Defensive Marketing

Marketing is generally perceived as a tool for growth. However, its importance as a defender against new product launches, market entrants, or market share losses, should not be underestimated because, in these cases, incumbents are able to use only marketing to respond to new or anticipated threats.

Defensive marketing begins with an assessment of the advantages that companies have beneficial to protect their market position. These advantages may be due to a strong brand identity or to the mix of products including their pricing, supportive services and advertising. If a company decides that their brand identity needs to be modified in order to retain customers, this may be difficult to realize because researches show that consumers' perceptions of a new entrant are likely to be malleable, whereas their image of an incumbent is likely to be well formed. Despite massive advertising aimed at changing this perception, the defender may be still stuck with the label of its heritage in the market. For this reason, a new entrant can relatively quickly and easily adopt an image from an array of branding alternatives. In these cases, a weapon such as advertising may be more effective in the hands of the defender because of the incumbent's size advantage.

Studies show that a customer defects when the benefits of staying with an incumbent are outweighed by those of switching to a new entrant. For this reason, in order to hold on to customers, there are four different strategies that can be applied by defender companies:

1- Positive strategy: Retain customers by emphasizing the perceived advantages of your product, service, or company.

2- Parity strategy: Retain customers by matching, neutralizing, or blunting the perceived advantages of the new entrant’s product, service, or company.

3- Inertial strategy: Acknowledge that some customers will leave despite your strengths, but offer product or service enhancements that will delay their defection. Emphasize that benefits lost in the switch may be major ones.

4- Retarding strategy: Acknowledge that some customers will leave despite your strengths, but offer product or service enhancements that will delay their defection. Emphasize that benefits gained in the switch may be only minor ones.

A company under threat of a new entrant needs to take a closer look at its customer profile after considering its advantages in the market and relevant defensive marketing strategies. Incumbents need to segment their customers based on two variables: their value to the company and their vulnerability to being poached by the new entrant. According to these variables, we can form four different classes of customer:

1- Valuable-Vulnerable Customers: These profitable customers are unhappy with the company. Defender should work vigorously to retain them.

2- Valuable-Not Vulnerable Customers: These loyal, profitable customers are currently happy with the company. Defender should maintain their margins.

3- Not Valuable-Vulnerable Customers: These unprofitable customers are likely to defect from the company. Defender company may let them go, or even encourage their departure.

4- Not Valuable-Not Vulnerable Customers: These unprofitable customers are happy with the company. Defender should try to make them valuable or vulnerable.

By taking these analyses as a basis, defender companies should choose the most adequate strategies in order to maintain the target customer group.

The article, “Defensive Marketing, How a Strong Incumbent Can Protect Its Position”, by John H. Roberts also reveals a sample: The defensive marketing strategy of Australian telephone company Telstra against a potentially powerful new rival, Optus.

Telstra identified its areas of superiority and weakness relative to Optus by conducting an economic analysis of the competitive landscape and by using a model for predicting customer responses to both companie’s moves.

According to results of this model, Telstra adopted firstly a parity strategy in which it created strategically chosen but limited points of price superiority over Optus. That is, while Optus on average offered lower prices, Telstra's prices were lower on some routes and at certain times of day. This strategy created a muddied situation in which consumers were less likely to take the big step of switching phone companies on the basis of price.

Another area of weakness that Telstra needed to counter, with a retarding strategy, concerned with the "punishment factor." The model suggested that people would switch more quickly to Optus if they were angry with Telstra and wanted to "teach Telstra a lesson." Telstra prepared a television advertisement campaign that emphasized companies willing to improve its services.

An inertial strategy that the company did also use was based on consumers' positive perceptions of Telstra as a homegrown company. As a conclusion, the combination of these three strategies let Telstra to maintain its market share substantially: The company's analysis found that the Flexiplan pricing strategy helped Telstra hold on to roughly 4% of the market - representing $28 million in annual revenue - that the company otherwise would have lost. Telstra's "Good, better, best" advertising campaign, designed to prevent the rapid flight of customers angry with the company's past performance, helped it hold on, at least initially, to an additional 3,5% of the market.

References:

Defensive Marketing. Roberts, John H.. Harvard Business Review, Nov2005, Vol. 83 Issue 11, p150-157, 6p, 2 diagrams, 2 color; (AN 18777217)

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