Challenger Brands: The Defining Threat to Customer Retention

Emily James

Pitch It: The Business Case for Customer Salience

As insight experts, we understand the power of insights, their inherent value in key decision-making...


Emily James

    The term ‘disruption’ provokes one of two common reactions within businesses, depending on the context in which it stands. New technological disruption can provoke an interested, even happy, reaction as it provides copious opportunities for enhanced development; however, disruption caused by challenger brands typical provoke a reaction of alertness as established brands renew their efforts to retain their customer-base in wake of this new threat.

    Challenger brands, as defined in another of our blogs, are those with the aim of taking advantage of any of the evolving elements in the market and challenging other brands. These don’t necessarily need to be new brands, just those with an innovative idea or strategy to get a strong foothold and boost their reputation in the changing world of consumerism, providing competition within their industry.

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    Challenger brands aren't necessarily new brands, but any business within an industry with an innovative idea or strategy to get a strong foothold and provide real competition in the changing world of consumerism.

    The Defining Threat

    Challenger brands, whether they’re newly created or not, pose a threat to an established brand’s customer retention. When it comes to newly created challenger brands, the typical threats they pose are lower prices for the same goods, and are nimble enough to mould their brand and reputation into whatever the customers need at the time. For established brands this means that the customers who are likely to get distracted by shiny new things are more likely to leave to try it out. One telling example of this is the German supermarket, Lidl.

    Lidl are one of the challenger brands that have been around a while, but are reinventing their public image as the respected grocer rather than the “discounter”. Their Lidl Surprises campaign has been a game changer and is entirely based around customers influencing other customers, which is one of the best forms of effective advertising; according to a study from Nielson, 92% of consumers would believe the recommendations and opinions from friends and family over all forms of corporate advertising. This is something that Lidl has recognised within their Lidl Surprise campaign, and used to their advantage to recreate their image into their original brand concept rather than the public-conceived “discounter” notion. Through this, Lidl have raised their status within the FMCG industry, becoming a more popular option for customers and thus a threat to established brands’ customer retention. 

    Values are incredibly important to consumers, and the fact that Lidl has stayed true to their own even through this change in reputation is telling of their authenticity to customers. Authentic brands are typically more successful in attaining/retaining customers, as they seem relatable and human. But also, within Lidl’s campaign during the Christmas period, the firm also called out their competitors such as Waitrose, John Lewis, Tesco’s, and many more, for their expensive products; Lidl took the chance to shoot their competitors’ advertisements down while also stating that customers can get cheaper, but no lesser quality products through Lidl themselves. Calling out brands directly is an audacious move, but has been undeniably effective as it was entertaining for the British public, as Lidl’s market share has rocketed up from 2.8% in 2012 to 5.5% in 2018.

    So what can we learn from Lidl? It is clear that innovation and customer insights are the fuelling components of a successful challenger brand. But authenticity and the customers themselves are not to be underestimated. Customers will go to the competitor that is the best quality for the price they are offering, and are more than willing to be persuaded to try another company if it’s by someone they trust. Risk is another factor that challenger brands can afford to play with, as can be seen by Lidl’s calling out of other brands. But as their campaign is still going strong and gaining more momentum, the risk they had to play with was relatively small compared to the customers they stood to gain.

    But, challenger brands aren’t just a threat to customer retention. Established brands should be glad that they exist, because with challenges also come the strong benefits brought by opportunity and competition.

    The Defining Opportunity

    The opportunities that come hand-in-hand with challenger brands are very important for established brands to take advantage of; or they will fall behind as the challenger brands quickly become the new go-to brand within the industry for consumers.

    The first opportunity Challenger brands bring is an increased exposure for the whole industry if the challenger brand markets themselves well enough. This exposure will, whether directly or indirectly, increase the visibility of all brands within the industry, no matter their status. Riding on the back of this wave of exposure will positively affect the sales and visibility of your own business despite the gauntlet being laid down by the instigating challenger brand.

    Challenger brands also bring new strategies and rules to the table, both within the competition and the industry. The strategies, depending on whether they can be proven to work in the long run, can be replicated and used within the established brands’ business which can work to reinvigorate and inject some innovation into the veins of the industry. This works to bring the other brands in the competition up to speed with the latest techniques and tactics to win over and retain their customer-base. But strategies aren’t the only new elements challenger brands bring into the industry. Challenger brands are full of new ideas in order to make them into a fully equipped competitor ready to do battle within their sector, but this notion also works to spark new ideas and innovations within the industry.

    The Defining Competition

    Competition isn’t always a bad thing; some of the best ideas, products, and services have been borne from fierce competition with other firms. Take the phone tech industry for example; the giants Samsung, Huawei, Google, and Apple are constantly competing against each other and copying ideas to follow the latest trends and gain more ground with customers. While the initial idea of folding smartphones is great, it isn’t just enough to be the first to produce a working attempt, it is about the quality and the price as well.

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    Competition isn’t always a bad thing; some of the best ideas, products, and services have been borne from fierce competition with other firms, who revolutionise their industry and try to be the best version of themselves.

    The first foldable smartphone unveiled by Samsung is set to be not quite what was expected when the initial premise was first aired, but still very expensive for what it’s trying to be. The next unveiling was Huawei’s attempt which is a little more on the lines of the initial concept as the phone screen is on the outside of the fold, but still very expensive, even more so than Samsung. The other phone companies set to follow this trend will learn from the current concept examples and produce better, quality phones for the same price or cheaper in order to retain their customer-base throughout the challenger brands’ attempts to innovate their way to the top.

    Through this competition, each company involved is challenging itself and others to revolutionise the smartphone industry, and keep the momentum of innovation going that took off when the first smartphone was introduced. Without this competition, smartphones, and by extension technology, wouldn’t be anywhere near the standard that it is today. So, if we apply this to wider world, the same premise can be applied to every industry where there is a strong momentum and competitive-fuelled threat to constantly innovate in line consumer desires and needs.

    Riding the Wave to Customer Retention

    Taking advantage of the opportunities and competition brought about by the challenger brands and learning from them will enable firms to boost their status and innovate processes and policies themselves in order to keep with the times. Customer retention might not be the best thing to be focussing on. Retention is all well and good, but allowing customers to flow in and out of your business as and when they need to will actually endear you more to them as it gives the impression that they are free with their choices (which they are) but also that they have a place to come back to when everyone else fails.

    Customers have a brand they know and love to come back to when the new-fangled challenger brands eventually lose their way and take too much of a risk. Keep up to date with the customers’ needs and the competitors’ advantages in order to pick and choose to boost your own and your brand will not fall short of the mark.

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