CREATE NEW MARKET CATEGORY
Pursuing incremental innovation is a tough road to travel. Various estimates put the success rate of each new product or upgrade at only 10%-20%, resulting in wasted investment, unhappy customers and damaged marketing careers. However, there is a superior alternative for exploiting innovation. Create a new category. This proven product innovation approach combines cutting-edge product and business model innovation to create an entirely new offering, which by itself establishes a new category. There have been many successful examples of brands that have created new categories like Vitamin Water in bottled water marketplace, minivans by Chrysler, Greek-style yogurt by Chobani and the iTunes music store by Apple. According to research published in the Harvard Business Review, brands that create new categories generate much higher financial returns than incremental innovators. Specifically, 13 of the Fortune’s 100 fastest-growing U.S. companies between 2009 and 2011 were considered category creators. They alone accounted for 53% of incremental revenue growth and 74% of incremental market capitalization growth of the top 100 over those three years
Category creators have to do a few things right to produce their industry-leading returns. First and foremost, they appeal to consumers by:
Providing a unique offering that delivers compelling packaging, convenience, functionality or experiential benefits. Xbox, for example, enabled friends to play each other over the Internet.
Creating a new pricing model that is attractive to consumers. For example, iTunes allowed consumers to buy only what they want (i.e. individual songs) at a low price.
Re-engineering how a product is delivered and distributed. Consider how Netflix revolutionized the delivery of movies by leveraging internet-based, home delivery.
As a marketer, you have the ability to marshal resources and create powerful marketing campaigns. Before you do that, consider if it makes more sense to re-position or create a new category for your brand.
KEY ELEMENTS OF CATEGORY BUILDING
For a marketer, there are few professional experiences as exhilarating and inspiring as creating a new market category. There is no greater satisfaction than when customers tell you they cannot imagine doing their jobs without your product or that it has made their lives more enjoyable. Not to get too maudlin here, some products might not impact a customer’s life that dramatically but it is still a marketing rush to change a marketplace. Beyond being personally rewarding, creating a new category is typically financially rewarding, too, with greater growth and higher valuations for the company or brand.
All this marketing glory comes with both challenges and frustrations, sometimes even in the same day. It’s not an easy endeavor but with sound brand strategy, fortitude and perseverance you can make your vision of creating a new category a reality. Having helped create several categories in my marketing career, I’ve learned a few lessons that can be applied across all industries.
Start with the why. Simon Sinek’s book “Start With the Why” provides valuable insight on how great leaders inspire action. When it comes to creating a new category, it is all about the “why”. People don’t buy “what” you do or “how” you do it, they buy what they “feel” (even though product managers may beg to differ). It’s difficult to create a category without inspiring others and getting them to realize they had a problem they didn’t know existed or that fundamentally changes how they interact with the world. No one asked for Vitamin Water.
Build the right team. Honestly, this sounds simple but I have seen other seemingly great marketing and product teams fail, not because of their talent, but because the team was not aligned correctly and did not have the buy in of top leadership. Another thing you need that’s not easily examined is guts. It takes a certain amount of risk to succeed and some teams just can’t seem to take the all-out risk. You also have to have a team that is not full of themselves and has a high degree of customer empathy. You can’t create a team that just wants to “sell.” They have to create the product or service with such a strong customer benefit in mind that the customer wants to buy.
Bigger is not always better. Even with a huge marketing budget, it’s tough to create a new category. However, it certainly can be done and doesn’t always need to break the bank. In fact, a modest budget is often a driving force in being resourceful, creative and thinking about things differently. How do you find and leverage your most passionate enthusiasts? How do you make key influencers gush about you? How do you leverage social media to create unbridled demand for your product or service? When our team launched Amazon, we only focused on three key markets and targeted less than 1.4 million customers who we felt were critical influencers. We converted them and their word of mouth grew the online bookstore category.
Competition is good. It may sound counterintuitive, but when you are creating a new category, competition helps legitimize a market and increases the size of the overall category pie. This is especially true for startups. You will actually benefit if others are spending their marketing dollars to help popularize the value of what you are doing. The key, however, is to preserve your first “mover” advantage, being first to market, and continue to find ways to elevate yourself above the crowd, while maintaining both a product and thought leader position. Never for one minute believe you don’t have any competition. Perhaps nobody else in the market is doing exactly what you are doing, but your customers always have substitutes such as doing nothing or continuing with the status quo.
Stay focused on your key marketing message. As tempting as it is when you have a team of passionate, creative people who want to jazz up your marketing messaging, success will be determined in the early days by consistently describing what you do and continuing to repeat the same message over and over and over until it clicks with your audience. Some companies focus on getting a product to market and then marketing it. But it is important to prime the market and spend significant time early on crafting your message, testing it in the market and then repeating it often. We launched Amazon and positioned them with the tagline “Earth’s Biggest Bookstore.” We utilized simple strip ads that humorously highlighted the breadth of the Amazon book library and access to over a million titles. One example was, “691 books on golf, 820 books on divorce. Amazon, Earth’s Biggest Bookstore.” We showcased over 40 different book categories in that campaign for more than three years. I cannot tell how many times the creatives or the marketing team wanted to move to a new campaign. I just said no.
Building a new market category is not for everyone. It takes vision, stamina and lots of guts. But when you get it right, there is amazing satisfaction for you, your company and the market that benefits from the new category created. Now that you better understand market categories let’s turn to product ladders.
CONSUMER LADDERS: BASED ON BENEFITS
If you can simply grasp that consumers are in charge when it comes to purchasing a product or service, then as a marketer you have an advantage. Next, you need to understand that consumers organize or “categorize” almost all products or services into neat little ladders in their mind. Earlier in the book, I used the example of thinking of a car rental company and naming the top three brands that came into your mind. We can usually do three brands easily for each ladder: Enterprise, Hertz, Budget. Then for most people it kind of falls off rapidly. We can’t as easily name the next three and so on. Most important, when you ask people to name the top three of any product or service, the order they give them to you is usually their own order of brand preference. So, if your brand is not in the top three, you are an also-ran.
One of the key things to understand about consumer product ladders is that consumers have a hierarchy of how they construct their ladder based on benefits. If you are even going to attempt to get onto the top rung on a consumer’s ladder, understand and do the following:
Define your target customers and understand their needs; listen to their “wants” but understand their needs. I want a Ferrari, but I need a cool car.
Identify your unique brand feature, which is uniquely yours and what does it do that has a strong benefit to the customer?
Deliver your message so that it is rationally understood by the customer; the consumer has to understand “what do I get?”
If your product or service is powerful and unique to the customer, and they rationally understand the benefit, then they will hopefully move to a more emotional benefit of “feeling” positive. This is the holy grail of branding.
As marketers, it’s important to understand how a potential customer thinks, rationalizes and then feels about a product or service. Because they will store the top brands on neat little ladders in their minds. And if you’re not on the top rung or even on the ladder, you have a problem.
UNDERSTANDING THE RULES OF PRODUCT LADDERS
While being first in the mind of your customer should be your primary objective, the battle is not lost if you fail in this endeavor. All products are not created equal so there is a hierarchy in the mind that customers use in making decisions. For each category, there is a product ladder in the mind of the customer. On each rung is a brand name. The mind is selective and customers use the ladders in their mind in deciding which information to accept and which information to reject. In general, a mind accepts only new data that is consistent with the product ladder and where the brand is on the ladder... everything else is ignored. As a marketer, you need to determine how many rungs there are on the product ladder in your potential customers mind and on which rung are you likely to be perceived. It depends on whether the product you are offering is a product used every day (like beverages, toothpaste, or cereal, referred to as high-interest products) or purchased infrequently (like travel packages, furniture, or wealth management) referred to as low-interest products.
If your product is a high-interest product, there are many rungs on the product ladder. If your product is low-interest product, there are fewer rungs on the ladder. And, there is a relationship between market share and your position on the ladder in your customer’s mind. You tend to have twice the market share of the brand below you and half the market share of the brand above you. Sometimes your own ladder or category is too small. It might be better to be a small fish in a big pond than to be a big fish in a small pond. In other words, it is sometimes better to be number three on a big ladder than number one on a small ladder.
Let’s look at how 7 Up used this law to its advantage by being a smaller fish in a bigger pond. On the lemon-lime soda ladder, 7 Up was on the top rung and Sprite was on the 2nd rung. However, in the beverage industry, the cola market is larger and therefore the ladder had more rungs. So 7 Up positioned itself in the mind of its customers with a marketing campaign called “The Uncola” and grabbed customers from the cola ladder and increased its sales.
Before you start any marketing program, you need to determine if your product is a high-interest or low-interest product; whether there are many or few rungs; and on which rung of the product ladder are you likely to be positioned in the mind of the customer. Then make sure your campaign deals realistically with your targeted position on the ladder. The marketing goal is to not emphasize why your product is better, feature and function-wise, over a competitor’s but to develop a message that is recognized, accepted, and agreed to so that it will seduce and persuade a customer that what is offered will work for them. In other words, you are not selling toothpaste. You are selling white teeth.
Marketing done well is not a battle of products or services. It is all about the brand strategy and the positioning you use to have the consumer place your brand on their top product rung in their product or category ladder. Simple, right?
HOW DO YOU CREATE A NEW LADDER?
So, you are a marketer working with an agency or a company brand and you would like to create a new category or product ladder in your potential customer’s mind. How do you do that? Well, you don’t start with the notion that you have to come up with an innovative or breakthrough product. A better way to approach it is to examine the marketplace you are in or the marketplace you want to be in. I especially like large marketplaces as they have a high quantity of consumers who are familiar with the current product offerings. You don’t have to waste time or money on educating people as to what yogurt is. They know. Create a perceptual map and place current brands in the grid based on elements important to the customer (e.g. quality vs. quantity, safety vs. cost, luxury vs. sporty and so on). Then look at your marketplace grid and look for noticeable gaps. Are these gaps large opportunities? Why have no other competitors moved into those gaps?
Next examine the industry you are in or might be targeting. Is it growing or in decline? Does it have relatively high competition or are there just a few players? What does it look like from a local, regional or global perspective? What do the research analysts say in their competitive analysis reports about the marketplace or the industry?
Last, look at the trends that might be impacting your current or potential customers. What are the key trends and how are they affecting large customer groups (e.g. Millennials, Baby Boomers, etc.) differently? Let’s look a simple example of creating a new product ladder in the consumers mind based on an already large existing marketplace. Yogurt. In 2005, the yogurt marketplace in the USA was over $4 billion in revenue and dominated by three to four brands. Greek yogurt made up less than 4% of all yogurt sales. But times change and people are eating healthier. Millennials rise and want even better yogurt. Yogurt is impressively old: it dates back to the 3rd millennium B.C. But new brands arise and repackage and re-market Greek yogurt. Whether you believe it or not, what distinguishes Greek yogurt is its thicker, creamier texture because the liquid whey is strained out. Also, it contains probiotic cultures and is lower in lactose and has twice the protein content of regular yogurts. Remember, it’s not what you believe, it’s what consumers believe. And consumers, once introduced to Greek yogurt, wanted it. Today, the Greek yogurt market in the USA is over $3.5 billion and is forecasted to grow to over $4 billion by 2019. So, Greek yogurt alone will match 2005 USA yogurt sales ALL BT ITSELF BY 2019! And you thought the yogurt category was boring. In this case, the marketers created a new product ladder, Greek yogurt, in the consumer’s mind out of an existing market category of yogurt. And new leaders on that product ladder like Chobani rose quickly to occupy the top rung on the ladder. It’s been done time and time again in large markets. Enterprise Car Rental, Vitamin Water, Google, Neflix, Tesla, Starbucks, FaceBook, Amazon, etc. Look closely at the brands I just mentioned. Anyone of them create an entirely new market? No. They did something slightly or technologically different (but with an important customer benefit) and created a product ladder where they could occupy the top rung in the consumer’s mind.
BRAND INSIGHT
This industry has motored along for over 100 years. Slow steady growth and relatively little innovation and disruption. Oh, there have been incremental improvements to the product over time but nothing radical. If you walked into the store in 2011 and saw these products in the aisle, you would not think twice. Yet this is a $13 billion industry. But two new companies arose in almost the same timeframe of 2011 to challenge the leaders in the industry. They both challenged the price and the business model. They had also accurately sensed that Millennials would support the disruption based on trends and patterns of this population. Both Harry’s and Dollar Shave Club launched a new way to purchase razors, through an online subscription model. They challenged why anyone would willingly pay $4 to $15 for a razor after discovering how inexpensive is was to make razors. With little money for marketing, they utilized social media and created their own videos that poked fun at the industry leaders and asked target consumers to question why they were paying outrageous prices for razors. In less than five years, Dollar Shave Club grew so quickly that it was acquired for more than $1 billion.
KEY TAKEAWAY
It’s not about the marketing. Clever marketing for these razor upstarts was not what led to their success. Th
ey successfully targeted a large market that had traditional high priced products and retail distribution. As marketers, look for opportunities to challenge the status quo in a way that aligns with the needs of a large population segment and shifting trends.
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CHAPTER TEN
TRENDS AND BLUE OCEANS MATTER.
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As a marketer, you have to understand your role and more importantly, your potential value. If you only understand how to get things done tactically, your value is diminished over time. If you learn the strategic “why” things have to be done, then clients or senior managers will value you for your knowledge and expertise and not just your capabilities. Early in my marketing career, I was a very tactical marketer; tell me what to do or what to get done and I got it done. Over time, and through years of mentoring and experience, I started to strategically advise clients what they had to do in order to be successful. In order to do this, I had to constantly stay abreast of trends and anticipate customer needs to the point where I had developed a five year market window “horizon” in my mind. That is, I felt, based on everything I could research, the knowledge of the marketplace, the competition, understanding customers and my marketing experience that I could tell a brand where it had to strategically go to grow or to survive in the next five years. That’s when clients started hiring me and our agency for what we “knew” versus what we could do. Big difference.
Brands and Bullshit Page 13