My Question: Dave, how would you like to advise handling ‘’Strategy & Business Transformation alignment with Brand Perspective in times of Social Media ”?
Answer by David Aaker
Brand Preference vs. Brand Relevance
My book Brand Relevance: Making Competitors Irrelevant discusses two ways to compete. The first is to win the brand preference competition by making a brand preferred over other brands in an established category or subcategory. The second is to win the brand relevance competition by creating new categories or subcategories for which competitors are irrelevant. These two routes to winning are very different in terms of strategy and ability to deal with market dynamics.
The first and most commonly used route to winning focuses on generating brand preference among the choices considered by customers, on beating the competition. A consumer decides to buy an established product category or subcategory such as SUVs. Several brands, perhaps Lexus, BMW, and Cadillac, have the visibility and credibility to be considered. A brand, perhaps Cadillac, is then selected. Winning involves making sure that Cadillac is preferred to Lexus and BMW which usually means being superior in at least one of the dimensions defining the category or subcategory and being at least as good as competitors in the rest.
The brand preference strategy involves incremental innovation to make the brand ever more attractive or reliable or the offering less costly. Faster, cheaper, better is the mantra. Resources are expended on communicating more effectively with more clever advertising, more impactful promotions, more visible sponsorships, and more involving social media programs but such efforts rarely break out of the clutter. There is a focus and commitment on the existing offering, business model, and target segment. Improvement is the goal but change is not on the table.
This classic brand preference model is an increasingly difficult path to success in today’s dynamic market because customers are not inclined or motivated to change brand loyalties in established markets. Brands are perceived to be similar at least with respect to the delivery of functional benefits, and often these perceptions are accurate. As a result, customers are not motivated to learn about or locate alternatives. Further, even when the offering is improved or effective marketing is developed, competitors usually respond with such speed and vigor so that any advantage is often short-lived. As a result a brand preference strategy is usually a recipe for stressed margins, unsatisfactory profitability, and, ultimately, a decline into irrelevance. It is so not fun.
The second route to competitive success is to change what people buy by creating new categories or subcategories that alter the way that existing customers look at the purchase decision and use experience. Under brand relevance competition, the customer selects the category or subcategory, perhaps a compact hybrid, making the starting place very different. The selection of the category or subcategory is now a crucial step that will influence what brands get considered and thus are relevant. The customer then identifies brands that are visible and credible to that category or subcategory. The brand set is more in play than under the brand preference model. There might be only a single brand that makes the consideration set, perhaps a Prius.
A relevant brand for a customer is one for which the target category or subcategory is selected and the brand is in the consideration set.
Winning under the brand relevance model, now very different, is based on being selected because competitors were not relevant rather than not preferred, a qualitatively different reason. Some or all competitor brands are not visible and credible with respect to the new category or subcategory. The result can be a market in which there is no competition at all for an extended time or one in which the competition is reduced or weakened, the ticket to ongoing financial success.
The brand relevance strategy involves transformational or substantial innovation to create offerings so innovative that new categories or subcategories are created. It involves an organizational ability to sense changes in the marketplace and its customers, an ability to commit to a new concept and bring it to market, and a willingness to take risks by going outside the comfort zone represented by the existing target market, value proposition, and business model.
The payoff of operating with no or little competition is huge. It is econ 101. Consider the Chrysler minivan introduced as the Plymouth Voyager and Dodge Caravan in 1982 which sold 200,000 during the first year and 12.5 million to date. For 16 years Chrysler had no viable competitor in part because it continuously innovated behind the product but also because competitors had other priorities.
In addition to numerous case studies there is empirical evidence that creating new categories or subcategories pay off. Perhaps the most robust law in marketing is that new product success is correlated with how differentiated they are and a highly differentiated offering is likely to define a new category or subcategory. A McKinsey study is one of many that supports. It showed that new entrants into a market which likely involve a high percentage of new categories or subcategories had a return premium of 13 points the first year sliding to one percent in the tenth year.
Brand relevance competition, when it works, is more profitable and more fun.
David Aaker is Vice Chairman at Prophet. He is based in the San Francisco office.