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 brandsFighter 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.
|ABOUT THE AUTHOR|
Mark Ritson is a visiting associate professor of marketing at MIT Sloan School of Management. His article Should You Launch a Fighter Brand? appears in the October issue of Harvard Business Review.