Last week I wrote about my 7-step CatSight™ Process for Insight Development. The first step is to identify the Category in which you are competing. I got so many comments about this step that I decided to dedicate a whole post to this important topic.
If you haven’t yet had the chance to read last week’s post (“Customer Centricity is Today’s Business Disruptor, Insights its Foundation”) I suggest you do this first, as background to this post. In it, I summarised the very first step of Insight development like this:
C = Category
Whenever you want to develop insight, the first task is to decide on the category you want to study. This may seem obvious to you, but in many cases, it isn’t as clear as you might think.
For instance, suppose you are looking to launch a new juice flavoured soft drink. You may think that you are competing with other juices or perhaps other soft drinks.
In working with one client in just such a situation, we actually found that their main competitor was an energy drink!
The reason was that these are seen as being for lively, energetic, fun-loving people who needed a boost. Whether this comes from the caffeine of an energy drink, or from the added vitamins and minerals which was my client’s offer, didn’t seem to matter.
If we’d only looked at other fruit flavoured soft drinks we would have missed a whole – and large – section of category consumers.
By starting our comparison in all beverages and then slowly zooming in as we learnt more, we were quickly able to discover this perhaps surprising positioning for the new drink.
This shows the power of taking the consumers’ perspective, especially when segmenting a market. But more about that in a moment.
The above example is a great start. But many readers have since asked me to help them with their own category definition, so here are the suggested steps to doing it for yourself:
Step 1. What is the category definition you are currently using?
In any process we need to start by identifying where we are today. In this case, it should be the category you think you are competing in. Depending on whether you are offering a product or service, you might define it as:
– All hot beverage consumers ….. or ….. users of an insurance service.
– Consumers of coffee ….. or ….. people who have bought insurance for natural disasters.
– All consumers of instant coffee powder ….. or ….. house owners in Florida who have bought insurance for natural disasters.
– Consumers of instant coffee powder costing less than US$ 2.50 per 100 gms ….. or ….. owners of houses over US$2 million in Florida who have bought insurance for natural disasters.
As you can see from these few examples, the bottom definitions are far more precise and focused than the top ones.
The one you use, will depend upon whether you are looking to grow your brand through your marketing activities or looking to develop a new product or service offer. I call this zooming in and zooming out. In general understanding the category by zooming in is best for growth, zooming out for innovation.
Now take a look at your own current category definition. I bet it’s too broad for general use isn’t it? This is the mistake that most businesses make, big and small. They want to attract all consumers or users of a category, but as is often quoted:
“If you try to please everyone, you end up pleasing no-one”
The more precise you are in the group of customers you are trying to attract, the more focused will be your actions and communications. In addition, they will also resonate more strongly with your target audience.
Step 2. How is this category changing?
Once you have identified the precise category in which you are playing, you need to consider what is currently happening to it. Is it growing or declining? Why?
Understanding how the category is changing and more importantly why, will help you to understand it better. For instance:
– Is the category growing? If so is it the leading brands which are increasing, or are there new brands that were recently launched which are making the difference? Identfying which brands are growing and the reasons for this growth will enable you to take corrective action.
– Is the category stable? Are category shares stable, or are some brands gaining and others losing? Again, why? What do the brands which are gaining have in common? What are the losing brands lacking? Are the changes making a difference to the category definition?
– Is the category declining? Are all major brands in the category losing or are some gaining at the expense of others, but not maintaining overall category size? If so, What are the declining brands lacking? Where are customers who are leaving the category going to? Is there a new category which is better meeting their needs?
Your answers to these questions, will help you to understand whether the category in which you are currently competing is going to remain as attractive as it is today.
Step 3. How will this category change in the future?
In addition to current category trends, you also need to assess what is likely to happen in the marketplace in the coming years and how this may impact it.
Things are changing and changing fast these days. There is no more “business as usual.” Expecting the unexpected has become the norm, which is why I am such a big fan of scenario planning.
Industries are being disrupted. A study from the John M. Olin School of Business (Washington University) estimates that 40% of today’s Fortune 500 companies on the S&P 500 will no longer exist in 10 years time!
Understanding who and what will impact your category, is the first step to preparing for the changes which could come. Preparing for likely future opportunities and risks is the second step, and the reason scenario planning is so vital to ongoing busines success.
Step 4. Which of the category users are you attracting?
This question surprises some people. They expect that once they have identified the category in which they are competing that they can just start trying to attract everyone in it. However “You can’t please all the people all of the time” as the infamous quote from John Lydgate mentions.
You therefore need to identify which of the category users would be most interested in what you have to offer. The best way is by running a segmentation study and then plotting the groups on the Boston Matrix I mentioned in last week’s post. Or you can read “How to Sell Less to More People: The Essentials of Segmentation.” for a more detailed explanation on how to divide all category users into relevant sub-groups.
Understanding which sub-group of all the category users you are most likely to appeal to with your offer, is one further step in focusing on the very best target audience for your brand.
Step 5. How are your customers changing?
After identifying which category users are the most attracted to your offer, you also need to consider how this sub-group is changing. Is it increasing or decreasing in size, and how and why is it changing.
As with category changes mentioned above, it is important that you target a viable group. This can either be a growing segment or you should have plans to attract those who switch out with a separate offer.
There are many reasons why a segment may decline:
- The introduction of a new category segment that is taking customers away from yours.
- Natural decline because of aging.
- Behavioural changes that make the category less relevant than in the past.
Having identified how your customers are changing today, you then need to consider societal trends and their impact on your customers. That is the ultimate test to choosing the right group of category users to target.