Stand out in crowded markets with category strategy
Launching a new product into a crowded market that's better — but not different — isn’t a path to market success. But if a product is truly different, a well thought out category strategy can have enormous impact on the market. This article outlines the origins of category strategy.
After launching dozens of successful—and some not so successful products—I have learned the hard way that launching in a crowded market with a new product that sort of looks like what everyone has isn’t a path to success.
It seems obvious, yet it’s incredible how many companies still show up in a market with a product that’s not really all that different—yet then can’t understand why they fail. I've seen so many startup companies and enterprises do just that and fail in a wide array of industries.
Being different is critical.
Over my 20+ years with Apple and Microsoft I've launched dozens of new products. I have been fortunate to to be part of some really important industry milestones along the way, many of which have impacted hundreds of millions of consumers, developers and enterprise users.
I’ve always been fascinated by the process of positioning products in a market, launching products and hoping to stand out. In some cases the markets were new and in others the markets were crowded and well served by alternatives.
For success category leadership, often 'being different' means clear differentiation in both the product and a new business model.
It starts with creating a breakthrough new product that solves a new problem, or offers a compelling new way to solve a known problem. It also has new capabilities that create an 'aha' moment for its users or brings about significant technical benefits.
Interestingly, the many approaches to standing out in a crowded market have evolved lots over the past couple of decades.
Here are some key approaches to stand out.
Classic marketing strategy: Position against your competition.
The basic approach of positioning is not to create something new and different, but to manipulate what's already been decided in the mind and to redo the connections that already exist.
For example, with the classic marketing book published in 2001, Positioning: The Battle for Your Mind, by Al Ries, positioning was about 'moving up the ladder' of an existing market, or showing up in the market with your own ladder — but in all cases it was about you up against the competition in an existing market and find an open hole to pursue. Instead of focusing on the product, the principle was to focus on the mind of the customer and position around the existing market. The book also outlined how category marketing was important to establish a leadership position early on. While the book is a classic, it unfortunately gives minimal guidance on actually how to build a category.
‘History shows that the first brand into the brain, on the average, gets twice the long-term market share of the No. 2 brand and twice again as much as the No. 3 brand. And the relationships are not easily changed. The leader brand in category after category outsells the number two brand by a wide margin.’
In a later book published in 2009, The Origin of Brands, Al Fries presented early aspects of how companies need two names: a brand name and a category name. This book presented core principles in today's category strategy, but was missing practical strategies to create and dominate a new category.
Blue Ocean Strategy: Seek new clear 'blue oceans', avoid frothy red ones.
First published in 2005, the book entitled Blue Ocean Strategy based its approach on creating new ‘Blue Ocean markets’ versus playing in existing crowded ‘Red Ocean’ or frothy markets.
The premise is that it’s best to play in the blue ocean: ignore the competition and create a new space and capture new demand in pursuit of differentiation and low cost advantages against the status quo.
"Red oceans are all the industries in existence today – the known market space, where industry boundaries are defined and companies try to outperform their rivals to grab a greater share of the existing market. Cutthroat competition turns the ocean bloody red. Hence, the term ‘red’ oceans.
Blue oceans denote all the industries not in existence today – the unknown market space, unexplored and untainted by competition. Like the ‘blue’ ocean, it is vast, deep and powerful –in terms of opportunity and profitable growth."
While I have used their core templates to drive strategy discussions, the approach only goes so far to help teams create and launch differentiated value-cost products in crowded markets.
Harvard Business Review: Become a category creator.
In a series of articles published in the Harvard Business Review (HBR), including this one from Eddie Yoon in 2013 entitled ‘Why It Pays to Be a Category Creator’, the research found that category leaders involve both a breakthrough product and a breakthrough business model.
Category leaders take nearly 80% of the growth, share and market cap—while the remaining 20% are left to fight it out with the rest of the contenders now just arriving to the market.
“Category creators experience much faster growth and receive much higher valuations from investors than companies bringing only incremental innovations to market”
Competition is for Losers: From Zero to One.
In 2014, Peter Thiel— founder of PayPal and legendary Silicon Valley investor—wrote a provocative book called Zero to Oneon how to build a differentiated, sustainable company.
Peter's premise was to move from a zero-sum game of competition to creating a new product in an untapped market that offered a 10x advantage. Then scale up to create a monopoly that kept out competition.
The Wall Street Journal rebranded the concept as “Competition is for Losers” in this article and started the quest to find the most valuable company that nobody is building.
Although Peter's perspective is really insightful, it also didnt seem to offer a practical approach on how to become different—or at least position your product and company that way.
Play Bigger: How Pirates, Dreamers, and Innovators Create and Dominate Markets
After reading the 2015 book Play Bigger, I was excited to finally discover a practical, repeatable process to create and define a new category. It was great to see such a refreshing simplified approach to category design.
I also had a chance to work with a team focused exclusively on Category Design (including the writer of the book) on numerous projects and was also excited to have that opportunity. I learned a ton, especially that successful companies do more than just create their own categories. Most of the effort comes well after that, working both internally and externally.
The process of category design focuses on defining a unique problem, or solving an existing problem in a new way. Ideally, your company is the only one who can solve the problem and thus leads the category. You invite others to join your category, but you stay the leader.
The key deliverables outlined in the Play Bigger book seemed so obvious to me, but really great to see as a unit:
Point-of-view (POV)—an emotional story which outlines the problem, ramifications, solution and outcome
Category name—your unique name that serves as a container for the problem
Blueprint—a marchitecture visual that captures your category and POV
Ecosystem—a worldview visual which outlines how your category shows up in the broader world of complementary firms (and you need them to build your category)
FROTOS—a messaging outline of how you wanted to change the market from its current position to a new state with you as the leader
I have since renamed this process as 'Category Strategy', as every time I have talked about it everyone thinks it's about marketing not strategy. While it quickly gets into how it impacts marketing, it also has a direct impact on the product roadmap and overall company strategy.
It's still always a challenge to know if creating a niche market in a big established market (where there are competitors) is better than creating a new market category where you can dominate.
While the process is logical creating a new successful category is hard work.
New categories are hard to create without understanding the market and business.
In order to create a new category, we think it's critical to understand the business, product and how AI together can drive the company valuation. Rather, category strategy is just the beginning.
Category strategy complements product marketing.
Category marketing is as critical as product marketing and complements the mix for growing your business. It starts with marketing the problem, then mapping the solution to your product.
Bringing it all together: Category, Product & AI strategy.
When I have asked companies about their product strategy, many companies today think that 'being agile' is enough. They say they don't need a product roadmap or vision.
However, without having a vision to guide your product, then it’s unclear —what you are focused on building? Companies need both an overarching vision to guide them, and the ability to react to customer and competitor requests and challenges.
Your category becomes your North star and helps set your product and company vision.
And leading with AI will become even more critical to staying different.