This is the third in a series of 4 blogs we are sharing on How Categories Grow.
If you want help developing a category strategy based on the principles we are talking about please get in touch.
Right, onto the blog…
Behaviour Led Growth
Warren Buffett is one of the richest people in the world. He is currently estimated to be worth $117 billion.
He has built this wealth around a simple and consistent investment strategy. It’s called “value investing”.
Value investing is about finding undervalued companies with strong potential for growth. Then investing in them for the long term.
He looks for companies with a durable and competitive advantage, high barriers to entry and a large and loyal customer base. He invests in them at a price that provides a margin of safety.
This approach allows him to take advantage of the power of compound interest and gives the companies he invests in the time to grow and generate substantial returns.
This has meant his investment company, Berkshire Hathaway, has delivered a compound annual return of over 20% to its shareholders since 1965.
If you had invested $100 in the S&P 500 index in 1965, it would be worth $22,400 now. If you had invested $100 in Berkshire Hathaway it would be worth $2.4m now.
Why are we talking about this? In our industry there is a lot of pressure to deliver in the short term. So we often look to things that can boost short term sales. Tactical innovation. Price promotions. “Win an X” activation.
This drives one-off shopper purchases. But doesn’t drive genuine behaviour change.
Sustainable category growth is driven by genuine behaviour change. Getting shoppers to change their behaviour AND continue that behaviour over time.
Adding value to a category. Value that compounds over time.
So how can you get refocused on behaviour led growth?
Getting more buyers. This is about establishing the core behaviour (i.e. buying the category) with a broad base of shoppers. This might be about going after the headroom for growth – e.g. getting the penetration of skincare up to that of haircare. It might be about getting a particular group of people to buy you – e.g. getting more younger shoppers to buy (& drink) tea. It might be about getting new people into the category as it becomes relevant – e.g. shaving, feminine hygiene.
A narrow base restricts category growth. A broader base expands it.
Each 1% increase in penetration is worth a lot. Value that the category gets this year. And next year. And the next…
Buying more often. This is about hardwiring the habit of the core behaviour. This might be about getting people who use the category every other day to use it every day – e.g. having fruit juice every day at breakfast. It might be about getting people who use the category once a day to use it twice a day – e.g. using skincare day AND night. It might be about owning a specific occasion – e.g. getting people to make cereal bars their mid-morning snack of choice.
Irregular behaviour restricts category growth. Regular behaviour expands it.
If everyone changed their toothbrush every 3 months (dentist recommended) instead of every 6 months, toothbrush sales would double. Value that the category gets this year. And next year. And the next…
Buying more products. This is about driving extended behaviours. This might be about building a regime – e.g. a detergent + fabric conditioner + scent booster in laundry. It might be about using different products for different purposes – e.g. Alpro - Almond “splash on cereal,” Oat “splash in coffee,” Soya “pour on porridge.” It might be about different product formats – e.g. Quaker Oats sachets, pots, bars.
Buying one product restricts category growth. Buying a repertoire of products expands it.
If everyone who bought one product, bought a second product each time, you’d double the value of each shopper. Value that the category gets this year. And next year. And the next…
Buying better. This is about driving advanced behaviours. Getting shoppers to buy a better solution. One that shoppers are prepared to pay more for. This might be about quality – e.g. a superior taste. It might be about performance – e.g. a superior clean. It might be about convenience – e.g. an easier solution. It might be about additional benefits – e.g. health.
Buying based on price restricts category growth. Buying based on value expands it.
If every shopper in a category moved up one rung on the pricing ladder it would be worth a lot. Value that the category gets this year. And next year. And the next…
Behaviour led growth is the value investing of the category development game.
Sure, it’s not as exciting as trying to ride the latest trend wave. But it’s much more rewarding. Value that compounds over time.
If it’s good enough for Warren Buffett…
Look out for the fourth and final blog of the “How Categories Grow” series next Friday.