Greed often gets in the way of common sense. The dominant brand in a category often tries to broaden its appeal in order to capture every last bit of market share.
“If we served beer and wine,” the CEO of McDonald’s once said, “we might eventually have 100 percent of the food-service market.”
Unlikely. The law of expansion suggests the opposite. When you broaden your brand, you weaken it. Look what happened when McDonald’s tried to broaden its appeal to the adult market with the Arch Deluxe sandwich. Its market share fell, and ultimately it was forced to discontinue the product.
Which brings us to the law of fellowship. Not only should the dominant brand tolerate competitors, it should welcome them. The best thing that happened to Coca-Cola was Pepsi-Cola. (To that end it’s ironic that the Coca-Cola Company fought Pepsi-Cola in the courts over the use of “Cola” in its name. Fortunately for Coke, it lost, creating a category which has been growing like gang busters ever since.)
Choice stimulates demand. The competition between Coke and Pepsi makes customers more cola conscious. Per capita cola consumption goes up.
Remember, customers have choices, even when there is no competition. They can choose to drink beer, water, ginger ale, or orange juice instead of a cola. Competition increases the noise level and tends to increase sales in the category.
Competition also broadens the category while allowing the brands to stay focused. If Coca-Cola appeals to older people and Pepsi-Cola to younger people, the two brands can stay focused (and powerful) while at the same time broadening the market.
Customers respond to competition because choice is seen as a major benefit. If there is no choice, customers are suspicious. Maybe the category has some flaws? Maybe the price is too high? Who wants to buy a brand if you don’t have another brand to compare it with?
You seldom see a big, growing, dynamic market without several major brands. Take the office superstore market. There are three big brands competing tooth and nail for this market: Office Depot, Office Max, and Staples.
So effective has this competition been that the number of independent office stationery stores has declined from about 10,000 in the past decade to 3,000 stores today.
Instead of welcoming competition, companies often feel threatened because they believe that future market shares will be based on the merits of the individual brands. An even playing field is not what most companies want. They want an unfair advantage, a playing field tilted to their side. Therefore, they think, let’s try to drive out competitors before they get too established.
In the process, however, they fall victim to the laws of branding. Expansion, line extensions, and other strategies that broaden a brand’s appeal will ultimately weaken the brand.
Market share is not based on merit, but on the power of the brand in the mind. In the long run, a brand is not necessarily a higher-quality product, but a higher-quality name.
Of course, customers can have too much choice. The more brands, the more flavors, the more varieties, the more confusion in the category. And the lower the per capita consumption.
For each category, two major brands seem to be ideal. Coca-Cola and Pepsi-Cola in cola, for example. Listerine and Scope in mouthwash. Kodak and Fuji in photographic film. Nintendo and PlayStation in video games. Duracell and Energizer in appliance batteries.
When there is too much choice, consumption suffers. Take wine, for example. In California alone, there are more than 1,000 wineries and 5,000 brands. Wine Spectator magazine publishes an annual issue with rankings of some 24,000 individual wines. (If you drank a bottle a day, it would take you more than sixty-five years to run through the lot. Then you would probably be too old to remember which wine you liked the best.)
With all that choice, you might think that Americans drink a lot of wine. But we don’t. The per capita consumption of wine in the United States is one tenth that of France and one ninth that of Italy. Even the average German drinks three and a half times as much wine as the average American.
With so many small vineyards, so many different varieties, and a handful of connoisseurs with individual opinions about taste, the wine industry has yet to see the rise of any major brand. “That’s just the way wine is,” say industry experts. “Wine needs multiple brands, multiple vintages, multiple varieties.” The motto seems to be “every acre its own brand.”
That might be the law of wine, but it’s not the law of branding. One day some company will do in wine what Absolut did in vodka and Jack Daniel’s did in whiskey: build a big, powerful, worldwide brand.
You can also see the law of fellowship at work in the retail arena. Where one store may not make it, several stores will. Instead of being spread out in every section of a city, used-car dealers are often clustered along “automotive row.” Where one dealer might have had trouble surviving, a handful of dealers are prospering. That’s the power of fellowship.
In any large city, you can see the law of fellowship in action. Similar businesses tend to congregate in the same neighborhood. In New York City, for example, you will find the garment district on Seventh Avenue, the financial district on Wall Street, the diamond district on Forty-seventh Street, advertising agencies on Madison Avenue, theaters on Broadway, theme restaurants on West Fifty-seventh Street, and art galleries in SoHo.
It makes sense for similar businesses to be located close together. First, a group of similar businesses attract more customers to an area because there is more than one store to shop at. Second, customers can easily comparison shop among stores. Customers feel that without competition, companies may take advantage of them and rip them off. (The airlines have a reputation for doing this.) Third, having the competition nearby allows companies to keep an eye on each other. Companies are always anxious to keep track of trends in their industries.
Planet Hollywood discovered that one of the best locations in a city for its restaurant was across the street from its arch rival, Hard Rock Cafe. People attracted to this type of theme restaurant are already drawn to the area thanks to Hard Rock and can be enticed to eat at a Planet Hollywood across the street. Similarly, the best location for a Burger King franchise is often across the street from a McDonald’s restaurant.
Take Branson, Missouri, which bills itself as the “music show capital of the world.” Where one music theater in a town of 3,706 people might be hard-pressed to make ends meet, forty music theaters are well and prospering. It’s the power of fellowship.
Your brand should welcome healthy competition. It often brings more customers into the category.
And remember, no brand can ever own the entire market (unless of course it is a government-sanctioned monopoly).
Realistically, how much market share can the dominant brand achieve? Our research indicates that 50 percent is about the upper limit.
Federal Express has a 45 percent share of the domestic overnight package delivery market. Coca-Cola has a 50 percent share of the domestic cola market. For market shares higher than 50 percent, you need to consider launching multiple brands. Not just line extensions, but separate individual brands. (See Chapter 15, “The Law of Siblings.”)