Readers of Branding Strategy Insider might wonder why it takes so long for some marketers to respond to obvious threats to their market share. At times the answer can be traced back to a classic quandary: categories. Categories were invented to enable marketers to calculate relative market shares. They involve drawing lines across a market and establishing a product category within which all rival brands will compete for share. The premium lager category, the canned pet food category, the economy hatchback category: these and thousands of other groupings have represented the battle ground for brands for many decades.
In the short term, categories provide a handy method for summarizing the competitive set.
However, it is not what a company sells but what the customers buy, so it’s a fundamentally flawed exercise for marketers to start dictating where a market begins and ends. The archetypal example of the strategic vulnerability of categories has always been the early American train companies.
At the start of the last century, a small number of train companies had emerged as market leaders and each held a large and established share in their category: trains. The companies had oligopolistic relationships with each other and settled back for a period of guaranteed revenues.
Within a few years, however, railways were superseded by cars. The rail companies were unable to compete against or collude with this new threat because their category short-sightedness had blinded them to the true business they were in: transportation.
A more recent example came with the emergence of the New Covent Garden Soup Company. In just over ten years the company became the largest branded manufacturer of soup in the UK. Its ascent can be attributed to astute marketing strategy and the incompetence of the market incumbents, which continued to measure success in terms of the dried and canned soup categories. Initially they ignored the upstart because New Covent Garden was not operating in the two major soup categories but in chilled soup.
By the time these manufacturers realized that consumers do not think in categories, first-mover advantage had been ceded to New Covent Garden.
The bottom line is, if you use categories as a yardstick of success you are endangering your organization. Categories weaken a firm’s competitive response and encourage strategic torpor. Good marketers aggressively dismantle crude and inappropriate constructs such as categories. Instead, they return to the only true arbiters of market structure, customers, and continually ask them to define the market. Anything less would be a categorical case of bad marketing.
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