On 30th August 1930, a boy was born in Omaha, Nebraska.
The boy showed an interest in business from a young age. He started selling chewing gum, soft drinks and newspapers door-to-door.
In 1945, he and a friend spent $25 on a pinball machine. They placed it in a local barber shop. Within months, they owned several machines in several barber shops.
By the time he’d finished college, he’d amassed $9,800 in savings (about $130,000 today.)
Around this time, he came across a book called ‘The Intelligent Investor’ by Benjamin Graham. The book set out a concept called “Value Investing.” Value Investing essentially means buying stocks that appear underpriced.
The boy followed this advice religiously. It’s fair to say it worked.
The boy was Warren Buffett. The investment company he established is called Berkshire Hathaway.
Today Berkshire Hathaway is worth $1.04 trillion. Buffet is worth $142.8 billion.
Buffett says that all his success is down to the power of compounding. You generate earnings. You reinvest the earnings. Which generate further earnings. Which you reinvest. Meaning wealth can grow exponentially over time.
If you had invested $1,000 in Berkshire Hathaway in 1965 it would be worth around $42.5 million today.
Not a bad ROI, right?
Why are we talking about this? In the FMCG industry we’ve been told that growth is all about penetration. That is apparently how brands grow. That bigger brands have higher penetration. So, if you want to grow your brand, you need to grow your penetration.
Of course penetration is important. You want as many shoppers as possible to buy you.
But penetration can only take you so far. A shopper who buys you once a year will appear in your penetration figure. Yet they might be buying your competitors every other time.
This is A LOT of potential spend you are missing out on. This year. Next year. The year after. Spend that can compound over time.
Yes, you need more buyers. But you can’t stop there. You need to create value from them.
You need to move from more buyers to MORE SPEND.
So, how can you do this?
Firstly, you need to get shoppers to BUY MORE.
The shopper who goes from buying you once a year to twice a year is worth double to you. They buy three times, they are worth treble. They buy four times… you get the picture.
To do this, you can get shoppers to buy …
More OFTEN. Drive frequency. Drive loyalty. Build the habit of buying the category regularly. The habit of buying your brand regularly. If you’re a fabric conditioner it could be getting used in every wash. It could be giving shoppers reasons (relevant communication) and incentives (relevant promotions) to buy you every time.
More PRODUCTS. Drive repertoire. Get shoppers to buy more products in the category. Get them to buy more products across your range. If you’re in the oral care category it could be adding a mouthwash. If you’re in the condiments category, it could be buying a range of sauces.
For more OCCASIONS. Drive more usage. Outside of your core usage occasions. If you’re in the cereal category, it could be getting cereal eaten in more snacking occasions. If you’re a snack, it could be getting added to a drink occasion or a meal deal.
Secondly, you need to get shoppers to PAY MORE.
The shopper who goes from buying a standard tier product to a premium tier product is worth more to you. If they do this every time they buy, they are worth A LOT more to you. This year and in future years.
To do this you need to give shoppers a reason to pay more. To make …
A BETTER Choice. It could be a performance reason. If you’re a detergent, it could be about cleaning brilliantly. If food, it could be a taste reason. If you’re a fruit, it might be about being the juiciest, freshest option there is.
AN EASIER Choice. Something that makes shoppers lives easier. It could be about time. If you’re a meal solution, it could be “the perfect meal in only X minutes.” It could be about ease of use. Think of microwaveable rice. Much easier for shoppers. Much higher price per occasion for brands and retailers.
A SMARTER Choice. Something that delivers better value even if the ticket price is higher. It could be how long the product lasts – e.g. “lasts 3x longer,” “makes X mugs of coffee.” It could be about needing to use the product less – e.g. a better performing nappy that means you have to change less.
Buyers are important. But there is only one of each buyer.
Spend is even more important. Each buyer can spend A LOT more.
Spend that can compound dramatically over time.
Just ask Warren.
Feel free to forward. Have a great weekend. Speak to you in a fortnight.