TL;DR on growing a brand
There is marketing that is taught in academia and practiced in the corporate world, and then there is the marketing espoused by startup insiders and early stage venturers.
This is a summary and extension of a conversation with a founder about reconciling contradictions in modern marketing theory and methodologies.
The fundamentals I’ll be talking about are what generally govern marketing decisions:
· Penetration vs loyalty
· Retention and the heavy user
· Targeted marketing and consumer segmentation
First, know that successful CPG brands are not monolithic. The paths they forge to growth are varied. I’ve warned founders against trying to emulate the unicorns – cautioned against looking for lessons in their stories – because they are the outliers. Rather, most brands take a risk-assessed approach to the optimal path to growth from inception to exit.
How Brands Grow attempts to provide an understanding of the difference between successful larger brands and small brands and explains how marketing works and how brands grow. It is written for marketers in a variety of industries, and written by two marketing professors with impressive academic research publications.
Ramping Your Brand offers entrepreneurs a roadmap for growing premium CPG brands. The author counts winners such as SkinnyPop, Plum Organics, siggi’s and more as supporting evidence for his early-stage-to-scale strategic recommendations. Dr. Richardson is a consultant and an early-stage strategist for CPG in corporate venture and emerging brands.
Let’s get to it.
Penetration vs loyalty
· Penetration is the number of households buying your brand
· Loyalty is the frequency of existing customers that continue to buy
Think of penetration as new customer acquisition – it is achieved through distribution (number of doors and facings on the retail or digital shelf). Loyalty is a measurement of your brand’s purchase frequency as compared to category averages.
So, the question is, do you focus on getting more distribution or on converting past purchasers?
How Brands Grow says brands grow more by focusing on penetration than loyalty. The authors prescribe building out enough physical distribution in the initial launch to be able to do wide-reach marketing. They point out that new brands don’t get the loyalty of that of existing brands because they are lesser known (have less “mental availability”).
Ramping Your Brand cautions against going out fast and furious explaining that too many brands crash and burn that way. The author advocates for a growth path that looks more like a skate ramp vs a hockey stick. Any brand can buy distribution and get to $1 million in sales, but are the early adopters coming back? The author agrees loyalty is not a growth strategy, however converting past purchasers is an important early indication of success.
Here’s how to sort this out: are you at proof of concept, initial viable scale, or are you scaling?
Unless you are scaling loyalty should be the focus. You need to prove loyalty before chasing penetration.
Retention and the Heavy User
· Retention is the number of consumers that buy you again
· Heavy users are people that over-index as consumers of a category
You know the rule that it costs more to gain a new customer than to keep an old one. This is a true statement and an argument for retention, but not a growth strategy.
So why do startup advisors and investors obsess over retention rates? The reason is that early adopters are typically heavy users and heavy users can make or break a brand.
How Brands Grow cautions against brands that focus too much on appealing to heavy users. Their advice is to make your brand attractive to a broad spectrum of users. This is similar to the criticism investors sometimes give as being “too niche” – that a brand might never appeal to enough people to properly scale.
Ramping Your Brand cites studies that prove that most emerging CPG brand’s revenues come from 20 – 30% of their consumers. The author calls heavy users Category Geeks and says that tracking their conversion rates is an indication of which way the brand is going to go.
Again, think about where you are in your growth plan. If you are talking to investors about a qualified round you’ll need to prove that your brand has consumer appeal to a majority of category purchasers. Until then, you’ll want to nail repeat with the heavy user.
Targeted marketing and consumer segmentation
· Targeted marketing is advertising to a certain population in a way that is most likely to reach them
· Consumer segmentation is the grouping of individuals based on some criteria
You’ve heard “try to appeal to everyone and you’ll appeal to no one”.
Being distinct and solving an unmet need is how small brands disrupt big categories. It’s done through targeted marketing. It is the approach startup veterans recommend because most brands begin as bootstrapped operations and can’t afford to mass market. Targeted marketing offers the most cost-efficient way to reach your ideal consumer and test your product/market fit.
How Brands Grow truly doesn’t appreciate the aforementioned. They focus on the race to generate initial sales and posit that brands should position on broad needs and wide audiences. Brands competing this way will require massive spend in order to get the volume of sales the authors say is required in a short period of time.
Ramping Your Brand identifies premium consumer segments and recommends marketing to these groups in ways that will get the highest ROI. With plenty of examples from break-through brands, it makes a convincing argument for going after an underserved market.
In conclusion: be careful taking classical marketing methodology to heart when you are very early. Once you have reached initial viable scale, the recommendations in How Brands Grow will become relevant.
All my best,