Today we live in a world of global mega-brands. The financial and business press is regularly filled with stories about the activities of brands such as Coca Cola, McDonald’s and Apple. Only this week, the story of Pepsi’s disastrous advertisement featuring Kendall Jenner went viral.
It seems that smaller local brands are doomed and at best they will pick up the scraps of market share left to one side as these global brands continue their feeding frenzy. Although mega-brands may dominate the column inches of business papers, there are significant examples where smaller local brands have defended their market leading role.
Did you know that the market leading hamburger restaurant chain in Korea is not McDonald’s or Burger King but Lotteria, an offshoot of a local department store chain. Smaller local brands can dominate their market and hold off attempts by international corporations to take their market position.
It is obvious why big corporations want to expand internationally. The Ansoff matrix tells us that it can be difficult and costly to penetrate your home market further when you are the market leader. Governments have laws regarding monopoly positions (in the UK a firm with more than 25% market share is considered as having a monopoly). The ability to gain market share may increase in cost exponentially. You may be paying increasing costs to garner smaller and smaller percentages of your market.
Ansoff also states that activities such as new product development and differentiation are increasingly difficult and costly. Market expansion is less risky particularly if you can implant your current business model into another region or state. If you are the market leader domestically, your best option may to be to expand internationally.
So how can a local brand fight back against global brands, how can they defend their local market where the competition may have more money and resources to take into battle.
Local brands often use first-mover advantage to hold the market-lead. They were the first to enter the sector in their local area and so become associated with that sector in the minds of consumers before other brands get a foot in. However, brand loyalty can be fleeting and should not be the sole strategy for market dominance. You need to work hard to retain customers rather than just assuming they will stay loyal. If a large conglomerate provides a better offer, consumers will switch.
To develop a local market lead position you need:
- A specific business model and specific processes. Ideally these should match the expectations and values of local consumers.
- To be more accessible to the local market than larger competitors.
- You have to offer strong growth potential; and,
- You have to have stronger local attributes than global firms
Recently, Starbuck’s attempted to enter the Italian coffee shop market. A market the firm had so far ignored. This was probably Starbuck’s last throw of the dice in relation to market expansion. The last country on the list where they had no presence. The reason why Starbucks had avoided Italy so long was that their business model simply did not fit into the Italian coffee drinking culture. Many Italians treat coffee as an icon of their culture. You wake up with an espresso and you certainly do not drink a cappuccino after mid-morning. The culture is of locally run coffee bars which are as much community centres as businesses. Starbucks had avoided Italy because the reaction to their business model was hostile. Starbucks model does not meet the four attributes listed above in the minds of Italian coffee drinkers.
Other activities by large brands may be treated with hostility. Take the example of Waterstone’s, the UK bookshop chain. They opened stores in small rural towns which outwardly gave no indication that they were part of the chain. Consumers felt tricked by this practice. They reacted strongly to the strategy feeling Waterstones were trying to pass off their chain as local independents.
Often small local firms exhibit significant limitations:
- They show a lack of willingness to innovate
- They have self-imposed inertia. They look to the past not the future.
- Their resources are too widely dispersed. They try to be all things to all consumers. They ignore Porter’s generic Niche strategy.
- They rely too heavily on customer loyalty as a driver of customer preference.
- They are self restricting. They do not enter new markets because they feel they are dominated by a global brand even though clear opportunities exist.
- They don’t appear to be local and try to copy the practices and attributes of global brands.
For local brands growth strategies do exist. Some local brands succeed by dominating a single distribution strategy (such as direct sale/mail order). Some merge smaller brands to make one larger brand more able to defend against the international mega-brands. Some nurture innovation, others look to target expansion into markets which have similar characteristics to their home market.
Despite the dominance of global brands in our interconnected world, it is possible for local brands to succeed and to lead in their local market.