The Five Profitable Positions in any Marketplace
In my former corporate life, I was consistently amazed at the communication gap between the people who made the products, and the people who marketed and sold them. Being a tinkerer and a social problem solver, I would always try to find a way to bridge the gap between the makers and the marketers. Sometimes these efforts were successful, sometimes they were not. Yet in the course of trying to solve the inner workings of the corporations I worked for, I stumbled upon what I believe to be some universal truths about branding and product development.
The first truth, Brand Focus, is explained here.
The second truth, Category Position, is how companies compete in the marketplace, and how position in the marketplace will dictate success. What follows is a short explanation of this concept, along with examples of each position. (author’s note: I believe that the basis of this truth came from a book read in the course of my personal development, so if this sounds familiar, of if you are the author of the book, please let me know. I have been trying to find my original source for nearly two decades)
Microsoft, being a huge multinational company, competes everywhere. In many of their products, they not only own the market share, but own almost the entire marketplace. Yet in some areas they are a distant second, third, or fourth. Why is this? Although the full answer is a long and technical one, the consumer-level answer is very simple: categories, not brands, define success in the marketplace.
A category, simply defined, what your user would categorize your product to be. If I asked you what type of product Windows XP is, you would most likely tell me ?an Operating System?. So Operating System would be the category for the product, and Microsoft would clearly dominate the category.
But when I show you a Zune and ask for the category, you would most likely tell me MP3 Player. Microsoft is clearly losing this category to Apple. Why would Microsoft choose to even compete here, when Apple so clearly dominates? Well, it turns out that there is money to be made being a good number two even if the number one is colossal. In fact there are five different positions in a category that are profitable, if you know how to use them.
The Five Profitable Category Positions
The five profitable positions for any market category are The Market Leader, The Second, The Alternative, The Boutique, and the New Category Leader. In each of these positions it is possible to make money, and possible to grow. But it is next to impossible to move from one position to another without outside help.
In the image above, each position is drawn in its respective market share position and size. As you may notice, the sizes get rather small quickly. So why is it next to impossible to move? Because when each position is significantly smaller than the one in front of it, the investment required to change positions far outweighs the profits from changing.
Now, let’s look at each position individually, to see how each position differs. For this exercise, we can use the cola category, because it is well understood by most people.
Position One: The Market Leader
Coke, of course, is the leader. They are everywhere, and their profitability is legendary. They are a prime example of a leader. And because they have such a strong competitor in Pepsi, they really can’t own any more market share. So their only real option to grow is to enter new markets. Why? Because it is significantly cheaper to open up China distribution than to get Pepsi out of Safeway.
Position Two: The Second
Pepsi is a strong Second. They are also everywhere, and are really thought of as the only alternative to Coke. So how do they grow? Taking share away from Coke is expensive and difficult, but entering China one year after coke is much easier and cheaper. They draft off of Coke’s category growth.
Position three: The Alternative
In some areas of the country RC Cola is the Alternative. But they are not everywhere, and they do not have the marketing firepower the big two have. So how do they grow? Area by area. They target specific channels where they can be seen as local or unique and grow ?door to door?.
Position Four: The Boutique
Jones soda is a quintessential Boutique. They sell cola, but Jones is less about the cola, and more about the cola experience. The cola only comes in glass bottles with pure cane sugar, custom artwork on the label, and a high price tag. This is obviously not mainstream competition to the majors. Yet they are profitable, and have a loyal following. Why? Because they obsessively deliver to a particular subgroup of cola consumers.
Position five: The New Category Leader (NCL)
So if you want to disrupt a category, how do you do it? Personally, I would ask the market geniuses behind Red Bull. They built an entire empire telling everybody that they were ?not cola, but energy?. Of course Red Bull couldn’t compete with Coke when they started out. But they could tell people their category, Energy, was better. And isn’t that competing with Cola anyway? They used their new category to get on the store shelves that coke was already winning. And they did it without ever competing with Coke or Pepsi head to head.
Great, so why does this matter?
Good question. And the answer comes down to this: if you know your position, you know how to compete profitably. If you don’t know where you stand, you most likely will be sold a business, marketing, or growth plan that will waste a lot of money attempting to move you to a place you can’t capture. More importantly, once you know your position, you can develop business and marketing plans that anchor your profit positions, and yield high rates of return.
Always good to review and I really like the presentation – Well Done and obviously I am a Boutique 🙂
One interesting twist is that–depending on what the buyer is looking for–you can be in different roles. For example, Jones is the dominant player in boutique/craft/premium sodas, but clearly the boutique when looked at against coke.
That’s what makes our jobs so interesting.