How (small) brands grow

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The notion that the marketing laws codified in How Brands Grow apply only to large companies is nonsense, and pointing out that the NBD-Dirichlet model of buying behaviour is based on static markets is inane, says the book’s author, Professor Byron Sharp.

Ever since Sharp published How Brands Grow in 2010, marketers have struggled to accept that the principles set forth within the book apply to everyone, and there’s been a lot of discussion about exceptions. B2B marketers were among the earliest and most vocal doubters, insisting that they were not like FMCG brands and needed to retain more customers to grow, rather than increase penetration. Online brands, too, thought that they were sui generis and could target their way to growth, rather than advertising to their whole category. But Sharp has always (at least, as far as I’m aware) asserted the universality of his laws in the face of such claims.

And on the Warc podcast last month, the director of the Ehrenberg-Bass Institute for Marketing Science did the same again for a more persistent misgiving about How Brands Grow. Namely, that it only applies to large brands and doesn’t explain how small ones get big.

Though Sharp didn’t say so, it is likely that he had in mind a 2022 interview with Oxford University associate professor Felipe Thomaz when he addressed this criticism. In that interview (which I conducted), Thomaz claimed that the NBD-Dirichlet model — the formula cited in How Brands Grow that predicts how often people will buy a brand — is based on ‘static market shares’, meaning categories where the largest players are already established and do not change position, and therefore can’t explain growth.

Sharp’s answer was that the Ehrenberg-Bass Institute did study small brands; he just wrote about the big ones in his book because they were good examples. And while the NBD-Dirichlet formula does inaccurately assume that people’s preferences are fixed, it doesn’t matter. Over any period of time that a marketer is likely to analyse, buying patterns are so entrenched and show so little divergence that it makes no practical difference. The markets might as well be static.

What’s more, the double jeopardy law — which is predicted by the NBD-Dirichlet model and states that smaller brands have fewer buyers who are also less loyal — ‘does say something about growth,’ insisted Sharp. ‘If I’m to double my market share, my penetration has to near double. That’s telling me a lot about growth.’

So, as far as Sharp is concerned, the concerns that the laws in How Brands Grow don’t apply to smaller brands and dynamic markets are as misplaced as the ones about B2B companies and digital products.

That’s not to say large and small brands show no differences, however.

Categories and sectors often have their own quirks that do not necessarily negate the laws of marketing growth but are nonetheless relevant to marketers. B2B products tend to have a longer purchase cycle than consumer goods, for example, because buying decisions tend to have to go through several people and departments. And in the interview with Warc, Sharp revealed an interesting idiosyncrasy of the smallest brands — they are more likely to over-index on penetration rather than loyalty.

As mentioned above, the double jeopardy law predicts that smaller brands will have low penetration but even lower purchase frequency, compared with larger rivals. But the smallest brands (<1% market share), said Sharp, tend to skew slightly more towards penetration than their size would suggest, and that’s because of ‘a lack of overlap between mental and physical availability.’

Someone might buy a small brand once but then find it hard to repeat the purchase, said Sharp, for example because they don’t see any advertising to remind them that it exists.

The remedy for small brands facing this particular problem is pretty much the same as for any company looking to grow: intelligent mass marketing that promotes distinctive brand assets and expands category entry points.

Fever Tree, the tonic water brand, may or may not have suffered from a lack of overlap between mental and physical availability in its early days, but its advertising strategy was nonetheless perfectly suited to getting out of just such a hole. Its above-the-line campaign put it to consumers like this: ‘If three quarters of your drink is the mixer, wouldn't you want it to be the best?’ Not only did the message give people a clear reason and occasion to buy the product, it had the good fortune to coincide with a boom in premium gin, and the brand has since become the leading premium mixer in UK retail.

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James Swift, Editorial director - Department of Creative Affairs.