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The law of double risk, or how not to destroy the chances of brand growth

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If you want to build a big brand, you have to grow your customer base constantly. Otherwise, you will fall into two pitfalls. This is the simplest way to summarize the so-called law of double danger, formulated by prof. Byron Sharp.

If you want to build a big brand, you have to grow your customer base or fall into two pitfalls constantly. First of all, you will stay small, no matter what strategy you use. Second – as a small brand, you will not build the customer loyalty that large brands can count on.

This is the simplest way to summarize the so-called law of double danger, formulated by prof. Byron Sharp is based on analyzing huge collections of historical sales data of many brands from many markets. It is impossible to ignore Sharp’s theses, despite all their controversy. And even though they debunk many of the truths about marketing that we’ve believed for so long.

Byron Sharp versus “traditional” marketing

Byron Sharp is a professor of marketing at the University of South Australia. He has also led the research unit of the Ehrenberg-Bass Institute for over twenty-five years. It became famous in the marketing world due to its critical attitude to the achievements of scientists in this field to date. In 2010, he published the book “How brands grow, “
which describes the laws that govern marketing, including the law of double risk. In 2015, a continuation of this work was released – “How brands grow. Part 2 “.

Professor Sharp is certainly a controversial figure in modern marketing – mainly due to the rather harsh and ironic tone he is used to expressing himself. He does not lack the courage to criticize Philip Kotler himself and other marketing gurus. It tells you to throw away beliefs about the effectiveness of segmentation and targeting and considers customer loyalty to be a harmful myth. In turn, ideas such as building “love marks based on the concept of Kevin Roberts are ridiculed without a trace of pity.

On the other hand, Sharp cannot be ignored. First of all, he postulates the so-called evidence-based marketing, i.e., marketing based on scientific evidence, and derives his theses from an in-depth analysis of market research results. In her books, she debunks myths about the sources of brand growth, market segmentation, and customer loyalty, based on extensive analyzes of sales data from recent decades, coming from various markets and different product categories. On their basis, he derives his theses and formulates the laws governing marketing.

Evidence-based marketing

It has been said for a long time that the world of marketing requires reform. Marketers are mainly accused of low efficiency, poor financial preparation, and a lack of strategic thinking. This goes hand in hand with the common belief that anyone can be a marketer. Byron Sharp, in the introduction to his book, to this long list of objections, adds one more: in his opinion, modern marketers are like nineteenth-century doctors. They are well-meant, but most of their actions are based on false assumptions.

Much of the marketing wisdom that has been held to be true by this community is not supported by any research. Marketing textbooks look no better. They are full of phrases like: “you should this, you should that,” but there are almost no scientifically proven rules and principles. This is why Byron Sharp advocates an evidence-based approach to marketing. In his book, step by step, chapter by chapter, he deals with marketing myths and describes the laws that govern the world of marketing based on empirical research.

It is worth adding here that Sharp’s book was published in 2010. A decade in the world of modern marketing is an entire era. Indeed, if you look at it from this perspective, evidence-based marketing has ceased to be just a postulate during this decade but has become a determinant of professionally conducted marketing activities.

Today, with access to a huge amount of digital customer data, marketers can make very informed decisions. Relying on facts, not beliefs, is becoming a standard in marketing. All the more, it is worth taking seriously what, based on data analysis, was determined by a team of researchers led by prof. Byron Sharp.

Double Threat Law

One of the most important theses proclaimed by prof. Byron Sharp is called. Double jeopardy law (called. double jeopardy law ). They can be summarized as follows:

Brands with less market share have fewer customers, and those customers are less loyal. How to understand it in practice? Analyzes of huge sets of sales data carried out by a team of researchers under the supervision of prof. Byron Sharp led to the questioning of the widely held claim about the brand’s growth potential.

It has been common to think that brands are growing either by increasing market penetration or increasing the customers’ frequency of purchases. According to this approach, two competing products can have the same market share if one is bought by twice as many buyers and the other – twice as often.

However, such situations only happen in theory. The analysis of the sales data of Jasko shows that in practice, the differences in the frequency of purchases of competing brands are small and in-market penetration – huge. And this is the first of the threats mentioned in the formulated by prof. Sharp almost. To make matters worse, the data shows that large brands enjoy greater loyalty and small ones – less loyalty, regardless of the differences in implemented strategies. That’s threat number two.

Threat # 1: the little one can always be less

Sales figures from different product categories and markets point to a ruthless truth: big brands have significantly larger customer bases. Analyzes of the same data do not support the theoretical assumption that you can build a large brand thanks to a smaller group of customers who buy more often. In real life, it is practically always the case that brands with similar market shares have a similar customer base.

This leads to an obvious conclusion: the only way to increase market share is to increase market penetration continuously. At the same time, encouraging customers to buy more and more often (yogurts, washing powders, cars, smartphones, etc.) is a pointless act. At least not one that could bring us tangible benefits in terms of increasing market share. If we are interested in increasing our place in the ranking of players on the market, only penetration can help us.

All right. At this point, someone may ask: what about niche brands? These types of brands are usually small and targeted at a relatively small group of recipients. It is commonly believed that these brands have extremely loyal customers, which would indicate that this principle does not work here.

It turns out, however, that first of all – there are much fewer niche brands than we think, and… they are not such a niche at all. This means that if a niche brand achieves genuinely significant results in terms of market share, its penetration goes well beyond the originally defined niche customer segment.

Threat # 2: Loyalty building is a dead end

If you look at the data more closely, it turns out that small brands “hit” twice, precisely because of the law of double risk. The first danger comes from having fewer customers – as long as a small brand doesn’t increase market penetration, there’s no need to think about growth. The second risk is related to the frequency of purchases. Although the differences between the competing products are small in this respect, they do exist. A certain dependence can be observed here: large brands are often bought, and small ones – less often.

This overshadows the common perception of customer loyalty – it is customary to think that brands differ in this respect depending on the adopted strategy, character, etc. Meanwhile, the market data does not lie. The relationship is simple: large brands enjoy more loyalty, and small ones – less.

As marketers used to understand it, questioning loyalty is one of Byron Sharp’s most important and controversial theses in general. His research allowed for the formulation of the so-called natural monopoly law, which says that the brands with the largest market share attract the largest number of occasional customers.

Sharp does not question brand loyalty at all. Sales research analyses clearly show that people tend to become attached to certain brands in almost all areas of life. The thing is that their loyalty comes from very mundane circumstances, such as routine or availability. Mixing love, commitment, and other higher feelings in it is, according to Sharp, only an additional ideology.

An in-depth analysis of consumer research shows that the customer becomes attached to the brand that he often buys, but the world does not collapse when it disappears from the market. This is because people don’t use the brand’s products because of their attitude towards it. It is the use of products that creates an attitude towards the brand.

What about brands like Apple and Harley Davidson that have followers rather than customers? The answer to this question can also be found through data analysis. As it turns out, each brand has a certain group of fanatical users among its customers. It is around them that the brand myth is growing. However, the average Harley owner, when questioned by interviewers, admits that his machine spends most of its time in the garage. These customers constitute the largest group and are responsible for the largest share of the brand’s revenues. On the other hand, those who tattoo the Harley logo on their chests are in the minority and show the slightest desire to get a new motor for their beloved company.

Double risk law related to retention

How does the law of double danger relate to retention? Can you redirect your efforts to keeping those customers who have already trusted us instead of continuous acquisition? After all, every marketer has probably heard – sometimes even with exact calculations – how much cheaper it is to keep a customer from acquiring a new one.

The team of prof also took up this topic. Byron Sharp. And this is how the law of double risk related to retention was formulated.

All brands are losing customers. Market data show that the law of double risk also applies in the case of retention. Firms vary widely in market share but are low in customer churn, so retention is not a source of growth. At the same time, large companies have lower churn rates than small ones.

According to a survey of 25,000 British and French who bought a car in the second half of the 1980s, roughly half of them decided to buy a car of the same brand as the previous one, and half decided to switch to another car. The churn rate among all producers hovered around the average. The only brand that recorded a lower result in this index was Ford, the clear leader in market penetration.

Therefore, it turns out that high retention neither provides the company with development nor proves customer loyalty – it is only a simple function of market share. Large companies have a lower churn rate, and small ones – a higher one. Numerous studies show that companies that conduct intensive acquisitions increase their market share. On the other hand, those that neglect acquiring new customers fail, even if the retention rates are quite satisfactory. As you can see, the retention-oriented strategy also does not offer great opportunities for significant increases in market share.

The right way to grow

In the light of the research by prof. Byron Sharp and a team of researchers from the Australian Ehrenberg-Bass Institute, the answer is unequivocal: to increase market share, the only correct strategy is to penetrate the market.

Any other activities, either aimed at increasing the frequency of purchases or at maintaining retention or building loyalty (or simply habituation) of users to the brand, should be of a secondary nature. What we absolutely must not do is let go in the field of penetration. The constant search for new customers should be a priority for every company.

In his book “How brands grow,” Byron Sharp emphasizes that the primary task of marketing is to do whatever it takes to make it easier for the customer to buy a brand. All other matters are of secondary importance. This means that brands compete for customers in terms of accessibility: physically and mentally.

Sharp has seven simple rules to follow:

  1. Constantly reach all customers of a given product category through both distribution and communication.
  2. Make sure the brand is easy to buy.
  3. Make your audience aware of the brand. 
  4. Refresh and build associations with the brand that will make it easier for customers to notice and buy it.
  5. Create distinctive communication.
  6. Be consistent, but also arouse new interest over and over again.
  7. Stay Competitive Through Mass Marketing – Don’t create reasons why certain groups would not want to buy your product.

summary

  • The author of the double threat law is Byron Sharp – Australian professor and head of the Ehrenberg-Bass Institute research team. He described them in the famous book “How Brands Grows” from 2010.
  • Byron Sharp postulates the so-called evidence-based marketing, i.e. an approach to marketing based on evidence. In this way, the most important theses of his research team were developed – historical sales data of brands from around the world, from many markets and from many categories were taken under the microscope. The analysis of these huge datasets, accumulated over the decades, revealed many patterns and dependencies. Some findings, however, disprove common beliefs about how marketing works
  • One of Sharp’s most important theses is the so-called the law of double danger. It says that brands with smaller market share have fewer customers and those customers are less loyal.
  • The first risk is that brands do not vary much in terms of the frequency of purchases, but show high in terms of market penetration. This means that by not increasing the customer base, brands have no chance of growing. The only valid growth strategy is penetration.
  • The second risk is related to the loyalty research findings. According to research, large brands are bought more often than small ones. This means that building loyalty and acting to increase the frequency of purchases do not lead to an increase in market share.
  • Market data show that the law of double risk also applies in the case of retention. Firms vary widely in market share but low in customer churn, so retention is not a source of growth. At the same time, large companies have lower churn rates than small ones.
  • As Sharp points out, a priority for any brand with the ambition to increase market share should be continuous market penetration. This action should prevail over all others, such as increasing the frequency of purchases, building loyalty or even retaining existing customers.

Summary

Reading books by prof. Byron Sharp suggests that you do not have to constantly look for the Holy Grail, spending days and nights at work to be successful. There is no need to worry about niche customer segments, searching for a unique brand personality, or customer loyalty because it fights against windmills. Assuming the numbers don’t lie, all you need to do is follow a few simple and repetitive rules.

The law of double danger and other theses formulated by Byron Sharp undoubtedly contributes to modern thinking about marketing. And not only because they debunk many well-established myths, but above all, because they are based on evidence. It is difficult to challenge and challenge them. Above all, however, Sharp teaches a certain approach that is extremely valuable in the marketing industry: distrust, criticism, and tracking down myths. And this seems to be the essence of evidence-based marketing – because even the best strategy will be doomed to failure if we do not base it on facts but on false assumptions that we mistakenly assumed to be facts.

Bibliography

  • Sharp B., How brands grow, Oxford University Press, 2010


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