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.
- Is the market you are entering still growing
Examples of fighter brands
Saturn – B to C (General Motors) 1982
- 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.
Ambra – B to professional (IBM) 1992
- To combat the growing threat from direct marketers of personal computers like Dell and Gateway and other IBM models.
- The Ambra was sourced in Asia and marketed between 1992 and 1994 by mail order in Europe and the United States.
- Due to lack of brand equity and distribution barriers the Ambra was cancelled 2 years after its birth.