Chapter 4th – Which Customers Matter Most?

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These posts are a collection of notes and summaries from the book “How Brands Grow: What marketers don’t know” by professor Byron Sharp. This work is a must read for any marketer. My personal goal when I embarked on this series of posts was to get a deeper understanding of the book and its lessons, and as I have worked through them I have not only gained that understanding, but also an idea of the areas I need to investigate more deeply in the future. Sharp is always very insightful, but I feel the need for more perspectives on many of the topics he covers. You can buy How Brands Grow here.

The 4th chapter of How Brands Grow is quite interesting. 

The chapter name is “Which Customers Matter Most?” and one of the goals in this section is to reframe the Pareto Law and stress the importance of mass marketing

I am pretty sure you are already aware of the Pareto Law: it is very common to hear it in the management language. 

It’s the famous 80/20 rule. 

But what does it mean? 

It’s based on the exponential distribution and states that “20% of something something  drives 80% of something something”.

Some famous examples are “20% of your efforts drive 80% of your results” or “20% of your customers drive 80% of your sales”.

Is it true? Well no, it depends on the specific situation, so never take it for granted, instead please look at your data. 

The wrong consequence of the misunderstanding of this law in marketing is to focus mainly on Heavy Buyers through target marketing

Basically target marketing is a way to focus not on all buyers of a category, rather only on the heaviest or a specific segment.

And this conclusion, at least according to the author, is because marketers don’t know how the purchase frequency curve is distributed. 

It is quite impressive to look at Coca-Cola figures for example. 

Coca-Cola is obviously one of the most interesting brands for a marketing enthusiast, for its history, its advertisements and packaging.

Thanks to the Ukrainian photographer Olena Bohovyk (feel free to support here clicking on the link, because of the war she had to move from Kyev to Warsaw)

Probably less known is Coca-Cola purchase frequency numbers . 

The average Coca-Cola buyer buys one or two cans or bottles per year, and surprisingly around 30% of Coca-Cola buyers don’t even buy a single Coca-cola in a year. 

Source: Kantar Worldpanel, UK 2005.

This is just an example, but for other brands the average is even lower and consequently many brands have many light buyers that buy the brand rarely. 

The lesson is clear, look at your customers, look at their purchase frequency and set the marketing strategy to reach light and non-buyers

But who is a non-buyer?

The author defines the non-buyer as someone who didn’t buy the product in the past year.

On this point be careful. In fact I was recently evaluating a Shopper Activity for a client in a northern European country.

In this situation the retailer analytic department defined a new customer as anyone who was buying the product for the first time in the last 26 weeks (less than 6 months). 

I think there is nothing wrong with this definition but highlight the importance and the variability of the results based on the time window we choose. 

Consider now the following two-year analysis on a leading tomato sauce based on IRI and Nielsen panel data (Anschuetz, 2002).

Representing brand sales volume (%)​Representing brand sales volume (%)​
Buyer GroupPercentage of sampleBuying frequency in year 1Year 1Year 2
Non-buyers​44​0​0​14​
Light buyers ​22​1​14​16​
Moderate buyers​25​2-4​43​36​
Heavy buyers​9​5+​43​34​
Total​100​100​100​

What can you see from the table? Look closely…

Exactly!

Light buyers became heavier and heavy buyers became lighter. 

This is also a well-known phenomenon in statistics called “regression to the mean” 

What the author highlights is how marketers don’t keep in mind how low their average purchase frequency metric is.

On the visual and targeting side it is important to notice that heavy buyers are easy to market, and for them the brand is more relevant than a typical buyer.

Heavy buyers notice better point-of-sales materials or promotions; in general, they are more receptive to the brand’s advertising. 

On the other side we have the light buyers. They buy very infrequently, and they represent most consumers.

Even though it is hard to allocate a marketing budget for them, they shouldn’t be forgotten as they are an important opportunity for increasing Sales and Growth.

So what’s one of the key points of this discussion? 

Targeting light buyers of the brand and non-buyers is fundamental for success.

Obviously remember we are talking about FMCG I would not generalise. 

But why is targeting light buyers a driver for success?

It’s easy, because most of the brand’s buyers are light buyers and when you try to target them you are also going to hit heavy buyers, the vice versa is not always true.

If you are thinking on how to reach light buyers, think about improving distribution

In that way you are improving your product availability and someone who was a light or non-buyer for convenience reasons can become a light or moderate buyer.

For the author mass marketing is fundamental and is the magic recipe for sales and success in the majority of today’s leading brands. 

Obviously, he also stressed the digital revolution that created new opportunities to reach consumers in different ways

On this last point, based on my experience, I would highlight the importance of smart TVs for example.

Recently, the smart tv penetration increased sensibly, in Germany they are 60% of TVs households, and with this trend also the opportunity to reach customers in a different way raise up. For example, you can set your YouTube marketing campaign focusing on Smart TV to reach a broader audience.

To wrap up, never underestimate your light buyers, focus always on your data to define the best strategy to reach all your customers in an efficient way. 

Marketing Mix Models can be very helpful to define, based on data, your best marketing mix, but again you need a deep understanding of your customers and sales data, otherwise you confuse mass-marketing with junk-marketing.

Additional Readings

Anschuetz, Ned 2002, ‘Why a brand’s most valuable customer is the next one
it adds’, Journal of ‘Advertising Research, vol. 42, pp. 15-21
.

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