5 Stages of Market Sophistication – Eugene Schwartz’s Breakthrough Advertising – Dan Lok


(dramatic music) – Before going into copywriting, let’s talk a little bit about what I call the five stages of market sophistication. Five stages of market sophistication. The biggest challenge that
most entrepreneurs have is they don’t understand the five stages and depends on the product cycle they communicate exactly the same way, regardless of whether it
is stage one or stage five. And once you see the distinction, you see that why the typical
marketing message doesn’t work, because they are not
aware of this concept. Now, where did this concept come from? It is a little bit bright here but it’s by a copywriter,
at the time also I would say was one of the greatest copywriters back then, Eugene Schwartz. He wrote a book called
“Breakthrough Advertising” which I believe it’s probably, I would say one of my top three marketing books that I have in my library. It’s out of print but
sometimes you can find it on Amazon for quite expensive, I think I bought mine for like 500 bucks on Amazon auto-print. You might be able to find it but it’s quite difficult to find. But it’s a classic:
“Breakthrough Advertising”, “Breakthrough Advertising”. Here is the key, you must market your product
or service differently, depending on what stage of sophistication your market is currently in. When I’m talking about how
sophisticated your market is, I’m talking about how long that type of product
or service been around, how many competitors do you have, are your clients, are
your customers jaded, have they seen a lot of
this marketing message? That’s what I mean by how
sophisticated your market is. Now here is why it’s so important. Because you always wanna aim to be number one or number
two in the marketplace. Number one or number
two in the marketplace. Now, does that mean that you
have to be the highest quota? Yes or no? Yes or no? – [Audience] No. – Now, does it help to
have the highest quota? – [Audience] Yes. – Yes. But it doesn’t mean … In this case I’m talking about
perception, more important. Cause perception is reality. Perception is what? Reality
– Reality. So, always aim to be number one, number two in the marketplace. You know this, in any
category, in any industry, the top one and top two are … Let’s say a real estate agent. The number one and number
two real estate agents makes most of the money. Yes? [Audience] Yes. – The number one, number
two mortgage broker makes most of the money. The top 10% makes 90% of money. And 90% makes 10% of the money. So, with what you do, if it’s product, service,
doesn’t really matter, but think in terms of, it you can’t become the
number one or number two maybe you could create your own category, so you could be number one or number two. Let me give you an example. Let’s say for real estate agent,
instead of calling yourself I am the number one realtor
in the whole fricking universe or I’m the number one
realtor in Vancouver, that’s very what? Broad, yes? So, instead of doing that, maybe you can specialize
and say, you know, I’m the number one expert,
just in this neighborhood. Yes? – [Audience] Is it more
important to be first or best? Ah, good. Always better
to be first or different. Be first has a huge advantage, let me give you an example. How many have ever seen those Cola blind taste test? They say, you know what
Coca Cola and then Pepsi and then they blindfold you
and then you actually taste it. And they are saying, Pepsi is
always pumping this message. Seven out of ten say our coke
tastes better than Coca Cola. How many have seen that before? Yeah, it doesn’t matter. Pepsi will never be Coca Cola. Because Coca Cola is there first. When you think of Coca
Cola you think of coke, you don’t think of Pepsi. So instead of competing in that category, there is a company, a small little company you might have heard of, Redbull. They are the first in
the energy drink market, that’s the first market advantage and they market the hell out of that. And in fact, as you are listening to this, think of Red bull actually
goes through this cycle. This five stages of market sophistication and you see, the marketing
they did in the beginning, the marketing they did in
the beginning was just like “Hey, Red bull gives you …” – [Audience] Wings. – Yeah, it’s an energy drink. And you know that that’s
the first couple of stages and after a while that’s
not their focus anymore. Because there are so many more what? Energy drinks in the marketplace. Now, it’s more Red bull, you know, what kind of events they sponsor? – [Audience] Sports. – Sports, extreme sports. It’s an identity, okay? It’s a different type
of marketing message. So from stage one, two, three, they have evolved, they have matured, and now Red bull is more attitude. Not so much about give you
wings, everybody knows that, there are so many choices out there. Makes sense? So, let me go through this with you. Let me go through this with you. So, stage one is simply say Hey you know what? Hello
market, I’m here, I’m here. Be very simple, very direct and just say Hey you know, I’m a mortgage broker, I’m a real estate agent, I’m a webmaster, I’m an accountant. When it’s stage one in the marketplace, the marketplace hasn’t seen this type of product and service before. You could just say that, there is no need to be lengthy. And since you have very
little competition, your innovation is enough
to capture the market. Okay? Stage one. Very very simple. It’s, hey you know what?
I do this, so buy from me. Great, I’ve been looking
for something like that. Simple and direct. Just
hello, I’m here in my market. Let me give you an example. So let’s take the weight
loss supplement market as an example. Many many years ago, you see these full page ad in print publication and basically, take this pill and you loose weight. That’s kind of the message. Take the pill and you loose weight. Stage one, so basically, hey you know what? I’ve got this pill, take
it and you loose weight. How many can see it’s pretty
simple and direct, yes? Very simple and direct. Then as the market evolves, something in your marketing
needs to evolve too. So, you can see that’s a computer ad … That’s a computer guys, it’s not an iPad, it’s a computer ad. Very simple, what’s the headline? Read out loud, what’s the headline? (audience mumbles) “The first personal computer
for under 200 bucks”. This is it. Personal computer, 200 bucks. Very simple, very direct. Because back then this is like “Woo”. Computer for 200 bucks, that’s already a big selling feature. Does that make sense? But that’s many years ago, that’s many years ago. Okay, stage two is, what is it? What is it? So, if the direct claim is still working, you are saying, you
know, this is what we do. You need to outbid your
competition with features because now stage two you are getting a little
bit more competition. Now you gotta communicate
with the marketplace, why is your stuff better? Why is your stuff better? So this requires you to
take those original claims and your promise and you
want to enlarge them. What do you want to do? Enlarge them. You want to talk a
little bit more about … Not just, hey here’s what we have. No but, exactly what is it? What is it? So, stage two, what is it? So, here’s an example. Again, the weight loss. Take this pill and you loose
weight in seven days or less. Yes? – [Guest] Would it be possible
to pass on the slides? We don’t have time to write is all down. – Don’t write it all down, it’s not meant to be that. Write down, when you are taking notes, it’s not a note-taking contest. – [Nathan] That’s my job. – That’s your job, that’s Nathan’s job. It’s not … What should you write down? – [Male Guest] Main points. – [Female Guest] Aha points, aha moments. – [Male Guest] What you are saying. – [Male Guest] Action steps. – Action steps. What does it mean for you? How can I apply this? How can I apply this? Or you’re a writer and you
write down just a few paragraphs and you go home and you take action and do very well and make
a whole bunch of money, then write it … It’s note-taking Nathan
who takes all the notes and posts it on Meetup anyway. Right? So, put up your hand
Nathan to everyone else. He takes all the notes. – [Audience] Where is he posting it then? – Under the Meetup, after. – Yeah. – [Female Guest] Ah good good, okay. I can stop writing. (audience laughs) – Now, don’t fucking to that either. Don’t stop writing but
write what it means … Don’t write down, it’s not about … Again, it’s not about writing
down everything I said, it’s what it means for
you, does that make sense? Just, how do I apply this? How do I apply this? So, we got take these
original claims and promises and enlarge them. So, take this pill and you loose weight in seven days or less. How many can see … So from stage one, just take
this pill and you loose weight and this is enlarge the claim, yes? Hello? – [Audience] Yes. – Yeah? Okay. Here is an example, from Apple. Why every kid should have
an apple after school. Now, I don’t think you can
see, it’s a little bit blurry, but let me, you know, one apple that won’t leave them hungry. The apple, this is two, is
easy to set up and learn and it comes complete with
almost everything you need to start computing in one box, including a free
easy-to-use 4-disk course, it goes into 120k, can you imagine? 120k of internal memory. (audience laughs) Everybody to “Whoo”. – [Audience] Whoo. – Yes, back then it was a huge deal. 120 internal memory, as powerful as the average
office computer, right. A build-in hard drive, it
just goes on and on and on about all these things, right. So, back then the stage two. Now, let’s talk about stage three. So, stage three now, again the market gets
even more sophisticated, now you gotta go into, how does it do it? Not just, here’s what we have and why we’re better than the competition. Now it’s, well exactly
how does this thing work? So, consumers at this stage are getting a little bit more skeptical. They are getting what? – [Audience] Skeptical. – A little bit, a little bit more jaded. So, now the market is jaded with all these exaggerated claims, made by the growing group of
companies, your competitors, selling pretty much the same thing, pretty much the same thing. So what you need to do, you
need to get a new mechanism. A new what? – [Audience] Mechanism. – What does it mean? What does it mean? Get a new mechanism to
make the old promise work. What does that mean? Yes. – [Guest] Reframe it somehow? – Yes, so now from just, hey here is what we do, this
is why we are different, but let me tell you one
piece of information that you might not know about what we do and you tie it back to your claim. Let me give you an example. Okay, for now just understand,
you need a new mechanism. Now so the emphasis shifts
from what the product does to how it works. Not just, as a realtor,
not just, I sell houses. Everybody does. So, what makes you different. What makes you stand out? So, emphasis from not just what you do, but how does it work? How does it work? How does it work? So, let me give you an example. Take this pill that blocks
the absorption of fat in your intestines and you loose weight in seven days or less. I’m now backing up the
claim with a mechanism, not just here is the benefit, but let me tell you what
make this pill different. Because this pill blocks the absorption of fat in your intestines. That’s what makes this
different from other pills. Yes? – [Audience] Do you mean that
they strategically omitted this information in the
first stage of marketing? No? – No, cause they don’t omit it but at the first stage of
marketing, first couple of stages they might not even need it. – [Audience] Oh, I see. – But now, as it gets more competitive, now they need to up the game. They need to up the game. And you loose weight … How many can see the difference, yes? – [Audience] Yes. – That’s the difference, okay. – [Female Guest] But, I have a question. – Yes. – [Female Guest] If you are already going to a saturated market, shouldn’t you already
need to be at that level? – Yes, that’s my point. – [Male Guest] So, that will be stage, this will be stage … – Yeah, that’s my point.
This is precisely my point. – [Female Guest] So,
that becomes stage one. – No, not stage one. It’s going into the marketplace … Let me go through the five stages first, let me go through the five stages first. Okay, so here is
introducing the Macintosh. Now, at the time, personal computers are
getting more competitive. Look at what Steve Jobs did. “What makes it tick and talk”. That’s the new mechanism. This fricking thing talks. Wow. That’s it. He only need that one thing to differentiate himself
from everybody else. And put it right in the what? Headline. The rest of the stuff, yeah, how it works. But bam, it’s a computer that talks, man. That’s … Yes. – [Male Guest] Are you trying
to say you need a headline? Is that something we
should be focusing on? – I’ll get to that as well,
I’ll get to that as well. So, now on stage four. Now as it even gets more competitive, now you need to crush your competition. There are so many choices, so many people out there
doing similar things of what you’re doing. So, now not only you gonna
promise more benefits than any other competitor, because there are so many other choices, especially with the Internet. People say now the Internet is making it easier for entrepreneurs to start their business. How many agree with that, by the way? The Internet is making easier. But also, what problem comes with that? – [Audience] Saturation. – Saturation. – [Audience] mass competition. – Yes, massive competition. – [Audience] Gaining visibility. – Yes, getting visibility. – [Audience] Experienced entrepreneurs charging barely anything, just to get customers. – Just get a customer, yes. And also the barrier of entry. So, it’s easier to start but I believe it’s actually
now more difficult to succeed. It takes that much more skill to succeed. And it takes more money to succeed and that’s the way it is. And that’s the way I like it. (audience laughs) Yeah, cause the strong will
survive, the weak will go away. So, I like that competitive environment. A new mechanism must be created and must be believable and
significant by your market. The key words there, what is it? Believable and significant. What’s important for them by your market. So eventually all these
tire your market prospects and they’ve heard it all, competitors start dropping out like flies. People don’t last. People don’t last. So again, let’s go back to
the real estate industry and keep using it but let’s use that. People who join real estate, most of them don’t stay
more than two years. They are dropping out like flies. Dropping out like flies. So, stage four, you wanna
crush your competition. Promise more benefit, new
mechanism must be created. So, this example from Apple, so then PC this and that, they created … How many have seen the Apple
versus Mac, kind of … Yeah, they changed the message. Not so much, here’s what Apple … Here’s all the features we have, no … It’s, hey you know what, PC guys, no, we are the cool bunch. We are the Mac, Apple people, right? So you see, last year there were more than 114 thousand viruses
for PCs, not for Macs. That’s at a time. How many can see it’s pretty direct? – [Audience] Yeah. – And it’s basically saying,
these guys suck, we are better. And that’s at the time what they did to compete with Microsoft PC. And, it’s interesting to
see the history of Apple, how have they evolved
and why Steve Jobs … And why I’m such a big fan
and what they have done. Such a marketing genius. I don’t see Steve Jobs as a computer guy, I see him as a marketing guy. Stage five, now you wanna be iconic. You don’t want to be just one, you want to be the one
in your marketplace. So, be iconic. The marketplace knows so
much about the industry, they will not buy into
whatever you have to claim or how hard sell anymore. Nope, they’re just so skeptical, no, no. I don’t believe you, I don’t believe you. I don’t believe you. This is where you sell on how your brands service
certain types of people and encourage people to
buy into the exclusivity. Now you are going into … So, how many of you use
a Mac? Can I see a show? How many of you use PCs? Yeah, so you can see,
it’s almost half half. You will see it’s, both products serve a segment in the marketplace, yes? Mac, what do they do?
Who are they serving? Who are they serving? – [Audience] Artists, designers. Artists, designers, creatives. Rebels. What? – [Male Guest] Cool people. – Cool people, yes. What about PCs? Who are they serving? – [Audience] Geeks and nerds. – Geeks and nerds. (audience laughs) – [Male Guest] Gamers. – Gamers, yes. Corporate, yes. Businesses, right. Microsoft Office, right. You can see, it’s very
two distinct markets, both are good, both are fine. But I’m just saying, you gotta be clear who you going after. Now, it’s exclusivity. Who do you want to be your customer? Who do you actually serve? See, how many can see this
shift from feature to identity? Yes? This is identity, not just feature. It’s identity. This is for who, who is your product for. Remember, when Steve Jobs
introduced the iPhone, the first iPhone, it’s an iPod, it’s a
phone, it’s the Internet, we were all freaked out. How many have seen that presentation? Yeah, remember that? He was like … He said it again, it’s a phone, it’s an
iPod, it’s the Internet. And people like, Wow. You can have all that on one device? Yeah. That’s iconic. That’s iconic. Not Mac computer, not
faster RAM, not more memory, something totally different. Not just an MP3 player, not just a phone, not just browser, all in one, in this little device. People freaked, right. And the rest is history. The rest will be iconic. Here is another example, again weight loss. It’s a very interesting headline. “Super Powell diet pills make comeback. “They are flying off the shelf “but they are not for everyone”. Then who is it for? Is it for me? Let me take a look. Why is this flying of the shelf? Why is this selling so well? So, again that is an example
of that stage five, iconic. I think this is between, I
would say, four and five, maybe 4.5, if that makes sense. That’s an example of that. Before I get to that, take three minutes. How long? – [Audience] Three. – Discuss the five
stages of sophistication among your table. Three minutes, go. – [Narrator] 10 times your finances, 10 times your business, 10 times your marketing, 10 times your life. Hit the subscribe button now.

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