ZAG: The #1 Strategy of High-Performance Brands by Marty Neumeier

Introduction

   - Marketplace Clutter Takes 5 Forms: PRODUCT CLUTTER. Too many products and services. FEATURE CLUTTER. Too many features in each product. ADVERTISING CLUTTER. Too many media messages. MESSAGE CLUTTER. Too many elements per message. MEDIA CLUTTER. Too many competing channels.

   - The human mind deals with clutter the best way it can—by blocking most of it out. What gets in, those items that seem most useful or interesting, are labeled and stored in little mental boxes.

   - At the beginning of the industrial revolution, for example, the favored barrier was ownership of the means of production. If a company had a knitting machine and its competitors didn’t, the company with the machine usually won.

   - When most companies had machines, the barrier to competition became the factory. If a company could afford to own and manage a large factory with trained employees and conveyor-belt efficiencies, the company with the factory won.

   - Later, when many companies had factories, the barrier to competition became access to capital. If a company could raise capital by selling shares or putting its factory up as collateral, the company with the capital won.

   - As manufacturing began to give way to the information economy, the barrier moved from monetary capital to intellectual capital.

   - THE BARRIERS TO COMPETITION HAVE MOVED FROM THE PHYSICAL TO THE INTELLECTUAL, AND FROM WITHIN THE COMPANY’S CONTROL TO OUTSIDE IT. A BRAND IS A PERSON’s GUT FEELING A ABOUT A PRODUCT, SERVICE, OR COMPANY.

   - What exactly is a brand? Hint: It’s not a company’s logo or advertising. Those things are controlled by the company. Instead, a brand is a customer’s gut feeling about a product, service, or company.

   - If a brand is a customer’s gut feeling, then what’s the definition of branding? Briefly, it’s a company’s effort to build lasting value by delighting customers.

   - the goal of branding is simple: To delight customers so that MORE people buy MORE things for MORE years at a HIGHER price.

   - Better advice for companies is to focus their communications not on a USP but on a UBT—a Unique Buying Tribe—that has a natural affinity for the company’s products or services. In a tribe, news spreads quickly, which gives brands extra traction.

   - In a marketplace of me-too offerings, people don’t seek features and benefits so much as tribal identity.“If I buy this product,” they seem to ask,“what will that make me?”

   - To succeed in a competitive business climate, you have to innovate.

   - What IS front-page news, in a world of extreme clutter, is that you need more than differentiation. You need RADICAL differentiation.

   - Traditional differentiation is an uphill battle in which companies lavish too much effort on too few competitive advantages: the latest feature, a new color, a lower price, a higher speed. Radical differentiation, on the other hand, is about finding a whole new market space you can own and defend, thereby delivering profits over years instead of months.

   - To deploy radical differentiation, you’ll need to master four disciplines: Finding your zag Designing your zag Building your zag

Part 1. Finding Your Zag

   - You can’t be a leader by following the leader.

   - What stops most companies from zagging is the cloud of uncertainty that follows innovation.

   - When you ask people what they want, they’ll invariably say they want more of the same, only with better features, a lower price, or both. This is not a recipe for radical differentiation. This is a recipe for me-too products with pint-sized profit potential.

   - These can include attributes that customers may characterize as surprising, weird, ugly, fresh, crazy, offbeat, novel, and so on.

   - Classic examples are the Aeron chair, Citibank, Toyota Prius, Charles Schwab, and Cirque du Soleil. However, successful zags usually test poorly with consumers before they’re launched. They fare pretty well on the“good” axis, but then attract so many negative comments on the“different” axis that their companies get nervous and reject them.

   - What makes the good-different chart tricky, though, is that some of the potential winners in the upper right corner look a lot like the dogs in the bottom right corner. The line is often blurry, and the consequences for making a bad call can be extreme.

   - Look for a job people are already trying to get done, then help them do it. Jobs-based innovation, as opposed to product-based innovation, helps you get around the difficulty of testing a product that has yet to be commercialized.

   - When you’re searching for a need state, don’t think so much about the unbuilt product as about the unserved tribe.

   - Starbucks got a boost from the trend toward a more European lifestyle. The Apple iPod got a boost from the trend toward online music sharing. Charles Schwab got a boost from the trend toward more customized personal investing. Whole Foods and Trader Joe’s got a boost from the trend toward organic living. Tout Beau, Jean-Paul Gaultier’s line of male cosmetics, got a boost from the trend toward metrosexuality. And Axe Body Spray got a boost from an equal and opposite trend toward macho-sexuality.

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Part 2. Designing Your Zag

   - Herbert Simon used it:“Everyone designs who devises courses of action aimed at changing existing situations into preferred ones.”

   - All design relies on heuristic thinking more than algorithmic thinking—meaning that there is no set path, no mathematical formula, for reaching your goal. But you still need rigor and process, otherwise you’ll drift from one thought to the next with no more hope of it making sense than the proverbial thousand monkeys with their thousand typewriters.

   - There was plenty of passion for stock options, but little passion for building a real company to serve the long-term good of a community. As a result, we saw the proliferation of“junk brands”—brands with beguiling fronts but nothing real to back them up. The economy soon collapsed, taking the junk brands with it. The words of investor-philosopher Warren Buffett suddenly rang true.“When the tide goes out, you can see who’s wearing bathing suits.”

   - 25 years from now your company is wiped out. Now, sit down and write your company’s obituary. What would you like posterity to say about you? You’ll find that the answers are also the answers to the seminal questions: Who are you? Where does your passion lie? What gets you up in the morning?

   - The partners in the wine bar have gotten their purpose statement down to seven words: To bring people together through wine education. While someday they could make small adjustments to their purpose, they’ve agreed on a differentiating idea—education.

   - The leader’s job is to shape and articulate that vision, making it palpable, memorable, inspiring. True vision leads to commitment rather than compliance, confidence rather than caution.

   - Referring to the Kennedy years, he said a purpose is“advancing man’s capabilities to explore the heavens.” A vision, on the other hand, is“a man on the moon by the end of the 1960s.” Everyone could picture that man, up there on the moon, planting an American flag in the soft sand.

   - When you put your vision to paper, you can immediately see its flaws. Then you can reinforce it to withstand the slings and arrows that test the resolve of any organization.

   - They see happy groups of people learning about wine, talking about wine, and swapping stories about food, travel, and the cultures they’ve experienced.

   - When you look under the hood of a high-performance brand, you almost always find it’s powered by a trend.

   - Our fictitious wine bar is riding several—the trends toward the democratization of wine, international travel, sustainable farming, affordable luxury, and gourmet food.

   - In a mature category, what you often find is that the number-one brand has roughly twice the market share of the number-two brand, which has roughly twice the share of the number-three brand, which has roughly twice the share of the number-four brand, and so on, until there’s no market left to share. In categories that support more competitors, the differential between the market shares is less dramatic, but the hierarchy is still intact. This

   - In the world of power laws, market-share hierarchies are controlled by customers, who collectively determine the success order of competitors. Success order, in turn, is determined by two factors: the“birth order” of competitors, which includes the much-touted“first-mover advantage,” and“preferential attachment,” the network theorists’ term for popularity. As positioning experts Jack Trout and Al Ries have often stated, the biggest winner is not the brand that’s first into the marketplace, but the one that’s first into people’s minds.

   - Circumstances that Favor the Leading Brand: when the CATEGORY is confusing(cell phones) when COMPARISON is difficult(advertising agencies) when the PRICE is high(automobiles) when the INTEREST level is low(table salt) when a STANDARD is needed(operating systems) when the BENEFITS are intangible(banking) when the FEATURES are technical(pharmaceuticals) when the ADVANTAGES are unprovable(jewelry) when the RISK factor is high(law firms) when customers want PRESTIGE(fashion)

   - Our brand is the ONLY __________ that __________.

   - If you can’t keep it brief and use the word ONLY, then you don’t have a zag.

   - It parallels the journalistic model of storytelling: WHAT is your category? HOW are you different? WHO are your customers? WHERE are they located? WHEN do they need you? and WHY are you important?

   - FOR THE WINE BAR WHAT: The ONLY chain of wine bars HOW: that builds community around education WHO: for men and women of drinking age WHERE: in cities and progressive towns in the U.S. WHY: who want to learn more about wine WHen: in an era of cultural awakening

   - Once you’ve defined your point of differentiation, you have a decisional filter for all your company’s future decisions. By checking back against your statement you can quickly see whether any new decision will help or hurt, focus or unfocus, purify or modify your brand.

   - The principle of alignment, by contrast, is best served by extreme focus and self-discipline.

   - The result of alignment is coherence; the result of nonalignment is wasted resources.

   - Lou Gerstner, former CEO of IBM, was fond of saying,“If you don’t know where you’re going, any direction will get you there.”

   - The quickest route to a zag is to look at what competitors do, then do something different. No—REALLY different.

   - Every brand is built by a community. Not just the community of people inside the company, but its partners, suppliers, investors, customers, non-customers, and even competitors. It’s a complete ecosystem in which there are gives and gets all around. Everyone has a role to play, and everyone should be repaid for their efforts.

   - How could this little place build the type of community that Starbucks only dreams of? Simple. It’s in the gives and gets. The owners work hard so they can make a decent living. Customers come in every day so they can make new friends. The freelance baker makes special pastries so she can have a happy, fast-paying client. The landlord gives the café lower rent so it will attract customers for the other tenants. I get my latté and Boodles gets her biscuit. Meanwhile, Starbucks does only a modest business on the same block.

   - Could the wine bar profit from similar thinking? What will the customers get from joining the tribe? How about the employees? The wine producers? The neighboring shops at each location? The local cops(who may have to be called from time to time)? The local school system? Community charities? The investors, partners, and suppliers who help build the brand? The wine industry as a whole? To keep the system healthy and growing, everyone needs to contribute, and everyone needs to benefit.

   - The goal is not to topple the big guys, but to employ the principle of contrast to throw your zag into sharp relief.

   - Sometimes the enemy is not a competing company but the old way of doing things. Point it out!

   - The enemy of the wine bar? How about the“priesthood” of wine snobs who use the mystique of wine to inflate prices and intimidate people? Let the revolution begin!

   - In addition, people have quickly tired of saying“Personal Media Devices” and now call the company“PMD.” New customers have little idea of what PMD stands for, and are easily confused by its similarity to companies called PMC, DMD, and PDM, as well as their actual competitors, whose names people have already shortened to IMD, PMS, and IMM. Confused yet? PMD’s customers are.

   - The founders of Yubop were chided when they first proposed the name. As one investor said,“It just doesn’t sound like a serious company.” Yet, on the basis of its brevity, differentiation, and URL availability, they decided to go forward with it. Five years later, Yubop is a household word. The tagline“Who bop?” has become one of the most familiar phrases in advertising, with people using it in their everyday conversations.

   - A poor name is a drag on the brand building process, but a good name accelerates it.

   - A name should be: 1) different than those of competitors, 2) brief—four syllables or less, 3) appropriate, but not so descriptive that it sounds generic, 4) easy to spell, 5) satisfying to pronounce, 6) suitable for“brandplay,” and 7) legally defensible.

   - Of course, the key to crafting truelines and taglines is to focus on a single proposition. If you find yourself using commas or“ands” to write your tagline, you may need more focus. The rule? One proposition per brand.

   - “Bibli. Educate your palate.” Three words with no commas or“ands.”

   - The best rule to follow when mapping your value proposition is to forget about so-called best practices. Best practices are usually common practices. And common practices will never add up to a zag, no matter how many of them you apply.

   - The best way to start choosing and influencing your touchpoints is by mapping your customers’ journey from awareness to brand loyalty. How will they learn about you? How can you help them“enroll” in your brand? Who—or what—will be your competition at each of the touchpoints? Where should you put your marketing resources? More to the point, where should you NOT put them?

   - The marketers for the wine bar, for example, might make a list of touchpoints that goes something like this: Word of mouth, driving by, walking by, introduced by a friend, newspaper ad, radio commercial, online ad, Web search, the Bibli Web site, editorial coverage, direct mail, the design of the interior, the behavior of the staff, wine glasses, menus, product packaging, educational materials, on-site learning games, wine-tasting events, a wine travel program.

   - Every brand is built with experiences, whether the brand is a company, a product, or a service, and whether it serves individuals or businesses. The key is to craft those experiences so they create delight for the people who determine the meaning and value of your brand—your customers.

   - Let me toss some statistics at you. More than 50% of customers would pay a 20-25% premium for their favorite brand before switching to another brand. In some categories, a 5% increase in loyal customers can produce a 95% increase in profitability. In certain luxury categories, 10% of the customers generate 50% of the sales.

- 1) they stop considering other brands, 2) they request your brand by name, 3) they recommend your brand to others, 4) they wait longer and travel farther to get your brand, 5) they accept brand extensions more readily, and 6) they continue to pay a premium price.

   - Do they work? Most don’t, and here are six reasons why: 1) loyalty programs are often based on discounts, which“train” existing customers to expect low prices and wait out normal prices, 2) they attract loyal customers who would happily pay a premium, 3) they discourage new customers by making them feel punished or excluded, 4) they encourage competitors to retaliate with me-too programs, 5) they reduce profit margins, which 6) reduces the company’s ability to serve customers at formerly high levels. The truth is, loyalty can’t be programmed. As soon as customers begin to feel“stalked,” they choose“fight” or“flight.” They either figure out how to game the system, or else they run to another brand.

   - For brand loyalty to grow, it must be earned, and it must be mutual. As adman David Ogilvy famously observed,“Any damn fool can put on a deal, but it takes genius, faith, and perseverance to create a brand.”

   - Stickiness is a brand’s ability to own a distinct meaning in people’s minds. Stretchiness is its ability to extend its meaning without breaking.

   - Equally dangerous, if Dyson decided to stay with vacuum cleaners but market an inexpensive version alongside its original expensive version, the company would eventually find that its brand was defined by the low end, not the high end. The high end would then be vulnerable to a more focused competitor. Not only does stickiness limit stretchiness, but a downward stretch pulls perceived value down with it.

   - Companies need to grow, and in the short term most brand extensions make money. In the long term, however, extensions can cripple a brand by confusing customers. Viewed through the lens of systems thinking, it would look like this: 1) the company needs revenue growth, 2) so it adds brand extensions, 3) which increase revenues in the short term, 4) but in the long term unfocus the brand, 5) which leads to decreased revenues, 6) which leads to a need for revenue growth, and around and down it goes. This is the brand-extension doom loop. The way to avoid it is through focus and long-term thinking.

   - Since brands are defined by customers, not companies, customers in one culture may have a different view of a product or company than customers in another culture.

   - The Disney brand, for example, may signify“wholesome entertainment” in one culture,“American entertainment” in another culture, and“cultural imperialism” in another.

Part 3. Renewing Your Zag

   - If focus is so important to success, how can so many unfocused companies grow so large? In other words, how can you explain the success of a company like General Electric, which markets everything from power plants to plastics, insurance to entertainment, and lightbulbs to light rail systems? Or Mitsubishi, which puts its name on 23,720 offerings from automobiles to aerospace, textiles to tobacco, and banks to broccoli?

   - As a company grows, it’s attracted toward one of three main states, which we can call scissors, paper, and rock.

   - A“scissors” company is a startup or small business, often having only one brand. What distinguishes a scissors company is its extremely sharp focus. It competes by cutting out a small area of business(white space) from the market dominated by much larger“paper” companies, who are either too busy to notice or too slow to respond.

   - As a scissors company becomes successful and begins to grow, it morphs into a“rock” company, a medium-sized organization that typically has more brands and less focus. Its defining characteristic is no longer focus but momentum. Rock companies thrive by crushing“scissors” companies, who don’t have the resources to compete head to head with them.

   - As a rock company grows, its momentum begins to fade, and eventually it turns into a“paper” company. What distinguishes a paper company is its sheer size. With even more brands and even less focus, it survives by using its network and resources to smother“rock” companies.

   - When a company moves upmarket, much of the incremental revenue falls to the bottom line. When a company moves down-market, little of the incremental revenue falls to the bottom line. Large companies can’t make enough profit on emerging markets, so they pass.

   - Notes CEO Meg Whitman,“Young companies are very well served by focusing.”

   - If scissors companies go public during the transition, their momentum may increase with the sudden infusion of cash, but it will soon be tempered by rising levels of risk aversion, as shareholders pressure management for ever-increasing earnings.

   - Yet rock companies have a tremendous natural advantage: The“big mo” allows them to enter new markets, attract world-class talent, and buy up the scissors companies they used to compete with.

   - Just as scissors companies achieve the quickest success with disruptive innovation, paper companies tend to achieve it with“sustaining innovation.” They win by making incrementally better products that can be sold for higher prices to attractive customers. Meanwhile, with rock companies breathing down their necks and scissors companies attacking them through the niches, paper companies are under constant pressure to grow even larger in self-defense.

   - “The chains of habit,” said Samuel Johnson,“are too weak to be felt until they are too strong to be broken.”

   - He warns that groups become progressively blind to opportunity when they spend too much time“exploiting” and too little time“exploring.”

   - Yet change can be surprisingly easy when you identify the right place to achieve leverage. To find the leverage point in your organization, just ask these three questions: What is stopping the change? How is that a problem? What would have to happen for it NOT to be a problem?

   - “The biggest impediment to high performance,” she says,“is short-term focus.” Short-term focus is often a reaction to the demands of shareholders, who are quick to sell off non-performing stocks. But non-performing stocks and non-performing companies are two different things.

   - The more-differentiated companies realized a stock gain of 4.8% on the year; the less-differentiated companies a loss of 4.3%. Not only that, but the changes in stock price showed up ONE YEAR AFTER the changes in differentiation. In other words, customers saw right away what shareholders only saw after seeing the earnings.

   - Shareholders who are unaware of the relationship between zagging and performance are driving the bus from the back seat.

   - Annunzio admonishes CEOs to“stand up to the investment community and tell them that companies can’t cut their way to sustainable growth.” Instead,“they should differentiate their products and seize opportunities in new markets.”

   - Companies with 80% of their revenue from innovative products have typically doubled their market share in a five-year period. The top 20% of the most innovative companies have achieved double the shareholder returns of the 80% less innovative companies. And companies that have radically transformed their brands through differentiation have enjoyed tangible results, and stock prices have risen 250% a year as they’ve revived.

   - With this strategy, the company uses the first stage—its existing brand—to fuel the second stage—the new brand. By reducing investment in the old brand, and by selling off assets it no longer needs, the company can free up resources to launch the new brand.

   - Warhol’s Law is based on the observation that mass media are becoming atomized, democratized, and personalized, not only allowing—but requiring—more people to feed the media machine. This phenomenon is inextricably linked with the big speedup, since constant change requires constant novelty. We’re moving into an era of perpetual innovation.

   - The journey from innovation to commodity is often so short that there’s barely time to capitalize on it.

   - What happens is that, while a company is betting its future on the success of its last product or service, other companies are busy launching the next product or service. Thus the market as a whole tends to move faster than any one company. In the big casino of the marketplace, the house usually wins.

   - So how can your company beat the house? Only by innovating at the speed of the market. To do this you’ll need to shorten the span between invention and introduction.

   - The human mind deals with clutter the best way it can—by blocking most of it out. What’s left, the stuff that seems most useful or interesting, gets labeled and stored in mental boxes.

   - In a marketplace of me-too offerings, people choose on the basis of tribal identity.“If I buy this product, what will that make me?”

   - What people want today are trustworthy brands. What they don’t want is more intrusiveness, more empty claims, more clutter.

   - In a world of extreme clutter you need more than differentiation. You need RADICAL differentiation. The new rule: When everyone zigs, zag.

   - When you’re searching for a need state, don’t think so much about the unbuilt product as about the unserved tribe. Look for a job people are trying to do, then help them do it.

   - The leader’s job is to shape and articulate the vision, making it palpable, memorable, inspiring. True vision leads to commitment rather than compliance, confidence rather than caution.

   - Without a clearly drawn vision, employees tend to work at cross-purposes, often taking refuge in functional silos instead of collaborating to transform a shared picture of the future into reality.

   - • An“onliness” statement provides a framework for your zag: Our brand is the ONLY _________ that _________.

   - One of the most powerful principles in building a brand is focused alignment. The result of alignment is coherence; the result of non-alignment is wasted resources.

   - The key to crafting a trueline is to focus on a single proposition. If you find yourself using commas or“ands” to write your trueline, you may need more focus.

   - • Customer loyalty is not a program. It starts with companies being loyal to customers—not the other way around—and only becomes mutual when customers feel they’ve earned the loyalty they’re receiving from the company.

   - Eventually, a rock company expands into a“paper” company that uses its superior network and resources to smother“rock companies.” Its defining characteristic is its size.

   - To find the leverage point in your organization, just ask these three questions: 1) What is stopping the change? 2) How is that a problem? 3) What would have to happen for it NOT to be a problem?

   - The central problem of brand-building is getting a complex organization to execute a simple idea.

   - Companies that have radically transformed their brands through differentiation have enjoyed tangible results, and stock prices have risen 250% per year as they’ve revived.

   - As supply chains go global, the barriers between countries, cultures, haves, and have-nots begin to fall, causing the pace of business to speed up and the marketplace to fill with clutter and noise.

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