Mini episode: David Aaker on game-changing subcategories

Today’s episode features a rare repeat guest: none other than David Aaker, Professor Emeritus at the Haas School of Business, UC Berkeley, Vice-Chair at Prophet, a global marketing and branding consultancy, and prolific author of books and articles about branding.

Last time David was on the podcast, we talked about two of his books, Aaker on Branding, 20 Principles that Drive Success, and Creating Signature Stories. We also talked at length about his brand vision model. If you’re interested in hearing that longer conversation with “the Father of Modern Branding,” go take a listen.

This time, we’re talking about David’s newest book, Owning Game-Changing Subcategories: Uncommon Growth in the Digital Age. The premise of the book, as David explains in the video below, is that the only way for a business or brand to grow (with rare exceptions) is “to create or find ‘must haves’ that define whole new subcategories that can attract a loyal customer following.”

 

 

During the conversation, David explains where he got the idea for the book, what he means by terms like “game-changing subcategory” and “must haves,” and how digital has changed everything. He also illustrates his ideas through examples like Dollar Shave Club, Apple, and Airbnb. At the end of the conversation, David provides one final piece of advice to business owners and brand managers:

Look for opportunities to create subcategory platforms—new ways [of] looking at what the customer is using and their relationship with the brand. And when you see one, think long and hard before you turn your back on it. … Take some risks and make some investments, make some commitments. Because that’s really the only way to grow.”

David Aaker

Below, you’ll find the full transcript of the episode (may contain typos and/or transcription errors).

Click above to listen to the episode, and subscribe on Apple Podcasts or elsewhere to hear every episode of How Brands Are Built.

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ROB MEYERSON: David Aaker, thank you so much for joining me on the podcast again.

DAVID AAKER: My pleasure.

R: So, your new book, which, thank you for sending me a copy, is Owning Game-Changing Subcategories: Uncommon Growth in the Digital Age. What’s the central thesis of the new book? What is it all about and what will readers discover when they pick up the book?

D: Well the origin of the book came from my work in Japan. I got ahold of data on the Japanese beer industry. And I looked over 30 years there was only really three times in which the market trajectory changed that all of those could be explained by the creation of a new subcategory, like Asahi Super Dry. I looked at automobiles. I looked at computers. I looked at a lot of other product areas and the same sort of generalization kept emerging. Every time there was a sales spurt it could be explained by the development of a whole new subcategory. They really, somehow, changed the customer experience or changed the brand relationship in a meaningful way.

R: So not necessarily just some new big brand entering the space, but specifically if it is a new brand or a new business, one that is introducing a new subcategory as opposed to just another maybe more competitive or faster moving company.

D: Yeah, it really has to be something that changes the customer experience or brand relationship enough so it affects brand loyalty. So people will start to avoid options that don’t have these new characteristics.

R: Great. You also sent a note, I don’t know if you remember, but there’s a little handwritten note that you popped into the book when you sent it over and I want to read what you wrote on there and then have you talk about it. It says, “One of the unique qualities of this book is that unlike other strategy books looking at disruption or innovation or growth, this book introduces branding as strategy and as tactics.” What did you mean by that?

D: This sort of book talks about a subject disruption, innovation, growth that’s been covered in a lot of other books. But if you look at the index in those books, they never have branding in them, they don’t mention branding. And yet in my research, I’ve concluded that if you want to be successful at really growing with a subcategory based platform, you need branding. There needs to be an exemplar brand. That’s got to be your goal, to become the brand that represents a subcategory. And the exemplar brand needs to position the category.

First of all, it needs to elevate what I call must haves, these [inaudible 00:02:55] qualities. And it has to scale and create buzz in the marketplace, creates a customer based set of loyal customers and it has to create barriers to others. And these are all branding tasks. And you use the concepts and the methods of branding to do that. And if you don’t do any one of those things, it’s just not going to work. And I think it’s really a dramatic failure that these other books on strategies and other great thought leaders, they don’t have a branding background. They don’t have a marketing background. And they think in different terms and I think they really miss something.

R: So plenty of books out there about disruption and growth and plenty of books about branding, of course. But maybe this is one of the few, if not the only book that really combines those two ideas?

D: I think it is, yes.

R: You’ve dropped a couple of key terms from the book already. So, let’s go through those one by one because I want to make sure that I understand and that our listeners understand. So first let’s just talk about subcategory since it’s in the title of the book and I think we all know, have a sort of basic familiarity with what a subcategory is. But since it’s such an important premise in the book, how do you define what is and what isn’t a subcategory? And then is there a difference between a game-changing subcategory and just any other subcategory?

D: Yeah. Well, let me give you three characteristics. First of all, there has to be a new feature that changes the customer experience. Like Prius did, like Tesla did, like Enterprise Rent-A-Car did. Or/and it has to have a new kind of brand relationship like Patagonia did with their environmental interests, like Sephora did with their interest in beauty and Dove did with their self-esteem. So it has to be something that really is valued and ties them to the brand.

Second, it doesn’t necessarily have to be transformational. It doesn’t have to be Cirque du Soleil. It can be a Light and Fit Greek yogurt. It can be a substantial change, but it can retain what is going on right now. It doesn’t have to be a completely new thing. And that’s a lot of the other books on strategy focus on transformational change. But substantial change can also work.

The third thing is that it’s contrasted with the alternative way to compete, which I call my brand is better than your brand strategy.

R: Right.

D: And my assertion is that almost never generates growth.

R: that makes me think of the Cola Wars, the competing based on we’re better than you.

D: Yeah, or the phone wars before T-Mobile came in and disrupted the category.

R: So another term that you mentioned there that I know features heavily in the book is exemplar brand. And you actually start the book off with a handful of examples of brands that I assume you’re saying are doing exactly what you would recommend or at least some of what you would recommend in this book. So, Etsy and Warby Parker and Nest. Can you talk a little bit about, just pick one maybe that’s a favorite and what they’re doing right and why they classify as an exemplar brand for their subcategory?

D: Well, yes, exemplar brand has a couple of qualities. It’s almost always the early market leader, not necessarily a pioneer. In fact, it’s rarely the pioneer, but that early market leader, the first to get it right. And it becomes the thought leader, the innovator, the one that talks about the subcategory instead of their brand and ignores the other brands as being irrelevant. And the winners emerge as the only relevant brand or at least the most relevant brand. So an example might be a Dollar Shave Club. It started in 2012. It was the of feisty underdog. It was irreverent. It was humorous. And four years later, suddenly they were sold for $1 billion to Unilever, a remarkable success story. But one of the things they did was to create a 90 second video to-

R: I still remember it.

D: describe the new subcategory. In 48 hours they got 12,000 subscribers.

R: And it was very funny video.

D: And today that’s got 26 and a half million viewers, something like eight years later.

And second of all, they really had a simple offering. It started off with one choice, it now has three choices, but Amazon for the same application has 12,000 choices. You really don’t want 12,000 choices. You have better things in life to do.

And the third thing they did was to highlight, in that video, the convenience and low price of their offering as opposed to going into a drug store and trying to get somebody to unlock the container that the blades are hiding behind and then try to figure out the bewildering selection and which one works with your razor. So they really have some really amazing, what I call, “must haves.”

R: Let’s talk about must haves, specifically because you mentioned that it’s nice to be the first in a subcategory. I guess that’s the ultimate way to be the exemplar brand is if you literally created the sub category by doing something no one had done before, but I take it that you don’t always have to do it that way. Sometimes brands come along and rise up to that status in some other way. And I guess that it must be because they’re doing more things right along the lines of these must haves.

R: So, here’s a quote from the book. You wrote that, “The only way to grow is to innovate by developing must haves that define a new game-changing subcategory.” So can you explain what must haves are and how can companies go about developing them?

D: Well, a must have is really defined by customer loyalty. It’s a feature or a nature, or some kind of brand relationship that means so much to a core customer base that they’ll be loyal to those options they perceive as having those must haves. There’s really two sources of them. Sometimes there’s a customer driven, where the customer need is so dramatic, like it was in this Dollar Shave Club. The Gillettes of the world were priced and distributed in such a way that was just really painful.

R: Yeah. It was a market begging to be disrupted.

D: So, sometimes the need is obvious, and the only problem is can you create something to deliver on that need. The other source of must haves come out of new technology or just new ideas, create a new offering and sometimes you don’t even have to test them, but they’re going to work. So that was the case with Asahi Super Dry. It was a new crisp, dry, a little bit higher alcohol beverage and it was just simply different. It can be a failed idea that somebody’s out there, like Sony had an iPod before Apple. Microsoft had an iPad before Apple did. So Apple observed those things and saw them struggling in the marketplace and then Steve Jobs realized, now the technology is right, we can do this. Right. And then he generated a success.

R: Sometimes it seems like Apple’s whole business model is waiting to see what other innovations other companies have come up with and then improving upon them, waiting until they can do it much better and really become the exemplar for that sub-category. Whether it’s the iPod or the iPhone or the iPad, they keep doing this over and over again. Now, even with the watch, there were plenty of “smart watches” out there, but I don’t think we could name too many of them other than Apple’s.

D: Apple is incredible. Apple has created new subcategories at least eight or nine times in the last few decades and no other firm has come close to that. It’s simply remarkable. And you’re right, in almost none of these cases was there any technological breakthrough. They were just on top of the technology and they got the timing right. And they did it again and again and again. And incidentally, never tested any of these things. Steve Jobs didn’t believe in market testing, but he had so much faith in his understanding of technology, understanding of the marketplace, that he was inevitably right.

R: One other topic I want to cover on the book is actually mentioned in the subtitle. So the book’s also about what you call the digital factor. And that subtitle, again, is Uncommon Growth in the Digital Age. So what is the digital factor and how does it relate to these game changing subcategories?

D: Well, I tell ya, I wrote this book about a year ago and my daughter said, “You can’t put out this book. You’ve got nothing in digital in there.” And so I spent a year rewriting it. And what I learned during that process is that digital, indeed, has completely changed this whole concept of subcategory growth platforms. The creation of subcategories and their impact, is on steroids now. There’s many times more than existed before and their impact is much greater and their speed of development is so much more.

And there’s four reasons for that. One is just the technology. We’ve got the internet of things, we got advances in voice and GPS and the number of users of the internet, the iPhone, the smartphones and so on, have just exploded. And that leaves a whole bunch of opportunities to do things you couldn’t do before. And the second is e-commerce. It wasn’t too long ago that if you wanted to introduce a new concept, you had to create a whole new salesforce or you had a find a way to get into storefronts or even create storefronts yourself. The cost in time was enormous. Now we’ve got e-commerce.

R: Yeah, it’s a couple of clicks away, now.

D: Airbnb, when they started, they had an eCommerce site up in a week and it cost them nothing. And then there’s social media and websites. It wasn’t too long ago, if you wanted to introduce a new concept, you needed a media plan and a media budget and that took a long time and tens of millions of dollars. Now you got social media. You have Dollar Shave Club that was up and running in 48 hours with a video that cost $4,600 to make.

And finally there’s, what I call, brand communities. And these are groups of people that bond over something that they’re interested in or some activity or some passion and they bond with others with like inclination. They bond with a brand and they’re really enabled by digital because of the website because of social media.

R: Right. So these communities presumably always existed, but the fact that they can now organize so easily online and amplify themselves through creating memes or sharing things about the brand with other people has changed dramatically as a result of digital.

D: Some existed like the Harley Owners Group existed, but they were really only relegated to charismatic brands and it was a very difficult to create and sustain a community. But now anybody can do it. And if you’re clever and you strike a chord, you’re there.

R: Great. Well, just one last question for you David. If there’s one piece of advice out of this book that you’re really hoping that brand leaders and business people will take to heart, what would you say that is?

D: Well, I would say that it’s really important to think big, at least part of the time and not think small all the time. And think in terms of marginal and improvements of your product and a little better advertising, a little better promotions, but once in a while, think big. And so look for opportunities to create subcategory platforms, new ways to looking at what the customer is using and their relationship with the brand. And when you see one, think long and hard before you turn your back on it. And take some risks and make some investments, make some commitments, because that’s really the only way to grow.

R: All right. I like it. I hope we see more brands taking your advice. Thank you so much again, for joining me again. The book is Owning Game-Changing Subcategories: Uncommon Growth in the Digital Age. David Aaker, thanks again.

D: Thanks Rob.