30th of May 2022

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By Professor Byron Sharp Director Ehrenberg-Bass Institute
Published by WARC See original article

A short comment on how digital brands grow

This piece is a response to the recently published WARC article ‘How digital brands test the limits of “How Brands Grow”’ by Tom Morton.

We now know that the scientific laws documented in How Brands Grow extend far beyond consumer products sold in supermarkets, pharmacies, and specialty stores.

Recently, Ehrenberg-Bass Institute scientists have investigated:

  • B2B brands
  • disrupter brands
  • tiny brands
  • luxury brands
  • music
  • social media
  • streaming TV
  • mobile phones
  • tourist destinations
  • charity, non-profit brands
  • and much more

A recent WARC article speculated that “digital brands” might be different. That, in addition to penetration and purchase frequency, growth can also come from selling additional products to customers. This is theoretically true, though not unique to digital brands. I’m a member of the Royal Automobile Association (RAA is the brand). It started as a breakdown service, but over the years has added insurance, home security, travel agency and many other services, leveraging its mental availability and regular member magazine to sell these offerings. It is possible. However, a word of warning, research also shows that dreams of cross-selling can often be dangerous fantasies… as the multibillion-dollar Wells Fargo fiasco showed the world.

In his article, Tom Morton’s speculation was based on two cases. The first, that Apple has recently grown its revenue faster than its penetration. But the same is true for any company with many growing brands. For example, Procter & Gamble’s organic sales have grown at an impressive rate both before and during the pandemic, but the company’s overall penetration can’t have grown (P&G is selling to the same households). It is P&G’s individual brands that have grown penetration (just as Airpods, Macbook, and so on have for Apple).

The second example was an actual digital service: Instagram which has achieved impressive penetration growth and “has also grown the time that users spend with the app”. Readers will recognise this as the Double Jeopardy law. Yes, (social media) brands follow the Double Jeopardy law.

It’s an interesting speculation that brands (both durable products like Apple, or digital services like data apps) might today be more easily able to cross-sell, and perhaps thereby lock-in loyalty. But the evidence isn’t compelling. Adding additional services (as an ecosystem) doesn’t appear to be any easier or less risky for digital brands, e.g. Google’s four attempts at social media all failed, YouTube Shorts appears to have had near zero impact on TikTok user growth, and no one seems to remember Facebook Poke (its version of Snapchat), nor its much publicised yet brief foray into cryptocurrency.

What we do know is that digital brands have to work with the same empirical laws that describe buying patterns in every category. Success depends on winning many users by building (mental and physical1) availability, and then working hard to keep these users using the service. This is why Netflix shares fell 25% when (April 2022) they announced a decline in users, in spite of more revenue per user.

 

1 It shouldn’t need to be said but yes, physical availability includes online presence, paid search, apps installed etc.

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