Theodore Levitt argues that a strategy of product imitation might be as profitable as a strategy of product innovation.44 In “innovative imitation” as he calls it, the innovator bears the expense of developing the new product, getting it into distribution, and informing and educating the market. The reward for all this work and risk is normally market leadership. However, another firm can come along and copy or improve on the new product. Although it may not overtake the leader, the follower can achieve high profits because it did not bear any of the innovation expense.
Many companies prefer to follow rather than challenge the market leader. Patterns of “conscious parallelism” are common in capital-intensive, homogeneous-product industries such as steel, fertilizers, and chemicals. The opportunities for product differentiation and image differentiation are low, service quality is comparable, and price sensitivity runs high. The mood in these industries is against short-run grabs for market share because that only provokes retaliation. Instead, most firms present similar offers to buyers, usually by copying the leader. Market shares show high stability.
That’s not to say market followers lack strategies. They must know how to hold current customers and win a fair share of new ones. Each follower tries to bring distinctive advantages to its target market—location, services, financing—while defensively keeping its manufacturing costs low and its product quality and services high. It must also enter new markets as they open up. “Marketing Insight: The Costs and Benefits of Fast Fashion” describes how a set of firms is changing the fashion industry, both for better and for worse.
Followers must define a growth path, but one that doesn’t invite competitive retaliation. We distinguish three broad strategies:
- Cloner—The cloner emulates the leader’s products, name, and packaging with slight variations. Technology firms are often accused of being cloners: Similar-sounding knockoffs copy mobile-messaging app maker WhatsApp’s products, and Berlin-based Rocket Internet has copied competitors’ business models and attempted to out-execute them.45 Ralston Foods, now owned by ConAgra, sells imitations of name-brand cereals in look-alike boxes as part of its “Value+Brands” platform. Its Apple Cinnamon Tasteeos (versus Cheerios), Cocoa Crunchies (versus Cocoa Puffs), and Corn Biscuits (versus Corn Chex) take aim at successful General Mills brands, but with much lower price points.46
- Imitator—The imitator copies some things from the leader but differentiates on packaging, advertising, pricing, or location. The leader doesn’t mind as long as the imitator doesn’t attack aggressively. Fernandez Pujals grew up in Fort Lauderdale, Florida, and took Domino’s pizza home delivery idea to Spain, where he borrowed $80,000 to open his first store in Madrid. His Telepizza chain now holds about 70 percent of the Spanish pizza delivery market and operates more than 1,200 stores in Europe and Latin America.47
- Adapter—The adapter takes the leader’s products and adapts or improves them. The adapter may choose to sell to different markets, but often it grows into a future challenger, as many Japanese firms have done after improving products developed elsewhere.
Note that we can contrast these three follower strategies from an illegal and unethical follower strategy. Counterfeiters duplicate the leader’s product and packages and sell them on the black market or through disreputable dealers. High-tech firms like Apple and luxury brands like Rolex have been plagued by the counterfeiter problem for years, especially in Asia. Pharmaceutical counterfeits have become an enormous and potentially lethal $75 billion business. Unregulated, drug fakes have been found to contain traces of chalk, brick dust, paint, and even pesticides.48
What does a follower earn? Normally, less than the leader. A study of food-processing companies showed the largest averaging a 16 percent return on investment, the number-two firm, 6 percent, the number-three firm, -1 percent, and the number-four firm, -6 percent. No wonder Jack Welch, former CEO of GE, told his business units that each must reach the number-one or -two position in its market or else!
Followership is often not a rewarding path. Some follower firms have found success, but in another industry. Les Wexner, who runs Limited Brands and its Victoria’s Secret lingerie retailer, fully embraces imitation. One month a year, he travels the world looking for ideas he can borrow from other companies ranging from airlines to consumer goods makers.49
Popchips has developed a $100 million business in part by expressly copying the successful marketing formula for vitamin- water (described in Chapter 10). As vitaminwater did, Popchips started with a novel and appealing product, converting a Los Angeles rice-cake plant to produce a new potato chip. Also like vitaminwa- ter, Popchips then used an aggressive sampling strategy to create consumer interest and secure distribution in top retailers such as Safeway and Whole Foods. To generate buzz and broaden appeal, Popchips brought in celebrities Ashton Kutcher and Katy Perry as minority investors and marketing spokespeople.
MARKETING INSIGHT The Costs and Benefits of Fast Fashion
In the fashion industry, styles and tastes can change quickly, and some savvy businesses and retailers are developing business models to allow them to quickly capitalize. Notable among them are Sweden’s Hennes & Mauritz, or H&M, and Spain’s Inditext with its Zara brand. These firms can take a new garment or accessory from design to store in a mere two weeks. Their success is forcing established luxury brands like Burberry, Chanel, and Saint Tropez to speed up and increase the frequency of their new product introductions beyond the traditional fashion-week-driven fall and spring collections.
By sourcing more than half its products from Spain, Portugal, and Morocco, Indetix pays more in production, but thanks to its tightly integrated supply chain, the company can quickly stock and supply what is selling and avoid having to discount what is not. Because there is almost always something new at appealing price points, shoppers always have a reason to stop by and check out what has just arrived. H&M has adopted a similar fast-fashion model that allows it to closely follow and respond to what is selling in the marketplace.
Both firms generate most of their sales in Europe—four-fifths for H&M and two-thirds for Zara—so they are furiously moving into China, Russia, and elsewhere and opening up hundreds of new stores. But this rapid growth and continual replenishment has both an environmental and social cost that fast-fashion companies are trying to address.
The social cost came to light when a tragic 2012 fire in a subcontracted Bangladesh garment factory killed 111 workers. Competition in the $18 billion fashion industry is fierce, and with a focus on lean production costs, safety concerns took a backseat. Prodded by labor rights activists, Western firms finally signed a building and fire safety agreement that provided greater regulation to improve worker safety.
Another negative by-product of the fast-fashion business model is the environmental cost of making and disposing of clothing with a limited shelf life. To deflect some of the criticism, H&M adopted a series of “Recycle, Resell, or Reuse” programs and activities. Products were made using fewer, recycled materials, and customer were able to trade in old clothes for vouchers for new ones. The company also required all contract suppliers to sign a code of conduct to ensure good working conditions.
Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.