Creating entry barriers

This last example draws attention to the importance of entry barriers in sound brand management: offering a full portfolio of brands helps the Coca-Cola Company extend its dominance, outlet by outlet. The bar owners and restaurant operating companies are satisfied: they can offer their clients a full range of famous soft drink brands, and in addition they often receive bonuses from Coca-Cola for providing full exclusivity to the whole Coca-Cola portfolio. (This was the source of lawsuits in Europe by the other soft drink companies.)

By focusing exclusively on the consumer’s psychology, brand analysis has overlooked the crucial role of the management of the offer itself, which can make it impossible for competitors to enter on the market. This is one of the key questions in the analysis of the financial value of a brand, of the present value of its future profits. The impenetrability of the market is the best warranty for the latter, and the example of Black & Decker is quite revealing.

Why are there hardly any DOBs in the drilling machine market? Because Black & Decker makes it economically impossible for them to enter the market. DOBs sprout up when one or more of the following conditions are fulfilled:

  • there is a high volume in the market;
  • there is little product innovation;
  • brands are expensive;
  • customers perceive little risk;
  • customers make their choice essentially according to the visible characteristics of the product;
  • technology is accessible at low cost.

Much to the contrary, the market for drills is small, and moreover is cut up into many segments. Black & Decker drives the market and makes it develop at a fast technological pace. In addition, Black & Decker has globalised its production: each plant produces one single product for the worldwide market. The production cost level thus becomes unbeatable, and as Black & Decker is not overkeen to increase its retail price, it does not leave much room for copycats to manoeuvre. Lastly, the customer feels safe when buying such a well-known and ubiquitous brand. What are the main sources of entry barriers?

  • The cost of the factors of production is the most important, which leads to a longlasting competitive advantage. This is the strategy of Dell, and also of Decathlon, the world’s fifth largest sports goods retailer and eleventh largest producer. Decathlon may become for some sports the European number one manufacturer far ahead of any others because of the economies of scale accruing from its products developed at a European level.
  • Mastering technology and quality is a key success factor for Procter & Gamble, Gillette, l’Oréal and 3M. Turning down any offer to yield an iota of their know-how to DOBs, these companies keep for themselves their main added-value leverage.This is what enables them to constantly innovate and to remain the reference of the market in terms of quality. Kellogg’s even goes to the extent of indicating on its boxes that it does not supply DOBs.
  • Domination through image and communication is Coca-Cola’s mainstay, although it does not hinder a K-Mart or a Sainsbury brand cola from borrowing as much as possible the distinctive signs of Coke and selling at a lower price. In hard times, sensitivity to price is exacerbated. But as a worldwide brand, Coca-Cola had access to the sponsoring of the Olympic Games in Atlanta and was able to pass on the benefits to bottlers worldwide. This is also the weapon of Nike, Reebok and Adidas.
  • Domination as a result of their fame and image is not solely a result of the titanic size of these companies’ budgets. Focusing all their communications on the name itself and applying a brand extension logic beyond the initial segment, many brandsare thus able to dominate in brand awareness.
  • Quickly using up all the aspects of a promising concept through range extension is a method that hinders the entry of competitors. In the United States, and in Europe, the Snapple brand is surfing on the wave of so-called ‘New Age’ drinks and offers a wide variety of tea-based soft drinks. Dim, as we have seen, was quick to offer under one hosiery brand name a wide range of products covering different needs and satisfying distributors’ and customers’ expectations. In the agricultural market, it is possible to count the different kinds of Decis (the leader in insecticides) according to the type of plant, thus reinforcing the worldwide leader status of this brand.
  • Putting a name on a product in itself yields a uniqueness of offer and an added value that competitors will lack. All the giants of the chemical industry produce elastane, a fibre that makes stockings and foundation garments soft and shiny. On the other hand, only Du Pont de Nemours had Lycra, a fibre whose name in itself is used as a sales ploy by Du Pont and by all lingerie brands. Actually, Lycra was the trademark used by Du Pont to sell elastane. It is not the name in itself which added value to the fibre: it is 10 years of worldwide communication about the glamour linked to the Lycra name which gave the brand its exclusive attractiveness. The same strategy applies to Gore-Tex and Coolmax.
  • Controlling the relationship with opinion leaders is one of the key success factors for a brand looking to the future. Canson, a school-supplies brand which is part of the Arjomari-Wiggins group, provides an illustration. What is more natural than a sheet of tracing paper or drawing paper for a schoolchild? However, despite the share of supermarket shelf space given to DOBs’ drawing and tracing paper, only that of Canson sells. For more than 20 years the brand has developed a close relationship with teachers, for instance organizing drawing competitions between classes on a national level. The long-lasting presence of Canson on a child’s shopping list for school supplies is due to the excellence of what is now called relationship marketing. The main asset of Canson is its loyal teachers within the public education system.
  • Controlling distribution is also a major handicap for new entrants. McDonald’s will soon have 1,000 restaurants in France, and Quick, the second largest burger chain, will have 350. This sheer number closes the hamburger market off to competition. Mass-distribution brands also freely use this barrier to entry: by imposing their ownbrand on the shelf, they thus exclude manufacturer’s brands. The ice-cream maker Häagen Dazs does indeed control the market of upmarket ice creams through the provision of a high-quality ice cream and through a well-managed word-ofmouth campaign from opinion leaders, but most of all through its own exclusive refrigerator present in all supermarkets and hypermarkets.
  • The last barrier to entry is based on legality.

The brand must defend its exclusive image against counterfeit products, models or signs. It should not hesitate to defend the exclusive character of its distinctive signs against imitations and distributors’ copycat brands. The latter, under the pretence that these are signs of the category, actually try to make their brands benefit from the value of signs developed by the leading brand.

The imitations of Coca-Cola try to get as close as possible to the red that Coca-Cola has with time associated with its quality. Beyond the deliberate sought-after confusion, which leads the customer, if he or she is not careful, to mistake the copy for the original, the similarity between the signs induces a perception of equivalence (Kapferer, 1995).

Just as Dior, Chanel and Cartier invest heavily in lawsuits against counterfeiter networks, the brands must sue imitators or, at least, state to them that they will tolerate no imitations or copying. From this point of view, the brands which from the start chose non-descriptive signs withstand the test of time and imitation better. The Orangina label is blue: it is not a generic colour and protects this orangeflavoured soft drink brand well.

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