One of my favourite questions when a brand leader tells me how much they intend to grow over the next 12 months is to ask them how much they think the market itself will grow. In other words, how much organic growth can they expect the market to give them just for participating versus how much do they think they’re going to have to “find” somewhere else?
If a sector is growing at 3 percent and the brand intends to grow at 20 percent, that 17 percent difference is going to have to come from somewhere, probably a competitor. How, I ask, do you intend to win that 17 percent and who do you intend taking it off?
Some back-reading from McKinsey turns up some interesting findings:
- Top-line growth is vital for survival. A company whose revenue increased more slowly than GDP was five times more likely to succumb to acquisition than a company that expanded more rapidly.
- Timing is everything. The companies that compete in the right places at the right times achieved strong revenue growth and high shareholder returns and are more likely to be active acquirers of other businesses.
- Company growth is driven largely by market growth in the industry segments where it competes and by the revenues gained through mergers and acquisitions. Together, they account for nearly 80 percent of the growth differences among large companies.
- Market share fluctuations by contrast account for only around 20 percent of growth differences among large companies.
“Seeking growth is rarely about changing industries—a risky proposition at best for most companies,” the authors conclude. “It is more about focusing time and resources on faster-growing segments where companies have the capabilities, assets, and market insights needed for profitable growth.”
Increase the value for customers
So … three growth strategies. How do they fit together? To make sense of how to organise and co-ordinate these ideas, we need to rethink our very understanding of growth. Growth is not about expansion – at least not directly, I would suggest. Sustained brand growth is premised on increasing the value for customers, which in turn lifts revenue and demand. So each of the strategies identified by McKinsey needs to be analysed in the light of how customers benefit rather than what the brand gets out of it.
Let’s start with current market growth. A brand cannot afford to pull back from business as usual in order to refocus because doing so makes it vulnerable to acquisition. It must instead continue to at least pursue stable growth in its current markets. Presence gives a brand constancy and helps strengthen its reputation. It sustains present value.
At the same time brands need to be allocating resources to pursue emerging opportunities in areas of opportunity – in different countries, with new customers, with new or improved products. That in turn means that the brand must be flexible enough to incorporate participation in these areas of opportunity into its DNA. And it must find the resources and the energy to move within the faster-growing segments it has identified to procure footprint and top of mind, again without losing sight of what makes the brand distinctive from its competitors. Expanded market participation focuses on giving customers more than they expect right now through the introduction of products and ideas that build on buyers’ understanding. It expands current value.
Because M&A is such an effective growth tool, brands must also look for other companies to acquire that are similar enough to them to appear a natural fit and yet sufficiently divergent from the core brand to redefine the merged brand as a whole and open up new market opportunities. From a brand point of view, M&A injects new ideas, footprint and customers into a brand’s equity. Done well, that injection grows more than access. It lifts what customers think of the company and introduces new skills and ideas that broaden the offering. To me, that’s the central premise of M&A. What’s there after the M&A that isn’t there before? (So often it’s just size and efficiencies which work for investors but add no resonant value for customers at all.) It shape-shifts value.
Grabbing market share is, in reality, a fight among incumbents to offer business as usual.
While brand managers tend to fixate on the third strategy – taking market share off competitors – it’s no surprise that this is the least effective growth strategy overall. Grabbing market share is, in reality, a fight among incumbents to offer business as usual. It counts less for growth because it doesn’t increase anything. Yes, it removes weak players from the market but it can also set off price wars that can seriously undermine pricing and do nothing to cement loyalty. Brands focus on this because their current competitors are the brands they compete against each day.
Three out-takes for me from the McKinsey findings:
- Focus on building customers and alliances rather than beating competitors.
- Scaleable brands are underpinned by scaleable ideas.
- Growth is more specific than speculative. Less “move and see”. More “see and move”.