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Companies that launch innovative products in new industries need to understand the dynamics of new product categories. One of the critical details is the name by which new product categories are known. Time it right, and you’re selling a “smartphone.” Time it wrong, and you’re trying to move a “PDA phone” or an “all in one device.”
Ideally, companies want to time their entry to when a dominant category label emerges. Fernando F. Suarez and Stine Grodal, both of Boston University School of Management, call companies who manage this ideal timing “Tempo Movers.”
But it’s not always possible to have perfect timing. A company might be pressured by investors to enter the market early. Or R&D might be taking longer than anticipated, leaving a company, as Suarez and Grodal put it, “one beat behind the industry’s tempo.”
Depending on when a company enters a new industry, Suarez and Grodal’s research suggests three distinct strategies to optimize performance:
1. Early Movers should focus on hedging their bets.
The strategy here is to give products several category labels at the same time. “While it might seem advantageous to commit to only one category label and to communicate that choice clearly, we suggest that companies that enter a market early can better manage the uncertainty by associating their products or companies with several category labels simultaneously,” write Suarez and Grodal.
They cite the example of a company that positioned itself variously as “nanotechnology,” “micro-fluidics,” or “nano-biology” depending on what its partner was most interested in. “Only after ‘nanotechnology’ became the dominant category label in the industry did the CEO commit to positioning his company only with that label,” the authors write.
2. Late Movers should conform to the dominant category label.
Entering the market after one dominant category label has taken hold invites a strategy that should be obvious: Adopt the front-runner category label.
“After the consolidation of both the dominant category and the dominant design, there is no longer much room to shape the dominant category label; by definition, it has already been ‘shaped’ and infused with meaning,” Suarez and Grodal write.
They point to Hewlett-Packard Co., which has talked recently about reentering the phone market with a “smartphone.” HP called its 2002 smartphone a “communicator” and its 2004 smartphone an “all in one device.” HP, the authors note, “did not use a hedging strategy in the early years of the industry, but now that the industry has matured, it is conforming to the dominant category.”
3. Tempo Movers get to shape the industry.
Companies that introduce their products during the optimal window of opportunity get to create or identify the dominant category label. They help infuse the label with meaning.
These companies have the highest chances of success in an emerging industry, although this window of opportunity often is characterized by a steep rise in the number of companies entering the market. Suarez and Grodal warn that to succeed, “these companies’ labeling strategies have to be sharp and effective, because the ideal window of opportunity does not stay open long.”
They cite the example of Burton Snowboards, which introduced the label “snowboard” and ended up with more than 40% market share.
Suarez and Grodal make the case that clearly, names are no small matter. Their multiyear research finds that “a company’s labeling strategy can have important performance implications for products in nascent markets.”
“New industries are characterized by an early period of confusion and uncertainty about use and meaning, which brings about a proliferation of category labels that attempt to describe the new products,” they write in “Mastering the ‘Name Your Product Category’ Game,” in the Winter 2015 issue of MIT Sloan Management Review. “As an industry matures, the struggle between different category labels quiets down as one label gradually becomes dominant.”
But being a Tempo Mover and coming up with a label that dominates an industry is an art, and one that’s not easy. For Suarez and Grodal’s ideas on how to create a category label that sticks, read their full article.