{"id":708,"date":"2022-01-10T15:30:00","date_gmt":"2022-01-10T14:30:00","guid":{"rendered":"https:\/\/digitaleconomy.org\/?p=708"},"modified":"2022-01-10T15:37:34","modified_gmt":"2022-01-10T14:37:34","slug":"newcomer-brands","status":"publish","type":"post","link":"https:\/\/fromdatatoimpact.com\/index.php\/2022\/01\/10\/newcomer-brands\/","title":{"rendered":"Defending market share against newcomer brands"},"content":{"rendered":"\n

Ivonne Mangels & Frank Ohnesorge<\/a><\/strong><\/p>\n\n\n\n

Pressured by newbies \u2013 How established brands defend market share against new entrants<\/strong><\/h2>\n\n\n\n

For each brand that enters a market, there are often several businesses that hold substantial market shares and pursue the objective of maintaining this in the long term.\u00a0Established brands are challenged to deter entry of new players or fight to retain market share and minimize damage. Digitalization and the global pandemic boosted digital business models and online channels experienced significant growth. Thus, new entrants find easier ways into established markets. New digital marketing and sales channels such as social media or plug-and-play online store platforms enable newcomers to quickly gain a foothold. Especially pure online player newcomer brands do not rely on legacy assets such as an initial distribution network or established salesforce to launch their brand. They can reach consumers in a broad geographical context from their first day on. To remain competitive, incumbents must make critical decisions regarding their organization\u2019s response to the entry of a new competitor. Both anticipating vulnerability of market share loss and making the right decisions to deter entry and defend the own customer base can be vital for an incumbents\u2019 business. We took a closer look at aspects that drive entry attractiveness in markets occupied by strong incumbents and summarized some of the key marketing-based capabilities and strategies that can prevent loss of market share.<\/p>\n\n\n\n

Aspects increasing incumbent vulnerability and newcomer growth opportunities<\/strong><\/h2>\n\n\n\n

Technological disruptions and innovation:<\/strong><\/em> Digital market settings and high technological innovation frequency make market entry and growth easier for small firms. Technological disruptions provide gateways for newcomers to challenge or even surpass incumbents. This is often paired with incumbents not taking timely countermeasures and adapting their strategy. On top of it all, new entrants can greatly benefit from the resolution of technological uncertainties, learning effects, and previous investments of early established firms in R&D or buyer education.<\/p>\n\n\n\n

Rigid positioning and consumer preferences shifts:<\/strong><\/em> When established brands are fixed on a certain positioning and hold a certain value proposition, newcomers can claim a new \u201cideal point\u201d emerging from market dynamics. When repositioning costs are high this becomes an especially taunting threat. A great newcomer positioning based on the latest market insights on consumer preference can be supercharged with digital marketing opportunities \u2013 specialized entrants can be found more easily via online search engines and automated payment and contract generation minimizes purchasing barriers. Similar threats to incumbents are shifting and newly emerging consumer needs. New entrants often understand consumer preferences better due to a more careful and customer-centric definition of products and services. Sometimes new businesses are even built on a precisely defined market gap in the first place.<\/p>\n\n\n\n

Online distribution channels:<\/em><\/strong> Established firms often benefited from excluding competition from distribution networks or dominating key channels. This has changed with e-commerce offers where newcomers can easily distribute their goods. High investments in physical distribution channels or the salesforce seem like a requirement from the past and do not serve well as entry barriers in many industries. Cost benefits of entrants that don\u2019t need to restructure brick-and-mortar store networks and can plan a lean, greenfield distribution with few or no intermediaries are evident. Web stores can be built via plug-and-play solutions and third-party providers even offer end-to-end order fulfilment solutions with virtually no upfront investments.<\/p>\n\n\n\n

Digital advertising options:<\/em><\/strong> Incumbents have often been through a transformation in terms of advertising channels from traditional to digital advertising. This often requires significant investments in capabilities and change management in an organization. Cost-efficient digital marketing tools heavily benefit newcomers who build their campaigns with them from early on and are natives to the jungle of digital marketing. To penetrate targeted segments and establish a loyal customer base, newcomers can use cost-efficient social media advertising, build attractive websites, leverage online customer referral systems or electronic word-of-mouth incentives and testimonials. The ability to create social media hypes and interact with an intimate customer community, in a language consumers understand, is another advantage of newcomers that is hard to replicate for incumbents. Further, e-commerce data collection capabilities improved responsiveness to consumer needs and often level out information advantages incumbents might have from decades of traditional advertising.<\/p>\n\n\n\n

Marketing capabilities and strategies to defend market share<\/strong><\/h2>\n\n\n\n

Various options and combinations in terms of capabilities and strategies to defend market share against new entrants exist. The following lays out the current understanding of best practices based on a literature review.<\/p>\n\n\n\n

Leverage relative cost advantages in advertising:<\/em><\/strong> Even though newcomers have more efficient advertising options nowadays, high advertising investments act as entry barriers as newcomers must spend more on promotion to achieve the same effects on market share. Newcomers also need to spread expenditures over smaller sales volumes. This can make it difficult or even impossible to match an incumbents\u2019 presence and ranking as \u2018top of mind\u2019 for targeted consumers. Cumulative advertising efforts further build up general brand and product loyalty, favoring already established firms.<\/p>\n\n\n\n

Shape consumer preferences:<\/em><\/strong> Once customers adapted a product\u2019s quality or specific features, later entrants must convince consumers to take on switching costs to try a new product. Established firms should seek to shape initial preferences, influencing consumer taste with preference to their positioning. Being the original brand of a certain product provides advantages in being memorized more easily and recalled more quickly in purchase decision settings. Well-memorized brands can then even benefit from new entrants\u2019 category-level advertising. Such stable preferences, customer loyalty, and trust even prevail in e-commerce where switching costs are low. Leveraging a \u201cknowledge base of customer preferences\u201d consisting of customer data can further act as an intangible, difficult-to-copy asset that remains in a digital setting. Such customer data allows for personalization and further increases switching costs.<\/p>\n\n\n\n

Broaden the product portfolio:<\/em><\/strong> A broad portfolio covering various consumer preference patterns leaves no profitable niche for potential entrants and increases market share. This is a particularly effective strategy to deter entry of newcomers in case of shifting technology or customer needs. Pre-announcing product introductions can hinder entry if it is seen as forthcoming and superior by entrants and consumers.<\/p>\n\n\n\n

Leverage relationships with distributors:<\/em><\/strong> As offline retail shelf space is still crucial in some consumer markets, incumbents\u2019 access control entails a risk for entrants, as they cannot be sure to be placed in the outlets of their choice easily. Offline relationships can be part of anticipating new entries and potential niches. Furthermore, any brand can struggle with listings on e-retailers or major web portals, newcomers face this struggle, too, and lack the relationships necessary to grow beyond their proprietary e-commerce channel.<\/p>\n\n\n\n

Build on trust and reputation:<\/em><\/strong> Established businesses can leverage their brand by carrying over reputation and trust to innovative products, services, and channels, increasing their marketing efficiency. This way, incumbents can realize cross-channel synergies, for example if customers know a trusted brand from brick-and-mortar shopping. Also, providing customers the option to physically assess products in traditional shopping settings can give them an edge in terms of trust and reputation over potential pure-play online competition.<\/p>\n\n\n\n

Careful price reductions:<\/em><\/strong> If new entrants cannot be deferred, price reductions can become a valid instrument to defend market share. However, this must be done after careful analysis of the competitive situation and consumer preferences. Immediate price reductions may not be optimal as consumers assume superiority of entrant\u2019s products if a reaction occurs too soon and might be a sign of weakness. Nevertheless, price reductions are often necessary to compensate for the lack of innovativeness compared to new entrants\u2019 products. In this sense, consideration of price reductions can be understood as the \u201clast resort\u201d.<\/p>\n\n\n\n

To apply these best practices effectively, organizations must carefully assess their individual market positioning, competitive environment, and consumer preferences, as there is no universal strategy to defend market share. Further, for any of the presented strategies, speed, intensity, and breadth of reaction matters and must be uniquely specified for any organization. While the outlined strategies present commonly effective measures to retain market share, there might be uniquely effective solutions that work only in very specific environments. A thorough assessment of effectiveness needs to be prioritized before any measures are decided. However, information to fully optimize defense strategy is often not available. Managers should act proactively \u2013 addressing the threat of (potential) new entrants is often neglected which harms organizations long-term. To stay on top of potential market threats, established firms should know which aspects make them vulnerable and address these proactively. Managers shall also be aware of and leverage the company\u2019s strengths as an established force in the market.<\/p>\n\n\n

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