Challenger brands:
what they are, how they work and how to
be one.

11/ 12/ 2013
What is a challenger brand?
A “lagging” brand is a brand that is small in comparison to
the brand leader in a category.
Mo...
A challenger brand is active
Challenger brands

DO

Nike started as a true challenger brand, today it leads.
A challenger brand acts unconventional
Successful challenger brands share attributes like “exciting, visionary, maverick,
...
Challenger brands have a high risk aptitude
•

The originator of the term “challenger brand”, Adam Morgan, with a book cal...
Ideally, challenger brands must redefine the competitive
space – the most effective challengers “challenge” convention
•

...
Because challenger brands have to focus, they are
often well equipped to challenge old brands
•

•

Because challenger bra...
The low-down on challenger brands
•

•

Most small brands, with the exception of niche brands, would like to grow and beco...
Are challenger brands not just niche brands?
•

Yes – and no.
–

–
–

–

–

Yes, because at the outset, a challenger brand...
Fallacies of challenger brands
•

Attitude alone is enough.
–

•

Have the nerve to challenge and to stick to it.
–

–

•
...
Examples of challengers: Pepsi
•

•

•

•

PEPSI: probably the ultimate challenger brand, as it has been challenging Coca-...
Avis
•

•
•
•

•

AVIS: “We try harder” as a clearly challenging and differentiated strategy by Avis to state
what it coul...
Apple
•

•
•

APPLE: Apple is probably the most famous challenger brand in the world today, and one that
has become a lead...
Nando’s
•

•

•
•

Nando’s: effectively competing with many fast food retailers, but with KFC in particular at
inception, ...
Emirates
•

•

EMIRATES: a brand that is only twenty years old, yet one that now rivals brands like British
Airways and Lu...
What makes challenger brands succeed?
•

•
•
•
•
•
•
•
•
•
•

A real understanding of the market. Understand the needs of ...
Brands that started as challenger brands but that lead
today
•

•

•

NIKE: today not everyone is aware of the fact that N...
Brands that lost their leadership status to now become
challengers
•

•

•

•

YAHOO. Initially the leader in search, now ...
Brands that lost their leadership status to now become
challengers – can they lead again?
•

•
•

•

The problem of most o...
“How to” challenge the market leader (1)
According to Michael, in Marketing a Challenger Brand, 2013:
–
–
–
–

•

Adam Mor...
“How to” challenge the market leader (2)
•
•
•

Of all of these, the most successful, by far, is to disrupt the market wit...
To sum-up: pointers for challenger brands
•
•
•

Of all of these, the most successful, by far, is to disrupt the market wi...
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What challenger brands are, how they work and how to become one. Illustrated though many global examples of challenger brands.

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An overview of what challenger brands are and what makes them work. Illustrated through extensive examples. How do you become one, what are the steps and strategies that works.

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What challenger brands are, how they work and how to become one. Illustrated though many global examples of challenger brands.

  1. 1. Challenger brands: what they are, how they work and how to be one. 11/ 12/ 2013
  2. 2. What is a challenger brand? A “lagging” brand is a brand that is small in comparison to the brand leader in a category. Most brands are by definition lagging brands within their industries. A challenger brand has a BIGattitude, even when it is small. Very few lagging brands are challenger brands. It acts like it is the leader. It attracts more attention than what it “buys” in marketing. Although Virgin Atlantic is not one of the largest global airlines, it is a very visible airline, more so than some of the larger airlines. Yet, in marketing money, it spends far less. That marks a challenger brand. Should challenger brands “keep it up”, they will some day challenge the market share of the leader.
  3. 3. A challenger brand is active Challenger brands DO Nike started as a true challenger brand, today it leads.
  4. 4. A challenger brand acts unconventional Successful challenger brands share attributes like “exciting, visionary, maverick, unconventional, boundary-pushing and trend-setting (De Chematony, et. al. Creating & Launching A Challenger Brand: A Case Study, 2009). It is a fact that by doing the conventional, a challenger brand will not achieve anything, mostly because the leader will simply dominate the market with its resources. A challenger brand therefore buys far more “mind-share” than its market share.
  5. 5. Challenger brands have a high risk aptitude • The originator of the term “challenger brand”, Adam Morgan, with a book called “Eating the Big Fish”, stated its attributes as: – – – – • Challengers are by definition not the number one brands, nor are they niche. They want to be big, yet they are not yet. Everything they do is designed to make them appear big. Challenger brands have a mind-set that encapsulates greater ambitions than resources and a preparedness for risk to create an impact. Most of the difference between leading and challenger brands lies in their attitude and risk aptitude. What they do create market share inroads over-time - they cannot just carry on challenging forever without in some way threatening the market leader. Once they start losing their attitude, they simply become “me-too” brands. This is a great risk. Haxthausen, in Secrets of Challenger Brands, 2004, states that these brands “have to change the rules of the game.” – – I can add these brands must create their own rules – and then break them again – again and again! Whereas a leading brand can get away with a degree of complacency at times, even though it is never a good thing, it is the kiss of death for a challenger brand. We can, for instance, argue that Virgin Atlantic lost its challenger spirit some years ago already.
  6. 6. Ideally, challenger brands must redefine the competitive space – the most effective challengers “challenge” convention • • The “Blue Ocean Strategy” (Kim &Mauborgne, 2005) approach, is effectively about redefining the competitive space - the ultimate strategy for a challenger brand with serious intentions. At the heart of a serious challenger brand, mostly lies a deep differentiated value proposition: they offer the customer something more - or better. It is unlikely to become a serious challenger brand just because the marketing of a brand is better. Integrity is at the heart of a serious challenger brand. Much has been written about the exponential margin achieved by brands that dramatically redefine the competitive space. This is unlikely to happen with normal number two or number three brands in categories, often because not all such brands have the risk aptitude to dramatically redefine their spaces. The top 20 companies in the Fortune 2010 list of fastest growing companies received $3,40 in incremental market capitalisation for every $1 of revenue growth. For the companies that created new categories, this was $5,60! So Blue Ocean strategies, should they succeed, really works. This means the best strategy for a challenger brand, will always be to redefine a category to its advantage. Or the best, to create a new category altogether by combining spaces or creating convergent products.
  7. 7. Because challenger brands have to focus, they are often well equipped to challenge old brands • • Because challenger brands are forced to clearly define their market segments and market spaces – almost an imperative for success, they are able to become leading brands. For them, differentiation is key. They can succeed against leading brands because many leading brands are complacent, lethargic, less flexible and more conservative – they simply fail to see any new brand as a serious potential challenge. – – This is what happened within the banking industry with many specialist banks and other financial services service providers emerging over the years, gradually eroding the strength of old, established large retail banks. This is what Emirates did - it challenged traditional global airlines by offering a better overall product experience. Today, this is in itself being challenged by airlines like Etihad and Qatar, yet they arguably lack the attitude and aptitude to become real challenger brands against Emirates. All these airlines may collectively offer a challenger alternative, as the market share of the Middle Eastern airlines increased from around 2% of global air travel in 2002, to more than 12% today. This is extra-ordinary growth by any standards in any industry.
  8. 8. The low-down on challenger brands • • Most small brands, with the exception of niche brands, would like to grow and become large brands. Yet, most of them never grow beyond a certain point, and many suffer from so-called double jeopardy, where they get used by less people, but they also get used less frequently, therefore generally having a less loyal customer base which is often driven by a lower price. Few brands are small by choice, i.e. the one’s that are are that because they are very profitable in a smaller segment of the market (i.e. Rolex, Apple, Red Bull) or offer an exceptional value proposition not all consumers can afford (arguably, many more people would like to buy and Apple iPhone, yet few can actually afford it). – – • We can say that most smaller brands are simply “me-too” brands, that offer the same or less than the leading brand within a given product or service category. Rarely do these brands effectively differentiate themselves. These brands continually try to become leading brands, but they hardly ever succeed if you compare their status in the history of business. Yet, a real challenger brand displays a certain attitude not prevalent in most non-leading brands. They do not “behave” like lagging brands.
  9. 9. Are challenger brands not just niche brands? • Yes – and no. – – – – – Yes, because at the outset, a challenger brand has to define its market and value proposition more narrowly. Unless it does this, it will not be able to challenge the leader “head-on”. It needs to “eat the elephant” bit-by-bit. Unless a challenger plans well, it will not do well. No, because over-time, its intention is however to become a large brand and to ultimately challenge the leading brands. So in some respects, it starts off like a niche brand. Often the gradual growth of a challenger brand is through a succession of segments it targets, defining the “low hanging fruit” first and looking at growth opportunities in areas where the leading brand may be weak (or areas where it under-performs relative to the market). A true niche brand is not interested in ever becoming a mass market brand, it offers a superior product or service to a selective segment of the market, and mostly does this at a much higher margin than the leading brands. So Rolex competes in a much smaller market than Swatch watches. Most challenger brands want to become large, leading brands.
  10. 10. Fallacies of challenger brands • Attitude alone is enough. – • Have the nerve to challenge and to stick to it. – – • Many brands are challenging, extroverted, assertive and even irreverent in their brand personalities. That alone does not make them challenger brands. Brand leaders can have such an attitude. You can remain a challenger forever as long as you do not run out of steam. It is fair to say that the vast majority of challenger brands never become leaders in their product or service categories. – – • All brands can take-up a challenging position, yet few brand owners are willing to risk. It is a fact that a challenger brand will often have confrontations, negativity, even legal challenges to its survival. Unless the leadership of a challenger brand is willing to withstand threats and discomfort, even danger at times, do not even try it. Never run scared, even if you are scared! Having a challenging attitude alone does not make you a challenger brand. – • • Not true – even though attitude, aptitude and risk profile are important, without integrity – delivering to customers, no brand will survive. So a brand cannot challenge in a vacuum. This may simply be the advantage many leading brands have as first movers, or as in being universally distributed, or in being so dominant in their categories. It may also be because users of leading brands do not switch that easily, often against all odds. You cannot call yourself a challenger brand if you are simply a weak number two or three brand in a category. A challenger brand must at least make inroads into growing.
  11. 11. Examples of challengers: Pepsi • • • • PEPSI: probably the ultimate challenger brand, as it has been challenging Coca-Cola for generations, yet today it only leads in a few markets. The Pepsi brand has always been somewhat irreverent, more “out there” than Coke. Coke has always been more traditional, retaining its high-ground as the original cola brand, encapsulated in its bottle design (which emulates the shape of a cocoa bean). Yet, in tactical marketing terms, Pepsi has had success with “The Pepsi Challenge” in the US, where it ran product taste-tests in regions where Pepsi was particularly weak. This led to significant share growth for Pepsi in some regions, as most people preferred the sweeter taste of Pepsi (this led to the infamous Coke Classic disaster where Coca-Cola copied the taste of Pepsi as it felt threatened). Pepsi then consolidated its strength in the US with the “Pepsi Generation” campaign (basically just an advertising campaign). Yet, despite anecdotal successes, Pepsi still lags Coke in most areas of the world.
  12. 12. Avis • • • • • AVIS: “We try harder” as a clearly challenging and differentiated strategy by Avis to state what it could do better against the market leaders in care rental. I have often head the argument that now that Avis is a leading brand in some markets, why do they not change their slogan? The line remains relevant, as it has at its core a customer promise. Moreover, the fact that a brand becomes large, does not mean it must change its personality and mental attitude – so even though Avis may be large today, its challenger stance is still as relevant and credible as ever. It translated its challenger brand status into a challenger value proposition for the customer.
  13. 13. Apple • • • APPLE: Apple is probably the most famous challenger brand in the world today, and one that has become a leading brand in some of its product categories. Yet, in consumer reach, it is still a much smaller brand than Samsung or Microsoft and it competes in a far narrower market than both. Yet, where it did achieve significant success, was with exceptional new innovations in product design. In areas like tablets, online music, design computer systems and applications, it dominates the market today. But it only did this because its products are exceptionally well designed. Steve Jobs famously said “design is not only what a product feels like and what it looks like, but how it performs.”
  14. 14. Nando’s • • • • Nando’s: effectively competing with many fast food retailers, but with KFC in particular at inception, by offering a differentiated product (Portuguese style peri-peri chicken) “packaged” within a fun brand tonality (an irreverent brand attitude, yet with all brand elements like the menu, colours, typeface, advertising and even creating authenticity for the brand by claiming ownership of a particular kind of African chili). Today, Nando’s is a global brand, with slight adaptations in how they operate in some countries like the UK (the dining-in option is greater), yet with all the same underlying brand credentials that made them succeed in the first place. The brand attitude has enabled it to spend a fraction of the marketing investment of brands like KFC. So even though Nando’s is a small brand relative to KFC, it challenges it in many ways, including in levels of profitability. This means conceptually, there is no limit to the growth of Nando’s.
  15. 15. Emirates • • EMIRATES: a brand that is only twenty years old, yet one that now rivals brands like British Airways and Lufthansa in size and stature, and one that in many markets, now has a higher market share than the national brands of those countries, i.e. Emirates carries more British passengers to Dubai than BA does. Emirates saw the opportunity of offering significantly better products (new aircraft), entertainment systems, food, on-board and on-the-ground service levels. It defined its markets well, and it took advantage of the faults of its rival brands, that offered pedestrian service, often in older aircraft, at very high fares. It pursued its strategy by putting in daily flights to key destinations, thereby attacking its competitors where they were strong.
  16. 16. What makes challenger brands succeed? • • • • • • • • • • • A real understanding of the market. Understand the needs of the market well and decide what segment to focus on. Go for the “low hanging fruit” as far as possible. When Walmart started, it did this through launching stores in smaller towns, so it stayed “under the radar” for a long time. When the rivals like Sears realised what Walmart was doing, it was already a large company with serious resources. Understanding the weaknesses and opportunities provided by the brand leaders. Often attacking the weaker large brands first before it tries to challenge the leader. A real understanding of the value propositions that will work in the chosen markets. Retaining the lead in innovation in the chosen space. They differentiate by clearly stating what makes them different (i.e. Virgin offers better customer value in almost all the categories within which it operates). Serious challenger brands are close to their customers: superior product and service levels are endemic to successful challenger brands. Then a very strong retention strategy for existing customers. Clever use of marketing funds, aimed at attracting the right customers only. More direct than indirect tools are mostly used (little advertising, more events, social media, networks, publicity in the right media). A brand attitude that is clearly challenging the status quo. Serious challenger brands are not “quiet” brands. Its marketing is often talked-about. Clarity of strategy. Consistency once chosen – knowing where the brand has to go and sticking to it. Aligning the product and service output to the customer value proposition. Aligning the support structures like people, systems, operational procedures, to the delivery of the value proposition. A “want” and “hunger” to become large.
  17. 17. Brands that started as challenger brands but that lead today • • • NIKE: today not everyone is aware of the fact that Nike started as a challenger brand to Puma and Adidas, the two strong German brands of the time. These two brands owned the market with high marketing spend and almost universal global distribution. Nike did not have the marketing budget to compete head-on with these giants, but it believed in two important principles for its success: 1. superior product design and 2. using endorsements for its products from early on. It invested heavily in product design, and it chose upcoming stars in sport before they became famous (it simply could not afford established sports icons). So ironically, Nike became a leader by supporting the “underdog” (the “challengers”) in the beginning! Nike did another thing that was revolutionary at the time (it is commonplace today), it outsourced its manufacturing from inception. Whilst this was initially done because Nike simply did not have the money to invest in factories, it gave it the flexibility to move its manufacturing to territories where labour was cheaper, and its also enabled it to ratchet manufacturing up or down as the market growth demanded.
  18. 18. Brands that lost their leadership status to now become challengers • • • • YAHOO. Initially the leader in search, now a lagger struggling to find its feet. It is even arguable as to whether Yahoo is a challenger brand attitudinally, it is probably simply a lagger, unlikely to ever lead again. SONY. A brand that largely lost its luster and now plays second fiddle to a brand like Samsung. It also seems the brand is attitudinally now far behind and even less able to compete. NOKIA. A brand that totally dominated at one point, now lagging very far behind despite many attempts to change that. Maybe its only option is now to become a niche brand, but even that does not seem apparent now. There are few things more damaging to a brand, than to keep believing you are still the leader by making minor adjustments here and there. Only drastic changes will turn Nokia into a challenger brand. MICROSOFT. Still a very large brand, but it is fair to say, the brand has lost much of its luster and can not in any way be seen getting it right soon. Its only option lies in becoming a challenger now, yet this is unlikely whilst they still see themselves as leader.
  19. 19. Brands that lost their leadership status to now become challengers – can they lead again? • • • • The problem of most of these brands, are that they often fail to understand the rules of their game have now changed and that they need to work very hard at re-establishing themselves not just as fading brand leaders, but as leaders that has lost their way but that are redefining themselves and that will re-assert themselves in credible ways. The brands need to understand their status have changed and not pretend they still lead. This will mean a re-focus on differentiation and looking after a smaller portion of core customers well. Amidst its new status, what can it still do better than any other brand? What capabilities can it protect and leverage? Once this is stabilised, the brand can again define what space it can dominate and work towards.
  20. 20. “How to” challenge the market leader (1) According to Michael, in Marketing a Challenger Brand, 2013: – – – – • Adam Morgan (Strategies for a new generation of challenger brands) states a few additional one’s, notably: – – – – • Attack the category leader. Know the leader’s strengths and weaknesses. Clearly position yourself against the market leader, ideally by doing something different that matters to customers. Be quick to react to market opportunities. Be visible, often by using different angles and different media types. Be useful to consumers. Identify areas of customer concern, problems and conflict with existing leading brands. Make the brand “talked about”. Kleber, 2012, How to Win as a Challenger Brand, states strategies to be: – – – Offer a comparable product at a lower price, i.e. Easyjet in Europe. Getting closer to customers and offering better products and/ or service. Disrupt the market with radical innovation, i.e. create a new category.
  21. 21. “How to” challenge the market leader (2) • • • Of all of these, the most successful, by far, is to disrupt the market with a very superior, differentiated offer. This is unlikely to work if it just a head-on attack. Often a flanking attack works best i.e. using a particular angle of importance to consumers. What weakenesses of competitors can you exploit? Then to gradually and incrementally, focus on the best sources of market share growth for the challenger brand. This means: – – – – – – • Clearly identifying what segments hold the greatest potential for growth for the challenger brand. In other words, where can the challenger brand gradually “chip-away” at the leading brands It will often be easier to start with the second and third tier brands, as causing defection from them will be much easier than from the leading brand. Check the status of the challenger brand with them in terms of their needs, their awareness of the brand and their perceptions of the brand. Check what proportion of these consumers are likely to defect to the challenger brand and what message will make them defect. Targeting them with the right messages and media channels. This is a function of what he challenger brand will do that is better than what their current brand does. Obtain high levels of trial from them. Convert an efficient proportion of these. Reviewing acquisition progress and ensure that they are retained. If this is done in a systematic and sustained way, the brand will grow and will eventually challenge the leader (unless of course the leader starts to redefine itself in a significant way).
  22. 22. To sum-up: pointers for challenger brands • • • Of all of these, the most successful, by far, is to disrupt the market with a very superior, differentiated offer. This is unlikely to work if it just a head-on attack. Often a flanking attack works best i.e. using a particular angle of importance to consumers. What weaknesses of competitors can you exploit? Then to gradually and incrementally, focus on the best sources of market share growth for the challenger brand. This means: – – – – – – • Clearly identifying what segments hold the greatest potential for growth for the challenger brand. In other words, where can the challenger brand gradually “chip-away” at the leading brands It will often be easier to start with the second and third tier brands, as causing defection from them will be much easier than from the leading brand. Check the status of the challenger brand with them in terms of their needs, their awareness of the brand and their perceptions of the brand. Check what proportion of these consumers are likely to defect to the challenger brand and what message will make them defect. Targeting them with the right messages and media channels. This is a function of what he challenger brand will do that is better than what their current brand does. Obtain high levels of trial from them. Convert an efficient proportion of these. Reviewing acquisition progress and ensure that they are retained. If this is done in a systematic and sustained way, the brand will grow and will eventually challenge the leader (unless of course the leader starts to redefine itself in a significant way).

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