Wednesday, February 25, 2009

Challenger Brands In A Down Economy

With all the talk in Washington DC about how small businesses are the drivers of the economy, I thought I might share some ideas on the opportunities and obstacles that challenger brands face in a down economy. For those that have never heard the term “challenger” brand, think of David versus Goliath. Since challenger brands can be everything from food products to consumer electronics to any thing, let me set the context that this article will focus on B2B challenger brands.

The great thing about challenger brands is that there is freshness and an innovative air that comes with a company who brings new products, services, or solutions to the market. Most companies want to stay ahead of their competition and know about new ideas or approaches that will give them an advantage. This will keep prospects interested in a challenger brand who offers a compelling reason for a discussion, meeting, pilot project, or trial product use.

However, there are also obstacles for challenger brands who take on established brands and market leaders. Companies will assign safety, stability, and comfort to market leading brands. When so many dynamics are impacting a company and their business, the established brand comes with an implied guarantee that the market leadership comes for a reason – the products are good and you will get value in your investment.

Let’s outline some of the opportunities and advantages of a challenger brands in a down economy.


New Idea or Novel Approach. Almost by definition, a challenger brand brings something new to the market. There is sizzle and buzz that surrounds a new product or service, and for new ways to deliver old products and services. The opportunity here is for a company to leverage this newness to get the product in front of prospective customers.

Flexibility and Turn Around Speed. Time is money, and windows of opportunity in a down economy open and close much faster than at other times. Challenger brands and small businesses tend to be void of the bureaucracy that encumbers market leaders – think speed boat versus aircraft carrier. Challenger brands have an advantage from their flexibility and speed which manifests itself in responsiveness and making the prospect feel their business is of high value to the challenger brand.

Niche Focus & Expertise. Challenger brands tend to be very targeted at a well defined niche market where the smaller business holds an advantage. Somewhere there is a Sun Tzu quote which paraphrased states that you should fight battles that you know you can win. Challenger brands cannot compete with market leaders on availability of financial resources or number of people. The challenger advantage, therefore, comes from highly specialized knowledge and expertise. Focusing on a niche and leveraging deep expertise creates opportunities for challenger brands.

Lower Cost & Higher Value. While no one wants to compete solely on cost, challenger brands are often delivered by small companies that have less overhead than large organizations. Less overhead allows a challenger brand to provide high value through potentially lower prices while maintaining healthy profit margins.

Sounds like there are some nice advantages and opportunities for a challenger brand to win against market leaders, but there are also obstacles which need to be overcome to be successful.


Viability & Sustainability. Many people were sold solutions by innovative companies during the Internet boom of 1999, only to be burned when the company went out of business in 2000. Whether the question will be asked in a meeting or not, if you are a small business with a challenger brand, the prospect will be (should be) wondering about whether you will go out of business after they have made a purchase from you. Challenger brands need to have a good, believable, and truthful answer on the question of viability since in down markets companies are even more cognizant of risk management.

Delayed Payments & Cash Flow. There are plenty of business advisors that have written extensively about preserving cash in a down market. Cash IS king. Large company clients are great for committing to big purchases of a challenger brand, but purchase orders and invoices are not cash. Treat accounts receivable like the most important department in your company and get everyone involved – from the CEO to the account managers. If you have blue chip clients and can factor your invoices, set up that relationship well in advance of needing to use it. Even your best clients may start to delay payments and unless you hold some type of leverage they usually hold more of the power to delay, than you have to collect, the payment. This has nothing to do with how much the client likes the provider, or values their product; this is about them managing their own cash flow.

Lack of Breadth. While being a niche provider offers many benefits, there are many companies who are looking for one-stop-shopping, or one-throat-to-choke as the saying goes. Challenger brands will not typically have the breadth of products and services that a market leader can bring to the prospective client. This gives the market leader an advantage in packaging an overall solution rather than a niche product or service. In a down economy, large companies tend to cut deeply and lay off employees quickly as the economy slows – this leads to the same amount of work for fewer people to complete it. This may make a single vendor relationship attractive and can work against a challenger brand since it is easier for the client to manage one relationship instead of many.

I believe that challenger brands delivered by small innovative companies have an advantage in a down economy. They can be nimble, the solutions can be customized, and deep expertise around a niche plays to their advantage. At the macro level, market leaders are often measuring their success based on overall market share. Challenger brands gauge their success on new clients, deal revenue, and growth rates. They can win (steal) clients from market leaders without worrying about whether the market is increasing or contracting. Challenger brands just know they are getting more than they did before, and this leads to growth and opportunity even in a down economy.

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