New Thinking on Market Categories

Companies really overthink market category to the point where they actually want to do a positioning Exercise by starting with the market category. They'll say look we want to define a new market category So help us do that instead of saying do we need to define a new market category? Like what actually is the market category that fits what we have the best But the reality is is when you work a positioning Exercise that way you often end up with this sort of aspirational market category that doesn't actually Match to the capabilities of the offerings that you actually have in market Hey, everybody welcome to another edition of the positioning show with me April Dunford. How are you doing? It's been a while. What's happening? We're in the middle of kind of a mini series of episodes that um is focused on the second edition of obviously awesome my book on positioning and what's changed between the first edition and the second edition which kind of represents um my changes in thinking based on working with 300-ish clients since 2019 since the first version of the book came out So in the first few episodes we've talked about Things that you need to do in advance of positioning workshop. So there's a set of decisions that you need to make there are Some things that you should do to prep the group before you tackle the positioning process um, I talked specifically about a couple of steps. So one being the Step around competitive alternatives, which I really think you have to nail in order to get this thing right We talked a bit about differentiated value and a lot of my thinking has changed around differentiated value That section and new book is greatly expanded because I'm not sure I did a great job of explaining it the first time around But hopefully I nailed it this time um After you're done with the differentiated value step there's a couple other steps that come after that. So there's A step where you look at the differentiated value and you say look we are the only company on the planet that can deliver a combination of this value plus this value And underneath you've got the features. This is how we enable that value So after that step usually there's a step around what are the characteristics of a best fit customer So you say look where the only people that can deliver this value But the reality is not everybody cares the same about that value So what are the characteristics of an account that make them really really care a lot about the value that only you can deliver In doing a whole lot of these workshops, I find that The bigger the company the less we change In terms of uh, how we define a best fit customer bigger companies have been doing this longer they've sold more They usually have more thought put into segmentation and the way they look at the market They've generally got bigger sales teams and those sales teams have been focused on different parts of the market So if the company is quite big we don't change too much there if the company is smaller Often we get Some insight into who truly is the best fit customer by looking at the value But I would say that section of the book hasn't changed too much so if you understand that step You know, I don't think there's there isn't too much of my thinking this change about that the step that comes after that Is market category Now market category I have always thought of market category as being a very very important piece of positioning And even in the original book I probably spent more time on the market category step than I did any other step But it's interesting the more I do this work the more I think that Companies really overthink market category to the point where they actually want to do a positioning exercise by starting with the market category They'll say look April you know, we want to define a new market category So help us do that Instead of saying do we need to define a new market category like what actually is the market category That fits what we have the best the problem was start with market categories a little bit like the tail wag in the dog It's and it's often a bit aspirational the company comes to me and they say we wish this was our market category So let's make it so but the reality is is when you work a positioning exercise that way you often end up with Uh This sort of aspirational market category that doesn't actually match to the capabilities Of the offerings that you actually have in market. So generally if you want a category Creating positioning so that you're creating a new category you need to category creating product to start with and If you don't have that then customers aren't stupid They're going to see through and they'll say yeah, I know you keep calling it this thing But I don't know man. It just looks like a CRM to me. Why isn't it a CRM and your salespeople will spend forever trying to answer that question So that's the first thing I think people overthink market category So here's some of my thinking on market category. So What is the job of a market category the job of a market category is to take a customer that doesn't know too much about your stuff And it points them in the direction of your value That's it. That's all it does It doesn't take the place of your messaging. It doesn't take the place of your sales pitch You're still going to have to take them all the way on that journey that takes them from boating in the direction to you know where you want to go which is different You to value So the market category just does that it's a starting point to help customers understand what you're all about So a good market category does that it points folks in that direction a good market category Sets off a set of assumptions About your product that are true So that they say oh yeah, yeah, I kind of get what that is you're sort over in this bucket great now We can just continue on and it's easier to take them on this journey to where we want them to go Which is understanding our differentiated value the first rule of market categories is do no harm So the harm that a bad market category can do is it takes a customer that doesn't know too much about your stuff And it points them somewhere else away from your differentiated value and so you'll say oh You know where this without the other thing and a customer says oh I get it your CRM but you ain't you are not a CRM And when they think about a CRM they assume you do a bunch of stuff that you don't actually do This is bad And then it's the job of marketing and sales to say no no no no no no we're not that no no come back over here come back over here No no no no no and then get them pointed in the right direction So job number one is do no harm A great market category Takes a customer a certain way on this journey points them in the right direction It sets off a bunch of assumptions that about your product that are true So that everything that marketing and sales has to do is a little bit easier. They don't have to undo These incorrect assumptions that were already sparked by a bad market category So the way we get this done in a workshop At least if it works off of your if you're doing it with me is we will look at Here's the differentiated value that we all decided on Here's our definition of what a best-fitted account looks like And then we will look at whatever the company is using right now as their market category and say does this work if I say we are this Is the customer oriented towards our value or are they pointed somewhere else? So does it set off a set of assumptions about things about us that we just don't do that stuff And so we'll look at that and in cases where we look at it and we say the existing market category works We don't touch it That's it the market category works. So we're not going to mess with it now Sometimes it doesn't sometimes we get really tight on the differentiated value And then we say okay Here's the market category you've been using and it doesn't really work It kind of you know it points customer in the wrong direction So then we would look at is there something close that does work So either in a jace at market category Or maybe we're looking at the existing market category that they're in And we put a qualifier on it You know like we're that but only for companies that look like this or with that for only this industry We're that but you know only for SMBs or we're that but only if you know you have this in your environment We could put a qualifier on it or We look at things that are adjacent and we've actually we're actually shifting categories But we're shifting to something that's related to the existing market category But it is not the existing market category that happens quite a lot Um and then if none of that works because the thing is so new so different Uh we're in a situation where we have to actually invent a new market category In those cases what we're looking for is what I would call an anchor concept Something to anchor the customer on So that we're not just making up a word like hey we're a flu flummer and the customer is like I don't know what a flu flummer is and you're like oh my god I'm so glad to ask let me explain flu flummering from the beginning What we're looking for is an is kind of an anchor concept That helps the customer understand what we're all about, even though what we're describing is actually a category that nobody else is using it to brand new categories, a new thing. Which kind of brings me to this idea of, in my perspective, there are different styles of positioning. So there's, and there's three. The first one is what we call head to head style. And that's where I'm in a market category. There's a leader in that market category, and I am positioned exactly the way they are. And so we call this head to head style where, you know, it's, I'm in the CRM market, sales forces in the CRM market. I'm not putting any qualifiers on that. I'm CRM for everybody. And I basically have just declared war on sales force. That's it. And as you can imagine, this is not often a successful way to do positioning. Now this works great if you happen to be the market leader. If you happen to be the market leader and you're in a category and you're seen as the leader of that category, I would hesitate to ever change that category because you're leading it. So you essentially own the definition of what that category is. You have the ability to define purchase criteria. That category works well for you. It's working well right now. And you will often see companies that lead in a market category will just be vigorously defending that category for anybody who might challenge them because staying in that category works very well for them. And if the leader gets to the point where they're, you know, they're so dominant in that category they can't grow anymore than what the leader does is generally tries to find the category as something a little bit bigger, push the boundaries of that category as the category as bigger so that they can own more of it. The only time if you weren't a leader that you might want to do this head to head style against a leader in a market is if you were a very strong challenger and there's something going on with the market leader that maybe they're a little bit weak. So I've seen this in many companies that I've worked with where there essentially is strong number two in the market. They have something very differentiating against the number one in the market. So there is absolutely no downside for that company to position themselves in the same market as the market leader because they have a chance to actually knock the market leader off. And usually what you're doing is you're waiting for a sign of weakness. So you're waiting for, you know, the company stumbles in some way, maybe something happens, maybe they have a bad release. I've seen that happen a few times. Maybe there's, you know, the big change in the market and they're a little bit slow to react and you have the opportunity to leapfrog them and capabilities. There's all kinds of things that can happen that can allow a challenger to then leapfrog into the leader position. But if you are that challenger and you're close, you're well differentiated, the leader showing some weakness, there's no reason why you wouldn't potentially want to take this head-to-head style. If you aren't, you probably don't want to do this. Like this is a bad style of positioning. If you're an early stage startup and there is a big, well entrenched competitor, there's better ways to crack into the market than trying to take on the leader at their own game. So you probably don't want to do that. The second style of positioning is what I would call big fish small pond. And this is similar to the head-to-head. You're in an existing market category, but in this case, you are not attempting to take on the leader in the entire category. You are sub-segmenting the category. You're peeling off a sub-segment and you are attempting to win that sub-segment. So the requirements here is there needs to be an identifiable sub-segment of the market that is underserved by the current market leader. And then you have a product that does something different that allows you to serve that sub-market much better. And then ideally, the other condition that needs to be met is it's something that the leader can't easily copy. Because if you get some success selling to that sub-market and you start getting some traction, the leader may actually just say, well, we can just copy those features or copy that thing and take you out at the moment where you're just starting to see some traction. This big fish small pond is the vast majority of tech companies. That's the way they position when they first launch. It's the easiest way to get traction into a market. And the idea is you wedge into a beachhead market where the leader is weak. It's easy to do marketing because all your customers kind of look the same. So once you get a couple of accounts, words start spreading within the community that you're the thing to do just for that. And then if you can win this beachhead market, then you can attempt to expand the borders of where you win until you eventually become a strong number two in the market and then you wait for your chance to take the leader out when they're weak. If you look at the history of Silicon Valley, this is kind of where everybody started. Most of the companies that you know and love today operated exactly like that. If I think about Salesforce, they didn't just come into this market out of no place. They came in, they wedged into the very, very low end of the market that was currently owned by a big company called Sebowl. They came into the very low end of the market, which was SMB. Sebowl had no coverage down there. They were an attempting to sell down there. Salesforce came in absolutely dominated the low end of the market and then slowly, slowly, slowly began to creep up. And then there was 2000 bubble pop to Sebowl was selling a lot of software into banks and insurance companies, banks and insurance companies backed off on buying and this allowed sales for us to sort of capitalize on this week moment in Sebowl's history, take over a lot of that mid market. So Sebowl got acquired and now Salesforce is the absolute juggernaut in that market. Most companies that you know that are big well-known companies in Silicon Valley sort of started that way and grew their way up. The last style of course is this style where we create an entirely new market category. And this one, as I mentioned earlier, we tend to not use this one unless we don't have any other choice. It's much easier to position yourself in a market that the customer kind of already understands. Like, again, if we think back to what's the job of the market category, it's to point a customer in the direction of your value. That's much easier to do if I give them something that they already understand. For example, if I say I'm an existing market category like Cola, but I am for dogs, this would be a big fish small pond kind of positioning action. And you can leverage what the customer already knows. They know what Cola is. They know it's brown. They know it's fizzy. And then you say, well, it's for dogs. So the customer could kind of imagine, well, okay, maybe it tastes like bones. Like, it's got to have something that dogs care about. In a, create a new market category scenario, you kind of don't have that. You don't, you can't say, well, I'm CRM for investment banks. And a customer had leveraged what the customer knows about CRM. In this case, you're coming in cold. And you have to kind of explain what this thing is when the customer really doesn't have any touch point to go on. In these situations, it's interesting. Like if you look at people that have successfully created market categories, often the starting point is to convince customers that they have a problem. Because the reality is if customers knew they had a problem, there would be a cat group of solutions that already existed to solve that problem. So because if you are truly a new market category, it's because people don't even know they have the problem. So at the beginning, what you're doing is not selling your solution. You're not even selling the category. You're selling the problem. So you have to convince people that they have the problem. Once a certain portion of the market realizes like, yes, we've been woken up to the fact that we now have a problem. Now you got to convince them that this problem is we're solving. And we're solving right now over all the other problems they have because we're going to have a lot of problems. So over all the other problems they have, whatever, this is we're solving, we're going to solve this problem. And we are the best people to solve it. As you can imagine, this is a long term thing like a typical category creation. If you believe the data on this, I've seen some data that says it's it's typically 10 years to really establish a category of software market category in the market. Now the really scary part about category creation, my mind is that sometimes it appears to work in the short term, but because it is such a long term investment to educate the market on why this problem exists, why the solution needs to exist, why this deserves to be a new category and it's not something else. Just as the market is starting to emerge, meaning at the point where customers are starting to say, yeah, you know what? We have this problem. We should solve this problem and people are thinking about it and talking about it right at that moment is the perfect opportunity for a fast follower to come in and just wipe you out. And so we know that this happens a lot because you know, this has happened to most of the big companies that you know and love. Like, you know, Apple didn't invent the smartphone. Blackberry was there for years until Apple decided to come in, capitalize on all the work that Blackberry had done and wiped them out. Facebook was not the first social network. What about my space? That there were lots of search engines before Google came in. So category creation is. It's risky, it's hard. Now, if you pull it off, of course, theoretically, the gains of this is that you have designed this market category precisely for your solution. So if you are attempting to do this, you should define the market category in a way that it would be very difficult for a fast follower to come in and take you out of that market, for example. So these are the choices that we have. Coming back to how we handle this in a positioning exercise, sometimes I get the question where people will ask me, like, why bother defining what our market category is at all? And I've had a bunch of smart CEOs come and ask me that question, like, why bother naming it? Like, can we just say what we do? And you know what? In some cases, I think you can. Like, in some cases, cases I think it's just as good to just kind of descriptively with pros, say, we are a solution that does this. Now, if you try to do that, it's kind of hard to do that without referencing a market category. So you end up positioning yourself in a market category anyway. But I do think in some cases it's possible to do. Here's the risk though. Like, if you don't define, this is the market category that we're in. The risk is that a couple of bad things might happen. The first one is, customers will decide that you're in some other market category that you don't actually want to be in. And because you have not defined what market category you are in, they'll just put you in some other one and you might not be happy with where the customer puts you. That's one thing. And it's not just customers that might be industry analyst, people talking about you, everybody might just dump you in a category that doesn't actually advantage you at all. So that's no good. The second thing is what happens internally. So we get asked the question, so like, what are you? Or what do you do a lot? And if you don't have a really tight succinct answer for that, what'll happen is everybody interacting with customers will answer that question in a different way. And it'll be very confusing to the market. In particular, your sales team might start just making stuff up. And again, in the same way that you maybe didn't like the way customers put you in a market category, you may not be very happy with the way your sales team describes a market category. If you don't tell them exactly what to say and say, this is exactly what market category we're in. In conclusion, I'd like to say, don't overthink your market category. If you're doing this inside a positioning workshop, I would always start with the category that you're using right now. And really examine that to decide if that works or not. If it doesn't, I would look at, can we put a qualifier on it? Can we move into a adjacent market category before I would even consider thinking about creating a new market category? You may have to create a new market category. If you do, that's OK. But go into it with your eyes open. It's not going to be easy. This is going to be a long-term effort. So that's about all I have to say about that. We're getting near the end of this little mini series where I'm covering the second edition of my book, obviously, awesome. I've got one more that I want to talk about, which is things that you do after positioning exercise. So how do we test our positioning? And then how do we take that positioning and turn it into things that we want the rest of the team to use, like sales pitch or marketing messaging? And then I think maybe that's it. Unless you folks have questions. So here's my email, April at AprilDunford.com. If you've been listening to these podcasts, and you have a bunch of questions that I've never touched on before, and you think, hey, I wish April would come on and do a podcast where she answered question XYZ, drop me a line, and let me know. And maybe I will do a couple extra episodes just to answer people's questions. Anyway, that's it for today. Thanks so much for joining me. I'll see you next time.