Is your business selling a niche, fad or mass market consumer discretionary product? The answer makes a big difference in how to best market and manage growth for new product launches. To explore these product distinctions – and see the consequences of making the wrong bet — consider what a well-known company making action video cameras and another selling home carbonated soft drink machines have in common.
Both GoPro and Sodastream priced their IPOs in the low-$20’s, both more than tripled their market value within 9 months, both ran eye-catching Super Bowl ads in 2014 when optimism ran high, but both are now trading at less than 20% of their ephemeral market peaks. It is tempting to add one other obvious similarity: both GoPro and Sodastream sell consumer discretionary products (CDPs), which intrinsically run the risk of falling out of favor. But such a broad-brush categorization is overly simplistic, and warrants further exploration. After all, few CDP companies experience such an exhilarating surge of popularity followed so soon by such a terrifying fall from grace. So it’s important to understand what makes GoPro and Sodastream different from most CDP companies, and what one can learn to avoid their roller coaster ride in the marketplace.
What are consumer discretionary products?
Consumer discretionary products cater to consumer “wants” rather than staple “needs.” Companies in this sector encompass retailers of non-essential goods and services, media and entertainment, consumer durables, high-end apparel and automobiles, which typically exhibit cyclical performance tied to the health of the broader national economy. After all, by their nature consumer discretionary purchases can be deferred or simply ignored when times get tough.
But in fact, CDP businesses have performed extremely well of late. For example, the largest CDP stock index fund in the U.S. doubled in value over the past 5 years (2011-2015), outpacing growth in the overall S&P 500 by more than 2X. So clearly, there have been other circumstances at play affecting the performance of GoPro and Sodastream.
A fad perhaps?
One popular view, embraced by short-sellers who have owned close to half of GoPro’s and Sodastream’s float, is that both companies sell fad products that were bound to run out of steam as consumers jumped ship in search of the ‘next new thing.’ It turns out that the shorts were right in betting against these stocks, but not because GoPro and Sodastream are fads.
Fad products stimulate an unexpected and viral explosion of consumer enthusiasm, leading to skyrocketing sales, followed by an abrupt and equally rapid decline in market interest. We’ve all seen (and probably owned) many fad products over the years. Perhaps the quintessential example was the Pet Rock – a product of mockingly limited value – which wound up selling 1.5 million units during a six-month silly season in 1975 before disappearing from sight. But there have been hundreds of other fad products over the years as well, some of which created immense wealth for their inventors. Take for example the now often forgotten, but once gotta-have fads for kids: Silly Bandz, Koosh Balls and Beanie Babies. Grownups too have had their flings with fad products such as Snuggies, Cronuts and Grumpy Cat merchandise.
The common characteristic underlying all fad products is that their basis of mass market appeal is almost strictly emotive (as opposed to functional), and therefore highly subject to the vicissitudes of consumer whim. What’s hip today is decidedly old-school tomorrow. So if you’re lucky enough to launch a successful fad product, enjoy the ride, because it likely won’t last.
How does this apply to GoPro and Sodastream? Neither of these company’s products exhibit the intrinsic attributes of a fad, because they actually deliver tangible functional value to an identifiable niche segment of consumers, rather than temporary emotive appeal to the mass market. In fact, Sodastream has been selling home carbonated drink machines for well over one-hundred years during which its underlying consumer value proposition has hardly fundamentally changed.
What did change was that for a brief period following its 2010 IPO, Sodastream misguidedly over-hyped its product and over-expanded its distribution, which created the conditions for the inevitable business crash that followed.
Here’s the scenario. Buoyed by access to public capital, Sodastream believed it could dramatically expand its US addressable market by touting its home carbonated soft drink machines as a virtuous alternative to the soda category giants. The marketing team ramped up its advertising and promotion spend, pitching Sodastream home brews as more convenient, sustainable, healthy, cost-effective and personalized than popping open a can of Coke or Pepsi. As sales began to pick up – albeit from a very low base — the company aggressively recruited new retail partners, expanding beyond its initially limited distribution through Williams-Sonoma, to Macy’s, Bed, Bath & Beyond, JCP, Target, Best Buy and Walmart. By 2013, Sodastream’s US retail footprint peaked at nearly 17,000 stores.
The company was betting heavily that it could increase its US household penetration at least tenfold from an installed base of around 1%. Sodastream reasoned that its expanded marketing and distribution initiatives could generate mass market appeal, mirroring household penetration rates across Europe that ran as high as 25%.
Super Bowl ads soon followed, but starting in 2014, Sodastream’s US sales virtually fell off a cliff. Why did Sodastream fail to fulfill the growth potential envisioned by its CEO? And more puzzlingly, why did Sodastream’s sales trend resemble a fad product rather than the more typical product life cycle where the transition from high growth to maturity to eventual decline often takes many years?
The simple answer is that Sodastream (and its retail partners) fundamentally misread the market. They dramatically expanded national distribution as if the challenge was to keep up with explosive mass-market growth, whereas actual consumer demand was limited to a relatively small environmentally-and health-conscious niche of the US market. Much of Sodastream’s reported sales growth in 2012 and 2013 merely reflected the sell-in to stock new retailers’ shelves. When consumer demand failed to materialize, many overstocked retailers simply stopped ordering any new product, which explains Sodastream’s precipitous revenue decline over the past two years.
In response, Sodastream has pushed reset on its misguided strategy, significantly scaling back its retail footprint and repositioning its consumer value proposition. As CEO Daniel Birnbaum explains:
We’ve completely shifted our strategy from a different way to do soda at home to Water Made Exciting! Americans want to drink more water; that’s what they really want to drink. It’s where the future of beverage is.
It’s in a space that doesn’t quite exist today. It’s very small… It’s the space between soda as we know it — sweet or chemical — and still water as we know it. There’s a space there in the middle.
One of the mistakes that we made… was that because we address a mass market category, I thought early on that I can go ahead and access the mass market out of the gate and that we can go very quickly to places like Sears, Kmart, Wal-Mart, but really that doesn’t work that way. When you’re building a disruptive category, OK, that has a very unique appeal and it requires a behavior change, one needs to take a more staged approach to the consumer and focus initially on opinion leaders, evangelists, people who are courageous and bold and willing to make decisions that entail some sort of an investment in time and habit change maybe and money and that’s a realization that we have now after we’re already in Wal-Mart.
In retrospect, Sodastream would have been far better served if it built its brand, customer base and distribution network at a more measured pace, consistent with the actual niche appeal of its customer value proposition, rather than chasing the misguided dream of mass-market demand.
The same lessons learned are now playing out at GoPro, which racked up impressive triple-digit annual growth rates prior to its late-June 2014 IPO. From its inception, GoPro enjoyed extraordinarily high global brand awareness, fueled by hundreds of millions of page views of its breathtaking action videos posted on YouTube and other social media channels. GoPro’s brand name quickly became synonymous with the category it created. As such, investors saw much cause for optimism, propelling GoPro’s stock to nearly $95 within 3 months of its IPO at $24 per share.
But alas, while a broad base of consumers undoubtedly enjoyed gawking at GoPro’s exhilarating online videos, far fewer had the lifestyle, budget or need to actually buy and use the pricey video cameras. In fact, GoPro’s sales growth rates had already been steeply declining prior to its IPO. 
Despite mounting evidence that GoPro was approaching the limits of its niche market appeal, the company continued to launch expensive new models and to rapidly expand its global distribution footprint. By the end of 2015, GoPro hit the wall, announcing that Q4 sales were expected to be nearly 50% below the same period in the prior year (in part reflecting the 50% price cuts it had been forced to make on its newest model), and that the company would be laying off 7% of its work force.
As with Sodastream, GoPro drunk its own Kool-Aid and tried to extend its brand, price realization and distribution far beyond the limits of its actual niche market appeal. The company now faces a costly retrenchment that will undoubtedly harm its brand image, retailer relations and investor confidence for years to come.
Companies launching a consumer discretionary product should honestly assess whether their new venture is realistically likely to appeal to the mass market or a niche segment. Sodastream and GoPro belatedly discovered that their product was solving a problem that most consumers simply didn’t have. Trying to promote an inherently niche consumer discretionary product to the mass market can be a painfully costly mistake.
 Fortune Magazine interview with CEO Daniel Birnbaum, February 6, 2015; https://www.youtube.com/watch?v=C8WYa1J2G7E
 “5 Things Sodastream’s Management Wants You to Know,” Investopedia, May 19, 2015; http://www.investopedia.com/stock-analysis/051915/5-things-sodastreams-management-wants-you-know-soda.aspx
 Richter, Jason, “GoPro Has Trouble Sustaining Its Growth,” Statista, January 14, 2016
 Cipriani, Jason, “GoPro’s Shares Suffer Huge Wipeout on Weak Sales, Layoffs,” Fortune Magazine, January 13, 2016
Companies who get scant attention in the marketplace despite strong products can probably relate to Rodney Dangerfield’s signature, if grammatically flawed lament: “I don’t get no respect.”
Unable to attract adequate consumer attention for their branded products, such companies often turn to negative advertising, mocking competitors’ products — or even worse — their customers. That is, they try to level the playing field by smacking down others rather than building themselves up.
Samsung provides a recent example of this approach.
Three months prior to the US launch of Apple’s iPhone 5 (September 21, 2012), Samsung had launched its own top-of-the line smartphone, the Galaxy S3, which included numerous features that the iPhone 5 would lack. Yet most of the press buzz and customer interest remained focused on the breathlessly anticipated iPhone 5 sales launch.
To dramatize this perceived injustice, Samsung ran this television spot in which a mob of faux sophisticate, Apple enthusiasts kill time while waiting for the Apple store opening by babbling platitudes about rumored iPhone 5 features. For example, one customer asks (with a look of bewildered awe): “I heard the connector is all digital! What does that even mean?”
This is mockery in high art form!
It’s hard to gauge the impact of an ad campaign, but Apple went on to an all-time smartphone sales record with the iPhone 5, so obviously Samsung didn’t deter too many Apple enthusiasts from buying the object of their desire. But Samsung Galaxy S3 sales were also reasonably strong and Samsung repeated the same advertising tactic in advance of Apple’s subsequent smartphone launch — the Apple 5s/5c — (preceded five months earlier by the Samsung Galaxy S4). Not to be outdone, Nokia responded to all the fuss with an ad promoting its Lumina smartphone, mocking customers for their fealty to either Apple or Samsung products.
So what are we to make of ads which mock competitors’ customers? Do they work? And even if so, are there downsides?
The short answer is, mockery is no substitute for the need to establish a company’s own brand persona, and mocking the very customers you hope to attract can be viewed as petulant and snarky, further eroding an already weak brand.
It should be crystal clear what types of situations motivate such tactics. Advertising mockery is utilized by companies with weak sales positions and/or brand images, who find themselves way behind market leaders with little perceived prospect of making inroads with traditional and more genteel advertising messages. So the most benign view of such tactics is that they attempt to shake prospective customers out of their comfort zones to think about a challenger company’s products in a new light. Fair enough.
The foundation of strong brands
But how did the targets of such advertising campaigns achieve their strong brand images in the first place?
Successful brands are built on three foundations:
The corollary of course is that in order to maintain a strong brand, companies need to meet or exceed established expectations with each new product release.
In this regard, Apple would be foolhardy to rush a new product to market just to incorporate a new feature or tool, without taking the time to refine the overall design, UI, build quality and performance to expected high standards. Apple has made and kept its brand promise of refined innovation to consumers over multiple generations of new products — the legacy of Steve Jobs.
Strong brands also convey mutual trust. Loyal customers trust their preferred company to consistently deliver appealing products, while the company trusts the that its targeted customers will remain loyal as long as their needs are well met. Are there technophiles or early adopters that may abandon a current product the instant a new feature is offered by a competitor? Sure, but these customers are inherently disloyal to any brand and not worthy of a company’s pursuit, particularly if it means breaking the brand promise to core customers. If assiduously maintained, the mutual trust between a customer and her preferred brand is difficult for competitors to dislodge.
Finally, strong brands provide comfort to consumers in reinforcing their symbolic identity, signaling membership in a desired social grouping. For example, it’s hard to imagine a bunch of hard-drinking, über football fan guys gathering around a big screen TV on a Sunday afternoon pounding down Amstel Light® beers with Kashi® Granola & Flax Seed Bars. Wrong symbolic identity for this gang!
Any advertisement that makes heavy use of lifestyle images– and there are tons — is making a play to reach customers through symbolic identity. Product placement on popular TV shows is another technique towards this end.
Luxury brands have long thrived on symbolic identity to exploit some consumers’ high willingness to pay for premium branded products that showcase their taste and wealth. Would a satisfied Luis Vuitton customer jump ship to a new brand which promised to deliver a stronger handbag zipper design? Unlikely.
Relatedly, strong brands evoke strong emotional associations and imagery. For example, when I asked my MBA students to explain why they preferred their favorite brands, the answers were often grounded in highly emotive reactions. Some students were “inspired” by what Dove or Nike products stood for. Another admired Luis Vuitton for its ability to “deliver a transporting emotional experience.” And yet another relished Dunkin’ Donuts for providing “the same kiddy excitement whenever I grab a cup!”
Thus strong brands impose high emotive switching costs. Challenger brands need to instill their own promise, sense of symbolic identity and mutual trust to dislodge brand leaders. At best, negative ads may be necessary, but they are definitely not sufficient for a weak challenger to build their own strong brand.
Case in point: Subaru’s brand rebirth
Subaru is a company on a roll. US sales in 2013 were well over 400,000 vehicles, setting a fifth straight annual sales record. Consumer Reports recently named Subaru the second best brand in the US (just behind Lexus), and the company confidently promoted its vehicles under the tag lines: “Confidence in Motion” and “Love: It’s What Make’s a Subaru a Subaru!”
But it wasn’t always this way. In 1991 Subaru of America was on the ropes, with an operating income margin of negative 25% on sales of ~$1 billion. Their cars lagged far behind Toyota and Honda in brand strength, sales and price realization. With bankruptcy looming, Subaru’s ad agency, Wieden & Kennedy — best known for its Nike account — recommended that Subaru get snarky in negative ads against its stronger rivals.
Subaru’s early-1990’s ad campaign openly mocked customers of its stronger rivals. One ad opened with the admonition: “A car is a car; it won’t make you handsomer or prettier and if it improves your standing with the neighbors, then you live amongst snobs.”
A second ad, mockingly asserted that “a luxury car says a lot about its owner,” followed by head shots of officious-looking customers intoning what their car means to them, e.g.:
What’s ironic is that Subaru actually did have a highly distinctive product line — or at least half of their cars fit this description. Specifically, Subaru was one of only two companies (Audi was the other) that sold all-wheel drive (AWD) cars at the time. These vehicles delivered superior traction and handling, particularly in adverse weather conditions, and served as a source of highly tangible competitive differentiation from mainstream market offerings. But rather than make its AWD product distinctiveness the centerpiece of its brand “promise,” Subaru heavily promoted its less expensive front-wheel drive models which competed head-to-head with Toyota and Honda at a considerable disadvantage. Subaru’s mocking negative ad campaign only made a bad situation worse.
How did Subaru go from the brink of bankruptcy to becoming the fastest growing car company in the US?
They completely redefined their brand around a highly differentiated, compelling consumer value proposition, and supported the repositioning with a credible, appealing marketing campaign that created a strong symbolic identity for a growing segment of customers. Here how:
Ironically, with their ill-considered mocking ad campaigns long behind them, Subaru returned to negative advertising in a 2011 with their humorous “Mediocrity” spots. In this campaign (thinly disguised as directed against Korean car company competition), ad spokespeople promote the faux benefits of a blandly styled, taupe-colored fictitious sedan called the “Mediocrity.” In one ad, a bland looking mother in a taupe blouse seated in front of her taupe Mediocrity says: “we’ve got two kids and a dog, so the last thing my family needs is more excitement when we drive!” In the same ad, a bland looking spokesman (in a taupe suit of course) pulls a sheet off a new taupe Mediocrity, intoning: “Introducing the 2011 Mediocrity; a car so basic, so understated, you’ll never have to worry about your blood circulating too quickly.”
The difference between Subaru’s negative ads of the early 1990’s and the reprise twenty years later is in tone and intent. The snarky and derisive “A Car is Just A Car” campaign attempted to tear down the legitimacy of stronger competitors at a time when Subaru didn’t think it had much positive to say about itself. In contrast, the “Mediocrity” campaign used light-hearted humor to reinforce Subaru’s brand distinctiveness against less differentiated competitors. The first ad campaign made you wince; the latter induced chuckles.
Even Apple has played the game
It’s interesting to note that one of the most extensive negative ad campaign ever was run by a company with perhaps the strongest brand image in the world. Between 2006 and 2009, Apple ran 66 TV spots under the banner “Get a Mac”. In these ads, a hip-looking young man assumes the role of a McIntosh computer in repartee with a pudgy, nerdy-looking guy symbolizing a Windows PC. With quips, barbs, sight gags, and one-liners, the PC is repeatedly portrayed as inferior to the Mac, but the PC-guy gets most of the joke lines, and viewers are led to feel more sympathy than pity for the PC guy. Apple used jocularity, not derision to make its points.
Throughout this period, Apple’s US personal computer market share remained mired around 7.5%.
So do negative ads which poke fun at competitors’ customers work?
Blowing Up Old Habits
Businesses are constantly seeking new products, services and business models to create widespread market appeal. But one of the mistakes innovators often make is underestimating the challenge of getting consumers to change their behavior and beliefs in order to realize the benefits of a promising new product.
Numerous tomes have been written on overcoming this challenge, perhaps most notably by VC Geoffrey Moore, who shares his wisdom on how to move beyond early adopters to reach the mass market in his 1991 classic, Crossing the Chasm. Spoiler alert: Moore notes that most new technology ventures fail to get across the abyss!
So how do companies that launch businesses requiring the marketplace to radically rethink their preconceived notions of product attributes get consumers to change their beliefs and behavior? For starters, successful products of this type — either high or low tech — must inherently have a killer value proposition — e.g. the original Apple McIntosh or Timex watch.
But the fact remains that lots of products with breakthrough potential fail to gain market acceptance.
One of the key lessons learned from a number of products that have crossed the chasm to widespread market appeal is the use of jarring advertising campaigns with explosive imagery to literally blow up consumers’ comfort with old habits and category norms.
Here are some of the best examples:
1. The Apple McIntosh Launch, 1984
In this iconic commercial, considered by many to be the best TV spot of all time, a renegade female warrior hurls a sledgehammer that explosively shatters an IMAX-size screen image of an Orwellian dictator, thinly disguised as the leader of the Microsoft evil empire. A picture is worth a thousand words, so if you haven’t seen this ad recently, check it out.
Adding to its mystique, this ad was broadcast only once, during the 1984 Super Bowl. YouTube views since measure in the millions.
Adding to its mystique, this ad was broadcast only once, during the 1984
Super Bowl. YouTube views since measure in the millions.
2. The Timex Watch Launch, 1951
In 1951, Timex introduced the world’s first low priced, highly reliable/rugged wristwatch. Prior to Timex’ launch, wristwatches came in only two “flavors”. Most common were high-priced timepieces utilizing precious jewels in the mechanical movements and casing. Watches of this type were sold exclusively through jewelry stores at prices in excess of $300. These luxury products defined the wristwatch category for many generations, and were often considered family heirlooms.
On the other end of the spectrum, watchmakers’ attempts to create lower priced alternatives with cheaper materials generally yielded poor quality, unreliable substitutes, largely shunned by consumers.
Timex developed a way to produce low-cost mechanical movements that used hard alloy metals in place of jewels. These new alloy bearings not only lowered the cost of goods, they made automated production easier, further lowering costs. The net result was an extremely accurate and rugged wristwatch sold by drugstores and mass market outlets at prices as low as $6.95!
The problem facing Timex was how overcome consumers’ preconceived notion that cheap watches connoted shoddy quality.
How did they do it? Once again by blowing up prevailing consumer views with a successful ad campaign under the banner “Takes A Lickin’ And Keeps On Tickin’ “. In each of these ads, a Timex watch was exposed to a draconian torture test (some on live television!) to demonstrate the accuracy and ruggedness of the product.
Take a look at this vintage clip for example, where a Timex is strapped to the tip of an arrow and shot by a bowman through a pane of glass (the shattering glass motif, redux), into a wall before dropping into a fish tank filled with water.
Needless to say, Timex watches always survived the lickin’ and kept on tickin’! By literallyshattering the prevailing consumer image of cheap watches , Timex emerged as the market leader, selling one out of every three watches in the US by the end of the 1950’s.
3. SodaStream Banned Super Bowl Ad, 2013
Fast forward to Super Bowl 47 in 2013. One of the game’s ad sponsors — SodaStream — made quite a splash literally and figuratively by having its ads banned by CBS. What was considered a banish-able offense by the game’s broadcaster? See for yourself.
SodaStream’s use of exploding glass — in this case bottles of Coke and Pepsi (themselves perennial heavy advertisers of the Super Bowl) — underscores Sodastream’s marketing challenge. Generations of consumers have been brought up consuming soft drinks from bottles whose signature design are an American icon. To communicate the benefits of a radically different approach to soft drink home consumption, SodaStream used — you guessed it — the exploding glass motif to blow up consumers’ prior behavior and beliefs.
Within a week of the Super Bowl, Sodastream’s banned ad had been seen by almost 5 million viewers on YouTube. And the company’s sales have been recently growing by ~50% per year, so obviously SodaStream’s message is getting through to the marketplace.
4. IKEA Unböring Ads, 2003
In 2003, IKEA unveiled its “Unböring” campaign aimed at shattering consumers’ preconceived unflattering notions about home furnishings. The prevailing consumer view was that furniture is boring and shopping is unpleasant — to be avoided at all costs. One market study at the time suggested that Americans tended to change spouses more often than dining room tables!
IKEA’s “Unböring” ads jarringly attacked its dreary category image, in one case calling customers attached to their current unstylish furnishings as “crazy”, and in another, having a woman commenting on her bored-to-death furniture and life with the epithet: “That Sucks!”
This latter ad uses more of an implosion than explosion to make the point, but the intent is the same as the other cases noted above: to shatter consumers’ preconceived category norms. Check out the IKEA’s Unböring” ad here.
The Bottom Line
The lesson learned is that to shake consumers out of old habits and/or preconceived unflattering category norms, companies need to be as innovative in their marketing approach as they are in new product design. No matter how compelling its advantages, if your new product requires consumers to radically rethink their behavior and marketplace beliefs , you will probably need to find ways to jar consumers out of their current mindsets.
You may want to look no further than the shattering glass motif to launch your next breakthrough product.
After 40 years in management consulting and venture capital, I joined the faculty of Columbia Business School, teaching courses in business strategy and corporate entrepreneurship
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