Question

Topic: Research/Metrics

Competiting Brands To Increase Category Size

Posted by Anonymous on 2/21/2010 at 8:41 AM ET 500 Points
I am looking for advice, technical papers or articles that outline when two or more products competing in the same catagory actually grow the size of the category.

I have two brands that are competiting in the same category that are technically similar but branded, marketed and quite differentiated in many respects. I will be providing these two brands to two different retailers in the market exclusively but they themselves are competitors.

One retailer has already taken on the opportunity of one brand but I am looking for evidence of category size increases when brands compete in the marketplace. I may need to convince the second retailer that a second brand is healthy for the market.

The category is meal replacement products for slimming and weight management.

Your expert advice is appreciated.
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RESPONSES

  • Posted by Gary Bloomer on 2/21/2010 at 8:46 AM Member
    Dear burnsie_the_great,

    Hmm. "I will be providing these two brands to two different retailers
    in the market exclusively but they themselves are competitors."

    Here, might you be overlooking a huge conflict of interest?

    Might it be better to offer one brand to one client? If you're offering brands to two, competing clients, you run the risk of losing both accounts.

    Just my initial observation. I hope this helps.

    Gary Bloomer
    Wilmington, DE, USA
  • Posted on 2/21/2010 at 8:56 AM Author
    Yes, I know where you are coming from here. We have actually done this in a number of markets with no major side effects except that even though they are differentiated brands they will end out competing.

    This competition I don't mind as 1. We get to own a large, if not complete share of the category and 2. I can offer an exclusive product to both retailers for an extended period which is extremely attractive for strong retailers with emerging brands.

    A part of this exclusive arrangement will be a minimum 'above the line' marketing spend on the brands. This is written into the contract.
  • Posted by thecynicalmarketer on 2/21/2010 at 9:28 AM Accepted
    I have done this successfully in the consumer technology space and it is an accepted and proven strategy. Often times, major electronics manufacturers will place the same product at competing retails with a different model number and slightly different specs (e.g. Best Buy and Sam's Club). Also, some manufacturers will place the same model at the same retailer under two different brands but they will present different product features/specs (lower specs on the less expensive item) even though it is the same product.

    In your instance, if there is an advertising and merchandising investment in both products, and you garner more shelf space with the combined products, then yes the category should grow, all else being equal (the exception would be where there are homogenous buyers and no opportunity for product differentiation). The key to success is to distinguish the two products in a natural way that aligns with different buyer personas/demographics/psychographics.

    You can find several valuable journal articles on this subject at Harvard Business Press, https://hbr.org/ You will have to pay for them, but HBR's content is always worth the investment.

    Best of Luck, JohnnyB.
    The TCM Blog, https://bit.ly/75KkSG
    https://twitter.com/tcmblog
  • Posted by mgoodman on 2/21/2010 at 9:37 AM Accepted
    There are obviously a number of examples of multiple brand entries in the same general category from the same manufacturer/marketer. (Detergents, bar soaps, toothpaste, snack food, etc., etc.) The question is whether there is hard evidence that a RETAILER will grow the category by stocking more brands.

    My recollection from many years ago at Procter & Gamble (for which this is an important issue) is that a single retailer will probably NOT grow the entire category by increasing the number of brands carried, but that retailer MAY increase its share of category sales vis a vis direct competitors that do not carry as many brands.

    Of course, this was in a pre-Walmart environment, and may not apply if Walmart is in the equation. And I'm not sure whether the evidence was all that compelling even back then.

    The real determinant, it seems to me, is the advertising and promotion support for the category. That's what will determine total category sales ... and when there are more brands there is usually more advertising, more promotion, and greater consumer attention to the category.

    Thus, the benefit to the retailer will depend on that retailer's willingness to feature, display and promote the category ... and your own incentives to induce them to do so.

    It wouldn't surprise me to learn, for example, that more shelf space and more promotion for one brand is more effective than less shelf space and less promotion for two brands. So it's not the number of brands, but the intensity of category promotion.
  • Posted by koen.h.pauwels on 2/21/2010 at 9:38 AM Accepted
    Hi,

    Great question, and as far as I know there are two major ways that having 2 brands instead of 1 increases the market.

    First, compromise and attraction effects:

    It is all about framing the choice: traveling salespeople have long known that, if you only offer 1 product (e.g. a great encyclopedia) , the customer choice is framed as buying versus not buying, and most people choose the latter. However, if you offer a second product (e.g. a clearly worse encyclopedia), the choice is framed as product X versus product Y, and a lot more people end up buying (the better product). The research stream of behavioral decision theory has demonstrated these effects over the last 2 decades, I believe the reference is:

    Simonson, Itamar (1989), "Choice Based on Reasons: The Case of Attraction and Compromise Effects", Journal of Consumer Research, 16 (september).
  • Posted by koen.h.pauwels on 2/21/2010 at 9:43 AM Member
    Second way that having 2 product enlarges the market: the perceived legitimacy of a new category

    if the category is new and unproven (think about a disruptive technology), prospects are often reluctant to even consider it if only 1 product is on the market. However, if at least 2 competing products are on the market, more prospects believe in the legitimacy of the category (at least 2 firms must believe in it) and are more willing to investigate the new products for their use.

    I have no academic reference for this, but the situation is well depicted in the HBS case on 'Rohm & Haas", in which the decision makers exclaims:'we do not have enough competition to build primary demand'
  • Posted on 2/21/2010 at 6:06 PM Accepted
    The first thing that comes to mind is the gourmet coffee industry. When I started working in specialty coffee it was 1994. There were two major companies in Toronto, Canada - The Second Cup and Timothy's World Coffee. Both were growing - but when Starbucks entered the market - the market exploded. I moved clear across the continent to Long Beach, CA. A little coffee retailer called Polly's Coffee had been roasting on-site and doing well for over a decade when Starbucks moved in. Polly's Coffee soon discovered that the Starbucks was better about creating buzz about gourmet coffee - and he piggy-backed on that buzz and created a larger following of people that wanted Starbucks-style but from the uncorporate local guy.

    Here is one interesting study about Brands versus Private labels that touches on your topic: https://dspace.sunyconnect.suny.edu/bitstream/1951/43862/1/Impact%20of%20Ne...

    This might also be interesting to you: https://isbm.smeal.psu.edu/library/working-paper-articles/1995-working-pape...

    This will definitely be interesting - and is a good topic to look at - how the iPhone grew the Smartphone category: https://www.sebastian-sanne.com/iPhone%20in%20Smart%20Phone%20Category.pdf

    Cheers,

    K
  • Posted on 2/22/2010 at 4:42 AM Author
    Great, thanks guys for this. Exceptional answers, concise and clear. I will be able to use this invaluable information for my presentation next week.
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