This article originally appeared in Businessworld.
A rebound in gross domestic product and more money in Indian consumers’ pockets indicates acche din ahead for consumer-product companies after the 2013 annus horribilis.
To capture growth as the economy picks up, many consumer-product companies will rely on the conventional marketing approach of focusing on select groups of consumers by investing heavily to convert them into loyal users who buy larger quantities over time.
But the best way brands can sustainably grow is by increasing the number of buyers through increased household penetration of brands (defined as the percentage of households in a market buying a particular brand in a given year), than through higher repurchase rates or share of wallet.
The finding came from Bain & Company, which analysed buying habits of nearly one lakh shoppers across the globe. From our experience, loyalty across categories doesn’t vary significantly over time, but household penetration does. Penetration is a leaky bucket, and even top brands can experience churn rates of nearly 50 per cent. That’s why winners continually invest in acquiring more new consumers every year than they lose—through increasing household penetration. How can brands do this?