Brand Cannibalization

Brand cannibalization is an advanced science in brand marketing warfare. It is the science  of creatingsub-brands within the main brand so that it targets a whole range of consumers in order to reatinand grow its consumer base.For eg. Marriot group runs hotels like Courtyard by Marriot which is a lesser budget concsious hoteltargetted at the business class in the same city where Marriot is also present. Marriot is the parent brandand is a 5 star chain whereas Courtyard by Marriot is a sub brand for business and budget consciouscustomers. Another common example is the brand extensions by GM Motors like GMC, Buick,Pontiac, Saturn, Outlook and Traverse within its 4x4 domain. What it basically does is offer a customermultiple choice within the GM brand, it also allows the dealer the chance to book additional profitmargins by converting a customer who is say wanting to buy an entry level 4x4 into a mid level 4x4.Becasue of the plethora of choices the customer is satisfied at the same outlet and doesnt have to look elsewhere. Hence it is a win-win situation on all sides.To sum up brand cannibalization is the art of brand extensions to benefit the brand owner, seller andthe end user. Brand cannibalization can be resorted to activate an existing parent brand by offferingindividual stronger sub-brands. Like Coke did in india with the launch of Minute Maid, Sprite etc.Brand Cannibalization is not exactly brand extension. However in both cases you are extending the lineof a given brand, in case of brand cannibalization you are actually eating away the market share of yourown existing brand. Brand Cannibalization can be deliberate or oblivious. In case of deliberatecannibalization, company actually try to phase out some old brand or try to grab the additional marketshare of competitors' along with its own. When cannibalization is not a well thought of strategy behindthe brand extension, company tries to eliminate it by repositioning new brand (mostly).

In today's world “premiumization,” “trading up,” are receiving the same attention as "commoditization"and "trading down".A strategy which might click in one part of the world might have to be executed incomplete opposite way in the other part.Economic downturns are now causing consumers to trade down, and many midtier and premium brandsare losing share to low-priced rivals. Their managers face a classic strategic dilemma: Should they tacklethe threat head-on by reducing prices, knowing that will destroy profits in the short term and brandequity in the long term? Or should they hold the line, hope for better times to return, and in the meantimelose customers who might never come back? Given how unpalatable both those alternatives can be, many companies are now considering a third option: launching a fighter brand. A fighter brand is designed to combat, and ideally eliminate, low-price competitors while protecting anorganization’s premium-price offerings.In its best applications, a fighter brand strategy can have evenmore impressive results.A fighter brand not only eliminates competitors but also opens up a new, lower-end market for the organization to pursue.But launching a fighter brand is like walking on a double edged sword. Great application might leap frog you way beyond competition and have your success stories illustrated in b-school cases however there arealso chances of misfire and lead to significant collateral losses for the companies that initiated them.

 Account For Cannibalization

Most fighter brands are created explicitly to win back customers that have switched to a low-priced rival.Unfortunately, once deployed, many have an annoying tendency to also acquire customers from acompany’s own premium offering, which is called cannibalization.You must ensure that it appeals to theprice-conscious segment you want to attract while guaranteeing that it falls short(in terms of  value/quality) for current consumers of your premium brand. That means you must match your fighter brand’s low price with equally low perceived quality.To prevent cannibalization, a company mustdeliberately lessen the value, appeal, and accessibility of its fighter brand to its premium brand’s targetsegments. It may even need to actively disable existing product features and withhold standard marketingsupport from the fighter brand.Managers need to weigh the effects of cannibalization before rolling out fighter brands. Because these brands are explicitly oriented toward the rivals that have stolen share from a company, the initial break-even calculations used to justify their launch often are oversimplistically derived from an estimate of thelost sales that can be recouped, which not usually the case.An accurate break-even analysis must accountfor cannibalization as well. How can you predict whether excessive cannibalization will occur? Test-marketing is the best way to ensure that a fighter brand can compete with low-price offerings withoutrobbing significant sales from its higher-price, more profitable sister brand.

The Gospel:

To calculate the effect of cannibalization, the Break Even Cannibalization rate for a change in a product is:New Product Unit Contribution / Old Product Unit Contribution.New Product is the planned addition to a product line (or change to a product within a product line), OldProduct is the product that loses sales to the new product (or the product line that loses sales). Thecannibalization rate refers to the percentage of new product that would have gone to the old product, thismust be lower than the break even cannibalization rate in order for the change to be profitable. Whenmaking changes to a specific product, cannibalization of other products may occur. To calculate the effectof cannibalization, the Break Even Cannibalization rate for a change in a product is

Bootstrapping

Bootstrapping

The term “Bootstrapping” given by Efron(1979) hearkens back the idea of someone ‘pulling themselves by their bootstraps’. The term refers back to 19^th century high-top boots that are pulled on by tugging at ankle straps----------generally means doing something without outside help.

Bootstrapping is a buzzword specially used with the concept of Entrepreneurship in its purest form. It is the transformation of human capital into financial capital. The entrepreneurship academic research still not fully recognizes the effect of bootstrapping on entrepreneurial behavior and organizational success through formal research. There are four kinds of Bootstrapping options—

Ø  Bootstrapping Product Development

Ø  Bootstrapping Business Development

Ø  Bootstrapping to minimize the need for (outside) capital financing.

Ø  Bootstrapping to minimize the need for capital.

It is the penultimate stage when other there is no alternatives left.

Bootstrapping allows us to keep control of our equity, while venture capital is designed for investors to gradually take control of more and more of our company’s equity. Bootstrapping is also appropriate for business that doesn’t necessarily have to be going after large market opportunities. For Instance, Frank Levinson, Jerry Rawls Sridhar Vembu (who is taking on Google, Microsoft and Salesforce.com with no venture capital). So, we can say bootstrapped entrepreneurship acts as a true weapon of mass reconstruction. 

As a Internet marketing Medium Bootstrapping plays an important role specially when social media becomes more important. With the continued pressure of a down economy, marketing executives are not only expanding marketing but also to ensure business growth from those budgets. . The marketing channels are usually distinct entities; data related to each channel is also distinct, and often not integrated. While fully integrated marketing channels that track customers across channels from "first touch" to sale may be the Holy Grail of marketing analytics, the reality is that many organizations do not have systems in place that can serve up data this way. Since common customer identifiers are not available across disparate marketing channels, analytics at this level of detail is not realistic.  Spend justification relies on illustrating relationships between marketing spend and revenue. This relationship need not be defined at the customer level, but instead could be defined across some common time interval such as days, weeks, months, quarters or even years.  Naturally, the more granular the time period, business variability related to marketing spends will be better understood. The example below illustrates this relationship for an online retailer that wished to justify increased sales through an expanded marketing program budget.  This retailer used a multi-channel marketing program that includes Facebook, Google Ad Words and Search Engine Optimization (SEO) to promote their products.  The chart below shows daily spends on Facebook to ad clicks that lead to website visits.  The strong relationship between these two factors indicates that Facebook spend is leading to website visits (naturally with a pay-per-click campaign). 

There are only two basic methods employed by nascent entrepreneurs:

1) Gaining control of resources

2) Efficiently utilizing resources (e.g., minimizing expenses). Taken together, these two methods form the basis for an overall strategy. A bootstrapping entrepreneur’s very survival may well depend on his or her ability to be highly adaptable and operate on a shoestring budget

A Short-List of Practical Suggestions for Bootstrapping Business Start-Ups

1) Start-up entrepreneurs with little capital should be advised to strongly consider a business model that entails compensation prior to the delivery of a product or service (e.g., consulting, mail order, or niche oriented Internet businesses that do not require a glitzy Web site).

2) An emphasis on pre-launch preparations, perhaps several years in advance may be wise.

3) More education and training are needed for would-be entrepreneurs such that they are more familiar with traditional sources of capital and non-traditional sources. Bootstrapping should be a course unto itself in university level entrepreneurship programs.

4) Stockpile non-perishable business assets over a long period of time. Businesses that have resulted from a hobby often start out with many of the necessary tools, contacts, sources, and skills on the part of the owner to be well equipped from their inception.

5) Conduct enormous amounts of research: library research, bookstore research, Internet research, and especially field research (the non-scholarly translation of field research: network, network, network, with prospective suppliers, customers, advisory board members, and other potential friends of the business).

6) Consider an agency or brokerage-type business: connect a party who needs to sell, with a party who needs to buy.

7) Get quotes. Provide a vendor with a general idea of a needed end result for a manufactured product (or a service) and ask for design specifications, pricing, projected delivery schedules and terms (be sincere as a prospective customer).

8) Negotiate terms carefully. Negotiate terms for purchases from vendors and sales to customers. When possible, arrange the purchase-sales sequence in a way, that customers finance the purchase of inventory through prepayment terms.

9) Choose a location wisely. Consider the “image” needs of the business, but also seek economic development dollars (or stakeholders) and co-location opportunities in neighbors with synergistic potential. Do not choose a location because it is close to home and convenient for the owner. It must be convenient for the customer, for the logistical needs of the business, and in a nurturing environment.

10) Advertise a product that could be produced, if response to the ad justifies its production.

11) Develop business communications and media skills. Be worthy of media attention (i.e., be newsworthy) due to a unique product, company history, team, or even aspiration.

12) Be generous. People are willing to follow a leader who understands their needs, and fulfills those needs.

13) Sell in volume at wholesale, rather than one unit at a time (Mamis, 1992).

Finally we can say that, there’s no course book of bootstrapping techniques, but there to be

The approach has much to teach--and even companies that have progressed beyond their    bootstrap days would do well to relearn some of the proven tactics”

References:

·         The Smart Manager(Mar-Apr—10): Sramana Mitra: Vision 2020

·         Bootstrapping Business start –Ups: A Review Of Current Business Practices

·         How to Bootstrap Marketing By Spence Fry

·         Bootstrapping a Marketing Program with Analytics by Anthony Chamberas

·         http://www.investopedia.com/terms/b/bootstrapping.asp#ixzz25Zl2isOk