We’ve described marketing as a creative discipline with standards that need to be systemized. However, understanding that a brand is most effective in its creativity when it has a system, we have to also explore the science that propels the system to be successful.
Our last post looked at one facet of this science, describing what makes small brands small and large brands large, as well as what factors need to be considered in growing a brand. Here, in the second of our five-part series debunking major marketing myths, we’ll take a closer look at another facet. Influenced by Byron Sharp’s work at the Ehrenberg-Bass Institute, we’ll explore brands’ customer bases and which—if any—buyers they should be targeting.
TARGETED VS. MASS MARKETING
Brands can market to their consumers in two major ways: through 1) targeted marketing or 2) mass marketing. Targeted marketing involves selling to a distinctive segment of buyers while mass marketing’s purpose is to sell to all buyers. With the advent of technology, targeted marketing has been touted as the smart, modern way to market. In fact, marketing textbooks continue to claim that segmenting consumers is more effective than not: now that we have the resources to do so, we should send hyper-individualized messages to only a few individuals at a time.
The truth is, this is a marketing myth: mass marketing is actually more effective. But why is this the case? First, we must take a look at the makeup of a brand’s consumer base.
DECODING THE CONSUMER BASE
Consumers can be split up into non-buyers and light, medium, and heavy buyers. Non-buyers are just that: individuals who do not buy the brand. Light, medium, and heavy buyers are simply classified by how much of the brand’s product they buy. In many cases, almost 80% of a brand’s buyers are light buyers.
So what might a leading brand’s consumer base look like? Let’s use Coca-Cola as an example: though their average buy rate is 12 Coca-Colas per year, most people buy only one or two Coca-Colas per year. They do have some heavy buyers, or people buying three Coca-Colas a day (1,000 per year), but there are far fewer of these. In the graph below, we can take a closer look at the UK cola market in 2005. Only a very small percentage of consumers were heavy buyers, purchasing a Coca-Cola 50 or more times a year. We can see that the bulk of customers were non- or light buyers, getting just a couple Coca-Colas a year. Though their light buyers may be purchasing only one or two Coca-Colas a year, collectively they add up. Moreover, 20 years of data from Nielsen, IPA, and the likes shows similar patterns across a broad range of household products, consumer financial services, and cars.
Now that we better understand the composition of brands’ customers, we return to our original question: why is mass marketing more effective than targeted marketing? It’s because light buyers heavily dominate brands’ customer bases. In order to maintain sales and grow, marketers must reach these masses, rather than focusing on a select few. Remember, too, that we want to increase penetration to increase sales (see our first blog post in this series). Brands can most effectively do this through mass marketing.
DO LIGHT BUYERS GENERATE SALES?
So, though there are more light buyers, do they actually drive sales? It has long been thought that the top 20% of buyers drive 80% of sales (see more on the Pareto Principle here). This is another marketing myth. The top buyers usually only drive about 30% of sales, on occasion approaching 50%. For the most part, a brand’s lightest buyers are delivering approximately 50% of sales, collectively making them very important to the business.
That said, growth comes from a proportional increase in all kinds of buyers (light, medium, and heavy); however, targeting light buyers is most lucrative. This is because it’s nearly impossible to target light buyers without also reaching heavy buyers: in targeting light buyers, brands are ipso facto targeting their heaviest buyers. So, they are able to increase penetration by turning non-buyers into light buyers, while also slightly increasing loyalty among heavy buyers.
THE “DUPLICATION OF PURCHASE” LAW
We’ve now established that all companies should mass market to non- and light buyers. Nonetheless, brands insist that their customer bases differ from those of their competitors, whether that’s by gender, age, household size, or income. After all, each brand has a unique brand image and thus unique buyers. But do customer bases actually look different across competitors? Does a Bic pen targeting students have a different customer base than Paper Mate’s pen? The simple answer is no. Buyers look the same across competitors. Though brands take pride in having distinctive brand buyers, the demographic profiles of customers tend to be nearly identical. Not only this, but brands consistently and predictably share customers.
This is known as the “duplication of purchase” law, which states that brands share customers in line with brand size. So, all cola brands compete equally closely with Coca-Cola, the category leader, sharing a similar percentage of customers. This means that smaller brands will share a proportionally smaller number of customers. This can be extended to close competitors as well: even close, “direct” competitors, such as Ben & Jerry’s and Häagen Dazs, will share more of their customers with the category leader than with each other. Further work has shown that this law extends to store choice as well, with physical stores sharing customers in line with their store size.
The graph above helps visualize the effect of the “duplication of purchase” law on the UK ice cream market. We can see the amount of customer sharing that occurs between a number of brands and Carte D’Or, the market leader, versus Mars, a smaller brand. Brands share a far greater average percentage of customers with Carte D’Or (38%) than with Mars (7%). This is in line with the market share, or overall size, of the two brands. Not only this, but the dotted lines show us the average percent of buyers shared with the two brands. We can see that competitors do not stray far from these averages: for the most part, brands sharing customers with Carte D’Or are sharing around 38%, while brands sharing customers with Mars are sharing around 7%.
SHORT- AND LONG-TERM EFFECTS
A quick note on the short- and long-term effects of marketing efforts must be made. Research shows that targeted campaigns tend to be more rational, delivering short-term sales effects. Mass campaigns, on the other hand, tend to be more emotional and creative, leading to brand fame and longer-term success.
As we’ve established above, mass marketing creates more light buyers—i.e. new customers—and makes existing buyers buy more. However, the trouble with mass marketing is that this sales impact doesn’t show instantly. Without immediate results, it’s difficult for brands to track the impact of such marketing efforts.
This very problem of measuring the effect of advertising on sales has been studied extensively: how can brands strike a balance between short- and long-term growth strategies? While marketers need to achieve strong short-term sales—which encourages targeted advertising—they also need to achieve continuous year-on-year improvement. Les Binet and Peter Field found that advertising can take up to a year to break even. So, a year could pass before a brand saw a significant increase in their light buyer base. Nonetheless, when done effectively, mass marketing efforts have the ability to drive long-term sales, leading to greater brand growth overall.
In the second post in our marketing myths blog series, we’ve established that mass marketing is more effective than targeted marketing, given the composition of brands’ consumer bases. Light buyers heavily dominate brands’ consumer bases, so targeting them will provide the greatest penetration potential. Not only that, but the duplication of purchase law showed us that brands share customers in line with their brand size. Lastly, we saw that brands need to strike a balance between short- and long-term sales effects, with mass marketing encouraging long-term growth. In the next post in this series, we will take a closer look at brand differentiation versus distinctiveness and which brands should be aiming for.