Research

James Swift

22 March 2021

Strategist’s Digest: How big (and small) brands grow 

Contagious digests the most interesting and relevant research from the world of advertising and beyond, because there’s just too much to read and too little time

A rising tide lifts all boats: The role of share and category changes in managing organic sales growth 

By Arry Tanusondjaja, Steven Dunn, Magda Nenycz-Thiel and Bruce McColl (the Ehrenberg Bass Institute), and Charles Graham (The Ehrenberg Centre for Research in Marketing).

Give it to me in one sentence.

Small brands are more likely to grow by stealing competitors’ market share while big brands need category growth to increase revenue.

Give me a little more detail.

The researchers were interested in company growth. Specifically, they were interested in the relationships between firm size, net revenue, market share and category growth.

Using sales data from 189 US and UK CPG brands, the researchers discovered that:

  • On average, 35% of a company’s net revenue growth (or decline) depends on the performance of the category, while 65% is due to market share gains (or losses).

  • Smaller companies are more volatile than large ones, and they tend to experience wilder swings in both market share and revenue.

  • Larger firms are more dependent on category growth for revenue boosts. Among firms with a market share higher than 40%, category performance is responsible for 60% of net revenue growth (or decline). Among those with less than 10% of the market, it’s just 27%.

  • Annual growth and decline are regularly distributed among firms, which means that sustained and persistent growth over several years is rare.

Why is this interesting?

No one’s going to need a lie down with a warm blanket to recover from the news that market leaders should concentrate on category growth – most people probably already figured as much. But corroboration is always welcome, and Tanusondjaja et al have useful advice for brand managers about the dangers of setting single-metric goals for organic growth. 

And if you can get your hands on the full report, the introduction does a great job summarising what we know about how companies grow (or don’t), like how price promotions have virtually no effect on category expansion, or how persistent (rather than temporary) share growth is usually achieved by ‘attracting the purchasing of more of the customers of all other firms’.

Any weaknesses?

Not that we can spot.

Where can I find the whole report?

Here, but it’s not free.

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