My book Brand Relevance: Making Competitors Irrelevant discusses two ways to compete. The first, to win the brand preference competition by making a brand preferred over other brands in an established category or subcategory, is tough and expensive. The second, to win the brand relevance competition by creating new categories or subcategories for which competitors are irrelevant is a route to growth and profitability.

What is Brand Preference?

In its simplest form, brand preference involves incremental innovation to make a brand even more attractive or reliable to customers or potential customers. Faster, more affordable, and better is the mantra. It is also the first and most commonly used route to win the competition among other brands considered by customers.

Resources are expended on communicating more effectively with more clever advertising, more impactful promotions, more visible sponsorships, and more engaging social media programs but such efforts rarely break out of the clutter. The problem is that incremental innovation and investments in marketing rarely change the market share structure. Customers are just not inclined or motivated to change brand loyalties in established markets.

Brands are perceived to be similar at least with respect to the delivery of functional benefits, and often these perceptions are accurate. As a result, a brand preference strategy is usually a recipe for stressed margins, unsatisfactory profitability, and, ultimately, a decline into irrelevance. It is so not fun.

Brand Relevance vs. Brand Preference: Which Is Preferred?

Brand relevance, the second route to competitive success, is to change what people buy by creating new categories or subcategories that alter the way that existing customers look at the purchase decision and use experience. Winning under the brand relevance model, now very different, is based on being selected because competitors were not relevant rather than not preferred, a qualitatively different reason.

“Incremental innovation and investments in marketing rarely change the market share structure.”

Some or all competitor brands are not visible and credible with respect to the new category or subcategory. The result can be a market in which there is no competition at all for an extended time or one in which the competition is reduced or weakened, the ticket to ongoing financial success. The brand relevance strategy involves transformational or substantial innovation to create offerings so innovative that new categories or subcategories are created. It involves an organizational ability to sense changes in the marketplace and its customers, an ability to commit to a new concept and bring it to market, and a willingness to take risks by going outside the comfort zone represented by the existing target market, value proposition, and business model.

Read this blog in Chinese: 品牌偏好和品牌相关性 — 两种竞争方

Recently there have been dramatic sales increases for Ford and GM and other automotive firms while Toyota experienced a small sales decline. Why? Certainly, the quality issues that Toyota has faced, around the “sudden acceleration” hypothesis and a series of visible recalls is a primary reason.

There is little question that the Toyota brand has been tarnished to the point that some view it now as just another brand with respect to quality. There has been significant short-term damage. However, in my view, the Toyota quality image, while it has suffered, will be resilient. Toyota will get its actual and perceived quality back over time. It is too good of a company not to.

In my view, the real long-term news is not that Toyota has faltered, but that Ford, GM, Hyundai, and other automobile brands have broken through the glass ceiling. Heretofore, these brands have not been able to get full credit for their quality improvements. The quality of many brands has been equal to Toyota’s for some time, but they have not been given credit for it because the unshakable perception in the marketplace was that Toyota was the gold standard.

“The Toyota quality image, while it has suffered, will be resilient.”

Competitor brands were not judged with respect to their actual quality or their quality improvement. They were instead judged in comparison to Toyota, and the perception was that no other brand was as good as Toyota. There was a glass ceiling, no matter how good the cars of Ford, GM, Hyundai and the others were, there would always be inferior to Toyota. The situation has changed. The glass ceiling has shattered. That is the real implication of the Toyota quality stories.

In October 2001, Apple launched the iPod which was an instant success and sold over 220 million units over the next eight years. The iPod became the exemplar for a new entertainment category. Why was it Apple and not Sony that created the iPod?

Sony has always been the brand for portable personal music using clever compact vehicles. From the portable radios of the 50s to the Walkman introduced in the late seventies and beyond Sony, has been the innovative brand. The iPod was classic Sony. The answer is timing. Apple got the timing right by entering the market when the technology came together.

Of course, the Apple design flair, its brand, and its iTunes store were all important, but the timing was the key. Technology that was just emerging made the Apple iPod feasible. In particular, one enabling advance was an inexpensive, 1.8-inch hard drive from Toshiba that could hold over one thousand songs. Remarkably, Sony introduced not one but two iPod-like digital music players at the huge Las Vegas Comdex trade show in fall 1999, fully two years before the iPod appeared.

One, developed by the Sony Personal Audio Company, was the Memory Stick Walkman, which enabled users to store music files in Sony’s memory stick, a device that resembled a large pack of gum. The other, developed by the VAIO computer group, was the VAIO Music Clip, which also stored music in memory and resembled a stubby fountain pen. Both failed in large part because the technology was not yet ready. Each had 64 megabytes of memory that stored only twenty or so songs, and each was priced too high for the general market.

The timing was not the only problem. Not only did the two offerings confuse the market, but the lack of cooperation of Sony Music which was more concerned with avoiding piracy than with the success of the new digital product also were factors. But the timing was pivotal. Timing is a factor in most efforts to create new categories or subcategories especially in the high tech space as the research for my book Brand Relevance: Making Competitors Irrelevant showed.

In fact, Apple had its own premature products. One was the Newton, a personal digital assistant introduced in 1993, designed to manage schedules and lists using a human writing recognition system. Despite terrific introductory marketing, the product failed because it was priced high, was both unreliable and sluggish, and had a hard-to-read screen.

“Timing is a factor in most efforts to create new categories or subcategories especially in the high tech space.”

In 1996, Palm, with more advanced technology and a less ambitious product vision, came out with the PalmPilot, a simpler PDA that was a resounding success. An implication is that a firm needs to be close to technology and be capable of determining exactly when advances needed to support a product concept will emerge. That involves people who are conversant with the technology and are following it through various channels, a system to collect and analyze the intelligence that emerges, and a decision process that encourages action.

Another route is to be engaged in the technology so that its progress is not only monitored but influenced. Samsung’s engagement in semiconductor development and manufacture has led to new product enhancements in its consumer electronics and cell phone products.

In 2005 Macy’s decided to change the brand names among their portfolio of brands which included Marshall Fields, Bon Marche, Rich’s, May, Lazarus, Foley’s, Filene’s, Burdine’s and Goldsmith’s. Each of these brands had a rich history often associated with a beloved family and a customer connection that goes back to see Santa for the first time.

The decision was pronounced as idiotic or worse by many – including me. Why would you throw away such powerful brand equities and customer relationships involving emotional benefits? After two years the decision seemed as bad as predicted. Sales were substantially down, possibly caused in part by merchandise and promotion decisions. However, resentment over the change from loyal customers, although not quite as virulent as the reaction to New Coke, was very visible and, without question, was one factor affecting sales.

After five years, however, it seems very possible that the decision was the right one for Macy’s. Financially, the brand was having its best year and the pay-offs from the name change were materializing. One advertising effort accessing national media replaced some 16 different advertising campaigns. Further, 16 different product assortments were replaced with a high level of commonality.

The single-brand helped generate a cohesion that made that process feasible. Perhaps as important, the Macy’s Thanksgiving Day parade, a centerpiece symbol of Macy’s, could be justified and fully leveraged. It no longer applied to just a few stores. The parade, owned by the Macy’s brand, is a unique brand, a real energizer and its impact was severely restricted without scale.

“The single-brand helped generate a cohesion that made that process feasible.”

One Macy’s brand, Bloomingdales, survived the one-brand initiative. Bloomingdales is more upscale and New York fashion-forward than the other Macy’s brands. It is one thing to replace a brand with one with comparable associations but it is quite another to replace a super premium brand with one of lesser stature. Macy’s made the right call on that one. It is somewhat reminiscent of Marriott’s decision to maintain Ritz-Carlton as a separate brand.

Out of my five brand books, what precepts stand out as one of the top ten? Which are the most critical “to do” tasks for someone charged with creating or managing a business? What do you need to know to excel at building a brand? Here is my top ten list:

1. Treat brands as assets.

Acceptance of the concept that brands are assets and have equity really changes not only branding and marketing but also business strategy. No longer is branding a subset of marketing to be managed as a communication problem. It becomes strategic, both reflecting and enabling the business strategy. Importantly, a brand is more than image and awareness—it also includes the size, engagement and loyalty level of the customer base. That means that brand strategy needs to be developed in tandem with the business strategy, both need to be clear on the target market, the value proposition, and the investment priorities over time.

2. Show the strategic pay-off of brand-building.

Part of the challenge of getting brands accepted as strategic is to demonstrate that they pay off. Unlike tactical marketing which can demonstrate short-term results, the long-term effects of brand building are difficult to demonstrate. One way is to observe the success of a business strategy and show how dependent that strategy was on-brand assets. Another is to use surrogates for the long-term impact such as measures of customer loyalty. But it is reassuring to know that, on average, brand building does pay off. I have conducted four studies with Professor Bob Jacobson of the University of Washington which explored the relationship between brand building and financial returns. Our study of brand equity and stock return is typical. A well-known fact in finance is that there is a strong relationship between earnings changes and stock prices. We found that the impact of building a brand on stock return was nearly as great as earnings, actually 70% as much effect.

3. Recognize the richness of brands–go beyond the three-word phrase.

Brand building starts with determining the aspirational associations, what associations should come to mind when the brand is cued. In general, this set should be from six to twelve associations. Of this set, two to four should be identified as the most important and the ablest to drive effective marketing programs, and the most likely to resonate with customers. In the brand identity model, they have termed the core identity elements. There may be a unifying concept termed the brand essence that provides an umbrella summary of the brand’s thrust but in some cases, it just gets in the way.

4. Get beyond functional benefits.

There is a tendency to focus on attributes and functional benefits because they are assumed to be what customers are buying and because market research is often functionally focused. The fact is–customers are not logical and functional benefits rarely provide a basis for sustainable differentiation or a deep customer relationship. Look instead toward emotional and self-expressive benefits. Thus, a customer can feel safe in a Volvo, excited in a BMW, energetic with Coca-Cola around, or warm when receiving a Hallmark card. A person can be cool by buying clothes at Zara, successful by driving a Lexus, creative by using Apple, a nurturing mother by preparing Quaker Oats hot cereal, frugal and unpretentious by shopping at Kmart, or adventurous and active by owning REI camping equipment. Consider also brand personality. Should the brand be confident, competent, fun, warm, or energetic, or some combination of these? Sometimes a brand is best expressed through a personality.

“A brand is more than image and awareness—it also includes the size, engagement and loyalty level of the customer base.”

5. Consider organizational associations.

While most offerings struggle to be differentiated, an organization will have people, programs, values, strategies, and heritage that will almost always be unique. Further, the organizational characteristics can be meaningful to customers. They can provide credibility with respect to the offering by demonstrating or suggesting that the firm has the capability and will to deliver on its promise. Consider the visible commitment of Zappos.com to Wow! Service. Further, organizational values and programs can provide a basis for a relationship. The SalesForce.com policy of providing one percent of their product, time, and sales to public service. For some, that policy reflects shared values that lead to a respect-driven relationship that goes beyond products.

6. Look to role models.

Knowing aspirational associations is a crucial first step, but how to get there is a practical issue. Looking at role models that can be adapted or leveraged nearly always provides useful insights. Suppose a brand aspired to be considered warm and friendly. Find other brands that have succeeded in doing so, including brands in disparate industries. How did they get that reputation? Can anything they did be adapted? Or look within your own firm. What people or programs best exemplify those characteristics to customers? Can their efforts be expanded or extended to other parts of the organization?

7. Understand the brand relationship spectrum.

Brand portfolios can be so messy and dysfunctional that a firm’s new product process is paralyzed because there is no concept of which brand to use on a new offering. Customers may be so confused that they can’t even buy. The brand relationship spectrum can help create clarity, leverage, and synergy in the portfolio. The idea is that a master brand may work for a new offering if its associations are consistent and helpful and will be reinforced by the new role. However, there are times in which the master brand will be inconsistent or confining and the new offering requires some separation. The spectrum suggests that a subbrand will generate some separation, an endorsed brand more, and a separate brand the most. The challenge is to find the right degree of separation and to create brands that can perform these roles.

8. Look for branded differentiators.

It is difficult to create differentiation especially involving functional benefits because a competitor will quickly copy or appear to copy or otherwise neutralize the advantage. Unless you brand it. A competitor cannot copy the brand. If the innovation is branded and the brand established, the competitor’s task of creating and communicating an enhancement will be formidable. When Westin created a superior bed and sleeping experience and branded it the Heavenly Bed, they changed the way that many looked at the hotel experience and the branded differentiator made it difficult for imitators to get traction.

9. Use branded energizers.

We now know that brands across the globe have declined in terms of perceived quality, loyalty, and visibility over the last decade. The exceptions, those brands that have energy, have resisted the decline and still drive financial results. Energy may be the most important imperative for brand builders. The best form of energy, innovative new products, is not available on a regular basis for most firms and not available at all if your offering is an unexciting one like hot dogs or life insurance. In that case, an option is to find some branded program or person, a branded energizer, and attach your brand to it. Avon’s Walk for Breast Cancer is an example of a program that added energy for a brand that could never achieve it with products.

10. Win the brand relevance battle.

The way to gain market position, often the only way, is to develop offerings so innovative that they create new categories or subcategories making competitors irrelevant. The goal is to encourage the customer to select a new category or subcategory for which your brand is the only one with credibility and visibility. In virtually every industry, an analysis will show that market positions are very stable in the absence of such innovation. Relevance is also a threat to the leading brands who must be concerned with having customers — who respect and maybe love their brand — decide that they no longer want to buy what the firm is making, its brand has become irrelevant.

My nominee for the brand story of the decade is Nintendo: a brand I have studied with a colleague, Professor Akutsu of Hitotsubashi University. The story of Nintendo’s astounding brand success is documented by BrandJapan, an annual survey, now in its tenth year, measuring the strength of over 1,000 brands in the Japanese market.

In the 2005 findings, Nintendo was ranked 135 in the survey. From that point on its status rose to 67 in 2006, to 7 in 2007, and finally to a number one position in 2008 and again in 2009. It fell in 2010 but still gained a place in the top 15.

In contrast, other brands had remarkably stable equity ratings. The products were clearly the drivers. Nintendo DS was a mega-hit, reaching its worldwide accumulated sales of 26.8 million units in less than two years after its December 2004 introduction. The Nintendo DS brand was so successful that it was a top-six brand in Japan in 2008, 2009, and 2010. Having a subbrand in the top six was unprecedented.

“Nintendo DS was a mega-hit, reaching its worldwide accumulated sales of 26.8 million units in less than two years.”

Then came Wii, a new form of a game that incorporated user movement into gaming allowing the user to dance, golf, box, play guitar, and on and on. Within a year after its introduction, it was already ranked a top 60 brand by the BrandJapan survey and in 2009 and 2010 it became a top 20 brand — meaning that out of 1,000 Japanese brands, three of the strongest were Nintendo brands.

A constant parade of branded features and new games provides ongoing energy and competitive advantage to both Wii and DS and the Nintendo brand. Four interrelated explanations reflecting both strategy and execution can be identified: A move away from competing on high technology.

Sony and Microsoft focused on graphics technology that appealed to the heavy users, namely young males. Nintendo, in contrast, reached back to their heritage as a simple toymaker and decided to focus instead on involvement and “fun” with products that were relatively low-tech. A different, broader target market. Nintendo decided to refocus the target population away from the hard-core young males who were into action games and high-quality graphics toward a broader audience.

One goal is to have the mom be a participant and an advocate rather than a cynic and opponent, hence a wide array of easy-to-use games including some that were learning vehicles. Another is to involve the whole family, so the games are not simply related to the boy’s interests. Instead of focusing on the heavy user and beating the competition, Nintendo defined new categories for which competitors were less relevant. A talented game developers group.

Nintendo was blessed with a talented group that was extremely good at creating games and had a track record of doing so over three decades. The new strategy liberated this group to be creative and fulfill its potential. Both DS and Wii had a host of games that connected with a wide range of family members. In fact, these Nintendo game titles created a new market categorized as “casual games,” a video game that requires fewer skills and less experience and is characterized by simple and intuitive rules.

A new CEO. At the outset of the strategy, a new CEO was brought in: a young, energetic, entrepreneurial person. With exceptional people and organizational skills, he was able to gain acceptance and excitement around the new strategy and marshal the talent needed to implement it. It all came together: a differentiated strategy, a new target market, supporting competencies, innovative offerings, an energized CEO and nearly flawless execution. All were needed. The result was an amazing brand story. What is your nominee for brand of the decade?

Nintendo’s done it again with PokemonGo, learn more about what augmented reality means for brands.

Two brand stories caught my eye today, HomeAway and Nissan’s Quest.

I argue in Brand Relevance: Making Competitors Irrelevant that the path to winning is to create new categories or subcategories rather than engaging in brand preference competition in established categories.

HomeAway is on the Super Bowl with an ad asking “Why hotel when you can HomeAway?” The ad shows some of the struggles to get comfortable in the cramped quarters of a hotel and showcases the space and freedom of a vacation rental. Whether the execution of the ad is effective is another issue, but the idea of creating a new category, defining its dimensions and becoming its exemplar is exactly where potential growth is at. HomeAway is a classic case study. It will be interesting to see what happens. Established brands can also focus on category management even with existing categories.

“Creating a new category, defining its dimensions and becoming its exemplar is exactly where potential growth is at.”

Nisson Quest has been also run in the minivan category pioneered by Chrysler in 1982 and joined by Toyota and Honda in 1998. As the minivan category got tired in the last ten years, brands have tried to move the category a bit away from soccer moms and toward more style and fun. In an extreme example, Ford introduced its Galaxy in the late 1990s in the UK as a vehicle that allowed business people to “Travel First Class.” Ford was trying to create a minivan subcategory very removed from soccer moms.

Nissan Quest is going the other way. It is attempting to return the category to its soccer mom routes with a 2011 model that is a bit more traditional. Its ads emphasize the functional benefits of family-friendly storage, accessibility and features. This approach can potentially make the Nissan Quest more relevant to the core minivan market, namely soccer moms.

Further, for some, it can go beyond relevant to authentic. If the subcategory is redefined to be classic soccer mom rather than something different, Nissan might enjoy some degree of authenticity. It is the real minivan.