Incumbents as attackers: Brand-driven innovation
Big companies are finding growth in new markets by
harnessing an underused asset—their brands.
At a time of
stagnating markets,
technological disruption, and rapid changes in consumer behavior, where can big
brands find growth? One popular path is through brand extension: stretching a
brand into an adjacent market where its value proposition is still relevant to
consumers. Classic cases include Colgate’s sideways move from toothpaste to
toothbrushes, Nivea’s from body care to hair care, and Gillette’s from razor
blades to shaving foam.
However, some
incumbents are taking this approach a step further by using their brand as a
springboard to drive innovation in an entirely new market. Take the Weather
Company, which owns the Weather Channel, as an example. It has used its deep
weather-data assets to move beyond the TV business, extending successfully into
new markets by supplying data and forecast models that help companies make
better decisions. Analyzing its data, for example, the Weather Company has
learned that insect repellent sells well in the spring in Dallas when there is
a below-average dew point, but spring bug-spray sales in Boston do well when
the dew point is above average.1
Apple’s introduction
of the iPhone is, of course, a well-known example of how it became an attacker
by carving out new business spaces that capitalize on the unique link its
brands have forged with consumers. What is less well known, however, is that
innovations not only achieve impressive results in their own right, but they
often also create a halo effect by attaching new cachet to the original brand.
In the year the iPhone was launched, for instance, sales of Apple Mac computers
rose by 16 percent—almost eight times the growth rate for personal computers
overall.2
This kind of brand-driven innovation has come
of age in the past few years for a number of reasons. If you are an incumbent
with a dominant position in a saturated market, your chances of gaining much
more share may be slim. Entering a new category could be your only realistic
option to achieve internal and external growth targets. In addition, brands are
increasingly defined not by what they communicate or the campaigns they run but
by the kind of customer experiences they provide. What’s more, brand-driven
innovation can be a tool to strengthen or sharpen a brand’s positioning:
consider how Apple’s brand strength seems to grow with each new category it
enters.
Finally, the advent of 3-D printing and
rapid-prototyping techniques, coupled with a “trial and error” mind-set and A/B
testing capabilities, has made it easier for corporate innovation teams to
pitch, trial, and continuously improve their brand ideas.
All of which is to say: innovation isn’t just
for start-ups. With the right brand equity, incumbents can do it too.
The new attackers
Some powerful brands have highly distinctive
characteristics or associations in consumers’ minds. When they capitalize on
them to enter new territories—rather than simply colonizing a neighboring
category—they bring innovation to their new domain. Here are three examples.
Disney’s venture into the $4 billion children’s
English-language teaching business in China capitalizes on its brand essence of
representing the American way of life, entertaining children, and offering a
great customer experience.3 Disney English opened its first school in Shanghai in
2008, just as the Shanghai Disneyland Park went into development, and has since
expanded to 33 language centers in nine cities. The centers offer
English-language courses that seek to make learning fun for 2- to 12-year-olds:
children “interact” with Disney characters and stories via huge video monitors,
and they are taught in small classes by native English speakers supported by
bilingual Chinese assistants. In a country where Disney’s films and
merchandising have yet to establish a broad market presence, using language
learning to attract small children and their families looks like a great entry
point to the world’s biggest market and a sound investment in nurturing a
future consumer base for Disney products.
Another company
harnessing its brand to drive innovation is of course Virgin, which
recently used its “maverick outsider” image to power its challenger business in
UK retail banking. Launched as Virgin Direct in 1995 with a limited product
range, it bought Northern Rock in 2012, rebranded branches as Virgin Money, and
introduced a full suite of banking and insurance products. Seeking to set
itself apart from the distrust surrounding established banks in the wake of the
global financial crisis, Virgin positioned itself as the customer’s champion
with its “quest to make banking better,” opening inviting customer lounges as
an alternative to the stuffy formality of established banks and branches. The
strategy paid off: by 2013, new deposit as well as mortgage accounts were
significantly outpacing the market average. A year later, Virgin Money launched
a successful initial public offering.
BMW, for its part, joined the attacker ranks with
its entry into the car-sharing business in 2011. DriveNow, a joint venture with
rental company Sixt, provides urbanites with access to cars. In return for a
registration fee and time-based charges, customers can choose from a fleet of
Minis and BMWs. Via an app, drivers find the nearest available car, use a card
to unlock it, and later leave it in any parking space in the city when their
journey is complete. BMW described the venture as a “strategic response to the
growth in urban living and shared ownership.”4 Starting in Germany, DriveNow has subsequently rolled out
to London, San Francisco, and Vienna, so far.
What differentiates
BMW’s offering from competing initiatives is the appeal of driving stylish BMWs
(including the i3 in some locations) and Minis, thereby—on the back of its
brand strength—positioning itself as the car-sharing service for premium cars.
Importantly, with the initiative seen as a way to explore new forms of
mobility, it has strengthened BMW’s reputation as an innovator.5 After early successes, DriveNow plans to expand to 15 more
cities in Europe.6
These examples suggest that being good at line
extensions gives incumbents a better chance of succeeding with brand
extensions. Consider how Disney has gone from movies to theaters to amusement
parks to merchandising, or how Amazon seems to do a line extension every few
months.
What it takes
Incumbents have a number of assets and
advantages that they can exploit to act as attackers in new markets. We believe
there are three fundamental success factors:
·
Distinctive
brand equity and trust.
Virgin’s entry into High Street banking at a time when trust in the sector was
at an all-time low enabled it to take advantage of its status as a brand known
for giving customers a better deal. An established brand name can also act as a
powerful form of endorsement in new markets: National Geographic Society’s
shift from magazines to television channels, expeditions, and more recently,
retail stores—that sell books, clothes, and travel gear—is just one example.
·
Strong
relationships with customers. BMW used its understanding of customers’ mobility needs as
well as its existing perception of being a premium brand to enter a new
category with a service that enables it to tap into a different need state. It
also further strengthens its relationship with consumers who could, in the
future, move out of town and buy its products. Similarly, the German baby-food
manufacturer HiPP entered the baby-care market by appealing to customers’
desire for organic, natural, and caring products for their new babies. The
brand is now the main challenger in the German baby- and child-care category,
with a market share of 4.5 percent, trailing only the top three international
incumbents.
·
Access
to data, capabilities, and other institutional assets. Disney’s expertise in delivering distinctive
customer experiences enabled it to rethink language learning in the Chinese
market and create and execute a value proposition that no other provider could
match. In Europe, Inditex, owner of the Zara fashion chain, combined its
intimate knowledge of customer preferences with its extensive supply and
distribution networks and operational expertise to launch its interiors chain
Zara Home in 2003. The Zara brand proposition of making runway fashion
accessible to all has made a successful transition to the home-furnishing
sector, with ten new markets entered in 2013 alone and almost 400 stores in 45
countries. Other types of assets can range from the technical—such as know-how,
which drove Honda Motor Company’s extension from cars to lawn mowers—to
emotional, as seen in the “companionship” offered by Sony Corporation’s MP3
players and TVs.
Successful brand extensions are likely to make
use of all three of these advantages, rather than one in isolation. For
instance, Disney’s venture into English-language teaching is built on its
established brand equity in entertainment, its deep understanding of how to
engage customers, and its operational capabilities and expertise in multiple
countries and cultures.
How to begin
Not every established
brand can succeed at entering new markets. To find out if yours can, start by
asking, Does it have brand extension “angles,” or emotional benefits
that could travel to other categories? If so, what might those
categories be? And how can you use your benefits to create something new and
different?
Next, Where do
you want to play? Define your brand’s aspirations to ensure you focus
your innovation efforts appropriately. Then identify trends and discontinuities
in tangential markets, analyze the competitive landscape, and evaluate any
customer relationships your brand may already have. Also important: successful
attackers are careful to deconstruct their assets and understand which ones can
drive value in new markets.
Having selected your
target markets, define your brand’s value proposition in them—a process that
calls for a good dose of creativity, deep immersion in customer needs, and
sharp insight into decision journeys. Many extensions have failed through lack
of brand relevance. So ask, What is our brand’s value proposition? Does
our brand fit this new angle? Does it serve an unmet need?
As an incumbent, you
need to assess a new market as thoroughly as a start-up would. The best
performers invest in detailed analysis to estimate the scale of an
opportunity. Is the growth potential worth the effort? What do
the competitive dynamics look like? Such an analysis should uncover unmet needs
that can highlight how much scope there is to introduce disruptive products or
services.
To understand customer
needs and customer decision journeys, leading companies go beyond the basics of
existing data sets, focus groups, and surveys by adopting advanced qualitative
research techniques. They use ethnographic studies, home interviews, in-store
observations, mobile-photo journals, “netnography” (customer-sentiment mining),
“shop alongs,” and a range of other innovative methods to check the fit between
their proposed brand extension and their target consumers.7
Once you’ve identified
the right angle for your brand extension, embark on a rapid prototyping
phase. Accept that some innovations—like Virgin Cola—won’t succeed, and
adopt a test-and-learn, “fail fast” mentality. That way, an operation that
flops can be quickly closed down before it does any real damage to your brand.
We find that some pilots can be launched in as little as 12 weeks. Don’t allow
a failure to drag on; it will weigh down your brand and taint it with
mediocrity. Use conjoint analysis on any feedback you get to assess product
trade-offs and define the value attached to various features.
Finally, make
sure your organization is fully prepared and ready to go. By definition, a
brand-driven innovation will take you outside your core expertise. Make sure
you have enough knowledge about the new business to judge the right moment to
enter. Develop a rigorous “reverse profit and loss” that helps clarify the
objectives and assumptions underlying your business model. Think about how
competitors might react and what your response should be. Check out any
regulatory aspects governing the new market and identify the variables that
could affect cost projections and supply.
Although it’s too early to judge how successful the new wave of
incumbent attackers will be, it provides food for thought for established
businesses seeking untapped pockets of growth outside their core markets.
Caution is needed; not every big brand has what it takes. But some brands, it
seems, are so important to us that their entry into new markets can have
dramatic effects—not only carrying consumers with them but also kick-starting
new growth and giving a boost to core products too.
byJean-Baptiste Coumau, Victor Fabius, and Thomas Meyer
http://www.mckinsey.com/insights/marketing_sales/Incumbents_as_attackers_Brand-driven_innovation?cid=mckgrowth-eml-alt-mip-mck-oth-1505#sthash.PjjmKmgp.dpuf
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