Category, Segment, and Brand – what’s the difference?

Product Positioning

Category, Segment, and Brand – what’s the difference?

Recently I’ve been making a point to ask Scrum Product Owners I meet out in the wild what the difference is between a product Category and a product Segment. Save for a few lucky guesses, almost none get it right. Shockingly, these are the people being paid to guide digital product development by steering teams of people and directing multi-million dollar capital expenditures towards consumer adoption and market success.  What this reveals is that most Product Owners have no training in product positioning or brand strategy, which seems odd given their responsibilities to shape products.

 
Unimpressed with the knowledge a typical Scrum Product Owner is able to muster about, ahem, products…I widened my survey to include other roles in digital product development and got similar results. It seems that tech savvy people simply aren’t trained in the basics of product positioning and brand strategy, which are key ingredients to being successful in digital product development.  Let’s fix that.

Ordered from the highest level of abstraction to the lowest, these are the definitions:

CATEGORY: An abstract classification of the type of product partitioned according to demand.

BRAND: An identity that represents a Category instance.

SEGMENT: A specialization of a category to serve a specific group of people (or use for the product).

VARIETY: Options that individualize a product to personal taste.

Example 1:

Example 2:

Product Categories come from classification taxonomies that subdivide a Sector (yet another market construct) into the different types of products for which demand exists. The more specialized a category, the more specialized the product.  For example, “carbonated cola” is a generic product category compared to “lemon-lime sparkling carbonated beverage”, which is a fairly narrow category. At the category level your freedom as a brand strategist is limited because you can only do the following: (a) use an existing category; (b) derive an entirely new category from an existing one; (c) create a new category by splitting an existing category; or (d) merge existing categories.

Brand is something a lot of people expect to see organized above Category, since we are accustomed to conglomerate brands that span multiple categories (examples are Microsoft, Apple, Procter and Gamble, and etc.). However, with respect to product positioning we have to ignore conglomerate/corporate brands because they aren’t directly used in product strategy. When talking about product positioning, a Brand is an identity within a Category. In the case of Coca-Cola, “The Coca-Cola Company” is the conglomerate brand but “Coca-Cola” is a category-specific brand at the same level as “Diet Coke”, “Fanta”, and others.

Segmentation is probably the most confusing.  When brand strategists talk about segmentation they are referring to consumer/audience segmentation.  The old-school way of approaching this was through demographics (age, gender, ethnicity, income bracket, urban-rural, etc.). Newer-school is VALS (values, attitudes, and lifestyle) segmentation (e.g., family-oriented, ambitious, athletic). An even newer new-school approach is psychographic segmentation, which involves building multi-variant psychographic profiles of individuals in the target population, usually requiring Big Data and Advanced Analytics. Regardless of the method by which a population is segmented, the point is that people are different and the differences tend to cluster into groups with similar needs or affinities. Thus, product segmentation is about offering specialized versions of a product that are designed to appeal to each consumer segment.  For example, Coca-Cola when packaged in 2-liter bottles appeals to a different consumer segment than the small glass bottles served in restaurants; same product, different packaging.

Apple is extremely sophisticated at segmentation. For years the Apple iPod brand has been segmented into Shuffle, Nano, Touch, and Classic. This segmentation isn’t intended to make the iPod brand appeal to different types of people so much as it is intended to attract the same person to several versions of the product that are designed to fit different states in a day-cycle; e.g., during exercise, commuting, relaxing, and movie watching. With this approach, Apple can sell two or three iPods to EACH CUSTOMER. Visionary!  We’ll see if introducing segmentation in the iPhone line (with the appearance of iPhone 5C) was as smart.

Variety is confusing because it can be difficult to understand where specialization due to Segmentation ends and specialization for the sake of Variety begins. Whereas Segmentation is about making a product appeal to a group of similar people (or to a common behavior – such as exercising), Variation is about personalizing a product to fit the character of the individual consumer. Some people resonate with the Yellow iPod Nano whereas others prefer the Purple iPod Nano. These options are mere flavors of the same exact product, just like Coca-Cola is offered in classic, cherry, and vanilla.

What will twist your mind is wondering when a Variety or Segment can become a Category. For example, it’s conceivable that there might eventually be a category called “Black Cherry Vanilla Carbonated Soft-drink”. For such a highly-specialized Variety to become its own Category, the demand would have to be established in such a way that it made sense for suppliers to launch identifiable brands around the Category to compete for that demand.

Why should anyone who builds software care about this? Obviously it doesn’t have anything to do with the quality of code or the software development life-cycle; however, it has everything to do with creating products that people consume, prefer, and develop loyal affinities toward. This is about tailoring product design so the product itself maximizes appeal.  In mass consumer markets this is extremely important, but it’s also worth understanding in other venues. Even in line-of-business or mission-oriented software development the fundamentals of product strategy and positioning need to be considered if you are designing a system that is meant to be adopted by people. You might not be developing such systems to serve multiple segments, but you still need to apply brand-like strategy to figure out how best to position the one version you are making.