Brand expert David Aaker examines the assumptions and resources required for two alternative growth strategies: concentrating on getting the brand preferred over competitors vs the more productive strategy of developing categories or sub-categories relevant to specific groups of customers
The most commonly used route to winning, what I term brand preference competition, concentrates on making a brand preferred over other brands in an established category or subcategory. It is a tough road. The second is to win the brand relevance competition by creating new categories or subcategories for which competitors are irrelevant.
Winning in this second competitive arena, with rare exceptions, is the only way to gain real growth. In most firms, way too much effort is spent on brand preference competition and way too little on brand relevance competition. It is not really possible or wise to forget brand preference, but at the margin, firms should shift their culture, strategy, and resources to brand relevance competition.
Brand Preference Competition
Brand preference competition aims to generate preference among the choices considered by customers. There is a single-minded focus on beating the competition with ‘my brand is better than your brand’ programmes.
For example, a consumer decides to buy an established product category or subcategory such as SUVs. Several brands, perhaps Lexus, BMW, and Cadillac, have the visibility and credibility to be considered and thus will be relevant. Winning for the Cadillac brand, involves making sure that Cadillac is preferred to Lexus and BMW which usually means being superior in at least one of the dimensions defining the category or subcategory and being at least as good as competitors in the rest.
The brand preference strategy involves investments in making conventional brand building more efficient and effective – creating more influential advertising, more impactful promotions, more visible sponsorships, and more involving social media programmes. It also involves incremental innovation to make the brand ever more attractive or reliable or the offering less costly. Faster, cheaper, better is the mantra. The focus and commitment is on the existing offering, business model, target segment, and established category or subcategory.
This classic brand-preference model is an increasingly difficult path to success in today’s dynamic market because customers are not inclined or motivated to change brand loyalties in established markets. Brands are perceived to be similar even if there is a real difference. As a result, customers are not motivated to locate or learn about alternatives.
"The brand relevance strategy involves transformational or substantial (as opposed to incremental) innovation to create offerings that define new categories or subcategories"
Further, even when the offering is improved or effective marketing is developed, competitors usually respond with such speed and vigour that any advantage is often short-lived. As a result a brand preference strategy is usually a recipe for stressed margins, unsatisfactory profitability, and, ultimately, a decline into irrelevance. It is so not fun.
Brand Relevance Competition
The second route to competitive success, brand relevance competition, is making competitors irrelevant by developing offerings so innovative that they become ‘must haves’ that define a new category or subcategory. This could involve characteristics beyond attributes or benefits such as a certain personality, organisational values, social programmes, self-expressive benefits, or community benefits.
Under brand relevance competition, the customer selects the category or subcategory, perhaps a compact hybrid, making the starting place very different. The customer then identifies brands that are visible and credible and thus relevant to that category or subcategory and evaluates and selects one of those brands.
Winning under the brand relevance model is based on creating a new category or subcategory context such that a brand is selected by customers because competitors are not relevant (rather than not preferred), a qualitatively different reason. The result can be a market in which there is no competition at all for an extended time or one in which the competition is reduced or weakened, the ticket to ongoing financial success.
In brand relevance competition, as opposed to brand preference competition, the category or subcategory and its associated relevant brand set is in play. The selection of the category or subcategory is now a crucial step that will influence what brands get considered and thus are relevant. It is not assumed to be given and static.
The brand relevance strategy involves transformational or substantial (as opposed to incremental) innovation to create offerings that define new categories or subcategories. The organisation needs to have the capability to sense changes in the marketplace and its customers, an ability to commit to a new concept and bring it to market, and a willingness to take risks by going outside the comfort zone represented by the existing target market, value proposition, and business model.
An organisation good at brand preference competition will not always support game-changing innovation. Changes in culture, structure, process, and resource allocation may be needed. There has to be a strategic commitment to introduce such changes. They will not happen by themselves.
Markets must be disrupted
As asserted at the outset, creating new categories or subcategories, with very rare exceptions, is the only way to create meaningful growth in sales. In general, there is no change in the relative share positions or profits of relevant firms unless there is an innovation that will define a new category or subcategory. The stability of brand positions in nearly all markets is simply astonishing. Even dramatic changes in marketing budgets, marketing programmes, and incremental offering improvements have little impact.
If market momentum is to be disrupted, it is necessary to generate offerings with ‘must haves’ that will define new categories or subcategories that will render competitors irrelevant for an extended time.
Numerous case studies provide empirical evidence that creating new categories or subcategories pays off. A McKinsey study is one of many financial studies of firm performance that supports this view. It showed that new entrants into a market, which usually involve a high percentage of new categories or subcategories, had a return premium of 13 points the first year sliding to one percent in the 10th year. Since new entrants are more likely to bring new business models than existing businesses, the implication is that those creating new categories or subcategories will earn superior profits in part because relevant competition will be low in the early years.
The evidence is compelling. And the logic more so. It is econ 101. The goal of strategy should be to create a market in which there is little or no competition.
"Delivering the promise out of the box is indispensable to the creation of critical market momentum. Superior execution also generates a barrier to competitors"
When the opportunity to create and own a category or subcategory appears, it should not be squandered because it can be the only route to changing a brand’s position in the marketplace. But the route to success can be difficult.
Here are some guidelines:
- First, make sure that the innovation really involves a ‘must have’ for the customers. Beware of the innovation that appears to be a market changer when it is only an incremental improvement. Innovation champions tend to be overoptimistic because of both psychological and professional reasons. But also be willing to commit even when faced with barriers and difficulties.
- Second, become the representative or exemplar of the subcategory. The goal is to be the only visible and credible brand. Toward that end there should be a singleminded focus on defining and building the subcategory rather than the brand. When possible, the brand should be perceived as the thought leader with not only new products but also visible comments on the subcategory and its future. BGI’s iShares spent years with a well-resourced effort to project the value and future of ETFs (exchange traded funds) and their role in the investment world.
- Third, execute flawlessly. Delivering the promise out of the box is indispensable to the creation of critical market momentum. Superior execution also generates a barrier to competitors especially if it is based not only on what is done but the values and organization behind it. That was certainly the case with Zappos.com with its 10 values including Wow! experience and being a bit weird that allowed them to create a staff and processes that are hard to duplicate.
- Fourth, engage in innovation over time to provide a moving target to competitors and energy to the brand, and a sense of leadership to the firm. Chrysler’s minivan enjoyed 16 years with no viable competitors in part because of a series of innovations such as the sliding driver side doors, removable seats, four-wheel drive and Easy-Out Roller Seats.
- Fifth, expand the subcategory definition beyond functional benefits to include characteristics such as self-expressive or social benefits, organisational values, or personality. A challenging subcategory can create a feisty underdog persona. SaleForce. Com, an early cloud computing software application firm, for example, positioning CRM software from Siebel and others to be old fashioned.
When the opportunity to create and own a subcategory appears, it should not be squandered. But it should be realised that, however good the strategic vision is, the implementation of that vision needs to be resourced and executed flawlessly. And there should be competitive barriers established in the form of execution ability, a moving target, a rich customer relationship, and an exemplar brand.
This article is based in part on ‘Brand Relevance: Making Competitors Irrelevant’, Jossey Bass February 2011.
David Aaker is vice-chairman, Prophet Blog: davidaaker.com
Featured Image: In a competitive market, it’s essential to find the best way to stand out from the crowd