Owning Game-Changing Subcategories

Uncommon Growth in the Digital Age

David Aaker

• Publisher: Morgan James Publishing
• Year: 2020
• ISBN:
  9781642798913
• Topic: Negocios y empresa
• Subtopic: Estrategia empresarial

Owning Game-Changing Subcategories is about creating organizational growth in the digital age by creating and owning game-changing subcategories fueled by digital.

Owning Game-Changing Subcategories outlines the path to finding, managing, and leveraging new subcategories. In the digital age, the path has been made wider, shorter, and more frequently traveled. Throughout Owning Game-Changing Subcategories, David Aaker discusses certain aspects of the digital age that alter this path, such as E-commerce providing fast, inexpensive market access bypassing the cost of gaining distribution into storefront retailers or creating personal sales teams and social media and websites enabling communication on steroids in comparison with traditional use of advertising or events.

Growth is not only a success measure but also creates energy and opportunity for customers and employees. And such growth almost never occurs with "my brand is better than your brand" marketing. Owning Game-Changing Subcategories explores the only ways to grow a business (with rare exceptions) which is to:

• develop new "must haves" that define a game-changing subcategory that provides a new or markedly superior buying or use experience or brand relationship to a core customer base;
• become the exemplar brand that represents the subcategory and drives its visibility, positioning, and success; and
• create barriers to competitors that could include "must-have" associations and a basis of relationships that go beyond functional benefits.

Chapter 1

The Only Way to Grow:

Create and Own a Game-Changing Subcategory

“You do not want to be considered just the best of the best, you want to be considered the only ones who do what you do.”

—Jerry Garcia, The Grateful Dead

My study of the Japanese beer market some years ago, described in the Prologue, made me pause. It had been such a stable marketplace for so long, despite hundreds of new products, expensive advertising and imaginative promotions. The notable market dynamics over more than three decades is largely explained by the formation of a few new subcategories that disrupt the market, and then by the subsequent competition between these subcategories. Gaining and keeping relevance in a new subcategory–and preventing competitors from doing so– seemed to be part of most success stories. What, I thought to myself, is really going on?

I then looked at dozens of other categories. Although I lacked the data I had in the Japanese beer case, I was struck with similar observations. Again and again, sharp spurts of sales could almost always be explained by the appearance of a game-changing subcategory. That new development altered what people were buying, how they viewed the larger category, their purchase decision and their use experience. New brands and offerings gained in relevance and others faded. The sales spurt was all about the formation of new “must-have” characteristics, traits a meaningful customer group quickly understands and just has to have. And usually, it is about a brand that is the leader of the subcategory going forward, often the most relevant or even the only relevant brand.

These observations of market dynamics over time and across categories led me to a rather dramatic conclusion. The only way to grow, with rare exceptions, is to create customer “must-haves” that define game-changing subcategories. The only way!

As I did background research for this book, I came to a companion observation. Creating subcategories to achieve uncommon growth has been dramatically affected by the digital transformation of the last two decades or so. Digital has made new types or variants of subcategories become feasible, created access to markets through e-commerce, enabled communication to customers through websites and social media, and facilitated the creation of brand communities. As a result, the strategic innovation world has changed and the frequency of subcategory formation has increased by orders of magnitude. The impact of digital on subcategory formation will be detailed at the end of this changer. In chapters 3 through 6 digital enabled subcategories will be discussed in more detail.

We first turn, however, to defining and elaborating the concept of game-changing subcategories and describe the process by which they can be identified and brought to life.

A Game-Changing Subcategory

A game-changing subcategory:

• •Is defined by a set of new or improved “must-haves” (almost always more than one) that provide a different and markedly superior buying or use experience or meaningful brand relationship.
• •Is represented by the exemplar brand that drives its visibility, positioning and success.
• •Has a core customer base loyal to the subcategory and its exemplar brand that power growth through commitment and influence. Their connection will usually go beyond functional benefits and often involve emotional, self-expressive or social benefits, in part based on the values and programs of the subcategory’s exemplar brand.
• •Has a set of barriers to competitors inhibiting their ability to become relevant options These can include the committed customer base and “must-have” associations.

More concisely, A game-changing subcategory is defined by a set of “must-haves,” represented by an exemplar brand, supported by a core customer base, protected by barriers to competitors and provides a new or markedly superior buying experience, use experience or brand relationship.

Subcategories

A subcategory is a subset of a category. There could be several alternative “categories” under which the new “must-have” driven offering can be positioned. For example, the Prius could be a subcategory to either the compact car or the hybrid compact car categories or both. The selection will depend on the size of the relevant segments and the appeal of the “must-haves” to that segment.

There are contexts in which the identity of the reference category can be instrumental in activating a “must-have” and managing the perception of the subcategory. Boathouse Farms created a surge of growth in carrots after successfully positioned raw carrots as a snack. One impetus was a marketing campaign around “eat ‘Em Like Junk Food” that liken baby carrots to Cheetos, Doritos, and other snack foods. Boathouse introduced vending machines, flavored products, and the endorsement of Sesame characters as part of the positioning strategy that worked. There was a “healthy-eating” “must-have” that would not have existed had the category choice been vegetable snacks or carrots instead of snacks in general. The reference category is a strategic choice.

There are times in which the game-changing subcategory may be classified as a new category. Etsy might be so defined. However, the incidence of creating a new category is rare in comparison to the appearance of subcategories. And the logic and process of managing the potential of a game-changing subcategory does not change if it could be classified as a category. So in this book the term subcategory will be used even when it would be accurate to say a new category is involved.

To understand the upside of creating, managing and dominating a new game-changing subcategory, examine the alternative, brand-preference competition.

Brand-Preference Competition

By far, the more common strategy in business is to engage in brand-preference competition, which focuses on making a brand preferred among the choices considered by customers in a defined category or subcategory. It is all about “my brand is better than your brand” competition, usually with two strategies–neither of them much fun.

The first is to beat competition through incremental innovation to make the brand even more attractive, reliable, less costly or make the purchase or service less painful. Better, cheaper or easier to deal with are typical mantras. The problem is that customers often don’t believe the incremental innovation is newsworthy or the self-serving communication credible. Further, competitors either quickly copy the innovation or imply that they have done so.

The second strategy is to create superior marketing—by outspending or communicating more effectively with cleverer advertising, more impactful promotions, more visible sponsorships and more involving social media programs. The problem is that it is not easy to create breakthrough marketing that is truly superior in the face of disinterested and skeptical audiences and aggressive competitors that are doing the same thing.

Firms that rely on brand-preference competition rarely change the marketplace, no matter how impactful the incremental innovation or how clever the marketing. The stability of brand positions in nearly all markets is simply astonishing. There is just too much customer and market momentum in the face of marketplace clutter and confusion.

Brand-preference competition is necessary even when the goal is to avoid losing ground to competitors rather than growing the brand. But I repeat: It is just not fun.

Brand Leadership Competition

The second route to competitive success, brand-leadership competition, focuses on creating and/or owning a new subcategory defined by customer “must-haves.” The strategy is very different.

Instead of incremental innovation, a brand leader engages in innovation that is transformational or substantial innovation, that will lead to game-changing subcategories. (See the boxed insert on transformational/substantial innovation.) That involves taking risks and committing to a market-subcategory vision that has evidence of potential success.

Winning is no longer based on being preferred because of “my brand is better than your brand” efforts, but, rather, on being the only or at least the most relevant brand for that new subcategory. Competitors lose because they lack the “must-haves.”

Winning involves several challenges.

• •First, to find, energize or create “must-haves” that will define a new game-changing subcategory.
• •Second, become the exemplar brand, the brand that represents the subcategory as its thought and market leader, as well as being its most relevant brand.
• •Third, to build a core of customers loyal to the subcategory and to its exemplar brand. These customers will influence others and be difficult to steal.
• •Fourth, to create barriers to competitors to inhibit their efforts to gain relevance in this new subcategory.

It’s not easy. But the payoff can be huge. Here’s more on these four fundamental concepts:

What are “Must-Haves?”

A game-changing subcategory is defined and driven by “must-haves.” But what is a “must-have,” and how do you know if you have one?

A “must-have” is an exemplar brand characteristic that defines, positions, and creates loyalty toward a subcategory. Fundamentally, the “must-have” quality is tied to loyalty. An effective and relevant “must-have” will create a loyal core group that will become the basis of the strength of the subcategory and its exemplar brand. Among that group will likely be a passionate and vocal subset. Others may be less involved but will show evidence of persistent repurchase of the subcategory. Competitive offering without the “must-have” will not be relevant–they won’t be as visible or as credible. And so, they won’t be considered for purchase.

A direct, objective approach is simply to ask potential customers. Would you buy a brand without the “must-have?” Would you drive five miles out of your way or pay X more to get a brand with the “must-have?” One problem is that it can be difficult to explain accurately the experience of a “must-have” characteristic without it being in the marketplace, with its attendant social buzz and the reality of seeing it live. Another problem is that people do not always do what they say in such tests. But conceptually, the idea is that a “must-have” should inhibit those brands that lack that quality.

The defining “must-haves” could involve augmenting or enhancing the offering delivering functional benefits, such as …

• •Features/Benefits—Lexus quality, NikePlus (tracking workouts)
• •Design—Hershey’s Kisses, Apple stores, Volkswagen Beetle
• •Systems appeal—Microsoft Office, Amazon search/order/logistics
• •Segment focused—Luna (energy bar for women), Shouldice Hernia Hospital (for hernia operations)
• •Customer intimacy—Starbucks, Ritz-Carlton, Sephora
• •Lower price point—Hyundai, Walmart, TJ Maxx
• •Premium—Mercedes, Rolex, Dyson
• •A new generation—Tesla, SalesForce (a cloud computing pioneer)
• •The convenience of e-commerce—Warby Parker, Brandless
• •Offering scope—Target, Hilton Hotels, Panasonic
• •A favoriate activity—Airbnb, Burton Snowboard
• •The country of origin—Canada Goose (outdoor clothing made in Canada), Mercedes
• •An offering-related higher purpose--- DeBeers (A diamond is forever), Apple (making insanely great products)

But “must-haves” could also be created by brand relationships meaningful to customers that do not involve functional benefits. Such “must-haves” are usually easier to own and more difficult to copy. Consider, for example:

• •Shared interest—REI and camping/hiking, Pampers and baby care, Kaiser Permanente hospitals on wellness
• •Organizational values—being customer-driven like Nordstrom, innovative like 3M, concerned with social issues like Unilever
• •Social higher purpose—the Home Depot program to build homes for veterans, Avon’s Walk for Breast Cancer
• •Environmental higher purpose—Method, Seventh Generation, Patagonia
• •Personality—Southwest Airlines, Dollar Shave Club, Nike
• •Passion—Whole Foods Market with organic foods, Etsy
• •Brand community—Harley-Davidson, Sephora Beauty Insiders
• •Personal contact—Zappos, Allstate

Parity “Must-Haves” that Negate “Reasons Not to Buy”

In addition to having a set of “must-haves” that represent features or programs that others lack, there are also parity “must-haves.” Any “reason not to buy” needs to be converted into a perception that the subcategory and its exemplar brand is adequate or “close enough,” so that they have achieved parity and no longer need to be excluded from consideration. Tesla, for example, needs to argue that the battery range it offers is adequate, in terms of drivers’ needs and miles. That’s because a too-short range is a potential “reason not to buy.” For Warby Parker, introducing the “try five frames” offer overcame the “But I can’t try them on” objection. These are parity “must-haves” and stand side by side with advantage “must-haves.”

A parity “mu...

Table of contents

• Cover
• Title
• Copyright
• Table of Contents
• Preface: Why This Book?
• Prologue: Market Disruption Role Models
• Chapter 1: The Only Way to Grow: Create and Own a Game-Changing Subcategory
• Chapter 2: The Payoff
• Chapter 3: Digital Disruption: Six Keys to Airbnb’s Success
• Chapter 4: Digital Disruption: E-Commerce
• Chapter 5: Digital Disruption: The Internet of Things (IoT)
• Chapter 6: Harnessing Digital Communication Power to Build Loyalty: Stories, Communities & Personalization
• Chapter 7: Finding New “Must-Haves”
• Chapter 8: Evaluating Potential “Must-Haves”
• Chapter 9: The Exemplar Role and Managing “Must-Haves”
• Chapter 10: Creating Barriers: Sustaining the “Must-Haves”
• Chapter 11: Twenty Takeaways
• Endnotes
• Acknowledgments
• About the Author
• Name Index