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
Defending Your Brand 3
The latest news
Defending Your Brand 4
Agenda: Three Points
• Defensive strategy is critically important
• Companies often defend too late
• There are many ways to defend
Defending Your Brand 5
Agenda: Three Points
• Defensive strategy is critically important
• Companies often defend too late
• There are many ways to defend
Defending Your Brand 6
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
Defending Your Brand 7
Defense is a major part of business strategy
Offensive Moves
Short Term Long Term
Moves Moves
Defensive Moves
Defending Your Brand 8
What do these brands have in common?
Defending Your Brand 9
What do these brands have in common?
Defending Your Brand 10
RIM
Defending Your Brand 11
RIM
Defending Your Brand 12
RIM
Defending Your Brand 13
RIM
Defending Your Brand 14
RIM
Defending Your Brand 15
RIM
Defending Your Brand 16
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
Specialized Machine Tool BrandIncome Statement
Revenue $350 million
Cost of Good Sold $170
Variable Profit $180
Marketing $60
Overhead $40
Operating Profit $80 < 23% margin
18Defending Your Brand
Specialized Machine Tool BrandRisk if Competition Takes 10% Share
Revenue at Risk $35 million
Margin 23%
Total Profit Risk $8.1 million
19Defending Your Brand
Specialized Machine Tool BrandIncome Statement
Revenue $350 million
Cost of Good Sold $170
Variable Profit $180 < 51% margin
Marketing $60
Overhead $40
Operating Profit $80
20Defending Your Brand
Specialized Machine Tool BrandRisk if Competition Takes 10% Share
Revenue at Risk $35 million
Margin 51%
Total Profit Risk $17.9 million
21Defending Your Brand
Specialized Machine Tool BrandRisk if Competition Takes 10% Share
Revenue at Risk $35 million
Margin 51%
Total Profit Risk $17.9 million
Discount Rate 5%
NPV $358 million
22Defending Your Brand
Specialized Machine Tool BrandRisk if Competition Takes 10% Share
Revenue at Risk $35 million
Margin 51%
Total Profit Risk $17.9 million
Discount Rate 5%
NPV $358 million
plus… impact on spendingimpact on pricingcompetitor’s future growth 23Defending Your Brand
Defending Your Brand 24
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
25Defending Your Brand
26
The Competitive Battle
Defending Your Brand
Defending Your Brand 27
Agenda: Three Points
• Defensive strategy is critically important
• Companies often defend too late
• There are many ways to defend
Defending Your Brand 28
Every significant competitive move requires a defense decision
• There are reasons to defend and not to defend
Reasons to Defend Reasons Not to Defend
Defending Your Brand 29
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
Defending Your Brand 30
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
Defending Your Brand 31
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
Defending Your Brand 32
The sad tale of Harley Davidson
1959: Honda launches into market
-50 cc machine, $250
-target: college kids
-”You meet the nicest people on a Honda”
-Harley defense:
Defending Your Brand 33
The sad tale of Harley Davidson
1966: -Honda outselling Harley 2:1
-Honda introducing larger bikes
-motorcycle market growing
-Harley defense:
Defending Your Brand 34
The sad tale of Harley Davidson
1977: -Honda launches 1200 cc bike
-Harley down to a 5% share
-Harley defense:
Defending Your Brand 35
Many companies defend too little
Defending Your Brand 36
Many companies defend too little
Defending Your Brand 37
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
Defending Your Brand 38
Agenda: Three Points
• Defensive strategy is critically important
• Companies often defend too late
• There are many ways to defend
Defending Your Brand 39
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
Defending Your Brand 40
Three things to remember
1. The goal is to damage the new entrant
2. Your task: slow them down
3. Timing matters
Defending Your Brand 41
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
Defending Your Brand 42
Example: Lufthansa
Defending Your Brand 43
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
Defending Your Brand 44
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
Defending Your Brand 45
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
Defending Your Brand 46
Example: Intel
Defending Your Brand 47
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
Defending Your Brand 48
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
Defending Your Brand 49
Example: United
Defending Your Brand 50
Example: United
Defending Your Brand 51
Example: Eli Lilly
Defending Your Brand 52
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
Defending Your Brand 53
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
Defending Your Brand 54
Agenda: Three Points
• Defensive strategy is critically important
• Companies often defend too late
• There are many ways to defend
Defending Your Brand 55
Two final points
1. The best scenario: you never face competitive attacks
Defending Your Brand 56
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?
Defending Your Brand 57
To Learn More
Defending Your Brand 58
Contact Information
Tim CalkinsKellogg School of Management
www.timcalkins.com
www.strongbrands.wordpress.com
(847) 467-3209