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Saturday, October 17, 2009

Is Your Fighter Brand Strong Enough to Win the Battle?

Five Steps to Ensure Success -- and Five More to Avoid Failure



The CEO stops by your office, and he's worried. The economy looks like it's not going to pick up any time soon. Formerly loyal consumers are trading down in ever greater numbers, and discount brands and private labels are taking a bigger and bigger slice of your market share. Your CEO needs something to shore up sales.

It's an increasingly common dilemma for CMOs with brands in the middle or top end of the market. Should you tackle the threat head-on and reduce existing prices on your premium brand, knowing it will reduce profits and potentially damage brand equity? Or should you maintain prices, hope for better times to return, and in the meantime lose sales from customers and support from your CEO? With both of these alternatives often proving equally unpalatable, many marketers have decided on a third option: launching a fighter brand.

It's one of the oldest strategies in branding. Unlike traditional brands that are designed with a set of target consumers in mind, fighter brands are specifically created to combat low-price competitors that threaten to steal market share away from a company's premium brand. When fighter brands work, they not only defeat low-priced competitors, they also open up new markets for companies to pursue. My research into fighter brands reveals five key strategic steps you should take to ensure your fighter brand will emerge victorious.

The first step is to ask yourself if a fighter brand is really what your organization needs. Can you afford to spend precious resources on a new, low-priced brand at a time when perhaps you should focus investment and management attention on your existing portfolio of brands? Too often companies must embark on significant cost-cutting and re-pricing strategies for their premium brands after acknowledging that their respective fighter brand strategies have failed. These crucial strategic transformations are usually delayed for years while organizations conceive, execute and finally retract their fighter brands. Start your fighter-brand campaign by questioning whether you even need one in the first place.

If you decide to launch, the second step is to prevent cannibalization. Most fighter brands are created explicitly to win back customers who have switched to a lower-priced rival. Unfortunately, once deployed, many have an annoying tendency to also acquire customers from a company's own premium offering. The best fighter brand strategies, like Procter & Gamble's use of Luvs in the diaper category, not only factor in the degree to which the brand will steal from its sister brand, they also include strategies to minimize the amount of cannibalization incurred. P&G specifically removed innovative features from Luvs and invested heavily in premium brand Pampers to ensure that they attacked their respective competitors more than they fought with each other.

Third, create a fighter brand strong enough to bury the competition. Fear of cannibalization often leads companies to overprotect their premium brands at the expense of the combative potential of their fighter brand. Make sure you market-test your fighter brand, and be prepared to recalibrate its price and performance so it finds the sweet spot between cannibalizing your premium brand and failing to damage your rivals. In the late '90s, Intel launched the low-priced Celeron brand in response to archrival AMD's K6 processor chips, which were cheaper and better-positioned to serve the emerging low-cost PC market. While Intel got the price right, the chips' feeble performance resulted in very poor quality reviews from consumers. Fortunately, Intel frequently launches new products and was able to quickly launch a new version of the chip called Celeron A, which retained a low price point but boasted stronger performance. Intel's 80% share of the processor market is a testament to the power of fighter brands to hold back competitors and open up new segments of the market.

Fourth, give your fighter brand a sustainable business model. While a fighter brand is designed to attack a low-price rival, it also has to do so profitably, or it won't maintain those attacks long enough to eventually defeat its enemy. This was the key mistake General Motors made with Saturn, which successfully stole market share from Toyota and Honda, but incurred huge operating costs. With GM losing $3,000 for every Saturn car it sold, the company was forced to cut production costs. In turn, Saturn lost its edge, and Japanese imports resumed their domination of the U.S. market. 3M was wiser with Highland, a fighter brand version of its famous Post-It Notes. Highland is a more basic product, coming in fewer formats with lower-grade adhesive. Lower quality means lower costs, which ensures Highland's profitability and its long-term fighting prowess.

The final step to fighter-brand success is early and frequent consumer focus. Normally, a successful brand has its genesis in the recognition of an unmet consumer need. But fighter brands originate with a competitor and the strategic success it has achieved, or threatens to achieve, against your organization. The DNA of a fighter brand is therefore potentially flawed from the very outset: It is derived from company deficiencies and competitor strengths, not a focus on consumers. To avoid a potentially fatal competitor orientation, apply the same degree of consumer focus for a fighter brand as you would any other launch. When it launched its fighter brand Jetstar, Australian airline Qantas succeeded where so many other airlines failed because it held secret customer focus groups all over Australia before any key decisions were made. Rather than develop Jetstar to match the strengths of the competitor it was designed to attack, it was created around the needs of the consumers it would one day serve.

A marketer will probably never encounter a strategy as alluring or potentially disastrous as a launching fighter brand. Weigh my five suggestions above very carefully. Fortune favors the brave, but it holds an even more special place for those who use good advice in battle.

Five things to avoid when launching fighter brands

Fighter brands can be tempting, but their history is a discouraging roll-call of failed campaigns that inflicted little damage on targeted competitors and resulted, instead, in significant collateral losses for the company that launched them. Here are the five strategic hazards that render most fighter brands as failures from launch.
 
CANNIBALIZATION: You launch a fighter brand aimed at a low-priced rival but then watch in horror as your new brand eats up the more profitable sales from the premium brand you were trying to protect. Example: Kodak Funtime film was meant to combat Fuji's cheaper product but ended up doing more damage to Kodak's premium Gold Plus line.
 
FAILURE TO ATTACK: You are so worried about protecting your premium brand from cannibalization that you end up launching a fighter brand that is so weak it does no damage on the competition. When Merck launched a fighter brand for high cholesterol in Germany called Zocor MSD, it was priced so high that it had no impact on the generic drugs that it was meant to attack.
 
INTERNAL ORIENTATION: You spend so long designing your fighter brand to attack the competition that you forget about consumers. When United Airlines launched Ted to take on low-priced carriers, it only benchmarked against its own premium airline. Compared to United, Ted was indeed a low-priced carrier. But compared to competitors such as Southwest, it was still 15% more expensive.
 
MISSING PROFITABILITY: You create a brand designed to take on low-priced rivals but discover that you have no core competencies for playing in this space. Your fighter brand might be successful in the short term, but, if it loses money, it's a matter of time before you have to pull it from the market or make major changes. Delta's Song airline was estimated to be losing $15 million a month when it closed in 2006.
 
RESOURCE DRAIN: You go to war with a fighter brand at the very time you should stay back and defend the homeland. GM invested time, money and management energy during the 1990s on Saturn as an answer to Japanese imports. In retrospect, GM should really have been making the essential changes to its existing portfolio and strategy.

Pepsi's Web-Smart Thrust into China


Its promotions have made it the No. 1 cola in the mainland

Shanghai - On a stage built in a disused Shanghai factory, a young bassist paces nervously, a stainless steel bicycle chain dangling from his belt. As his group prepares to perform for a standing-room-only crowd, a bandmate tilts his hat over one eye, doing his best to look like Justin Timberlake.

Welcome to Pepsi's (PEP) Battle of the Bands. The American Idol-style television show is a big component of the company's brand-building efforts in China. Some 6,000 bands tried out for 10 spots on the show, which was broadcast nationwide and streamed to Pepsi's Web site. The winner, a five-piece combo from Tianjin called Focus Point, got $30,000, a trip to a Los Angeles recording studio, a car, and a role in a Pepsi TV ad.

Worldwide, of course, Pepsi (No. 23 on BusinessWeek 's Best Global Brands survey) remains far behind Coca-Cola (KO) (No. 1). But by at least one important measure, Pepsi is beating its archrival in China. It's the No. 1 cola, with 23% of the soda market, vs. Coke's 22%, according to researcher Euromonitor International. The country "represents our single biggest opportunity today outside the U.S.," says CEO Indra K. Nooyi, who spent 12 days in China this summer.

Pepsi thinks the Internet is key to unlocking that opportunity. In August the company launched the "Pepsi Creative Challenge," soliciting online birthday wishes marking the 60th anniversary of the founding of the People's Republic. Last year a promotion called "Go China," before the Beijing Olympics, encouraged people to send in patriotic slogans and pictures of themselves. Pepsi got 28 million submissions and more than 122 million votes to decide the winners, whose photos and slogans were printed on soda cans. And in 2006, some 28,000 Internet users submitted scripts for a Pepsi TV ad. "Pepsi [in China] is one of the best digital marketers anywhere," says Tom Doctoroff, North Asia director for ad agency JWT.

The promotions are the brainchild of Harry Hui, Pepsi's chief marketing officer for China. The former head of Greater China for Universal Music, Hui is serving as producer of Battle of the Bands and is one of its three judges. "Consumers in China are bombarded with messages, so merely telling them what they should drink or eat might not resonate," Hui says. "Giving them a platform where they can talk back fosters a deeper relationship with the brand."

TEMPORARY FIZZ?

Web campaigns are growing in importance for most foreign companies in the mainland. With more Chinese than Americans online, social media and blogs are "a must-have component of marketing in China," says Sam Flemming, chief of CIC, a research firm in Shanghai that works with Pepsi.

Coke, meanwhile, is no stranger to the Net, and it's turning up the heat in China, too. Pepsi may be the No. 1 cola, but it's behind Coke's Sprite, the top soda in the country. Coke's Minute Maid leads the juice segment, with 10.3% of the market, vs. just 1.4% for Pepsi's Tropicana. Coke also sponsors an American Idol-style competition of its own, and its iCoke Web site is a popular portal for gamers in China. "Everyone knows about iCoke," says Tony Ip, China managing director for G2, Grey Group's digital-marketing arm. Though Pepsi's big campaigns create a lot of buzz, it's short-lived, he says. "I don't see them building equity," says Ip.

Pepsi executives counter that the efforts will pay off as they move into juices and other noncarbonated drinks. But they acknowledge that marketing can get you only so far in China and that plans to boost distribution are equally important. To really succeed, says Ken Newell, Pepsi's beverage chief for the country, "we must build plants further into China." 

Source: http://www.businessweek.com/magazine/content/09_39/b4148051511340.htm?chan=innovation_branding_top+stories