What the Red Queen Hypothesis teaches Us!

Of late I have been thinking, and trying to understand what innovative disruption is? How does one survive when an existing ecosystem is challenged by a newer and better product, superior technology, cheaper pricing or simply a different approach to marketing? If one thinks about it, any of these factors in combination or standalone may not pose a big enough threat, but what if one is challenged by all of these at the same time. In current times we have no ideal marketplace, which basically implies that, the markets are already stagnating and consumer behavior is rapidly shifting and there will always be competition in some form, margins will always be under threat and some one will always be eager to undercut to establish or get a head-start .

Trying anything new inevitably entails experimentation and failure. But on the other hand, if you keep doing the same thing that you have always been doing, the results will unfortunately not be the same. They will start to go bad, and go down pretty soon. Although the current fascination with disruption obscures an important reality. What lies at the heart of an organization . Its Core , the Product or service which is the key offering.

This kind of brand-driven innovation has come of age in the past few years for a number of reasons. If you are an incumbent with a dominant position in a saturated market, your chances of gaining much more share may be slim. Entering a new category could be your only realistic option to achieve internal and external growth targets. In addition, brands are increasingly defined not by what they communicate or the campaigns they run but by the kind of customer experiences they provide. What’s more, brand-driven innovation can be a tool to strengthen or sharpen a brand’s positioning: consider how Apple’s brand strength seems to grow with each new category it enters.

What it takes Incumbents have a number of assets and advantages that they can exploit to act as attackers in new markets. I believe there are three fundamental success factors:

Distinctive brand equity and trust. Virgin’s entry into High Street banking at a time when trust in the sector was at an all-time low enabled it to take advantage of its status as a brand known for giving customers a better deal. An established brand name can also act as a powerful form of endorsement in new markets: National Geographic Society’s shift from magazines to television channels, expeditions, and more recently, retail stores—that sell books, clothes, and travel gear—is just one example.

Strong relationships with customers. BMW used its understanding of customers’ mobility needs as well as its existing perception of being a premium brand to enter a new category with a service that enables it to tap into a different need state. It also further strengthens its relationship with consumers who could, in the future, move out of town and buy its products.

Access to data, capabilities, and other institutional assets. Disney’s expertise in delivering distinctive customer experiences enabled it to rethink language learning in the Chinese market and create and execute a value proposition that no other provider could match. In Europe, Inditex, owner of the Zara fashion chain, combined its intimate knowledge of customer preferences with its extensive supply and distribution networks and operational expertise to launch its interiors chain Zara Home in 2003. The Zara brand proposition of making runway fashion accessible to all has made a successful transition to the home-furnishing sector, with ten new markets entered in 2013 alone and almost 400 stores in 45 countries. Other types of assets can range from the technical—such as know-how, which drove Honda Motor Company’s extension from cars to lawn mowers—to emotional, as seen in the “companionship” offered by Sony Corporation’s MP3 players and TVs.

Successful brand extensions are likely to make use of all three of these advantages, rather than one in isolation. For instance, Disney’s venture into English-language teaching is built on its established brand equity in entertainment, its deep understanding of how to engage customers, and its operational capabilities and expertise in multiple countries and cultures.

How to Begin

Not every established brand can succeed at entering new markets. To find out if yours can, start by asking, Does it have brand extension “angles,” or emotional benefits that could travel to other categories? If so, what might those categories be? And how can you use your benefits to create something new and different? Next, Where do you want to play? Define your brand’s aspirations to ensure you focus your innovation efforts appropriately. Then identify trends and discontinuities in tangential markets, analyze the competitive landscape, and evaluate any customer relationships your brand may already have.

Also important: successful attackers are careful to deconstruct their assets and understand which ones can drive value in new markets. Having selected your target markets, define your brand’s value proposition in them—a process that calls for a good dose of creativity, deep immersion in customer needs, and sharp insight into decision journeys. Many extensions have failed through lack of brand relevance. So ask, What is our brand’s value proposition? Does our brand fit this new angle? Does it serve an unmet need? As an incumbent, you need to assess a new market as thoroughly as a start-up would. The best performers invest in detailed analysis to estimate the scale of an opportunity. Is the growth potential worth the effort? What do the competitive dynamics look like? Such an analysis should uncover unmet needs that can highlight how much scope there is to introduce disruptive products or services.

To understand customer needs and customer decision journeys, leading companies go beyond the basics of existing data sets, focus groups, and surveys by adopting advanced qualitative research techniques. They use ethnographic studies, home interviews, in-store observations, mobile-photo journals, “netnography” (customer-sentiment mining), “shop alongs,” and a range of other innovative methods to check the fit between their proposed brand extension and their target consumers.

Once you’ve identified the right angle for your brand extension, embark on a rapid prototyping phase. Accept that some innovations—like Virgin Cola—won’t succeed, and adopt a test-and-learn, “fail fast” mentality. That way, an operation that flops can be quickly closed down before it does any real damage to your brand. We find that some pilots can be launched in as little as 12 weeks. Don’t allow a failure to drag on; it will weigh down your brand and taint it with mediocrity. Use conjoint analysis on any feedback you get to assess product trade-offs and define the value attached to various features.

Finally, make sure your organization is fully prepared and ready to go. By definition, a brand-driven innovation will take you outside your core expertise. Make sure you have enough knowledge about the new business to judge the right moment to enter. Develop a rigorous “reverse profit and loss” that helps clarify the objectives and assumptions underlying your business model. Think about how competitors might react and what your response should be. Check out any regulatory aspects governing the new market and identify the variables that could affect cost projections and supply.

Although it’s too early to judge how successful the new wave of incumbent attackers will be, it provides food for thought for established businesses seeking untapped pockets of growth outside their core markets. Caution is needed; not every big brand has what it takes. But some brands, it seems, are so important to us that their entry into new markets can have dramatic effects—not only carrying consumers with them but also kick-starting new growth and giving a boost to core products too.

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