Once a company finds the right markets to target, it should keep the same focus as it adds followup products. This advice seems so logical, but many companies ignore it. Company often feel an the urge to expand into new areas where they have little expertise and no established position. Of course, companies must continue to experiment with new ideas. They can not fall into a rut. But they must remember where their positioning strengths lie and take advantage of them.

Digital Research, Inc., is one company that fell into this trap. In the late 1970s, the company became a big success by selling system software for personal computers. Its CP/M operating system emerged as an industry standart and the company`s profit soared.

But Digital Research then expanded into “retail” application software -that is, low-end application software aimed at consumers. The retail software business very different from the expertise were poorlu suited for the new business. Its expansion effort flopped, and the company saw profits drop sharply.

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Clearly, companies have much less direct control over this stage of the positioning process. Market positioning is determined largely by the perceptions of the marketplace. Customers build  a certain image of the product, and no one can argue with their decision.

It is possible, however, to influence the market-positioning process. By understanding the workings of the market, companies can influence the perception of their products. They can take steps to make themselves and their products seem more credible.

When the first personal computers came to the market, for instance, people didn`t know how they might use the new machines. A market research study would have shown very little demand. But a few pioneering companies put personal computers on the market, people came up with suggestions on how to make the machines better and put them to new uses.

The same things happens with many new semiconductor chips. Semiconductor companies rarely go to customers and ask: “What do you need?” Rather, they take spec sheets to certain key customers and say: “Here`s what we can do. How should we modify it to suit your needs?” Successful semiconductor devices often go through ten or twenty revisions during the life of the product. the experimentation never stops.

Beta sites, the locations where a company first tests its product, can be critical in this process. By working with beta-site customers, companies can begin making modifications to the product before taking it to the market. Oftentimes, the beta-site customer will hate the product at first. But as their suggestions are implemented, they fall in love with the product. When the product is finally introduced to the marketplace, it is much more likely to make a good first impression. And that`s important, as you never get a second chance to make a first impression.

Marketing people like to think they “know” their market. They do analyses of the market, then develop detailed marketing plans as though the outcome is decided deterministically. But in fast-changing industries, companies are often breaking new ground. No one can really “know” the market. The market doesn`t even exist yet. In these industries, almost all new products are experiments. Few leading-edge products are perfectly in tune with the market when they first come out. Instead, they are modified and altered once they meet the market. There`s a lot of give and take.

In some ways, the process is the mirror businesses, companies survey people to find out what they want, then create a product to fill the need. In technology-based industries, the product usually come first. Companies invent things and develop things. Then, they work with the market to see how the product should be used.

Few companies have done as good a job of choosing target markets as Metaphor Computer Systems. Started in 1983 by a group from Xerox, Metaphor developed a computer system that enables managers and analysts to gain quick and easy access to business data. The system gathers statistics from the company`s own mainframe computers, combines them with data from outside sources, and organizes all the information in a form that is convenient for the manager to use at his risk.

To market their system, Metaphor recognized that it had to target its efforts. Different types of managers have different information needs, and Metaphor could not hope to satisfy all of them. So Metaphor decided to focus its efforts on particular types of managers in particular industries.

To begin with, the company chose two target industries: consumer packaged goods and financial services. And in each industry, it decided to focus on managers in two functional areas: marketing and finance. Metaphor hired experts from each of the target industries, and develop specialized software package to meet the needs of the target managers in those industries.

Too many companies try to be all things to all people. They want to become $1 billion companies overnight. Some of you probably have encountered many start-up companies that focus on getting orders rather than on developing markets. They go after and get business in diverse and often unrelated markes, taxing their already limited resources, but also limits the laverage a company might develop by having a significant piece of business in a specific market. It`s better to be a big fish in a little pond than a little fish in a big pond.

There are two major reasons why companies should target their marketing efforts. The first reason is obvious. A company that targets its products naturally has less competition. As a result, it has a better chance of establishing itself as the leader in the market segment it choose. The second reason is less obvious but equally important. When a company focuses its efforts on a particular segment, it can do a better job of understanding and meeting the needs of its customers. And that certainly puts the company in a better position to succeed.

Positioning based on specsmanship has similar problems. Companies tha position their products as the “fastest” or the “most powerful” often run into trouble. Technological leads are usually short-lived. Research labs develop new technologies every day, and new startups rush to commercialize them. Products move from “leading edge” to “obsolete” more quickly than ever before. As a result, companies that live by specsmanship often die by specsmanship.

There is another problem: Companies that use specsmanship as a positioning lever often ignore the market environtment. They see product positioning as an analytic process of product comparisons. They make huge charts showing that product A can store fifty more kilobytes than product B. Or perhaps product A can perform certain tasks five nanoseconds faster than product B. These comparisons have some value. But they are only the beginning of the positioning process, not the end.

In fact, most customers are not that interested in narrow technical differences between products. Very few people buying personal computers understand the technical differences between one machine and the other 150 on the market. Moreover, they really don`t care. Rather, customers are much more influenced by intangible factors. Intangible factors include things such as technological leadership and product quality, service and support. It`s not easy for a company to position a product in terms of intangible factors. The company must build a certain aura around the product. But if it succeeds, it can attract customers and charge premium prices.

But these approaches to product positioning have serious flaws. Companies are much better off if they establish positions based on what we call “intangible” factors, qualities such as reliability and service. Unlike price and technical specs, intangible don`t fit neatly onto a product-comparison chart. They can`t be adequately measured or described by numbers. But intangibles are much more powerful as positioning levers.

Why are intangibles so powerful? First, let`s take a look at why price and specsmanship are so ineffective as positioning factors. Competing on price has all sorts of problems. Low-price products are often perceived as low-value products, particularly in consumer markets. Consumers assume cheap in price means cheap in quality. What`s more, low-price companies always face the thread that someone else will offer a lower price and steal their position.

The idea of the “learning curve,” or “experience curve,” encounters this this type of behavior. A learning-curve strategy involves a two-step logic. First, a company lowers its prices to increase its volume and gain market share. Next, the company takes advantage of economics of scale and mass-production experience to cut its manufacturing costs. Prices are lower, but so are costs.

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