During this week’s Marketing Analytics Symposium, Ehrenberg-Bass Institute’s Arry Tanusondjaja explained why company size needs to be factored into growth targets
Growth, and, in particular, sustained, year-on-year growth, is the mantra and the objective for many marketing chiefs and their c-suite chiefs. But not all growth is created equally.
Or at least, not all growth comes from the same sources, and understanding the difference is crucial to eyeing opportunities as well as acting on threats to market position and profitability.
At this week’s Marketing Analytics Symposium in Sydney, hosted by the UNSW Business School, Dr Arry Tanusondjaja, a senior marketing scientist with the University of South Australia’s Ehrenberg-Bass Institute, talked about dissecting organic growth. In particular, Tanusondjaja elaborated on an approach to understanding sources of organic growth - whether it is derived from market share vs category growth - and what are achievable growth targets and the basis for calculating those growth targets.
He presented examples of not seeing the signs of market upheaval, in the case of Nokia, because of a reliance on market share thought to insulate the company from competitors. Except in the case of the newly developed Apple iPhone, it didn’t.
“In terms of organic growth, how much is that due to market share and how much is due to actual category growth?” Tanusondjaja asked. Figuring that out comes down to understanding the mechanics of organic growth.
In the first instance, it’s about examining the market itself. So other than acquisition, brand acquisition or merger, how much growth is actually due to categories growing, or is brands stealing market share from that brand? Tanusondjaja cited the example of Chobani yoghurt, which gained market share as a newly introduced brand but also expanded the yoghurt category as a whole.
“Is 5 per cent year-on-year growth achievable? It’s target that’s common throughout the industry, but without understanding how a market is changing and where growth for a particular brand is coming from, it can be meaningless and even damaging if it can’t be achieved," Tanusondjaja explained.
Using Nokia as an example, Tanusondjaja continued there are a lot of factors which contributed to its downfall. But focusing on market share alone can exclude an understanding of the overall market itself, and potentially result in this kind of failure.
“In a declining category, such as traditional phone like with Nokia, it’s still possible to say market share has grown, but the whole product category could have shrunk year-on-year. It’s about a brand’s profitability,” he said.
Tanusondjaja also presented a study of consumer packaged goods that compares market share growth figures with category growth figures. The results showed how company size has a direct effect on growth and needs to be considered in relation to the market when setting growth targets.
“The findings show for smaller companies, it’s possible to set targets of 5 per cent year on year growth,” Tanusondjaja said. “For large companies like Coca Cola or Commonwealth Bank, setting up to achieve 5 per cent year-on-year growth is creating something that looks good on paper, but they will not be able to achieve in a sustainable way.”
Tanusondjaja emphasied how the size of the company plays a key role in growth potential and that factoring this into growth targets will help create realistic, achievable growth targets. Market leaders with large market share can grow the size of the market, while market followers can grow their share of the market.
“The idea of the study is about setting informed goals... and making educated growth goals based on the size of the firm," he added.
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