Con­sumer mar­ket­ing ortho­doxy over the last 30 years has preached the impor­tance of tar­get­ing, loy­al­ty, and cus­tomer reten­tion. The teach­ings of Philip Kotler and his fol­low­ers have been tak­en as gospel. But what if these the­o­ries turned out to be con­tra­dict­ed by empir­i­cal evi­dence? The work of Aus­tralian aca­d­e­m­ic Byron Sharp may force a rethink of how FMCG brands go about deliv­er­ing growth.

Any­one who has worked in mar­ket­ing for 5 min­utes will be famil­iar with the fol­low­ing:

1. It costs five times less to keep a cus­tomer than it does to acquire a new one.
2. Growth will come from gain­ing more loy­al cus­tomers.
3. Dif­fer­en­ti­a­tion is the cor­ner­stone of mar­ket­ing strat­e­gy (dif­fer­en­ti­ate or die).

These con­cepts feel like part of the fur­ni­ture of the mar­ket­ing world and to dis­agree with them would seem crazy.

But what if these appar­ent laws of mar­ket­ing turned out to be noth­ing of the sort. What if they proved to be untest­ed assump­tions. What would hap­pen if robust empir­i­cal data con­tra­dict­ed these hypothe­ses?

A Radically Different View Of Marketing

In 2010, Aus­tralian mar­ket­ing aca­d­e­m­ic Pro­fes­sor Byron Sharp, direc­tor at the Ehren­berg-Bass Insti­tute for Mar­ket­ing Sci­ence at the Uni­ver­si­ty of South Aus­tralia, pub­lished a con­tro­ver­sial book, “How Brands Grow (What Mar­keters Don’t Know)”.

The rea­son for the uproar was the sub­ject mat­ter – noth­ing short of a full frontal assault on all accept­ed con­sumer mar­ket­ing wis­dom (as well as the sug­ges­tion that vir­tu­al­ly all mar­ket­ing text books were wrong).

Take state­ment one above. The source of this claim can be traced back to 1990 when the Har­vard Busi­ness Review pub­lished “Zero Defec­tions: Qual­i­ty Comes to Ser­vices”, authored by Fred­er­ick F. Reich­held and W. Earl Sass­er Jr. Accord­ing to this piece, the doc­trine of zero defect man­u­fac­tur­ing was trans­form­ing the world of mak­ing things, and these aca­d­e­mics argued that the phi­los­o­phy of zero defec­tion mar­ket­ing would trans­form the world of sell­ing things.

Their pow­er­ful claim was that com­pa­nies could boost prof­its by almost 100 per­cent by retain­ing just 5 per­cent more of their cus­tomers.

How­ev­er, Sharp takes a dif­fer­ent view to this often unchal­lenged pref­er­ence for reten­tion at the expense of acqui­si­tion.

He points out that Reich­held and Sasser’s appar­ent­ly mod­est 5 per­cent drop in defec­tion is actu­al­ly a drop of five per­cent­age points – from 10 per­cent to 5 per­cent, which is a 50 per­cent decrease, or a halv­ing of cus­tomer defec­tion. Not quite as easy as first thought.

But per­haps there is some empir­i­cal data to back up Reich­held and Sasser’s claim? Nope. Turns out it was just a thought exper­i­ment. It also turns out that this reduc­tion in cus­tomer defec­tion is assumed to be achieved at zero cost.

In the real world, how many com­pa­nies get any­where close to reduc­ing cus­tomer defec­tions by 50 per­cent for no cost? Exact­ly, hard­ly any.

Differentiation: Not What Its Cut Out To Be

But what about dif­fer­en­ti­a­tion? Sure­ly it can’t be argued that this is large­ly irrel­e­vant?

Sharp begins with an amus­ing dig at mar­ket­ing text­books that are all gen­er­al­ly titled things like “Mar­ket­ing Man­age­ment” or “Mar­ket­ing Prin­ci­ples”. Not much dif­fer­en­ti­a­tion there then.

He then looks at a key ques­tion of con­sumer mar­ket­ing – do buy­ers need to per­ceive a mean­ing­ful dif­fer­ence to reg­u­lar­ly buy a brand (i.e., show pref­er­ence or loy­al­ty)?

The answer, based on the evi­dence, is a resound­ing no.

Sharp exam­ines data across a vari­ety of mar­kets, every­thing from soft drinks to per­son­al com­put­ers. The con­clu­sion: although dif­fer­en­ti­a­tion exists, it is weak and far less impor­tant than we’ve assumed. Brands with­in a cat­e­go­ry do not vary marked­ly in their degree of dif­fer­en­ti­a­tion, per­ceived or oth­er­wise.

What About Targeting?

Sure­ly mass mar­ket­ing is a thing of the past? Appar­ent­ly not, accord­ing to Sharp.

From Kotler onwards, there has been a tac­it agree­ment with mar­keters that brands iden­ti­fy spe­cif­ic mar­ket seg­ments and devel­op prod­uct and mar­ket­ing mix­es tai­lored to each.

Based on Sharp’s analy­sis, this is a red her­ring. Just because you can name a seg­ment doesn’t mean it exists in the real world.

In vir­tu­al­ly every con­sumer cat­e­go­ry you can think of, buy­ers are sim­i­lar. There­fore, brands need to tar­get the whole mar­ket rather than just ever-small­er micro seg­ments.

Also, the idea that 80 per­cent of sales come from the top 20 per­cent of cus­tomers turns out to be false as well. The ratio is much clos­er to 60/20.

In oth­er words, near­ly half your sales come from peo­ple who are any­thing but reg­u­lars. Giv­en that 100 per­cent brand loy­al­ty is a myth, growth needs to come from tar­get­ing the cus­tomers of oth­er brands.

Acqui­si­tion, not reten­tion, should be the key pri­or­i­ty of the con­sumer mar­keter. And that puts an empha­sis on tar­get­ing the whole mar­ket rather than seg­ments.

Essen­tial­ly, Sharp encour­ages a return to mass mar­ket­ing (albeit of a more sophis­ti­cat­ed vari­ety).

Sharp con­tin­ues by lay­ing into price pro­mo­tion and loy­al­ty pro­grams, as well as the cur­rent vogue for inspir­ing “pas­sion” in con­sumers towards a brand (Kevin Roberts Love­marks con­cept comes in a for par­tic­u­lar pum­mel­ing).

In the end, con­sumers are seen not as ratio­nal, involved and deeply com­mit­ted buy­ers, but uncar­ing cog­ni­tive misers who rely upon a num­ber of heuris­tics to reduce the effort in mak­ing a buy­ing deci­sion to a min­i­mum.

What This All Means For Consumer Marketers?

What are the ram­i­fi­ca­tions for con­sumer dig­i­tal mar­ket­ing?

On the one hand, it seems to place a huge pri­or­i­ty on gain­ing as much dis­tinc­tive vis­i­bil­i­ty as pos­si­ble – in which case, this seems to sug­gest a bias towards adver­tis­ing in all its forms includ­ing paid social pro­mo­tion.

On the oth­er hand, does the gen­er­al lack of inter­est on the part of con­sumers toward rela­tion­ships with brands sug­gest that much of the work around build­ing con­ver­sa­tions, engage­ment and pas­sion is large­ly mis­guid­ed?

Conclusion

Sharp lays out a pret­ty pow­er­ful case, backed up by in some cas­es decades of empir­i­cal data. It all sug­gests that much of the accept­ed wis­dom of mod­ern day mar­ket­ing is sit­ting on pret­ty shaky ground.

How­ev­er, in spite of the appar­ent inescapa­bil­i­ty of his find­ings, the mar­ket­ing world seems to have large­ly ignored his insight. Per­haps because it tells a sto­ry that peo­ple don’t want to hear. Nev­er­the­less, it seems fool­ish to ignore his work com­plete­ly.

If noth­ing else, con­sumer mar­ke­teers would do well to always assess whether they are putting too much empha­sis on cus­tomer loy­al­ty and reten­tion if indeed con­sumers are the kind of dis­loy­al, brand pas­sion­less, cog­ni­tive misers that Sharp por­trays them as. What do you think?