Preference vs. Relevance

By David Aaker

There are two ways to play the brand game, but which strategy delivers the strongest win? The first and most commonly used route to winning the brand game focuses on generating brand preference among the choices considered by customers. Simply put, it focuses on beating the competition. A consumer decides to buy an established product, say an SUV. To the consumer, several brands, perhaps Lexus, BMW and Cadillac, have the visibility and credibility to be considered. A brand, perhaps Cadillac, is then selected. Winning involves making sure that Cadillac is preferred to Lexus and BMW, which usually means being superior in at least one of the dimensions defining the product category and by being at least as good as the competition in the rest of the dimensions.

The brand preference strategy involves incremental innovation to make the brand ever more attractive or reliable  or the offering less costly. Faster, cheaper, better is the mantra. Resources are expended on communicating more effectively with more clever advertising, more impactful promotions, more visible sponsorships, and more social media involvement, but such efforts rarely break out of the clutter. There is a focus on and commitment to the existing offering, business model and target segment. Improvement is the goal but change is not on the table.

Marketers that use this classic brand preference model tread an increasingly difficult path to success in today’s dynamic market because customers are not inclined or motivated to change brand loyalties in established markets. Brands are perceived to be similar, at least with respect to the delivery of functional or core benefits, and often these perceptions are accurate. As a result, customers are not motivated to learn about or locate alternatives. Further, even when the offering is improved or effective marketing is developed, competitors usually respond with such speed and vigor so that any advantage is often short-lived. As a result, a brand preference strategy is usually a recipe for stressed margins, unsatisfactory profitability and, ultimately, a decline into irrelevance. It is so not fun.

Win with Relevance

The second route to competitive success is to change what people buy by creating new categories or  subcategories that alter the way existing customers look at the purchase decision and use experience. Under brand relevance competition, the customer selects the category or subcategory, perhaps a compact hybrid vehicle, making the starting place very different. The selection of the category or subcategory is now a crucial step that will influence what brands get considered and thus are relevant. The customer then identifies brands that are visible and credible to that category or subcategory. The brand set is more in play than under the brand  preference model. There might be only a single brand that makes the consideration set, perhaps a Toyota Prius.

A relevant brand for a customer is one for which the target category or subcategory is selected and the brand is in the consideration set.

Winning under the brand relevance model is different because it is based on being selected because competitors were not relevant rather than not preferred, a qualitatively different reason. Some or all competitor brands are not visible and credible with respect to the new category or subcategory. The result can be a market in which there is no competition at all for an extended time or one in which the competition is reduced or weakened.

The brand relevance strategy involves transformational or substantial innovation to create offerings so innovative that new categories or subcategories are created. It involves an organizational ability to sense changes in the  marketplace and its customers, an ability to commit to a new concept and bring it to market, and a willingness to take risks by going outside the comfort zone represented by the existing target market, value proposition, and business model.

The payoff of operating with no or little competition is huge. It is economics 101. Consider the Chrysler-made minivan introduced as the Plymouth Voyager and Dodge Caravan in 1982 that sold 200,000 during the first year and 12.5 million to date. For 16 years Chrysler had no viable competitor, in part because it continuously innovated behind the product but also because competitors had other priorities.

In addition to numerous case studies, there is empirical evidence that creating new categories or subcategories pays off. Perhaps the most robust law in marketing is that new product success correlates with how differentiated it is. A highly differentiated offering is likely to define a new category or subcategory. A McKinsey & Co. study is one of many that support this claim. It showed that new products that create a new category or subcategory had a return premium of 13 points during the first year, but that return slides to 1% by the tenth year as competitors join the fray.

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