Why Reading Positioning Theory Doesn't Make You Money
Image credit: Panorama Vision
By Zheng Guangtao (Grant)
Successful positioning cases are all alike; every failed positioning is unfortunate in its own way. In the age of cross‑industry competition, positioning theory faces serious challenges.
According to positioning theory, the consumer's decision path is “think in categories, express with brands” — first decide what type of product to buy, then choose which brand. (Al Ries, The Origin of Brands)
Therefore, corporate strategy means building a differentiated position in the consumer's mind, allowing a brand to own and lead a category. (Jack Trout, What is Strategy?)
To occupy a limited consumer mind, the best differentiation is to be first — become the category leader or pioneer, with sales far ahead. Alternatively, split the category to be the sole player in a sub‑category (the first in that sub‑category), or become the opposite of the category leader. (Al Ries & Jack Trout, Positioning)
The reason why positioning theory stirs so much debate is not only because the original books explain it in oversimplified terms, but more importantly, because the theory lacks a thinking framework.
1. The controversy around positioning theory is a communication issue
Positioning theory uses 22 books to essentially say one thing: a brand must occupy and lead a category.
Thus, typical positioning cases look like this:
- Guazi Used Car — the leading second‑hand car direct‑sales platform (**** in online used‑car category)
- Jiaduobao — the best‑selling red‑can herbal tea (category leader)
- Lakasa — creator of durian pizza (**** in the durian pizza sub‑category)
- Qinghua Lang — one of China's two major sauce‑flavor Baijiu (the counterpart of Moutai, the category leader)
Compared with other business theories — such as STP+4P in marketing management, Porter's five forces and three generic strategies, value innovation in blue ocean strategy, or brand equity (associations, loyalty, awareness, perceived quality) — positioning theory seems remarkably straightforward and its cases easy to understand.
If we treat positioning theory as a product, its own marketing also perfectly follows the logic of positioning.
- The consumer’s mind is limited and hates complexity: positioning theory repeats the same set of ideas across 22 books with the same pattern — category differentiators win, category generalists lose.
- Strategy must focus on differentiation, own and lead a category: thus positioning theory positions itself as “the most influential marketing concept in U.S. history”.
Simplistic articulation means a lack of boundary conditions and a missing holistic thinking framework. The result is either distorted communication (forced interpretation) or neglect of business complexity, leading to unexpected risks.
In business and marketing circles, the word “positioning” is everywhere: brand positioning, strategic positioning, product positioning, user positioning, market positioning. In fact, many so‑called positioning experts have stretched the concept far beyond the original meaning of Trout and Ries.
When someone points out flaws in positioning theory, some experts argue that you simply don't understand positioning, that your interpretation is too narrow. The critics refer to the original theory, while the experts refer to an expanded, generalized, and infinitely broad version of positioning (more like a magic wand that can “position” anything).
The true value of positioning theory is twofold, yet significant:
- It was the first to introduce the concept of consumer “mind” into marketing, distinct from other theories that focus on the firm, industry chain, etc.
- It proposes one method of occupying the consumer's mind: achieve differentiated brand positioning, focus on, and lead a category.
As a marketing theory, there’s no need to dismiss positioning as wrong — every method has its scope. We can’t say aspirin is useless because it doesn’t cure heart disease.
2. The missing piece: a comprehensive thinking framework
Complex issues need simple expression but sophisticated handling.
For example, computer information transmission relies on only 0 and 1, yet software involves extremely complex code combinations.
Simple expression means efficiency and energy saving, while simplistic handling risks ignoring complexity.
To refine positioning theory, I have summarised four boundary conditions and propose a positioning value formula:
Positioning Value = Positioning Success Rate × (Positioning Market Value + Brand Extension Value – Communication Cost – Loss from Consumer Preference Differentiation) / Channel Restriction
(1) Effectiveness relies on advertising reach
Many critics argue that “focus” (the core of positioning) doesn’t fit today’s business environment — Alibaba and Tencent operate diversified ecosystems.
But positioning theory does not oppose business diversification; it opposes applying a single brand name to multiple categories — i.e., brand extension.
For instance, Lenovo, Xiaomi, and Sony use the same brand name across various electronics.
At the 2018 China Category Innovation Conference, Al Ries endorsed the “multi‑category, multi‑brand” strategy, praising Alibaba for using three distinct brand names: Tmall, Taobao, and Alipay.
However, whether to extend a brand is not only a mind‑share issue but also a financial investment decision.
Positioning consulting firms aim to find a positioning strategy that occupies consumer mind‑share, then help the company maximise the value of that category. That is:
Positioning Value = Positioning Success Rate × Positioning Market Value
Xiang Piao Piao was not the leader in the milk tea industry, but after category differentiation it became the “inventor of cup milk tea”. It then used massive advertising to hammer that positioning message into consumers’ minds.
From 2014 to 2018, Xiang Piao Piao spent RMB 1.213 billion on advertising. Yet in the first half of 2019, operating revenue was RMB 1.377 billion, but net profit after non‑recurring items was just RMB 22,800 (including RMB 23 million in government subsidies).
The positioning slogan is the nail; advertising is the hammer. If the hammer is weak, the nail is useless. This is an essential condition for positioning to work:
Positioning Value = Positioning Success Rate × (Positioning Market Value – Communication Cost)
Many companies can afford positioning experts but cannot afford the necessary advertising budget.
(2) Positioning theory hinders brand extension
Although advertising costs cripple Xiang Piao Piao’s profitability, the theory helped it become the undisputed category king — RMB 2.8 billion in sales in 2018, with a market share around 60% for five consecutive years.
But growth has stalled, and profits remain elusive.
Category differentiation and focus come with two inherent curses: limited size of the niche market, and difficulty entering new businesses.
In order to own and lead a category, Xiang Piao Piao carved out the sub‑category “cup milk tea”. Consequently, the served addressable market shrank — cup milk tea requires hot water, limits consumption to indoor settings, and is biased toward autumn/winter and central/western/northern regions. The consumption scenario is severely restricted. Although it is the industry leader, it struggles to make real profits.
Xiang Piao Piao needs new category businesses to drive growth. But according to positioning theory, it cannot extend the original brand into new categories; it must create a new brand, e.g., “Xiang Fei Fei”. That new brand would repeat the same positioning strategy and likely face the same over‑narrow market fate.
Alternatively, Xiang Piao Piao could choose brand extension. However, the “inventor of cup milk tea” has already been implanted in consumers’ minds; they would hardly accept Xiang Piao Piao as both the inventor of cup milk tea and a leader in another category. Thus, the opportunity for brand extension is also locked.
In reality, category fusion and differentiation are not polar opposites but a spectrum with infinite possibilities in between. Companies need to find the right point on that spectrum — where the brand does not lose growth opportunities from other categories due to over‑focus, nor loses strategic positioning in the consumer’s mind due to over‑diversification.
Thus:
Positioning Value = Positioning Success Rate × (Positioning Market Value + Brand Extension Value – Communication Cost)
Bull (Gongniu) is the leading brand in electrical sockets. When Bull wanted to enter the switch category, positioning consultants argued that consumers see Bull as sockets, so a new brand was needed. But the consulting firm Hua & Hua proposed a new positioning: “Bull Whole‑House Electrical”. The highest level of applying a theory is to go beyond it while still leveraging its power.
(3) Consumer preference differentiation weakens positioning effects
A precondition for positioning theory is that consumers, most of the time, prefer to buy the leading brand rather than others. However, this precondition faces two challenges.
First, domestic industrial chains and production processes are maturing; small brands can achieve the same product quality as big ones. Moreover, consumers can share consumption experiences online, making perceived quality more transparent. There’s less need to rely on a brand’s leadership as a safety guarantee; consumers increasingly value brand personality, values, and social interactions.
Second, consumers themselves have differentiated psychological preferences — some prefer local brands, others choose brands endorsed by specific celebrities.
Thus, even if your brand is the category leader and far ahead in sales, consumers may still choose other brands.
Positioning Value = Positioning Success Rate × (Positioning Market Value + Brand Extension Value – Communication Cost – Loss from Consumer Preference Differentiation)
At IDG Capital’s New Consumption Summit, Heytea’s founder Nie Yuchen said: “When we pioneered cheese‑whipped tea, we wanted consumers to know that, so our slogan was ‘Heytea is the originator of cheese‑whipped tea’. But we found such propaganda weak. In fact, consumers often seek resonance. Later we changed the slogan to ‘A cup of Heytea inspires a moment of inspiration’.”
(4) Channel restrictions
Another precondition of positioning theory is that consumers can conveniently obtain the leading brand through sales channels; otherwise they will switch to non‑leading brands.
Channel restrictions come from two main sources. First, channel policies: although the Internet, big data and AI have improved distribution efficiency, offline retail still accounted for about 70% of China’s total in 2018. Offline channels involve complex networks of relationships, with many explicit and implicit exclusivity agreements. Conquering offline channels is beyond what positioning theory can achieve.
Second, industry characteristics. Service industries (catering, KTV, beauty salons, etc.) are heavily channel‑restricted — stores are typically located around a radius of 5 km from consumers.
Classic case: Xibei hired Trout & Partners to position itself as “Northwest Cuisine”, then later hired Ries to position it as “Mutton Cooking Expert”. Millions of yuan spent, yet little improvement. Later Hua & Hua successfully revived “Xibei Youmian Village” using the super‑symbol method. Why? Because for service businesses like catering, channel access depends mainly on location. The super‑symbol approach (slogans, logos, tablecloths, posters, storefronts) is based on the store itself — the store is the channel, the product, and the advertising medium. It does not rely on massive media spending nor on channel density.
The positioning value formula is now complete:
Positioning Value = Positioning Success Rate × (Positioning Market Value + Brand Extension Value – Communication Cost – Loss from Consumer Preference Differentiation) / Channel Restriction
Conclusion & summary
Trout and Ries’s positioning theory is not the only truth of marketing strategy; it requires support and coordination from other marketing theories and practical components.
It should evolve within the closed loop of marketing strategy: understanding needs → creating value → delivering perception → building relationships.
The positioning value formula attempts to confine the often‑unbounded positioning theory into a quantifiable, comprehensive evaluation framework.
When applying positioning theory, at least evaluate the integrated value according to this formula — including the trade‑off between category differentiation and brand extension, advertising ROI, and channel applicability.
Marketing strategy is an applied science integrating economics, management, and psychology. Lacking any of these creates loopholes.
Successful positioning cases are all alike because they fit the theory; failed cases are each unfortunate because they only fit the theory.
It’s time to upgrade positioning theory.
The content is for reference and exchange only; does not constitute investment advice.
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