Differentiate or Die: Survival in Our Era of Killer Competition, Second Edition
by Jack Trout and Steve Rivkin
Copyright © 2008 Jack Trout
C H A P T E R
2
The Creeping
Commoditization
of Categories
W
hile categories are expanding thanks to the law of division, something sinister is happening. Despite all the attention paid to branding these days, more and more of
these categories are sliding into commoditization. In other words,
fewer and fewer of the brands in these categories are well differentiated. In people’s minds, they are there but that’s about all. You
could call them placeholders. They are sort of like squatters. They
live there but don’t own a meaningful idea that makes them unique.
11
12
The Creeping Commoditization of Categories
Wishful Thinking versus Reality
Today everybody from clothing designers to celebrities claims to be
a brand, but ultimately the products and services must face the realities of the marketplace—and the consumers. Consumers ask,
‘‘What do you have on offer? How are you different from others in
the category? How are you better? Do you represent values that are
valuable to me and make me feel valued? How are you differentiated
from the others?’’
‘‘It’s no secret that more and more companies are having problems differentiating themselves from their competitors. The Total
Quality and Process Re-Engineering movements of the last two decades of the 20th century pretty much guaranteed that companies
that actually made it to the 21st century were going to be virtually
indistinguishable from one another,’’ noted Robert Passikoff, founder of Brand Keys, Inc., a New York-based loyalty and engagement
research consultancy. ‘‘After hundreds of millions of dollars of advertising, consumers are, of course, aware of these companies, but
the real question is do they differentiate themselves from the other
players in their categories?’’
Differentiation, of course, exists, and does so on the basis of a product or service actually owning values—real or perceived, rational or
emotional—and occupying a real place in the consumers’ minds—
beyond the consumer just being aware of them. And the degree to
which they possess these values and have meaning in the consumers’
lives (beyond primacy of product) determines whether they have differentiated themselves. But fewer and fewer products and services are
able to demonstrate any degree of actual differentiation.
The Hard Facts
To prove this, Brand Keys conducted an analysis of 1,847 products
and services, in 75 categories, via their Customer Loyalty Engagement Index1. Using a combination of psychological inquiry and
factor regression, and causal path analyses, the customer
The Hard Facts
Category Place Holder
Brand
Human Brand
Commodity
Low
13
Extremely High
Degree of Differentiation or Meaning to Consumers
Figure 2.1 Degree of Differentiation or Meaning to Customers.
assessments of the products and services, predictive of how positively or negatively consumers will act toward the products, identified a continuum along which all products and services could be
placed, depending on their degree of differentiation (Figure 2.1).
As you migrate from left to right, you go from no (or low) differentiation to extremely high differentiation.
On average, the study found that only 21 percent of all the products and services examined had any points of differentiation that
were meaningful to the consumers. This is nearly 10 percent less
than a benchmark study that was conducted in 2003.
On the far left are Commodities, products and services so basic
that they are not differentiated in the minds of the consumer by
anything other than price.
Moving to the right we have Category Placeholders. This is a
new designation for products or services with strong awareness in
the category in which they compete, but so absent of any meaning
that they cannot be differentiated from the competition in the
minds of the consumer. Think General Motors or The Gap.
Next, comes 21st Century Differentiated Brands. These are products and services that are strongly differentiated from the competition. Think Toyota or Apple.
Finally, the study identified the apex of differentiation, the Human Brand. This is an actual human being, most often the company
founder, who represents 100 percent of the differentiation for the
company. While this designation represents the highest level of differentiation, the fragility of brands that are invested mainly in a human being are fodder for the popular press since any sudden change
in public perception of that human brand has an immediate—and
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The Creeping Commoditization of Categories
potentially devastating—effect on the brand’s equity, and soon
after, its profitability. Think Martha Stewart or Donald Trump.
Category Differentiation
Degree of differentiation differed by category. In the Bar Soap category, for example, 100 percent of the brands differentiated themselves. Fifty percent of Credit Card offerings were found to stand for
something in the minds of the consumers. But Banks, Motor Oil,
and 20 other categories—nearly a third of all the categories examined—did not have any differentiated brands. The products and
services were known, but not for anything in particular.
A list of the 75 categories appears in Table 2.1. The percentage
indicates—according to the consumers of the category—the number of actual differentiated brands in the category. You can say that
this chart can show you how much trouble you are in, especially if
you live in a low percentage category.
Table 2.1 Percentage of Differentiation in
Each Category
Category
Airline
Allergy medicine(OTC)
Allergy medicine (Rx)
Athletic footwear
Automotive
Baby care
Bank
Beer (LIGHT)
Beer (Regular)
Bottled water
Cable service providers
Car insurance company
Car rental company
Casual dining
Percentage
29
0
0
29
38
20
0
25
29
13
0
40
57
20
The Hard Facts
Table 2.1 (Continued)
Category
Cell phones
Cereal breakfast food
Cigarettes
Chewing gum
Clothing catalogues
Coffee and doughnuts
Canned coffee
Computer
Cosmetics
Credit card
Cruise ships
Diapers
Digital cameras
Dog food
DVD players
Energy provider
Evening news shows
Fashion brands
Feminine products
Gasoline
HDTV
Hotel
Ice cream
Insurance company
Internet service providers
Laundry detergent
Long distance phone Service
Magazines
Major league sports
Morning news shows
Motor oil
Motorcycles
MP3/digital music players
Percentage
25
37
29
20
0
33
0
9
14
50
20
0
0
20
0
13
50
20
0
14
8
22
50
0
0
11
0
37
75
50
0
20
20
(Continued )
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16
The Creeping Commoditization of Categories
Table 2.1 (Continued)
Category
Mutual fund
Office copier
Online books and music
Online brokerage
Online travel
OTC pain reliever
Paper towels
Parcel delivery
Potato chips
Pizza
Printers
Quick-serve restaurants
Retail stores (apparel)
Retail stores (discount)
Retail stores (department)
Retail stores (electronics)
Retail stores (office supplies)
Retail stores (home improvement)
Satellite radio
Search engine
Skin care
Soap
Soft drink (diet)
Soft drink (regular)
Toilet paper
Toothpaste
Wireless phone service
Wristwatches
Percentage
0
0
25
17
25
29
0
50
25
14
0
30
50
40
0
0
0
0
0
9
60
100
0
20
80
33
20
38
Table 2.1 shows you how much trouble you are in especially if
you live in a low percentage category.
Some Further Explanation
To better explain this, take a category such as Automotive. This has
a reasonable number such as 38 percent. This means that you have a
The Hard Facts
17
fair number of differentiated brands such as Toyota (Reliability) or
BMW (Driving) or Volvo (Safety) or Mercedes (Prestige) or Ferrari
(Speed). It also means that you have a large number of placeholders
with little differentiation. Think General Motors or Ford.
Now let’s look at that 0 percent differentiation degree in the
Banking sector. How can that be? All these big name banks spend
millions on advertising telling us how wonderful they are to do business with. Well, class, the answer is obvious. Mergermania has taken
a terrible toll. And after all these mergers, who knows who is who
these days much less for what they stand. As the psychologists advise, without a line to the past, how can you be sure of a line to the
future. The Banking category is a mess and deserves their 0 percent.
In general, why is this creeping commoditization happening? Because marketers are acting in ways that are diluting brands instead
of building them. First, they’re relying too heavily on promotional
programs. Panicked by demands from sales departments and big retailers, manufacturers have shifted money away from brand building
and into price-oriented promotions, like coupons and giveaways,
that make distributors happy. The more you focus buyers on deals,
the more you distract them from your brand.
Second, marketers aren’t reining in their ad agencies’ bad instincts. Instead of concentrating on how a product differs from (and
outperforms) its rivals, the agencies fall prey to what we call the two
curses. In the curse of the clicker, agencies are so anxious to prevent
TV viewers from channel surfing during their ad that they focus on
production tricks like eye-popping graphics or strange situations to
keep viewers’ thumbs off their remotes. The curse of the Clio,
meanwhile, drives agencies to create clever, funny, and entertaining ads in hopes of nabbing the coveted award. What we don’t get
is a distinct message that helps consumers tell one brand from another. A case in point: Another well-known research company, Copernicus, researched 340 commercials shown in prime time and
identified a differentiating brand message—that is, a clear positioning—in only 7 percent of those ads.1
Third, the sea of management consultants rarely get into this
subject in a meaningful way. The reason: They don’t understand
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The Creeping Commoditization of Categories
much about the mind of the customer, which is where the marketing battles take place. Ironically, Peter Drucker, the father of management consulting, did understand it, as we point out in the
Epilogue of this book.
While it’s valid to point the finger at marketers, ultimately the
CEO must take the lead in reversing any brand dilution. A loud
reminder needs to come from the top that without a clear differentiating idea attached to a brand, all you’re left with to motivate
buyers is price. But your competitors can cut prices, too, so without
strong branding, prices will fall, as will profits.
What the Brand Keys study proves is that the lack of differentiation continues to grow and this is a dangerous trend. In the real
marketplace, today’s marketers must be able to accurately pinpoint
their products’ and services’ points of differentiation or they will
become Category Placeholders. And that’s just one step away from
becoming a commodity.
What’s missing is what used to be called a USP (or unique selling
proposition).