With companies such as P&G, Mars Wrigley, and PepsiCo all making category growth a priority, it’s no wonder it’s become a strategic focus for marketers managing established consumer brands. But what actually drives category expansion?
We get to grips with a fascinating new study from the Ehrenberg-Bass Institute that challenges some long-held beliefs about how to grow product categories.
Breaking down the revenue components
Research by John Dawes, Magda Nenycz-Thiel and their colleagues analysed 13 years of US household panel data across 474 consumer packaged goods categories, breaking down revenue into four key components:
- Penetration: the proportion of buyers in the market
- Purchase frequency: how often people buy
- Volume per trip: how much they buy each time
- Price per volume: what they pay per unit (e.g. cost per 100g)
This approach allowed them to identify which factors truly drive category growth versus those that have minimal impact.
The key growth drivers: penetration and price
The research revealed two primary growth drivers: penetration (attracting more buyers) and price per volume (premiumisation). Surprisingly, purchase frequency and volume per trip had minimal impact on growth – something that challenges conventional thinking about increasing consumption among existing buyers.
What’s particularly insightful is how these drivers vary by category size. For smaller categories with less than 40% quarterly penetration, gaining new buyers proves crucial. However, larger, more mature categories grow primarily through price per volume increases.
Perhaps most importantly, penetration loss consistently emerged as the leading cause of category decline across all category sizes. This highlights the critical importance of continuously attracting new buyers, even in mature markets.
The following table highlights how the researchers developed a practical framework that mapped different strategic approaches based on category size, measured by quarterly penetration:
Exploring the categories in greater detail, interesting factors begin to emerge:
Small categories (<5% quarterly penetration) – Focus on establishing the category through penetration gains.
Innovation should focus on breaking penetration barriers – through channel-specific packs (a pack for Aldi or Costco), formats for new usage occasions, or variants for specific buyer cohorts (gluten-free, zero sugar).
Medium categories (5-40% quarterly penetration) – Expand the category by continuing to drive penetration.
Focus on broad reach, extending mental availability to leverage depth of physical availability. Expand market coverage across channels, retailers, pack sizes, and formats.
Large categories (40%+ quarterly penetration) – Expand by adding value through premiumisation (price per volume).
As categories mature and reach broader penetration, portfolio strategies must evolve to include premium options. This doesn’t simply mean higher prices – it requires genuine value addition through innovation. Examples include:
- Ready-to-heat convenience products
- Single-serve premium formats (like coffee capsules)
- Performance-enhanced versions (like running shoes with carbon-fibre plates)
Practical Implications for Marketers
The findings have several practical implications for brand and category managers:
Practical Implications for Marketers
The findings have several practical implications for brand and category managers:
Innovation Strategy
For early-stage categories, innovation should focus on breaking penetration barriers. As categories mature, the focus shifts to premium innovations that support higher price points. The key is recognising where your category sits on the quarterly penetration spectrum and adjusting strategies accordingly.
Market Coverage
In low-penetration categories where many households have yet to make their first purchase, expansion requires comprehensive market coverage. The study notes that opening price points and trial packs can play a critical role in encouraging new buyers.
Loyalty Programmes
For marketers who’ve invested heavily in loyalty programmes or consumption-building initiatives, these findings suggest a potential strategic shift. Rather than focusing exclusively on existing buyers, successful category growth requires continuous efforts to attract new ones.
Important Considerations
Whilst these findings offer valuable insights, several factors deserve consideration. First, the research uses US CPG data, which might not reflect other markets with different retail structures, disposable income levels, or category development stages. Second, the drivers identified in the study describe buyer behaviour rather than its causes. The actual causes of growth include a mix of marketing activities and external factors like macroeconomic conditions and consumer trends (such as health consciousness). Third, the framework provides strategic direction based on category size, but marketers must apply it alongside the broader context, including shopper behaviour, brand positioning and retailer relationships.
Conclusion
This research provides a clear roadmap for category growth based on empirical evidence rather than marketing folklore. The findings challenge conventional wisdom by revealing that purchase frequency and volume per trip have minimal impact on growth. It’s penetration and premiumisation that truly matter.
The message is clear focus on penetration in smaller categories, consider premiumisation strategies in mature ones, but never stop working to maintain and grow your buyer base.
If you’d like to dive deeper into the study, it’s published in full in the Journal of Business Research: https://www.sciencedirect.com/science/article/pii/S0148296325002085
