Defending Your Brand: Use Defensive Strategy to Combat Competitive Attacks

Defending Your BrandHow Smart Companies Use Defensive Strategy to Deal With

Competitive Attacks

Kellogg School of Management

Professor Tim Calkins

December 17, 2012Copyright © 2012 by Tim Calkins

Defending Your Brand 2

Objective

Highlight the importance of defensive strategy

Give you ideas and frameworks that you can apply


The latest news


Agenda: Three Points

• Defensive strategy is critically important

• Companies often defend too late

• There are many ways to defend







Defensive strategy: reacting to competitive threats

Taking 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 threat


Defense is a major part of business strategy

Offensive Moves

Short Term Long Term

Moves Moves

Defensive Moves


What do these brands have in common?


What do these brands have in common?


RIM


RIM


RIM


RIM


RIM


RIM


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 error

Specialized Machine Tool BrandIncome Statement

Revenue $350 million

Cost of Good Sold $170

Variable Profit $180

Marketing $60

Overhead $40

Operating Profit $80

17Defending Your Brand




Variable Profit $180

Marketing $60

Overhead $40

Operating Profit $80 < 23% margin


Specialized Machine Tool BrandRisk if Competition Takes 10% Share

Revenue at Risk $35 million

Margin 23%

Total Profit Risk $8.1 million





Variable Profit $180 < 51% margin

Marketing $60

Overhead $40

Operating Profit $80




Margin 51%





Margin 51%


Discount Rate 5%

NPV $358 million




Margin 51%


Discount Rate 5%

NPV $358 million

plus… impact on spendingimpact on pricingcompetitor’s future growth 23Defending Your Brand


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 hard

Dow Corning’s Defense: Xiameter


26

The Competitive Battle

Defending Your Brand







Every significant competitive move requires a defense decision

• There are reasons to defend and not to defend

Reasons to Defend Reasons Not to Defend


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-offs


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


The sad tale of Harley Davidson

1903: company founded

1903-1959: becomes dominant player

83% share

110 competitors try to enter market

clear leader with big bikes (1200 cc)

core markets: police, bikers, military



1959: Honda launches into market

-50 cc machine, $250

-target: college kids

-”You meet the nicest people on a Honda”

-Harley defense:



1966: -Honda outselling Harley 2:1

-Honda introducing larger bikes

-motorcycle market growing

-Harley defense:



1977: -Honda launches 1200 cc bike

-Harley down to a 5% share

-Harley defense:






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 wrong







There are many ways to defend; you can focus on any of the key launch steps

New Product Launch Process

Before Launch: Product testing and development

Gain Build Drive Build Distribution Awareness Trial Repeat


Three things to remember

1. The goal is to damage the new entrant

2. Your task: slow them down

3. Timing matters


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. Acquire


Example: Lufthansa


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. Acquire


Distribution build defense options

Goal: Ensure the new product doesn’t secure distribution

Options: 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 support


Awareness defense options

Goal: Limit awareness of the new item

Options: 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


Example: Intel


Awareness defense options

Goal: Limit awareness of the new item

Options: 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


Trial defense options

Goal: Limit trial of the new item

Options: 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 benefits


Example: United


Example: United


Example: Eli Lilly


Trial defense options

Goal: Limit trial of the new item

Options: 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 benefits


Repeat defense options

Goal: Ensure consumers don’t repeat on the new item

Options: 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







Two final points

1. The best scenario: you never face competitive attacks


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?


To Learn More


Contact Information

Tim CalkinsKellogg School of Management

[email protected]

www.timcalkins.com

www.strongbrands.wordpress.com

(847) 467-3209

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Defending Your Brand: Use Defensive Strategy to Combat Competitive Attacks