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1-Page Summary of How Brands Grow

Overview

How do marketers decide what to market? Do they look at empirical evidence (facts) or simply keep doing things the way they’ve been done for decades?

Most brands don’t use evidence-based marketing. They rely on conventional beliefs rather than the most recent data. This book aims to provide answers to questions that marketers ask themselves every day, such as whether or not a product should go on sale, and what they should focus on when trying to retain customers or gain new ones.

According to the author, people would rather make decisions that are good enough than spend time trying to make perfect decisions.

This book will also tell you why advertising isn’t necessary to retain customers, but it is crucial for acquiring new ones. In addition, this book will show you how there’s probably a Starbucks close by whenever you need coffee.

Big Idea #1: Marketing practice should use evidence provided by marketing science, not rely on traditional beliefs.

For thousands of years, doctors would drain their patients’ blood to cure them. However, as science advanced and evidence mounted, we learned that this practice is largely ineffective.

In the past, many brands have been successful without a large number of loyal customers. For example, Colgate and Crest toothpaste companies both had more switchers than loyal customers. Marketing managers at Colgate were worried about this and attempted to persuade their consumers not to switch brands by producing advertisements that showed how good their brand was.

However, the belief that bigger brands have more loyal customers is false. In fact, there’s a scientific pattern known as double jeopardy law which states that smaller brands have fewer customers who are less loyal than those of larger brands. This means that it’s only natural for Colgate to have fewer loyal customers and more switchers than Crest because Colgate has a 19% market share whereas Crest has 37%.

Then, Colgate’s marketing strategy shouldn’t be blamed for these figures, as they’re simply down to the brand’s relative size.

As the above example illustrates, marketing practice should be based on scientific findings. This is because science can reveal actual causes and effects of marketing.

Big Idea #2: To grow your customer base, focus efforts on getting new customers, not on stopping existing customers from leaving.

If you have ever wondered how brands grow, you probably came to the conclusion that it is by having a large customer base. However, how do companies increase their customer base?

In general, companies grow in two ways: acquiring new customers and retaining old ones. However, one of the established rules of marketing is that keeping existing customers is more important than getting new ones. For instance, a study published in 1990 showed that profits can increase by nearly 100% for every 5% of current customers retained.

The argument was based on a thought experiment, not actual data. Moreover, the author presented misleading evidence: a 5 percent drop in leavers instead of an actual decrease of 50percent.

In contrast to keeping existing customers, acquiring new ones is essential for a brand’s growth. The defection rate of a company’s customers is largely determined by its size – the biggest brands will have the lowest rates and the smallest companies will have the highest. For example, in Australia, CBA (Commonwealth Bank) – which has 32% market share – had just 3.4% customer defection while Adelaide Bank with 0.8% market share had 8%.

Therefore, since brands can’t control how many customers they lose, they should instead focus on getting new customers.

How Brands Grow Book Summary, by Byron Sharp