Why creating new categories is so successful

Creating a new category. The Holy Grail of Innovation. The Holy Grail of entrepreneurs. It’s when you can create a new category that you command the skies. Think of the iPad. Is it a new category?

It is. But not because people think it is, but because Apple defined it as such. Experts characterized the iPad as a tablet, but customers did not. That’s all that matters.

Other examples of category creation exist. For example Gatorade created the sports drink category. Chrysler created the minivan. Toyota created the Prius. Each had a good amount of time before any competitor entered the space.

So why is it that you should embrace creating new categories?

From a competitive perspective, here are four reasons:

  • Because competitors stop thinking. It’s much easier to prove the viability of a product that fits an existing category than a one that creates a new category. How many times have you been successful at pitching your boss without being able to say “the market for tablet PC’s is projected to grow X percent over the next five years.”
  • Because competitors can’t adopt your frame of the world because it’s not consistent with theirs. Zappos says that they are in the customer service business, not the shoes business. What business are you in?
  • Because competitors fear what they can’t understand. Competitors have never experienced an iPad before, so they cannot imagine the product succeeding. As a result, they dismiss the product’s potential.
  • Because competitors will eventually wake up and will try to catch up by copying you. Being first doesn’t necessarily mean that you are in the drivers seat. Though sometimes playing from behind is better because you get to see everyone’s mistakes first so you can then exploit them.

Of course, all of this sounds pretty simple. But it’s amazing, at least where I am, how overlooked it is in business circles.

The only way to grow, with rare exceptions, is to engage in category innovation, to create a new category (or subcategory), and then manage the perceptions toward the purchases and loyalty toward that category. To that end, the brand should become the exemplar or representative of the category, but the focus should be on the category not on the brand. It should be “my category is better than your category” rather than “my brand is better than your brand.”

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  • Markets create categories, not companies or customers. When the market creates a category, the market also anoints “THE” market leader. This position is that of the category itself.

    When a company attempts to create a category, that company gets to play the role of “A” market leader. This company is really doing the typical promo-spend competition model typical of late market companies. It’s here were you see many companies claiming market leadership, none having it, and lots of churn and fast following.

    “THE” market leader is impervious to the pricing machinations of the fast follower who are playing price to get their portion of the market allocation, a tiny allocation. “THE” market leader won’t be displaced by the fast followers. It will take a fundamental technological change with a new S-curve, meaning not a product or service, but a tech, to displace “THE” market leader. “THE” market leadership is theirs to lose. They won’t be disrupted. They will make a decision to exit. This decision is taken only after a long convergence and much commoditization. Commoditization is the end of life expression of market power.

    Since “THE” market leader must serially and constantly innovate discontinuously and expose itself to new markets in doing so, it is here where incumbents die. They insist on scale. They insist on discontinuous innovation in their existing markets. They insist on doing it wrong.

    But, so do those that set out disrupt, instead of focusing on improving the performance their technology delivers. You can improve the performance of carrier technologies, not typically done these days, or carried/content technologies. But, at some point is will be a technology under the hood that blooms into the hype cycle notion of a next generation category where the incumbent has to make decisions that they should have already been making.

    Creating a new category is hard, takes time, requires competitors and ecology partners, and just flat isn’t up to the companies involved.