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Published: June 1, 2004

 
 

The Innovator's Prescription: The Relevance of Brand Relevance

The Relevance Challenge
Becoming a trend responder is within the range of most companies’ abilities. L.L. Bean has evolved its brand from its original base of hunters, fishermen, and campers to become relevant for hikers, mountain bikers, cross-country skiers, and water-sports enthusiasts. Fuji Film was quick to becoming a leading digital-imaging brand with its Super CCD high-quality sensor for digital cameras. AOL may face challenges adapting its brand to the broadband era, but its even older corporate sibling, Time Warner, has managed to become a top “broad brand” with its Road Runner high-speed Internet access service.

But trend responsiveness carries its own set of risks. The drive to maintain relevance can prompt a company to chase too many subcategories, both real and imagined, resulting in a diffused, ineffective, and expensive strategy. Response must be guided by serious analyses. Is the opportunity large enough to justify? Is it defensively necessary? Is the trend real, or is it a fad — is it MP3, or merely eight-track? Does the firm have the ability to develop the skills needed to compete? Does it have the brand assets needed?

Companies need capabilities beyond the detection and evaluation of emerging subcategories. They require creative, powerful new offerings; entering an emerging category without them is more likely to waste resources than to create relevance. A brand strategy may require developing a new brand, an endorsed brand, or a subbrand to carry the flag. If the necessary brand assets are not available, they need to be built or acquired. Finally, staying relevant in dynamic environments can require an organization to become more outward looking, customer focused, flexible, and nimble — perhaps the toughest challenge of all.

Focus: Charles Schwab — Five Times a Trend Driver

Charles Schwab & Co. has been a “trend driver” — a firm that defines new product or service categories or subcategories — several times in its history. In the 1970s, Schwab was an early entrant in the discount broker category, which served to make full-service brokers less relevant to an important market segment. During the 1980s, Schwab expanded the boundaries of the discount broker category by repositioning itself as a discount broker that also had state-of-the-art computer systems, reliable execution and service, and exceptional reporting tools. In doing so, Schwab made many of its discount broker competitors — especially those competing more narrowly on price — less relevant.

In 1992, Schwab again changed the boundaries of the category by offering, in addition to its discount brokerage service, an innovative vehicle for buying and managing a large variety of mutual funds with no transaction fees, under the subbrand OneSource. For investors, this meant there was now little motivation to search multiple brokerage firms for mutual fund options and do cross-firm analysis. Data on mutual funds was all conveniently packaged by Schwab and supported by a comprehensive information system.

In 1997, Schwab, after several unsuccessful efforts at providing computer-based transaction options for customers, made a commitment to offer trading over the Internet, even though this meant risking much of the company’s commission income, which at the time came from telephone orders. As a result, the firm became one of the first brokerages to be defined as an “e-company” for securities trading. In the process, Schwab again helped define a new category in which it became a dominant brand.

After 2000, Schwab again moved to create a new category by becoming a full-service brokerage that nonetheless lacked the investment banking business that many megamerged financial-services companies had — a conflation of interests giving rise to perceived, and sometimes real, conflicts at traditional brokers. The company’s aim was to offer advice that appeared objective, uncomplicated, and, importantly, not driven by commissions. The effort follows from the Schwab vision “to provide our clients with the most useful and ethical financial services in the world.” The new position was supported with a host of innovative branded products and services for individual and institutional investors, such as Schwab Advisor Network (a service that refers clients to fee-based independent advisors), Schwab Equity Ratings (an objective rating system for more than 3,000 publicly traded stocks), and Schwab Personal Choice (which matches resources, advice, and support to the needs, style, and goals of the investor).

The Schwab experience suggests five lessons.

1. Instead of resulting from a distinct decision, business strategy often evolves. Schwab’s strategic position expanded over time and was not preplanned or deliberately executed. Each step was part of a process that only sometimes resulted in a watershed decision.

2. Creating a product category does not necessarily make the existing category irrelevant. Schwab’s strategic position as a discount broker was not eliminated or even scaled back when it stepped into new categories, but rather was augmented so the brand became richer and deeper rather than different. The firm remained true to its heritage as it expanded the scope of its brand.

3. A firm that attempts to create a new product category or subcategory without the support of a subbrand has a difficult branding task because the scope of the master brand is likely to be stretched. Subbrands such as OneSource and Schwab Equity Ratings provided a way for the Schwab brand to go to new places without damaging its original meaning.

4. A first-mover advantage will be short lived if it is not supported by resources and innovation, or actively managed over time. Schwab OneSource was a moving target for competitors. Mutual funds were added periodically. A method to screen funds was created. The Schwab Select List, a concise roster of the prescreened mutual fund picks by category, provided the ultimate aid.

5. Strength also creates vulnerability. As a firm’s position becomes stronger, it becomes harder to adapt to changing markets. At each evolution of its brand, Schwab has had to be mindful of its past. The evolution to a full-service firm may be the hardest of all because of Schwab’s legacy as a limited-service firm.

— D.A.A.

 
 
 
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Resources

  1. John Gorham, “Charles Schwab, Version 4.0,” Forbes, January 8, 2001
  2. David A. Aaker and Erich Joachimsthaler, Brand Leadership: Building Assets in an Information Economy (Free Press, 2000)
  3. Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Harvard Business School Press, 1997)