By Jesper Edman

As any first-year MBA will tell you, differentiation is the key to value-creation and sustained competitive advantage. Without some source of differentiation — either in terms of price, branding or quality — firms and their product offerings will find it difficult, if not impossible to stand out in today’s increasingly competitive market. But what can you do as a company when product quality is not enough, your firm has limited brand awareness and the industry is plagued by over-competition, deflation and consumer indifference?

Such was the situation Shigeharu Asagiri faced when he was appointed CEO of Koedo, a small Japanese microbrewery located just north of Tokyo, in 2003. Asagiri’s solution was repositioning: repositioning of his products, his firm and his entire industry. By working on three different levels, the young CEO not only ensured the survival of his brewery. In the process he is also leading the redefinition of Japan’s long-fermenting microbrewery industry.


Rise and fall of small breweries

The modern Japanese microbrewery has been in existence since 1994 when the government decided to deregulate brewing in the hopes of spurring entrepreneurship and job creation in rural regions. Capitalizing on the regional emphasis, hundreds of breweries soon sprung up in villages and small towns across Japan, each with an emphasis on producing unique beers based on local products.

Initially, the combined focus on uniqueness and local products led to some interesting innovations (including milk beer, Wasabi Dry, Apple Ale, Cherry Lager, Salmon Draft and Scallop Beer) and a surge in tourism. Over time, however, intense competition from over 300 breweries, as well as significant variations in quality, began to erode interest and regional beers soon came to be seen as cheap souvenirs, as opposed to high-quality food products.

By the late 1990s, the faddish fascination with regional beers had worn off as customers found it increasingly difficult to differentiate products and breweries from each other. Koedo, like many other breweries, had sought to offset declining interest by differentiating into multiple segments, with no clear strategy. As the popularity of the industry declined, it found itself over-stretched.

Solution

For Asagiri, the key to resolving these difficulties lay in differentiating his products from the standard assumptions of the regional beer industry. He knew that his beers were good. The challenge was that consumers lacked the knowledge and understanding of this quality, and hence the willingness to pay a premium price. To overcome these challenges, Asagiri employed a repositioning strategy on three different levels.

On the level of the individual product, he streamlined and focused the brewery’s offerings. Abandoning products like green-tea beer and low-priced brews, he focused on a product line consisting of high-quality German-style brews, complemented with the company’s signature sweet potato beer, Benihana. The product labels and bottles were given a completely new color-coded look, courtesy of a professional designer from Kyoto, to increase visibility and interest.

Asagiri also made significant changes to the positioning of the company itself. In an effort to distance the firm from the tourist-oriented regional beer industry he changed the name from Koedo (using Japanese characters) to COEDO, and also switched logos, de-emphasizing local regional aspects.

To further emphasize the difference with the tourist market he actively sought to build a reputation outside Japan, both through exports and by enrolling his beers in international tasting competitions. This strategy paid off as the sweet potato beer Benihana was awarded the Crystal Taste Award, the International Taste and Institute’s highest honor, in 2009. A number of COEDO’s products subsequently won awards overseas, further differentiating his firm from other local breweries.

Last but not least, Asagiri also sought to position the entire industry. Recognizing the problematic image of regional beers as tourist novelties, Asagiri began to emphasize a completely new concept: craft beers. Craft beers, he explained, are based on the notion of craftsmanship, skill and love for the product. Unlike regional beers, where they come from doesn’t matter — what matters is their quality. Asagiri actively began to push the concept of craft-beer among his staff and also held presentations for customers, including distributors, restaurateurs and bar owners, to educate them about the finer aspects of beer.

“In Japan,” Asagiri explained, “Beer has become almost a commodity, something you order automatically at restaurants without thinking, and then simply drunk cold and fast. No one has really cared about the specific qualities of different beers. I want customers to appreciate beer, like wine. Beer is beautiful, beer is wonderful, and not only COEDO, but all good beer.”

Today the Japanese craft beer industry is staging a re-emergence, and there is little doubt that COEDO has played an important part in this movement. By working on positioning strategies on not only the product and firm but also industry levels, COEDO provides a telling example of how firms in even the most dire of industries can actively create strategic positions and competitive advantages that benefit not only themselves, but the strength of their entire market.

Jesper Edman is an assistant professor of the Hitotsubashi University’s Graduate School of Internatioanl Corporate Strategy.