Defending Your Brand: Use Defensive Strategy to Combat Competitive Attacks

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Defending Your Brand: Use Defensive Strategy to Combat Competitive Attacks

  1. 1. Defending Your Brand How Smart Companies Use Defensive Strategy to Deal With Competitive Attacks Kellogg School of Management Professor Tim Calkins December 17, 2012Copyright © 2012 by Tim Calkins
  2. 2. Objective Highlight the importance of defensive strategy Give you ideas and frameworks that you can applyDefending Your Brand 2
  3. 3. The latest newsDefending Your Brand 3
  4. 4. Agenda: Three Points • Defensive strategy is critically important • Companies often defend too late • There are many ways to defendDefending Your Brand 4
  5. 5. Agenda: Three Points • Defensive strategy is critically important • Companies often defend too late • There are many ways to defendDefending Your Brand 5
  6. 6. Defensive strategy: reacting to competitivethreatsTaking 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 threatDefending Your Brand 6
  7. 7. Defense is a major part of business strategy Offensive MovesShort Term Long Term Moves Moves Defensive Moves Defending Your Brand 7
  8. 8. What do these brands have in common?Defending Your Brand 8
  9. 9. What do these brands have in common?Defending Your Brand 9
  10. 10. RIMDefending Your Brand 10
  11. 11. RIMDefending Your Brand 11
  12. 12. RIMDefending Your Brand 12
  13. 13. RIMDefending Your Brand 13
  14. 14. RIMDefending Your Brand 14
  15. 15. RIMDefending Your Brand 15
  16. 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 errorDefending Your Brand 16
  17. 17. Specialized Machine Tool Brand Income Statement Revenue $350 million Cost of Good Sold $170 Variable Profit $180 Marketing $60 Overhead $40 Operating Profit $80Defending Your Brand 17
  18. 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% marginDefending Your Brand 18
  19. 19. Specialized Machine Tool Brand Risk if Competition Takes 10% Share Revenue at Risk $35 million Margin 23% Total Profit Risk $8.1 millionDefending Your Brand 19
  20. 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 $80Defending Your Brand 20
  21. 21. Specialized Machine Tool Brand Risk if Competition Takes 10% Share Revenue at Risk $35 million Margin 51% Total Profit Risk $17.9 millionDefending Your Brand 21
  22. 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 millionDefending Your Brand 22
  23. 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 pricingDefending Your Brand competitor’s future growth 23
  24. 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 hardDefending Your Brand 24
  25. 25. Dow Corning’s Defense: XiameterDefending Your Brand 25
  26. 26. The Competitive BattleDefending Your Brand 26
  27. 27. Agenda: Three Points • Defensive strategy is critically important • Companies often defend too late • There are many ways to defendDefending Your Brand 27
  28. 28. Every significant competitive move requires adefense decision• There are reasons to defend and not to defend Reasons to Defend Reasons Not to DefendDefending Your Brand 28
  29. 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-offsDefending Your Brand 29
  30. 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 Defending Your Brand 30
  31. 31. The sad tale of Harley Davidson1903: company founded1903-1959: becomes dominant player  83% share  110 competitors try to enter market  clear leader with big bikes (1200 cc)  core markets: police, bikers, militaryDefending Your Brand 31
  32. 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:Defending Your Brand 32
  33. 33. The sad tale of Harley Davidson 1966: -Honda outselling Harley 2:1 -Honda introducing larger bikes -motorcycle market growing -Harley defense:Defending Your Brand 33
  34. 34. The sad tale of Harley Davidson 1977: -Honda launches 1200 cc bike -Harley down to a 5% share -Harley defense:Defending Your Brand 34
  35. 35. Many companies defend too littleDefending Your Brand 35
  36. 36. Many companies defend too littleDefending Your Brand 36
  37. 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 wrongDefending Your Brand 37
  38. 38. Agenda: Three Points • Defensive strategy is critically important • Companies often defend too late • There are many ways to defendDefending Your Brand 38
  39. 39. There are many ways to defend; you can focuson any of the key launch steps New Product Launch ProcessBefore Launch: Product testing and development Gain Build Drive Build Distribution Awareness Trial RepeatDefending Your Brand 39
  40. 40. Three things to remember 1. The goal is to damage the new entrant 2. Your task: slow them down 3. Timing mattersDefending Your Brand 40
  41. 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. AcquireDefending Your Brand 41
  42. 42. Example: LufthansaDefending Your Brand 42
  43. 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. AcquireDefending Your Brand 43
  44. 44. Distribution build defense optionsGoal: Ensure the new product doesn’t secure distributionOptions: 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 supportDefending Your Brand 44
  45. 45. Awareness defense optionsGoal: Limit awareness of the new itemOptions: 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 Defending Your Brand 45
  46. 46. Example: IntelDefending Your Brand 46
  47. 47. Awareness defense optionsGoal: Limit awareness of the new itemOptions: 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 Defending Your Brand 47
  48. 48. Trial defense optionsGoal: Limit trial of the new itemOptions: 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 benefitsDefending Your Brand 48
  49. 49. Example: UnitedDefending Your Brand 49
  50. 50. Example: UnitedDefending Your Brand 50
  51. 51. Example: Eli LillyDefending Your Brand 51
  52. 52. Trial defense optionsGoal: Limit trial of the new itemOptions: 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 benefitsDefending Your Brand 52
  53. 53. Repeat defense optionsGoal: Ensure consumers don’t repeat on the new itemOptions: 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 Defending Your Brand 53
  54. 54. Agenda: Three Points • Defensive strategy is critically important • Companies often defend too late • There are many ways to defendDefending Your Brand 54
  55. 55. Two final points 1. The best scenario: you never face competitive attacksDefending Your Brand 55
  56. 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?Defending Your Brand 56
  57. 57. To Learn MoreDefending Your Brand 57
  58. 58. Contact Information Tim Calkins Kellogg School of Management t-calkins@kellogg.northwestern.edu www.timcalkins.com www.strongbrands.wordpress.com (847) 467-3209Defending Your Brand 58

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