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Not to be distributed without permission.CONNECT WITH US 2019 Euromonitor International How to Be a Disruptive Brand: Reinventing Consumer Markets Zandi Brehmer and Sarah Boumphrey Euromonitor International Contents 1 Introduction 2 The Renovation Innovation Disruption Framework Renovation Innovation Disruption Which to focus on? 6 How Do Companies Renovate, Innovate and Ultimately Disrupt? 11 Who Has the Power to Disrupt? Insurgent brands Local brands Incumbents 16 How Can Multi-national Companies Thrive in Disruptive Environments? Incumbents are already building new approaches Strategies for success Become tomorrows next disruptor 19 Conclusion Euromonitor International Todays leading global brands are coming under threat from a range of competitors from all directions. New opportunities, stemming from changes in consumer behaviour, are often being met by fast-growing insurgent brands, or conversely local businesses with a closer connection to their consumers. Although not new, disruption has become a bigger challenge. Today it is standard in every market. Technology is fuelling the rate of disruption and providing the basis of new ways of engaging consumers. Businesses can disrupt markets by reaching consumers in new ways and reinventing category engagement around service and convenience. Alternative business models enable a greater number of consumers to access the category and solve problems for consumers through new routes to market. Even previously staid markets, such as those for mattresses or towels, are not immune. In this white paper, we provide a framework for understanding disruption both in terms of what it is and how it occurs. This framework enables consumer-facing companies to understand the scope of disruption in their categories and to turn the challenge of disruption into an opportunity. We explore both who is disrupting and how they are doing it. Finally, we investigate how large multi-nationals can fight back and become the disruptor. Introduction Euromonitor International The Renovation J Innovation J Disruption framework illustrates how businesses execute change, with varying impact on their markets. From renovation where a company improves on previous ideas to steal share, to innovation where a company grows an entire category and finally on to disruption where an entirely new category or market is invented. In this spectrum, disruption is transformative. Renovation and innovation help companies and industries evolve and grow market share. With the internet giving consumers greater access to information and the barriers to entry to consumer markets becoming lower, defining a spectrum of innovation is important. Demarcating terms, which are often used interchangeably, helps companies to accurately assess the threat posed by competitors and to take stock of the array of opportunities open to them. Renovation The main purpose of renovation is to re-establish the brand within the category, ensuring relevance in the minds of consumers and protecting or stealing share from competitors. Gains are often incremental but can have a huge impact on sales and brand share. The Renovation Innovation Disruption Framework The Renova Tion innova Tion DisRupTion FRamewoRk 3 Euromonitor International Renovation strategies include: Changing a formulation by introducing or removing flavours and / or materials Launching new pack sizes or types Repositioning the brandowning a niche with consumers, including premiumisation Rebrandingnew name, new logo, new packaging Restaging pricing RXBAR RXBAR launched in 2013 and creates protein bars. In 2015, the brand radically overhauled its packaging with the ingredients prominently featured on the front. The simple and short ingredient list increased its appeal. In 2017, Kellogg acquired the company for US$600 million. In 2018, RXBAR had 6.9% of the US$3.2 billion market for energy bars in the USA, up from 0.1% in 2014. At the same time, the market overall saw rapid growth, increasing by US$1.1 billion or 42% in real terms. RXBAR is taking a growing share of a fast-growing and dynamic market. Innovation More transformational than renovation, innovation leads to the creation of new sub-categories and brings new consumers to the category. Innovation strategies include: Introducing new usage occasions Launching distinct new formats Creating new ways of engaging and consuming Forming industry and category fusions Creating new consumer sub-segments 6.9% RXBAR share of US$3.2bn market4 The Renova Tion innova Tion DisRupTion FRamewoRk Euromonitor International Prose Prose offers personalised hair care utilising the power of AI technology. The tailored products match individual hair types, lifestyles, diets and environmental factors via a consultation through the brands website or with a stylist in the salon. This process, using 75 natural ingredients, results in more than 50 billion combinations, enabling Prose to offer personalisation at scale. Prose raised US$25 million in investments through 2018. The salon professional hair care market in the USA was worth US$2.8 billion in 2018 and LOral dominated with 31.5% of the market. However, the incumbents market share has been declining steadily from 40.6% in 2008. Disruption True disruption goes a step further and leads to the creation of entirely new categories or markets. For a company to disrupt, they must focus on four areas: Reconceptualising the market A disruptor is not bound by the rules of the market. It can see beyond how things have always been done. Disruptors broaden and reframe the problem they solve for consumers. This approach sees a business offering mobility rather than selling a car, offering a travel experience rather than selling a hotel room. In doing so, disruptors open their growth opportunities to bigger ideas. Consumer-centricity Consumers are more educated and empowered than ever, and expectations set in one industry or category transfer to all others. By putting the consumer at the heart of the proposition, a disruptor seeks to facilitate consumers lives. A disruptor spots gaps in the market and delivers products or services that meet unmet needs that consumers themselves may be unaware they have. Engagement Disruptors leverage technology to consistently engage with consumers and deliver authentic experiences through shared values, superior service, convenience and fun. They engage genuinely by doing so on the consumers terms via methods and mediums they want to be engaged in. Leading fearlessly A disruptor is ahead of the pack. Disruptors act boldly and quickly, creating markets that didnt exist before. They do not seek small improvements on what is already there but revolutionise a category or create a new one. This plays to the strengths of small, nimble brands that are not tied down by layers of bureaucracy. True disruptors are not focused on short-term gains. More importantly, they dont worry about immediate profitability; they are willing to focus on the long-term opportunity.The Renova Tion innova Tion DisRupTion FRamewoRk 5 Euromonitor International Source: Netflix Netflix When Netflix launched in 1997, the click-and-wait nature of its mail-order service appealed to only a few customer groups. One of these segments, the movie buffs, wanted access to a greater number of titles including small independent films. This market segment was underserved by Blockbuster because it was not as profitable as the mass market. The Netflix model also brought convenience, with films delivered to the door with no strict return deadlines or associated late fees. Eventually, new technologies opened the door to Netflix streaming video over the internet. Netflix offered convenience in the form of delivery as well as a subscription model, before evolving further into personalised streaming. Today, Netflix is a significant creator of original content, being nominated for 15 Oscars in 2019. Netflix is also currently testing lower-cost mobile-only subscriptions currently aiming at mobile-centric consumers in Asia. According to our 2017 Lifestyles Survey, 57% of connected consumers globally watch video on a mobile phone weekly, and this rises to 73% in China and 76% in India. Which to focus on? Not all companies succeed at disruption. Beyond requiring the perfect need and solution, disruption is a highly time- and resource-intensive endeavour for companies to execute. To do so faster than any competitor is an even greater challenge. As a result, it is not a case of disruption at all costsrenovation and innovation both play an important role. For many companies, renovation and innovation bring tremendous returns at a much faster rate when executed well. A strong balance of renovation, innovation and disruption efforts is the best strategy for companies that wish to thrive long term. Finding the perfect equation is nuanced and must factor category maturity and fragmentation, as well as individual company characteristics such as brand equity and appetite for risk. 57% of connected consumers globally watch video on a mobile phone weekly Euromonitor International How Do Companies Renovate, Innovate and Ultimately Disrupt? Megatrend Analysis Offers a Great Starting Point Leaders harness megatrends to disrupt a market. It is becoming increasingly difficult to keep up with competitors as technology spurs both the rate of and access to innovation. Amidst this change, it is difficult for companies to understand why industries are evolving in the way they are today, much less predict how they will evolve in the future. Megatrend analysis allows companies to build a long-term strategy that is proactive, rather than reactive, making sense of where they stand today, but also ensuring they have a plan to remain relevant moving forward. Taking a step back, we know that consumers and markets do not operate in isolation from changes in the broader economy or demographic landscape. Our research shows that there are five underlying socio-economic forces which generate and shape megatrends. how Do Companies Renova Te, innova Te anD ul Tima Tely DisRupT? 7 Euromonitor International Megatrends themselves help answer the question, “What is happening?” A megatrend is not a short-term fad, rather it is a trend with longevity, one which represents a fundamental shift in behaviour, defining consumer markets. Companies that undertake a thorough analysis of megatrendsevaluating which megatrends are the most likely to impact tomorrows consumer expectations for their industry and howare more likely to succeed in their renovation, innovation and disruption strategies. Euromonitor International compiled an authoritative list of 20 megatrends impacting consumers today and for years to come. Megatrend analysis helps businesses better anticipate market developments and lead change for their industries, answering the question, “What is next?” The broad, holistic view of megatrend analysis enables businesses to look outside their immediate category, industry and market to observe change directly or indirectly impacting their future. A longer-term view allows businesses to ensure sustained innovation success, shift from reactive to proactive strategies and provides an opportunity to disrupt before competitors. Disruption is itself indivisible from todays consumer megatrends. NwW Wk F D IT ITATIAGATD 8 how Do Companies Renova Te, innova Te anD ul Tima Tely DisRupT? Euromonitor International The approach: Evolving the business model and the offer Companies renovate, innovate or disrupt through a combination of factors. These factors can be divided into two pillars, which are not mutually exclusive: the business model and the offer. Our research shows that a renovator or innovator tends to combine fewer factors than a disruptor. On the other hand, a true disruptor tends to evolve elements from both the model and the offer. The model Technology enables a proliferation of alternative business models. These have the power to disrupt markets, with businesses able to reach new consumers in new ways and reinvent the category. Alternative business models enable a greater number of consumers to access the category and solves their problems through new routes to market. Direct-to-consumer (D2C): These brands cut out the middleman and interact directly with their consumers usually, although not exclusively, through an online presencebe that their own website or through a platform. Subscription / Membership: Consumers pay a recurring fee for receiving a product or service at set intervals and a set price, providing a stable revenue stream for the brand. On-demand (Access / Product as a service): A focus on providing what the product gives consumers rather than on the product itself. Instead of a car, on-demand brands sell mobility, instead of a washing machine, they sell clean clothes, instead of mattresses they sell better sleep. how Do Companies Renova Te, innova Te anD ul Tima Tely DisRupT? 9 Euromonit
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