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.
- Launching a true fighter brand
- Launching an endorsed sub-brand
- Launching a co-driver sub-brand or
- Launching a driver sub-brand
Option Two – Endorsed Sub-Brand
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.
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.
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.