How Brands Grow | Byron Sharp

Summary of: How Brands Grow: What Marketers Don’t Know
By: Byron Sharp

Introduction

In this captivating summary of ‘How Brands Grow: What Marketers Don’t Know’ by Byron Sharp, explore the long-held beliefs and practices in marketing that lack proper empirical foundations. Delve into marketing science and its significance in determining the actual causes and effects of marketing strategies. This summary will highlight key concepts such as the double jeopardy law, the impact of customer acquisition vs. retention, the role of light and heavy buyers, the importance of mental and physical availability, and the limitations of differentiation.

Myth of the Switchers

The belief that brands need equal numbers of loyal and switching customers for success is a myth in marketing. The double jeopardy law proves that smaller brands have fewer customers and less loyalty. Colgate’s marketing strategy is not the cause of its smaller loyal customer base compared to Crest, but simply a result of its smaller market share. Marketing practice should rely on marketing science to reveal actual causes and effects.

The Power of Acquiring New Customers

Companies looking to grow their brand should focus on acquiring new customers, as retaining existing customers is not as impactful as previously believed.

The growth of a brand is often attributed to the number of customers it has. However, it’s essential to understand that a customer base grows in two ways: acquiring new customers and retaining existing ones. Despite the established maxim that retaining customers has a more significant impact on a company’s growth, new research proves otherwise. While it’s true that companies should strive to keep their customers, the impact of retention on a company’s growth is overemphasized. Research conducted on this concept was based solely on a thought experiment, presenting inaccurate evidence in a misleading way.

In contrast to retaining existing customers, acquiring new customers is crucial to brand growth. The defection rate of a company’s customers is determined by its size, making it challenging to control. Brand loyalty depends on market share, meaning the market leader will have the lowest defection rate, while the smallest company will have the highest. Therefore, companies should focus their efforts on acquiring new customers rather than retaining existing ones, as the latter is out of their control.

For example, a study of the defection rate of Australian banks showed that CBA, Australia’s most significant bank, with a 32 percent market share, had a rate of just 3.4 percent. In contrast, Adelaide Bank, the smallest bank included in the study, with its 0.8 percent market share, had a much higher defection rate of 8 percent. Acquiring new customers is the most effective way for companies to grow their brand, and any company looking to expand should focus on building their customer base.

The Myth of Heavy Buyers

Most brands believe that 80 percent of sales come from 20 percent of their customers, but research suggests that the ratio is closer to 60/20. This means that light buyers contribute up to 50 percent of sales, and marketers should focus on targeting them as well as the heavy buyers.

The Truth About Brand Loyalty

Many brands aim to build a strong relationship with customers to increase loyalty. However, a famous study on consumer preferences revealed that branding only plays a minimal role. The study found that customers’ emotional connection with brands is much weaker than assumed. People’s beliefs are inconsistent, and most consumers don’t care much about the brands they buy. In reality, their loyalty lies with the product and not the brand.

Brand Distinction

Marketers should aim to distinguish a brand in the marketplace by making it more visible and investing distinctive characteristics to it instead of differentiating it from others. Distinctive logos and colors help brands stand out more than offering different products in the crowded market. For instance, fast-food chains like McDonald’s and KFC, while selling different food products, still compete in the same crowded sector, making it essential to make the brand more distinguishable in the marketplace by using recognizable logos, colors, and other means that differentiate from competitors.

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