4. Agenda: Three Points
• Defensive strategy is critically important
• Companies often defend too late
• There are many ways to defend
Defending Your Brand 4
5. Agenda: Three Points
• Defensive strategy is critically important
• Companies often defend too late
• There are many ways to defend
Defending Your Brand 5
6. Defensive strategy: reacting to competitive
threats
Taking action to blunt the impact of a competitor’s move
• Usually done in response to new products
• Always a reaction to a real or perceived competitive threat
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7. Defense is a major part of business strategy
Offensive Moves
Short Term Long Term
Moves Moves
Defensive Moves
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8. What do these brands have in common?
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9. What do these brands have in common?
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16. There are two main reasons to defend
1. To protect your business from competitive attack
• Competition is intense
• A new entrant can do enormous damage
• There is no room for error
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17. Specialized Machine Tool Brand
Income Statement
Revenue $350 million
Cost of Good Sold $170
Variable Profit $180
Marketing $60
Overhead $40
Operating Profit $80
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18. Specialized Machine Tool Brand
Income Statement
Revenue $350 million
Cost of Good Sold $170
Variable Profit $180
Marketing $60
Overhead $40
Operating Profit $80 < 23% margin
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19. Specialized Machine Tool Brand
Risk if Competition Takes 10% Share
Revenue at Risk $35 million
Margin 23%
Total Profit Risk $8.1 million
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20. Specialized Machine Tool Brand
Income Statement
Revenue $350 million
Cost of Good Sold $170
Variable Profit $180 < 51% margin
Marketing $60
Overhead $40
Operating Profit $80
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21. Specialized Machine Tool Brand
Risk if Competition Takes 10% Share
Revenue at Risk $35 million
Margin 51%
Total Profit Risk $17.9 million
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22. Specialized Machine Tool Brand
Risk if Competition Takes 10% Share
Revenue at Risk $35 million
Margin 51%
Total Profit Risk $17.9 million
Discount Rate 5%
NPV $358 million
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23. Specialized Machine Tool Brand
Risk if Competition Takes 10% Share
Revenue at Risk $35 million
Margin 51%
Total Profit Risk $17.9 million
Discount Rate 5%
NPV $358 million
plus… impact on spending
impact on pricing
Defending Your Brand competitor’s future growth 23
24. There are two main reasons to defend
1. To protect your business from competitive attack
2. To build a stronger business
-Competition forces you to innovate and work hard
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27. Agenda: Three Points
• Defensive strategy is critically important
• Companies often defend too late
• There are many ways to defend
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28. Every significant competitive move requires a
defense decision
• There are reasons to defend and not to defend
Reasons to Defend Reasons Not to Defend
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29. Many companies defend too little and too late
- Assume they know best
- Misunderstand the situation
..competition
..market
..idea
- Reluctant to defend, because it:
..would be difficult
..would require trade-offs
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30. Many companies defend too little
• Companies are particularly reluctant to defend when they have
been doing well
“As successful companies mature, employees gradually come to assume
that the processes and priorities they’ve used so successfully so often are
the right way to do their work.”
- Clay Christensen
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31. The sad tale of Harley Davidson
1903: company founded
1903-1959: becomes dominant player
83% share
110 competitors try to enter market
clear leader with big bikes (1200 cc)
core markets: police, bikers, military
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32. The sad tale of Harley Davidson
1959: Honda launches into market
-50 cc machine, $250
-target: college kids
-”You meet the nicest people on a Honda”
-Harley defense:
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33. The sad tale of Harley Davidson
1966: -Honda outselling Harley 2:1
-Honda introducing larger bikes
-motorcycle market growing
-Harley defense:
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34. The sad tale of Harley Davidson
1977: -Honda launches 1200 cc bike
-Harley down to a 5% share
-Harley defense:
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37. Key questions to ask
• Is the competitive product a winner?
• What is the long term impact on us if we do nothing?
• What is the short term impact on us if we do nothing?
• What are the costs of defending? Potential outcomes?
• Which option has the best long term return:
- if our assessment of the new product is right
- if our assessment of the new product is wrong
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38. Agenda: Three Points
• Defensive strategy is critically important
• Companies often defend too late
• There are many ways to defend
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39. There are many ways to defend; you can focus
on any of the key launch steps
New Product Launch Process
Before Launch: Product testing and development
Gain Build Drive Build
Distribution Awareness Trial Repeat
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40. Three things to remember
1. The goal is to damage the new entrant
2. Your task: slow them down
3. Timing matters
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41. Testing defense options
Goal: Ensure product never gets to market
Options: A. Disrupt the test
B. Signal an aggressive defense
C. Threaten
D. Preempt with a similar product
E. File suit
F. Acquire
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43. Testing defense options
Goal: Ensure product never gets to market
Options: A. Disrupt the test
B. Signal an aggressive defense
C. Threaten
D. Preempt with a similar product
E. File suit
F. Acquire
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44. Distribution build defense options
Goal: Ensure the new product doesn’t secure distribution
Options: A. Sign exclusivity agreements with channel partners
B. Give distributors big incentives
C. Provide alternate news
D. Preempt or copy the competitive news
E. Secure government support
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45. Awareness defense options
Goal: Limit awareness of the new item
Options: A. Introduce similar news or a similar product
B. Create a distraction
C. Increase spending: dominate the share of voice
D. Lock up key marketing vehicles
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47. Awareness defense options
Goal: Limit awareness of the new item
Options: A. Introduce similar news or a similar product
B. Create a distraction
C. Increase spending: dominate the share of voice
D. Lock up key marketing vehicles
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48. Trial defense options
Goal: Limit trial of the new item
Options: A. Load up current customers
-take customers out of the category
B. Increase switching costs and reward loyalty
C. Disparage the competitive product
D. Provide identical benefits
E. Provide alternate benefits
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52. Trial defense options
Goal: Limit trial of the new item
Options: A. Load up current customers
-take customers out of the category
B. Increase switching costs and reward loyalty
C. Disparage the competitive product
D. Provide identical benefits
E. Provide alternate benefits
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53. Repeat defense options
Goal: Ensure consumers don’t repeat on the new item
Options: A. Introduce an identical item at a lower price
B. Introduce a superior item
C. Significantly reduce the price of current products
D. Give channel partners an incentive to delist new item
E. Acquire the new entrant
F. File suit
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54. Agenda: Three Points
• Defensive strategy is critically important
• Companies often defend too late
• There are many ways to defend
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55. Two final points
1. The best scenario: you never face competitive attacks
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56. Two final points
1. The best scenario: you never face competitive attacks
2. Competitive intelligence must be a top priority
Three Good Questions
- Who is coming after my business?
- How big is the threat?
- What can we do now to address it?
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58. Contact Information
Tim Calkins
Kellogg School of Management
t-calkins@kellogg.northwestern.edu
www.timcalkins.com
www.strongbrands.wordpress.com
(847) 467-3209
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