The Birth of Category and End of Strategy.

The Birth of Category and End of Strategy.

March 7, 2022

March 7, 2022

by Simon Zhang, CEO Ries Global

Concept: The end of history

New theories and concepts about “strategy” have been emerging constantly over the past 100 years. New strategic concepts will appear every five to ten years, but most disappear without a trace in a few years. We should wonder: during these changes, is there something fundamental that is eternal and unchanging? In other words, what is constant about strategy? If we can grasp the unchanging, then we can cope with any incoming changes, thus achieving “coping with shifting events by sticking with fundamental principles.”

The great German philosopher G. W. F. Hegel proposed a famous philosophical concept called “the end of history.” His main point was that history on the philosophical level is different from what we generally think of as history. We generally think of history as the “big events” that have occurred, what happened 1,000, 100, or even 10 years ago, that is history, and in this sense, “history” will continue forever. However, Hegel’s “history”, in a philosophical sense is the sum of the whole human experience and its ideology. In this sense, humans will definitely reach an end. When this end is clear, it is “the end of history,” on a philosophical level.

What is this end point? How do we find this philosophical “end of history”? Hegel believed that in order to find the end of humanity, one must find the fundamental driving force that drives human development. We generally believe that an economy is this fundamental driving force for that development, that everyone wants to survive and fight for survival. But Hegel did not think so. He pointed out that the biggest difference between human beings and animals is that humans will fight for reputation and sacrifice their lives for recognition. Animals will fight for a piece of meat, eat if they win, and flee if they lose.

Hegel profoundly pointed out that the most fundamental driving force in the development of human society is not the economy, but psychology, that is, the desire of human beings to be “recognized.” In his view, when the French Revolution took place, mankind had already found this end, which is “democracy and freedom.” Democracy and freedom are the end of human development, because democracy and freedom meant everyone can be recognized. Therefore, it was inevitable that humanity would develop to the stage of democracy and freedom. Therefore, according to Hegel, on a philosophical level, the history of mankind had ended, and all that remained is practice. Although humanity has not yet reached that end today, it has certainly found its end: democracy and freedom.

History has proven Hegel’s judgment. For in the past 100 years, or even in the past 30 years, the number of democratic and free polities in the world has increased from more than 30 to more than 70. Throughout the world, whether countries are democratic and free or not, they inevitably promote freedom and democracy. This shows that freedom and democracy satisfy the fundamental psychological needs of human beings.

Does “the end of history” exist in strategy?

As time goes by, many new strategic concepts and theories continue to emerge. So is there an ultimate strategy in business as well?

Fifty years ago, the concept of positioning was introduced by Mr. Al Ries and Mr. Jack Trout. The greatest contribution of positioning to business was to point out that the ultimate battlefield of marketing is not the factory, not the market, but the mind. How can one occupy this ultimate battlefield? Just like how Hegel found that the psychology that drives the development of human history is the psychological desire to be “recognized.” How can we satisfy this desire for “recognition”?

Mr. Ries and his partners have spent 60 years searching for this answer in business practice. In the 28 years since the birth of positioning, the central theme of their research has been on how to capture the ultimate battlefield. That is, how to occupy the minds of consumers. They initially proposed three positioning methods in their book “Positioning“: leadership positioning, de-positioning, and repositioning the competition, and they gave four strategic models in the book “Marketing Warfare“. These classic works were developed in a process of moving forward step by step, getting closer and closer to the ultimate end.

Among all his books, Mr. Ries’s “Focus” is definitely a milestone. “Focus” proposes the most basic core concept in strategy, but also the most difficult to put into practice. Externally, focus forms “expert” cognition and has perceptive advantages; Internally, focus promotes trade-offs. What not to do is more important that what to do, an approach that helps form resource advantages. In a sense, it is the closest to the “end point” of strategy, but there is still a small distance from that “end point.”

Many entrepreneurs agree with “focus” and have realized its strategic value. At the same time, they all think their companies are very focused. This leads to a question: what is “degree” of focus? Take Robam appliances as an example. They thought that categories such as “kitchen appliances,” “white appliances,” and “home appliances” were already very focused. What exactly is the ideal “degree” of focus?

The degree of “focus”: Category

Twelve years ago, Mr. Al Ries and Ms. Laura Ries co-authored “The Origin of Brands.” For the first time, the book systematically proposed the concept of category, and pointed out the best way to establish a brand was to create and dominate a category. Al believed this was the best strategy for a company to achieve its sole purpose (Peter Drucker declared that a business had only one purpose: to create a customer.). Once the concept of “category” was introduced, the history of strategy ended, and we no longer had to look for the next new concept of strategy. “Creating and dominating a category” is at the core of all strategies. Meanwhile, it also provides a clearer “degree” of focus – on a category in the mind of the customer.

In terms of global business practice, as long as your brand can represent a category, no matter how small the category, the brand is very valuable. Once your brand does represent any category, no matter how big the brand, it has little value.

The mind empowers the concept of category

Why do democracy and freedom have such a lasting appeal? It is because they satisfy the ultimate human psyche. Why is the concept of category so powerful? Because it satisfies the basic characteristics of the mind.

The mind has several basic characteristics: it stores by categories; fears complexity; loses focus easily; is insecure, and trusts in professional brands more; the mind also rejects similarities. The aggregate of these characteristics forms the concept of “category.” The mind empowers category.

At the same time, the mind is dialectical. The mind receives a very limited amount of information about the same category. Perhaps only one or two brands in the same category will be accepted by the mind (only one brand for infrequently used categories). However, there is infinite space for the mind to accept new categories. This is in line with the characteristics of evolutionary psychology. Human beings began to evolve millions of years ago, and have created mind characteristics. That is, in order to adapt to the rapidly changing external environment, human beings are very receptive to new things. Back to business, if you are not one of the best in a category, you might fail. But don’t worry! The mind can constantly accept new categories, and you can create a new category. Therefore, category is the ultimate driving force of the mind. Mr. Al Ries and Ms. Laura Ries summarized this as: consumers think category first and brand second.

Category has elevated positioning principles to new heights

The birth of category allowed positioning principles to find its “end of history.” Why is category more important than brand? I think it is because of the business environment. In an environment with an abundance of products, numerous choices for consumers, complex media ecology, and information explosion, simple and small differences between brands of the past are no longer enough to occupy the minds of consumers today. One must have difference of categories.

There are ample examples of business successes that justify the concept of “category.” If positioning “explains” 50% of commercial success, then category increases this probability to more than 90%. Successful brands, such as Coca-Cola, iPhone, Tesla, WeChat, etc., have not put forward a clear positioning concept, but without exception, they have created a new category.

We often hear companies questioning these concepts along the lines of: a company has not implemented positioning principles, and has not identified differentiated positioning, but is still successful. Although we can explain by saying “there might be potential positioning for the company,” we also admit that finding positioning (verbal nail) is not a necessary condition for success. From a category perspective, most brands that have been successful for a long time may not have found their verbal nails, but the brand must be a category pioneer or a category icon. Looking at global examples today, all have proven this. Therefore, I believe the birth of category has elevated positioning principles to an unprecedented level. At the same time, it has also elevated strategy to an unprecedented level of importance.

Strategy in the traditional sense is mostly a corporate blueprint. But category strategy represents the core of your business. It can be started immediately, and is visible and tangible. If a company really understands the concept of “category,” it will be very clear about its own strategy. For example, Great Wall Motor’s strategy is to become the world’s largest SUV manufacturer, to promote the development of this category and to become the world’s No.1 in its field.

In the last decade, iPhone, Xiaomi, and Tesla have evolved into three very important and influential brands in global business. Their fundamental strategies involve category innovation. But more brands are also practicing category innovation, and new categories are demonstrating unprecedented power.

Ford, the world’s iconic brand for traditional automobiles, has been established for more than 100 years, while Tesla has only been established for more than a decade. In 2015, Tesla’s market value was US$30 billion; in 2017, it exceeded US$50 billion, surpassing Ford for the first time. Then in 2020, it exceeded US$250 billion. Why did this happen? Because Tesla represents the future of the automotive industry, one of the world’s largest industries.

Category strategy allows for perfect unity of marketing and innovation

The concept of positioning was first born in the United States. American companies have been learning about positioning for 20 to 30 years. Then, it was gradually introduced to China, where entrepreneurs have been learning and practicing it for less time. However, the spread of category is synchronized internationally. Everyone is on the same page. Many Chinese entrepreneurs are among the first batch of the nation’s practitioners. They are expected to master the most advanced “weapons” to compete with global companies.

Why is the concept of category so important? Externally, it is supported by a powerful law of mind. Internally, it returns to the fundamentals of business operations, and dovetails with the most basic thinking of entrepreneurs about business operation.

Why is Mr. Peter Drucker called “the master of the masters” in management? Why does his management theory endure? It is because he has grasped the most fundamental and unchanging things. He believes that the only purpose of a business is to create customers. Whether a company is healthy or not, and whether there are any problems, is to see whether that company is creating customers. In order to create customers, companies must either innovate in technology and products, or do marketing and promotion to educate more consumers.

The concept of category allows these two functions to achieve perfect unity. Technology and marketing cannot be completely separated, and a lot of practice has proven that if technological innovation is separated from marketing, it will be difficult to produce results. Technological innovation must be combined with marketing, and ultimately experienced by the market. Otherwise, the so-called innovation is simply working behind closed doors.

After the concept of category has been introduced, a company’s strategic direction becomes very clear. The only thing entrepreneurs have to do is to make a company’s brand represent a category, and dominate that category. Other strategic concepts, such as focus and concentration, are necessary elements for achieving strategic fit.

Alexandre Kojève was the greatest interpreter of Hegel in the 20th century and also a very distinguished philosopher. He said that history has ended; the mission of philosophers has been accomplished; the worldview and methodology have been completed, and all that remains is practice.

When category is born, it is the end of strategy

When category is born, it is the end of strategy. Today, we do not need to look for the latest strategic concepts, the ultimate strategy is already in place. The next key step is how to practice and how to achieve category dominance. This is a company’s biggest strategic endeavor. In this sense, the practice of the ultimate strategy has just begun. There are countless unknown areas, and countless challenges.

One of the biggest lessons I’ve learned from decades of practice at Ries is that no two companies are exactly the same. We cannot simply replicate the strategy of any company; they have different environments, different foundations, face different opportunities, and have different management. The decisions that entrepreneurs make when they practice their strategies are also different.

Positioning principles will continue to evolve in practice. In the past 10 years, Visual HammerBattlecry, and Positioning in the 21st Century are all important works that have contributed new value. However, they are all part of the evolution, where all the most basic ideas have fallen into place and come to an end.

In terms of practice, it does not mean that just because we learn and accept the concept, it will be smooth sailing. Here are two examples.

The first example is Qihoo 360 company. Company founder Zhou Hongyi, is a fan of positioning theory. He told me that while everything was very clear to him when he was observing other companies, when time came for him to make his own decisions for Qihoo 360, it was very difficult. When he was president of Yahoo China (the search engine business was not called Yahoo, but “Yisou”), and could only search for pictures and videos, things he had to do differed significantly from Baidu. When Taobao planned to launch a B2C platform, he advocated that it needed a new brand name, which later became Tmall. However, when Qihoo 360 launched its own children’s watches, he eventually decided to use the 360 name due to various internal and external factors.

This shows that even for entrepreneurs who believe in positioning principles, the theory is still very difficult to grasp and put into practice. Mr. Al Ries said that a very important “product” and value provided by consulting firms and consultants is the external perspective of a third party.

The second case is Xiaomi. Its co-founder, Mr. Lei Jun, is a believer in positioning principles. Xiaomi focused on Internet direct sales and achieved great success. After this success, Xiaomi launched Xiaomi TV and Xiaomi watches, etc. and Xiaomi’s positioning in consumers’ minds became seriously diluted.

Lei Jun’s partner told me that on the fifth anniversary of Xiaomi, Lei Jun gave the book “Positioning” to the first 100 employees and signed his name on each copy. But unfortunately, Lei Jun did not fully understand positioning himself. We thought highly of Xiaomi, so we kept an eye on the company and constantly pointed out its problems. We also deeply regret seeing the mistakes made in Xiaomi’s strategy. Xiaomi initially had the potential to become a brand comparable to Apple. But now, as more and more products are launched under the Xiaomi brand, from a long-term strategic perspective, things are showing no signs of improvement. Instead, trends are deteriorating. What is the problem? I think it is still a matter of practice. The key to practice lies in a deep and thorough understanding of principles.

In 2008, I accompanied Mr. Ries to an interview with a reporter at China World Hotel in Beijing. Mr. Ries said: “I will tell you a billion-dollar opportunity. In the future, a category different from the traditional PC Internet will be born, called” Mobile internet is a new category. A new category gives birth to new brands, such as new search engine brands, new news outlets, etc. Those brands born in the PC Internet era will be greatly weakened in the mobile Internet era. Maybe the reporter didn’t understand it at the time, but one company saw this opportunity. In 2010, a company called “91” was established and specialized in mobile internet search. Three years later, it was acquired by Baidu for $1.9 billion. Because Baidu realized that in the era of mobile internet, it will be greatly weakened, and it must compensate for this weakness through acquisitions. In the news industry, a new brand was also born. “Toutiao”, established in 2012, has now become the fastest-growing mobile Internet brand with 700 million users. It is the law. Grasp the law, and one can grasp the strategic opportunities. In many cases, the reason why we fail to grasp the best strategic opportunity is that our understanding of category concepts and category development laws is lacking.

So what is the next billion and trillion-dollar opportunity? From a product perspective, it seems unclear, but from a perception perspective, a mind perspective, and a category innovation perspective, you will find that such opportunities abound.

The history of strategy is over, and the practice will be eternal. We expect that in the next few decades, more super technologies will be born. As long as we can grasp these super technologies in the 21th century, practice and apply the positioning methods in the 21st century, and grasp the opportunity of category innovation, a large number of new world-class brands will be born.