Over 30 years ago, when Ralph Lauren introduced Polo Ralph Lauren, the fashion industry was far from welcoming. Critics from every corner questioned the brand’s approach. They wondered where the innovative designs were and how the brand justified its high prices without the fashion-forward creativity seen in other high-end labels. Yet, despite this harsh criticism, the same skeptics ended up purchasing Ralph Lauren’s clothes.
The brand’s success lay in its perceived lack of fashion, which turned out to be its greatest strength. Ralph Lauren strategically combined the best elements of two distinct market segments: high-end designer haute couture and the classic, affordable lines of brands like Burberry, Brooks Brothers, and Aquascutum.
Understanding Strategic Groups
In any industry, companies tend to cluster into strategic groups, which are collections of firms that pursue similar strategies. These groups are typically ranked based on price and performance. Higher prices generally correlate with higher performance on certain attributes. Most companies strive to improve their competitive stance within their strategic group. However, creating new market space often requires understanding what drives buyers to trade up or down between these groups.
Polo Ralph Lauren’s Unique Strategy
Ralph Lauren’s genius was in recognizing and capitalizing on the factors that motivated customers to move between high-end and classic clothing lines.
Customers didn’t necessarily trade up to haute couture for the latest, rapidly outdated fashions, nor did they relish paying exorbitant prices, sometimes reaching $500 for a T-shirt. Instead, they valued the emotional appeal of exclusive designer names, luxurious materials, and impeccable craftsmanship. Conversely, those opting for classic lines sought durable, high-quality garments that justified their cost.
Ralph Lauren found a middle ground, capturing the essence of both strategic groups. The brand’s designer name, elegant stores, and luxurious materials offered the high-end appeal of haute couture. Meanwhile, its updated classic style and more accessible pricing attracted customers from the classic lines.
By combining these appealing aspects and eliminating less desirable ones, Polo Ralph Lauren drew in customers from both segments and introduced new buyers to the market.
The Power of Combining Strategic Groups
Polo Ralph Lauren isn’t the only brand to successfully combine elements from different strategic groups. Toyota’s Lexus is a prime example in the luxury car market. Lexus offered the quality and prestige of high-end brands like Mercedes, BMW, and Jaguar but at prices closer to the lower-end Cadillac and Lincoln models. This strategic positioning attracted a wide range of customers looking for luxury without the exorbitant price tag.
Similarly, the Sony Walkman revolutionized the personal audio market by blending the superior sound quality and cool image of boom boxes with the affordability and portability of transistor radios. This innovation appealed to a new segment of customers, including joggers and commuters, and created a whole new market space.
Champion Enterprises: A Housing Industry Innovator
Michigan-based Champion Enterprises applied a similar strategy in the housing industry by bridging the gap between prefabricated housing and on-site developers. Prefabricated homes are typically cheaper and quicker to build but often suffer from a perception of low quality and standardization. On-site built homes offer variety and quality but are significantly more expensive and time-consuming to construct.
Champion Enterprises created a new market space by offering the best of both worlds. Their prefabricated homes were cost-effective and quick to build, benefiting from economies of scale. At the same time, they provided customizable options like fireplaces, skylights, and vaulted ceilings, which appealed to both middle-income and affluent buyers. By redefining prefabricated housing, Champion attracted a broader range of consumers who might otherwise rent or buy traditional homes.
