Why the search for EFFICIENCY has destroyed marketing

In my occasional day job with SMU, I have a course designed to assist business leaders, new to Asia, stimulate business growth.  I have been reading widely in this topic area for a few months, and my business life’s assumptions have been shattered.

I was a firm believer in “common sense” strategies aimed at creating and building loyalty amongst a group of consumers and finding ways to be more efficient in increase their purchasing as a means to efficiently grow performance.

To summarize this “common sense” approach it is…

  1. “We must give our customers a unique and special reason to buy us – something that marks us out from the crowd: differentiation.
  2. This ‘something special’ is likely to be different for different customers, so we need to create different ‘something specials’ for different customer segments: segmentation.
  3. In this way, we can increase the number of high-value loyal customers and reduce the number of low-value promiscuous customers: loyalty.
  4. In addition, we can use targeted advertising (especially online, engaging in a ‘conversation”) to reinforce loyalist attitudes and behaviours towards the brand, to make them even more loyal to it and perceive it to be of greater value: ‘targetted advertising.

I was told, from 1995, that if we just focused on doing these things customers would be prepared to pay a price premium we’d sell more from our loyal customers, and we would be successful. And I’ve listened to marketing gurus and advertising gurus talk about “lovemarks” and “loyal cusomters” ever since.

Why this approach? This is common sense, right?

Yes, but only recently, since around 1995 had this particular focused approach came into vogue.

Why did we do this?

I think the impact of a few recessions- 1997, 2000, 2004, 2007 – drove a significant focus onto creating more efficiency in marketing through better targeting of heavy purchasers.  We were encouraged to do more with less; to become more efficient. Plus, a new media- online- came into sight and many many people who knew nothing about much, developed a theory that new media enabled brands to build a “personal” and “targeted” relationship with their consumers.

So we developed a mantra based on focus & targeting; and have got marketing completely WRONG.

Whilst logical, this approach is “COMPLETELY FALSE”;  completely false meaning there is no empirical evidence to support these ideas.

Recent research – around the world (from Australia to Austria via China and Indonesia) and across many many product categories (from soap powder to banking) over the past twenty years- has identified some key behaviours of consumers that destroy these current “common sense” marketing assumptions.

This research has been led by Byron Sharp in Australia and a group of like-minded researchers, and is now being supported by major consultants such as Bain, who have recently tested Sharp’s theories in China.  I’ll use Bain’s findings, that exactly mirror those of Sharp et al to explain the new Marketing paradigm. The following graphs are from Bain’s China study.

When Chinese shoppers, and all shoppers world wide,  purchase consumer products, they typically choose from among several brands instead of showing loyalty to a specific brand. Any and all attempts at increasing loyalty has failed, world wide. Attempts to get these consumers to buy more of your product have also failed, world wide. Future growth success rests on understanding actual shopper behaviour—what they do at the point of sale as opposed to what they say they’ll do in surveys.

Bain & Company partnered with research company Kantar Worldpanel to study the shopping habits of 40,000 Chinese households who made purchases in 26 consumer goods categories .

Among the key findings are:

• In most situations, as shoppers buy more frequently in a category, they also tend to buy more brands in that category- heavy consumers are less loyal to brands, displaying repertoire behaviour (repertoire being the set of brands purchased by a consumer or shopper within a given category). Shoppers willingness to buy a variety of brands is just as true for heavy shoppers in a category—those who are the top 20% of the most frequent purchasers in a category—as it is for average shoppers. Customer loyalty is largely a myth (customers are at best ‘promiscuous’ for example 72% of Coke drinkers also buy Pepsi (in the UK market) Sharp 2013).

BAIN 1 the-true-behavior-of-the-chinese-shopper-fig-01_embed

• It’s not a matter of brands being unimportant to these shoppers. In many Bain studies in China, more than 60% of shoppers listed “brand” among the top considerations in the purchase process- and this is echoed world wide. But the fact is, while Chinese shoppers think about “brands”, this study found these Shoppers don’t necessarily think about any single brand in a product category when they make a purchase.  Brand to these shoppers is an abstract term meaning quality, reputation, security etc, which can be provided by many reputable products.

• Big brands are BIG because many more people buy them. They are occasionally bought more often, but the key feature of their “bigness” is that it is created purely because more people buy that brand. Increasing consumer Penetration is the sole key to growth.

Bain 2 the-true-behavior-of-the-chinese-shopper-fig-02_embed

• Don’t rely on your heavy buyers to build your business (the old Pareto idea of 20% of buyers buying 80% of your products is truly false). These heavy buyers typically buy across a range of brands, and are rarely loyal to one or two brands. No, the route to growth is through focusing on lighter shoppers

BAIN 3 the-true-behavior-of-the-chinese-shopper-fig-03_embed

•  Also, all brands lose Shoppers each year. Even if you invest heavily to retain your buyers, they will defect either because they have not bought in your category during the survey period, or they are trying alternates. Trying to focus on retaining them is futile, but what succeeds is attracting more new users or lapsed users to cover the inevitable defectors.

leaking-bucket

Think of this as a leaky bucket- and the only way to keep the bucket full is to keep topping up more purchasers.

BAIN 4 the-true-behavior-of-the-chinese-shopper-fig-04_embed

•  While repertoire behaviour prevails in China (and the world over), there are a few product categories where shoppers are more loyal—they repeatedly buy one single brand for a specific need or occasion. Those categories include infant formula, baby diapers, beer, milk, carbonated soft drinks and chewing gum! In these categories, the increase in buying frequency does not translate into purchasing more brands. Two factors contribute to this apparent loyal behaviour of shoppers. First and most importantly, is a limited point of purchase availability: Chinese shoppers typically have a limited number of brand choices when buying beer, milk, carbonated soft drinks and chewing gum- they are forced to buy the category leader as its the only product on sale. Second, plain routine buying habit: in categories such as milk, people who consume the product on a regular basis tend to be more loyal but this is a loyalty based on repetitive habits rather than a thoughtful commitment to a product. However, these more loyal (habitual) shoppers are a small group, representing less than 10% of total brand sales in these categories.

These insight are shocking to the typical marketer brought up on “common sense”. It shows that much of what has been done in trying to build relationships to create loyalty amongst high value consumers, try to create loyalty to your brands, trying to engage them in conversations is a COMPLETE WASTE OF TIME AND RESOURCE.

We’ll continue this debunking of marketing myths in the next in our series.