… and why “new media” is just old media on a computer.
My last post looked at describing what makes small brands small and big brands big- as a means of helping new General Managers understand how to grow their businesses. We also discussed what factors need to be considered in growing a brand.
Here we’ll take a closer look at another myth smashed 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 using what type of media.
TARGETED VS. MASS MARKETING
We are told that Brands can market to their consumers in two major ways: through 1) targeted marketing or 2) mass marketing.
The currently hyped Targeted marketing involves focused 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-individualised messages to only a few individuals at a time. This is often the approach agencies sell to marketers seeking a silver bullet to solve their marketing resource problems- focus more spend less.
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.
WHO MAKES UP YOUR 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 purchasing rate is 12 serves 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 very much 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 serves a year. Though their light buyers may be purchasing only one or two Coca-Colas a year, collectively they add up to a HUGE volume. 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.
DO LIGHT BUYERS REALLY GENERATE SALES?
So, though we have seen there are more light buyers, do they actually drive sales?Interestingly enough, another myth can dispelled here- the myth of Paretos 80-20 split.
It has long been thought that the top 20% of buyers drive 80% of sales. 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.
Now that we better understand the composition of brands’ customers, and that the old Pareto law is a myth, lets go back to the topic for today: why is mass marketing more effective to you than targeted marketing?
It’s effective because these light buyers heavily dominate your brands’ customer bases. In order to maintain sales and grow, businesses must reach these masses, rather than focusing on a select few.
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 also. So, they are able to increase penetration by turning non-buyers into light buyers, while also slightly increasing loyalty among heavy buyers by reminding them why those chose the brand in the first place.
“DUPLICATION OF PURCHASE”
We’ve now established that all companies should mass market to non- and light buyers.
Nonetheless, some marketing Directors insist that “their” customer bases differ from those of their competitors, whether that’s by gender, age, household size, or income. After all, isn’t it right that each brand has a unique brand image and thus unique buyers?
But do customer bases actually look different across competitors? Does a Tiger beer targeting young men have a different customer base than a Heineken focusing on “internationals”? The simple answer is no. Evidence shows consistently that Buyers look the same across competitors- in fact they are the same people! Though brands take pride in saying that they have 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 their market share or brand size. So, all cola brands compete equally closely with Coca-Cola, the category leader while sharing a percentage of customers linked to their penetration. This means that smaller brands will share a proportionally smaller number of customers with the largest brand. This can be extended to close competitors as well: even close, “direct” competitors in the ice cream category, such as Ben & Jerry’s competing with Häagen Dazs, will share more of their customers with the ice cream category leader than with each other. See the graph below
The graph above helps visualize the effect of “duplication of purchase” 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 (orange dotted line), versus Mars, a smaller brand (grey dotted line). Brands share a far greater average percentage of customers with market leader Carte D’Or (38%- funnily enough the share it has of ice cream category) than with Mars (7% – its share of the category). 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% of customers, while brands sharing customers with Mars are sharing around 7% of customers.
Everybody is your customer, to a greater or lesser extent, so segmentation and targetted media is rather over rated.
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 (research shows) longer-term success.
As we’ve established above, mass marketing brings more light buyers—i.e. new customers— into a brand and also is instrumental in making 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 GMs and their businesses 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.
So now 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 growing your business. Not only that, but the duplication of purchase law showed us that brands share customers in line with their brand size – exploding the myth of super segmented customers. Lastly, we saw that brands need to strike a balance between short- and long-term sales effects, with mass marketing encouraging sustained long-term growth. Next, we will take a closer look at brand differentiation versus distinctiveness and which brands should be aiming for.