It’s easier to convince someone to buy my chocolate if they already buy it – the secret to why someone would spend millions advertising a $2 item. How to grow market share.
Dave Young:
Welcome to The Empire Builders podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.
[Rheo Thompson Ad]
Dave Young:
Welcome back to the Empire Builders podcast. I’m Dave Young and Stephen Semple and I are talking about marketing and advertising and these stories about how companies got started and then got big, how they built their empires. You said, in this episode, based on a question, we’re going to actually do a little bit of marketing math. This is all math that you can do in your head, I think.
Yeah, we’re going to keep it simple because I want to be able to do the math in my head.
Dave Young:
It comes down to the sheer amount of money and revenue that can be had by products that don’t cost a lot.
Stephen Semple:
This comes as a question that was posed to us. And I think we’ve done a lot of podcasts on products like that, Burt’s Bees lip balm, Chiclets’s gum, Wrigley’s gum. We’ve done a couple on Wrigley’s gum. And we’ve got the Super Bowl coming up around the corner. And I had somebody ask me, he said, “Well, why would you spend tens of millions of dollars on this big Super Bowl ad to sell a $2 candy bar? It makes no sense.”
Dave Young:
Mm-hmm (affirmative). Or a couple dollar bag of chips or something, right.
Stephen Semple:
Right. Same thing, and yet we see Frito Lay ads everywhere and Doritos and Reese’s Pieces and all of these products that are low price and these big advertising campaigns behind them. You go, “What the heck? How does this work?”
Dave Young:
So it comes down to total volume in any given population. Let’s look at candy, how much candy is being sold?
Stephen Semple:
Well, this is the thing you need to understand. You need to understand this concept of market share because ads are driven to gaining market share. So if you think of your market share as the slice of the pie, the market size is the pie. Your market share is the slice of that pie. So the first thing you have to figure out is how big is your pie? How big is the pie? So for example, on chocolate candy. So let’s just look at chocolate candy.
Dave Young:
This is not all candy. This is-
Stephen Semple:
Not all candy.
Dave Young:
… just chocolate candy.
Stephen Semple:
Chocolate candy. In the United States, $11 billion a year is spent on chocolate candy. So that’s the size of the pie. That works out to being just over $31 a person.
Dave Young:
Okay. Gosh, we’re all spending 31 bucks on chocolate candy every year.
Stephen Semple:
Right. Now here’s where the Super Bowl ad idea comes in. The second largest company for making candy bars is Mars and they have about a 30% market share. Now again, market share is the overall percentage that you have as a company. So if the pie is $11 billion, your slice is 30%, it means you’re selling $3.3 billion of chocolate a year. Now what’s that have to do with the ad? Now imagine your ad is just good enough to get a few people to decide to buy a Snicker’s bar. Let’s say it’s one out of 100, that’s 1%.
Dave Young:
Yeah.
Stephen Semple:
Now that 1% increase in market share is $110 million in sales.
Dave Young:
Yeah.
Stephen Semple:
So these little tiny movements can yield to big bucks, which is the reason why these big national companies spend these big marketing campaign. Because what they’re hoping to do is that it’ll move it a little bit and bring a $100 million worth of sales in of a high margin product.
Dave Young:
Yeah. The numbers are mind blowing.
Stephen Semple:
The numbers are mind blowing. Yes.
Dave Young:
Even if you take get into a smaller market or a single market, we’re all still spending 31 bucks on chocolate candy.
Stephen Semple:
That’s on chocolate candy bars. Now let’s step back and now say you’re a small chocolate company in town. What we want to talk about here, Dave, is that’s great. That’s what Nestle does. Screw Nestle. We don’t give a crap about Nestle. How about the little guy in town, the little chocolatier in town? How can they apply this lesson?
Stephen Semple:
So let’s say you’re a small chocolatier in town and chocolate’s a bigger category than the chocolate candy bar market, and about $22 billion a year is spent on that. So that comes out to $63 a person. It’s a little bit bigger category, 63 bucks a person. So now let’s say you’re in a community market area. So remember we said, we’re going to do math in our head. So I’m not picking a community that’s 250,000 because I can’t do 250,000 times 63 in my head, but I can do one million times 63 in my head because that’s $63 million that’s being spent.
Stephen Semple:
And what we know is that if you have a decent mass media marketing campaign, it’s really easy to grab 10% of that market. So 10% of that market means it’s a $6.3 million opportunity, right? Even if you got 5%, that’s a $3 million opportunity. One of the other challenges on this, if you took all the big chocolate companies, if you looked at Mars and Lindt and all of those, they represent about 90% of the market. So it’s that other 10% that’s really up for grabs.
Stephen Semple:
All of this starts with understanding what is the market potential and then really looking at it and saying, “How much do I need to grow my market share? How do I grow that share of market?” And that’s where basically the mass media advertising comes in.
Dave Young:
Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
[Empire Builders Program Ad]
Dave Young:
Let’s pick up our story where we left off and trust me, you haven’t missed a thing.
Stephen Semple:
It’s also much easier to grab market share than it is to grow your market. It’s easier to convince somebody who’s buying chocolate to buy my chocolate than to buy chocolate. When you grow market potential, the size of the market, it doesn’t necessarily mean you get more share. It just means it’s more out there and it’s more up for grabs.
Stephen Semple:
And so the only businesses that can really do that have to be already the leaders in the marketplace. So for example, this worked for De Beers, episode 30, because De Beers had this unique control on the diamond market. This worked for Michelin back in episode 27, because Michelin was already the largest tire company in their space. So when you’re number one and you’re the dominant position, to grow you’ve got to grow the market.
Stephen Semple:
But if you’re number three, number four, number five, number six, it’s about growing your share and it all starts with calculating your market and then understanding that to grow your market means you need to increase your share of voice. You need to be heard more and more prominently and all those things. The share of voice, how much you’ve heard, leads to how much of the brain do we own, which leads to how much of the wallet do we own.
Stephen Semple:
And this often can be done. There’s some businesses that it’s really hard, but there’s a lot of businesses that have these national statistics and yes, you’re not coming to exactly the number in your market, but you can get pretty darn close. And if people are interested, contact us, reach out. Book one of our 90 minute sessions, the Empire Builders starter session. And one of the things that we will do is we’ll calculate your market share for you. We’ll help you calculate that. We’ll help you figure out that number.
Stephen Semple:
And then from there you can figure out what is your share and then it becomes, “Okay, how much can I grow my share? And what do I need to do that?” Typically, it’s about who’s the leader and how can I get just a few people to buy my product rather than their product. We have a real life example of this. There’s a small chocolate company that we work with in a little town in Ontario that is a client of one of our partners and they run a really successful radio campaign inside their community.
Stephen Semple:
Now they also have a high visibility store that’s in a tourism area, but they’ve been running this campaign and there’s no question that it’s worked for them. They have grown market share. And then from that, like when we talk about you can reach out beyond that, they’ve also then been able to build a fairly decent online business just based off of the experience customers have had when they’ve come to their store.
Stephen Semple:
But it has all started with this idea of, we need to gain share in our marketplace. And so there are examples of this being used by small local businesses. And the ad that you heard at the beginning of this podcast is for that company. And you don’t think about the $2 chocolate bar. You think about the $63 per person, per year times the number of people in your community.
Dave Young:
Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app and leave us a big fat juicy five star rating and review. And if you have any questions about this or any other podcast episode, email to [email protected].
