en•ovation group

July 6th, 2009

The Key is how many you have, not how much they buy.

Source: Marketing Research Magazine, Summer 2009

Author: John Dawes

Managers usually want their brands to grow in sales and market share. In theory there are two ways this could happen: attract additional customers to buy the brand or get existing customers to buy more of the brand. Several studies have examined the extent to which brand growth depends on these factors, but there have been none using data more recent than the late 1990s. This study builds on the approach used by Baldinger and colleagues, who examined brands that grew as well as declined. (See Baldinger, Allan L, Edward Blair and Raj Echambadi (2002), “Why Brands Grow,” Journal of Advertising Research (January/February), 7-14.)

The studyhere has a narrower focus: to only analyze brands that have grown markedly in sales over a three-year period. Examining brands that have grown, and sustained that growth, could give good clues for how to grow. The key question is this: When a brand grows, which changes the most - the number of customers buying the brand or the amount (number of units) of the brand that are bought by its customers?

To address that question, this study analyzes the growth patterns of 12 established packaged goods brands across diverse packaged goods categories in the United States. A mix of big and small brands was examined. The cut-off point for brand size was 1 percent share because extremely small brands can bias results. Each of the 12 brands grew markedly over the 2005 - 2007 period. Nielsen kindly provided the data.

Two terms are used in the analysis and discussion: (1) Brand Penetration: the number of households that buy the brand at least once in the year and (2) Average Weight of Purchase (AWOP): the number of units of the brand bought by each household.

The Study

The analysis method is simple. We identified brands that exhibited robust sales growth for the period 2005-2007 across a range of categories. For each brand, we calculated the percentage change in penetration from 2005 to 2007, and the percentage change in AWOP from 2005 to 2007, and compared the two figures.

The results are striking. The percentage incrase in penetration is far greater than the percentage increase in purchase weight for 11 of the 12 brands. Take the example of the margarine brand Smart Balance. From 2005 to 2007, its penetration increased by 27 percent, but its AWOP increased by only 3 percent. In four other cases the brand increased its penetration, but brand AWOP actually decreased slightly.

As a case in point, Garnier Fructis hair conditioner grew by selling to 33 percent more households in 2007 compared to 2005, but its AWOP per household decreased by 8 percent. It is worth noting that the decrease in AWOP for Garnier translates to quite a small number in absolute unit terms: Garnier’s AWOP was 2.1 units in 2005 and 1.9 in 2007, so the change in absolute terms was only 0.2 units per year. This suggests Garnier attracted most light buying customers who bought it once or perhaps twice during the year. This is fine - the brand still grew. In only one of the 12 cases did brand AWOP change by more than penetration. This was for Challenge butter, where penetration increased by 10 percent and AWOP increased by 15 percent.

Note that in the case of Schweppes, the average units bought per annum for 2007 was adjusted to cater for a change in average weight between 2005 and 2007 (while units per occasion increased considerably, volume per occasion did not, suggesting a change in unit average weight).

The evidence here suggests that, when a brand grows, penetration usually grows by an appreciable percentage and AWOP usually changes by a much smaller percentage, or possibly might even decline slightly. None of these 12 brands grew without a positive change in penetration. This is the outcome from looking at aggregated data. It may be that at the level of the individual household, existing buyers did buy appreciably more of the brand, but this is counterbalanced by the influx of new buyers who buy the brand at less than the average rate.

The results from this work are broadly consistent with earlier research. In 2002, Baldinger and colleagues examined Canadian data from 1992-1997 and concluded penetration was the key to brand growth. A 2003 study by McDonald and Ehrenberg looked at 20 U.K. product categories and found the same (”What Happens When Brands Gain or Lose Share: Customer Acquisition or Increased Loyalty?” in Report 31 for Corporate Members. Adelaide: Ehrenberg-Bass Institute for Marketing Science).

And in their book Meaningful Marketing: 100 Data-Proven Truths and 402 Practical Ideas for Selling More with Less Effort (Brain Brew Books, 2004), Douglas Hall and Jeffrey Stamp report similar results.

This study has updated and confirmed the evidence, using more recent data for U.S. product categories.

Management Implications

If you want brand growth, you need to construct a plan to increase brand penetration levels by an appreciable amount and expect that the brand’s AWOP levels will not increase by nearly as much in percentage terms, or might even drop slightly. Indeed, planning to grow the brand by boosting AWOP alone does not seem to be consistent with the way brand growth seems to occur.

How is penetration growth achieved? There are two broad ways: expanding distribution and marketing communication. Both are ideal ways to reach buyers who do not currently buy the brand. Expanding distribution means finding new distribution channel clients, new forms of distribution channels or making the brand available in places it is not currently sold. It also means working hard on the quality of distribution: location in stor and prominence on the shelf. This sounds fundamental, and it is, but fundamentals are sometimes forgotten in the race to employ the latest idea. Marketing communication such as advertising should be designed to reach and attract the attention of non-buyers. Strong brand identification is paramount because these non-buyers aren’t as likely to notice the advertising as easily as current brand buyers. They need a simple and clear message linking the brand to the product category and to need or usage situations.

Brand growth can happen. These brands did it. So can yours!

This study was part of the Ehrenberg-Bass Institute’s program of fundamental research funded by corporations such as Mars, Procter & Gamble, and Turner Broadcasting. The assistance of Nielsen in providing data is also greatly appreciated.

Entry Filed under: Articles of Interest