Monday, August 2, 2010

Strategic Planning Analogy #342: Categorical Success

Prior to 1995, modern art from India sold for practically nothing. However, beginning in 1995, modern art from India started fetching about $6,000 per piece at auction. About six years later, this art was selling at auction for an average price of $44,000, with a few paintings going as high as one million dollars.

What caused the rapid increase in prices? It was mostly due to inventing a name. Prior to 1995, there was not a suitable name to categorize modern art from India. As a result, it tended to be perceived as falling into the equivalent of the “other” category of art, called “Decorative Art.” Decorative Art was perceived in the marketplace as not having any real intrinsic artistic value of its own, but was rather “derivative” of other more authentic art forms. Therefore, its value was based on suitability as a home décor accessory, rather than as being a work of art to be admired on its own merit. As one would expect, being categorized as “Decorative Art” is a sure path to ruining perceived value.

However, beginning in 1995, there was a strong, coordinated effort to shift these works into a brand new category. The new name given to the new category was “Modern Indian Art.” The claim was made that this new category was a “unique aesthetic tradition” within branch of the “modernist” movement, worthy of being considered “fine art.”

To make the claim believable, multiple parties started writing papers about this new category. These parties included art academics, art action houses, art critics and the artists themselves. The papers explained what the characteristics were of true “Modern Indian Art” and what made it so special.

Now that there was a name for this category, museums started holding “Modern Indian Art” exhibits. The more mainstream art media began talking about it. Suddenly, this “decorative art” was re-envisioned as “fine art” in the minds of the art consumer. As a result, the prices for these works began to skyrocket…all because of a change in name.

Maybe I should change my name.

Businesses spend a lot of time worrying about their product. Can I improve the quality of the product? Can I make the product more efficiently? Can I add more features to the product? Can I make the product more functional?…and so on. The idea is that if I make the product better, I can increase its value, allowing me to charge more when I sell it (and increase profits).

This line of reasoning leads to strategic plans focused on product improvement.

However, as we saw in the story above (based on a Harvard Working Knowledge article), the perceived value (and the selling price) for art from India skyrocketed even though the actual product did not change. The art from India being sold prior to 1995 was no different than the art being sold after 1995. In fact, it was often the same exact pieces of art. Nothing was done to the actual artwork to improve it. Yet the perceived value (and prices charged) increased tremendously.

Why did perception change even though the product was the same? It was because the people in the art industry changed the focus from a product orientation to a category orientation. Rather than improve the value of items, they worked on two issues: a) Creating a new category to classify the items; and b) Improving the perception of the new category. By developing a strong, new category, they were able to instantly improve the perceived value of everything placed within that category (even though the individual items had not been changed).

Perhaps the value of your products could also rise faster if you changed your strategic focus from a product orientation to a category orientation.

The principle here is that value is determined within a context. If you do not manage the context, then you will achieve sub-optimal value.

A product’s value is usually determined in a comparative sense. In other words, a product is compared to others to see if its value is “better” or “worse” than those it is being compared to. The goal is to achieve a perception of “better value.” But better than what? What is the relevant context for comparison?

The Context for Art
The context is largely determined by how the category is defined. In the case of Indian art, when the category was defined as Decorative Art, the context worked as follows:

1) Since Decorative Art, by definition, is an inferior category to Fine Art, the value of all recent art from India is inferior to any Fine Art (and should have décor-level prices rather than fine art prices).

2) The only way to add any value to art from India (beyond average décor prices) would be to convince someone that it had superior home décor uses than other art in the Decorative Art category.

In other words, the definition of the category limited the context of comparison. Indian art could never get a high perception, because the context was that—at best—it could only be seen as slightly better than low value décor.

However, when the category was redefined as “Modern Indian Art,” a sub-category of the Modernist Fine Art Movement, the context changed.

1) The core value began with average values within fine art, particularly the value of modernist art.

2) Comparisons of superiority were now made with other modernist works of art (not home décor objects). Ultimate value now came from variations to the higher base value of the average modernist piece.

By changing the category, the context of comparison was changed, which automatically raised the perceived value and price for modern Indian art.

The Context for Soup
The same thing benefits of category focus can be seen with Campbell’s Soup. Back in the 1980s, Campbell’s produced the vast majority of all canned soup sold in the US. The good news was that this meant that Campbell’s had won the race for superiority within the context of the category of “soup.” The bad news was that soup was a small and low growth category.

Worse yet, when the soup category was compared with other food categories, it did not fare well. Soup was seen as a weak substitute to more substantial meals like steak and potatoes. Soup was viewed as something poor people would eat that could not afford the more substantial (and supposedly better for you) meals which required a knife and fork.

Campbell’s could have focused on improving their soup product. However, within the context of soup, they already had the leadership position, so their market share would not have moved much, if at all. In addition, better soup was still just soup—an inferior category when compared to knife and fork food categories. The best soup was still seen as inferior to mediocre knife and fork foods.

Just like the Indian art, as long as it was classified in an inferior category (decorative art or soup), Campbell’s soup would get an inferior value.

Therefore, Campbell’s changed its strategy to focus on improving the image of the category they were in. In the late 1980’s, they started the advertising campaign with the slogan “Soup is Good Food.” The idea was that if they could improve the image of the soup category, they could grow the sales of the category, since soup would now compare more favorably against other (non-soup) meal alternatives (broader context of favorable comparison). In other words, they tried to move “soup” form being a sub-set of the weaker food choice category to a sub-set of the better choice food category. Since Campbell’s sold most of the soup, an improvement in soup meant gains for Campbell’s. The strategy worked for quite a while.

So what can we learn form these examples?

1) Actively manage which category you are placed in.
Consumers will slot you into a category. If you do not actively manage which category you are placed into, you lose control over one of the key determinants of your value. The customer may put you into a low value category, a context which makes it difficult to create value, no matter what you do to improve your product. Therefore, to make sure that your product gets the highest possible value perception, actively work to get people to slot you into a high-value category.

If necessary, do not be afraid to create a whole new category, one which you strategically manage for maximum category value (like Modern Indian Art).

2) Work on strategies to improve the relative value of your category.
The stronger your category, the more favorably your product will compare to other substitute categories. Therefore, rather than only working to make your product better, work to make your category better (soup is good food).

3) Consider product improvements in light of their impact upon your category context
Winning products tend to produce a point of superiority relative to viable alternatives. Therefore, when choosing where to place your product improvement efforts, choose areas where you gain the maximum advantage in factors important to the category. Find places where you can shine when compared to others in the category (the viable alternatives).

Rather than focusing all of your strategic efforts internally on product improvement, spend time focusing on managing the category your product competes in. Often the value of the category impacts your profitability more than what you can do to improve your product. Therefore, work to get your product slotted into the most desirable category and then work to improve the value of your category relative to substitute categories.

Trying to be all things to all people usually results in being nothing important to anyone in particular. Therefore, when defining and managing your category, make your scope narrow enough so that you can create a winning position within that category.

1 comment:

  1. Hello Gerald – Yet another great post -which by the way - also happen to be a great segway post from your previous consumer experience post. Your point of – moving Indian art from “decorative category” to “modern art category” and moving the Campbell soup from its “semi-drink category” in to the adjacent “Good food” category – in a way is also very similar to my earlier point (in the previous comment section) of moving smoothie (which is more of a semi drink category) to its adjacent category called breakfast (which is more of a food category).

    Now, coming back to your point – as you have correctly alluded, most F&B manufacturers in a way are in the process of moving their high calorie drinks/food in to diet category format or in some cases altogether creating a new Health and Wellness (H&W) category to increase the perceived value and market share. Some are successful and some are not!

    Finally – to your point of – “getting the product slotted into the most desirable category and then work to improve the value of the category relative to substitute categories”- reminds me again the importance of developing the “experience based product category portfolio” mindset - which by design will naturally help us to shuffle these products from one experience category to another from the standpoint of increasing the value and market share. For example, in our earlier smoothie example – it is becoming more and more clear that the line between drinks and foods categories are blurring - and so it is all the more important for us to move to experience based product categories to uniquely identify these categories and thereby avoiding the confusion in consumers mind.

    Bottom line: Transforming product portfolio in to “experience based product category” portfolio is a key to achieve this perceived value and market share increase.

    On a side note – it is quite impressive that you have communicated a key business message from an impressive Indian art story. As you have pointed out correctly – the media and artist had to write many articles and publications to change the perception in the minds of consumers – which in my mind is equivalent to branding and brand positioning - and so let us not forget the importance of marketing and branding in increasing this perceived value – and thereby increasing the market share as well.
    Great post again.