Lululemon, a relatively niche brand that targets young yoga lovers, now holds the fifth-largest market share in the athletic apparel industry, behind global juggernauts Nike, Adidas, Puma, and Under Armour. How did that come to pass?
Part of the answer lies with the precise position of the brand – that is, the way in which consumers perceive the brand, their overall view of it. How a firm chooses to position itself in the market, after all, significantly affects its competitiveness and performance.
And yet, “despite the importance and practical relevance of brand positioning, the issue has rarely been the subject of rigorous analysis,” writes Jiwoong Shin, professor of marketing at the Yale School of Management, in a recent working paper. “What exactly is brand positioning? Why is it so valuable? How does it affect consumers’ choices?”
With coauthors T. Tony Ke of The Chinese University of Hong Kong and Jungju Yu of Korea’s KAIST College of Business, Shin’s new research targets one facet of these open questions by investigating when it makes sense to cultivate a niche brand and when it makes sense to target mainstream consumers.
In short, they find that niche brands tend to be more valuable in markets with an average number of shoppers – neither a dearth nor a surplus – and in which there is some friction or cost associated with finding a product, like traveling to the store.
At the heart of this work is a model that captures consumer conceptions of a brand as “the average location of all products under the brand;” that is, the common characteristics of all products under the same brand name. So for a relatively niche brand like lululemon, though styles may vary from season to season, all of its products skew toward a form of yoga apparel; this information is embedded within the brand. For a more encompassing company, like Nike, products run the gamut from elite sportswear to sandals to commemorative jerseys. This range of products averages, in consumer minds, to a more mainstream brand committed to athletics.
“A key feature of our model,” Shin and his colleagues write, “is that consumers form their perception of a brand’s position from interactions with different products under the same brand instead of any single product of the firm.” (See the paper for a full theoretical explanation of the model.)
From this foundation, the researchers illuminate two key insights. First, mainstream brand positioning provides clear benefits to companies, as it allows access to more consumers in the mainstream market. However, firms often find themselves incrementally broadening their appeal to draw the attention of more consumers beyond the mainstream market. As firms carry products of various designs to cater to a growing range of consumers, the overarching brand becomes weaker, more diluted, in consumers’ minds. The researchers find that companies can use niche brand positioning to discourage a natural slide toward brand dilution. Adhering to a niche brand position can help companies overcome the temptation to be too many things to too many consumers.
“This tradeoff between breadth of appeal and clarity of the information communicated is central to brand positioning,” Shin and his colleagues write. Maintaining the clarity obtained through niche branding can be a key device to engage consumers with the brand. Without that, consumers don’t necessarily infer what the brand is about, and they may be less likely to expend time and effort shopping that brand.
Second, niche branding has the most potential to be profitable when there are neither too many nor too few consumers, and when shopping for a product entails a cost. When there are too few consumers in the market, the temptation to broaden the range of a brand’s product offerings is very weak, so niche branding is not needed to discourage it. When there are too many consumers, the extent of the temptation is significant, but broadening the range of products is also optimal, so companies can give into the temptation. In the intermediate case, though, the extent of temptation and the value of constraining the temptation through niche branding are both high.
In the end, Shin and his colleagues provide first steps toward understanding the critical business of branding. “A brand’s positioning is one of a firm’s most valuable assets,” they write. “Our results shed light on the coexistence of different brand positioning and provide practical guidance for firms to form an optimal brand positioning strategy.”