With rare exceptions, marketing designed to create or enhance brand preference over competitors in established product categories changes nothing. No matter how big the budget or how clever the execution, “my brand is better than your brand” marketing rarely results in sales growth.
Look at any product category over a long time period and you will see that changes in market position rarely occurred unless there was a substantial or transformational innovation. Innovation drives customer “must haves.” These, in turn, define a new subcategory in which competitors are either weak or nonexistent, resulting in meaningful sales change.
I studied the Japanese beer industry for more than 40 years and found that the sales trajectory of the leading brands changed only four times. On three of those occasions, a new subcategory got traction: dry beer, Ichiban, or Happoshu (low-malt and low-tax beer); in the fourth, two subcategories (dry and lager) were simultaneously repositioned. It is striking that four decades of enormous new product vitality, marketing budgets and promotional activity had little impact.
A similar story would play out if you looked at bottled water, ice cream, computers, financial services, automobiles, fast-food restaurants, hotels, canned soup, candy, airlines, airplanes or almost any other category. You would assume that the recipe for success would be products or services that are reliable and deliver on their promise, improved each year with a program of incremental innovation, and supported by well-funded and executed marketing. Instead, with rare exceptions, such efforts simply result in running in place and preserving the status quo.
In contrast, substantial or transformational innovation that creates an offering for which competitors aren’t relevant can have a huge impact. Consider, for example, the Chrysler minivan introduced in 1983: It had 16 years with no viable competitor and sold more than 12 million units. Or take Enterprise Rent-A-Car: It went three decades with little real competition, keeping its focus on customers who needed a replacement vehicle as theirs was being repaired, and was able to surpass Hertz in sales and profits.
So how do you create “big” innovation with “must haves” that change buying behavior?
First, the organization needs to be capable of creating and nurturing a concept that will generate meaningful customer benefits. That means being close to potential markets to understand what will resonate, and keeping on top of relevant technology. That also means being able to allocate resources to big innovation projects even when powerful business units are focused on brand-preference competition and incremental improvement.
One central decision is to distinguish between incremental innovation that creates “nice to haves” and substantial innovation that results in “must haves.” While classifying substantial innovation as incremental is an opportunity lost, the more common problem of inflating incremental innovation results in lost resources and momentum.
Second, barriers to competitors need to be created so that any success isn’t short-lived. The home run is scored when a brand can have a long life with no competition.
Barriers to competition include:
-- Over-the-top execution: The online shoe store Zappos.com Inc. is an example of a company that sets a high bar for a potential competitor, with its 24/7 call center that famously found a pizza-delivery service in the middle of the night for one customer, its policy of taking back shoes and its 10 Core Values that include a mission to “create fun and a little weirdness.”
-- Branded innovations: Westin’s Heavenly Bed or Amazon.com’s 1-Click are effective because competitors can copy an innovation or appear to do so but a brand can be owned.
-- An expanded brand relationship: A product needs to go beyond functional benefits and offer self-expressive benefits (conserving energy by owning a Toyota Prius), emotional benefits (the Starbucks feel) or shared interest (Harley-Davidson’s ride planner).
-- A loyal customer base: Whole Foods Market Inc. has achieved this, leaving its competitors to vie for less profitable customers.
Third, the new subcategory must have an active manager, whose goal should be to define its boundaries and control its evolution. In particular, the ongoing innovation should add new “must haves” and create a moving target for competitors, much as Apple Inc. did with the iPod subcategory by introducing shuffle, nano and iTouch. A key is to become the subcategory exemplar as SalesForce.com did with the first major cloud-computing application. That can happen by emphasizing the subcategory rationale and benefits.
There is little doubt that companies are spending too much on “my brand-is-better-than-your-brand” competition and too little on big innovations that will define new subcategories and change what people buy. While existing businesses must be protected, companies also need to have a “risk” budget devoted to making bets on offerings that will make a real difference in the marketplace.
(David Aaker is professor emeritus of marketing and public policy at the University of California, Berkeley’s Haas School of Business and a contributor to Business Class. He is vice-chairman of Prophet, a strategic brand and marketing consulting firm and the author of “Brand Relevance: Making Competitors Irrelevant.” The opinions expressed are his own.)
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