The Rising Tide Lifts One Boat Most of All

The Rising Tide Lifts One Boat Most of All:rom HBR.org by Eddie S. Yoon

"Kaiea" is Hawaiian for 'rising tide.' I grew up in Hawaii, and "kaiea" is one of my favorite words. I like its meaning, the memories and images of the Pacific Ocean it conjures up and how it sounds onomatopoeic to me (like a wave crashing on the rocks), especially during Chicago winters.
It is also the underlying idea for an effective — and underutilized — growth strategy. My consulting firm works with many successful market leaders with amazing market shares — 30%, 50%, 70% and even 90%. Since these companies already effectively own their existing categories, the only way to grow is to find the rising tide to grow or create a new category.
One example of a company in this situation is Gillette, which has approximately a 70% share of the shaving market. For decades, the shaving market was men's facial hair removal. Everyone is familiar with the primary methods Gillette used to grow: It innovated via technology (with the Sensor, Mach 3, and Fusion razors), and in 2001 it formally expanded into the women's leg shaving market with a new brand called Venus.
Now Gillette is formally expanding into the men's body shaving market via a new product called the Fusion ProGlide Styler.
The Gillette story clearly illustrates the simple math of Category Growth. Category Growth = A (# of consumers) x B (units per user) x C (price per unit). To grow a category, you can focus on A (by luring new consumers into the category), or B (by convincing existing users to buy additional units) or C (by increasing prices).
Gillette's waves of growth illustrate how a company can use these different growth strategies. Since Gillette already had a 70% share of adult men who were shaving most of their faces, for many years its best growth strategy was to increase pricing (C) by rolling out innovative new kinds of blades.
With the rollout of Venus, Gillette refocused on increasing its number of customers (A) by formally inviting women into the franchise to not just settle for a razor designed for a man's face, but rather one tailored for women shaving their legs.
Now with its focus on body shaving, it's targeting variable B. They're taking existing users and encouraging them to use their products to 'manscape' their way to masculinity — a process that generally requires either a new razor (such as the ProGlide Styler) or more razor blades. (Most men won't use the same razor for their face and their body.)
This is why Interbrand valued the Gillette brand at $25 billion in 2012, making it the 16th most valuable brand in the world, ahead of Amazon.com, American Express, and Nike.
But you don't have to be a market leader like Gillette for Category Growth as a growth strategy to work. My colleague, Linda Deeken, and I did some analysis of the top 75 Food & Beverage categories sold in classic retail channels that Nielsen measures for a 4 year period from 2007-2011. What we found was that only 1 in 5 categories experienced true category growth — meaning they grew faster than inflation. Of the 20% of categories that experienced growth, 80% of the incremental growth was captured by 1% of the companies or brands. The 1% was a mixture of market leaders, new entrants, and players in between.
In contrast, any growth strategy that doesn't seek to grow the pie or create a new pie is by definition a pie-splitting, share-stealing strategy. But our prior post shows a wealth of Nielsen analysis that shows that pie splitting is a long-term losing strategy. Economics 101 will tell you that any industry with positive profits invites competitors into it until industry profit goes to zero.
Sometimes it is hard for executives to accept that their growth strategy is fundamentally one of pie splitting. The easy diagnostic here is to ask a few questions of various functional leads. Ask your CFO if greater than 50% of their profit objective is a combination of population growth, raising prices (without real innovation), or cost cutting. Ask your head of sales if greater than 50% of their profit objective is based on increased trade rates, buying slotting and/or forcing competitors out of the shelf set. Ask your head of strategy or marketing if greater than 50% of their profit objective is based on close-in innovation, superior marketing plans, increased marketing spend, or a key competitor stumbling in the marketplace. If any of these answers are yes, then you have a pie splitting strategy.
In my consulting work, when I ask an executive to describe their company's growth strategy, 9 of 10 times it is a pie splitting strategy. Their eyes light up when I tell them 80% of category growth is captured by 1% of the companies. Or that category creators grow sales and market capitalization 4x and 6x faster than the other fast growing companies, respectively.
Imagine if the idiom "The rising tide lifts all boats" actually said "The rising tide lifts all boats...but lifts one boat most of all"? That's the reality of category growth: It can deliver far greater growth than pie-splitting, and many companies should be spending much more time and energy trying to achieve it.