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For some time, marketing has been dominated by the theory that the way to success is getting your most loyal consumers to buy more. As a result, it’s become popular for marketing “guru”s to declare the end of mass marketing.
There’s just one problem: it’s not true. The best discussion of this reality that I’ve seen recently is found in Byron Sharp’s book “How Brands Grow” (2010, Oxford). Let me share a few of the realities I found in this excellent, and challenging, read.
Remember the “80/20″ Rule? It’s Wrong.
In the 1930′s an Italian economist named Pareto suggested that 80% of a country’s wealth come from 20% of its citizens. Since then, this suggestion has been applied where it shouldn’t and been turned into a “rule”. (One such rule might be that “80% of manufacturing errors come from 20% of the process” – something that is sometimes true.)
In marketing, the 80/20 rule has come to claim that 80% of a company’s sales come from 20% of its consumers. Marketers use this to claim that the fastest way to increase profit is to convince the 20% to buy more – an idea that glorifies niche marketing and loyalty programs.
In Marketing...there Are Fundamental Problems With the 80/20 Rule.
Sharp analyzed this rule with hard marketing numbers from a large number of client campaigns. Let me note three findings:
The most loyal 20% of consumers drive only 50% of purchases – not 80.
The top 20% are the most expensive (in marketing dollars) way to increase sales. I’ve found they are often fully satisfied and don’t want/need more from your brand.
Today’s loyal are tomorrow’s disloyal. Sharp documents the human animal’s polygamous brand tendencies – making purchases from a wide range of brands. One result of brand polygamy is that a very large number of today’s loyal customers will be less loyal in the future.
Net out: Loyalists may just be the worst place to invest a large portion of your communication dollars.
So How Do Big Brands Succeed?
Sharp suggests part of the answer is in the Double Jeopardy Law:
“Small brands have far fewer customers and those customers buy slightly less often.”
So brands that grow big do so by reaching out and expanding their base of consumers. For a taste of what Sharp has to say, see his presentation in this Ted video.
Sharp points to Apple as an example. Tech competitors blame Apple success on fanboys. But Apple has become big because my neighbors have iPods, iPhones and now iMacs. (Just look at the vast amount of Apple hardware on airplanes owned by people you’d never expect to buy Apple.)
This is true of brands like Nike and even, I suspect a brand who makes loyalty the centerpiece of their marketing like Nordstrom. In a category close to my heart, it’s true for DeWalt drills. Yes, a lot of contractors buy them. But contractor sales don’t make DeWalt huge. DeWalt is huge because suburban garages are filled with DeWalt drills.
Doesn’t Social Media Show Niche Marketing is More Powerful?
Not when you analyze the total communication picture around social media.
“New media success stories” are mostly mass media success stories given additional legs in social media. How so? In most cases, new media’s role is to create enough awareness to get mass media outlets to deliver coverage in TV, print, newspaper, radio, etc… Then, and only then, does the big impact start. It's amazing what a little print
can do for a business. If done well, it can drastically change the outcome of any campaign.
For two examples look at Susan Boyle’s record sales or Lady Gaga’s massive YouTube numbers – both are the result of traditional media exposure. (Just notice how much print space Gaga gets.)
And the recent Old Spice campaign generated