5 Levels of Customer Awareness: where 99% of ad spend goes and where the money actually is
99% of ad spend fights for 1% of buyers. Here's why — and where the money actually sits.
Every prospect sits at one of five states in their head. From "not aware there's a problem" to "already comparing you against a competitor." Most founders have no idea which level their audience is at. So they pour budget into the most expensive, narrowest sliver of the market.
The ladder was first described by Eugene Schwartz in 1966 in Breakthrough Advertising. It still works. I walk founders through it every month, because without it marketing becomes a gambling game.
Market pyramid: where your customers actually live
The 5 levels, one by one
Unaware of the problem
A 70-year-old eating fried food, telling you: "I've eaten this way my whole life, I'm fine." No problem in her head. You can show her health-food ads forever. She won't buy.
"Why would I need this? Everything's fine."
Aware of the problem, doesn't believe in a solution
"All employees are unreliable." "Marketing doesn't work in our industry." "I'm too old to change." Sees the pain — doesn't believe it can be fixed.
"I tried. Doesn't work. Not for me."
Aware of the problem, doesn't know the solution
Lives in a small town, never ate at a restaurant. Knows they want something good — doesn't know the category exists. Open to learning, doesn't know where to look.
"Is there even a thing for this?"
Knows the category, doesn't know you
Knows restaurants exist. Knows what they're for. Hasn't heard of yours. This is where brand and differentiation come in.
"Who are you? How are you different?"
Knows you, choosing between you and a competitor
Knows the category, knows the players, knows you. Already comparing. This is where discounts and promos win or lose. And this is the narrow 1% of the market that 99% of your competitors are fighting for.
"Who's giving the best price?"
Where the budget actually goes — the uncomfortable part
99% of founders fight for Level 5. "20% off." "Today only." "Buy from us." It's the narrowest segment. It's the most expensive. Because every competitor is fighting for the same 1%.
The biggest money sits at Levels 3 and 4. Through the funnel. You first build category understanding, then introduce yourself — and only then sell.
What a funnel actually is
In practice, a funnel is just moving a prospect from Level 2 to Level 5. Step by step. Not "buy now," but "here's how this thing works, here's why it solves your pain, here's our approach."
How to tell what level your customer is at
Pull up your last ad. Read it out loud.
If it's about discounts, promos, "buy now" — you're talking to Level 5. Narrowest segment, head-to-head with competitors.
If it describes a problem ("can't figure out how to hire?", "losing customers at checkout?") — you're talking to Level 3.
If it compares solutions ("our method vs. the classic approach") — you're at Level 4.
And if it breaks a belief ("you think your niche can't hit $1M/month — look how Veronika 5x'd") — you're talking to Level 2. And you've just unlocked the largest segment after Level 1.
A mismatch between the level you're addressing and the level your customer is actually at = wasted ad spend.
How this plays out in real projects
I've walked founders through this dozens of times. The clearest case — the story of Veronika and screen printing. She spent 5 years fighting for Level 5 ("order from us", "delivery in Odessa"). Revenue capped at $1,000. Once we rebuilt her communication for Levels 3-4, two months later — 5x.
It's not magic. It's the difference between "buy from me" and "here's how your problem actually works, here's why my approach fixes it."
Same in hiring (see the piece on hiring): when a candidate is at Level 2 — doesn't believe your company is decent — telling them about salary and perks is pointless. First you break the belief.
The finish
Most founders spend their careers fighting for the smallest, most expensive slice of the market. Not because they're bad marketers. Because no one showed them that the previous four levels hold an order of magnitude more money — and far less competition.
Take a look at your last ad.
What level is your customer at when they see it? And what level are you speaking to?
People often ask
What are the 5 levels of customer awareness?
A marketing model by Eugene Schwartz (1966) describing 5 customer states: 1) Unaware of the problem; 2) Aware of the problem, doesn't believe in a solution; 3) Aware of the problem, doesn't know the solution; 4) Knows the category, doesn't know you; 5) Knows you, choosing between you and a competitor.
Why does 99% of ad spend fight for 1% of buyers?
Because most founders pour budget into Level 5 ads — "buy from us", "20% off", "today only". It's the narrowest and most expensive segment because every competitor is fighting for the same 1%. The real money is at Levels 3 and 4, through the funnel.
What is a sales funnel, simply?
A funnel moves a prospect from Level 2 (doesn't believe in a solution) to Level 5 (ready to buy from you). Step by step: build category understanding, introduce yourself, then sell. Not "buy now", but "here's how this works, here's why it solves your pain, here's our approach".
What level is my customer at?
Look at your last ad. If it's about discounts and "buy now" — you're targeting Level 5. If it describes a problem — Level 2 or 3. If it compares solutions — Levels 3-4. Mismatch between your message and the customer's level = wasted ad spend.
Where do I find customers at Levels 3 and 4?
Content. Articles, videos, posts that build category understanding and address common objections. This isn't selling — it's warming. The customer matures into a buyer because they understand the problem, believe in the solution, and see your approach. By the first purchase, they already know they want it from you.
Freeman's Alliance — where marketing becomes a system
Founders who stop burning ad budget and start building funnels at Levels 3-4.
Learn more