What we know about category disruption

Source: WARC Best Practice, July 2017

Downloaded from WARC

This article summarises the insights from a series of key papers addressing category disruption, which
occurs when a disruptive innovation creates a new market and value network within a category,
displacing market leaders (such as Uber in the taxi market and Airbnb in the accommodation industry).

Category disruption involves breaking traditional rules and innovating to alter the status quo. The
disruption of established product or service categories is often driven by so-called ‘challenger’ brands
that focus on human-centric innovation. Being agile is key - in order to create category disruption
brands cannot afford to be slow or siloed in nature. Disruption is most commonly driven by the
emergence of digital technologies, and the opportunities they bring to distribute products or rethink
services.

Definition
Category disruption occurs when a disruptive innovation creates a new market and value network within a
category and eventually disrupts an existing market and value network, displacing established market leaders
and alliances.

Key Insights
1. Traditional categories are ripe for user-centric disruption

Recent years have seen numerous challenger brands disrupt industries that were once rooted in traditional
structure and practice. In particular, the likes of Uber and Airbnb have turned the taxi and accommodation
industries upside down. These challenger brands are successful because they have uncovered innovative ways
to connect, transform and fulfil people's needs by innovating and proving that no industry, not even the most
established or successful, is immune to a more relevant, user-centric approach. At a glance, many other
traditional industries are ripe for disruption. Paint is a global industry that is languishing in its comfort zone; from
enhancing the purchasing process to developing more inspiring communications, the category is ripe for
disruption. Similarly, while the canned food sector remains popular with consumers, there are opportunities to
disrupt this category with innovative packaging designs that communicate key selling points of brands.

Read more in: Time-honoured categories are ripe for disruption

2. Digital and mobile technology have enabled customer-centric disruption in mature

categories

The rise of digital and subsequent technological developments mean that it has never been easier for brands to
connect directly with consumers. Taking advantage of this in a customer-centric manner can help brands disrupt
mature categories. For example, the eyewear category had lagged behind others in moving online, and
customer experiences of buying glasses were often unsatisfactory. Eyewear retailer Warby Parker launched an
online business focused on the provision of high quality customer service, with low prices. The experience of
buying glasses was essentially transported online, enabling customers to upload a picture of themselves to try
on glasses virtually. Not only did online sales increase significantly, there was also offline success with
increased store visits and the opening of additional outlets.

Digital and mobile technology have also enabled Direct-to-consumer (DTC) disruption. DTC in this context is a
form of e-commerce, defined by a direct transaction between manufacturer and buyer that allows brands in
sectors such as FMCG and food to cut out the retailer 'middlemen'. Innovative subscription brands in particular
are disrupting established business models. Dollar Shave Club, a US-based online brand, sends high quality
razors directly to subscribers' homes for a monthly fee. The impact of this was made clear in 2016 when Unilever
purchased Dollar Shave Club for $1bn, giving the FMCG business a 5% share of the US market. It also gained
access to a new stream of customer data – a key benefit of DTC strategies over traditional retail.

Read more in: How Warby Parker disrupted the eyewear category, Modsy brings digital disruption to
home decor and E-commerce in 2017: How brands are going direct-to-consumer

3. To be disruptive, businesses must first understand how consumption has evolved

A new consumer behaviour pattern is challenging the existing ways of product development, business and
marketing. The emerging 'hybrid' consumers are happy to spend heavily on the latest Apple product but also to
save money on their weekly shop by going to discounters such as Lidl and Aldi. They are looking towards
'smarter consumption' and making purchases based on social values as a solution to this tension. Motivating
factors include: saving money, environmental concerns, supporting local business and being part of something
meaningful. At the same time, the so-called 'sharing economy' has seen a rise in enthusiasm for products and
services available to rent, rather than to own. This new consumer landscape, which combines previously
separate behaviours such as embracing rental with ownership and luxury with austerity, calls for new kinds of
segmentation.

Read more in: Sharing and owning: The rise of the hybrid consumer and The new consumer and the
sharing economy

4. Legacy brands must be vigilant or risk the potentially grave impacts of disruption

Complacency in business can be lethal. Businesses need to react to a fast-changing environment or risk
becoming obsolete as happened to Kodak, the photographic brand, and Blockbuster, the video rental company.
This means keeping a constant eye on emerging innovative ideas and changing market dynamics. Legacy
brands should constantly rethink what their brand stands for: Harley Davidson, for example, is not about
motorcycles but freedom for middle-aged men. Focusing on past success is no longer a guide to continued
success and increased interconnectedness has contributed to condense time-scales as highlighted by the rapid
rise of young market entrants. The internet of things, 3D printing and the democratisation of the value chains are
just some of the changes threatening to up-end current business models.

Read more in: Reading the signs – how to make sure your brand isn’t the next Kodak or Blockbuster

5. Agility is key to successful disruption

Traditional brand structures are having to adapt to a world where start-ups can rapidly threaten established
players. Branding used to be about communicating abstract ideas through manufactured touch-points and
detailed guidelines. However, hyper-competitive and rapidly evolving markets have changed this, with greater
demands for transparency, and new business models disrupting the traditional. Agile brands can disrupt
categories because they have the following qualities:

They are adaptive, principled and networked.

They lead the market, being active rather than reactive.
They work across multiple channels and think globally.

Read more in: The agile brand

6. The rise of the sharing economy has contributed to category disruption

The ‘sharing economy’ is a fascinating example of a new business model that is disrupting many traditional
categories. Driven by increased interconnectedness, the sharing economy allows people to access products or
services without having to own them, and therefore saving them money. One of the most rewarding aspects of
the peer-to-peer sharing economy is that these businesses are not just selling a service or product, but they can
also empower people to make money. One example is Airbnb which enables homeowners to make money by
renting out their homes – hence disrupting the hotel sector. Many other companies such as Taskrabbit.com and
RentTheRunway.com have followed a similar strategy. For these types of businesses growth is driven by user
experience and recommendation. Hence reputation and trust are particularly important – a high level of
transparency is crucial to helping this.

Read more in: The sharing economy: Disrupting traditional business models

7. Innovation lies at the heart of category disruption

Innovation is critical to the evolution of brands and the disruption of pre-existing categories. Innovation is the
only way in which brands that follow a premium pricing strategy can sustain that strategy. At the same time, it is
crucial to low-cost business models that aim to disrupt established category rules. Competition is often driven by
widespread copying so brands must harvest the returns of innovation quickly as they may soon be imitated. This
is a strategy used well by Zara, the fashion retailer, which has the logistical efficiency to replicate any new
product and bring it to retail shelves within 15 days after it was originally designed. Many innovations are
incremental - product variants or line extensions - while a few will completely disrupt the category, such as the
Toyota Prius, the electric car model, and Dyson, the bagless vacuum cleaner.

Read more in: Brands and innovation

More on this topic

Warc topic page: Category Disruption

Further reading

The Uber-all economy: A challenge to traditional business models

Beyond Soda: Opportunity in sparkling beverages

Four factors of future disruption: The view from AKQA

Revival Through Disruption: How Levi’s Reconnected with its core audience

Apple iPhone 6: World Gallery

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