Two Ways Early-Stage Startups Grow Their Brand In Saturated Markets
Growth is a term that is integral to startup culture. After all, startups are defined by their potential, rather than by their current state of affairs, and growth is the most important proof that demonstrates you are on the right path.
One of the problems small growing brands are facing, however, is the explicit or implicit barriers to entry that bigger, well-established brands place in their markets.
Good examples of such explicit barriers are customer loyalty programs, which make the cost of switching to a new brand higher.
Implicit barriers, however, like the goodwill that a big brand has accumulated through years of providing goods and services could be even harder to overcome.
In his book How Brands Grow–What Marketers Don’t Know, Byron Sharp looks at market research data to explore the effects of market penetration on brand loyalty. His findings show that high amounts of market penetration (something that bigger brands possess), translates to higher brand loyalty.
This effect is known as the double jeopardy law (coined by William McPhee), and it presents a difficult problem to crack for small brands and new market entrants that need growth. Loyalty is usually very hard to earn when it is already taken by another company.
Here are some possible suggestions for tackling the problem:
1. Use Creativity To Sidestep Direct Competition
For the reasons stated above, challenging established brands head-to-head may not be the smartest strategy for early-stage startups as it is a costly strategy. Because of this, one of the best ways to grow your brand as an early-stage startup is to figure out a way to sidestep direct competition.
The best way to do this is to carve out your own market niche. Offer an innovative solution, and you will become the company with the highest market penetration in your own market niche (regardless if your niche is a part of a larger market). This will help you build brand loyalty and sidestep the double jeopardy rule problem.
One famous such example is Spanx, a business that began with Sara Blakely turning old, out-of-fashion girdles into a desirable fashion accessory, which helped her grow her new brand into a billion-dollar venture.
An even more famous example is Netflix, which sidestepped direct competition with the then-dominant Blockbuster by offering to send their customers DVDs by mail, an innovative and creative approach in the DVD rental industry.
This is the main reason why innovation can transform your business valuation significantly–well-timed innovative solutions to old problems are a great leading indicator of growth, which makes your brand more valuable.
This is also why it is a common early-stage startup marketing mistake to try to appeal to a too broad market. Early on your goal is to find your niche.
2. Invest In Long-Term Customer Acquisition Despite The Inherent Difficulties
In Binet & Field’s IPA Report titled “The Long and the Short of It: Balancing Short and Long Term Marketing Strategies,” the authors reviewed 30 years worth of marketing strategies (996 campaigns). They uncovered that brands that target new customers with their marketing efforts are three times more likely to succeed, compared to ones that attempted to double down just on building loyalty by targeting only existing buyers.
Yes, customer acquisition costs increase due to competition, and in the short run it might sound like an unnecessary cost, but in the long run, the effects of such efforts start compounding.
Ironically, companies who decide to swim against the current by focusing just on brand loyalty often end up falling into another trap, known as the heavy buyer fallacy, where entrepreneurs confuse past buying behavior with growth potential.
According to the same research, most existing customers are already buying as much as they ever will, which illustrates that growing your business by upselling existing customers is just as difficult as acquiring new ones, and arguably less effective in the long run.
Another study done by Rienartz & Kumar uncovered that customer tenure cannot be predicted by a high buying rate. Marketers observed many high-spending clients and falsely predicted that they would remain loyal to the brand based on that.
In summary, two ways for small brands to overcome the double jeopardy rule are:
Creativity: be disruptive, don’t challenge the big brands directly. Tackle old problems from new angles. Creativity is not an option, it’s a prerequisite for success.
Longevity: brand-building is a long-term game, and persistence is key. Studies show that brands that invest in customer acquisition do three times better than brands that don’t over 30 years.