One of the great things about business consulting is the pre-interview period where the candidate goes through many practice case studies to find solutions to everyday business problems. While getting ready for a firm’s interview, one of the most interesting cases was about branding.
Brands work as memory aids. They reduce search cost and help spur hand loyalty. They are surrogates for quality information, help us leverage our knowledge about the brand to evaluate products, particularly when products are hard to evaluate or when the customers are new to a category. They create a basis for differentiation, signaling different aspects.
For example a Toyota is usually associated with durability, affordable price, safety, fuel economy etc. When someone is shopping for a family car, a Toyota would be an immediate option as their target customer segment includes families with children (a “soccer mom” would be an appropriate classification to better understand the segment). However, if Toyota announced that they would be making super cars to match against Ferrari or Porsche, it would simply not make sense. Is Toyota lack the technology? The equipment? The engineers? I don’t think so. Toyota has become a brand that the customer interprets as safe, affordable and eco-friendly where as a Ferrari is associated with luxury, speed and uniqueness. People would be dubious to spend $250,000 on a super car made by Toyota and thus it would be a failure to pursue any share in super car market under the brand, Toyota.
As mentioned above, brands can cause problems when a company wants to expand or deviate from its usual product mix and seize an opportunity in a new market with new customers. In the practice case study I was given, a high-end suits maker was planning on producing polo-shirts for a younger customer segment. The question was to determine whether this was a good idea and if so what strategy the company should have adopted in order to be successful.
The key point that the interviewer was expecting the interviewee to mention was brand differentiation. Up to this point, the company had always produced luxury suits for upper class working men. Their advertising efforts and core competency have always mentioned “tailored to perfection”. If this company wanted to appeal to a new customer segment, younger upper class males that would prefer casual attire, the brand would be an obstacle in the way due to its prior association. In order to do so, the company should have created a new brand for its new customer segment.
This brings me to a recent effort by Nike to capture market share in Snowboarding industry. First let’s take a look at some numbers to see why Nike would create a subdivision named Nike 6.0 in 2005 and start making snowboards. According to Snowsports Industries America (SIA)’s 2013 report, equipment, apparel and accessories (in-store and online) totaled $2,534,017,604 in sales . Even though the growth in sales was only 1% compared to the previous year, Nike must have been attracted by this highly fragmented market, led by one major player, Burton, capturing 55% of the market.
Laidback Vermont company, Burton, has a strong, hard to challenge reputation in technology, design and marketing. Nike’s subdivision is trying hard to capture more market share by making use of strategic marketing and use strong brand name to signal reliability. But will this be enough for Nike to convince riders to give their products a try? Below is the last year’s top selling product breakdown in the US market along with the films made by two companies to market their products. Sit back, relax and enjoy watching the two giants clash in the market.
Reference – http://www.snowsports.org/Retailers/Research/SnowSportsFactSheet