Building Penetration is The Right Way to Grow

In my first post, last week, I made a point on the importance of sales impact to decode marketing performance. To paint a full picture, we need more sophistication – thanks, Magda, for pointing this out. Brand Penetration is the key metric we need to pay close attention to. The concept of penetration is now embraced widely in the marketing industry, extensively evangelized in books and academic articles, originating in a beautiful city on the South Coast of Australia, Adelaide. Distant from me is the goal to nail that thesis again here, I am just attempting to add an advertising lens to the concept of brand growth via penetration growth, seen through an engineering lens.

What is Penetration?

Don’t you love a simple math formula? Penetration is the ratio between the number of brand buyers and the total number of category buyers over a set period (most commonly is one year, to account for the shockingly unexpected lower brand purchase frequencies in fast-moving consumer goods). Expressed as a percentage, it is a measure of the power of your brand on the category. It is cleaner compared to other measures like market value share as it takes out pricing from the equation or any loyalty effects, not common in all categories. The maximum penetration for your brand is 100%, when everyone active in the category also buys your product, at least once during that year. Yet, since 100% penetration brands are very rare in non-monopolistic industries, the only way is up for your current brand penetration. To measure penetration, use actual sales data from a nationally representative panel or any comprehensive and complete purchase data set. Let’s not even open the conversation about measuring penetration with declarative data here. If you think that’s a good idea, please read my previous post about 20 times.

Advertising builds both penetration and purchase frequency

Traditional (reach based) advertising has an impact on both the penetration of your brand and increases the purchase frequency for your existing buyers. I often receive the question: what type of creative elements drive the highest penetration gains? I don’t know! The quest for this golden nugget, an ad that only drives massive amounts of penetration, is a favorite waste of time for marketers. Unless you know you are always extremely lucky, you are better off focusing your creative efforts on nailing a great effective ad, which drives by default more penetration compared to a lower effective creative. You can also better use your resources to ensure your ad reaches people who don’t buy your brand today but are active in the category. You can use either broad reach targets if the budget allows, or a targeted reach approach if data is on your side.

You don’t need to target current brand buyers

In CPG, if you are using a reach-based strategy, you don’t need to also advertise directly to your brand buyers. They get exposure to your mass advertising, and on top, they are exposed to your real product and experience it firsthand, which is more important than the 1 second, they pay attention to your message on Facebook. The famous leaky bucket metaphor Byron Sharp uses is an excellent analogy for your quest to continuously build penetration, as your buyers become lapsed buyers as time passes. In a world where all media impressions are costly, choose wisely, and reach everyone that can convert to your brand. Keep building penetration, and measure it using real sales data, not declarative data.

Did you think about brand penetration today?

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Focus on Sales to Better Understand Your Marketing Activities

A good friend challenged me to start writing a blog on how an Engineer can make sense of Marketing today. My experience, coupled with my academic background, can provide that lens. Here it is, challenge accepted, and YOU an unexpected audience. This article is the first post from a series of 12, which deconstructs how I see brand growth and communication. I welcome your feedback, as I am sure this habit will become better with time and promise to be brief. No one has time today to read 2000 word articles anymore.

Sales outcome is the ultimate KPI

To grow brands, you must generate sales; there is no other way. For any decision to optimize plans, use sales outcome as it is the best KPI, which correlates to growth. Focusing your efforts to analyze what drove a sale, you are on the way to make better marketing decisions. On top of this, sales outcome is the only KPI that can inform your future budget allocation when translated to Return on Investment. You might assume this is common sense, but it isn’t really in our industry? We often confuse Real Sales, with various upper funnel metrics of Purchase Intent or Purchase Propensity, or in the online space, we use Click-to-Basket or even Click-through as Sales. Unless the transaction has taken place unless the currency is exchanged for the product, you can’t say that’s a sale.

The alternative?

Purchase Intent is, unfortunately, still a long term best friend for the Marketing Research industry and its practitioner. Why? It’s easy to acquire via surveys, immensely facilitated by new digital technologies and offered for free by your media partners. But can you trust the research? Just ask 100 people if they’ll buy your brand, what is the incentive for them to say no? Is their response telling something about their status in society? Research has shown you are more inclined to say, “YES, I will buy a Porsche than saying YES to buying a cheaper Renault”). Is their response more likely to be the exact first option in the survey? Is their response conscious at that time but utterly unrelated to what their brain and emotions will guide the act of purchase at a later date? The answer to all those questions is YES. Future purchase intent questionnaires are genuinely biased and should be banned from any research that informs a marketing decision. I prefer to have 10 Real Sales studies, to 10.000 flawed “almost-sales-studies” of Purchase Intent.

Yes, and …

It’s not always easy to capture Sales, yet no one said it was. It’s tougher if you play in CPG vs. a pure-play Direct 2 Consumer brand. It’s tougher if you rely on third-party data, but not impossible. Mars is proof that an obsession with measuring sales is healthy and doesn’t limit your ability to learn. The closer you can get to personal level sales, the better decisions you can make. You can only attribute growth effects to penetration if you have personal level sales. Aggregation to the store level, geographic region, or even country, dilutes the signal in the noise and raises the requirements for experimental design.

Did you measure sales today?