product is different before they purchase it.

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