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
- 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.
- 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.