The 8 Category Levers Of Radical Differentiation

Category design is redesigning the world so that it aligns with your point of view.

This is about so much more than getting customers to pay attention and understand the value of your product or service.

Sometimes it requires new thinking. Spotify ushered in a complete transformation of the way the music industry works, including how money flows and licensing laws work. Other times, it requires new laws or significant infrastructure changes. Henry Ford had to convince the US government to create the highway system to make the automobile happen.

The big question is, “How?”

Pirates, this is a mini-masterclass in category design differentiation. This is a long post, so please do not feel the need to consume it all in one sitting. We encourage you to take this lever by lever and refer back to it often.

There are 8 very clear levers you can push and pull to create massive differentiation.

Our aim is to show you how you can view each of these different levers within your business through a category lens.

The goal is to achieve radical differentiation by implementing category design thinking on a 360 degree level. Within each one of these 8 levers, we encourage you to apply the Category Design Scorecard to evaluate how well you are scoring in all 5 areas of the scorecard for that particular lever.

Lever 1: Radically Different Benefit (For A Radically Different Problem)

When developing a product or service, there is really only one thing the customer cares about.

They want to know what benefit(s) they’ll receive.

Notice, we are not saying “what features they’ll receive,” which is what 99% of companies market. The customer is never buying “the thing” your product or service does. What they’re  buying is the outcome or result of them using “the thing.” For example, readers don’t buy books—they buy answers, captivating stories, and unique insights.

To find your “radically different benefit,” fall in love with a (radically) different problem.

So, how do you find a radically different problem?

Coolers are a great example. Historically, coolers have been the outdoor-loving crowd who needs a way to keep food cold when they’re adventuring away from a refrigerator, so their food stays safe to eat—all by filling an insulated plastic box with ice.

The problem is, you only get about 24 hours before the ice in your cooler turns into a puddle. After that, your food is soaked and unsafe to eat.

Luckily, the outdoor company YETI fell in love with a radically different problem.

In 2006, entrepreneurial brothers Ryan and Roy Seiders came up with an idea as a solution to a personal problem. They wanted to design a cooler that could withstand the challenges that came with their love of fishing—specifically, needing to stand on the box to cast a more precise line and lure in a tricky fish or withstand the claw of a hungry bear looking for a midnight snack.

So they created the YETI cooler.

• Over the course of the past decade, YETI has gone from being a small business created by two founders who earnestly just wanted more time to fish, to being known as the “Range Rover of cold.”
• Sales climbed to $29 million just five short years after the company was launched, and in 2014 had exceeded the $100 million mark as the brand began to solidify its category ownership.
• By 2015, the company was doing almost half a billion dollars in annual revenue—and had become the “new cool” outdoor brand.

Now, did YETI invent the cooler as we know it?

Of course not.

What they created instead was the premium cooler that can keep ice between 2 days and 2 weeks—and a whole new category ten times more expensive than its nearest competitor.

Companies that fall in love with solving new, different problems, or successfully reframe existing problems in new and different ways, are the ones with the most clarity about the benefit(s) of providing a solution.

Ask yourself: “What is a radically different benefit we can offer the customer/end user?”

Lever 2: Radically Different Brand

There are 2 ways to look at “branding.”

1. Look at whether a brand is a mercenary or a missionary.

Mercenary brands (like American Airlines or Comcast) only care about is their own prosperity and well-being. They believe in scarcity and zero sum games. They compete.

Missionary brands (like CarMax or Progressive Insurance) evangelize a broader category problem that, when fixed, creates a rising tide that lifts all boats. They want to make the world a different place and have made it their life’s mission to fix broken categories.

2. Look at “branding” as the brand itself.

This is the logo, the fonts, the colors.

But contrary to what the entire graphic design, branding, and advertising agency industry would like you to believe, in and of itself, “brand elements” aren’t really differentiators. Branding only becomes a differentiator when, in the context of the broader category, the branding is executed in a radically different way than what is expected.

Unexpected branding decisions make it clear who is not your customer—which is often more powerful than declaring who is your customer.

Ask yourself: “What are some radically different brands consumers can choose from?”

Lever 3: Radically Different Experience

You can get coffee from Folgers for $0.05 a cup, or Keurig for $0.50 per cup, Starbucks for $2.00 per cup, or Verve for $5.00 per cup.

How much of the price is dictated by the coffee itself vs the experience you get? It’s far more about the experience.

Unfortunately, most companies want to “trap” you into contracts and legal terms, rather than providing a good experience that saves you time and makes every minute as easy as possible.

When thinking about your company’s experience, figure out the “fun-to-chore” ratio.

• How much of the category is fun that can be enhanced?
• How much of the category is a chore that can be minimized?

Tesla is the king of this. They’ve removed virtually every pain point of the car buying process by bringing the car to you and allowing you to buy it on your phone. And as Elon Musk has said, Teslas are “the most fun thing you can buy.” It’s why he includes software that makes the Model X dance to music or make farting noises.

Ask yourself: “How can we make the experience so distinct that it is worthy of a price premium?”

Lever 4: Radically Different Price

In a world where companies try to nickel and dime each other to death, “price” almost always becomes a race to the sides.

• You are either expensive, luxury, premium.
• Or you are bulk, cheap, value pack.

(Anything that sits in the middle of its given category ends up feeling like something for no one.)

We’d like to introduce you to a third way to think about price.

Instead of looking at how much your competition thinks their product is worth, ask, “Who are our Superconsumers, and what does our price say about them?” Price anchored to your Supers means pricing your product/service outside of the expectations of the everyday consumer.

To achieve radically different pricing, ask two radically different questions.

1. How much value does my category create, especially for my Superconsumers?
2. How much value is created or destroyed by the way I price, specifically “who I charge,” “when I charge,” “where I charge,” and “why I charge?"

Price should always be a reflection of the Value (V) you are able to provide when the Benefits (B) are divided by the Price (P).

You can use this very simple equation: Value = Benefits/Price.

When a company can show a big difference by playing with the V = B/P equation, radical pricing has been achieved.

A few examples of this would be:

• Increasing Benefits as much as possible, and Price enough to maintain the ratio
• Increasing Benefits as much as possible, but lowering Price for an exponential growth
• Keeping the Benefits/Price ratio the same, but at very different “absolute” prices

If you can achieve both at the same time, you become Tesla: both a “value-buy electric vehicle” and a “premium electric sports car.”

Ask yourself: “How can we change the way consumers perceive value that is radically different?”

Lever 5: Radically Different Manufacturing

When it comes to manufacturing, most CEOs and entrepreneurs think, “What would make us more money? What would make my investors happy?”

But this is what leads to cheaper and faster versions of the same old, same old.

Category Pirates, on the other hand, think:

• “What manufacturing approach should we invest in that will empower our design and domination of a giant category that matters?”
• “What would make the category Superconsumers happy?”
• “How do we reimagine problems to unlock radically different outcomes?”
• “What’s a problem most people can’t see, that if we solved would make a massive difference?”

For example, Royal Canin, a prescription pet food, is a category creator. Why? Because Royal Canin re-imagined prescription pet food as breed specific pet food.

This required Royal Canin to build a completely different kind of manufacturing footprint

Rather than a few large, high scale plants, it needed many smaller scale plants that could handle the SKU complexity. It was less efficient and profitable than the existing manufacturing model of its top competitor, Hill’s Science Diet, but this was the price of being different.

That difference has paid off.

In many markets around the world where Royal Canin and Hill’s go head to head, Royal Canin has consistently grown the category AND taken market share. Hill’s can’t copy the manufacturing, given the sunk costs in its current manufacturing. By choosing to be different, Royal Canin achieved checkmate.

Ask yourself: “What radically different way can we make what we market?”

Lever 6: Radically Different Distribution

Category creators don’t wait for their customers to come to them.

They go to where their consumers already are—specifically where they work, live, and play. The highest-scoring category creators turn their distribution costs into revenue streams.

For example:

• 5 Hour Energy is placed at cash registers, instead of in the coolers next to energy drinks.
• Netflix allows you to binge what you want, whenever you want.  
• Instacart does the shopping for you and drops it off at your doorstep.

Radically different distribution means turning what most companies consider a “cost” into a revenue-generating point of leverage.

OnlyFans does this by allowing creators to share in the upside generated by the other creators they bring to the platform. The company turned what others would write off as “the cost of marketing” (and the effort required to attract new creators to the platform) into another revenue stream. Now, distribution comes to them—and it pays them in the process.

Ask yourself: “What hook can we create that drives our most evangelistic customers (aka our Superconsumers) to spread our new category and offering virally and organically?”

Lever 7: Radically Different Marketing

Instead of marketing your product, you should be marketing your Point Of View of the category.

For example: Henry Ford evangelized the “horseless carriage.” Tesla evangelizes “electric vehicles.” Keurig evangelizes “one perfect cup of coffee.”

When people see a company marketing the category (not their product), they assume the company doing the marketing is the category leader. These companies are not betting on the world being the same. They are betting on the world, specifically the category they are creating or re-designing, being different.

Here’s how to deploy radically different marketing:

1. Evangelize the problem, not the solution
2. Facilitate a conversation between consumers (don’t just talk at consumers)
3. Get Supers to “geek out” and let others listen in versus hogging the microphone (today this is called creating “community”)
4. Focus on the benefits, not the features
5. Spotlight the value, not the price
6. Emphasize earned media, not paid
7. Customize vs. one-size fits all
8. Measure vs. hope and pray
9. Turn founders, executives, and employees into category ambassadors (today the “E” in CEO stands for evangelist

HydraFacial has done this masterfully.

HydraFacial leveraged natural word of mouth marketing by decking out a tour bus with numerous HydraFacial machines.

The “world tour” took the bus to numerous cities around the US, and let their Superconsumers know via social media they were in town. They then offered HydraFacial treatments for free. Hundreds of consumers got treatments and posted their glowing faces on Instagram and Facebook. HydraFacial also invited their doctors, practice owners, and hotel/fitness executives to come and see the festivities.

Within 9 months of this nation-wide tour, HydraFacial realized a 4x return on their marketing.

Instead of talking about yourself (brand/company), you want to talk about the customer in the context of this new and different problem (evangelizing the category).

Ask yourself: “How might we drive category awareness/consideration in a way no one else does?”

Lever 8: Radically Different Profit Model

Lever 8 may be the most powerful way to differentiate.

To understand why, let’s see what we can learn from Netflix, Costco and Starbucks vis-a-vis profit models.

1. If you have the same profit model as everyone else, you’re doomed to commoditization. Can any retailer compete with Amazon? No, because they don’t have AWS.
2. If you only have ONE profit model versus multiple, you’re screwed. Can any car company compete with Tesla? No, because Tesla makes money in a half-dozen ways, not just by after-market servicing and replacement parts like legacy ICE manufacturers.
3. If your profit model is based on transactions vs. lifetime value, you’ll always worry about your customers leaving you for a handsomer, younger, and richer version of you. Can any movie company compete with Netflix? No, because subscriptions allow you to monetize your content over decades, not just a few weeks at the box office.
4. If you don’t know and aren’t in the 9 other categories your Supers are also Supers in, your marketing will always be a cost center versus a profit center. Can any coffee shop compete with Starbucks? No, because Starbucks created a financial services profit model via its app. Consumers collectively give Starbucks
   $1.4 billion to hold, making Starbucks a good sized regional bank.
5. If you don’t have a strategy to turn every line-item expense into a revenue generator like Amazon, you will always be looking over your shoulder for Amazon to take away your business.

Lever 8 makes other companies say, “That’s not fair.”

And they are right. Which means for your differentiation moat to be the defensive force you hope it to be, you have to get this lever right. How you make the money, matters.

Ask yourself: “How can we make money that is radically different from others?”

The more levers you push and pull, the further you distance yourself from any and all competition.

Because you don’t do what they do.

You’re different. You’ve forced a choice. Not a comparison.

Now, all this might sound overwhelming. It’s worth noting that most companies don’t start with all 8 levers firing on all cylinders. Instead, category designers start by focusing on the problem and the two most important levers—Benefit & Experience—and then start to drive differentiation from there. With each lever you pull, you create a little bit of distance between you and the legacy category.

To exponentially increase that distance, you’ll need to launch a Lightning Strike.