The 4 Levels Of Marketing Sophistication
Transform your marketing from a cost center to a catalyst for shareholder value.
Arrrrr! 🏴☠️ Welcome to a free edition of Category Pirates. Each month, we publish “mini-books” that share radically different ideas to help you design and dominate new categories. Thank you for reading. And of course, forward this mini-book to anyone who you think needs to hop aboard the Pirate ship.
Dear Friend, Subscriber, and Category Pirate,
Carl Gerlach is a classically trained consumer packaged goods (CPG) marketer, turned CEO extraordinaire who has scaled brands and led massive turnarounds worth hundreds of millions of dollars.
He built his chops at mega brands like Kraft, Sara Lee, and Unilever. He was the Director of Marketing at Ball Park Hot Dogs when he took the brand from #2 to the #1 Category King. Here, he nearly doubled revenue in a few years and helped it become the only brand to grow revenue, market share, gross margins, and operating margins at Sara Lee. As the CEO of Maple Hill Creamery, Carl built the most expensive brand of milk sold at Whole Foods and simplified a massively complex portfolio of products while tripling the business.
(Carl is our kind of Pirate 😎)
When Carl led strategy and integrated business planning at Kraft’s Cheese & Dairy unit, he brought in Pirate Eddie to help him build a category growth strategy for the entire division.
The category marketing challenge:
The $4 billion dollar business unit wasn’t just one brand, but multiple brands in a diverse set of categories within the $40 billion dollar Cheese & Dairy mega categories.
Kraft singles: Individually wrapped processed cheese for sandwiches.
Kraft naturals: Rectangular blocks of natural cheese for snacking.
Philadelphia: Spreadable cream cheese for bagels and baking.
Velveeta: Rectangular blocks of processed cheese for dips.
Fresh Take: Shreds & “shake & bake” mix for chicken.
Each brand was sold in very different places in the grocery store.
Each brand had very different cost structures, profitability, and market shares.
Most importantly, each brand was at wildly different levels of marketing sophistication.
Carl asked Eddie for a unifying category strategy approach that would provide a common languaginge for each brand, but with highly tailored strategies that would work for each specific situation.
Pirate Eddie knew status quo marketing wouldn’t solve the problem.
Category design with a focus on, and specifically cheese Superconsumers, had to come to Kraft’s rescue.
In time, category science, category design, and a helpful commodities tailwind propelled Kraft’s Cheese & Dairy unit to record profits.
But the most interesting thing about this story?
Kraft’s cheese Superconsumers gave Pirate Eddie and his team a key insight into category marketing for growth and portfolio strategy.
Be sure your marketing superpower matches the company’s marketing sophistication.
Or said differently. It doesn’t matter how legendary the category design is, if the company can’t execute it.
There are four different levels of marketing sophistication:
Level 1: Marketing As A Cost Center
Level 2: Marketing For Category Brand Building And Pricing Power
Level 3: Marketing For Product And Business Model Innovation
Level 4: Marketing That Drives Market Capitalization
In this mini-mini-book, we’ll break down each level using the Kraft category case study to explain how to avoid a disconnect by marketing your company, product, or service at one level when you really should be at another level.
It’s going to be short, sweet, and oh-so pirate-y—let’s dive in.
Level 1: Marketing As A Cost Center
Kraft cheese Superconsumers revealed a certain set of brand characteristics.
Brands had a lower concentration of Superconsumers, where the top 10% only yielded about 30% of sales. (Not healthy. Less Supers, means less big customers, less revenue, less profit, less WOM.)This data made clear. Cheese meant these Superconsumers had a wider array of choices to pick from, with so there was little perceived less differentiation. And they also described using these cheeses for snacking.
Snacking was a big problem.
Cheese is a diverse array of categories. If you don’t have a slice of cheddar, you might swap it out with a slice of Swiss. But snacking is exponentially larger and more complex. If you don’t have cheese to snack on, you might get Cheez-It crackers. Crackers might make you think of chips and other salty snacks. Chips might get you in the mood for pretzels. Pretzels might make you think of chocolate-covered peppermint pretzels. That might put you in the mood for a Starbucks Peppermint Mocha.
(Anyone hungry yet? 🧀)
Snacking is a GARGANTUAN category.
So Kraft’s ability to pierce through the noise was like shouting at a football stadium.
Brands like the iconic Kraft Singles and Kraft Natural cheeses fit in the snack category. Those marketing leaders argued for marketing spend saying that ‘natural’ was on trend. But natural cheese is difficult to differentiate. Everyone already knows what Kraft Singles are. (Not natural… 🤔)
Superconsumers had too many choices for snacking cheese, and marketing the brands in this way wouldn’t make a difference.
People marketing undifferentiated brands in crowded categories would have a better chance of winning if they just bought lottery tickets.
So, marketing was a cost center.
Pirate Eddie and the team recommended resources be deprioritized here to avoid wasting the marketing budget on product brandss that held little category power.
Level 2: Marketing For Brand Building And Pricing Power
The Kraft brands bBrands in Level 2 had much stronger Superconsumer concentrations with the top 10% of consumers driving 50-60% of sales.
This meant theses brands held strong positions in categoriesy less was not as susceptible to substitution.
Brands like Philadelphia Cream Cheese fit here. (69% market share category king market share today)At that time, Philadelphia had a dominant market share with no real branded competitors. The only thorn in its side was private label brands.
Digging deeper into the Superconsumer analysis showed that Philadelphia’s market share and brand strength were higher in Super-Geos (aka, dense pockets of demand). But this time it wasn’t geographic Super-Geos but usage-based Super-Geos. Philadelphia cream cheese used for spreading on bagels, toast, and crackers had a much higher market share vs. use cases like baking, where cream cheese is simply an ingredient and the brand had much less power.
So Pirate Eddie and the team dove deeper into the weird data.
While Philadelphia was much stronger in spreading (yes, spreading is a cheese niche), the data revealed Philadelphia’s “share of spreading” was much lower than Kraft thought. Philadelphia dominated breakfast spreading on bagels. But its share of total spreading, including peanut butter, jelly, butter, and beyond the breakfast time period, was much lower.
(Categories can be viewed through multiple lenses. It’s always critical to think about adjacent, connected and similar categories when thinking about your category design.)
Cheese Superconsumers revealed the two biggest barriers to spreading.
The first barrier was texture. Other cheesy spreads were much easier to spread than cream cheese. Spreading cream cheese on a slice of bread would tear the bread, whereas a bagel is more robust. This highlighted the importance of whipped and lighter texture cream cheese to help win the spreading battle. It also helped that whipped cream cheese was lighter and more profitable.
The second challenge was education and awareness. This is where marketing made a much bigger difference. Philadelphia had no other brands to really worry about, (category king) so it had to focus on growing the category by going beyond breakfast and winning a greater share of daily spreading.
(Most executives try to drive growth by beating competition. They fight over demand. Category designers drive growth by making the category grow. They fight to create new demand.)
(Categories can be viewed through multiple lenses. It’s always critical to think about adjacent, connected and similar categories when thinking about your category design.)
Pirate Eddie recommended a focus on marketing lighter-textured cream cheeses and educating consumers on new use cases for cream cheese throughout the day.
This helped Philadelphia build a clear path for growing the spreading category, the part of the overall market business they had catgeory kingwith the most pricing power, without having to price fight with private label.
Level 3: Marketing For Product And Business Model Innovation
The biggest surprise of all—Velveeta was the star of the Kraft Cheese & Dairy portfolio.
It had the strongest Superconsumer concentration, with an estimated 2.4 million Supers driving more than 50% of profits. Ddespite having an incredible concentration of sales occurring right before the Super Bowl. It had the greatest category king pricing power of any brand in the portfolio. It was also the most profitable.
Despite all of this, most Kraft executives looked down on Velveeta.
Mainly because it’s a big block of shelf-stable cheese sold at room temperature in the middle of the store. Executives were high income folks who preferred to feed their families fancy cheeses from Whole Foods vs. Velveeta from the center of the store.
(We always take note of how company and brand leaders really use – or don’t use – their own offerings)
Yet, it had the most Superconsumer love of any Kraft brand. Superconsumers loved sharing recipes for dips using Velveeta. One Super even talked about making fudge with Velveeta?! Kraft had built a mega-brand strategy around Velveeta, launching Velveeta Shreds, Velveeta Slices, and Velveeta Shells & Cheese (a variant on the classic blue box Kraft Mac & Cheese). The brand went beyond the Cheese & Dairy business unit, into the Meals division.
These Velveeta strategies had yielded an incremental $100 million dollars for Kraft.
George Zoghbi, the president of the Cheese & Dairy department, Carl Gerlach, and Greg Gallagher all rallied around to double down on marketing Velveeta as an innovative brand and product.
What they soon realized was that Superconsumers are incredible at offering insights that can drive product strategy.
Because they are passionate about the category, )they often push and pull products in unusual ways), they’re an ideal audience for testing out new-product and category ideas—and in many cases, they themselves are the source of new ideas.
The Velveeta team used the Superconsumer strategy to plan its media buying, trade promotions, and new product lines. This move drove significant growth and much higher margins. At the time, the brand’s general manager said that he’d never seen a more tightly integrated brand plan in his nine years at the company. (Pirate Eddie wrote about the Velveeta story in HBR here.)
Marketing to Superconsumers for category, product and business model innovation is a virtuous circle:
Companies can do well by showing more love to the customers who love them the most.
Level 4: Marketing That Drives Market Capitalization
Velveeta was the inspiration that led George to dream even bigger. His business unit was already driving record profits. So he wanted to swing for the fences.
George was aware of Pirate Eddie’s category design work at Keurig.
He wondered what would need to be true for Velveeta to launch a device and consumable business model to make melted cheese dip even easier to make at the press of a button.
He saw how much Superconsumers loved melted Velveeta at Superbowl parties. But he also saw that parent Superconsumers used Velveeta to convince their kids to eat vegetables. If you put shredded cheese on broccoli it just falls off the broccoli stalk. But if you dip broccoli into Velveeta, the ooey, gooey, drooly Velveeta makes its way into every nook and cranny transforming the broccoli from an “ick” to a “yum” in kids' eyes.
Velveeta wasn’t just a cheese you ate—it delivered transformational outcomes for parents who wanted to parent their kids better.
George commissioned a team to quantify the category size of prize and execute the category design. Pirate Eddie and the team designed a new category and discovered breakthrough food science! This category innovation made it all the way to the board of directors, who had to approve the meaningful capital expenditure to test and learn about the new category.
Then, the 3G acquisition happened.
(3G is where innovation goes to die, and zero-based budgeting zombies take over.)
It is the rare private equity firm that invests in growth. Never mind invest in entrepreneurial, category designing ideas with big upside.
Pirate Eddie was disappointed the Velveeta category innovation never happened, but grateful for the courage of George, Carl, and Greg. Had it made it to market, there is no doubt in Pirate Eddie’s mind it would have added billions to Kraft’s market capitalization.
And to make clear that marketing + category design drives market cap.
When HP purchased Mercury Interactive (where Pirate Christopher was CMO), HP execs said that owning Mercury’s category design (called BTO Business Technology Optimization) was 50% of why they paid $5 billion for the company.
Match the Right Level of Marketing to The Right Kind of Business
Kraft Cheese & Dairy applied the same Superconsumer and category science approach to all their brands. But it was ultimately the ability to recognize that the different brands and businesses at Kraft were at Levels 1, 2, 3, and 4 when it came to marketing sophistication and category position.
Attempting category design on Kraft Naturals would have been a disaster and a complete waste of money.
Price-slashing Philadelphia would have wrecked the cheese’s premium status.
Cost cutting on Velveeta would have been a massive opportunity cost.
Investing in creating and expanding products and brands that have the most potential for radical differentiation and thus category leadership is the purest.
As a category designer and marketer, it’s your job to dig into the weird data to find the marketing strategy that’s right for your product or service.
Otherwise, your marketing will just be spray and pray.
Arrrrrr,
Category Pirates