- Marketing spend and growth are strongly correlated
- Big brands have an advantage over small brands
- On average, big brands achieved 1.4% of market share growth per 10% ESOV, compared to 0.4% market share growth for small brands
- Small brands need to be at least 3.5x as effective as the market leader to level the playing field, which means small brands need to do things differently
- If market leaders work to find efficiencies, they can further cement their lead and protect themselves from new competitors
One of the most common questions we get is around budgeting for growth.
There’s a pretty strong correlation between budget and market share growth.
First, let’s define some terms...
Market Share (SOM)
Market Share (SOM) is the % of the market that buys from you. If you’re a dentist that does $2 million a year in revenue and all the customers in your market spend $50 million a year on dental services, your market share is 4% (2 / 50 = 4%).
Learn more about SOM from this Wikipedia article.
Share of Voice
Share of Voice (SOV) is the % of all the impressions in your market that are yours.
Let’s oversimplify a bit for the sake of example…
Imagine you and your competition combined spend $10 million per year on TV advertising. And you spend $1 million of that.
Your Share of Voice in this example is 10% ($1 million / $10 million = 10%). (1)
Learn more about SOV from this Wikipedia article.
Excess Share of Voice (ESOV)
All things being equal, your Excess Share of Voice is what determines whether you gain market share.
Excess Share of Voice is your Share of Voice minus your current Market Share (SOM).
So: ESOV = SOV - SOM.
This means larger brands have to spend more to maintain market share.
Nielsen found that, on average, 10 points of ESOV equate to 0.5% of market share growth.
Big brands have an advantage
That’s not all. Nielsen also found that the underdogs in any market are at a disadvantage. Big brands already have greater distribution, a larger customer base, and efficiencies in their marketing that small brands don’t have yet.
Because of that, smaller brands need to be 3.5 times more effective than big brands to get the same result.
The beginning is often the hardest part
If you’ve ever been part of a building a company from the early stages, this should align with your experience: it tends to be much harder to get something off the ground than it is to keep something going once it’s already achieved success.
What this means for small brands
This all sounds like doom and gloom for small brands, but in our experience, it’s not that hard to generate 3.5x greater effectiveness.
However, you must do things differently.
You can’t just copy what the competition is doing. You need to understand what drives marketing results, be open to unique ideas that can improve effectiveness, and experiment to find what works and what doesn’t. Then cut the stuff that’s not working and double down on what is.
This aligns with our experience working on hundreds of projects across a wide variety of industries and sizes. Small brands grow either by dramatically outspending the competition or by using creative strategies to improve efficiency (or both).
What this means for bigger brands
For larger brands, it means two things:
First, in order to maintain market share your Share of Voice must be at least equal to your market share. Nielsen found that when a market leader cut activity by 30%, it lost 20% market share by year 3.
Second, market leaders already have efficiency advantages over challenger brands, which means working to find creative ways to further improve efficiency can box out your competition, making it much harder for them to compete.
(1) I’ve dramatically over simplified this for this example. It’s probably more accurate to consider SOV to be based on impressions rather than budget. For example, you could spend $1 million on Pandora ads, but if none of your audience uses Pandora, that won’t be as efficient as spending that $1 million where your audience is. This also helps account for SEO, where traffic would replace ad impressions. After that you can factor in other influences on campaign effectiveness such as campaign quality, challenger vs. leader, new brands and new news, etc.