Owning Game-Changing Subcategories: Uncommon Growth in the Digital Age

By David Aaker

Owning Game-Changing Subcategories is about creating organizational growth in the digital age by creating and owning game-changing subcategories fueled by digital.

Owning Game-Changing Subcategories outlines the path to finding, managing, and leveraging new subcategories. In the digital age, the path has been made wider, shorter, and more frequently traveled. Throughout Owning Game-Changing Subcategories, David Aaker discusses certain aspects of the digital age that alter this path, such as E-commerce providing fast, inexpensive market access bypassing the cost of gaining distribution into storefront retailers or creating personal sales teams and social media and websites enabling communication on steroids in comparison with traditional use of advertising or events.

Growth is not only a success measure but also creates energy and opportunity for customers and employees. And such growth almost never occurs with “my brand is better than your brand” marketing. Owning Game-Changing Subcategories explores the only ways to grow a business (with rare exceptions) which is to:

develop new “must haves” that define a game-changing subcategory that provides a new or markedly superior buying or use experience or brand relationship to a core customer base;

become the exemplar brand that represents the subcategory and drives its visibility, positioning, and success; and

create barriers to competitors that could include “must-have” associations and a basis of relationships that go beyond functional benefits.

• Language: English
• Publisher: Open Road Integrated Media
• Release date: Feb 4, 2020
• ISBN: 9781642798913

David Aaker

Hailed the “Father of Modern Branding,” David Aaker is Vice Chairman of Prophet—a consultancy that helps clients unlock uncommon growth in the face of disruption—and the creator of the Aaker Model™. Aaker has written eighteen books that address elements of branding and innovation in business, providing essential resources such as Aaker on Branding, Building Strong Brands, and Creating Signature Stories. Outside of his published works, Aaker’s writing can be found on Prophet’s blog, where he shares timely business topics with thousands of readers. He currently resides near San Francisco, California.

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Preface

Why This Book?

Growth is a success measure for most organizations showing that its value proposition is working. It can intrigue and reassure customers as well as bring pride and opportunity to employees. It is or should be a strategic priority. How do you grow in the digital age?

One central thesis of this book is that the only way to grow your business (with rare exceptions) in any age is to find and own game-changing subcategories. That path to growth has almost always been behind any observed surge in sales or business valuation. Pursuing that route to uncommon growth means that an organization needs to:

•Develop or find new must-haves that define a game-changing subcategory that provides a new or markedly superior buying or use experience or meaningful brand relationship.

•Become the exemplar brand that represents the subcategory and drives its visibility, positioning and success.

•Build a core customer base loyal to the subcategory and its exemplar brand that can power growth through commitment and influence.

•Create barriers to competitors inhibiting their ability to become relevant options—barriers could include the committed customer base, must-have associations, branded innovations, and a basis of relationships that go beyond functional benefits.

A second book thesis is that the potential for achieving growth through creating game-changing subcategories has been dramatically changed and enhanced by the digital revolution. Digital has created a very different innovation world in which the subcategory growth path has been made wider, shorter, and more frequently traveled because:

•Digital technology in the form of sensors, microcomputers, voice recognition, smart phones, cloud computing, analytics and much more provide new avenues to must-haves.

•E-commerce has provided fast, inexpensive market access bypassing the cost of gaining distribution into storefront retailers or creating personal sales teams.

•Social media and websites enable communication on steroids in comparison with traditional use of advertising or events.

•Digital enables the development of brand communities that can provide a new level of involvement and loyalty.

The alternative to engaging in market leadership by creating new game-changing subcategories is my brand is better than your brand brand preference competition. That route rarely generates growth and is so not fun.

The book uses case studies and conceptual insights to illustrate how game-changing subcategories create growth, how digital both drives and enables new subcategories to win, and how to find, evaluate, manage, and build barriers around these game-changing must haves. It features the role of digital and subcategory dyanmics in achieving uncommon growth.

How Is This Book Different?

There are hundreds of books that, in one way or another, talk about growth strategies based on innovation. Although these books have made a significant contribution to strategic thought and practice, this book has several distinctive thrusts and features that are missing in much of this library.

First, there is an explicit incorporation of the digital environment and how that impacts strategic innovation and subcategory formation. As noted above, digital technology provides more routes to must-haves, market access to innovators via e-commerce, new powerful communication vehicles and more. Because of digital, the scope, frequency and speed of strategic innovation has greatly accelerated. I owe a debt of gratitude to Jennifer Aaker, who (forcefully) pushed me in this direction.

Second, substantial innovation as a growth platform is explicitly included. Substantial (unlike transformational) innovation will not change the basic characteristics of the offering. But it will significantly enhance it, either through the addition of a new or enhanced must-have that is so significant that customers will now reject any option without it. Other strategy books center on transformational innovation or encorage incremental innovation and its role in my brand is better than your brand competition.

Third, I here focus on game-changing subcategories while most other books on strategic innovation focus on creating whole new categories. For every opportunity of creating new categories such as the Sports TV channel or a cruise ship, there are dozens of opportunities or more of creating subcategories such as a golf or tennis channel or a cruise ship for kids or singles. The emphasis on subcategories gives the strategic thrust of the brand leadership a wider scope. Nearly every business can continuously look for new subcategory opportunities whereas the chance to create a new category occurs rarely.

Fourth, creating barriers to competitors aspiring to become relevant to the game-changing subcategory is another emphasis. It is classic economics. Build a competitive arena and then construct a fence around it so that others are kept out. There are a variety of barriers that can be created as noted above such as a committed customer base, must-have associations, and branded innovations.

Finally, branding and branding methods are employed. To aspire to grow by being a driver of market dynamics, it is important to know the power of branding. It starts with making your brand the exemplar of the game-changing subcategory where it will not only then be relevant but will be able to win the day. Strategic and tactical brand-building techniques need to be employed when building the new subcategory because it, like a brand, needs to be defined, positioned and communicated. In contrast, most other major strategy books either fail to mention branding at all or fail to consider its role or the role of brand building methods in the process of creating and managing a new growth platform.

A word about my 2011 book, Brand Relevance, in which the strategy of finding and owning new subcategories was first put forth. Owning Game-Changing Subcategories has three distinct differences. First, it is written in and for the digital era, and chronicles how digital has both driven and enabled new subcategories to be formed. As already noted, digital provides many more routes to much haves and has dramatically changed the frequency of subcategory formation from rare to commonplace. Second, the book is compact and thus more focused and accessible. This book is just a bit over half the size of Brand Relevance which contains lengthy case studies of subcategory development in retail, automobile, and food industries, some going back over a century. Third, it is about achieving uncommon growth through subcategories as opposed to making competition irrelevant and a companion strategy of maintaining relevance in the face of competitor innovation threats. The titles of the two books reflect that difference in motivation, perspective and content.

The Plan

The Prologue starts the book with five case studies of game-changing subcategories to help us avoid the abstract by introducing role models and illustrative examples. Chapter 1 provides an overview of the theory and practice of creating game-changing subcategories. Chapter 2 discusses the dramatic pay-off they have generated. Chapters 3 to 6 explicate the power of digital to drive or enable strategic innovation. Digital is portrayed in the sharing economy, in e-commerce, in the Internet of Things and in Chapter 6 enabling communication, supporting brand communities and personalization. Chapters 7 to 10 provide tools to find, evaluate, manage, and create barriers to must haves. Chapter 11 suggests 20 takeaways from the book.

Prologue

Market Disruption Role Models

Disruptors don’t have to discover something new; they just have to discover a practical use for new discoveries.

—Jay Samit, Vice Chairman of Deloitte and A Digital Media Innovator

Brands want to grow. Most are content to claw out incremental gains, and some are happy when they don’t lose ground. But a small handful can do something entirely different. Using meaningful must-have innovation, new ways to connect to the customer and creative brand-building programs, they achieve uncommon growth by artfully carving out new game-changing subcategories that competitors cannot easily match. They aren’t just brands customers prefer. They become brands that lead and brands that grow. This book is their story. We start with six such brands, the last two being embedded in the story of the Japanese beer market.

Etsy

In 2005, Etsy’s founders, Rob Kalin, an amateur furniture maker, Chris Maguire and Haim Schoppik saw that there was no place an artisan could go to sell his or her products, except Amazon and eBay. And there, craftspeople and buyers felt lost and out of place. In response, in their Brooklyn apartment, they developed the concept of an online platform for craftspeople to sell their goods. Naming it Etsy, they created and launched the website in a remarkable few months, funded in part by a $50,000 investment from a friend.

Three years into its existence, Etsy’s staff had increased to 50 with 120,000 registered sellers, based in 127 countries. Its business model involved modest fees for listing items, making transactions, payment processing and providing marketing services. In 2015, Etsy went public with a market cap of $1.8 billion. By 2019, its value had grown to $8.1 billion with over 2.2 million sellers and 41 million active buyers.¹

Some of the winning values and policies that became must-haves for this community were installed early. Etsy is…

•A community of buyers who are passionate about clever, high-quality craft activity and view the site as a fun place to hang out

•A site that draws people in with intriguing products and features like editors’ picks, most popular and much more

•About a human connection, where a buyer gets a special product from a real person, not from an anonymous firm or Amazon

•A place where creativity lives and thrives because it is powered by creative sellers and buyers

•Committed to advancing social and environmental challenges. In 2012, Etsy became a Certified B Corporation, meeting the highest standards of verified social and environmental performance and is legally permitted to balance profit and purpose

The Seller Community

For sellers, Etsy is a place to turn ideas into a business. There are many must-haves under the umbrella of helping sellers market and distribute their crafts. Some are offered by Etsy, others by the seller community and still others by third parties. But all support and connect the Etsy seller community.

Etsy has a rich, evolving system to help sellers that includes:

•Easy-to-use software to help sellers create their own website in minutes

•Assistance in reaching shoppers on Etsy with promoted listings

•Help in advertising on Facebook, Pinterest, Twitter or Instagram

•A Sell on Etsy App to manage orders, edit listings and respond to buyers instantly

•Etsy Plus with customized options that elevate an Etsy seller’s performance.

In addition to the Etsy efforts, a seller community website provides a compilation of seller advice and aids about running their business. A handbook section has information about all aspects of making an Etsy business successful. A forum provides a vehicle to discuss areas of interest, like branding or marketing. Still another section allows you to create or join one of the active 700,000 team discussions and explore cooperation with other sellers. Here, the community compares ideas about anything affecting their business–how to grow, how to promote, how to work with metal, shameless advertising, global marketing and much more. In 2019 there were over 11,000 teams, with seven million team members.

The website also has a blog that contains a featured shop series, with an in-depth profile of one of the artisans. One, for example, tells the story of Belaya Hvoya, a line of wooden utensils made by Kirill Babii, a Ukraine-based woodworker.² On my way home from university one day in 2012, I came across a sycamore branch. I was getting my masters in technical processes and production, but at that very moment I realized I didn’t want to spend my life in factories, he writes. I began collecting wood from around the city. It was very inspiring to rebirth dead wood into something with another function. I loved the process of creation. My girlfriend at the time helped me establish a brand which turned out to be Belaya Hvoya (Russian for white pine needle"). His work evolved into cutting boards, plates, and modular dining utensils, with a spoon being the most popular. After three years of local marketing, he joined Etsy to access a global audience. This story and others like it personalize the community. Stories are what move people and stick in their mind.

A discussion of current trends, based in part on Etsy search data, is sent by email. Take a recent update on the wedding business: Channeling the maximalism trend, brides are adopting a more is more mindset, especially when it comes to selecting wedding dresses. One way to stand out from the crowd of sweetheart styles is opting for statement sleeves, a look that’s glamorous, romantic and completely Insta-worthy. Etsy has already started to see an influx in searches for this style–in the past three months, we’ve seen over 155K searches for wedding dresses with sleeves, and I expect brides to continue piling on the drama throughout the next year.³

Etsy has created and owned a subcategory that channels energy from sellers and buyers into the marketplace. They truly believe and live the mission of Etsy. Prophet, the digital brand strategy firm with whom I as associated, does an annual relevance study of nearly 300 brands. Etsy places third on the measure of the ability to inspire others. That’s a remarkable and enviable feat–only Pinterest and Food Network do better.

Amazon Handmade Enters

In 2015, ten years after Etsy launched, Amazon introduced Amazon Handmade, an Etsy competitor, with the option of using Fulfillment by Amazon. In some ways, it was the ultimate compliment. How might Amazon overcome the authenticity challenge? One way was to restrict sellers to those that actually made their crafts or had a small number of employees do so. Etsy allowed the making of product to be outsourced. Further, a description and sometimes videos of the artisans created a personal connection. Finally, the products did not appear on the Amazon search engine. That decreased exposure but meant that Amazon Handmade was separate, devoted to craft items.

But even facing off against Amazon hasn’t slowed Etsy down as evidenced by its nearly 40% year-over-year growth rate from 2015 to 2019. Amazon Handmade had some liabilities that may have held it back. In addition to the commoditization image and culture, a seller had to live with much higher fees, Amazon owning the customer and the data and the lack of ability to add promotional material in or on shipping boxes.

Prius

Hiroshi Okuda, Toyota’s CEO, visited Daimler Benz in the fall of 1995. He saw the A car, which was intended to be the best small car on the road. He was so disturbed that another manufacturer, particularly one from Europe, would take a leadership position in small cars that he vowed not to let that happen. He challenged his engineering team to develop a car that would double the mileage rating of existing small-car options and be ready to launch in 1997.

The chief engineer, who said it was an unthinkable goal, nevertheless took on the job. Finding inspiration from stories of others that did the impossible, he led the team to a successful introduction of the first-generation Prius in December of 1997. To create that Prius, several technological advances were required. Off-the-shelf technology was far from adequate.

The hybrid compact Prius made it to the U.S. in 2000. But it was the second generation introduced in 2003 that created a sales success. The revised design provided a large step-up in performance with respect to acceleration, a smoother transfer from electric to gas power, safety, emissions and gas mileage as well as a stylish distinctive design with increased interior space. The branded transmission, the Hybrid Synergy Drive that optimizes the use of the battery, the gas engine and the electric motor that recharges the battery all became points of differentiation and statements of authenticity. The Prius emerged as a symbol of Toyota’s technological leadership and ecological commitment. Blessed with multiple must-haves, it boasted Toyota quality, superior gas mileage, a clean-car rating with respect to smog emission and a distinct appearance.

But it was more than just those functional benefits. Another must-have was the self-expressive benefit of doing something about the energy and global warming crises, in part because of its distinctive design. In one survey, more than half of the Prius buyers said the main reason they purchased the car was that it makes a statement about me.⁴ Prius was only available as a hybrid. If a Prius is seen on the road or in a parking lot, there is no doubt that the owner has bought a hybrid. In contrast, buyers of a Honda Civic hybrid or Ford Escape SUV hybrid may or may not be driving a hybrid. You may help the environment by buying a Civic or Escape. But you don’t make a statement.

Continual innovation made sure that Prius was always a moving target to competitors. The third generation, introduced in 2009, included improved cooling, a more aerodynamic body, more power and more fuel economy, becoming the most efficient car in the U.S. It also had new features like headlight washers, parking sensors, better speakers, adjustable lumbar support, updated infotainment systems, a USB port, Bluetooth, and on some models, a pre-collision system and Keep Lane Assist (to alert you if you drift out of your lane). The fourth-generation Prius, from 2015, was lighter and less costly with still-better fuel economy. However, a polarizing design, more hybrid competitors in different subcategories and increased gas mileage numbers in non-hybrid models combine to cause a Prius to experience a sales decline.

The Prius was an incredible success and dominated the U.S. compact hybrid subcategory for over 12 years with little competition. In 2014, for example, Prius sold 194,000 units, or 43% of U.S. hybrid cars sales. The nearest compact competitor was the Hyundai Sonata at 21,000. Further, in 2014 Toyota sold another 43,000 hybrids under other Toyota and Lexus models drawing on the Prius technology. In doing so, it created and participated in other subcategories such as hybrid SUVs and hybrid luxury sedans. Through 2017, Prius sold 2.2 million cars in the U.S. alone. The Prius numbers elsewhere are even more impressive. And customers were loyal. In one 2006 survey, some 94% of Prius customers said that they would rebuy the brand.⁵

Warby