Invent a new category, charge more

Invent a new category, charge more

Somebody asked me the other day how can they charge more for their product. Like way more than people are used to paying for products in that category. The solution: create a new product category.

Many companies have done this successfully. All you have to do is call your product something else and build a different kind of experience around it.

People have generally a pretty good idea how much things should cost – mostly because they remember how much they’ve paid for it.

If you create a new category, there’s no price reference and people are much more likely to accept any price you name.

“I don’t want a coffee, I want iced caramel macchiato”

How did Starbucks get away with starting to charge $3 and more for coffee, when most other cafes were charging $1 or so? They changed the experience of buying coffee, so the perception of what people were getting, changed. It was like a different category product.

Image credit Terry Johnston

Since the opening, they’ve aimed to become the “Third Place”. “We’re in the business of human connection and humanity, creating communities in a third place between home and work“, said Howard Schultz, CEO.

The Third Place concept informs the design of Starbucks shops. While coffee takes center stage, the design is meant to make customers comfortable by mixing upholstered chairs and sofas with hard-backed chairs around tables. Cool music in the background. Free electricity and wifi.

This is the norm among coffee shops now (as is paying $3-$4 for coffee), but it didn’t used to be. It’a category Starbucks built along with a price tag for it.

They also changed the name. Not just coffee, but Pike’s Place brew or Skinny Iced Caramel Macchiato.

“Can I borrow your writing instrument?”

Mont Blanc doesn’t call their product a “pen” in their catalog. They sell “writing instruments“.

Reason: people will pay $680 for a writing instrument.

They can buy a perfectly functional pen at Wal-Mart for a dollar or less.

“We don’t sell used cars here…”

…. we sell “certified pre-owned vehicles”. And that totally changes the game.

  • Vehicle sounds more impressive than car
  • Pre-owned removes the stigma of used and old
  • Certified directly addresses any fears and doubts regarding quality, wear and tear

In reality “certified” doesn’t often mean much and you will find forum threads like this everywhere, but it sure sounds good.

Which one would you want – a used car or a certified pre-owned vehicle?

While it’s not a new or changed category, it’s an example of how wording can help. There’s a great book about this kind of stuff, called Words That Work.

Verizon LTE 4G

Did you see this SNL skit? Avoid this kind of product jargon:

This is a lesson that just putting a fancy names on something doesn’t create a new product category, but a whole lot of jargon.

Setting up a new successful product category

Creating a new category or niche means that, at first, you own it. Market development and associated costs can be high, time horizons long, and you might fail miserably.

To be successful, you need a ton of money, the product category needs to be very narrow (think gloves for touchscreen) and perceivably different from anything else in the marketplace. This means you need to choose a product category where there is no-one else (or if there are other players, they are unknown).

Should you succeed, owning it means high eventual ROI. Once the category is established, your brand will be the dominant one – enjoying high and profitable market share.

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Invent a new category, charge more