What is a challenger brand?

A challenger brand is defined, primarily, by a mindset – it has business ambitions bigger than its conventional resources, and is prepared to do something bold, usually against the existing conventions or codes of the category, to break through.

While the most common narrative associated with the challenger brand is that of the underdog, this is no longer the most frequent form of challenger; challenger brands today are more often focused on what they are challenging (about the category drivers, or the customer experience, for instance), than who they are challenging.

Eating the Big Fish: How challenger brands can compete against brand leaders. By Adam Morgan.

Think of Warby Parker challenging overpriced designer eyewear, for example, or Ella’s Kitchen in the UK challenging childhood obesity. Being a challenger brand today is less about business enmity, and more about an often mission-driven desire to progress the category in some way in the customer’s favour.

There are considerable strategic and cultural advantages in being a challenger brand. We don't have to be all things to all people; we can choose a place to stand and something to believe in; we can focus on brilliantly delivering that and that alone — even if, while some people love us, others sail right on by.

The three criteria for a challenger brand?

There are three criteria for a challenger brand, outlined in ‘Eating the Big Fish’ by Adam Morgan.

1. State of market

Challengers are by definition not the number one brands, nor are they niche.

2. State of mind

This is what really characterizes challenger brands - being number two (or number six or eighteen) is at some level simply an accident of birth. Challenger brands have a mindset that encompass two key differentiators:

Ambitions that exceed their conventional marketing resources.
A preparedness to accept the marketing implications of the gap between their ambition and their marketing resource.

The latter is an important distinction — ambition in a marketing plan is not enough; being smaller and hopeful, without a preparedness to behave in whatever way is necessary to fulfill that ambition will lead to nothing but being small and disappointed.

3. Rate of success

Challenger brands enjoy significant and sustained growth through their marketing actions. This is not to say that they are still and always growing, but that there is a period of their life from which to learn from.

Conversely, there are some leaders who still profess to deliberately adopt a ‘challenger mindset’, even after becoming market leaders.

Although in some sense number one in their category, they feel that their category – and the competition – is potentially changing so quickly that the only way to maintain growth and a strong customer relationship is to be the first to continue to challenge the status quo, even if it means disrupting some of their own best practices, products or services in doing so.

The antithesis of the challenger brand is the establishment brand. The most dominant example of this is the brand leader, but other brands — even long-standing number two brands — can fall into this category if they lack either the ambition or acceptance of the marketing implications.

Misconceptions about challenger brands

What it means to be a challenger can often get reduced to a simplistic 'David vs Goliath' cliche. In reality, it is a much more powerful and nuanced series of strategies than that. A shallow understanding of what it means to be a challenger helps no one. If you need to be that challenger, it will prevent you unlocking your real potential. And if you're a market leader. It will stop you seeing the challenger that is about to eat your lunch.

Here are six common misconceptions:

1. “Challengers are always startups”

Businesses can successfully re-launch themselves as challengers, regardless of age. The key is breaking free from the habits and baggage that time wields, and instead looking, and continuing to look, at the category with fresh eyes. Oatly, only perhaps a recognisable name since re-launching in 2014, was founded in 1985. Ikea, which continues to challenge itself, as well as advertising norms, was founded in 1943. And Tillamook, the dairy cooperative prodding Big Food in the gut with 'Dairy Done Right', was founded in 1909.

2. “Challengers are always small, ‘underdog’ brands”

Vice, Warby Parker and Airbnb are all large, successful and global challengers. They have succeeded, not by challenging a direct competitor, but by challenging a broader convention or dimension of their category, enabling them to completely redefine their industry, and how it's experienced. Think of Airbnb's proposition, most recently brought to life as ‘Belong Anywhere’. It's a belief that lies at the heart of their business and origin story and challenges the very notion of world travellers as simply ‘tourists’.

3. “Challengers are primarily youth-focused brands, focused on creating an ‘edgy’, attitudinal difference”

While there are some who are indeed youth-focused (COPA90 or BrewDog, for example), others such as Sipsmith in the world of spirits or Charles Schwab in the world of finance, have succeeded by capturing a very different demographic, through their approach and tone of voice. Challengers that do offer edgy, attitudinal differences are characterised as 'Irreverent Maverick' or 'Feisty Underdog' challengers in the book 'Overthrow'.

4. Challengers are NOT broadly the same as disruptors – they are just different words for the same thing

True Disruptors – to take a simplified view of Clayton Christensen's definition of the concept – are companies that create products or services historically only available to a few, and make them widely accessible. It's an innovation that swiftly creates a significant change in both buying preference and loyalty. Challengers may operate in categories where such product innovations are near impossible to create (Hendricks in gin, for example), yet still, need to change the criteria for choice in their favour. Challengers must lead then as much with why they are doing what they are doing – the ethos and culture behind their new offer – as with the nature of the difference itself.

5. “Challengers all have founders – so you can’t really be a challenger within a corporate environment”

Whilst many do start their lives as independent companies with charismatic owner-drivers pushing them forward, there are many who don't. PlayStation or Lexus in the US, for example, are large organisations, which with closely aligned teams, and a galvanising purpose, have redefined their categories. Leading a challenger brand is most significantly about the people, and a collective will for change – not necessarily about having a founder.

6. “Being a challenger brand is simply a ‘business stage’ one passes through – if one is successful, the right thing to do is then to become a ‘leader brand’”

Innocent Drinks is now the UK's leading brand in chilled juice, making £304m sales in 2016, which puts it ahead of Tropicana. It’s come a long way from three friends selling fruit smoothies from a stall at a music festival in London in 1998, or from their first TV ad, filmed in the local park in 2006. To stay number one, however, they continue to think and act like a challenger. Asking questions of themselves, before a competitor asks questions of them. “We've never lost that small guy, challenger mentality", says Douglas Lamont, the Innocent CEO, "and part of my job is to make sure we never do”.

A new wave of challenger brands

10 types of challenger brand strategy.

Twenty years after the concept of the ‘challenger brand’ was coined, a new wave of challengers has been changing the way the categories around us think and behave. Financed by a new type of investor, harnessing emerging structural changes and new ways to build relationships with their consumers, they have generated enormous energy and excitement in the marketing and business community.

But challenger behaviour is not confined to the new or the small. Brands of all sizes – whatever their category, competition, heritage or personality – can benefit from adopting a challenger mindset to drive more ambitious growth and make the impact they desire.

Overthrow II: 10 strategies from the new wave of challengers is a book by PHD and eatbigfish which explores the ten different challenger strategies used most powerfully today.