Challenging Markets
Challenger brands are those that are created with the aim of taking advantage of any one of those changing elements in the market and challenging established brands; they must understand and focus, with laser-sharp accuracy, on exploiting a gap in the market in order to succeed. Currently, many of these are brands taking advantage of changing technology, which creates new opportunities and alters consumer behaviour. Netflix and Amazon, whilst big, are challenging the status quo of TV and film industries by operating streaming services, and Amazon is also continually challenging retailers with each evolution.
Established brands have the advantage of an existing customer base and powerful brand awareness to help them defend against a new challenger brand. If they use these resources and benefits well, then they can survive that threat; but they too must evolve with the changing tastes and needs of its customer base, they can’t just defend their position through relying on their brand presence and history.
One advantage that established brands have is that it often takes time for consumer behaviour to change, meaning that they have time to calculate a response. However, challenger brands benefit by being ‘nimble’ as they can occupy new product positions quickly and have a certain fluidity due to the lack of preconceived reputation and aren’t weighed down with costly legacy systems or processes that would otherwise encumber their ease of deploying new developments. Just look at Amazon, how it challenged the retailers with laser-like focus on selling books and then gradually widened the product range as consumers gained confidence.
The common element between established and challenger brands is the need to understand the market and customers. If an established brand fails to spot changes and react accordingly then it will ultimately fail. Famous examples include brands such as Kodak or Polaroid who were once global giants and are now mere shadows of their former selves. challenger brands too face the same requirement and will also fail if they don’t evolve or accurately tap into a customer need.
Understanding The Customer
We often think of challenger brands as being all conquering, but who can remember Lycos or Netscape? You may be showing your age if you can, but they were the Internet giants of the .com boom and had the ‘first move’ advantage over Google and Amazon; yet they are consigned to the memory box of brands that didn’t make it. Their brand awareness today is practically nill. The graphic below details how vital it is that challenger brands too understand their consumer.
Insight is the leveller when it comes to the competition between established and challenger brands. Insight is not costly in the way that establishing brand presence or deploying large new CRM technologies can be which makes it readily accessible and relevant to all.
Often challenger brands won’t invest the same amount of capital in commissioning market research, nor will they proclaim to have the largest consumer insight programmes, but they too must seek insight into their customers to succeed. Yet, established brands often will have market research plans and processes in place in order to gather relevant data, but none of these processes will benefit the brand unless they can derive insight from the data and use it to inform decisions wisely. Data on its own is just data. It has to mean something for it to be a benefit.
Not all insight is equal and only history will judge which insights are correct and which slightly missed the point. Lycos was one of the world’s first and most successful search engines, but it’s insight into what early internet users wanted missed the mark, while Google got it right with its simple and clean interface that still prevails today. Google had to build a different business model around that insight, but it proved to be the best and most valuable insight of all as the last thing that confused, disorientated early web searchers wanted was to be distracted with adverts that sought to undermine their efforts to find what they wanted. The insight was there for Lycos to find, but Google made better use of it.
A current example in the UK can be seen within the grocery retail sector, where brands such as Aldi and Lidl have been challenging the market and growing relentlessly for a decade; yet Tesco, the once all-powerful-could-do-no-wrong giant is waning and struggling to keep up. This blog by Nick Bonney, highlights a contemporary insight-led decision that is being judged now. Tesco recently took the decision to close many its store-based fresh food counters to focus on cost-cutting other lines as their data shows that people aren’t using the counters and prefer the convenience of the pre-packed products on the shelves. Tesco recognise the consumer desire for discounted goods and convenience, however, Bonney argues that the fresh food counters offer an alternative benefit to Tesco: the benefit of differentiating their brand from the discounters. Other insights, which local delis, butchers and premium supermarkets have found, suggest that certain segments value local produce, taste and advice. Only history will judge whether it is the right decision, but their response is insight-led, founded in lots of data, research projects and experimentation.
Challenges to Brands Seeking Insights
The difficulty with any insight is that it is often the judgement, not the data, that will lead to a decision and any insight is dependent on the context and scenario in which it is used. To succeed, a business needs to gather data on what customers are doing now, understand the reasons and emotion behind why customers are doing those things and then develop a strategy to give customers what they want. In the retail space, the majority of customers are currently very price-sensitive, yet this itself won’t defend Tesco’s position; they also need to find a differentiator or an edge that makes customers walk into its stores rather than the challenger brands’. The momentum is often with the Challenger, so relying on the strength of the brand’s history is rarely enough.
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| The difficulty with insight is that it is often the judgement, not the data, that will lead to a decision and any insight is dependent on the context and scenario in which it is used. |
The difficulty that Tesco, and other established brands will have, is twofold:
- Spotting a changing need when revenues are stable or only in slight decline; management systems will be built to maintain market share, not identify and build new share with new segments or services.
- Using insight to find a response or different conclusion to what they’ve done in the past or in using it to just copy the strategy of the Challenger.
For established brands, the history on their backs will colour their insight and judgement. For challenger brands, the difficulty appears less obvious for they have not established history or processes and often have innovative, dynamic cultures. But that is also their weakness: believing their own hype. Often that culture needs to be visionary, strong-willed, and stubborn to succeed, but they also need to be flexible and able to listen to feedback from the market.
Conclusion
No matter the size of a business or whether it is a challenger or an established brand, it’s their understanding of the market – of consumer behaviour – that will dictate whether they are successful in the long term. There are different routes to getting such insight, but ultimately, they can only be successful if they can tap into a consumer need. Technology has created new opportunities and altered behaviour so much that different segments of consumers now buy and use services very differently to each other. This has created many more challenger brands than 20 years ago, but more than ever, consumer insight the one common element that levels the playing field across all brands.
