At level one, you’re just trying to sell something that exists. By level four, you’re out there creating markets.

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The 4 Levels of Marketing Sophistication

• Why Read: 

  • This article provides a practical framework for founders to assess their company's marketing sophistication and align marketing strategies to drive growth, pricing power, innovation, and market capitalization.

• Featuring:

  • Category Pirates (@categorypirates), The newsletter authority on category design/category creation

• Link: 

  • “The 4 Levels Of Marketing Sophistication”

Key Concepts and Tactics:

1. Recognize the Four Levels of Marketing Sophistication:

   • The article outlines these four distinct levels of marketing sophistication that companies can possess, and explains how the appropriate marketing approach must match the company's current level.

   • "There are four different levels of marketing sophistication: 

     1. Level 1: Marketing As A Cost Center 

     2. Level 2: Marketing For Category Brand Building And Pricing Power 

     3. Level 3: Marketing For Product And Business Model Innovation 

     4. Level 4: Marketing That Drives Market Capitalization"

2. Level 1 - Marketing as a Cost Center:

   • In this level, marketing is seen as an expense rather than a value-driver, as the brands lack strong Superconsumer concentration and differentiation in a crowded, substitutable market.

   • "Brands had a lower concentration of Superconsumers, where the top 10% only yielded about 30% of sales. (Not healthy. Less Supers, means less big customers, less revenue, less profit, less WOM.)This data made clear. Cheese meant these Superconsumers had a wider array of choices to pick from, with so there was little perceived less differentiation."

3. Level 2 - Marketing for Brand Building and Pricing Power:

   • At this level, marketing is focused on building the brand's category position and pricing power, by targeting and engaging the brand's most valuable Superconsumers.

   • "Brands like Philadelphia Cream Cheese fit here. (69% market share category king market share today)At that time, Philadelphia had a dominant market share with no real branded competitors. The only thorn in its side was private label brands."

4. Level 3 - Marketing for Product and Business Model Innovation:

   • Here, marketing is used to drive innovation in products, categories, and business models, leveraging deep insights from the brand's most passionate Superconsumers.

   • "The biggest surprise of all—Velveeta was the star of the Kraft Cheese & Dairy portfolio. It had the strongest Superconsumer concentration, with an estimated 2.4 million Supers driving more than 50% of profits."

5. Level 4 - Marketing that Drives Market Capitalization:

   • At the highest level, marketing is a strategic lever that can directly impact a company's market value, by creating and launching new categories and business models.

   • "George commissioned a team to quantify the category size of prize and execute the category design. Pirate Eddie and the team designed a new category and discovered breakthrough food science! This category innovation made it all the way to the board of directors, who had to approve the meaningful capital expenditure to test and learn about the new category."

6. Match the Right Level of Marketing to the Business:

   • The key is to align the marketing approach to the specific level of sophistication and needs of the business, rather than taking a one-size-fits-all approach.

   • "Attempting category design on Kraft Naturals would have been a disaster and a complete waste of money. Price-slashing Philadelphia would have wrecked the cheese's premium status. Cost cutting on Velveeta would have been a massive opportunity cost."

Trends that Require Proactiveness

Why Read: 

• This article provides critical insights for founders on recognizing and proactively addressing key business trends before they become irreversible problems, essential for building a successful and sustainable startup.

Featuring:

• Jason M. Lemkin (@jasonlk), Trusted Advisor at SaaStr

Link: 

• “Every Top Founder Ever: “I Should Have Acted on Bad Trends Earlier””

Key Concepts and Tactics:

• Acting on Bad Trends Earlier:

  • The article discusses five key areas where founders often regret not acting sooner on negative trends.

  • "one of the top mistakes every top founder says they made is this: 'I Should Have Acted on Bad Trends Earlier.'"

• High Burn Rate:

  • Founders should be cautious about using venture capital to sustain an unsustainable high burn rate.

  • "Almost every founder regrets using capital to keep a high-burn rate engine going that isn't scaling rapidly. Using venture capital to buy a little time is OK. But after that, don't throw good money after bad trends."

• Not Addressing High Churn:

  • Founders should address high churn rates proactively, as it can significantly impact the business.

  • "if your churn and retention numbers aren't at least mid-pack for your category, don't let it lurk. Churn is a problem that lurks, especially in annual deals. If your churn is too high, a lot of that revenue isn't even real."

• Investing in Unprofitable Segments:

  • Founders should be thoughtful about expanding into new segments and ensure they can be profitable.

  • "You have to try, you have to expand, you have to grow. But many startups end up investing in segments and categories that end up never being able to scale for them, at least not for now."

• Deteriorating Sales Performance:

  • Founders should address declining sales performance promptly, as it is often a sign that changes are needed.

  • "Things just change in sales. Sometimes, it's bringing in a new VP of Sales or CRO that can't deliver. Sometimes, it's growing too quickly. Sometimes, it's just hiring too many reps, too quickly. Or too many of the wrong types of reps."

• Falling Behind the Competition:

  • Founders should regularly assess their competitiveness relative to the market and make necessary adjustments to maintain or improve their position.

  • "Are we less, or more competitive than 12 months ago? Is our win rate going, up or down? Are we shipping faster or slower than they are? Are the very best customers in the industry picking us more often — or them?"

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