I can't compete
with the odds stacked
BIGGER IS NOT ALWAYS BETTER.
"I became convinced that our interpretation of it was wrong; that it was a mistake to think of David as an underdog. We automatically assume that the biggest and strongest person at any contest is always the favorite. David was smarter, quicker, had the advantage of surprise and had an alternate strategy."
In his 2013 book ‘David and Goliath: Underdogs, Misfits and the Art of Battling Giants,’ Malcolm Gladwell makes a case for the little guy, showing that there is advantage in disadvantage, and it is those who understand and capitalize on this that will reign victorious.
It is the same for successful challenger brands.
David had the upper hand in battle because he had the qualities of an underdog and the foresight to realize that if he changed the way the battle was fought, he not only had the advantage, he would win. With this logic, challenger brands are at an inherent advantage compared to their well-established competitors, the Goliaths that sit at the top of the market and command instantaneous name recognition.
Born out of consumer frustration, these mission-focused brands fill a vital gap in an established or de novo market in a way a Goliath cannot. And, because of growing distrust of large corporations, they are embraced by consumers quickly. More than that, they gain credibility and loyalty for having built their brands from the inside out and placed purpose and authenticity at their core. And finally, because they are small, flexible and enterprising, they can make business decisions with speed and agility.
Together, these advantages can be enough to gain the momentum needed to challenge established brands, disrupt their market share and weaken their grip on an industry ripe for innovation and change.
01 Challenger Brands Should Signal Momentum, Not Size
Where size – or company growth – was once a positive development for brands, it is becoming more of a harbinger for distrust. Size now creates cynicism in consumers, and much of it has to do with distrust toward a scandal-prone establishment class that includes big brands.
An Ipsos white paper on trust in brands titled 'When Trust Falls Down' found that a majority of research participants (all were in Great Britain) believed that 'big business' was part of the 'establishment,' or small elite. Generally seen to be self-serving and out of touch with the general public, 'the establishment' has also developed a poor reputation for bad behavior over the years. Scandal after scandal, big brands have repeatedly failed consumers, eroding decades of trust.
A glance at the below timeline begins to explain the public's cynicism toward Goliath brands.
Herstatt Banck Scandal
Carrion Group Real Estate
Quintex Real Estate Financial Fraud Lincoln Savings and Loan Assc.
Texaco Oil Fraud
Carrion Group Real Estate
BRE-X MINING SCANDAL
NORDBANKEN COLLAPSE BANK OF CREDIT & COMMERCIAL INTL.
LIVE EXECUTIVE FRAUD LONG-TERM CAPITAL MGMT.
What does this mean? Big brands are in big public relations trouble. Being America's "biggest" or "best-selling" thing – whether it’s a car, a detergent or a makeup brand, now elicits a less than ideal reaction, especially among millennials. Being a big brand has become a marketing disadvantage.
Consumers now prefer brands with momentum over size. For example, a Rokkan experiment found that millennials, when asked if they would rather support Brand A with 50 percent market share and 1 percent growth – signaling size, maturity and reliability – or Brand B with 1 percent market share and 50 percent growth, were overwhelmingly in favor of smaller brands with more momentum.
|Category||1% share, 50% growth||50% share, 1% growth|
Even for ‘high-risk’ categories like insurance or ‘passion’ categories like makeup (see Rokkan’s thought leadership on Experience), people were more likely to choose brands with momentum over size. Size creates cynicism, while momentum creates desire.
What’s more? A McKinsey & Company report on ‘The State of Fashion 2019’ found that challengers attract more engaged Instagram followers than legacy brands.
Instagram Like / Follower Ration (LFR)
It wasn’t always this way. In the 1980s, size signaled trust, expertise, quality and innovation. Today, it signals greed, cutting corners, being overly manufactured and belonging to the establishment. Momentum, on the other hand, signals innovation, authenticity, purity and desire today. In the 1980s it signaled a brand that was untested – something you had to question.
This doesn’t mean that challenger brands must be small to be successful; instead, they must focus on marketing their momentum, not their size.
Also inherent in their brand DNA – and part of their successful momentum – is understanding their audience, which is sensitive to brands’ explicit attempts to gain customers for profit-making. As a result, Supreme keeps advertising budgets slim and is careful to limit overexposure of the brand. Its primary exhibition space is social media.
"We're not trying to overconnect ourselves," Supreme founder James Jebbia told Vogue in 2017. "We're just trying to show people things that we do—no different from what a magazine did 20 years ago."
"Many giants have acromegaly [a hormonal disorder that causes bones to increase in size], but it has a side effect which is, it causes restrictive sight,” Gladwell told Inc. “Goliath in the biblical story does, if you look closely, sound like a guy who can't see….That's not a story of an underdog and a favorite. David has a ton of advantages in that battle, they're just not obvious."
02 Challenger Brands Should Champion the Overlooked
When a challenger sets out to be relevant in a saturated market or take a stand against an established brand, it must do so by championing the thing that is overlooked; by finding the gap, by filling the void, by seeing the not-so-obvious advantage.
And so it was with David and Goliath.
One disadvantage of Goliaths? They think of segments generally; they don't pore over the micro details within segments.
But by sheer budget constraints, challengers have to get in the weeds, employing more thought about where to source growth. And what separates challenger brands from successful challenger brands is finding an unmet segment need in a congested space. Challengers need to spend less time thinking about how to become a 'me too' brand and more time thinking about the best way the brand can deliver an unmet need. Instead of asking how they can be Goliath, challengers needs to ask how they can beat Goliath.
According to the website Small Business Trends, the top reason behind small business failures is a lack of market need (42 percent). This may be true for some failed ventures, but more often than not, challenger brands grow by identifying an underserved segment, an unmet need or an overlooked problem in a busy market that appears unshakeable – until it isn't.
One example of a challenger brand finding success because it championed the overlooked is Outdoor Voices, a fast-growing sportswear brand founded less than a decade ago on the premise that there is a space between gym life and everything else. The brand’s motto, 'Doing Things,' is meant to appeal to those who want to stay active and casual all at once; to those who enjoy activity for the sake of recreation, not competition.
"[O]utdoor Voices is…built around the insight that, actually Nike, not everybody wants to be an athlete, thank you very much," The Challenger Project website wrote in 2017 when it added the brand to its Challenger To Watch list for the year.
The brand has seen big growth as a result of finding its laid-back active wear niche: in addition to reporting sales growth of over 800 percent in 2016, Outdoor Voices has 361K followers on Instagram and 144K organic photos tagged with #doingthings, showing impressive User Generated Content engagement.
03 Challenger Brands Should Prioritize Purpose Over Positioning
The other secret to success is to put purpose at the center of their mission – they must ask themselves: what are we solving, improving or evolving?
Almost all successful challenger brands were born out of a frustration with the status quo and the desire to change the way people see the category, which is usually complacent and painful from both value and experience perspectives.
Finding a missed opportunity in a painful category pays off. According to the website Small Business Trends, the industries with the best startup success are accounting, tax preparation, legal services and lessors of real estate, all of which live in the burden category, where consumers are hungry for an easier way to engage (see Rokkan's thought leadership on Experience).
But it's not only burden industries that are seeing success from challenger brands; purpose-based brands that help consumers do instead of be something are growing across the board – in fact, three times as fast as brands without it, brand strategy firm Kantar found.
Successful challenger brands are in it for more than just profit, they are on a mission to do something worthy – to make life better for the people they serve. These brands cultivate, protect and grow their motivating purpose, and by doing so, manage to create believers, not just consumers. They are powerful forces; the ones we quote, reference and look to for inspiration.
And once purpose is in place, the rest of the pieces can come together more freely. As Yvon Chouinard, founder of Patagonia, once said, "[P]rofit is what happens when you do everything else right."
The Honest Company, a baby and beauty brand co-founded by actress Jessica Alba, is a powerful example of a challenger that has seen enormous success because of its purpose-driven mission, and suffered setbacks when that purpose was compromised.
Founded in 2011, The Honest Company specialized in products that were organic and safe. Within a year of launching, it hit $10M in revenue, and by 2016, sales were at $300M. And it wasn’t just Alba’s fame that propelled the brand forward – its commitment to “clean” products resonated with consumers.
However, a string of recalls and lawsuits – including a class action lawsuit that alleged the company misled buyers about an ingredient in its laundry detergent – have hurt the brand and prevented an IPO. While the company stands behind its products, the brand’s story shows that consumers take purpose seriously, ready to give allegiance to the brand doing purpose best – whether it’s a David or Goliath.
04 Challenger Brands Should Feel Small Even When They Get Big
A word of advice to Davids: stay lean, stay hungry.
A challenger brand seizes to be a challenger when it shifts from being the underdog that inspires affection to a corporation that inspires cynicism. In short, when David grows into Goliath. An example of a brand’s shift toward the much-maligned establishment is the transformation of Uber.
When the brand first appeared as an innovate, hassle-free alternative to taxi cabs in 2010, Uber was an industry darling for whom everyone was rooting. Today, the brand has become Goliath, with a series of scandals in its rearview mirror and a reputation for paying employees low wages. The brand is routinely vilified by Lyft, criticized by consumers and almost completely devoid of its one-time challenger spirit.
Dollar Shave Club, however, is a brand that has retained the challenger label. Even though, according to Nielsen, the brand dominates 30 percent of the online shaving market, it still feels small, in touch with consumer desires, authentic and dedicated to its purpose – effective and affordable men’s grooming products. The brand still feels like it operates out of a garage, using their co-founder as the face of their down-to-earth brand even after selling the company to Unilever for a reported $1B.
Sweetgreen is another brand that’s growing big to stay small. Co-founder Nathaniel Ru told Nation’s Restaurant News, a leading food service news source, that the company has been laser-focused on making the brand intimate to customers.
The company that set out to provide people with “real food” in 2007 is now focused on building an “intimacy of scale” through smarter customer metrics, responsive stores, using technology differently and giving back to the community through charity (during the 2018-2019 federal government shutdown, Sweetgreen provided free meals to furloughed workers.) Though the brand is nearing 100 locations, it still has that challenger mentality.
05 Challenger Brands Should Transform the Customer Experience
To maintain momentum, challengers must be CX and UX leaders. A 2016 Forrester report on CX found that over a recent five-year period, CX leaders had a compound average revenue growth of 17 percent, while CX laggards grew at only 3 percent.
So if CX pays, it pays to put money into CX. That’s what Amazon did in the early days, investing 100 times more on CX than advertising. A similar story for Airbnb – co-founder Joe Gebbia credits UX with taking the company to $10 billion.
“Good user experience is clearly good for business,” Andrew Kucheriavy, funder of digital marketing agency Intechnic, wrote in Forbes.
Challenger brands have an inherent advantage when it comes to smart CX: they have the gift of both size and novelty. Comparing Dubai to New York City offers a good illustrative example. NYC is historic, legendary and showing its age – its size makes it hard to traverse, its infrastructure is dated and the experience is a challenge. Dubai, on the other hand, is a city dotted with infrastructure built in the last decade, making travel seamless, paperwork simple and experience modern.
It’s the same with challenger brands – they can be faster, nimbler and more innovative than established brands in the CX space.
Lemonade, a new renters and home insurance company, has cracked the CX code in its category. Operating in an environment where four brands make up 50 percent share of the market, Lemonade has elbowed its way onto the stage through superior CX. And her name is Maya. By personalizing their AI, Lemonade is providing customers trusted concierge service, fast.
And of course there is Oscar, the health insurance challenger that has taken on the industry’s powerful Goliaths by humanizing healthcare, focusing the experience on the patient and making process and communication mobile, easy to understand and hassle-free. Add to that their concierge team and ‘Doctor on Call’ feature, and there is no question that Oscar continues to act like David in the face of growth.
Seeing Advantage in Disadvantage
They say imitation is the highest form of flattery, but challengers would be wrong to follow this advice. Taking on a Goliath is, above all, an exercise in strategy, not imitation.
Challenger brands must look past size and signal momentum and growth to consumers. They must identify the market’s unmet need and find a solution. They must develop an authentic purpose that acts as their North Star, improve the standard CX for their category, and no matter how much they grow and how big they get, the challenger must always strive to stay small.
Because everyone loves an underdog.