- Category design is a business strategy which involves businesses planning, creating, and dominating brand new product and service categories. It is essentially proactively designing the new market.
- Famous examples of successful category design include Tesla, Apple, and Red Bull.
- To win your category and become a category leader, you should: determine or redefine your category, convince the world of your category’s validity, use customer feedback to validate your category, form category requirements, be respectful of competitors, and welcome them when they finally enter your category.
- Aside from reading this article, it is a fantastic idea to enlist the help of a professional full-stack growth agency, such as NUOPTIMA, an expert organisation in transforming startups into category leaders.
How to Design Your Category
What is Category Design?
In simple terms, category design is a business strategy. It is a concept which involves companies planning, creating, and ultimately dominating new product and service categories. It essentially involves proactively designing the new market, ensuring that you will have a step up on whatever competition that enters the same space because you created it. Unlike many business strategies which closely revolve around business models, products, and taking market share, category design casts a broader net by designing the new market to ensure the company dominates and beats the competition.
The term ‘category design’ was first coined in the 2016 book Play Bigger, which explains why category design is a worthwhile strategy. The book talks about category design being connected with cognitive biases. Indeed, our brains categorise things organically. For instance, if someone were to think of buying a new bike, they would then go on to consider various bike brands and specifications. Naturally, the brand that sticks out in that category will spring to mind first. Therefore, category design is forming a category in people’s minds and ensuring your product has a bias in that category.
Statistics collected on category design companies support and validate the concept:
- As mentioned in Play Bigger, category leaders typically receive 76% of a category’s economics.
- In a 2013 study by Linda Deeken and Eddie Yoon examining the Fortune 100, it was found that only 13 businesses were category creators. However, they created over 50% of the Fortune 100’s gradual growth and almost 75% of its growth in market capitalisation.
- Lochhead analysed the Fortune 100 fast-growing businesses list between 2009-2018. It found that only 19% of these companies were category creators. But, these creators had over 50% of the previous three years’ cumulative revenue growth, as well as 80% of the last three years’ market cap!
Let’s now consider some of the primary principles of category design:
- It is a company-wide strategy that changes its mindset about what it wants to accomplish and how it intends to do so.
- Category design is about working to solve a new problem (or resolving an established problem in a unique way).
- Category designers do not compete with competitors over specific features or pricing. Instead, they do so by presenting a fresh approach that competitors simply cannot relate to.
- Category design is for the long haul. It can often take years before the work pays off because altering the way buyers think does not happen overnight. It is also a continual process and never really has a finish line.
|Did you know? According to the Harvard Business Review article “How Unicorns Grow”, “category kings” (businesses that dominate a category) that choose to go public when they are six to ten years old make the most value (among all venture capital-funded tech businesses): the 6-10 law. It claimed that businesses that go public before six years old commonly lose value, while businesses that take more than ten years do not create much value for shareholders either. It is argued that categories take roughly six years to develop, and the majority of their growth occurs within the six to 10-year parameter.
Examples of Category Design
Below we offer some examples of companies that have successfully designed new categories.
Salesforce launched in 1999 and is one of the best illustrations of category design in terms of cloud-based software. When the company started, organisations had to purchase expensive software through what is known as the on-premise model, meaning they had to buy a copy of the software (or a licence) to use it. Consequently, software that was database-driven, such as CRM, was not an option for small, modest companies. Salesforce wished to change this and wanted the software to be available to the masses, any time of day, via a worldwide cloud computing infrastructure. So, it completely eradicated this problem by presenting CRM software that could be accessed online through the Internet (the cloud). Salesforce became the first and only SaaS (software as a service) company at that time and established itself as a true category designer by leading the cloud computing revolution.
Founded in 2003, Tesla has become ‘the name’ associated with electric cars. Why? Tesla did not invent the electric car. But, what it did do was reinvent the electric car category. Traditionally, electric cars were intended for people whose primary concern was fuel savings. But, Tesla took a different approach. It decided that rather than creating a reasonably affordable car that could be mass-produced, instead, it would focus on developing an enthralling vehicle that would create demand.
While Apple has invented certain technologies, it is more its ability to develop and reinvent an existing product that has awarded it the title of category designer. Apple has a unique ability of developing scalable products and popularising them. Indeed, Apple was the first successful personal computer business and made the graphical user interface popular. Part of the reason for Apple’s domination is its ability to create an enjoyable, rich, and simple user experience. It did not invent the smartphone, nor the laptop or MP3. Still, it used its strategic vision, which focused on performance and design, to drive its success, revolutionise the tech industry, and establish itself as a household name.
Red Bull is the undisputed king of energy drinks. But what has made them category designers? Put simply, the answer is marketing. Red Bull puts its product secondary to the activities that its demographic enjoys. Its target audience is young, active consumers, and Red Bull knows people within this age range are particularly clued up regarding adverts. So, rather than trying to market the drink to them, which would turn them off, it focuses on the activities that its demographic enjoys. For example, it has well-known countless participation and sponsorships in extreme sports. Extreme sports are renowned for adrenaline, which intelligently links these extreme events with the energy drink brand. Red Bull understands what appeals to its audience. Therefore, it has become a category designer because it effectively tells a story to captivate its audience, and it puts its content and value to the audience first rather than the actual product.
This is perhaps one of the oldest examples of category design. William Wrigley Jr. started out selling soap. As a promotional offer, he would include baking powder in each order. After some time, he discovered that baking powder proved more popular than the soap. Therefore, Wrigley decided to focus his efforts on selling baking powder and instead offered his customers two chewing gum packs with every purchase as another promotional giveaway. As before, the promotional product was more popular than the original item he was selling. He was not afraid of change and focused on whatever the consumer was interested in, so he put all his efforts into chewing gum. He realised that chewing gum was an impulse buy, so he created display cases and instructed shops to leave them near the tills. After a financial panic in 1907, advertising rates decreased, and Wrigley decided to jump at the opportunity and increasingly expanded his advertisement reach, eventually selling the bestselling chewing gum globally. Wrigley’s ability to listen to and understand his market, and his advertising decision-making, earn his company the title of a category leader of chewing gum to this day.
The Category Design Process
Now that we have delved into what category design is and some famous examples let’s go through an overview of how category design is executed step-by-step.
- Define a category problem. This first step involves determining the core problem you want to solve (as well as for who). This is the main base for the rest of the process. A perfect example is Apple. The iPad was introduced to act as an intermediary between a smartphone and a laptop. The public didn’t know what they were missing, but as soon as Apple created the category, the market followed suit and Apple was seen as the company that solved this fresh need in the market.
- Form a point of view and decide the category you are creating. This point of view presents the story of why your category is needed and what users will gain from it. Then, you have to determine what category you are making. Can you work out a way of naming it that conveys to people that the category is not only superior but also different? Because the category has been nonexistent up until now, it requires a leader with a clear vision and belief in what it could be worth in the future.
- Alter your product roadmap and messages to the market. It is imperative that your product roadmap backs up your category vision. Plus, whatever content you create, such as on your website or in sales decks, must align with your point of view. It is important that you are able to address the category size you aim for. Picking a size too small significantly limits the business. But, making promises you will not be able to meet can mean a competitor overtaking you. It is, therefore, crucial that you are confident you can address the size of the category.
- Proclaim the category. This is the time to share your aims and visions for the category worldwide. This is accomplished through any means that the world will hear about, such as through podcasts, adverts, blogs, and more.
- Utilise lightning strike moments. Lightning strikes are your chance to shock and entice your customers by creating an experience that is memorable and differentiates your value. Examples of lightning strikes include marketing stunts, product launches, industry conferences, and PR campaigns.
How to Win Your Category and Become a Category Leader
Reasons to Become a Category Leader
- It is much easier than it was 20 years ago to start a company. The problem with this is the market is saturated with thousands of companies seeking to accomplish what you want to do, making it hard to get your head above water. The way around this is to establish yourself as a category leader or “king” in a specific sphere. That way, people will look to you as the point of authority.
- Another reason for a company with a digital product or service is that any digital market is essentially a ‘winner takes all’ situation. For instance, Uber is the category leader in transport as it takes up 73% market share.
- Category leaders also tend to draw the best people. This was shown in a study by LinkedIn, which considered what 25 companies the most talented people globally wish to work for. The study found a direct correlation between category kings and the 25 companies listed. This, therefore, illustrates that category leaders tend to attract the best and most talented people.
- As displayed in our earlier statistics, category leaders create inexplicably more value for both the market and shareholders. Not only this, but they reimagine and change the world as we know it.
- Many companies do not strive to be category leaders because they are scared of losing the position they have gained up to this point. These companies are hesitant to go against the grain for fear of failure. Oftentimes these businesses can be previous category leaders that initially pioneered the landscape but have stagnated and defended their category despite it being slow-moving. But, the reality is that they should consider the exponential value that could be created by being innovative and pursuing category design and leadership.
- Following on from the previous point, many companies believe that connecting with an existing category is beneficial. They believe that by making a new version of a product that is better, cheaper, stronger, and faster, they will receive guaranteed results. This is not always the case. Plus, this method generally has a limited shelf-life. By adjusting your strategy to consider a different category rather than a superior product, there is potential for massive value and the benefit of being a category king.
Example Of An Old Category King: Xerox
In the 20th century, Xerox was one of the most innovative businesses in operation, and its machines could be found in virtually every office worldwide. Unfortunately, times have changed, and while Xerox was a category leader, it no longer dominates any relevant category. To clarify, it is not that Xerox has weakened as a brand. Rather, it is the category it was the leader of that is becoming redundant. Consider our modern digital and often paperless culture; Xerox no longer holds a place. The company is still holding on to what it once had instead of trying to create or invent something game-changing. Therefore, to ensure that you maintain a position as a category leader, it is imperative that new things are created.
What Does It Require to Be a Category Leader?
What are some of the qualities that a category leader should possess? In this section, we go through several key traits:
- It is imperative that the company can create practical solutions and have the power of influence. For example, if you are a category leader and supplier in the food and drink industry, it has never been more challenging to influence a retailer and the tactics they choose. Because retailers have greater insight, such as through loyalty card information, and numerous people analyse this data, it takes much intelligence and skill to provide solutions for retailers, such as how to retain target customers. Even being able to find a humble opportunity from firm information can result in a big impact (especially in this tough economic environment).
- What is also required is the ability to use strong insights into the customer and act on them. Use the data to spring into action and find an opportunity rather than get stuck on what the data shows. Rather than just analysing the insights, act on them.
- The entire company needs to have a very clear image of what you aim to accomplish, as well as in-depth comprehension of the category itself.
|Did you know? A large budget is not required to be a category leader. What is far more important is the ability to find an opportunity that solves a problem people didn’t know existed or reimagine an established problem and form the foundation for a very different solution.
How to Become a Category Leader
In order to win the category and become a category leader, it is vital that you employ an active marketing strategy to ensure that the market understands and believes in your point of view. Here are several critical steps you should follow to become a category leader:
- Determine your category. This should be done within a handful of descriptive and transparent words. It should clearly convey what you do and essentially equates to your elevator pitch. It is important that the category emphasises why you are different and unique.
- If you cannot determine your category then instead redefine it. As we have touched upon, if you do not create a new category, you should be able to redefine one that already exists, i.e. reimagining a well-known issue and form the base of a unique solution. This can help you keep old competitors at bay.
- Convince the world that your category is valid. This is key to winning. Business comprehends problems by putting them into categories, so being able to persuade the world that your new category is valid carries you on your path to success as a category leader. Let’s not forget: if you define the category, it is probable you will gain the majority of orders.
- Validate your category using customer feedback. Customer feedback and testimony are perhaps the best weapons in justifying a category. A company can make claims about what it can achieve, but without customer support to back it up, these are little more than words to prospects. Gaining credibility from customers who are willing to express their direct success with the product is imperative and genuinely displays the validity of your category. Ensure you get hold of items that will emphasise your leadership, such as case studies, reference accounts, and press releases.
- Form your category requirements to get the edge over competitors. The next step is to go into more detail and determine your category requirements. Essentially, it involves considering what functionalities are absolutely key for your product type. If you can succeed in positioning your business around a strength and de-positioning competitors around a flaw or weakness, it will be easy for you to stay ahead.
- Do not punch below the belt with competitors. When redefining a category, it is not rare to come up against large organisations that may seek to discredit or mock you. While it is okay to jest and’ pick fights’ with them, it is important that you stay positive in tone and do not punch below the belt. You should also keep your focus on your product because, at the end of the day, that is what matters. It is okay to make lighthearted jokes about a competitor, but do not cross the line, as this will do you no favours.
- If successful, welcome big businesses to your new category. There will come a time if you reach success when the big companies will stop trying to criticise and discredit you and instead opt to copy what you have achieved. You should always welcome them to your new category, as if nothing else, it is a clear validation of your vision. And remember: when big businesses adopt your category and have to respond to the disruption you’ve caused, this just means that you have made it, and you are now a true category king.
Invest in the Services of Full-Stack Growth Agency NUOPTIMA
When it comes to scaling a company, there are numerous routes that entrepreneurs can go down to achieve this task. For instance, they might consider raising capital for their brand. If you own a SaaS company, enjoy our article on SaaS requirements and benchmarks for raising capital to see if this is an appealing option for you. However, one surefire way to scale your brand is to enlist in the services of a professional growth agency, such as NUOPTIMA.
NUOPTIMA is a full-stack growth agency specialising in transforming startups into category leaders. We have helped countless brands in numerous sectors, including SaaS, fintech, cryptocurrency companies, D2C, and B2B businesses.
A fantastic example of how we transformed a company into a category leader is Alphagreen.io. Alphagreen, with the assistance of NUOPTIMA, has been announced as the largest CBD marketplace in Europe. Not only this, but it has been nominated as the “Best Scale Up” for the 37th Marketing Society Awards. To learn more about how Alphagreen and NUOPTIMA built Europe’s largest CBD marketplace in just six months, watch the following interview with Alexej Pikovsky, CEO and co-founder of Alphagreen:
Striving to become a category leader alone is no easy feat and requires constant work, diligence, and focus. For this reason, investing in a company that specialises in growing brands is an excellent idea so you can focus on what you should be: running your company. To learn about how we can grow your startup into a category leader, book a free discovery call with our expert team today.