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Challenger

A challenger may be a new entrant into the market or one that has maintained a secondary or tertiary position for various reasons. The challenger is often following a first-mover into a market and may face the hurdles of limited brand awareness and fewer resources with which to compete. One of the reasons failure rates for newly launched products are as high as 50 percent is that the challenger sees the market from a product perspective instead of through a customer-need lens. Companies that continually bring “me-too” products to the market not only disappoint potential customers, but also deflate the morale of their salespeople who are left with no differentiated value to sell.

When you find yourself in the role of challenger in a market, consider the following 11 questions to stimulate your thought process and initiate a productive conversation around how to topple the leader:

  • 1. What customer needs or jobs are not currently being fulfilled?
  • 2. Which customer segments are underserved by the leader?
  • 3. Does the leader’s offering provide different benefits from our offering?
  • 4. Do the leader’s unique benefits include functionality, quality, reliability, convenience, and/or cost?
  • 5. How does the leader’s business model differ from ours?
  • 6. What is the leader’s value proposition?
  • 7. What is the leader’s core competency?
  • 8. What are the leader’s top three capabilities?
  • 9. Are we capable of taking away customers from the leader?
  • 10. Are we capable of transforming non-users into customers?
  • 11. In what part of the value chain can we establish a foothold of success in this market?

As you consider these questions, it’s important to do so with the mindset of a challenger. I’ve witnessed managers who have worked on market-leading brands, then moved to challenger brands without adopting an appropriate mindset. A challenger mindset demands the discipline to make real trade-offs and focus one’s resources with laserlike precision in only one or two areas that allow them to provide the greatest differentiated value to their targeted customers. It means not whining about a lack of resources and realizing you can’t do a little bit of everything in order to play it safe. It means embracing risk and breaking with industry convention to do something that truly stands out.

A moon rocket uses half of its entire fuel supply in the first mile of its journey to generate the momentum necessary to break free of the gravity of the earth’s atmosphere. In the same way, a challenger needs to be prepared to invest a large share of its resources breaking targeted customers away from the gravity of the leader’s offerings. As the leader rises to that position, they often follow tacit market rules that the industry and customers abide by. In the hotel industry, an 11 a.m. checkout is the norm. In the credit card industry, a late payment finance charge is the norm. In the petroleum industry, gas stations as delivery points for consumer purchases are the norm.

Industry norms mean customers don’t have a choice. Industry norms differ from trade-offs in that trade-offs provide customers with a set of options. You can choose X but not Y. You can fly to your destination for an inexpensive fare (low cost), but you’ll need to make two connections and have to endure seven hours of layovers (low convenience). It’s your choice. But, industry norms offer no choice. So, the ability to creatively think up ways to deviate from industry norms in the favor of customers can provide formidable ways to compete.

Using the Norm Deviation Matrix provides challengers with potential avenues for creating real differentiated value within an established market. Table 2.1 provides a look into how the Norm Deviation Matrix is constructed. In the left column, there are five factors that comprise the customer’s experience continuum with a product or service. These factors begin with acquisition and move through use, service, complements, and evolution. The center column lists a market and a particular norm for doing business. In the right column are solutions or ways to deviate from this norm in favor of customers.

For instance, the acquisition factor (purchase/delivery) in the car rental market traditionally had a norm that customers had to go to a car

Table 2.1 Norm Deviation Matrix

Factor

Norm

Solution

Acquisition

(purchase/

delivery)

Auto rentals: Customers must go to rental agency to pick up rental car.

Enterprise Rent-A-Car will pick you up.

Use

Movie theaters: Food is minimal, no alcohol is served, and seating is random.

iPic Theaters introduced high-end food and alcohol in a living-roomlike atmosphere with the option of reserved seating.

Service

Tech support: Customers must get help via telephone and/or ship computer to distant repair center for fixes.

Apple created the Genius Bar in retail stores for face-to-face computer support.

Complements (other items for use with it)

Household cleaning: Bucket, mop, water, and cleaning solution required to clean solid-surface floors.

Swiffer uses easily detachable wet and dry cloths with self- contained cleaning solution.

Evolution (end of use, next use, disposal)

Vacuums: Inconvenient purchase, removal, and replacement of bags.

James Dyson developed a bagless vacuum cleaner with a clear receptacle for easy emptying.

rental agency to pick up a rental car. Enterprise Rent-A-Car deviated from that norm by establishing upwards of 90 percent of their locations in communities that enable them to effectively and efficiently provide the option of picking carless customers up. For many years, the norm in the movie theatre market was no alcohol, up-for-grabs seating, and minimal food options. iPic deviated from the use factor norm by introducing higher-end food and alcohol with reserved seating.

To effectively use the Norm Deviation Matrix, identify the norms for each factor on the customer experience continuum, and then think about potential solutions that would deviate from those norms.

In addition to breaking industry norms to create new value for consumers, a challenger’s goals may include taking market share from competitors and converting non-users to customers. They can accomplish these goals by creating strategies that leverage their strengths and exploit the competition’s weaknesses. Figure 2.2 helps you visually map the Challenger Strategies approach by using the four quadrants of the matrix to develop potential strategies.

When it comes to taking customers from competitors, the challenger can design strategies that change the game, as Cirque du Soleil did when they created a hybrid of the circus and theatre. In this case, Cirque du Soleil effectively took business by creating a new experiential offering for a high-end customer segment that the traditional circus didn’t serve.

The challenger can also employ the judo method of positioning a competitor’s strengths as weaknesses in order to take some of their customers. A Japanese word for the gentle way, judo focuses on using an opponent’s strength and weight as weapons against him.7 As opposed

Challenger Strategies

Figure 2.2 Challenger Strategies

to resisting the force of the opponent, you go with it and twist it to your advantage. This was the approach that retailer Target took as they implied that Walmart every day low prices would limit the style quotient of their products versus Target’s chic value offerings.

A challenger can also leverage strengths to convert non-users to customers. Here, you’re educating potential customers not currently engaged in the market on the benefits of your offering. Before being purchased by Microsoft, Skype was successful in educating non-users on the benefits of video calling. In many cases, Skype offered free video calling—even overseas. While initially carving out space in the business market, Skype also found success in the family and friends market, allowing people who were miles away to maintain relationships and see one another.

Another method for converting non-users to customers is to create a sense of urgency in those not participating in the market’s offerings by letting them know what they’re missing. Match.com, an online dating website, used this loss-awareness strategy to show single people that they just may miss meeting their soul mate by not becoming a member. As a challenger, can you illustrate the opportunity costs of not using your offerings? Research by Nobel Prize winner Daniel Kahneman and Amos Tversky has demonstrated that people are more motivated by the thought of losing something than by an equivalent gain.8 Therefore, positioning your offering’s benefits as preventing a loss (missing out on a life with your soul mate) versus attaining the equivalent gain (finding your soul mate) has a significant influence on a potential customer’s decision-making process.

The Challenger Strategies Matrix provides underdogs with a way to explore methods for profitably growing the business by taking customers from the leader or converting non-users into customers. As you review these potential strategies, be aware of the following turbulence that can stall your upward challenger trajectory:

  • • Playing the same game as the market leader
  • • Failure to overcommit resources at the decisive point
  • • Staying within the industry and market rules
  • • Reacting to the actions of the market leader or other challengers
  • • Getting drawn into the product-feature war of bells and whistles
  • • Lack of focus on the target customer’s most important needs and jobs to be done
  • • Not understanding which specific customer segments find the most value in what you offer
  • • Allowing the market leader to remain comfortable
  • • Trying to capture all of the market at once
  • • Failure to shock the market out of the status quo
  • • Not determining the profitable point of the value chain where you can provide differentiated value
 
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