Category choice does most of the heavy lifting in our market positioning, but rarely gets the credit. It’s become a set and forget decision as we set out, soon becoming cemented as one of those “just what we are” facts of business.
Yet category is a topic that deserves much deeper understanding, far beyond the outset of a venture. Most founders understandably believe that their category is pre-ordained, that it’s a label based on what your product “does”. In reality however, category is a major strategic choice; far from being a passive construct, it’s shorthand for the market where you compete.
Decoding the concept
Before we dive in, it’s useful to be reminded of what a simple concept “category” is.
A category is a theoretical label that describes a group of products which provide similar functional value. Or more bluntly, it's a group of products that broadly offer the same thing to the same customer.
Everything we make or offer has a corresponding category. Often these are quite formal classifications, helping the government to categorise the myriad of businesses that they serve. But for anybody trying to make sales, category provides the essential grammar of commerce. Informing retailers where to range your product on-shelf and helping buyers to find what they really want next.
Your category is a market signpost
Your category does three broad things for you;
- It puts you in a default competitor set
Since a category is a group of similar products that compete for the same customer, as soon as you enter that category you are technically in competition for share with every single incumbent. Although you will refine it by channel, price and by features, buyers will mentally group you at a category level first and make hidden comparisons before they enter your sales funnel.
- It sets the market’s pricing norms
Categories naturally segment based on value; differentiation on price is essential as categories or technology matures. The current spread of prices vs value in a category will instantly tell you where the current top and bottom thresholds are for pricing. Going beyond those thresholds means challenging the established norms, which takes time and an indomitable value proposition.
- It signals your value proposition to buyers
Being seen in a group of similar products enables buyers to intuitively know what to expect from you, even before they’ve engaged. Their expectation of your features or service levels will be based on what they have experienced from your competitors, not by you.
Hence a lack of foresight about the category you compete for can make you appear out of place, like an accidental Frankenstein. So beware of strategic inaction, taking no action just means even less control of how the market sees you.
When you adopt a category by default, you instantly set your market’s expectation of your pricing, product and service levels, before you utter a single word. For example, if you’re launching in Accounting Software, you’re instantly compared with the value offered by Xero, MYOB or Quickbooks, whether you think you’re directly competing with them or not.
Category rules are made to be broken
There is plenty of advice out there about the fabled “category of one”. Indeed, when you have a truly innovative proposition for the market, it’s tempting to convince yourself that you don’t fit it anywhere, that you’re just “too ahead of the curve”. In my experience this is ego talking so don’t be fooled into conflating category choice with differentiation, as you simply don’t need your own category to differentiate.
Choosing to set up your personal category of one is choosing to build your market from scratch. You have to educate your buyer on everything you do, every little detail and nuance. There is no budget line ready for you, or easy way for buyers to compare and justify their purchase decision. This is a slow, hard and expensive path. I’ve personally made this mistake once, so take it from one who has lived to regret it deeply.
But don’t despair, competing inside a well defined category isn’t a sentence to conformity. It just means using what buyers instinctively understand about a category already to free you to position more precisely based on your own strengths.
Categories do evolve over time, particularly the elasticity of their value segments, so don’t ever stop challenging the norms of your collective competitors.
Does changing category create more value?
This is a common question where I always find the fence. It depends. Category shifts are usually triggered by extensive product development or by range extension. The shift gives you access to a different customer need or pain point, but not always a different buyer. It is common for a product portfolio to stretch across categories over time, although this always creates significant comms challenges to counter.
