Explained: The Five Levels of Market Sophistication

Today, we’re going to be talking about the five levels of market sophistication, and how understanding these pillars will help you to more effectively connect and communicate with your customers. Too often, we spend valuable time and resources on marketing campaigns that, for whatever reason, miss the mark and are not received well by the market. In large part, this is because we don’t understand and acknowledge where we sit on the levels of market sophistication, which means we’re unable to put an effective marketing strategy together. 

The concept was first coined by business academic Eugene Schwartz in his 1966 book, “Breakthrough Advertising,” which introduced the concept of the five levels of market sophistication. Schwartz wrote that time and again, organisations were missing out on valuable opportunities to sell their products to customers. This was due to the fact that customers sit on different levels of market sophistication, and marketers need to take this into consideration with the messages and advertisements they put to the market. 

In short, understanding market sophistication means that your organisation understands exactly how many similar products and/or services the marketplace you’re operating in knows of already. As we move further through the levels, you’ll note that customers become increasingly aware of the claims you’re making – and why – so it’s essential that your marketing pivots in-line with the demands, and sophistication of the market. 


What are the Five Levels of Market Sophistication? 

Level 1: The Pioneer Level

The first level of market sophistication means quite simply that your product or service is completely new or innovative, and the market has not heard of an offering exactly like it. In the pioneer phase, organisations often lack competition as the result of a technological innovation that brings a completely new product to the market. An excerpt from Eugene Schwartz’ book says that in level 1, organisations must “be simple,” and “be direct.” 

“Name either the need or the claim in your headline- nothing more. Dramatize the claim in your copy- make it as powerful as possible. And then bring in your product; and prove that it works.” Ideally, you’re attempting to tell as many people as possible about your new product, and how it solves problems in a completely unseen way, so you can capture as much as the market as possible before competitors – and potentially regulators – step into the equation. 

Example: Buy Now: The world’s first and only [insert product or service here] 

Level Two: Out-Doing the Competition

In the second level of market sophistication, we move past the concept of having a one-of-a-kind product or service, and move into a more familiar arena of having a product or service with fierce competition. At this level, Schwartz says it’s imperative that organisations maintain the assertion that you’re above the competition, and prove this to your potential customers with claims about your product or service that will outdo competitors. Schwartz writes that “if you’re second, and the direct claim is still working – then copy that successful claim – but enlarge on it. Drive it to the absolute limit.” 

Dan Lok writes that “at stage two, the descriptions of your product or service are longer, the market is more sophisticated, and you need to explain more than why you’re better than the competition.” You can see from these two quotes that as we move through the pillars, it’s increasingly important to assert dominance over your competitors, or “outbid” them with features and/or offerings that they’re not making to the market. 

Example: The [insert product/service here] that is twice as effective as the competition 

Level Three: Showing Customers How It Works

In the third level of market sophistication, as you can probably guess, those in the market are increasingly aware of the claims made for your products and services, but they don’t yet understand exactly how the whole thing works. Appealing to the third level market with sales tactics from levels one and two simply won’t work, as they’ve heard it before, and they’re not going to be baited in the same way. 

Schwartz writes that “if your market is at the stage where they’ve heard all the claims, in all their extremes, then mere repetition or exaggeration won’t work any longer. What this market needs now is a new device to make all these claims become fresh and believable to making them again. In other ways, a new mechanism – a new way to make the old promise work. A different process – a fresh chance – a brand-new possibility of access where only disappointment has resulted before.” 

Essentially, the third level of market sophistication requires you to connect with buyers that are increasingly familiar with the market. This can be achieved not by explicitly selling your product, but marketing the how of your product or service. Examples of this can be the time-saving measures of a piece of accounting software “saving businesses [x amount of time],” or a new washing machine that can reduce water use while maintaining a quality clean. 

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Level Four: The Cold War  

The fourth level of market sophistication, according to Schwartz, is where competitors are locked in a fierce battle to capture the hearts and minds of the buying public; calling it in the ‘arms-race’ level. In this level, your competitors are firmly on your heels, and offering a product or service that levels the competition, and as a result, there are a lot more direct comparisons and battles for each purchase. Schwartz writes that “if a competitor has just introduced a new mechanism to achieve the same claim as that performed by your product, and that a new-mechanism announcement is producing sales, then counter in this way.” 

“Simply elaborate or enlarge upon the successful mechanism,” he writes. “Make it easier, quicker, surer; allow it solve more of the problem; overcome old limitations; promise extra benefits. You are beginning a stage of embellishment similar to the Second Stage of Sophistication,” Schwartz says. As you can see, this stage requires you to put your product on a pedestal above the competition, but this comes with its own set of risks. You need to ensure that the claims you’re making to customers are in fact truthful, otherwise you risk abusing their trust, losing business and even facing penalties from regulators. 

Example: Our [insert product/service] is half the price of [insert competitor] and twice as effective; why settle for less?

Level Five: The Story-telling Phase 

In the fifth and final level, customers out in the market are well aware of your product, your competitors, as well as the claims and tactics that you’ve employed so far; they simply won’t work for anyone at this level of market sophistication. Therefore, Schwartz says that it’s essential to understand that “the emphasis shifts from the promise and the mechanism which accomplishes it, to identification with the prospect [themselves].” 

“You are dealing here with the problem of bringing your prospect into your ad- not through desire, but through identification.” I’d like to believe that Schwartz is addressing Simon Sinek’s popular notion of understanding your organisation’s why, and marketing this to your customers. It’s important to remember that at this stage, the buying public will no longer be persuaded by big claims and fancy writing, but they can potentially buy into your organisation’s vision as a business. 

If your organisation exists to improve the quality of life for someone with a disability, for example, this would be a much more powerful way of advertising your products to a sophisticated buyer, rather than simply presenting them with a product, claim and a price-tag.

Wrapping Up

Remember that different people will always sit on different levels of the market sophistication scale, and it’s essential that your organisation cover every single pillar to ensure that you’re communicating the right message to the right audience. As we move further into the 21st century, this is no-doubt becoming more difficult, but it’s also one of the basics of marketing that are often left behind in the wake of paid promotions, for example. 

I think that it’s worth taking a back-to-basics approach with aspects of marketing like these, as they can often prove more effective than simply throwing money at the problem.

For now, thanks for your time, and I’ll see you in the next piece. 

Kobi Simmat, Director and CEO of the Best Practice Group.


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