At Kompani Group we believe in empowerment. Whether it is our clients or our own team, we view it the same way. We always strive to arm all of our stakeholders with the best tools and the best information. As B2B marketing evolves at break-neck speed it becomes increasingly evident that CMO’s are buying into this philosophy. The game is not about jazzy ads, but about delivering meaningful information to the marketplace. Our good friends at Desantis Breindel have written a spot-on white paper on this topic. In keeping with their philosophy that “content is the gift that keeps on giving,” we are sharing it with you.
The economic strains are causing your end-users to trade down, resulting in that the mid-tier and premium brands are losing share to low-price rivals. You face a classic strategic conundrum: Do you tackle the threat head-on by reducing prices, knowing that will destroy profits in the short term and brand equity in the long term? Or do you hold the line, hope for better times to return, and in the meantime lose customers who might never come back? Given how unpalatable both of those alternatives are, you now must make a decision of how to combat manufacturers and distributors of lower priced and inferior products, to avoid losing additional market share and eroding margins.
There are four ways to battle your competition. 1) Launching a true fighter brand, 2) Launching an endorsed sub-brand, 3) Launching a co-driver sub-brand or, 4) Launching a driver sub-brand
Driver sub-brand
Definition:
The parent brand retains its primary influence as a driver, and the sub-brand can act as a descriptor-a word or phrase that tells end-users that the company is offering a slight variation on the same product or service they have come to know.
Note: Of the three types of relationships, a driver brand with a descriptor sub-brand is the most risky. The parent brand is vulnerable to cannibalization because very little distinguishes one brand from the other. The risk of cannibalization is greatest when a descriptor signifies merely a lower-quality offering. The risk is minimized when the descriptor signals a different application.
Examples:
Mercedes provides a good illustration of a driver brand that has successfully accessed a downscale market with a descriptor sub-brand. In the early 1980s, Mercedes introduced that is now it’s C Class, a small car to compete with the BMW 3 series, as well as with Acura and Lexus.
Now priced around $30,000, the line sells nearly 30,000 cars annually in the United States (around one-third of all Mercedes sales in the United States).
How could a brand that has historically been identified with prestige and that offers a car selling for more than $100,000 pull off this kind of downscale move?
First, Mercedes delivered a quality product.
Second, the C Class introduction was accompanied by an intensive effort to reposition the core brand’s message from prestige to performance.
Third, marketing for the C class aggressively targeted young buyers. The C Class name creates a distinction that allows the sub-brand to attract a slightly different consumer, but it does not drive that consumer’s decision to buy the car. The Mercedes brand retains that power.
Celeron – B to B (Intel) 1997
To combat AMD’s $260.00 K6 processor chip, and to avoid having to lower prices on its Pentium processor, Intel launched a sub-brand dubbed Celeron.
Despite a couple of early pricing mistakes and mishaps in expectations management, Intel succeed in combating and keeping AMD from creating a strong foothold in the low-end market. With a share of 80% of the overall processor market and their ability to roll out new processors frequently, Intel proved to be a testament to both the power of fighter brands to open up lower-tier market opportunities and their unequaled ability to keep competitors at bay.
Note: The EU have recently been successful in winning a ruling against Intel regarding antitrust issues and pricing manipulation resulting in a fine of $1.5 billion dollars. We wonder whether the costs of the now 5 year old lawsuit brought by AMD, the fine and the distractions for Intel’s senior management team, would justify the launch of another Celeron value sub-brand when you already have more than 80 percent of the total market share.
The economic strains are causing your end-users to trade down, resulting in that the mid-tier and premium brands are losing share to low-price rivals. You face a classic strategic conundrum: Do you tackle the threat head-on by reducing prices, knowing that will destroy profits in the short term and brand equity in the long term? Or do you hold the line, hope for better times to return, and in the meantime lose customers who might never come back? Given how unpalatable both of those alternatives are, you now must make a decision of how to combat manufacturers and distributors of lower priced and inferior products, to avoid losing additional market share and eroding margins.
There are four ways to battle your competition. 1) Launching a true fighter brand, 2) Launching an endorsed sub-brand, 3) Launching a co-driver sub-brand or, 4) Launching a driver sub-brand
Co-driver
Definition:
The parent brand and the sub-brand act as co-drivers with roughly equal influence on consumers.
Examples:
United Express (United Airlines)
The United Airlines brand provides United Express, a commuter line, with the convenience of connections to United flights and a reputation for safety. There is no cannibalization because the flights do not compete. United Express is differentiated from its parent brand by its lower level of on-board service, its use of smaller planes, and its less formal personality.
Good News (Gillette)
Gillette Good News also illustrates a successful co-driver relationship. Gillette Good News disposable razors are a definite cut below ‘the best a man can get” that is the Gillette legacy in shaving. But disposable razors are qualitatively different from the upscale razors such as Sensor and Atra with which Gillette has long held a technological edge. Gillette could provide a rationale for a disposable brand by being the best in the disposable category. But the Good News user’s personality – younger and more carefree than the traditionally masculine and sophisticated Gillette persona – plays a key role in distinguishing the disposable brand from the rest of the line. Both brand names – Gillette and Good News – influence the customer’s decision to buy the product.
This is the second of 4 posts about how to combat manufactures and distributors of inferior products that are being reverse engineered and produced in China and sold at much lower prices to your existing clients. You are losing market share fast, and it is time to do something about it.
The economic strains are causing your end-users to trade down, resulting in that the mid-tier and premium brands are losing share to low-price rivals. You face a classic strategic conundrum: Do you tackle the threat head-on by reducing prices, knowing that will destroy profits in the short term and brand equity in the long term? Or do you hold the line, hope for better times to return, and in the meantime lose customers who might never come back? Given how unpalatable both of those alternatives are, you now must make a decision of how to combat manufacturers and distributors of lower priced and inferior products, to avoid losing additional market share and eroding margins.
There are four ways to battle your competition. 1) Launching a true fighter brand, 2) Launching an endorsed sub-brand, 3) Launching a co-driver sub-brand or, 4) Launching a driver sub-brand
Option Two – Endorsed Sub-Brand
Definition:
A sub-brand is a brand with its own name that uses the name of its parent brand in some capacity to bolster equity.
In the case of downscale offerings, the role of sub-brands is to help managers differentiate new offerings from the parent brand while using the parent’s equity to influence consumers.
The idea is both to maintain the parent’s credibility and prestige regardless of how the sub-brand performs and to protect the original brand from cannibalization.
Endorser
Definition: The parent brand acts as the endorser of the sub-brand. In this case, the sub-brand is the more dominant of the two, and drives end-users’ decisions to purchase the product as well as their perceptions of the experience of using the product.
When a company offers an endorsed sub-brand, there are three brands at work. The parent brand itself is split into two: a product brand and an organizational brand. The product brand remains as it was, a premium brand delivering a certain image and associated benefits.
The endorser strategy provides an excellent chance to minimize damage and reduce the threat of cannibalization to the parent brand. Keep in mind that all three brands need to be managed actively.
Examples:
Sabre B to C (John Deere)
John Deere’s foray into value lawn tractors provides a good illustration of an endorser relationship. John Deere was well known for making a lawn tractor that sold for approximately $2,000 through full-service specialty dealers.
Although the manufacturer was still able to command that price in the specialty market, volume retailers such as Sears and Home Depot had begun to serve a growing portion (around 30%) of that market, selling products at half John Deere’s prices.
So the company introduced an endorsed sub-brand for the value retailers: a low-cost tractor, Sabre from John Deere, that featured an inexpensive design and a different color and feel that John Deere’s other products
Medalist B to B (Hobart)
The Hobart Company, which makes an industrial-grade mixer for use in bakeries and restaurants.
Managers decided to create an inexpensive mixer for us in commercial and industrial kitchens to compete with offshore entries without damaging its flagship “gold standard” Hobart mixer line.
In 1996 the company introduced Medalist from the Hobart Company. Medalist mixers were lighter than Hobart mixers.
In addition, they were made with less costly materials and construction processes; and they had a color and logo distinct from those of the flagship Hobart.
In this example, The Hobart Company, has become an organizational brand that endorses the sub-brand, Medalist. Medalist itself is a new product brand. Thus the parent brand, Hobart, is separated from the sub-brand, Medalist, by the organizational brand, The Hobart Company.
We are losing market share to our new competition. What can we do to reverse the trend?
This is the first of 4 posts about how to combat manufactures and distributors of inferior products that are being reverse engineered and produced in China and sold at much lower prices to your existing clients. You are losing market share fast, and it is time to do something about it.
The economic strains are causing your end-users to trade down, resulting in that the mid-tier and premium brands are losing share to low-price rivals. You face a classic strategic conundrum: Do you tackle the threat head-on by reducing prices, knowing that will destroy profits in the short term and brand equity in the long term? Or do you hold the line, hope for better times to return, and in the meantime lose customers who might never come back? Given how unpalatable both of those alternatives are, you now must make a decision of how to combat manufacturers and distributors of lower priced and inferior products, to avoid losing additional market share and eroding margins.
There are four ways to battle your competition. 1) Launching a true fighter brand, 2) Launching an endorse sub-brand, 3) Launching a co-driver sub-brand or, 4) Launching a driver sub-brand
1) Definition of a fighter brand
A fighter brand is designed to combat, and ideally eliminate, low-price competitors while protecting an organization’s premium-price offerings.
A fighter brand, however, is not easy to introduce. First creating a new brand-building awareness, establishing perceptions of identity and quality, developing distributions channels is expensive, often prohibitively so.
Concerns about launching fighter brands
Will it cannibalize our premium offering?
Will it fail to bury the competition?
Will it lose money?
Will it miss the mark with end-users?
Will it consume too much management attention?
Other strategic questions to consider before launching at fighter brand
Determine whether another brand is truly necessary
Run the numbers, including what it will cost to build and sustain a new brand
Listen to your clients and customers, early and often
Reinvest in your core business and consistently calibrate between the two brands.
To combat the growing threat from fuel-efficient and affordable cars being launched into America from Japan, GM decided to launch of an “a different kind of car company” dubbed Saturn.
Despite the fact that Saturn won accolades for being one of the strongest brands in the U.S, Saturn proved to be a financial disaster with losses in excess of 10 billion dollars. With no budgetary discipline and so much focus on differentiating Saturn from the other GM brands, completely defeated the purpose of launching the brand in the first place.
Jetstar – (Quantas) 2004
To combat low-fare entrant Virgin Blue, Quantas decided to launch their own low-fare airline in 2003.
Since Quantas only had one single brand, it did not want to create a new brand unless it had to.
Exhaustive strategic sessions confirmed, however, that the Quantas brand was simply not in a position to combat Virgin Blue’s explosive growth. A fighter brand was the only option.
Quantas’ detailed projections showed that by offering no frills, its new airline could achieve a 20% cost advantage over its rival; thus allowing it to undercut Virgin Blue’s prices while sustaining a profit.
Quantum spent considerable time on focus groups across Australia and listening to their customers to validate the planned initiatives.
In 2004 Jetstar was launched with 14 planes flying to 14 destinations. The speed at which Jetstar attacked took Virgin Blue by surprise and knocked it off balance.
Jetstar took over the tourist routes that Quantas had lost money on. Because Jetstar proved profitable on those routes, it cannibalized only revenues, not profits.
Thanks to Jetstar, Quantas was able to refocus on its more profitable business routes and increase the frequency of its flights on those legs.
The subsequent boost in profits, along with Jetstar’s growing contribution, were reinvested in overhauls of Quantas’s business lounges and business class cabins – strengthening the Quantas brand and the distinction between it and Jetstar.
Jetstar has stopped the growth of Virgin Blue, and Quantas is now using the brand to fight other competitors in Asia and New Zealand.
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