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.
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.
Our client Camacho Cigars has been working on a secret project for sometime. The project has finally launched!
Room101, the alternative luxury lifestyle brand for those who demand quality with an edge, is proud to announce their new line of Room101 Cigars (www.room101cigars.com). Originally founded in 2003 by Matt Booth, Room101 will introduce the premium cigar into their already successful line of silver jewelry, clothing, and accessories. The Room101 Cigar collection will be a blend of attitude, culture, celebrity, and some of the world’s finest tobaccos.
For the 2009 American Le Mans Series, Louis Moinet became the official timepiece for the racing team Primetime Race Group’s #11 Dodge Viper. The racing team entered its second full season in the American Le Mans Series with owner and driver Joel Feinberg and his teammate Chris Hall at the wheel. The car it the only Dodge Viper Competition Coupe in the Grand Touring (GT2) class of the competition. Visit www.primetimeracegroup.comfor additional schedule on upcoming races. Louis Moinet timepieces have been worn by distinctive figures the likes of Thomas Jefferson, Napoleon and King George IV. The company limts its production to only a thousand watches every year, ensuring its exclusivity.
Game over for GameStop? GameStop’s main revenue source is through the sale of those shiny little discs. What will happen when the developers exclusively release their games via the console’s online marketplaces? People will less likely go to a location to buy a physical item. Yes, it’s great to get the little booklet, and some of those exclusive packs have some cool swag. But we find it much more convenient to download the games, which actually also results in increased sales of add-ons for the distributors.
This leads us to our next observation. In a recent article that we read about the reported sales of the game, Crackdown (1.5 million), the developer mentions that they only broke even and in actuality sold about 2-3 million copies. What happened to the extra revenue? GameStop and other retailers made money on the used games. I believe the developers should have a cut of that money. We can argue that when you buy a car, the manufacturer does not see residuals on future sales of that car. A game is digital and remains intact, the only depreciation would be on the packaging or the disc itself.
So back to the point at hand. GameStop will eventually be in the same boat with the music business going from record, to cassette, to CD, to online download. How could GameStop reinvent itself?
Maybe it will become an antique dealer of old games and consoles. (which is somewhat does now)
A place that only sells the consoles, and peripherals.
Stand alone kiosk that resells the games onto a portable storage device. The kiosk being placed strategically in malls, convenience stores, etc.
What would you do if your industry changed as fast as GameStop’s industry? Do you have a contingency plan in place that will allow you to evolve just in time to save your business? Things to ponder! Sometimes the surest things have a way to undermine themselves. Don’t grow stale with your current products or services. Observe and always look for the next frontier in your industry, or take advantage of your perfected processes and look to apply those processes in an entirely new industry. Always have a plan ready for how to reinvent yourself when and if your find yourself swimming against the current.
