Differentiation or the 'first mover's' advantage

How can ecological differentiation strategies be an option in a market ruled by fierce price rivalry? Under such circumstances can eco-branding offer a competitive advantage? What do you need to resist against the increasing pressure from low-price chains? The case of Änglamark, a company affiliated to one of the three main food-retailing actors in Sweden, offers a good insight into that competitive market.

by Renato Orsato
Last Updated: 23 Jul 2013

Renato J. Orsato, senior research fellow at INSEAD Business in Society (IBiS), and Andrea Öström, project manager at Ekologiskt Marknadscentrum, in Malmö, Sweden, give a precise insight on eco-branding as well as the impact of environmental, health and ethical issues on consumers' behaviour.

Food retailing in Sweden is a competitive business and the market is dominated by ruthless competition. Even when higher returns resulting from differentiation strategies are possible, they tend to be very risky. It is in this context that a special type of differentiation strategy eco-branding has been developed, carrying the promise of generating competitive advantage.

Änglamark, owned by the Coop group, has built its reputation on the concept of sustainability. In the early 1990s, the company was the first organic alternative in all food, and often non-food, categories, covering 80% of products. This gave Coop a "first mover advantage", but not for very long.

Because some competitors complied with the minimum environmental requirements only, they were soon able to offer products at lower prices. In some cases, Änglamark had to withdrawn from a product category, because other leading brands had developed organic alternatives and taken over the segment.

Although environmental concerns, quality, health and nutrition are the most cited reasons for buying in Sweden, the purchasing frequency of such a food is subject to price comparison. Convenience, in the sense of close location and accessibility of the store, is another important factor, so in this respect, the profile of the retailer influences only marginally the purchasing behaviour of consumers, when offered a choice. Indeed, in our society convenience in has become such a crucial variable in food retailing, that differentiation strategy does not seem to pay off anymore.

The aim of Coop has always been to influence consumers to "move the hand" and, when faced with the choice of an ecological or a conventional alternative, pick the ecological one. Faced with heavy competition, Änglamark started combining in-store marketing, such as shelf indication, with aggressive marketing campaigns on TV. But none of this was enough: competitors kept threatening the company.

As measuring brand success relates to customer satisfaction, Coop repeatedly uses "attitude surveys" to measure Änglamark's success in order to adopt a new strategy, but information on consumer preferences is still weak to further develop the brand. Coop is at the crossroads: should the company kill a brand that took 15 years to build?

INSEAD 2006

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