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Category Design

How Do Market Categories Shape B2B Purchasing Decisions?

Imagine you’re a CMO of a large enterprise. You are generously paid. You get along well with your co-workers. And you’ve got the trust of your CEO.

Your annual marketing budget has line items for categories like email marketing software and marketing automation software. Your current vendors for each software are the well-established market category leaders.

They are both large companies with a long track record. Are they perfect? Hell no! In fact, your team often complains about their limitations. You’ve been hearing a lot of buzz about a new venture-backed startup looking to displace the market leader in email marketing. You get a product demo and walk away impressed and interested.

But when it comes time to decide on your vendors for the upcoming year, you face a tricky situation: you could go with the buzzy startup promising a next-generation alternative, or you could stick with your existing vendor.

Going with the startup could be amazing. But what if the startup’s technology doesn’t live up to their promises? What if they can’t keep up with the scale you require? What if they go out of business? What if you make the wrong choice? Could you get fired? Could you lose the trust of your team and your CEO?

If you are selling into enterprise, these are the types of situations your customers face every day that you must learn to empathize with. When you ask them to switch from a market leader to a new startup, you are asking them to take a risk that could affect them personally.

As the famous quote says, “No one ever got fired for buying IBM.” The startup could very well have a better product, but at the end of the day, a customer choosing a startup over the established market leaders can put themselves and their company at risk. This is why it can be so difficult for a startup that tries to go head-to-head with a market leader. Fortunately, there’s a way around forcing customers into this difficult position. Founders instead design their own category.

A Founders Choice — To battle for an existing line item or to create a new one, that is the question.  

Image source: Stratford Festival

As a B2B founder building a product, you have to decide whether your strategy is to overthrow the existing market leader? Or will you create a new category with enough value that organizations HAVE to add you as a new line item?

Both options are undeniably difficult. But who said building a multi-billion dollar company that transforms an industry would be easy? 

Convincing your customers to buy into the need of a new category is certainly hard, but many could argue that trying to overthrow established and entrenched market leaders is even more difficult and unlikely. 

Deciding if you will aim to replace the existing line items or having a new line item created is the ultimate question a founder has to decide. 

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