The book “How Brands Grow” by Australian professor Byron Sharp of the Ehrenberg Bass Institute is considered by many to be the most important book on brands and their role in our decisions. The fact that it is concise and easy to read are other benefits that often make it the answer to the question, “if I am only going to read one book about brands, which one should I choose”.
“Reach more” is the foundation for growth.
One of the most important conclusions of Sharp’s research is that brand loyalty is an overrated concept and is basically a measurement that depends on only a few parameters. And neither customer satisfaction nor NPS are at the top of that list. Instead, the most important factors are brand awareness, i.e., what Sharp calls mental accessibility, and brand size, i.e., market share. Research shows that there is a strong correlation between market share and loyalty, but it is market share that increases loyalty, not the other way around. So the basic rule for growing a brand is to increase mental availability, or simply to become known to more potential customers as a potential supplier. This is a much more important and successful strategy than believing that you can grow by making existing customers more loyal and thus getting a larger share of their purchases.
In English, this relationship is called “the double jeopardy law.” It means that being a small brand is doubly dangerous. By definition, you have fewer customers than big brands, but those customers are also less loyal than the big brand customers. An explanation for this result can be found by dividing the market into frequent customers and infrequent buyers.
Frequent customers, by definition, make frequent purchases. This means that they know the market better than those who shop occasionally. As a result, they are also more familiar with the different suppliers and products and are likely to have a better overview of the various discounts, promotions and price offers available from different suppliers. The likelihood that they will switch between different suppliers to take advantage of these offers is therefore high. It´s especially important in B2B to have at least two alternative suppliers to choose from to ensure good prices and fast deliveries.
Infrequent buyers have less control over the market and therefore opt for the market leader to a greater extent in the few cases where they do buy. They are therefore less likely to switch suppliers than those who shop frequently. A large brand therefore receives more small customers with higher loyalty than a small brand, and thus higher overall loyalty.
Does this also apply in B2B?
Much of the brand research that is being conducted deals with consumer brands, which is not surprising since they account for most of the advertising investment. Although there have been previous studies showing that the “law of double jeopardy” applies in B2B just as it does in B2C, a recent report by Byron Sharp’s colleague Jenni Romaniuk, in collaboration with the LinkedIn B2B Institute, proved the thesis with new examples, particularly from the financial services sector. Professor Romaniuk is also co-author of the follow-up book, How brands grow 2.
The study examined how market share/penetration correlates with loyalty in two B2B categories: Corporate Banking in the UK and Corporate Insurance in the US. In both examples, the results are clear: the larger the provider, the higher the level of loyalty, and the more customers who only use that provider for all category needs.
Grow with new customers
The conclusion is clear: if you want to grow, you should prioritize increasing market penetration by handling as many new customers as possible. Of course, that does not mean you ignore existing customers, but marketing communications should be as broad as possible to reach as many potential new customers as possible. This is certainly not news to anyone who has followed Ehrenberg Bass’ reports or read Sharp and Romaniuk’s books, but according to a study by LinkedIn, the majority of B2B marketers have not yet taken this to heart. As many as 65% of respondents see loyalty as a more important path to growth than attracting new customers, which is not borne out by Ehrenberg Bass’ study or other B2B Institute reports.
An important conclusion from the study is to prioritize the right metrics and KPIs in addition to investing in new customer acquisition. Some of those at the top of the list include.
- Net reach – how many people did we reach with our messages?
- Sender identification – how well do we know that those we reached with our messages know that they came from us?
- Number of new customers – what is a realistic growth target for our base of buying customers?
Of course, you should also keep an eye on metrics such as customer satisfaction, customer loyalty and customer churn, keeping these – as well as growth targets – at a balanced level. Depending on a company’s market position, there are also “natural” limits to what level of loyalty or churn is reasonable and attempting to exceed these usually does not lead to the desired result. Accordingly, one should also avoid focusing too much on sales growth alone, unless these metrics are also balanced by targets for, say, net margin on new orders or delivery satisfaction. Unilateral targets are rarely a good basis for stable and sustainable revenue and profitability growth, but new customer growth should be the foundation of go-to-market strategy for all companies that want to grow. And remember, if you pursue such a strategy, chances are you will be smarter and more successful than your competitors, because 65% of them have chosen a less successful strategy.