New product categories can subvert incumbent brands -- or give them a new lease on life.
Dubai, 08 November 2004
Business revolutions once had a bit of continuity to them. The Industrial Revolution lasted for decades, the postindustrial revolution had a solid 20-year run, and even the dot-com revolution persevered for a good five years. But business and consumer marketers in 2004 don't seem to have even that much luxury. Consumers and corporate buyers, more mobile and better informed than ever before, are increasingly able to get precisely what they want when they want it, at the price they're willing to pay. To meet these exacting desires, new and different products and services appear unceasingly. Entirely new categories and subcategories come into existence almost overnight, as existing ones change or fade.
To succeed in this fast-moving environment, management must pay attention to a new and, for most, unfamiliar attribute of the company's products, services, and brands: their relevance.
Relevance is fundamentally different from the characteristics conventionally associated with a brand's potency. Brand management in the past focused on achieving preference on the basis of differentiation, benefits, and customer satisfaction within a set of brands under consideration for a given application. But in today's environment, unless a brand can maintain its relevance as categories emerge, change, and fade, narrow application preference may not be sufficient. Brand managers are often blindsided by changing product categories because they focus too closely on the traditional attributes of brands within their old categories. Their ultimate tragedy is to achieve brilliance in creating preference and differentiation, only to have that effort wasted because of a relevance problem.
According to Karim Sabbagh, Vice President, Booz Allen Hamilton in the Middle East, "The issue of relevance is particularly applicable in the dynamic, fast-changing markets of the Middle East. Whether it is the ambitions of regional governments to leapfrog technologies with all the change that this implies or the almost immediate regional adoption of marketing and category innovations as they happen in Europe, Asia, and North America, businesses operating in the Middle East have little insulation from the threat of brand irrelevance."
In fact, he noted, "The topic of brand management and relevance has moved up on the strategic agenda of senior management and boards of directors in the region. It has become a key catalyst for expressing and presenting an institution's value in a way that is relevant to end users." Beyond consumer categories where brand management is an accepted and critical enabler, "the value of brands has become ubiquitous in the Middle East and is spreading to new categories as evidenced by the real estate sector where the likes of Emaar and Nakheel in Dubai are seeking to develop pioneering and uncompromising quality positioning," he added.
Defining Relevance
Relevance for a brand occurs when three conditions are met:
A product or service category or subcategory defined by some combination of attributes, applications, user groups, or other distinguishing characteristics exists or emerges.
There is a perceived need or desire on the part of a customer segment for the category or subcategory.
The brand is in the set that segment considers being material to the product category or subcategory.
To better understand relevance and the concept of product categories and subcategories, consider a simple model of customer-brand interaction. (See Exhibit 1.) Customer choice takes place in five stages. First, the customer is motivated by a problem, need, or opportunity in this example, the need for personal transportation. Second, the customer selects a product category or subcategory perceived to be relevant to the problem or opportunity; he or she may decide to buy a luxury sports sedan rather than a compact or an SUV. Third, the customer determines which brands to consider -- in this case, the choice might include Audi, BMW, Lexus, and Cadillac. In the fourth stage, perhaps after some evaluation, the consumer selects one brand from the consideration set. Finally, the product is acquired, and the process culminates in a usage experience that may influence the next cycle. 
Brand relevance involves stages two and three of the framework whether the product category or subcategory is deemed to meet the customer's need, and whether a brand is associated with the particular product category or subcategory. A brand's relevance depends on both.
New Category Dynamics
Thanks to the rapid pace of global technology transfer, capital flows, and communications streams, product categories and subcategories can come into existence and disappear with startling speed. Gabriel Chahine, Principal, Booz Allen Hamilton in the Middle East, added, "This is certain to become a reality in the increasingly open markets of the Gulf, which are characterized by informed and demanding consumers exposed to design, marketing, and retailing trends from all parts of the globe. This is already apparent in fast-developing sectors such as information technology, telecommunications, and media." Because new categories can represent strategically important threats or opportunities, marketers have to be very attentive to the forces that drive their emergence. There are seven such dynamics.
1. A new product or service dimension expands the boundaries of an existing category.
2. A new product or set of products carves out a fresh niche in an existing category.
3. A new competitor devises a way to bundle existing categories into a super category.
4. A new competitor repositions existing products or services to create an original category.
5. Customer needs propel a new product category or subcategory.
6. A new technology leads the development of a product category or subcategory.
7. A company exploits changing technologies to invent a new category.
Structuring Responses
How a firm responds to emerging categories and subcategories in its field of endeavor can be the difference among market dominance, continuing viability, and slow death. Experience and logic indicate that, when it comes to brand disruption, firms come in three flavors: trend neglecters, trend drivers, and trend responders.
Trend neglecters fall into three categories. "Stick to your knitting" firms are not motivated to stay informed about market trends. They are committed to and focused on their own model and believe that operational excellence will overcome market dynamics -- or they lack the resources to change strategies. The second type of trend neglecter mistakes trends for fads. The final type of trend neglecter is the firm that wants to identify, evaluate, and respond to market dynamics, but is not very good at it.
Trend drivers participate in the creation of new product categories or subcategories -- a terrific capability that, unfortunately, few firms have. Even companies that possess the requisite skills to drive trends have only occasional windows of opportunity. To succeed as a trend driver, a company must have real ammunition; a breakthrough product wouldn't hurt. Further, the firm needs to be capable of turning a first-mover advantage into a sustainable position by actively managing customers' perceptions of the new category or subcategory and asserting a dominant brand position in the new arena. That requires not only resources and recognition of the expanded brand-building task, but also competence in brand building.
Trend responders closely track the emergence of trends and the evolution of subcategories, and take responsive action to keep their offerings current and relevant. Because neglecting a trend is risky and driving a trend is rarely an option, developing trend responsiveness capabilities is the best strategy for the majority of companies.
Learning to be a trend responder is feasible for most firms, but it is not easy. It involves two primary capabilities. The first is to recognize and evaluate trends. Organizations that do this well share several characteristics: an externally oriented, market-focused culture; an information system that captures and distills intelligence; top management concerned with market dynamics; and solid business strategists who are empowered to act. Evaluating a trend can be more difficult than identifying it. Will it represent a worthwhile opportunity, or are competitive intensity and overcapacity already predictable? Is it real and substantial, with a value proposition behind it? Can the firm realistically participate, given its strategy, assets, and competencies?
Trend responders must also be able to modify, reposition, and/or re-brand their offerings so they remain relevant despite the market's evolution. Any repositioning or re-branding needs to be respectful of the brand's heritage and compatible with the ability of the brand and the organization to deliver on the promise. The company needs to develop a point of difference from competitors, with a unique take on the new product category or subcategory.
A variety of strategic responses is available to trend responders. They can attempt to build sales and loyalty from their core customer group -- by improving product quality, enhancing the customer experience, or attempting to inject energy into their brand marketing. In this strategy, growth might not necessarily be a priority. In fact, an "incumbent market" strategy could be accompanied by some downsizing and cost reduction to reflect the downward trend of the still substantial market.
Four other potential response options address the challenge more aggressively. One is to use new products to alter the current brand image and make it acceptable to the new subcategory's customers. A second trend-response option is to go beyond mere acceptance, and, through the creation of strong sub-brands characterized by exceptional products, become a "destination brand" for the new consumer segment. A third option is to partner or co-brand with firms that have credibility in the new category, sharing some of the upside in order to save the time, cost, and risks involved in creating a new brand. A fourth option for trend responders is to create or buy an entirely new brand platform.
The Relevance Challenge
Trend responsiveness, however, carries its own set of risks. The drive to maintain relevance can prompt a company to chase too many subcategories, both real and imagined, resulting in a diffused, ineffective, and expensive strategy. Response must be guided by serious analyses. Is the opportunity large enough to justify? Is it defensively necessary? Is the trend real, or is it a fad -- is it MP3, or merely eight-track? Does the firm have the ability to develop the skills needed to compete? Does it have the brand assets needed?
Companies need capabilities beyond the detection and evaluation of emerging subcategories. They require creative, powerful new offerings; entering an emerging category without them is more likely to waste resources than to create relevance. A brand strategy may require developing a new brand, an endorsed brand, or a sub-brand to carry the flag. If the necessary brand assets are not available, they need to be built or acquired. Finally, staying relevant in dynamic environments can require an organization to become more outward looking, customer focused, flexible, and nimble perhaps the toughest challenge of all.
-Ends-
About Booz Allen Hamilton
Booz Allen Hamilton has been at the forefront of management consulting for businesses and governments for more than 90 years. Booz Allen combines strategy with technology and insight with action, working with clients to deliver results today that endure tomorrow.
With over 12,000 employees on six continents, the firm generates annual sales of over $2 billion. Booz Allen provides services in strategy, organization, operations, systems, and technology to the world's leading corporations, government and other public agencies, emerging growth companies, and institutions.
Booz Allen Hamilton has been active in the Middle East since 1970 and has unsurpassed expertise across various sectors as acquired over numerous and long-standing engagements with key stakeholders in the region. The firm has also developed a superior network of knowledge sharing and collaborative relationships with Middle East based leading independent experts.
To learn more about the firm, visit the Booz Allen Web site at www.boozallen.com. To learn more about the best ideas in business, visit www.strategy-business.com, the Web site for strategy+business, a quarterly journal sponsored by Booz Allen.
Contact:
Booz Allen Hamilton
Karim Sabbagh
Tel: +971 4 3900260
Tel: +961 1 336433
Fax: +961 1 336430
Sabbagh_karim@bah.com
Manning Selvage & Lee
Ajit Ramaswami
Tel: +971 4 3672595
Fax: +971 4 3672615
ajit.ramaswami@dubai.mslpr.com
by David A. Aaker, for Booz Allen Hamilton
Press Release 2004
