Marketing by Peter Diekmeyer

Challenger Brands Need Different Strategies

The importance of establishing and maintaining brand leadership has been well documented in marketing literature over the last ten years. But what about the number two and three brands in a category, what kind of strategies should they adopt?

In his new book "Eating the Big Fish," American ad-agency executive Adam Morgan posits that modeling the marketing techniques of what he calls "Challenger brands" in other product categories is a far better strategy for number two and three brands than emulating the leader in their own.

A Challenger is a second-rank brand such as The Body Shop, Starbucks and Cirque de Soleil that has successfully demonstrated rapid growth with limited resources.

Morgan, the joint European planning director for TBWA (the international advertising agency behind the campaigns for such brands as Absolut Vodka, Apple Computers and Sony Playstation) has studied forty of the most successful Challenger brands over the last ten years and identified eight credos they tend to share.

At the heart of Morgan's often radical ideas is his vision of the brutal environment that today's marketers are competing in. Companies today are facing entirely new challenges than those that existed 5 to 10 years ago.

Some examples are: over-capacity and brand proliferation within a category, even in growth market segments, brand extensions from competitors in other categories moving into one's own and competition from retailers through private labeling programs.

The traditional approach of second or third ranked competitors within a category is to study the brand leader and attempt to model its success. Such a strategy is doomed to failure since it is impossible to mimic the relationship that a brand leader has with a consumer.

According to Morgan the recognized advantages at consumer, company and competitive levels that brand leaders enjoy go beyond their size. It appears that due to the relationship between top-of-mind awareness of a brand and its market share that this edge increases exponentially the larger brand leaders are relative to their competitors.

Furthermore, buyers of high-share brands purchase more frequently than consumers of second tier ones. For example coffee-brand leader Maxwell House's customers drink more coffee per capita than second place Sanka drinkers. That means customers the brand leader attracts are more profitable than those other brands attract.

These advantages create what the author calls "The Law of Increasing Returns," and are demonstrated by the fact that brand leaders who dominate a category earn almost twice the return on investment as their runners up. This has implications on the difference in resources available to each to compete effectively.

The Law of Increasing Returns means that number two and three ranked brands have to swim twice as hard just to stay in the same place and hence the sense of urgency and risk that pervade the author's strategies.

Morgan urges an immediate break with the past as his first credo. In 1985 when Intel was going through some soul searching, in order to demonstrate to themselves the need to wipe the slate emotionally clean, Andy Grove and Gordon Moore, president and chairman respectively, figuratively fired themselves by walking out of the building.

They would re-enter not as Andy Grove and Gordon Moore but as the newly recruited replacements for themselves. Sitting down anew in the boardroom they had just mentally vacated they realized they needed to refocus on what until then had been a secondary priority namely microprocessors.

Among the other credos the author defines for Challengers are: building a lighthouse identity and defining oneself not in terms of the consumer wants, but in terms of what the brand is, assuming thought leadership in a category, and sacrificing line extensions and markets and in turn over-committing resources in those areas where success is deemed necessary.

Morgan's advertising-agency background shapes his philosophy. Agencies are under huge pressure to deliver immediate results and often have short relationships with their clients who are forever juggling them around whenever another hot agency shows up or sales stagnate for a quarter.

Much of his thought reflects this short-term thinking such as his skepticism towards industry experience and his focus on hot ideas rather than on the customer. Agency personnel are used to sizing up a situation rapidly and making a judgment call. Unfortunately because of agency turnover both in accounts and staff, personnel are often not around to see where the dust falls on the advice they have given.

Morgan's weaknesses are also his strengths. He is full of ideas, many of which although flouting conventional wisdom are increasingly appropriate in the competitive business environment he so eloquently describes.

The book is part of a series sponsored by the American advertising trade magazine Adweek. Among other titles are "Under the Radar: Talking to Today's Cynical Consumer," co-written by Jonathan Bond and Richard Kirshenbaum, partners in the New York agency Kirshenbaum Bond & Partners and "Hey Whipple, Squeeze This: A Guide to Creating Great Ads," by Luke Sullivan, creative director at Fallon McElligott.

Eating the Big Fish: How Challenger Brands Can Compete Against Brand Leaders is 273 pages and published in Canada by John Wiley & Sons, Inc. for $41.95.

The American trade journal Advertising Age has named Deutsch Agency of the Year in the United States and Young & Rubicam Global Agency Network of the Year. Deutsch, which is 90 per cent owned by its president Donny Deutsch won because of its creative excellence, account wins, growth, and billings, which at $800 million U.S. makes it one of the largest independent agencies in the world. The New York-based agency counts Mitsubishi Motor Sales of America, Ikea, Snapple and Baskin-Robbins USA among its accounts.

The Société Québécoise de Marketing Direct is holding a one-day conference next Wednesday February 10, 1999. Several speakers are featured on the program that includes case studies of direct-marketing success stories. For information call 735-6790.


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