Brand Relevance E-Book

David A. Aaker

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 558

Veröffentlichungsjahr: 2010

Beschreibung

Branding guru Aaker shows how to eliminate the competition and become the lead brand in your market This ground-breaking book defines the concept of brand relevance using dozens of case studies-Prius, Whole Foods, Westin, iPad and more-and explains how brand relevance drives market dynamics, which generates opportunities for your brand and threats for the competition. Aaker reveals how these companies have made other brands in their categories irrelevant. Key points: When managing a new category of product, treat it as if it were a brand; By failing to produce what customers want or losing momentum and visibility, your brand becomes irrelevant; and create barriers to competitors by supporting innovation at every level of the organization. * Using dozens of case studies, shows how to create or dominate new categories or subcategories, making competitors irrelevant * Shows how to manage the new category or subcategory as if it were a brand and how to create barriers to competitors * Describes the threat of becoming irrelevant by failing to make what customer are buying or losing energy * David Aaker, the author of four brand books, has been called the father of branding This book offers insight for creating and/or owning a new business arena. Instead of being the best, the goal is to be the only brand around-making competitors irrelevant.

Leseprobe

Contents

Preface

Chapter 1: Winning the Brand Relevance Battle

The Japanese Beer Industry

The U.S. Computer Industry

Gaining Brand Preference

The Brand Relevance Model

Creating New Categories or Subcategories

Levels of Relevance

The New Brand Challenge

The First-Mover Advantage

The Payoff

Creating New Categories or Subcategories—Four Challenges

The Brand Relevance Model Versus Others

What is Coming

Key Takeaways

For Discussion

Chapter 2: Understanding Brand Relevance

Categorization

It’s All About Framing

Consideration Set as a Screening Step

Measuring Relevance

Key Takeaways

For Discussion

Chapter 3: Changing the Retail Landscape

Muji

IKEA

Zara

H&M

Best Buy

Whole Foods Market

The Subway Story

Zappos

Key Takeaways

For Discussion

Chapter 4: Market Dynamics in the Automobile Industry

Toyota’s Prius Hybrid

The Saturn Story

The Chrysler Minivan

Tata’s Nano

Yugo

Enterprise Rent-A-Car

Zipcar

Key Takeaways

For Discussion

Chapter 5: The Food Industry Adapts

Fighting the Fat Battle

From Fat to Health

Key Takeaways

For Discussion

Chapter 6: Finding New Concepts

Apple

Concept Generation

Sourcing Concepts

Prioritizing the Analysis

Key Takeaways

For Discussion

Chapter 7: Evaluation

Segway’s Human Transporter

Evaluation: Picking the Winners

Is There a Market—Is the Opportunity Real?

Can We Compete and Win?

Does the Offering Have Legs?

Beyond Go or No-Go—A Portfolio of Concepts

Key Takeaways

For Discussion

Chapter 8: Defining and Managing the Category or Subcategory

Salesforce.com

Defining a New Category or Subcategory

Functional Benefits Delivered by the Offering

Customer-Brand Relationship—Beyond the Offering

Categories and Subcategories: Complex and Dynamic

Managing the Category or Subcategory

Key Takeaways

For Discussion

Chapter 9: Creating Barriers

Yamaha Disklavier

Creating Barriers to Competition

Investment Barriers

Owning a Compelling Benefit or Benefits

Relationship with Customers

Link the Brand to the Category or Subcategory

Key Takeaways

For Discussion

Chapter 10: Gaining and Maintaining Relevance in the Face of Market Dynamics

Walmart

Avoiding the Loss of Relevance

Product Category or Subcategory Relevance

Category or Subcategory Relevance Strategies

Energy Relevance

Gaining Relevance—The Hyundai Case

Key Takeaways

For Discussion

Chapter 11: The Innovative Organization

Ge Story

The Innovative Organization

Selective Opportunism

Dynamic Strategic Commitment

Organization-Wide Resource Allocation

Key Takeaways

For Discussion

Epilogue: The Yin and Yang of the Relevance Battle

Notes

Index

“What always amazes me about Dave Aaker is his uncanny ability to see through the fog and mist and discern a new and fundamental truth that in retrospect seems so perfectly obvious as to seem simplistic. It is just that no one else sees what Dave does. That is exactly the case with Brand Relevance. Aaker perceives that it is no longer brand preference that is pivotal but rather brand relevance has now become key. Brand relevance that yields sustainable differentiation resulting in new categories or subcategories of products or services where competitors are less or even non-relevant. Forget your line extensions and white space analyses, get on the brand relevance bandwagon.”

—Peter Sealey, former chief marketing officer, Coca-Cola and Columbia Pictures and author, Simplicity Marketing

“Aaker offers a fresh approach to brand strategy by observing that most marketers spend their time trying to build or maintain brand preference when they should focus on building brand relevance wins through inventing new categories and sub-categories to meet consumers’ changing needs.”

—Philip Kotler, S.C. Johnson & Son Distinguished Professor of International Marketing at the Northwestern University and management guru

“Dave has done it again! Students of brand management from the classroom to the boardroom will appreciate the insights, challenges, and practical perspectives of BrandRelevance. Like many of Dave’s works, this will have a prominent place on my shelf of well-read, frequently-referenced business books.”

—Denice Torres, president, North America CNS Ortho-McNeil-Janssen Pharmaceuticals, Inc

“Dave Aaker has become the foremost authority on branding because of his knack for providing insightful, practical advice to marketers. Brand Relevance is Aaker at his best: Tackling a challenging problem with fresh ideas and compelling examples. He convincingly shows how brands can mean the most to consumers.”

—Kevin Lane Keller, E. B. Osborn Professor of Marketing at the Tuck School of Business at Dartmouth, and author, Strategic Brand Management

“Aaker’s concept of brand relevance provides an innovation-based path to win in the face of market dynamics.”

—David Stachon, chief marketing officer, ERGO Insurance Group

“Dave Aaker has taught me a lot over the years. Here he goes again. Always redefining. Clarity jumps off the first pages—it’s less about the brand-preference battle than the brand-relevance war. We work hard at business schools to build students’ capacity for clear problem statements. By bringing clarity to the real problem, he delivers great opportunity. I especially appreciate his focus on establishing relevance through disciplined process. I also appreciate his links to innovation and how to make it pay.”

—Richard K. Lyons, dean, Haas School of Business, University of California, Berkeley

“Aaker has hit the nail on the head with BrandRelevance, perhaps the biggest challenge 21st century brands face is to risk innovating and—even more terrifying—transforming oneself. You’ve gotta take the leap or risk getting left behind.”

—Ann Lewnes, chief marketing officer, Adobe

“David Aaker’s Brand Relevance brings branded insight to the process of innovation. Loaded with powerful examples, his definition of ‘sub-categories’ provides a contextual sweet spot between close-in product improvements and highly elusive “transformational” innovations. David’s strategic model brings a potent and practical question for business leaders to ask: ‘Does this innovation create a new sub-category to which competitors are no longer relevant?’ The numerous examples really help bring it to life”

—Ian R. Friendly, executive vice president, General Mills

“David Aaker’s latest book is a downright challenge to marketers and strategists—stay the course with familiar approaches to building brand preference and risk the likelihood of being made irrelevant by those who jump right on Aaker’s lessons. Despite the challenges involved with brand relevance, it’s clearly a path to potential substantial growth.”

—Meredith Callanan, vice president corporate marketing and communication, T. Rowe Price

“For an established brand like Allianz, Aaker’s insights are a “wake up call” because a market leader like us can lose our position if new brands leverage innovation and technology to redefine insurance. We have a lot to lose if we lose the relevance game.”

—Joseph K. Gross, executive vice president, Allianz SE

Copyright © 2011 by John Wiley & Sons, Inc. All rights reserved.

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Library of Congress Cataloging-in-Publication Data

Aaker, David A.

Brand relevance : making competitors irrelevant / David A. Aaker. — 1st ed.

p. cm. — (The Jossey-Bass business and management series)

Includes bibliographical references and index.

ISBN 978-0-470-61358-0 (cloth)

ISBN 978-0-470-92259-0 (ebk)

ISBN 978-0-470-92260-6 (ebk)

ISBN 978-0-470-92261-3 (ebk)

1. Brand name products. 2. Branding (Marketing) 3. Technological innovations. I. Title.

HD69.B7A21535 2011

658.8'27—dc22

2010036007

The Jossey-Bass Business & Management Series

To my wife Kay and my daughters Jennifer, Jan, and Jolyn who inspire with their support, vitality, compassion, love, and friendship.

Preface

During the last ten years, I have been struck by how the concept of brand relevance could explain so much about strategic successes, market dynamics, and even brand declines. A brand could develop great marketing supported by large budgets but not make a dent in the market unless it drove a new category or subcategory of products or services, unless a new competitive arena in which the competitors were no longer relevant emerged. Then success could be dramatic in terms of sales, profits, and market position. It seems clear that success is about winning not the brand preference battle but, rather, the brand relevance war with an innovative offering that achieves sustainable differentiation by creating a new category or subcategory.

When you start looking, it is amazing how many examples of new categories and especially subcategories that appear in virtually all industries. It is clear, however, that achieving that result is not easy or without risks. There are many failures and disappointments, few of which are visible. Success requires timing—the market, the technology, and the firm all have to be ready. Further, the offering concept that will drive the new category or subcategory needs to be generated and evaluated, the new category or subcategory needs to be actively managed, and barriers against competitors have to be created. All of these tasks are difficult and require support from an organization that may have conflicting priorities and resource constraints.

I also observed that often brands were in decline not because they had lost their ability to deliver or the loyalty of their users was fading, but because they had became less relevant. What declining brands were selling was no longer what customers were buying, because customers were attracted by a new category or subcategory. Or the declining brands might have slipped out of the consideration set because they simply lost energy and visibility. In that case, the failure of brand management to understand the real problem meant that marketing programs were ineffective and resources were wasted or misdirected.

At the same time, my ongoing research and writing on business strategy, as reflected in my book Strategy Market Management, currently in its ninth edition, made me see that virtually all markets are now buffeted by change, not only in high tech but also in durables, business-to-business, services, and packaged goods. Change, driven by technology, market trends, and innovation of every type, is accelerated by our “instant media.” The processes and constructs supporting the development of business strategies clearly need to be adapted and refined. To me the key is brand relevance. The way for a firm to get on top of its strategies in a time of change is to understand brand relevance, to learn how a firm can drive change through innovations that will create new categories and subcategories—making competitors less relevant—and how other firms can recognize the emergence of these new categories and subcategories and adapt to them.

The goal of this book is to show the way toward winning the brand relevance battle by creating categories or subcategories for which competitors are less relevant or not relevant at all, managing the perceptions of the categories or subcategories, and creating barriers protecting them. The book also looks at how brands can maintain their relevance in the face of market dynamics. Over twenty-five case studies provide insight into the challenges and risks of fighting brand relevance battles.

There are dozens of other strategy books that in one way or another talk about growth strategies based on innovations. They have made a significant contribution to strategic thought and practice. However, this book has several distinctive thrusts and features that are missing in much of this library. First, this book emphasizes branding and branding methods. In particular, it highlights the importance of defining, positioning, and actively managing the perceptions of the new category or subcategory. Second, it emphasizes the need to create barriers to entry so that the time in which competitors are irrelevant is extended. Third, it explicitly includes substantial innovation as well as transformational innovation as routes to new categories or subcategories. Finally, it also explicitly suggests that subcategories can be created as well as categories. For every opportunity of creating a new category or employing transformational innovation, there are many chances to create subcategories and use substantial innovation.

One objective of the book is to provide a process by which a firm can create new categories or subcategories and make competitors irrelevant. It involves four tasks, each of which is covered in a chapter: concept generation, evaluation, defining the category or subcategory, and creating barriers to competitors.

A second objective is to define the brand relevance concept and show its power as a way to drive and understand dynamic markets. Toward that end academic research is used to provide insights, and over two dozen case studies are presented that illustrate the challenges, risks, uncertainties, and payoffs of creating new categories or subcategories.

A third objective is to consider the threat of losing brand relevance, how it happens, and how it can be avoided. Although relevance dynamics represents an opportunity to create new markets, it also represents a risk for those brands who ignore market dynamics because they are unaware of the changes in their markets or because they are focused on a strategy that has worked in the past.

A final objective is to profile what characteristics an organization needs to have to support substantial or transformational innovation that will lead to new categories or subcategories.

I owe a debt to many for this book. The stimulating work of strategy and brand thinkers that preceded this effort helped me refine some ideas. Michael Kelly of Techtel, in many discussions over biking, helped spark my interest in relevance. My colleagues at Dentsu helped me refine and extend my ideas. The Prophet team is an inspiration with its incredible work. I especially thank Michael Dunn, a gifted CEO, who provided me with the bandwidth and support to write the book; Karen Woon, who was a sounding board throughout; and Andy Flynn, Agustina Sacerdote, Erik Long, and Scott Davis, who offered suggestions that made a difference. I also thank my friends Katy Choi and Jerry Lee, who are making the book happen in Korea with a huge event as well. The design team at Prophet, Stephanie Kim Simons, Marissa Haro, and Kelli Adams were instrumental in creating the cover. I would like to thank Kathe Sweeney and her colleagues at Jossey-Bass for having confidence in the book. I also would like to thank the production editor Justin Frahm and the copy editor Francie Jones who moved the process along and, more important, challenged me to improve the manuscript in both small and large ways. Finally I would like to thank my daughter, friend, and colleague Jennifer Aaker and her husband and coauthor Andy Smith who supported my efforts in so many ways.

You do not merely want to be considered just the best of the best. You want to be considered the only ones who do what you do.

—Jerry Garcia, The Grateful Dead

1

WINNING THE BRAND RELEVANCE BATTLE

First they ignore you. Then they ridicule you. Then they fight you. Then you win.

—Mahatma Gandhi

Don’t manage, lead.

—Jack Welch, former GE CEO and management guru

Brand relevance has the potential to both drive and explain market dynamics, the emergence and fading of categories and subcategories and the associated fortunes of brands connected to them. Brands that can create and manage new categories or subcategories making competitors irrelevant will prosper while others will be mired in debilitating marketplace battles or will be losing relevance and market position. The story of the Japanese beer industry and the U.S. computer industry illustrate.

The Japanese Beer Industry

For three and a half decades the Japanese beer market was hypercompetitive, with endless entries of new products (on the order of four to ten per year) and aggressive advertising, packaging innovations, and promotions. Yet the market share trajectory of the two major competitors during these thirty-five years changed only four times—three instigated by the introduction of new subcategories and the fourth by the repositioning of a subcategory. Brands driving the emergence or repositioning of the subcategories gained relevance and market position, whereas the other brands not relevant to the new subcategories lost position—a remarkable commentary on what drives market dynamics.

Kirin and Asahi were the main players during this time. Kirin, the dominant brand from 1970 to 1986 with an unshakable 60 percent share, was the “beer of beer lovers” and closely associated with the rich, somewhat bitter taste of pasteurized lager beer. A remarkable run. There were no offerings that spawned new subcategories to disturb.

Asahi Super Dry Appears

Asahi, which in 1986 had a declining share that had sunk below 10 percent, introduced in early 1987 Asahi Super Dry, a sharper, more refreshing beer with less aftertaste. The new product, which contained more alcohol and less sugar than lager beers and had special yeast, appealed to a new, younger generation of beer drinkers. Its appeal was due in part to a carefully crafted Western image supported by its label (see Figure 1.1), endorsers, and advertising. Both the product and the image were in sharp contrast to Kirin.

Figure 1.1 Asahi Super Dry Can

Note the English terms.

In just a few years, dry beer captured over 25 percent of the market. In contrast, it took light beer eighteen years to gain 25 percent of the U.S. market. It was a phenomenon of which Asahi Super Dry, perceived to be the authentic dry beer, was the beneficiary. In 1988 Asahi’s share doubled to over 20 percent and Kirin’s fell to 50 percent. During the ensuing twelve years Asahi continued to build on its position in the dry beer category, and in 2001 it passed Kirin and became the number-one brand in Japan with a 37 percent share, a remarkable result. Think of Coors passing Anheuser-Busch, a firm with a long-term market dominance similar to the one Kirin enjoyed.

It is no accident that Asahi was the firm that upset the market. In 1985 Asahi had an aggressive CEO who above all wanted to change the status quo, both internally and externally. Toward that end he changed the organizational structure and culture to encourage innovation. Of course, he was “blessed” with financial and market crises. Kirin, however, had an organization entirely focused on maintaining the current momentum and on doing exactly what they had always done.

Kirin responded in 1988 with Kirin Draft Dry beer but, after having touted Kirin lager beer for decades, lacked credibility in the new space. Further, the ensuing “dry wars,” in which Asahi forced Kirin to make changes to its packaging to reduce the similarity of Kirin Draft Dry to the Asahi product, reinforced the fact that Asahi was the authentic dry beer. Kirin, whose heart was never in making a beer that would compete with its golden goose with its rich tradition and many loyal buyers, was perceived by many as the bully trying to squash the feisty upstart. Over the ensuing years, a bewildering number of efforts by Kirin and the other beer firms to put a dent in the Asahi advance were unsuccessful.

Kirin Ichiban Arrives

The one exception to efforts to create new subcategories with new beer variants was Kirin Ichiban, introduced in 1990, made from a new and expensive process involving more malt; filtering at low temperature; and, most important, using only the “first press” product. Its taste was milder and smoother than Kirin Lager’s, with no bitter aftertaste. Competitors were stymied by the cost of the process, the power of the Kirin Ichiban brand, and the distribution clout of Kirin. Kirin Ichiban caused a pause in the decline of the Kirin market share that lasted from 1990 to 1995. Its role in the Kirin portfolio steadily grew until, in 2005, it actually sold more than Kirin Lager—although the combination of the two was then far behind Asahi Super Dry.

Dry Subcategory is Reenergized

In 1994 Asahi, by this time the only dry beer brand, developed a powerful subcategory positioning strategy around both freshness and being the number-one draft beer with a global presence. While Asahi was enhancing the dry subcategory, Kirin was simultaneously damaging the lager subcategory. Perhaps irritated by Asahi’s number-one-draft-beer claim, Kirin converted to a draft beer making process and changed Kirin Lager to Kirin Lager Draft (the original still was on the market as Kirin Lager Classic but was relegated to a small niche). Kirin tried to make Kirin Lager Draft more appealing to a younger audience, but instead its image became confused, and its core customer base was disaffected. As a result, from 1995 to 1998 the subcategory battle between dry and lager resulted in Asahi Super Dry extending its market share eight points to just over 35 percent, while Kirin was falling nine points to around 39 percent.

Happoshu Enters

In 1998 a new subcategory labeled happoshu, a “beer” that contained a low level of malt and thus qualified for a significantly lower tax rate, got traction when Kirin entered with its Kirin Tanrei brand (Suntory introduced the first happoshu beer in 1996 but lost its position to Tanrei). By early 2001, after this new subcategory had garnered around 18 percent of the beer market, Asahi finally entered, but could not dislodge Kirin. The Asahi entry had a decided taste disadvantage, in large part because Kirin Tanrei had a sharper taste that was reminiscent of Asahi Super Dry. Asahi wanted no such similarity for its happoshu entry because of the resulting potential damage to Asahi Super Dry.

By 2005 Kirin had taken leadership in both the happoshu subcategory and in another subcategory, a no-malt beverage termed “the third beer,” which had an even greater tax advantage. From 2005 on, these two new subcategories captured over 40 percent of the Japanese beer market. In 2009 the two Kirin entries did well, with over three times the sales of the Asahi entries, and actually outsold the sum of Kirin Lager and Kirin Ichiban sales by 50 percent. As a result, Kirin recaptured market share leadership in the total beer category including happoshu and the third beer, albeit by a small amount, despite the fact that Asahi had nearly a two-to-one lead in the conventional beer category.

The changes in what people buy and in category and subcategory dynamics are often what drive markets. Figure 1.2 clearly shows the four times the market share trajectory in the Japanese beer market changed—all driven by subcategory dynamics. Brands that are relevant to the new or redefined category or subcategory, such as Asahi Super Dry in 1986 or Kirin Ichiban in 1990 or Kirin Tanrei in 1998, will be the winners. And brands that lose relevance because they lack some value proposition or are simply focused on the wrong subcategory will lose. That can happen insidiously to the dominant, successful brands, as with Kirin Lager in the mid-1980s and Asahi in the late 1990s.

Figure 1.2 The Asahi-Kirin Beer War

Note the importance of brands in the ability of firms to affect category and subcategory position. Kirin Lager captured the essence of lager and the Kirin heritage. Asahi Super Dry defined and represented the new dry subcategory, even when Kirin Draft Dry was introduced. Kirin Tanrei was the prime representative of the happoshu category. And the repositioning of Asahi Super Dry really repositioned the dry subcategory, because at that point Asahi was the only viable entry.

The U.S. Computer Industry

Consider also the dynamics of the U.S. computer industry during the last half century and how these dynamics affected the winners and losers in the marketplace. The story starts in the 1960s when seven manufacturers, all backed by big firms, competed for a place in the mainframe space. However, as “computers as hardware” suppliers they became irrelevant in the face of IBM, who defined its offering as a problem-relevant systems solution supplier and thus created a subcategory. Then came the minicomputer subcategory in the early 1970s, led by Digital Equipment Corporation (DEC), Data General, and HP, in which a computer served a set of terminals and in which the mainframe brands were not relevant.

The minicomputer business itself became irrelevant with the advent of servers and personal computers as hardware, and Data General and DEC faded while HP adapted by moving into other subcategories. Ken Olsen, the DEC founder and CEO, has famously been quoted as saying in 1977, “There is no reason why any individual would want a computer in his home.” Although the quote was taken out of context, the point that emerging subcategories, in this case the personal computer (PC) subcategory, are often underestimated is a good one.1

The PC subcategory itself fragmented into several new subcategories driven by very different firms. IBM was the early dominant brand in the PC subcategory, bringing trust and reliability. Dell defined and led a subcategory based on building to order with up-to-date technology and direct-to-customer sales and service. A portable or luggable niche was carved out of the personal computer segment, initially by Osborne in 1981 with a twenty-four-pound monster and ultimately in 1983 by Compaq, who became the early market leader. Then came the laptop, which was truly portable. Toshiba led this subcategory at first, until the IBM ThinkPad took over the leadership position with an attractive design and clever features.

Sun Microsystems led in the network workstation market, and SGI (Silican Graphics) led in the graphic workstation market, both involving heavy-duty, single-user computers. The workstation market evolved into the server subcategory. Sun was a dominant server brand in the late 1990s for Internet applications, but fell back as the Internet bubble burst.

In 1984 Apple launched the Macintosh (Mac), creating a new subcategory of computers. It was revolutionary because it changed the interaction of a user with a computer by introducing new tools, a new vocabulary, and a graphical user interface. There was a “desktop” with intuitive icons, a mouse that changed communication with a computer, a toolbox, windows to keep track of applications, a drawing program, a font manager, and on and on. And it was in a distinctively designed cabinet under the Apple brand. In the words of the Mac’s father, Steve Jobs, it was “insanely great.”2 The 1984 ad in which a young women in bright red shorts flings a sledgehammer into a screen where “big brother” (representing of course IBM) spouts out an ideology of sameness was one of the most notable ads of modern times. For the next decade and more there were core Mac users, especially among the creative community, who were passionately loyal to the Mac and enjoyed visible, self-expressive benefits from buying and using the brand. It took six years for Microsoft to come up with anything comparable.

In 1997 Steve Jobs, returning from a forced twelve-year exile from Apple, was the driving force behind the iMac (“i” initially represented “Internet enabled” but came to mean simply “Apple”). The iMac provided a new chapter to the Mac saga and became a new—or at least a revised—subcategory. The best-selling computer ever, its design and coloring were eye-catching. Incorporating the then-novel use of the USB port, Apple made the remarkable decision to omit a floppy disk. Instead of dooming the product as many predicted, this made the product appear advanced—made for an age in which people would share files over the Internet instead of via disks.

Another computer revolution is under way. Products such as smart phones and tablets like iPad are replacing laptop and even desktop computers for many applications. The new winners are firms such as Apple, Google with its Android software, the communication firms AT&T and Verizon, server farms, and application entrepreneurs. The losers will be the conventional computer hardware and software businesses.

As in the case of Japanese beer, it was the emergence of new subcategories such as solutions-focused mainframes, minicomputers, workstations, servers, PCs, Macintosh, portables, laptops, notebooks, and tablets that create the market dynamics that changed the fortunes of the participates. Again and again competitors fell back or disappeared, and new ones emerged as new subcategories were formed. The ongoing marketing efforts involving advertising, trade shows, and promotions had little impact on the market dynamics. A similar analysis could be made concerning most industries.

Brand relevance is a powerful concept. Understanding and managing relevance can be the difference between winning by becoming isolated from competitors or being mired in a difficult market environment where differentiation is hard to achieve and often short-lived. It is not easy, however, but requires a new mind-set that is sensitive to market signals, is forward looking, and values innovation.

This chapter starts by defining and comparing the two perspectives of the marketplace, the brand preference model and the brand relevance model. It then describes the central concept of creating a new category or subcategory and the role of substantial and transformational innovation in that process. The next section describes the new management task, to influence and manage the perceptions and position of the new category and subcategory. The chapter then turns to the potential power of the first mover advantage and the value of being a trend driver. The payoff of creating new categories and subcategories is then detailed and followed by a description of the four tasks that are necessary to create a new category or subcategory. Finally, the brand relevance concept is contrasted with approaches put forth by other authors toward a similar objective and the rest of the book is outlined.

Gaining Brand Preference

There are two ways to compete in existing markets—gaining brand preference and making competitors irrelevant.

The first and most commonly used route to winning customers and sales focuses on generating brand preference among the brand choices considered by customers, on beating the competition. Most marketing strategists perceive themselves to be engaged in a brand preference battle. A consumer decides to buy an established product category or subcategory, such as SUVs. Several brands have the visibility and credibility to be considered—perhaps Lexus, BMW, and Cadillac. A brand, perhaps Cadillac, is then selected. Winning involves making sure the customer prefers Cadillac to Lexus and BMW. This means that Cadillac has to be more visible, credible, and attractive in the SUV space than are Lexus and BMW.

The brand preference model dictates the objectives and strategy of the firm. Create offerings and marketing programs that will earn the approval and loyalty of customers who are buying the established category or subcategory, such as SUVs. Be preferred over the competitors’ brands that are in that category or subcategory, which in turn 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 relevant market consists of those who will buy the established category or subcategory, and market share with respect to that target market is a primary measure of success.

The strategy is to engage in incremental innovation to make the brand ever more attractive or reliable, the offering less costly, or the marketing program more effective or efficient. It is all about continuous improvement—faster, cheaper, better—which has its roots in Fredrick Taylor’s scientific management with his time and motion studies a century ago and continues with such approaches as Kaisan (the Japanese continuous improvement programs), Six Sigma, reengineering, and downsizing.

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. Brands are perceived to be similar at least with respect to the delivery of functional benefits, and often these perceptions are accurate. Why rethink a product and brand decision that has worked when alternatives are similar? Why go to the trouble to even locate alternatives? Seeking alternatives is a mental and behavioral effort with little perceived payoff. Further, people prefer the familiar, whether in regard to a route to work, music, people, nonsense words, or brands.

It is inordinately difficult to create an innovation that will significantly alter market momentum. When there is an enhanced offering that should stimulate switching behavior, competitors usually respond with such speed and vigor that any advantage is often short-lived. Further, marketing programs that upset the market are rare because brilliance is hard to come by and resources for implementation are scarce.

As a result of the difficulty of changing customer momentum and the fact that there are diminishing returns to cost-reduction programs, preserving margins in the face of capable and well-funded competitors is challenging. A market with competitors engaging in brand preference strategies is usually a recipe for unsatisfactory profitability.

Such Japanese beer companies as Asahi and also Suntory and Sapporo pursued brand preference strategies from 1960 to 1986 without making a dent in the Kirin position. The heritage and appeal of Kirin’s lager beer, its loyal buyer base, and the associated distribution clout made Kirin able to resist all types of product and marketing initiatives of competitors, aggressive and clever though they were.

Brand preference strategies, the focus of most firms, are particularly risky in dynamic markets because incremental innovation will often be made inconsequential by marketplace dynamics. Bob McDonald, the CEO of P&G, introduced the acronym VUCA to describe today’s world—volatile, uncertain, complex, and ambiguous.3 Product categories and subcategories are no longer stable but rather emerging, fading, and evolving. Products are proliferating at a faster and faster rate.

There are a host of forceful trends that provide impetus for new categories and subcategories. For a flavor of the trends out there, consider the following:

The emergence of Web sites as knowledge centers has allowed brands to become go-to authorities. Pampers, for example, redefined its business from selling diapers to providing innovation on baby care and a hub for social interaction around babies.The green movement and sustainability objectives have affected brand choice. Firms from autos to stores to packaged goods, and on and on have adjusted their operations and offerings to be responsive.The growing popularity of Asian cuisine has created subcategories in restaurants and in packaged goods.The projected growth of the over-sixty-five population from just under forty million in 2010 to over seventy million in 2030 creates opportunities to develop subcategories from gift stores to cruises to cars.People taking control of their personal health suggests opportunities for a host of medical support categories to emerge, ranging from weight control to physical therapy to mental stimulation.

Change is in the air everywhere, and change affects what people buy and what brands are relevant. Marketing strategies need to keep up. A winning strategy today may not prevail tomorrow. It might not even be relevant tomorrow. Success becomes a moving target, and the same management styles that worked in the past may be losing their ability to generate ongoing wins. Blindly following a strategy that advocates a firm to “stick to your knitting,” “keep your focus,” “avoid diluting your energies,” and so on may still be optimal but is more risky than ever.

The Brand Relevance Model

The second route to competitive success is to change what people buy by creating new categories or subcategories that alter the ways they look at the purchase decision and user experience. The goal is thus not to simply beat competitors; it is rather to make them irrelevant by enticing customers to buy a category or subcategory for which most or all alternative brands are not considered relevant because they lack context visibility or credibility. 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.

Defining Relevance

To better understand relevance, consider a simple model of brand-customer interaction in which brand choice involves four steps organized into two distinct phases, brand relevance and brand preference, as shown in Figure 1.3.

Figure 1.3 Brand Preference Versus Brand Relevance

Step One: The person (customer or potential customer) needs to decide which category or subcategory to buy and use. Too often a brand is not selected or even considered because the person fails to select the right category or subcategory rather than because he or she preferred one brand over another. If a person decides to buy a minivan rather than a sedan or an SUV, for example, he or she will exclude a large set of brands that are not credible in the minivan space.

One challenge is to create the category or subcategory by conceiving and executing an innovative offering. Another challenge is to manage the resulting category or subcategory and to influence its visibility, perceptions, and people’s loyalty to it. The goal is to encourage people to think of and select the category or subcategory.

The fact that the person selects the category or subcategory, perhaps a compact hybrid, makes the starting place very different than under the brand preference context in which the category or subcategory is assumed to be given. Instead of encompassing only those buying an established category or subcategory, the target market is much broader, consisting of anyone who might benefit from the new category or subcategory. The selection of the category or subcategory is now a crucial step that will influence what brands get considered and thus are relevant.

Step Two: The person needs to determine which brands to consider. This is a screening step to exclude brands that are unacceptable for some reason. A brand is not relevant unless it appears in the person’s consideration set. There are two principle relevance challenges: category or subcategory relevance and visibility and energy relevance (these will be elaborated in Chapter Ten).

Category or Subcategory Relevance: The firm as represented by a brand needs to be perceived as making what the people are buying and have credibility with respect to its offering. There can’t be a perception within the selected category or subcategory that the brand lacks the capability or interest to be a player, or that the brand lacks a key characteristic of the category or subcategory.

Visibility and Energy Relevance: The brand, particularly when establishing or entering a new category or subcategory, needs to have visibility—it needs to come to mind when the product category or subcategory is selected. In addition, the brand needs to create and maintain enough energy so that it does not fade into the background. Brands that are tired, lack personalities, are not associated with innovation, and are simply uninteresting may not make the consideration set even though they are known and credible.

Step Three: Perhaps after some evaluation, the person picks one brand. That brand is preferred over others, perhaps because of a logical reason, due to some emotional or self-expressive benefit, or perhaps simply because of convenience or habit. The challenge is to create differentiation and bases of loyalty so that the brand is preferred.

Step Four: The person uses the product or service, and a user experience results. The use evaluation will depend not only on his or her expectations of the brand but also according to expectations of the product category or subcategory as conceptualized in the first step. The user experience can influence the next cycle of brand-person interaction.

Brand relevance involves the first two steps. A brand will be relevant if it is included in the consideration set for a target category or subcategory and if that category or subcategory precipitates the decision. Both conditions are needed. If either is missing, the brand lacks relevance and no amount of differentiation, positive attitudes, or brand-customer relationships will help.

More formally we define brand relevance as occurring when two conditions are met:

The target category or subcategory is selected. There is a perceived need or desire on the part of a customer for the targeted category or subcategory, which is defined by some combination of attributes, applications, user groups, or other distinguishing characteristics.The brand is in the consideration set. The customer considers the brand when he or she is making a decision to buy or use that target category or subcategory. In other words, the brand passes the screening test.

Steps three and four define brand preference. One brand is preferred within a set of brands being considered. In static markets, brand preference is the primary goal of competition and marketing but, as already noted, this type of competition is difficult and frustrating and markets are increasingly dynamic, which makes brand preference strategies futile.

Winning under the brand relevance model is now qualitatively different than under brand preference competition. Under the brand preference model, the winning brand is preferred to others in the established category or subcategory. Under brand relevance, in contrast, winning occurs when other brands are not considered given the selection of the category or subcategory. Some or all competitor brands are not visible and credible with respect to the new category or subcategory, even though in other established categories they might not only be visible and credible but even have the highest reputation and customer loyalty. When competitors’ brands are not considered, the only relevant brand wins by default.

Relevance and preference are interrelated. In particular, relevance affects both components of brand preference. Defining and framing the category or subcategory will affect brand perceptions and thus brand preference. For example, if the category or subcategory is redefined to elevate the importance of a benefit, such as safety in automobiles, that benefit will play a larger role in the brand preference decision. Further, because relevance can affect the consideration set such that brands are excluded, the preference challenge may be reduced. At the extreme, if the consideration set is reduced to one, the preference decision is dictated by relevance.

Brand preference can also affect brand relevance. If a brand is preferred because of a compelling brand proposition, a strong personality, a satisfying user experience, and a positive customer relationship, then it will affect the consideration set and may well influence or drive attitudes toward the category or subcategory. Further, if the brand’s user experience exceeds expectations, the brand should become more prominent in a person’s mind. So if a Prius succeeds in generating interest, energy, and admiration, it will be firmly in the consideration set and should also reinforce the category or subcategory selection decision. Similarly, if the in-store experience at Nordstrom is positive, then this will reinforce the attitude toward a high-touch retail experience and the inclusions of Nordstrom in the consideration set.

Creating New Categories or Subcategories

The brand relevance strategy is to create offerings so innovative that new categories and subcategories will be formed. The idea is to create a competitive arena in which your competitors are at a decided disadvantage and avoid others in which that condition is missing. Sun Tzu, the military strategist, said over two thousand years ago that “the way is to avoid what is strong and to strike at what is weak.”4

The opportunity is to redefine the market in such a way that the competitor is irrelevant or less relevant, possibly by making the competitor’s strengths actually become weaknesses. For example, when Asahi introduced dry beer, the strength of Kirin, namely its heritage and reputation as a superior lager beer that our fathers drank, became a significant weakness in an emerging market that connected with young, cool, and Western.

A new category or subcategory will be characterized by having a new:

Competitor set that will be empty or be occupied with brands that are few in number and weakDefinition of the category or subcategory, with a clear point of differentiation from other categories or subcategoriesValue proposition changing or augmenting the basis for a relationship with a brand or creating a new oneLoyal customer base that is economically worthwhileSet of barriers to competitors based on strategic assets or competencies

Gaining brand preference, of course, will also attempt to achieve clear points of differentiation, a strong value proposition, and a loyal customer base. So what is the difference between seeking brand preference and creating a new category or subcategory? The difference can be difficult to discern. It depends in part on the degree of differentiation, the strength of the new value proposition, and the size and intensity of the loyalty engendered. It also depends on the length of time these brand advantages will be projected to last. If the advantage is short-lived, such as a blockbuster promotion, then it will largely be a brand preference action, even if its impact is large.

The difference from brand preference is clear when the change in the offering is qualitatively different as opposed to having enhanced features or performance. A hybrid is a different kind of car and a laptop computer is a different computer concept. Of course, each of these has associated benefits, but the category or subcategory is not thought of at that level. You are now in the market for a hybrid and not a car that gets superior gas mileage, or you are seeking a laptop rather than one with a small footprint.

The difference is more subtle when the change in the offering represents a substantial enhancement of the offering’s ability to deliver value, differentiation, and loyalty rather than a different type of offering. For example, the brand might perform noticeably better, like a Lexus 460, or it could have an added, meaningful feature in the packaging, such as the one that allows ketchup to be stored so that it is ready to serve. If that change is minor, it will be an aid to the brand preference battle. However, if the change is significant and meaningful to customers, there is a higher potential to form a new category or subcategory. Customers will have a reason to exclude other brands rather than to simply not prefer them.

Another difference is that in the brand relevance model the differentiation will be sustainable. Differentiation in the brand preference model is often marginal and temporary as competitors quickly copy. The key to forming a new category or subcategory is for the differentiation to be sustainable enough to provide a significant window to leverage the new category or subcategory before competitors become relevant. That means there are barriers to the new category or subcategory in the form of strategic assets or competencies that are substantial and inhibit competitors. A strategic asset is a resource, such as a brand’s equity or installed customer base. A strategic competency is what a business unit does exceptionally well—such as managing a customer relationship program.

There are a host of sources of barriers that can turn a short-term point of differentiation into one that sustains (to be described in Chapter Nine). Among these barrier sources are protected technology, such as the Kirin Ichiban happoshu beer-making capability; a size or scale effect, such as that which Amazon and eBay have enjoyed; an operations advantage like the one UPS has developed; a design breakthrough like Chrysler had in its minivan innovation in the early 1980s; brand equity; or the loyalty of a customer base. Customer loyalty (with its associated brand strength) is often the most important barrier or at least plays a key supporting role. Whether the loyalty is based on habit and convenience or intense emotional or self-expressive benefits, it can be costly for competitor to overcome.

The Innovation Continuum

There is an innovation continuum, summarized in Figure 1.4, that spans incremental to substantial to transformational that reflects the extent to which the offering enhancement affects the marketplace. In a healthy business context a firm will make an effort to improve their product or service. The question is, What is the impact of that offering improvement and how long will that impact last? When does it create a new category or subcategory?

Figure 1.4 Innovation Continuum

Incremental innovation will provide modest improvement that will affect brand preference. The level of differentiation will therefore be minor. In some cases the improvement will be so modest or so under the radar or so unappreciated by customers that its impact will not be noticeable, although an accumulation of such enhancements might have an effect. In others, the incremental innovation will provide a measurable increase in brand health and loyalty. But in either case it is a brand preference play.

When the innovation is substantial, there is an offering enhancement that is so noteworthy that a group of customers will not consider a brand that is not comparable. The offering might be a new feature like the Heavenly Bed at Westin. Or there might be a performance improvement that is significant, such as superior safety, economy, or design. With a substantial innovation the basic offering and competitive go-to-market strategies may be the same or have only minor differences, but the improvement in the offering will be so substantial that it defines a new category or subcategory. The resulting differentiation will be major, noticeable, and even “newsworthy” in the buying context. The iMac, with its novel design, was one such substantial innovation, as was Asahi Super Dry beer. The offering in each case was very similar to other subcategories, but a new set of dimensions was created that provided the basis for a new subcategory definition. The result was a change so substantial that customers were motivated to rethink their loyalties and perceptions of the category or subcategory. If the new dimension was missing from a competitive brand, that brand would not be considered.

The distinction between incremental and substantial is at the heart of the matter. A judgment by the involved managers that is needed is made difficult by the bias that exists. Most managers are inclined to view many incremental innovations as substantial because they are substantial in their minds. So the decision as to whether an innovation is incremental or substantial needs to be made based on more objective thinking and data. Chapter Eight will address such evaluation more fully.

When the innovation is transformational, the basic offering has changed qualitatively to the extent that existing offerings and ways of doing business are obsolete for a target segment or application, and existing competitors are simply not relevant. It will involve a new technology, a reconfiguration of the product, a different approach to operations or distribution, or a radical change to some other strategic lever that will qualitatively change the value proposition, the bases for loyalty, the way the offering is perceived, and the assets and competencies needed to deliver it. The resulting difference is dramatic, creating a marketplace game changer. The new category or subcategory will be easy to identify.

Transformational innovation is also termed disruptive innovation—it disrupts the competitive landscape. Tide (Ariel out-side the United States) introduced a synthetic detergent technology that made soap powders obsolete. Southwest Airlines introduced a fun, up-beat personality and point-to-point journeys that changed air travel. Dell Computers, mini steel mills, and Gillette razors represent innovations that changed their respective industries. In the grocery store, Odwalla’s new way of delivering fresh fruit drinks made frozen orange juice obsolete for some.

The distinction between a substantial and a transformational innovation is not always clear-cut. However, in either case, a new category or subcategory is formed. For example, a technology that enabled the introduction of baby carrots created a new subcategory, resulting in a sharp reduction in the sales of carrots presented in a conventional manner. Whether that is a substantial or a transformational innovation could be debated. Similarly, Cisco introduced a new-generation videoconference technology called Telepresence that uses massive amounts of bandwidth to provide a high-fidelity experience, making it a viable alternative for in-person meetings for firms with far-flung operations. It too could be classified either way.

The distinction between transformational, substantial, and incremental need not be based on the magnitude of a technological breakthrough. It is rather based on how much the market is affected and on whether a new category or subcategory is formed. Enterprise Rent-A-Car, who provided rental cars to people whose cars were in repair, was a transformational innovation because it represented such a different value proposition, target segment, set of assets and competencies, and business model. But the innovation that supported the company was minor, mainly in process. When Westin introduced a better bed in 1999, called the Heavenly Bed, it was not an R&D breakthrough that was involved. The bed simply used existing technology and featured upgraded quality, but it could be considered transformational because it changed the way hotels are perceived and evaluated.

Sometimes a group of incremental innovations can combine to create a substantial or even transformational innovation. Some breakout retailers, such as Whole Foods Market, have a host of incremental innovations. By themselves each of these incremental enhancements would not be noteworthy, but together they can be category or subcategory creators and even game changers.

A substantial or transformational innovation may not even involve a change in the offering. It can be driven by a reframing of the category or subcategory. DeBeers reframed their target category from jewelry to expressions of love. Thus the “Diamonds are forever” line, plus the associations with marriage and weddings, recast the category without any changes in its offering. DeBeers was no long competing with other firms selling gems or jewelry.

Identifying whether an innovation is incremental is crucial because this affects the management and investment behind that innovation. If it is incremental then there is no opportunity to create a new subcategory, and the management challenges and investment that go along with forming a new subcategory can be avoided. However, if the innovation is substantial and offers an opportunity to create a new category or subcategory, it is vital that the innovation be so labeled so that the necessary programs are developed and investments made. Of course, making the distinction between incremental and substantial is not always easy. As already noted, what brand champions think is substantial is often regarded by consumers, who live in a cluttered and dynamic media environment, to be incremental.

A major risk is that an opportunity will be lost because an innovation that had the potential to create a new category or subcategory was underestimated, because the organization was not set up to consider or pursue such options or because resources were absorbed elsewhere. This risk is particularly insidious because it has no visible impact on the financials, and yet a major missed opportunity can materially affect the strategies and fortunes of a organization going forward. Where would the Virgin brand and firm be today had it turned its back on the airline opportunity?

The other risk, more visible, is that incremental change will be misconstrued as a major one and an effort to create a new category or subcategory failed and absorbed precious resources and risk capital. Certainly there were a host of new products in the Japanese beer market that flamed out despite substantial investments and high expectations.

When evaluating the position of an innovation on the continuum, the extent to which the five characteristics of a new category or subcategory are achieved should form the basis of the analysis. Will the potential cast of characters among competitors change? Will what is being bought be different and new making the existing offerings irrelevant? Is there a qualitatively new value proposition? Is there a new base of loyal customers that will emerge? In addition, will competitor barriers be formed so that the innovation will have legs, will not be a short-term success?

Ultimately, it is the marketplace that will decide where the changed offering is on the continuum. Often an innovation or offering enhancement will be perceived by the firm as capable of changing the marketplace. In reality, however, it may be viewed by the market as another enhancement in a blur of competing claims. A package with the words “new and improved” on it is unlikely to change fundamental choice processes.

Most organizations lack a healthy mix of transformational, substantial, and incremental innovations. One study concluded that the percentage of major innovations in development portfolios dropped from 20.2 to 11.5 from 1990 to 2004. And from the mid-1990s to 2004 the percentage of total sales attributed to transformational innovation fell from 32.6 to 28.0 in 2004. There is a bias toward incremental, “little i” innovations. It is caused in part by the fact that incremental innovations for the existing core businesses tend to have the support of executives who are generating the bulk of the firm sales and profits, and in part because the payoff seems more certain and quantifiable. More on this bias and how it can be neutralized in Chapter Eleven.

Levels of Relevance

A brand is not necessarily relevant or irrelevant. In some cases, there will be a spectrum of relevance. The fuzziness or uncertainty can occur because the new category or subcategory is not yet the clear best choice for a customer. There may be a probability that it will be selected but one that is not near either certainty or zero probability.

Relevance fuzziness can also occur because of uncertainty as to whether a brand has visibility and credibility in the new space. Some brands will be coded by customers as being in the consideration set of a category or subcategory with confidence all the time. Others will never make the cut, and they are irrelevant. However, there will be others that may be relevant some of the time. In any case a fuzzy boundary can exist that separates the relevant brands from the irrelevant.

The uncertainty as to which brands are relevant will depend on the clarity of the definition of the category or subcategory. If the definition has some uncertainty, ambiguity, or fuzziness, the composition of the set of relevant brands may change depending on circumstances, the application, the brand’s availability and price, the competitor price, and so on. Nothing is simple.

The New Brand Challenge

Creating a new product category or subcategory requires a new brand and marketing perspective. It is not enough to manage the brand; it is necessary also to manage the perception of the category or subcategory and to influence what category or subcategory people will buy as opposed to what brand they prefer. Asahi was able to fight off a much bigger and more resourced competitor precisely because they managed the dry beer subcategory brand from the outset while simultaneously growing its sales. And in the mid-1990s they repositioned the subcategory to regain a healthy market share growth rate.

Defining and managing the category or subcategory are new and foreign to brand and marketing strategists. The familiar challenge, in addition to differentiating the brand from competitors, is to position a brand as being relevant to an existing category or subcategory. IBM is in the service business, for example, or HP makes routers. However, when the challenge is to define and manage the category or subcategory and differentiate it from other categories or subcategories, the task is much different. The focus is not on alternative brands but alternative categories or subcategories, which is qualitatively different. The task is to build the category or subcategory even though a competitor could become relevant and benefit.

A category or subcategory is not a brand. A brand has a name reflecting an organization that stands behind the offering. Although a category or subcategory sometimes has a name, such as dry beer or happoshu, it often does not and has to rely on a description instead. More important, a brand has an organization behind it, whereas a category or subcategory in general does not. The exception is when the category or subcategory is represented by a single brand and its organization.

Nevertheless, a category or subcategory shares some similarities with a brand. It is defined by a set of rich associations that need to be prioritized and managed. It is the object of choice decisions. People can have varying degrees of loyalty to it. It is defined by its associations. The management of a category or subcategory is also similar to managing any brand. In particular, the firm needs a plan to make the category or subcategory become visible, to identify its aspirational associations, and to design programs to realize them. These challenges will be discussed in detail in Chapter Eight.