Wednesday, June 09, 2004

Law #7: The Law of the Ladder

(This entry is part of a series I am writing on The 22 Immutable Laws of Marketing.)

The Law of the Ladder acknowledges that in most market categories, there is actually more than one available slot in the mind of the customer.

The Hierarchy of Categories

In our discussion of the previous laws, we have emphasized the importance being different, the important of finding a subcategory in which you can be #1.  However, when you pop the stack frame up one level to the enclosing category, we find that you are ranked on a ladder among the other players.

I claim that my product, SourceGear Vault, is #1 in its category, which I define here as "compelling and seamless replacements for Visual SourceSafe".  However, this category is actually just one small subcategory inside a larger one which I might call "basic source control tools".  Vault is definitely not #1 in that category.  We're just somewhere on the ladder along with a bunch of other products.  There is a sister category here called "process-based source control tools".  Both of these categories are enclosed in yet another category called "all configuration management tools".  That category is enclosed inside another one called "developer tools".  SourceGear is a small ISV.  The bigger the category, the farther down the ladder we are.

Reading this book, it's easy to get confused about which level of category is being discussed.  Does a certain law apply to the whole market, or just to my category, or to my sub-category, or to my sub-sub-category?  The fact that this hierarchy of enclosing categories is highly subjective doesn't help.  Sometimes a law makes more sense when it is understood to apply to the larger enclosing categories.

For now, let's just remember that every category level has its own ladder.

Three Tidbits about Ladders

1.  The mind of the customer can only remember a few rungs.  Research indicates a maximum of about seven, and a more practical limit of about two or three.  How many brands of toothpaste can you name?  How many brands of cola?  How many brands of automobiles?  Some categories have more rungs than others.

2.  The best strategy for you depends entirely on your ranking on the ladder.  The right strategy for the #1 player is probably wrong for the #2 player, and vice versa.  The authors cite the Avis rent-a-car example, where they gained tremendous results from simply acknowledging their status as #2.  This example has been very much-discussed in the ten years since the book was written, but it still rings with a bell of wisdom.  Avis showed a lot of self-awareness.  Customers respected that.

3.  There is a typical mapping of market share onto ladder position.  The authors claim that each rung on the ladder has twice the market share of the rung below it.  These guidelines are obviously very rough, and all kinds of exceptions do apply.  Still, when we see a ladder where the market share ratios are not even close to this rule of thumb, we are motivated to ask why.

Tomorrow we will talk more about this third tidbit in our discussion of the Law of Duality.