Sunday, April 2, 2023

What the 95:5 Rule Means for B2B Marketing


In a 2021 paper published by The B2B Institute, Professor John Dawes, Associate Director at the Ehrenberg-Bass Institute for Marketing Science, described what has come to be called the 95:5 rule. The rule states that up to 95% of business buyers aren't in the market for many goods and services at any one time.

Professor Dawes illustrated the rule with this example:  "Corporations change service providers such as their principal bank or law firm around once every five years on average. That means only 20% of business buyers are 'in the market' [for a new bank or law firm] over the course of an entire year; something like 5% in a quarter - or put another way, 95% aren't in the market [in any given quarter]."

In his paper, Professor Dawes wrote that the percentages used in the rule aren't meant to be interpreted literally, and I discussed some other limitations of the rule in an earlier article. But the rule is accurate in a general sense:  Virtually all B2B companies have far more out-of-market prospects than in-market prospects.

The main focus of Professor Dawes' paper was a discussion of how advertising works given the existence of the 95:5 rule. He wrote, " To grow a brand, you need to advertise to people who aren't in the market now, so that when they do enter the market your brand is one they are familiar with. And, that they mentally associate your brand with the need or buying situation that brought them into the market. That way, you increase buyers' purchase propensity. And if you do that across enough buyers, your market share will grow."

So should B2B marketers follow Professor Dawes' advice and market to potential buyers who aren't in the market? The answer to this question is "yes," and the reason becomes clear when we examine how people make buying decisions.

McKinsey's Consumer Buying Journey Model

A few years ago, McKinsey & Company introduced a new model of the consumer buying journey, which is shown in the following diagram:

Source:  McKinsey & Company










In McKinsey's model, a consumer buying journey begins when an event or condition triggers a perceived need or desire to potentially buy something. When a trigger occurs, most consumers will quickly create a mental list of companies or products they believe are worth considering.

This initial consideration set is based on the mental impressions they have formed from a variety of touchpoints, such as their prior experiences with a company, brand, or product, advertisements, content resources, news reports, and conversations with family, colleagues, and friends.

The next step in the buying journey is an active evaluation process, during which consumers gather information about potential solutions and may add or remove companies, brands, or products from their consideration set. After this evaluation process, consumers select a product or service to buy, or they may decide not to buy anything.

The main point here is that most consumers create their initial consideration set before they begin their formal evaluation process.

Research by McKinsey has shown that being included in a potential buyer's initial consideration set can produce a significant competitive advantage for B2C companies. The firm found that brands in the initial consideration set are more than two times as likely to be purchased as brands that aren't in it.

Does This Apply In B2B?

McKinsey's buying process model focuses on consumer buying decisions, but there are several reasons to think the buying process in B2B is similar. For one thing, most business buyers are generally aware of the major companies or brands offering products or services that are relevant to their jobs. Therefore, when something triggers a perceived need to buy something for their company, many business buyers will find it easy to identify an initial consideration set of potential vendors.

McKinsey's research on the impact of being (or not being) in a potential buyer's initial consideration set was also focused on B2C buying decisions. And while I'm not aware of any directly comparable research in the B2B space, several studies suggest that B2B is similar to B2C

The WSJ Intelligence/B2B International Survey

For example, in a 2021 survey of business decision makers by WSJ Intelligence and B2B International, the researchers divided the B2B customer buying journey into three stages - Pre-Decision, Search, Evaluation and Shortlisting, and Final Decision.

The study defined the Pre-Decision stage as ". . . the time between when they had selected a supplier for the given [product/service] category and when the 'trigger' occurred that prompted them to actively begin searching for and deciding on a new supplier."

This survey contained several questions about a recent purchase decision and asked survey participants to reflect on the vendor that was ultimately selected (the "winning vendor") and on a vendor that was considered but not selected (the "losing vendor").

The findings of this study clearly demonstrate that familiarity and emotional connections that exist at the Pre-Decision stage have a significant impact on purchase decisions. Survey respondents were more than twice as likely (79% vs. 33%) to report they were very familiar with the winning vendor versus the losing vendor before the active buying process began.

The survey results also showed that, at the Pre-Decision stage, respondents had a higher level of trust (57% vs. 37%) and confidence (52% vs. 37%) in the winning vendor than in the losing vendor.

One of the most interesting findings in this research was the small number of potential vendors that were included in the initial consideration set for most potential purchases. Eighty-three percent of the survey respondents said they usually identify only two to four potential vendors at the first stage of their buying process.

Marketing To Out-of-Market Buyers Needs to be Different

If you decide to market to out-of-market prospects, the question then becomes:  What kinds of marketing programs will be most effective with these prospects? The key to answering this question is to understand the vital role that triggers play in the buying process.

A trigger is an event or condition that causes a potential buyer to feel a need or desire to potentially buy something. Most marketing thought leaders agree that a trigger is a necessary catalyst for virtually all B2B buying processes. The important point for marketers to recognize is that marketing messages alone are rarely sufficient to trigger the start of a B2B buying process.

This means that the objectives of marketing programs used with out-of-market buyers should differ from those of programs directed toward in-market buyers.

Mathew Sweezey captured the essence of the difference in The Context Marketing Revolution when he wrote, "Instead of trying to force change as we once did, by trying to get people's attention and make them want something, context marketing harnesses and guides an existing desire, one that springs from the trigger." (Emphasis in original)

The primary objective of B2B marketing programs designed to reach out-of-market buyers should be to build and sustain memory links to your company, brand, or product in the minds of your potential future buyers. Byron Sharp and his colleagues at Ehrenberg-Bass refer to these memory links as mental availability, and I'll be discussing this concept in more detail in a future article.

When you're successful at building and sustaining a high level of mental availability, you have a much better chance of being included in a buyer's initial consideration set when the buyer moves into the market.

Being included in a buyer's initial consideration set is not a guarantee of success, but it sure helps. Remember:  You have to be invited to the party before you can be asked to dance.

Illustration courtesy of Abhijit Bhadurl via Flickr CC.


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