PDF Summary:How Brands Grow, by Byron Sharp

What if everything you knew about marketing was wrong? In How Brands Grow, marketing professor Byron Sharp argues that many of the marketing principles commonly taught in business schools are unsubstantiated myths. By examining the real-world data that indicates which marketing techniques succeed and which fail, Sharp claims to have discovered a new set of empirical rules that directly contradict the widely-held “common sense” principles of marketing.

In this guide, we’ll explore what Sharp believes most marketers get wrong about where a brand’s profits come from and the psychology behind consumers’ purchasing decisions. Furthermore, we’ll define what Sharp believes to be the optimal strategy to market any brand. In addition, we’ll contrast Sharp’s theories with those of marketing experts who argue against his contrarian stance, such as Al Ries and Jack Trout (Positioning) and Seth Godin (Purple Cow). Finally, we’ll update Sharp’s theories in light of the most recent marketing developments and trends, including personalized advertising, social media engagement, and the renaissance of the subscription business model.

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The Myth of Short-Term Activation

Many marketing theorists describe promotional discounts as a short-term “activation” strategy for brands to use in conjunction with other long-term “brand-building” strategies like advertising and social media presence. In their eyes, activation events bring in a large portion of your profits, but only if you’ve already built up your brand image over a long period of time. This is because customers will only obey “calls to action” in activation strategies if they already have a positive image of your brand. With this in mind, theorists advise marketers to employ a mix of these two types of strategies: Build your brand, then convert that brand presence into sales with activations like limited-time discounts.

Sharp disputes this perspective—in his eyes, activation is an entirely unnecessary part of the growth process. Due to their decreased profit margins and negative effect on future sales, activation events like promotional discounts typically have an overall neutral or slightly negative effect on profits: All true growth is driven by brand-building. In Sharp’s eyes, the only thing activations do is group together sales that would have already happened due to brand-building: For example, a promotional discount on cars for the first week of April might make everyone who already intended to buy a car in April buy one during the first week of the month. Marketers see these profit spikes, conclude that they were caused solely by the activation, and thus mistake activations for a necessary half of the process.

Rule #2: Market to Everyone, Never to a Specific Demographic

With Rule #1, we established that marketers profit the most from acquiring new customers instead of trying to make their existing customers more loyal. With Rule #2, we’ll see how most marketers fail to optimally market to new customers. (We’ll explore what Sharp thinks marketers should do instead a little later.)

Sharp states that when modern marketers try to acquire new customers, they typically identify a target demographic and tailor their marketing toward it. Sharp challenges this strategy, asserting that in most cases, it’s virtually impossible to boost your sales by tailoring your marketing to a specific demographic. On the contrary, targeting a niche is more likely to limit your reach. Instead, market to as many demographics as possible.

Early Adopters: A Demographic to Target?

In Purple Cow, Seth Godin opposes Sharp, arguing that you need to tailor your product to at least one demographic: early adopters, or those on the lookout for something new. Targeting early adopters is beneficial because they’re often the customers most willing to spend money on a new, innovative product. They also promote the product to other consumers through word of mouth.

The majority of consumers are satisfied with what they have and aren’t looking for something new. For this reason, the kind of innovation that eventually creates market leaders only appeals to a niche demographic at first. Tailoring your product to please everyone will dilute the qualities that make it innovative (and therefore appealing to early adopters). For example, if Netflix had tailored their service to appeal to the mainstream movie-viewing market, they might have invested in brick-and-mortar rental stores and lost in competition to Blockbuster Video instead of attracting the attention of the early adopters of in-home streaming.)

Most Market Divisions Don’t Exist

According to Sharp, marketers target specific demographics because they assume that markets are more divided than they really are. In other words, they assume that each product in a market appeals to a specific type of buyer, and marketers succeed by tailoring their marketing to that niche. For example, the marketers of a fruit smoothie bar may assume they’re selling to a young, health-conscious niche market while nearby ice cream stores sell to a separate market, one that’s more family-oriented and less health-conscious.

However, Sharp explains that marketing to a specific niche fails because most competing brands have demographically identical customer bases. In other words, the same kinds of people buy products that marketers think appeal to mostly separate audiences. Consumers enjoy buying a wide variety of different products depending on how they feel at a given time.

For example, imagine a company that sells healthy frozen meals. Their marketers may assume that they’re selling in the niche “healthy instant meal” market, competing against other companies trying to sell healthy instant meals to a target demographic—perhaps busy parents who don’t have much time to cook but have expendable income and want their kids to eat healthily.

However, Sharp would argue that our frozen meal company is operating in a mass market. Nearly everyone wants to buy a healthy frozen meal from time to time, even if it’s just once a year. Thus, our frozen meal company is not only competing with other healthy frozen meals, but all meal alternatives, including instant meals, restaurants, and meal delivery kits.

Sharp explains that marketers who suffer from the misguided assumption that they’re operating in a niche market set sales goals far too low. Falsely assuming that they’re “market leaders” of a specific niche, they don’t realize that they have the potential to convert customers from all the competitors in the mass market and become a top brand on a global scale. These marketers would earn more customers if they adjusted their marketing for a broader audience. Therefore, instead of targeting busy parents, our healthy frozen meal company should create marketing that appeals to everyone.

Targeted Marketing in the Internet Age

Sharp claims that tailoring your marketing to appeal to a certain group has no effect (evidenced by the fact that competing brands have demographically identical customer bases). He also asserts that most products naturally appeal to a wide range of demographics, even if only occasionally. However, specialized products exist that likely wouldn’t benefit from mass marketing because they truly do only appeal to a certain demographic—for example, guitar straps will generally only be bought by people who play guitar. Any marketing that shows ads for guitar straps to non-guitar players is a waste of money. In this case, tailored marketing does have tangible benefits.

Furthermore, despite the fact that Sharp published How Brands Grow in 2010, at a time when Internet marketing was growing, he doesn’t acknowledge the Internet Age’s advances in targeted advertising that arguably make it a more viable strategy. Never before have advertisers who sell specialized products been able to ensure that only people who fit their desired customer profile see their ads, making these ads as cost-effective as possible (since people who’d never be interested in the product simply never see the ad). Now, the advertising platforms owned by companies like Facebook and Google make this kind of targeted advertising available to all brands.

On the other hand, it’s possible that the Internet’s advanced targeted marketing only exacerbates the problems for brands that Sharp identifies in How Brands Grow. If brands can now ensure that their ads are only viewed by a narrow demographic, potential customers who fall outside of that demographic may be even less likely to hear about the brand than they would have been in the age of traditional mass marketing. This could prevent brands from expanding beyond the niche they falsely believe themselves to be competing in.

For example, if a company that makes quality leather guitar straps targets their ads only to males from age 18 to 24 who play guitar, they may miss out on potential sales from other demographics: people who aren’t men, people who fall outside the 18 to 24 age range, or people who don’t play guitar but want to buy a gift for someone who plays guitar.

Evidence That Most Market Divisions Don’t Exist

Sharp uses data to back up his assertion that most companies compete in mass markets. For instance, he explains that by examining what percentage of two brands’ customers overlap (how many people bought both brands in a given span of time), you can determine which brands are in competition with one another. Sharp claims that the “specialized” brands that people assume serve niche markets share the same percentage of buyers with their niche competitors as generic brands, proving that these specialized brands are competing in the mass market. This data shows that most market niches don’t really exist.

Indifferent Majorities Buy Niche Products

One explanation as to why the customers of competing brands overlap so much is that products that in theory only appeal to niches often become the norm. In Skin in the Game, Nassim Nicholas Taleb describes a phenomenon he calls the “Stubborn Minority.” This is the idea that society is not shaped by majority consensus, but instead by passionate small groups who impose their preferences on an indifferent majority.

For example, in the US, 41% of packaged food is certified kosher (satisfying the dietary restrictions of Jewish law) even though fewer than 2% of the US population practice the Jewish faith (and only about a fifth of that small group keep kosher). This is because non-kosher eaters don’t care if their food is kosher or not and are willing to buy kosher food, allowing many brands to make their food kosher by default.

For this reason, kosher brands compete in the mass market against all food brands, not just against other kosher brands. Kosher food isn’t a niche market because kosher brands share the same non-Jewish customers as their competitors.

Exceptions: Differences in Function and Price Can Segment a Market

Sharp argues that significant functional differences are one of the only things that can truly segment a market—for instance, a laptop charger fitted for a British power outlet will have more buyers in Great Britain than the United States.

(Shortform note: Since Sharp believes that significant functional differences are able to segment a market, he would likely agree that it’s possible to create a new niche market by introducing unique functional differences to your product (even though this strategy runs counter to his advice to compete in mass markets). The authors of Blue Ocean Strategy call this strategy “value innovation”—the search for new advances that, in their view, allow you to offer customers greater value for a lower cost. These new advances may stem from either cutting-edge research or lateral thinking with existing technology.)

Sharp also specifies that price ranges often segment a market—although not as much as you might expect. Just as the average consumer purchases a variety of products, they also purchase the same product at a variety of quality levels, even at wildly different prices. For example: On average, the people who dine at an upscale bistro are wealthier than the average fast food patron, but people who earn less will still dine at the bistro on special occasions. Thus, this bistro could increase profits by marketing to the middle and lower class.

(Shortform note: There is evidence to back up Sharp’s assertion that people with expendable income aren’t the only ones buying high-priced goods. One study shows that the bottom 20% of families spend as much as 40% of their income on “luxury goods” (goods bought in greater quantities as income increases). Why would low-income families spend so much on non-essentials? Some theorize that lower-income individuals who live in areas of greater income inequality feel more social pressure to appear successful, so they purchase flashy luxury goods despite lacking the finances to comfortably do so.)

Rule #3: Market to Be Memorable, Not Unique

If it’s impossible to find success by marketing to existing buyers or other specific demographics of consumers, what can marketers do to be more successful than their competitors? To answer this question, we’ll first explain how consumers decide which brand to buy, then we’ll show how marketers who understand this process can influence consumers to buy their brand more often.

How Consumers Choose Which Brand to Buy

Consumers Don’t Care About Branding

In Rule #2, we established that all competing brands sell to the same demographics, even when they target different demographics in their marketing. But why is this the case?

According to Sharp, targeted marketing fails because consumers don’t care enough about branding for it to impact their purchasing decisions. Customer surveys reveal that consumers typically perceive all brands in a category to be roughly interchangeable—when the differences between brands are slight, consumers fail to see differences at all. This is especially true for the intangible features of a brand: Only a small fraction of consumers ever think about a brand’s image or personality. Even if they do describe a brand as more “trendy“ or “wholesome“ than its competitors in surveys, they frequently change their opinions if interviewed later.

For this reason, any marketing that attempts to prove a brand is different or better than its competitors misses the point entirely. Most of the time, consumers buy without ever deliberately comparing various brands and determining which is best for them. Sharp explains that humans have adapted to a brand-saturated world by completely filtering out the vast majority of branded messaging they encounter. Even if you’ve crafted the most convincing value proposition possible for a target demographic, it’s more than likely that your message won’t get past your audience’s mental filter, and they’ll ignore it completely.

Should Marketers Worry About Brand Dilution?

By arguing that consumers purchase without regard to the differences between brands, Sharp attempts to disprove the existence of “positioning.” In Positioning, Al Ries and Jack Trout claim that marketers can create their own market niches by influencing consumers to perceive their brand in a certain “position” within a market—for example, as more a luxurious jewelry brand than cheaper alternatives.

In some cases, these two contrasting perspectives lead to opposing marketing strategies. For example, Ries and Trout warn against brand dilution: when a brand weakens its image by offering a wider variety of products. Ries and Trout would claim that if a luxurious jewelry company added a more affordable line of products, they would seem less prestigious to consumers, reducing the demand for their high-end jewelry.

On the other hand, Sharp would likely argue that rolling out an affordable line of products wouldn’t hurt sales of the high-end line. Why not? Sharp would argue that because consumers filter out the marketing that “positions” the jewelry as more luxurious than its competitors, they wouldn’t think of the brand as more luxurious in the first place. There would be no brand image to dilute, so a cheaper line wouldn’t dissuade anyone from buying the expensive line.

Consumers Buy Whatever Brand Is Present

If consumers don’t rationally weigh their options, how do they decide which brand to purchase? Sharp explains that when deciding which brand to buy, consumers ignore the vast majority of options and decide between the few options that are immediately present. This not only means presence in the physical sense (in other words, the options in a consumer’s immediate surroundings) but also conceptual presence: When you think about a product, what’s the first brand that comes to mind?

What consumers think of your brand matters far less than how often they think about your brand. According to Sharp, if a customer recognizes your brand and considers buying it, however briefly, they’re already vastly more likely to purchase your brand than your competitors’ brands, whom they don’t instantly recognize and thus ignore completely.

Availability Bias Explains Consumer Behavior

The effect that mental presence has on our purchasing decisions relates to availability bias. This is an irrational flaw in human thinking—the more easily something comes to mind, the more significant we feel it is. For example, many people are more afraid of plane crashes than car crashes, despite the fact that car crashes are far more likely to occur. This is because news stories of mass deaths in plane crashes and the terrifying idea of being powerless during a plane crash more easily spring to mind than car accidents, making our fear of planes more intense than our fear of cars.

One way you can reduce the effect of availability bias is by slowing down and intentionally using logic to explain your decisions. However, when consumers are deciding what brand to buy, it’s likely that they wouldn’t care enough to override their availability bias in this way, even if warned against it. This kind of intensive logical thinking is too much work for too little payoff in low-stakes purchasing decisions.

In this way, mental presence has the same effect on consumer behavior as physical presence: For the same reason you wouldn’t bother to drive to the next store for the chance of finding a slightly better product, you wouldn’t spend the effort racking your brain for another brand for the chance that it’s slightly better.

Increase Your Presence With Memorable Branding

Because consumers only think about a select few brands when deciding which to purchase, Sharp claims that the most effective way to market your brand is to increase the likelihood that consumers will think about it.

(Shortform note: In the past, this principle has inspired extreme publicity stunts to attract negative attention just to get people thinking about a brand or product—as the saying goes, “Any press is good press.” In Trust Me, I’m Lying, Ryan Holiday explains how he deliberately sparked a nationwide protest against an offensive movie he was hired to promote. This got more people thinking about the movie—negatively or otherwise—and as a result, many more people went to see the movie who otherwise wouldn’t have heard of it.)

Sharp proposes three main ways to influence consumers to think about your brand:

1. Advertise regularly to create brand memories.
2. Create recognizable brand assets and keep them consistent.
3. Expand your brand’s reach to increase its visibility.

Strategy #1: Advertise Regularly

First, Sharp recommends advertising regularly. Advertising works by prompting consumers to create and maintain memories about your brand. If a consumer encounters your brand in the future (or anything that reminds them of your brand), they’ll remember your commercial and will be more likely to consider purchasing. For example, even though it’s unlikely that a Chevrolet or Toyota television commercial will convince someone to immediately go out and buy a car, the advertisement makes it more likely that they’ll think of the brand the next time they need to buy a car—months or even years in the future.

Since advertisements work by triggering memories, Sharp asserts that the best advertisements grab the audience’s attention and engage them emotionally, making the advertisement more memorable. Memorable advertisements work well even if they’re not logically persuasive. Ads do, however, need to prominently connect to the brand in a memorable way. If the audience doesn’t register which brand the advertisement is promoting, they won’t remember the ad when the time comes to choose which brand to buy.

Advertising on Social Media

In Jab, Jab, Jab, Right Hook, Gary Vaynerchuk explains how marketers can use social media to promote their brand—using a strategy that closely mirrors Sharp’s. Vaynerchuk’s main idea is that the most effective social media advertising focuses on building a long-term relationship with potential customers. To this end, he advises using two types of posts—“jabs,” short and entertaining pieces of branded content, and “right hooks,” calls to action that prompt followers into making a purchase (or “activations,” as we called them earlier).

Jabs help build positive memories about your brand among your followers, as Sharp recommends. This way, when you post a right hook, directly urging your audience to make a purchase, they already have a positive attitude toward your brand and are more likely to buy. (As we’ve discussed, Sharp would likely argue that these right hooks are unnecessary if you’ve posted enough jabs—when your audience eventually needs to make a purchase in your category, they’ll already think of your brand first.)

Like Sharp, Vaynerchuk claims that jabs are most effective when they grab your attention and engage your emotions. To accomplish this, he recommends integrating references to pop culture and current events into your social media posts, making your content relevant to topics that your audience is already interested in. These in-jokes don’t necessarily use logic to persuade audiences to choose your brand, but they typically connect back to the brand in some way.

For example, after the 2013 Super Bowl power outage, Oreo posted a graphic with the caption “You Can Still Dunk in the Dark.” Oreo wasn’t trying to logically persuade viewers to buy their cookies by advertising that they’re still edible in the dark—they caught the audience’s attention by poking fun at the power outage, then turned that attention into a positive memory about the brand by making the audience think about “dunking” Oreos in milk.

Strategy #2: Create Recognizable Brand Assets and Keep Them Consistent

Second, Sharp recommends creating recognizable brand assets. These are symbols associated with your brand—for example, a recognizable logo and color scheme, and a memorable brand name. Whenever a potential customer recognizes any of these assets—for instance, spotting them at the store—they’ll recall positive memories of your brand (interesting advertisements, past purchases, and so on) and will be more likely to buy.

For this reason, Sharp argues that it’s important to keep these assets consistent throughout your brand’s lifespan. Changing your brand assets reduces the chance of your audience immediately recognizing them, removing the link to past experiences and making it more likely that their mental filter causes them to ignore your brand entirely.

(Shortform note: If rebranding throws away the value of your brand assets by making them less likely to trigger your customers’ positive memories of the brand, why do so many companies do it? Many argue that it’s necessary to keep up with changing times and avoid appearing outdated. Still, history shows that there’s a right way and a wrong way to rebrand, and the key distinction is likely subtlety: Brands Gap and Tropicana faced customer backlash after rebrandings that were too extreme, and they were quickly pressured into reverting the change. In contrast, Google was able to successfully overhaul their logo over the course of nearly two decades through a series of subtle tweaks.)

Strategy #3: Expand Your Brand’s Reach

Third, Sharp recommends expanding your reach and selling through as many channels as possible to increase your brand’s visibility. Whenever someone notices your product on the shelf at a store, or listed on an internet search, it triggers their memories of your brand and increases the chance of them making a purchase.

For this reason, when you expand somewhere new, do whatever you can to make your brand easier to notice. For example, fast food restaurants use large branded signs to grab hungry drivers’ attention and convince them to stop there for lunch instead of at their competitors.

(Shortform note: Sharp doesn’t offer much specific advice on how to expand distribution. In Blitzscaling, Chris Yeh and Reid Hoffman advise finding ways to piggyback on existing distribution channels. For example, in the early days of PayPal, the company expanded its reach and made it easier for customers to notice it by getting online vendors to add a “Pay with PayPal” button to their eBay listings. eBay had already done the heavy lifting of building a customer base interested in making online purchases—PayPal simply found a way to tag along and tap into this market. These early online customers were the type most likely to notice PayPal and remember to use it in the future the next time they needed to transfer money online.)