STP or EB for brand competition?

Last week, I shared the intriguing article by Sharp et al (2024), on the market-based assets theory of brand competition, proposing as marketing science's central question ‘why do some brands sell more or less than their competitors?’ and claiming that "traditional view of brand competition that has dominated marketing education for sixty years fails to provide an adequate explanation for why some brands sell far more (or less) than others. Nor does this traditional view fit with several now well-documented empirical laws."

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There is much to like about this article, but I was asked to provide a critical review in this Newsletter, so allow me to approach it like a top marketing journal (with 5% acceptance rate) would. First, does the article have contribution potential, i.e. 'how many people would have to change their minds and/or behavior if the evidence suffices?" Clearly this paper meets our contribution criterion. Second, does the paper show sufficient evidence for its claims, against alternative explanations? To ease you into such thinking, let's have a 3 question quiz:

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Q1: Leadership in 1 market does not guarantee leadership in the other. In above figure, Toyota is market leader in Australia (21%), but only has 12% share in the US and 6% in the UK Similarly, Kia is considerably larger in Australia than in the UK (7% vs. 4%) and Subaru in the UK has only a fraction of the market share it has in the other two markets. Ruling out differences in products or prices across countries, the best explanation for this observation is:

a) each brand's offering fits better with a larger audience in higher share countries

b) brands spent different amounts in direct-to-consumer advertising in each market

c) brands invested and achieved higher mental and physical availability in each market

d) brand invested differently in their dealership network, which is better in higher share countries

e) brand face different strength of competition in each country

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Q2: Market share, number of stores, and advertising awareness are highly correlated, i.e. when one is high (low), the other tends to be high (low) as well, as demonstrated in below table of quick service in the UK. This high correlation demonstrates that:

a) when a brand's offering is better liked, people pay more attention to its ads and visit its stores

b) brands that spend more on store building and better advertising quality achieved higher share

c) brands invested and achieved higher mental and physical availability to obtain high share

Q3: Subway stands out in the above Table as having a lot lower share than we would expect given its number of stores (2,227 stores for 7% buying, compared to McDonalds’ 1,391 stores for 30% buying). The most likely explanation for this deviation is that:

a) Subway's offering is less liked in the UK market, so it gets less customers than McDonalds

b) Subway spends a lot less on advertising, or has less advertising quality than McDonalds does

c) Subway's high physical availability is not matched by similar mental availability

d) Subway has smaller stores, with only a small proportion of stores with drive-through

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Did you answer 1c, 2c and 3d? I didn't either, so let's dig into the evidence.

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Back to the article, which starts with an interesting history lesson:

Kotler's first edition of?Marketing Management?(1967) included lengthy coverage of the optimisation of the marketing mix, before individual chapters on decisions for each of the 4Ps. This optimisation material disappeared in later editions, and was replaced by chapters on segmentation, targeting and positioning, value creation, customer satisfaction and loyalty.

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So far, so good. But then the article takes a strange turn away from evidence:

" While it would be difficult to overstate the influence of the 4Ps even today, there were immediately rather obvious problems for the “best marketing mix wins” model. For example, even well-resourced corporations regularly launch carefully researched and consumer-tested new products and brands only to see them fail (Victory et al., 2021). Failure is even common for new product launches that have been judged ‘winners’ by consumers and industry experts (Victory and Tanusondjaja, 2023). Even with hindsight it is not always apparent what would have been the better marketing mix in terms of brand competitiveness." Note that this not follow: just because a corporation is well resourced, it did not mean its fallible managers chose the best marketing mix. Moreover, marketing success requires the correct response from so many market players (customers, retailers, competitors) to succeed, that it is justly called the toughest job in business. So adding that ' Even predicting which advertisements will perform better than others was then, and still is now, apparently beyond marketers' ability (Hartnett et al., 2016)." simple demonstrates that predicting ad success is hard. So is beating the stock market. Yet managers still do it.

The next turn is even stranger: "sales and market share appear surprisingly resistant to changes in the marketing mix. Elasticities, especially for large brands, for both price (Bijmolt et al., 2005) and advertising (Sethuraman and Tellis, 1991) turned out to be remarkably low." First, I have never heard anyone call a price elasticity of -2.5 'low'. It means that, when you drop price by 10%, sales increase by 25%. This elasticity is stronger than that of awareness (0.3) and distribution (1 to 1.5) - the close cousins of mental availability and physical availability, and 6x larger than the elasticity for product quality (0.4). I am not quite sure why the journal published this part, because it appears unrelated to the real target of the paper: targeting.

The second section gets to the point in accurately describing the Segmentation-Targeting-Positioning (STP) framework:

" ‘A company discovers different needs and groups of consumers in the marketplace, targets those it can satisfy in a superior way, and then develops a value proposition and positions its offerings so the target customers recognize the benefits of its offerings. By clearly articulating its value proposition and positioning, companies can deliver high value and satisfaction, which lead to high repeat purchases and ultimately to greater company profitability’ (p. 167).

The authors first give STP credit for being more consistent with real world observations than the 4Ps, because of "the empirical observation that markets can support many rival brands despite some brands having very similar marketing mixes." Given the paper's view that brand competition theory is derived from economics, it is strange it doesn't mention 'monopolistic competition' with STP: each brand is part of the overall market and competes for some customers on the margin, but has so many loyal customers it is a 'local monopoly'. Maybe the authors are hinting at this by describing each brand as general store in a separate village, which sounds a bit extreme to me.

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Next, the authors turn to the multiple empirical generalizations claimed to disprove STP

First, competing brands share customers. Instead of avoiding competition by making the brands positioning unique, then targeting the appropriate people, actual competition is direct. Consumers do have repertoires of brands which they show considerable loyalty to, but the loyalty they demonstrate is a very long way from being exclusive. I agree, as demonstrated in consideration set research from the 1990s (Brown and Wildt 1992, Roberts and Lattin 1991, Shocker et al 1991, Siddarth et al. 1995), and below authors' table of UK retail banking customers:

More particular to Ehrenberg, "the Duplication of Purchase Law strongly suggests that brand growth will come from gaining some more cross-purchasing from?all?of one's competitors. Support for this pattern is shown from?Table 2?to?Table 3?for Monzo, a small brand with only 4% initial penetration. Monzo grew to a 9% penetration brand by 2022, and we can see in?Table 3?it did so by getting more cross-purchasing from?every?other bank. Managers should recognise this fact when constructing their marketing strategy and plan to grow by targeting category buyers rather than by fulfilling a narrowly defined niche."

What is missing here is any evidence of superior performance from managers who target all category buyers rather than targeting a specific segment. Indeed, if these brands grew or sustained their position under managers raised with the apparently dominant STP view, we don't know what would happen if they followed EB's advice of aiming to reach all category buyers instead. Dan White specified this point for Monzo, which grew while targeting young and social active bankers: "What I find interesting is that Monzo focused on a specific audience (young, socially active) and tailored their product and marketing activity so that it would appeal to and leverage this audience. Lots of brands start in this way and expand from there in order to continue growing. So while Monzo ended up drawing proportionally from the other brands (as the Laws predict), it grew while intending to go for a specific demographic (young, socially active). Would it have grown the same if it would have aimed to reach every bank buyer in the UK, as EB advises? More, or less? We don't know yet.

?Second, brand user profiles of competing brands tend not to differ in terms of potential segmentation criteria such as demographics and lifestyle (e.g., gender, age, income). I agree with this evidence for large brands, but this of course leaves the door open for users differing on other characteristics. Moreover, the Monzo example demonstrates the brand's customers DOES differ in demographics:

Third, competing brands are weakly differentiated. Even for the most successful (high share) brands in a market, very few brand users, only around one in ten, state that the brand they use is either ‘different’ or ‘unique’ (Romaniuk et al., 2007). As I proposed in my WARC-moderated conversation with Jenni, another reading of the same table is that over half of respondents find at least 1 brand in the market to be different or unique. So this appears a glass half empty/half full story: while it is tough to create and maintain differentiation, some brands do succeed.

Fourth and fifth, competing brands have similar satisfaction scores and have predictable loyalty. Thus, loyalty need not be earned, brands get it naturally based on their market share. I do agree it is very hard to increase loyalty beyond the predicted one based on market share. However, subscription-based services and product subscriptions, like the latest by Blank Street coffee, do make it very convenient for customers to stick with the brand. And of course, satisfaction and loyalty can drop because of a failure in the brands 4P offering, so should still be monitored.

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What do the authors propose instead of STP? Market-based assets, which "entered the marketing literature almost 30 years ago (Sharp, 1995;?Srivastava et al., 1998)." Sharp's (2010)?market-based assets theory is grounded in empirical laws and describes the mechanism of how brands compete and grow:

In the long run, brands essentially compete in terms of mental and physical availability.

Mental availability is defined as the propensity for a brand to be noticed, recognised and/or thought of in buying situations (Romaniuk and Sharp, 2004)

Physical availability is about how easy it is for people to purchase the brand (Romaniuk and Sharp, 2021;?Sharp, 2010). Marketers build physical availability by winning distribution in stores and websites, gaining listings on menus, paying for search and display (e.g., on Google and Amazon), offering credit and various ways of paying, providing car parks, increasing opening hours and so on"

I agree with the importance of market-based assets and would add that the key to actionability is which capabilities the organization should focus on to build them. The Ehrenberg-Bass Institute has greatly increased this actionability over the last decades.

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The authors then show how market-based asset theory helps us to better understand why some brands are far bigger than others, using several empirical examples. First, they use market-based asset theory to explain variation in brand size among competing brands within a market by

(1) showing the high correlations between brand and advertising awareness with brand size,

(2) showing that global brands have different market shares in different countries.

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The problem, as you could tell from the quiz, is that other theories, including 4Ps and STP, are also consistent with these observations. For the first question on car market shares, ruling out differences in products or prices, "the answer is that these brands are bigger in the countries where they have invested the most money in building mental and physical availability over decades". Likewise for the second question, while to explain Subway's lower-than-expected market share, the authors propose that it "has smaller stores, with only a small proportion of stores with drive-through".?

Was your answer to the first 2 quiz questions (c), as the paper authors claim it should be? If not, it is clear you dont believe the evidence univocally points to the papers conclusion. Now, one paper does not have to do everything, and the authors provide excellent suggestions for future research. However, to be published in a top journal, this paper can not leave evidence for the main premise to future research. As the editor of a top journal, I would hence decide on Revise and Resubmit, with the following asks:

First, I would love to hear from companies who followed EB advice for a longer time - I know of several who have followed it for decades. What are your experiences? The authors start their conclusion with the Feynman quote: ‘It doesnt matter how beautiful your theory is, it doesnt matter how smart you are. If it doesnt agree with [the] experiment, its wrong.’ but don't offer any experiment to test their theory. Do you know of one, or can we design one together?

?Second, at several occasions, it seems the authors present an old finding as new, including polyamorous loyalty and the importance of distribution: "recent evidence points to the importance of distribution (a component of physical availability) in new product success (e.g.,?Sinapuelas et al., 2015)" A top journal would not publish research that does not at least refer to highly cited published research on the importance of distribution in new product success, and how to achieve such distribution - especially if they are called 'Building Brands' (Ataman et al. 2008), and 'The long-term effect of marketing strategy on brand sales' (Ataman et al, 2010) and have many citations in the Journal of Retailing.

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In sum, I agree that there is "no convincing evidence for the mantra to segment, target and (differentiate their) position". Unfortunately, the current manuscript also fails to provide sufficient evidence for its alternative viewpoint.

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Ending on a positive note, I love the 3 suggestions for future research:

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1) overlap between mental and physical availability

"the returns from a brand attaining physical availability?in?a store will be poor if most of the shoppers do not notice or recognise the brand. For retailers themselves, there can be little return from building mental availability in the brains of shoppers who cannot easily purchase from them (e.g., do not live near the store or have the app on their phone). The degree to which lack of overlap impedes a small brand's growth potential is a very interesting area for research.

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2) developing and testing measures of both mental and physical availability: and how mental availability metrics change in response to advertising, and physical availability in response to changes in the brand's marketing to retailers. This knowledge is key to recommend a closed loop system advising brands when to invest where for brand growth, the holy grail I sketched in my dissertation.

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3) How to set spend and forecast investments for mental availability

"How much to spend/invest on mental availability depends on a forecast of the brand's potential or at least likely future. If the brand's future is dour then low expenditure might well be the best choice. If the category is likely to grow or the brand has potential to gain physical availability, then substantial investment in mental availability may be warranted. Some studies have begun to test the theory's normative predictions, showing the benefits of spreading advertising spend rather than bursts of expenditure (Gijsenberg and Nijs, 2019, p. 248).

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Recent evidence has shown the long-term implications of ceasing advertising. This research shows brands that stop broad-reach advertising tend to decline in sales and market share by the end of the first year (Hartnett et al., 2021;?Phua, Hartnett, Beal, Trinh, & Kennedy, In Press). This result is consistent with the idea that brands must build and maintain mental availability to maintain their competitive position amongst rivals. Much research is needed on how to make such forecasts to help guide advertising budgets."

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Word. And, when can we start?

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Additional references (beyond those in Sharp et al 2024)

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Ataman, M. B., Mela, C. F., & Van Heerde, H. J. (2008). Building brands.?Marketing Science,?27(6), 1036-1054)

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Ataman, M. B., Van Heerde, H. J., & Mela, C. F. (2010). The long-term effect of marketing strategy on brand sales.?Journal of Marketing Research,?47(5), 866-882)

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Brown, J. J., & Wildt, A. R. (1992). Consideration set measurement.?Journal of the Academy of Marketing Science,?20, 235-243.

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Roberts, J. H., & Lattin, J. M. (1991). Development and testing of a model of consideration set composition.?Journal of Marketing Research,?28(4), 429-440.

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Shocker, A. D., Ben-Akiva, M., Boccara, B., & Nedungadi, P. (1991). Consideration set influences on consumer decision-making and choice: Issues, models, and suggestions.?Marketing letters,?2, 181-197.

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Siddarth, S., Bucklin, R. E., & Morrison, D. G. (1995). Making the cut: Modeling and analyzing choice set restriction in scanner panel data.?Journal of Marketing Research,?32(3), 255-266.