The Double-Edged Sword: The Pros and Cons of Becoming Your Own Competitor

There's no doubt it is tough out there for ecommerce businesses. Between costs increasing and customers having less disposable income, it's hard to make a buck, let alone grow at the rate business owners want.

Some savvy business owners sometimes sit back and wonder what they could do to grow their share of the pie, and also crowd out their competitors. One such strategy to boost sales and market share involves creating a second brand, essentially becoming your own competitor.

While this approach can yield significant benefits, it's crucial to carefully weigh the potential drawbacks before diving in.

The Allure of a Second Brand

The appeal of launching a second brand is undeniable. It allows you to tap into new market segments, diversify your revenue streams, and test different marketing approaches. By creating a separate brand identity and offering distinct product lines or services, you can attract a wider audience and potentially increase your overall customer base.

Furthermore, a second brand can provide a valuable testing ground for new ideas and strategies. You can experiment with different pricing models, marketing campaigns, and customer experiences without risking the reputation of your primary brand. This flexibility can lead to valuable insights that can be applied to both brands, driving growth and innovation.

The Risks of Becoming Your Own Worst Enemy

While the potential benefits of a second brand are enticing, it's important to recognise the inherent risks. One of the most significant challenges is maintaining consistent pricing strategies across both brands. If customers discover that they can purchase the same products or services at a lower price on your second brand, it can erode the perceived value of your primary brand.

Moreover, launching a price-focused online store can inadvertently trigger a price war with other competitors. As they strive to match or undercut your lower prices, it can negatively impact the profitability of both your brands. To mitigate this risk, it's essential to carefully consider your pricing strategy and ensure that your second brand offers unique value propositions that justify any price differences.

The Hidden and Not So Hidden Costs of a Second Brand

Beyond the financial implications, creating and maintaining a second brand requires significant time, effort, and resources. The operational overhead can be substantial, including separate branding, marketing, customer service, and inventory management. Additionally, you'll need to invest in building brand awareness and loyalty for your new brand, which can be a costly and time-consuming process.

• Initial Setup Costs:
• Domain registration and hosting fees for the new website.
• Costs associated with designing and developing the website, including themes, plugins, and custom development.
• Potential legal fees for trademark registration and business setup.
• Ongoing Operational Costs:
• Platform Fees: Subscription fees for e-commerce platforms like Shopify, WooCommerce, or BigCommerce.
• Marketing Automation: Costs for tools like Klaviyo, Mailchimp, or HubSpot to manage email marketing and customer journeys.
• Social Media Advertising: Budget for paid advertising on platforms like Facebook, Instagram, and TikTok.
• Search Engine Optimization (SEO): Costs for SEO tools, agency fees, or in-house expertise to improve search engine rankings.
• Payment Processing Fees: Transaction fees charged by payment gateways like PayPal or Stripe.
• Inventory Management: Costs for storage, shipping, and fulfillment, especially if you're stocking separate inventory for each brand.
• Customer Support: Increased costs for customer support, including hiring additional staff or outsourcing to handle inquiries and issues related to the second brand.

Human Resource Considerations:

• Additional Staff: Depending on the scale of your second brand, you may need to hire additional staff to manage various aspects of the business, such as marketing, customer service, and operations.
• Training and Development: Investing time and resources to train your team on the nuances of the second brand, its target audience, and its unique selling propositions.

Strategic Challenges:

• Brand Consistency: Ensuring consistent branding and messaging across both brands can be challenging, especially if you have different target audiences and product offerings.
• Cannibalization: Risk of cannibalizing sales from your primary brand, particularly if the second brand offers similar products or services.
• Customer Confusion: Potential for customer confusion if the two brands are too similar or if there's overlap in product offerings.

By carefully considering these hidden costs, you can make informed decisions about whether a second brand is the right strategy for your business. It's essential to create a detailed financial model to assess the long-term viability of the venture and allocate sufficient resources to ensure its success.

Identifying and Targeting a Distinct Customer Base

Before embarking on a multi-brand strategy, it's crucial to conduct thorough market research to identify a distinct customer segment that your second brand can effectively target.

Key Considerations:

1. Market Segmentation:
• Demographic Segmentation: Consider factors like age, gender, income, and location.
• Psychographic Segmentation: Explore factors like lifestyle, interests, values, and attitudes.
• Behavioural Segmentation: Analyse factors like purchasing behaviour, brand loyalty, and usage rate.
2. Customer Needs and Preferences:
• Unique Value Proposition: Clearly define what sets your second brand apart from your primary brand.
• Price Sensitivity: Determine the price sensitivity of your target market and adjust your pricing strategy accordingly.
• Product or Service Preferences: Identify the specific products or services that your target market is seeking.
3. Competitive Analysis:
• Market Size: Assess the overall market size and potential market share for your second brand.
• Competitive Landscape: Identify your competitors and analyse their strengths, weaknesses, opportunities, and threats.
• Market Saturation: Determine the level of competition in your target market and whether there's room for a new player.

Avoiding Cannibalisation:

• Distinct Brand Identity: Develop a strong, unique brand identity for your second brand to differentiate it from your primary brand.
• Targeted Marketing: Implement targeted marketing campaigns to reach your ideal customer segment.
• Product Differentiation: Offer products or services that are significantly different from your primary brand.
• Pricing Strategy: Set competitive prices that align with your target market's perceived value.

By carefully considering these factors, you can minimize the risk of cannibalizing your existing customer base and maximize the potential for growth and profitability.

The Formula for Success

To successfully execute a multi-brand strategy, businesses must carefully consider their market position and competitive landscape. Companies with strong brand equity and market dominance may be better positioned to launch successful secondary brands.

For example, airlines, supermarkets, banks and pharmaceutical groups such as Amcal, Chemist Warehouse and others, often create more affordable diffusion lines to attract a wider audience without compromising their core brand identity.

Ultimately, the decision to launch a second brand should be based on a thorough analysis of your business goals, target market, and competitive environment. By carefully weighing the pros and cons and developing a well-defined strategy, you can increase your chances of success and avoid becoming your own worst enemy.