When GT Dave commercialized kombucha, he didn't just bring a new product to consumers. He also invented a wholly new market segment. (Think Starbucks and premium coffee, or Sam Adams and microbrews.) Eddie Yoon, principal at the strategy consultancy Cambridge Group, considers category creation the most powerful and overlooked growth strategy any company can use. "Category creators experience much faster growth and receive much higher valuations than companies bringing only incremental innovations to market," says Yoon. It's not easy, but the following ground rules can help.
1. Be an upstart.
"Category creation doesn't always jibe with corporate America," Yoon says. Within established businesses, he adds, it can be tricky to marshal the resources to start something without precedent--so nine out of 10 companies focus on incremental innovation and stealing market share from existing categories.
2. Start locally.
"We've found that companies that not only create categories but also sustain their leadership started regionally," Yoon says. "Once they achieve scale and leadership in a local region, they can expand from there." This is precisely how GT's Kombucha stormed the natural-foods market.
3. Seek superconsumers.
"Superconsumers"--those most passionate for your wares--"represent only 10 percent of consumers but drive up to 50 percent of the profits in most categories," says Yoon. "Listening to these early adopters can help refine your message and product"--and jump-start your category. GT found his superfans by interacting with individual shoppers at early tastings.
4. Embrace wannabes.
"It's important to realize that the benefit that wannabes seek from your product overlaps with, but is not the same as, that of the superconsumers," Yoon says. He cites craft beer: The best-selling varieties tend to be lighter and sweeter, with less aggressive flavors. GT realized this instinctively when he reformulated his dad's kombucha brew, and also when he started adding familiar flavors.
5. Know that novelty fades.
"Any industry with positive profits will invite competitors," Yoon says. Even if you maintain market leadership as a category balloons, you will ultimately be perceived differently--"as the big guy, not the cool mom-and-pop." This is GT's current conundrum. His most obvious next step is moving beyond kombucha. "What are the things you can create for the same crowd?" Yoon asks.
6. Think beyond the product.
"Although companies can create new categories through new products alone, they'll have better chances of success if they also create a new business model," Yoon says. Options for GT include a white-label or licensing business, which could usher in new competitors but grab a piece of their success, or leveraging GT's access to early-adopter natural consumers; consider how Starbucks sells music.