To understand the world, people need organizing principles. Categories do this for products.
Categories give your prospective customers, your team, your investors, industry analysts, potential employees, and others a common way to understand where you fit.
In every category there is well known leader, or category king. This player claims the majority of value in the category. If one considers the category “taxi alternatives” two points emerge immediately. First, almost everyone immediately identifies Uber as the category king. The second is that Uber has, at the time of this post, 8.5x the market capitalization of the number 2 player in the market, Lyft. Since the financial returns in any given category go disproportionately to the leader, it’s critical to be extremely thoughtful about your category strategy from the start.
Your category strategy includes several strategic decisions:
Will we disrupt an existing category or create a new one?
Who do we see as our competitors in this category? If we’re creating a new category, this question is extremely important — you cannot be a category of one.
What is our unique perspective on this category?
What sort of innovations are required to win? Product? Business model? Channel?
Your category strategy provides direction to every part of your company and drives your execution plan. As founders and marketing leaders, our job is to define a category strategy, determine a defensible position within the chosen category, and align the entire company around winning in this context.
For an excellent perspective on the importance of categories and how to execute a category strategy, I strongly recommend Play Bigger, which is the definitive book on the subject.