Last week in my Marketing Strategy course we discussed new business strategy. There are different strategies for entering an established category. Perhaps the most difficult one is the attack the core. This approach rarely works but that doesn’t stop people from giving it a try, as Goldman Sachs reminded us last week.
An attack the core strategy is simple. A company develops a product that is comparable to existing offerings and then launches it with significant support. The new product might be slightly better than existing products, or modestly different.
The outlook? Not good.
There are all sorts of problems. One issue is that gaining trial will be expensive. Why will people try the new offering? In many cases it will require massive spending; if you pay people enough money, they will do almost anything.
Another problem is that the new entrant will likely end up with a small market share. The order of entry model projects that each successive entrant into a category is likely to get a smaller portion of the market. The late new entrant ends up with a small share, few resources and no significant differentiation. This is not a formula for long-term success.
One of the biggest problems is that the existing players will likely defend. It is a direct attack, so hard to miss, and a clear threat. The established companies will almost always mount a notable and effective defensive effort.
The most interesting question might be this: why do people do this at all? The strategy isn’t likely to work for obvious reasons. Why embark on a doomed initiative?
Attack the core is a flawed but tempting strategy. One nice thing about the approach is that it is easy to implement. You just copy the existing offerings.
The opportunity is clear: the market exists and margins are good. There is money to be had.
All you need is a bit of confidence and optimism. We can do that!
It is a dangerous combination.
Sometimes people use creative language to obscure an attack the core strategy. As soon as you call something a brand extension, for example, it seems more appealing and reasonable. But a brand extension is often just an attack the core strategy with a different name, with similar odds of success.
The business leaders at Goldman Sachs are smart, driven, and talented. And yet Goldman Sachs embarked on an attack the core strategy with its entry into retail banking.
The firm launched a very respectable savings account under the brand of Marcus from Goldman Sachs. Then Goldman partnered with Apple and GM to get into credit cards. The company acquired Green Sky to build a presence in retail lending. There were plans to launch a checking account, too.
How did this all work out? It was a complete fiasco. The company has lost more than $3 billion on the effort since 2020.
Last week Goldman CEO David Solomon said the company was considering selling off much of its consumer division. He explained, “It became clear that we lacked certain competitive advantages and that we did too much too quickly which affected our execution.
Is this a surprising outcome? Not at all. Attack the core strategies usually don’t work.
Still, this didn’t stop Goldman from giving it a shot and losing billions in the process.
What do we take from all this?
Be careful about attack the core strategies. They are tempting. The financials can look good. It is easy to generate enthusiasm.
Optimism is a good thing, of course, but it shouldn’t obscure the strategy reality. Sometimes the smartest strategy is to say no.