New

Marketing
Strategies
for
Uncertain
Ttmes
 The
Regis Touch
n!he.
n.egts .10UCh "E

New Marketing
Strategies for
lJncertain 1linnes

Regis McKenna

•
......
Addison-Wesley Publishing Company
Reading, Massachusetts • Menlo Park, California • New York
Don Mills, Ontario • Wokingham, England • Amsterdam • Bonn
Sydney • Singapore • Tokyo • Madrid • San Juan • Paris
Seoul • Milan • Mexico City • Taipei
Library of Congress Cataloging in Publication Data

McKenna, Regis.
The Regis Touch.
Includes index.
I. Marketing. I. Title.
HF5415.M38 1985 658.8 84-28374
ISBN 0-201-13981-2
ISBN 0-201-13964-2 (pbk.)

Copyright © 1986, 1985 by Regis McKenna

All rights reserved. No part of this publication may be reproduced, stored in

a retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America. Published
simultaneously in Canada.

Cover design by Marshall Henrichs

Cover photography by Sharon Hall
Drawings by Ned Williams
Text design by Betsy Perasso
Set in II point Life by Walker Graphics

Production Coordinator: BMR, San Francisco, CA

Copyeditor: Ira Kleinberg

8 9 10 11 12- DO- 95949392

Eighth printing, March 1992
Contents

Figures vii
Preface ix

Acknowledgments xi

Chapter 1 The New Marketing 1

Chapter 2 Dynamic Positioning: The 11

Cornerstones of the New Marketing
Chapter 3 Product Positioning: The Four 35
Golden Rules
Chapter4 Market Positioning: Five Ways to 51
Gain Recognition

Chapter 5 Corporate Positioning: There's Only 89

One Thing that Counts

Chapter6 Developing a Strategy: Three Steps to 97

Success
Chapter 7 Why Marketing Plans Fail: The Ten 127
Competitors
Chapter 8 Putting Ideas to Work: Marketing 149
Macintosh
Index 175
Figures

Figure 1 Dynamic Positioning 17

Figure 2 Key Dynamic Factors 22

Figure 3 The Environment Defines the Product 30

Business
Figure 4 1977 Personal Computer 32
Environment
Figure 5 The Infrastructure Development of 63
the Personal Computer Industry
Figure 6 The Infrastructure Development of 64
the Microprocessor Industry

Figure 7 Strategic Relationships 72

Figure 8 The Market Adaptation Sequence 80

Figure 9 The Entrepreneurial Dream 100

Preface

Figuring out how to run a business or market a new product

in a fast-changing industry is quite a challenge. Putting the ideas
into a book is, perhaps, an even tougher challenge.
There are two primary problems. First, books are linear. They
start on Page l and end on the last page. Reality, by contrast, is
multidimensional. When I look at the business world, I see a
complex web of interconnections. Every issue affects every other
issue in complex and sometimes unpredictable ways. There are
no simple answers. Reality doesn't fit into a neat list of chapters.
The second problem: Books are frozen in time, while the
business world is constantly changing. As the pace of change
accelerates, writing business books becomes more difficult. To-
day's fictions are tomorrow's truths-and today's truths are
tomorrow's fictions. Information that is valuable today might be
worthless tomorrow. Writing a business book with lasting value
is getting tougher all the time.
In short, books have limitations. But so do all other forms of
communication. Communicating ideas within the constraints of
the medium can be difficult, but it is also an exciting challenge.
Certainly, writing this book has proved an exciting challenge for
me.
Acknowledgments

During my twenty years in Silicon Valley, I have worked with

more than 150 companies. Many people have contributed to my
ideas about marketing and business. But three individuals have
been especially important to me, providing me with special
friendship and guidance. They are Don Valentine, Andy Grove,
and Steve Jobs.
I worked for Don Valentine at National Semiconductor from
1967 to 1970 during his reign as director of marketing. Don
now heads a successful venture-capital firm. He has been one
of the most influential marketing people in high-technology busi-
ness since the early days of Silicon Valley, and his influence
continues with many startups today.
Andy Grove is the president of Intel. For the last fifteen years,
Intel has been the most important force in the microelectronics
revolution. It commercialized the first semiconductor MOS
memory, the first microprocessor, the first programmable mem-
ory, and many other firsts. Andy has influenced not only me, but
everyone associated with Intel. His relentless drive, discipline,
and imagination are infectious.
Steve Jobs is a friend and a unique businessman. Steve makes
people rethink their prejudices. In Steve's mind, nothing is in-
surmountable. To many people, that might seem foolhardy. To
most people associated with Steve, it is inspiring.
I also have been greatly influenced by the writings of two
individuals: author/futurist Alvin Toffler and Harvard Business
School professor Theodore Levitt. I have read Toffler's Future
Shock over and over, and I consider anything by Ted Levitt worth
reading.
xii The Regis Touch

The many people at Regis McKenna, Inc., also deserve a great

deal of credit. They are responsible for much of the work and
success of the company and receive too little of the credit.
Thanks also to Ann Dilworth and Doe Coover, my editors at
Addison-Wesley.
A young man named Ron Davis, while an MBA student at
Stanford, helped me research and compile the basic material for
the book.
Mitchel Resnick, formerly a reporter and writer for Business
Week magazine, turned my basic material and thoughts into
readable prose. Without Mitch's help, this book certainly would
not have come to fruition. We share its creation.
T oday change is so swift and relentless in the
techno-societies that yesterday's truths suddenly
become today's fictions, and the most highly skilled
and intelligent members of society admit difficulty
in keeping up with the deluge of new knowledge-
even in extremely narrow fields.
Alvin Tomer, Future Shock
 1The New Marketing
For the past twenty. years, I have been going to the best
business school in the world. It's called Silicon Valley.
When most people think of Silicon Valley, they think of ad-
vanced technology. Bits and bytes, chips and RAMs. But for me,
the excitement and importance of Silicon Valley extends beyond
the new technologies. For me, Silicon Valley has served as a
laboratory for new ideas about business and marketing.
When I moved from Pennsylvania to California in 1963, Sil-
icon Valley did not even have its name yet. But the region was
already something special. Collections of engineers were exper-
imenting with new technologies and creating new industries.
The pace of change was extraordinary. Every day, it seemed,
there were new innovations, new products, new companies.
Though technology was racing ahead, the ways of doing busi-
ness in Silicon Valley had not changed very much. Companies
were still marketing their products in very traditional ways. It
was engineers selling to engineers. Salesmen stressed technical
details and prices. In short, the businesses were technology- and
sales-oriented.
Before long, it became clear to me these traditional ap-
proaches were not well suited to a world of fast-changing mar-
kets and complex products. Companies in Silicon Valley needed
marketing strategies as new and innovative as their products.
So while the engineers of Silicon Valley were experimenting with
new technologies, I began experimenting with new ideas in
marketing and communications.
In 1970, I started my own company, Regis McKenna, Inc., to
try out some of these ideas. Through the years, my colleagues
4 The Regis Touch

and I have worked together with some of the most innovative

and dynamic companies in American business. For more than
a decade, we have served as consultants to top management at
Intel, the innovation king of the semiconductor industry. And
we began working with Apple Computer when founder Steve
Jobs was still working in his garage and had less than $1 ,000
in his bank account. In all, we have worked with more than 150
high-technology companies.
Through these experiences, we have helped develop a new
approach to marketing, an~ approach that takes into account the
dynamic changes in industries and markets. It is an approach
that stresses the building of relationships rather than the pro-
motion of products, the communication of concepts rather than
the dispersal of information, and the creation of new markets
rather than the sharing of old ones.
While these marketing ideas were conceived and tested at
high-technology companies, they can be applied to many other
industries. Indeed, the traditional rules of marketing are break-
ing down in a growing number of industries. The business world
is changing quickly, and marketing ideas are lagging behind.
In many ways, the experiences of Silicon Valley can act as a
valuable guide to the rest of U.S. industry. Silicon Valley, sitting
on the leading edge of change, provides a way for American
industry to look into the future. The marketing and management
problems Silicon Valley companies faced yesterday, the rest of
the business world is facing today. And the problems Silicon
Valley companies are facing today, other companies will face
tomorrow.
There are several key forces underlying the need for new
approaches to marketing. Most important is the quickening pace
of change. Traditional marketing rules were invented for static
markets and static industries. They assume technologies and
markets only change slowly. But the modern business world is
anything but static. Advances in technology are causing products
and companies to change more rapidly than ever before. Business
strategies that look promising one day look obsolete the next.
Technological change used to come along gradually. It took
fully thirty years for antibiotics to go from research concept to
commercial reality. It also took thirty years to commercialize
the zipper. Things are much different today. Products based on
 The New Marketing 5

recombinant DNA reached the market less than a decade after

the first genes were spliced.
Alvin Toffler was one of the first to note the quickening pace
of change. In his book Future Shock, he explains:

Whether we examine distances traveled, altitudes

reached, minerals mined, or explosive power
harnessed, the same accelerative trend is obvious. The
pattern is absolutely clear and unmistakable. Millenia
or centuries go by, and then, in our own times, a
sudden bursting of the limits, a fantastic spurt forward.

This speed-up is most extreme in high-technology industries.

Just as one year in a dog's life is equivalent to seven years in a
human life, one year in the high-technology business is like seven
years in any other industry. According to one estimate, there is
an innovation every thirty seconds in Silicon Valley. Products
move from drawing board to marketplace with lightning speed.
Today's new idea is tomorrow's new product.
The pace of change is now speeding up in old-line industries
as well, causing major headaches for old-line managers. The
same technologies that helped create Silicon Valley are invading
more mature industries. Microprocessors, computers, and ro-
bots are proliferating, changing the nature of business in almost
all industries. Every new semiconductor chip, every new com-
puter, every new software package can profoundly affect the
direction and pace of change in other industries.
In the past century, oil served as a base industry, creating new
opportunities and changes in industries ranging from transpor-
tation to chemicals and textiles. Microelectronics is now emerg-
ing as a new base industry. Many industries, like appliances and
automobiles, are designing microelectronic devices into their
products. Other industries are using microelectronics to auto-
mate their production processes. In all cases, microelect:-onic
devices are accelerating the pace of change.
By the end of the decade, no industry will be left unaffected.
Even an industry like the clothing industry, hardly a new busi-
ness, will undergo major changes. Designers will do their work
on computer terminals rather than paper. When they are finished
with the design for a new dress, they will push a button and
6 The Regis Touch

send the design to a computer on the factory floor. There, ultra-

precise lasers, controlled by computer, will cut the material for
the dress. Other machines will sew the dress together.
New styles and fashions will come to the market more quickly
than ever before. The day after a designer finishes his or her
work, the new fashion could be on the retailers' racks. Electronic
signals from the designer's computer will give new instructions
to the factory computer, and the laser will do the rest.
This type of system will give clothing manufacturers incredi-
ble new flexibility. Traditionally, most clothes have been produced
in a limited assortment of styles and sizes. That will no longer
be necessary. To change the size or style of a dress, for instance,
manufacturers will simply reprogram the laser. The machine
that produces a size 6 also will be able to produce a size 16.
Already, we are shifting out of an age of mass-manufactured
goods and into an era of custom-made products. Unlike the
black automobiles from Henry Ford's assembly line, the new
products come in different shapes, sizes, colors, and varieties.
Today, diversity costs no more than uniformity.
In this new environment, marketing managers must learn to
treat every customer as an individual. As time goes on, cus-
tomers will demand more and more diversity in their products.
Each person wants to be a little different, a little special. Why
did so many people want Cabbage Patch dolls? Because each
doll was unique, a little different from all the others.
The growing diversity of products is apparent all around us.
You can see it in the variety of automobiles on the road, or the
great range of clothing styles people wear. The average super-
market in the United States carries about 10,000 individual
products or brands. According to a Wall Street journal article,
seven new food products are introduced every day. In the first
eight months of 1984, for example, no fewer than nine new
granola-bar products came to the market.
The diversity of technology-based products is even greater.
Dozens of new products are introduced every day. Catalogs for
semiconductor companies list thousands of different types of
chips. And bookshelves are bending under the weight of today's
software catalogs. There are tens of thousands of different soft-
ware programs available for personal computers. There are pro-
grams to manage pig farms and programs to teach young children
 The New Marketing 7

to read, programs to help baseball coaches make decisions and

programs to help movie directors create special effects.
At the same time, products are becoming more complex than
ever before. When a customer buys a new computer, he must
understand what types of software and peripherals can be used
with it. Many customers are confused and bewildered by the
choices. It is as if supermarket shoppers had to worry about
which types of milk could be used with which types of cereal.
All of these trends-the quickening pace of change, the rise
in diversity, the increase in complexity-are creating new chal-
lenges in marketing. In many cases, companies are confronted
with first-time experiences. That is, they are facing situations
that no company has ever encountered before. These situations
involve lots of risk and lots of uncertainty.
Clearly, managers are having trouble keeping pace with all of
these changes. Business Week magazine drove home this point
when it reevaluated some of the companies that had been ex-
amined-and praised-in the 1982 bestseller In Search of Ex-
cellence. The Business Week article, published in November
1984, found that many of the "excellent" companies had slipped.
The primary reason: difficulty adapting to changes in the market.
A 1981 article in Journal of Marketing reached similar con-
clusions. In preparing the article, entitled "Top Management's
Concerns About Marketing: Issues for the 1980's," Frederick
Webster, Jr., interviewed top executives at twenty-one corpora-
tions, including Kodak, General Electric, General Foods, IBM,
and Mobil. Almost all agreed that fundamental changes are
needed. They argued that marketing managers are "not suffi-
ciently innovative and entrepreneurial in their thinking and de-
cision making."
How do today's marketing managers fail? According to Web-
ster, they fail in several ways:
• They don't provide proper stimulation and guidance for re-
search and development (R&D) and product development.
• They don't exploit and develop markets for new products
developed by R&D.
• They don't define new methods for promoting products to
customers in the face of major increases in the costs of media
advertising and personal selling.
8 The Regis Touch

• They don't stick out their necks and take necessary risks.

• They don't innovate in distribution and other areas in order

to keep up with the changing requirements of industrial cus-
tomers doing business on a multinational basis.

• They don't refine and modify the positioning of their products.

In our consulting work at Regis McKenna, Inc., we help

companies address these problems. With each client, we ex-
amine the company's strengths, expectations, and goals. Then
we compare the company's goals with the attitudes, perceptions,
and trends of the market. Within this framework, we help the
company develop a positioning strategy, a plan to help the com-
pany achieve a unique presence in the market.
In most cases, I try to avoid the traditional approaches to
marketing. Running more advertisements and mailing out more
press releases will not solve today's marketing problems. Cus-
tomers are already deluged with information. Few people can
remember the headline on yesterday's newspaper or the cover
on last week's Time magazine. In our society, information has
become disposable.
Instead, my focus is on understanding the rriarket, moving
with it, and forming relationships. While information is fleeting,
relationships have a permanence that is very powerful in a fast-
changing world. Managers might not remember yesterday's
headline, but they will remember the people they had lunch with
last month and what each person said. By forming the right
relationships, a company can gain credibility and recognition
that it would never gain through advertising.
At the same time, I urge companies to view marketing as an
~ducational process. The complexity and diversity of today's
products confuses and intimidates many customers. When cus-
tomers are confused, companies must find ways to educate
them. When customers are intimidated, companies must find
ways to reassure them. Simply boasting to customers about the
speed or power of the product will not do the job.
Most broadly, managers need a new way of thinking about
marketing. They must be creative, smart, aggressive, and open
to change. They cannot be locked into the ways of the past.
 The New Marketing 9

Many industries are entering uncharted territory, so case studies

are of little use. Managers should try new things, new approaches.
All the statistics and analyses in the world cannot predict
what will happen next in these technology-rich times. Managers
need to learn to live with this uncertainty. They must gain a
qualitative sense of perceptions and trends in the market. They
have to be willing to take some risks, and cut their losses if
things go wrong. They need to keep in touch with their cus-
tomers, and develop an intuitive knowledge of the marketplace.
Intuition will carry them a lot farther than a book full of statistics.
Above all, managers must be willing to modify their plans as
the market changes. Companies, technologies, and products are
always changing, so marketing strategies must change as well.
Marketing a product is a continuous experiment. Nothing is
certain. Managers must monitor and modify, monitor and modify.
In this book, I'll expand on these ideas, explaining how man-
agers can establish strong positions for their products in these
rapidly changing times. The book's focus is clearly on marketing,
but its message is important to all managers. For more than
ever before, marketing has become intertwined with other as-
pects of business. Marketing issues affect all other parts of a
business, and, conversely, all other parts of a business affect the
development and implementation of marketing programs. ·
Most companies compartmentalize business functions, keep-
ing marketing activities separate from finance, R&D, and other
functional areas. In many cases, people in separate areas don't
even talk to one another. But that separation is artificial. To
succeed in the new business environment, all managers must
think about marketing.
Product designers, for instance, should think about marketing
relationships with other companies. Some new products make
use of a dozen or more different technologies. No one company
can stay at the forefront of all the necessary technologies. Mar-
keting relationships are essential to the product-development
effort.
Similarly, finance and marketing are intertwined. When cus-
tomers buy complex and expensive products, they worry about
future support for the products. If a company reports weak
financial results, potential customers could be scared away. On
I0 The Regis Touch

the other hand, strong financial results will pull in even more
customers.
In the next seven chapters, I hope to show how companies
can apply new ideas about marketing throughout their organi-
zations. In this framework, marketing is more than a compart-
mentalized activity. It is a new way of thinking that permeates
the entire company. These new ideas are important for all man-
agers who must cope with change. And in today's business
environment, that means just about everybody.
Y ou see things and you say why, but I dream of
things that never were and say why not.
George Bernard Shaw
 Dynamic
2 Positioning: The
Cornerstones of the
New Marketing

Thinking Dynamically
If you say "instant photography" to someone, they'll probably
think of Polaroid. If you say "innovative computers," chances
are they'll think of Apple. If you say "high-quality copying
machines," they might think of Xerox.
Each of these companies has succeeded in positioning itself
in the marketplace. Each has established a unique presence for
itself and its products. That type of presence is a powerful force
in marketing. Indeed, at the heart of every good marketing
strategy is a good positioning strategy. Modem marketing is, to
a large extent, a battle for positioning. If companies are to
develop a new style of marketing suited for the new era of rapid
change, they must start with a new approach to positioning.
Positioning is always competitive. Customers think about
products and companies in relation to other products and com-
panies. They set up a hierarchy in their minds, then use that
hierarchy when making decisions. When people think about
copying machines, they put Xerox at the top of the hierarchy,
followed by IBM and perhaps Ricoh. In airplanes, people put
Boeing at the top of the hierarchy. In military electronics, it's
14 The Regis Touch

Lockheed. Once a position is established-be it negative or

positive, leading or following-it is extremely difficult to change.
Positioning is vital to success in marketing. All of mark~ting­
merchandising, advertising, pricing, packaging, distribution, public
relations-grows out of positioning. If a company's products
are positioned poorly, the rest of the company's marketing strat-
egy will be useless.
How can a company establish a strong position in today's
fast-changing markets? It isn't easy. Traditional positioning
strategies are not adequate. They do not take technology and
change into account. They assume a static marketplace-that
is, a marketplace where technologies, products, and customer
perceptions change very slowly. For today's markets, marketeers
need a new model of positioning. They need what I call" dynamic
positioning."
Dynamic positioning strategies are very different from tradi-
tional positioning strategies. In the traditional model, a company
first decides how it wants its product positioned. The company
might want to be perceived as the "low-price' 1 company of the
industry. Or it might want to be perceived as the "premium-
quality" company. Next, the company comes up with a slogan
that summarizes the desired message. Finally, it simply spends
money on advertising and other promotions until the slogan
achieves broad recognition.
The Avis-Hertz rivalry is a classic example of traditional po-
sitioning. Avis decided on a position: the hard-working run-
nerup in the industry. Then, it came up with a slogan: "We try
harder." Finally, it advertised like crazy, until people began to
believe that Avis really did try harder. This approach worked
because the rental-car business is a rather static market. Neither
the cars nor the service changes much from year to year. If you
rent a car, you rent a car. Companies can differentiate themselves
simply through advertising, discount rates, and free gifts.
The situation is quite different in fast-changing industries. In
these industries, products change, markets change, technologies
change, competition changes. There is a constant flux. Radical
changes occur every few years. New companies, and companies
from other industries, are constantly trying to grab a piece of
the action. All these changes can influence positioning in the
marketplace.

\
 Dynamic Positioning: The Cornerstones of the New Marketing 15

Standard approaches to positioning do not necessarily work.

A company that is No. 1 today has no guarantee that it will be
No. 1 tomorrow. New technologies can turn a seemingly solid
position into a fragile one almost overnight. No amount of
advertising can prevent that from happening. Even with the best
of slogans, a company can lose its position in the market.
Market awareness is no longer enough. An associate of mine
once did an analysis of the Federal Energy Administration's
slogan: "Don't be fuelish." About 80 percent of all people
surveyed were familiar with the slogan. But consumption of
energy was at an all-time high. The slogan was good, but the
behavior remained unchanged.
To survive in dynamic marketplaces, companies clearly need
a new form of positioning. Companies have to establish strate-
gies that can survive the turbulent changes in the market envi-
ronment. They must build strong foundations that will not be
blown away in the storm.
To do that, companies can't focus on promotions and adver-
tising. They need to gain an understanding of the market struc-
ture, then develop strategic relationships with other key companies
and people in the market. They must build relationships with
suppliers and distributors, investors and customers. Those re-
lationships are more important than low prices, flashy promo-
tions, or even advanced technology. Changes in the market
environment can quickly alter prices and technologies, but clos~
relationships can last a lifetime, if not longer.
With this approach, positioning evolves gradually. The posi-
tioning of a product or a company is somewhat like a person's
personality. Babies have no real personality when they are born,
but they gradually gain characteristics as they grow. They are
influenced by their parents, then by their friends, then by school.
Their personalities alter and grow depending upon the environ-
ment that surrounds them.
The situation is similar with positioning. A product or com-
pany has no real meaning at first. But it acquires meaning from
its environment, and it changes as the environment changes. As
a company evolves, it is still the same company, just as a growing
child is still the same child. But personality and positioning are
always changing.
16 The Regis Touch

Unlike traditional positioning, dynamic positioning is a mul-

tidimensional process. It involves three interlocking stages-
product positioning, market positioning, and corporate posi-
tioning. These three stages, which will be covered in detail in
the next three chapters, interact with one another in subtle but
important ways. Each stage builds on the others and influences
the others. Pieced together properly, they create a whole that is
much bigger than its parts. But if any one of them is flawed,
then the whole positioning process will falter.
In the first stage, product positioning, a company must de-
termine how it would like its product to fit in the market. Should
it build a reputation for low cost? High quality? Advanced
technology? Should it try to sell the product to all companies?
Or just manufacturing companies? Or maybe just certain types
of manufacturers? I always advise companies to pay special
attention to "intangible" positioning factors; like technology
leadership and product quality. Intangible factors are based on
customer perceptions, not raw statistics and numbers. Market-
ing is not a strictly rational process. Low prices and top product
specifications do not always win sales. Rather, it is intangible
factors that are the keys to gaining strong product positioning.
In the second stage of the positioning process, market posi-
tioning, the product must gain recognition in the market. It has
to establish credibility with customers. The marketplace must
perceive the product as a winner.
To gain a strong market position, a company needs to under-
stand the workings of the industry infrastructure, the network
of retailers, distributors, analysts, journalists, and industry "lu-
minaries" who control the flow of information and opinion in
the industry. Companies should identify and work closely with
key members of the industry infrastructure. I believe that 10
percent of the people in an industry influence the other 90
percent. If a company can win the hearts and minds of the most
important 10 percent, its market positioning is assured.
In the final positioning stage, corporate positioning, the com-
pany must position not its products but itself. This is done
primarily through financial success. If a company is profitable,
many of its mistakes are forgiven, if not forgotten. But if the
company's profits slip, its image becomes tarnished. Customers
are reluctant to buy products, particularly expensive or complex
Figure I
18 The Regis Touch

products, from a company in financial trouble. When that hap-

pens, the company must start over at product positioning and
rebuild its position in the market.
This three-stage positioning process must be a total business
activity. It is not just advertising and public relations. It is a
fundamental part of business planning, and it must be sup-
ported by managers across the corporation. Dynamic position-
ing pulls a common thread through all parts of the company,
then connects them all to the marketplace. Dynamic positioning
can have a major influence on every part of the organization:
Corporate. Positioning can influence the attitudes of staff
members. People enjoy working for a company they can identify
with, especially if the company is recognized as a leader. Cer-
tainly, recruiting is easier for recognized leaders. Positioning can
also influence the company's relationship with the financial com-
munity. Wall Street likes companies with a clear vision of their
role in the market.
Product planning. Product planners are engaged in a constant
battle with change. Regular positioning analysis can provide
direction for overcoming weaknesses or creating barriers to
competition. Product planners must move away from traditional
marketing techniques that were designed to gain market share,
and move toward new approaches designed to create entirely
new markets.
Marketing. Marketing deals mostly with awareness and the
future. Marketing managers must understand the company's
positioning, then project the position to the market through
education and relationships. Strong positioning allows a com-
pany to establish relationships with strong partners. These re-
lationships, in tum, make the company's positioning even stronger.
Sales. Successful sales personnel deyelop customers, not just
orders. Positioning opens doors and provides direction. It gives
the salesperson a total picture of where the company is· going,
and why it is going there. The salesperson is then more confident
in conveying this information to customers.
Financial. Positioning and financial strength build on one an-
other. A well-positioned company can raise new funds more
 Dynamic Positioning: The Cornerstones of the New Marketing 19

easily and at lower rates. Conversely, a financially strong com-

pany has a much easier time positioning its products in the
market.

The New Cornerstones

At the core of the dynamic positioning process are several key
ideas. These ideas differentiate dynamic positioning from tra-
ditional approaches to positioning. They influence every stage
of the positioning process, and are critical to the development
of a successful marketing strategy.
These key ideas serve as the cornerstones of the dynamic
positioning process. They provide support and structure to the
process. Without them, the process would fall apart.
These new cornerstones of positioning include:
l. Marketing should be dynamic, not static.
Marketing in fast-changing industries is somewhat like guid-
ing a rocket ship from Earth to the Moon-without any sophis-
ticated navigational equipment. In both cases, the target is
always moving. The Moon doesn't stand still, and neither does
the market. No two Moon shots are exactly the same. During
the flight, you have to keep making adjustments, altering the
course. If the rocket (or the product) simply goes in a straight
line, it misses the target and fails in its mission.
You can extend this metaphor further (if you're willing to
stretch your imagination a bit). Think of Earth as the company
selling the product, and the Moon as the market. Just as Earth
and the Moon exert gravitational forces on the rocket and influ-
ence its course, the company and the market exert their own
"gravitational" forces on the product and influence its course.
What are the "gravitational" forces on the product? Look at
the company's gravitational forces first. These forces include
things such as:
Financial resources. Does the company have enough money for
the product-development effort? If so, does it also have enough
20 The Regis Touch

money to support the product with the proper marketing, ser-

vice, and peripheral products?
Timing. In fast-changing industries, the window of opportu-
nity can close quickly. Will the company bring the product to
the market at the right time?
Technology. Does the company have all the technology it needs
to develop the product? Is its technology at the cutting edge?
People. In the end, people are the most important ingredient
for success. Does the company have top-notch talent in its en-
gineering and managerial ranks?
The company can control all these forces, at least to some
degree. In some cases, these forces hold the product down. In
other cases, they help give the product a strong liftoff.
The market's gravitational forces influence the product at the
other end of its journey. They draw the product in, help position
it in the minds of the customers. They help give a product
credibility-or rob it of credibility. These forces include things
such as:
Market infrastructure. The infrastructure includes everybody
that can influence perceptions of the product: retailers, distrib-
utors, financial analysts, manufacturers of peripherals. Support
from the infrastructure is critical to success.
Strategic relationships. Companies can form all types of rela-
tionships-equity investments, joint development ventures,
marketing agreements. A company's credibility in a market often
depends on the relationships it forms. For example, Microsoft's
credibility in the software industry shot up sharply when IBM
decided to use an operating system from Microsoft for its per-
sonal computer.
FUD. This stands for Fear, Uncertainty, and Doubt. If cus-
tomers have fears and doubts about a product, the product won't
sell well, no matter how technologically advanced it is.
Adaptation sequence. The market adapts to new technology in
stages. First a handful of future-oriented customers (the "In-
novators") will try a new technology. Then come the majority
 Dynamic Positioning: The Cornerstones of the New Marketing 21

of the customers. Finally, the "Laggards" adapt to the technol-

ogy. Where a product falls in this adaptation sequence certainly
influences its chances of success. (See Figure 8.)

Competition. The actions of competitors can turn a product

into a smash-or a flop. A product might look good at the
launch, but a new product, using a new technology, can make
it look obsolete overnight.

Social trends. The prevailing views of society can greatly influ-

ence how a product performs in the market. The growing interest
in environmental matters, for instance, gave a big boost / to solar-
energy products.

These gravitational forces are always shifting and changing.

Nothing in the market is static. Marketeers will succeed only if
they constantly evaluate the gravitational forces and react to
changes in the forces. Competing in a dynamic market requires
a dynamic marketing strategy.

2. Marketing should focus on market creation, not mar-

ket sharing.
Most people in marketing have what I call a "market-share
mentality." They identify established markets, then try to figure
a way to get a piece of the market. They develop advertising
strategies and merchandising strategies. All these strategies are
aimed at winning market share from other companies in the
industry.
In fast-changing industries, however, marketeers need a new
approach. Rather than thinking about sharing markets, they
need to think about creating markets. Rather than taking a
bigger slice of the pie, they must try to create a bigger pie. Or
better yet, they should bake a new pie.
Market-sharing and market-creating strategies require very
different sorts of thinking. Market-share strategies are common
in mature consumer-goods industries like soft drinks and rental
cars. The emphasis is on advertising, promotion, pricing, and
distribution. Customers are interested primarily in price and
availability. The supplier with the best financial resources is
likely to win.
 $TAATS6rJC.
~l.ATIO~IPS

Figure 2
 Dynamic Positioning: The Cornerstones of the New Marketing 23

Market-creating strategies are much different. In these strat-

egies, managers think like entrepreneurs. They are ·challenged
to create new ideas. The emphasis is on applying technology,
educating the market, developing the industry infrastructure,
and creating new standards. The company with the greatest
innovation and creativity is likely to win.
Traditional market-share strategies don't work well in emerg-
ing markets. Most new markets are quite small to begin with.
If companies think only about sharing the markets, they will
never get involved in emerging businesses. They'll take a look
at the business, decide that the "pie" is too small, and move on
to other possibilities.
That is exactly what happened in the personal-computer busi-
ness. Dozens of major companies investigated the market for
inexpensive computers in the mid-1970s. At the time, these
computers were used primarily by hobbyists- that is, enthu-
siasts who enjoyed tinkering with the machines. There aren't all
that many hobbyists in the United States, so most computer
companies decided that the market was too small for them to
enter.
But a few companies, companies such as Apple and Tandy,
looked at the business with a market-creation· mentality. They
looked beyond the hobbyists and saw that small businessmen
and professionals might eventually use the machines-if only
the machines were designed and marketed a bit differently. Rather
than focusing on what was, they focused on what might be.
They saw the possibility of a growing market, an expanding pie,
and they set out to make it happen.
In creating new markets, marketeers face many obstacles.
First of all, they can't rely as much on analogies and case studies.
When products are radically new and different, past products
do not provide much of a guide.
The personal computer, ,for example, had no good analogies.
Clearly, personal computers are not at all like large mainframe
computers. They sell at very different price points to very dif-
ferent people. Some people have compared personal computers
to stereos. But stereos are much less complicated to use than
computers. People don't spend hours learning how to use a
stereo. Nor are people scared and intimidated by stereos as
many are by computers.
24 The Regis Touch

For cases like this, marketeers must break new ground. They
must be willing to experiment and take risks. They must try
new things and be open to new ideas. Creativity is the key to
success in new markets. In mature markets, marketing is like a
handball game-a confined environment with few players. But
in emerging markets, marketing is more like a soccer game-a
wide-open field with lots of players, lots of possibilities, and lots
of options.
In the early days of personal computers, no one knew how to
distribute the new machines. The traditional method for selling
computers-through direct sales forces-was simply too ex-
pensive. A person with a market-share mentality might have
given up. But a few innovative people persevered. Some tried
direct mail, others tried selling computers door-to-door. Still
others opened specialty computer stores. Within a few years,
there were thousands of computer stores scattered' across the
country.
To develop new markets, it is essential that companies be
willing to take the time to educate customers. When micropro-
cessors were first introduced in the early 1970s, few customers
recognized the value of the new chips. People are resistant to
change, and the idea of programmable chips was foreign. Many
engineers believed the microprocessor was a marketing gimmick.
So Intel, the first company to market microprocessors, had
to do a massive education job. It ran advertisements filled with
suggested applications for the new product. It distributed book-
lets with descriptions of actual applications, from electronic
games to blood analyzers, from milking machines to satellites.
Most important, Intel ran seminars for potential corporate
customers. In the first few years, Intel ran hundreds of these
seminars, all over the world. At each seminar, Intel first pre-
sented a corporate overview, usually from a top company exec-
utive. Next, an Intel marketing manager would give a presentation
on the marketing value of microprocessor-based products. Fi-
nally, Intel engineers would describe the technical details of the
microprocessors. Most of the early customers ordered only a
few microprocessor chips. But as the education campaign con-
tinued, Intel was able to attract more and more high-volume
users.
 Dynamic Positioning: The Cornerstones of the New Marketing 25

A market -creating mentality also requires a different view of

industry standards. Companies must think about creating new
standards rather than following existing standards. That involves
greater risk, but the payoffs can be much higher.
Apple took this route when it developed its Macintosh com-
puter. Rather than simply producing a "clone" of the popular
IBM personal computer, Apple wanted to develop a new com-
puter that was radically easier to use. To do that, Apple decided
to establish its own operating systems rather than be tied to the
limitations of the industry standard MS-DOS. The risks were
great, but to do otherwise would mean that Apple would be
completely at the mercy of IBM's control over that standard.

3. Marketing should be a building process, not a pro-

motional process.
IBM introduced the PCjr in 1983 with a multimillion-dollar
promotional campaign. It ran commercials on television and
placed advertisements in dozens of magazines. But with all that
promotion, the PCjr still didn't sell well. The PCjr's toy-like
keyboard and lack of software compatibility were part of the
problem. But equally important was the fact that dealers were
not excited by the machine. IBM had worried so much about
winning the minds of customers that they had never won. the
hearts of the industry infrastructure.
In mid-1984, IBM tried to fix the problem. One step was to
redesign the keyboard. But equally important, IBM invited all
its retailers to a huge meeting in Dallas. Company officials gave
the retailers technical information, sales advice, and a big party.
They listened to retailers' questions and complaints. The retail-
ers left the meeting with a new attitude toward the PCjr, but the
damage had been done. Despite tens of millions of dollars spent
on advertising and promotion, PCjr was not accepted by the
infrastructure. In 1985, IBM announced that they would no
longer manufacture the PCjr.
The moral of the story? Advertising and promotion are only
a small part of marketing strategy. Advertising can reinforce
positions in the market, but it can't create positions.
To build lasting positions in the market, companies must first
builtl strong relationships. They must build relationships with
26 The Regis Touch

suppliers, with distributors, with retailers, and with the finan-

cial community. They must take advantage of what I call the
industry's infrastructure-that is, the key people and companies
that make the industry tick.
I like to draw a distinction between marketing-driven ap-
proaches and market-driven approaches. The two approaches
are very different. Marketing-driven approaches are based on
advertising and promotion, while market-driven approaches fo-
cus on developing strong products, understanding the structure
of the market, and building relationships with other people and
companies in the marketplace.
Consumer-goods companies usually use a marketing-driven
approach. They have a creative idea, then they implement it
through advertising. A toothpaste company that wants to in-
crease its share of the market can do so by spending more money
on promotions and advertising.
Many technology-based companies have tried to copy this
formula. In the past few years, they have rushed to hire execu-
tives from consumer-goods companies. Atari lured James Mor-
gan from Philip Morris, Osborne Computer brought in Robert
Jaunich from Consolidated Foods, and Apple hired John Sculley
from Pepsi.
Other technology co~panies have begun pouring money into
advertising. TeleVideo, hoping to broaden the market for its
computers, decided to spend $20 million on advertising. Even
Rolm, which sells sophisticated communications systems, de-
cided to launch a national television campaign. According to
Fortune magazine, computer-industry advertising jumped from
forty-fourth place in 1982 to fourth place in 1983, larger than
all other categories except food, drugs, and department stores.
Unfortunately, the neat formulas from traditional consumer-
products industries do not work well for companies in new fast-
changing industries. Rolm has junked its advertising campaign.
TeleVideo withdrew from the retail market. Atari and Osborne
floundered under their new leaders. Sculley is succeeding at
Apple, but only because he focused his initial efforts on product
strategy, not advertising and promotion.
Why doesn't the traditional approach work? Largely because
customers are insecure and confused. They don't understand
all the changes occurring in today's fast-changing industries.
 Dynamic Positioning: The Cornerstones of the New Marketing 27

New technologies seem to emerge every day. Regulatory changes,

like the breakup of AT&T, restructure entire industries. Cus-
tomers in these industries want security and reassurance.
Buying a $1 tube of toothpaste doesn't involve much risk.
But buying a $25,000 computer system that will be at the heart
of your business is a major risk. Customers are filled with
worries: If the computer breaks down, will my business grind
to a halt? Will the manufacturer provide prompt and high-
quality service? Will my new computer be obsolete in a year? If
so, will the manufacturer introduce new, up-to-date models? As
my business grows, will the manufacturer offer a smooth up-
grade path to larger computers? Will other companies provide
the software and peripherals I need for the computer? These are
all legitimate fears.
Running more advertisements will not ease these fears. People
are deluged with so much product information these days that
information has become disposable. With 150 different personal
computers on the market, people aren't going to decide which
one to buy on the basis of their advertisements. They are going
to rely on advice that they get from retailers, consultants, and
friends.
There's an old Texas saying about a cowboy who was "all hat
and no cattle." That is, he was all show and no substance.
Technology-based companies can't build an image that way.
They have to have the cattle. If they don't have the cattle, new
technological developments will soon leave them in the dust, no
matter how strong their advertising and promotion.
For that reason, companies in technology-based businesses
must use market- driven, not marketing-driven, approaches. They
should concentrate on substance before image, for it is substance
that supports the image. They should build relationships with
members of the infrastructure who will support and establish
their products. Rather than reaching customers through a Mad-
ison Avenue campaign, they should reach the customer indi-
rectly, through the retailers, analysts, and other members of the
industry infrastructure.
Jim Morgan, the president of Applied Materials, a manufac-
turer of semiconductor equipment, once noted: "Image is a
collection of things that we do in the marketplace." Morgan is
not a marketing man, but his instincts are right on the money.
28 The Regis Touch

If a company produces a solid product and builds relationships

properly, its image will take care of itself.
4. Marketing should be qualitative, not quantitative.
Businessmen love numbers. Numbers make them feel secure.
But in emerging markets, numbers are rarely reliable. And mar-
keteers that rely on numbers are unlikely to succeed.
In many cases, quantitative analyses use the past to predict
the future. But we live in an era when the future almost never
resembles the past. It is extremely difficult to take the pace of
technology into account. Extrapolating today's trends into the
future almost never works.
Companies have run into this problem since the dawn of the
computer age. In the 1940s, computer companies made esti-
mates of the total world market for computers. They calculated
the total market at several dozen computers. That's all. Several
dozen computers for the whole world. They simply didn't antic-
ipate the proliferation of new applications, or the sharp decline
in computer prices.
Mitch Kapor, developer of the incredibly successful software
program 1-2-3, ran into a similar problem when he was devel-
oping his original business plan for the integrated software
package. He developed the business plan for a course at the
Massachusetts Institute of Technology's Sloan School in the late
1970s. Kapor received a grade of B for his project, in part
because he had no statistical market surveys.
What would Kapor have found if he did a statistical survey?
He probably would have found no demand for his product. After
all, hardly any large corporations had personal computers in the
late 1970s. But Kapor had a sense of the market. He knew that
corporations would eventually buy personal computers, and then
they would want his software.
Kapor used what I call a qualitative approach to the market.
He had talked to people in the market. He understood their
needs on a human level. A qualitative approach to the market
can include many things. It goes beyond the numbers to explore
the trends and perceptions that create the numbers. It looks at
customer attitudes and personal relationships. Only by under-
standing the market in a qualitative way can marketeers hope
to anticipate the future.
 Dynamic Positioning: The Cornerstones of the New Marketing 29

Bare statistics tend to miss the nuances of the market. A

survey might show that 60 percent of all customers use a com-
pany's product. But a qualitative approach might reveal that the
customers are unhappy with the company's service, and many
are considering switching to a competitor.
Robert Kennedy once observed, in reference to measurements
of the Gross National Product, that we can measure everything
except those things which are worth measuring. Yet, as com-
panies grow, they tend to rely more and more on quantitative
techniques. They become locked up in numbers and abstrac-
tions. They end up with products that do not match the needs
of the market nearly as well as the products of entrepreneurs.
Creativity is squeezed out of the system.
We need more companies that act like entrepreneurs. The
best entrepreneurs don't worry about statistical market projec-
tions. They don't care if projections show a $50 million market
or a $500 million market. They plan strategy in a qualitative
way. They simply take good ideas, develop them into products,
then constantly adjust the products to the needs of the market.
A qualitative approach is important in sales as well. Many
technology-based companies try to sell their products based on
quantitative specifications. They boast that their product has an
access time of so many nanoseconds, or a capacity of so many
kilobytes.
But customers tend to make their decisions on more quali-
tative factors, such as service and reliability and reputation. If
a company can establish credibility with key people in an in-
dustry, it is likely to succeed, even if its product is a few nano-
seconds slower than the competition.
To take a qualitative approach to marketing, managers must
understand what I call the market "environment." The environ-
ment includes all the "gravitational forces" mentioned in the
Earth-Moon analogy-things such as social trends, relation-
ships, and competition. Each of these forces (see Figure 3)
influences the way in which customers perceive the product.
Quantitative approaches to marketing often ignore the envi-
ronment. They view products as isolated objects that can be
defined by statistics and specifications. But products in the real
world are not isolated objects. They exist only in the context of
 -ltiE E~Vl~M6.sf ~fllJfS
"11\e ~D~T BOSlM?:$

Figure 3
 Dynamic Positioning: The Cornerstones of the New Marketing 31

their environment. Qualitative approaches to marketing use the

environment as a guide to understanding products and markets.
The environment acts as a lens through which the customer
views the product. As the environment changes, so does the
public perception of the product-even if the product itself has
not changed at all. As technology advances, products that were
once seen as "cutting-edge" products begin to look mundane.
As prices drop, products that once seemed cheap begin to look
expensive.
To market a product effectively, marketing managers must
understand the workings of the environment. Managers must
be sensitive to trends and perceptions. They must understand
how various forces in the environment interact with one another,
and they must be alert for changes in these forces. In effect, they
must see their products as customers see them- through the
lens of the environment.
Take the personal-computer industry as an example. Figure 4
shows the market environment that surrounded the 1977
launching of the Apple II computer. The personal-computer
industry was still in its infancy, with little competition and lots
of future opportunity. Hobbyists were the primary customers,
and retail computer stores had just begun to open.
The environment was perfect for Apple. Other industries were
full of bad news. Japanese companies were beginning to domi-
nate the automotive and consumer-electronics industries, and
they were even making inroads in the semiconductor industry.
The American public, and American journalists, were eager for
some good business news.
Apple capitalized on this environment. It presented itself as
a symbol of hope for the future. It was a bright spot in an
otherwise dull and depressing business environment. America
was beginning to look upon entrepreneurs as the saviors of
American capitalism, so Apple played up the rags-to-riches story
of its dynamic founders, Steve Jobs and Steve Wozniak. Time
and again, Apple public relations people told the story of the
two Steves working late at night in their garage.
Other personal-computer companies emphasized the techni-
cal specifications of their products, and made elaborate presen-
tations on the technical differences between brands. But Apple
recognized the environment was not a competitive one. The
 I~FAN\
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EMGR(;y11Jq
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MA~KE:T

Jq]J PE~~NAJ, CDMRJT~R.

ENVIRDW~JJT

Figure 4
 Dynamic Positioning: The Cornerstones of the New Marketing 33

industry was in its infancy and there was room for everybody.
Rather, the main challenge was to attract new types of users. So
Apple stressed the fun and potential of the new technology.
In short, the 1977 environment for personal computers was
nonthreatening and curious. Apple took a qualitative approach
to marketing, and it turned the Apple II into a big winner.
The four cornerstones should serve as guides throughout all
parts of the positioning process. Once again, they are:
1. Marketing should be dynamic, not static.
2. Marketing should focus on market creation, not mar-
ket sharing.
3. Marketing should be a building process, not a pro-
motional process.
1
4. Marketing should be qualitative, not quantitative.
In the next tht;ee chapters, I 'II examine each of the three stages
in the positioning process-product positioning, market posi-
tioning, and corporate positioning-showing how companies
can put the new cornerstones to use in building a successful
marketing strategy.

J
T here is no such thing as a commodity. All goods
and services are differentiable.
Theodore Levitt
 Product
3 Positioning: The
Four Golden Rules

The First Step

When Monolithic Memories was still a very young company,
its president, Zeev Drori, came to me for some marketing help.
He thought Monolithic should start running some corporate
advertising to establish a reputation as a reliable supplier. He
explained: "We don't want people to think that we just opened
our doors." I looked at him and laughed: "But you have just
opened your doors!"
Like Monolithic, many companies try to put the cart before
the horse. They want to gain market recognition and a corporate
reputation before they have even introduced a product. But the
market doesn't work that way. I always tell companies that the
positioning process should begin with the products themselves.
Product positioning must be the first step.
The idea behind product positioning is simple. To gain a
strong product position, a company must differentiate its prod-
uct from all other products on the market. The goal is to give
the product a unique position in the marketplace.
A company can differentiate its products on the basis of many
different factors: technology, price, application, quality, distri-
bution channels, or target audience, to name just a few. A
manufacturer of cigarettes, for instance, might try to keep its
38 The Regis Touch

prices below all other companies in the industry. Or it might

target its cigarettes at a special audience, as Virginia Slims did
in aiming its cigarettes at women. Or it might try a new distri-
bution channel, perhaps selling cigarettes through the mail.
In some industries, such as the personal-computer software
industry, establishing a unique position can be a very difficult
task. There are more than 10,000 companies creating and selling
software for personal computers. They churn out thousands of
new products each year. Most of the programs get lost in the
crowd, and many never even make it onto retailers' shelves.
How can a company gain a strong position in such an indus-
try? It isn't easy, and it's getting more difficult all the time. But
it can be done. When I advise companies on product positioning,
I stress four key ideas.
First, the company needs to understand market trends and
dynamics. I often tell my clients they cannot position their prod-
ucts by themselves. It is the market that actually positions
products. But if companies understand the workings of the
market, they can influence the way in which the market positions
their products.
Second, the company should focus on "intangible" position-
ing factors. Too many companies try to sell their products on
the basis of price or technical specifications. It is much more
effective to establish positions based on "soft" factors such as
quality or technological leadership.
Third, the company should target its product at a specific
audience. A company shouldn't try to be all things to all people.
It should find a niche. Perhaps it should sell the product only to
a certain industry, or maybe it should specialize in a particular
application of the product. Whatever niche it chooses, the com-
pany should then serve the niche better than anyone else in the
market.
Finally, the company must be willing to experiment. With new
types of products, no one can be certain of the best positioning
ahead of time. A company should experiment with new prod-
ucts, then pay attention to the market reaction. If users suggest
changes, the company must shift course and adjust its strategies.
These four ideas make up the Golden Rules of Product Posi-
tioning. In this chapter, I'll analyze each of the four rules, ex-
amining how each fits into the positioning process.
 Product Positioning: The RJur Golden Rules 39

Understanding the Environment

Imagine two brands of wine. Each is made from the same
grapes, stored in the same cellar, bottled in the same type of
bottle. Identical in every way. It might seem impossible to dif-
ferentiate one from the other.
But now imagine that one of the brands is on sale at the
supermarket. The other is sold at gourmet food stores and
served in fine restaurants. The two are no longer identical. The
supermarket brand is perceived as a mediocre wine. The other
is seen as a premium wine.
This example shows the power of the market environment. As
I explained earlier, it is the environment that "defines" the
product. A product cannot be viewed in isolation. The elements
of the environment-technology trends, market dynamics, com-
petition, social and economic trends-all influence the way cus-
tomers "see" the product.
Companies can't just send a positioning message out to the
market. They must work with the environment to differentiate
and position their products. They must understand what people
are thinking, what their prejudices are, what their likes and
dislikes are, what they want to hear. Then they must position
their products to fit in with the attitudes of the marketplace.
Even if two products have identical features and identical
prices, customers might perceive them differently. Maybe the
company that produces one of the products has a better repu-
tation for quality. Or perhaps it has better-known investors. Or
a more impressive customer list. In any case, the environment
makes the seemingly identical products appear quite different
from one another.
This is as true for computers as it is for wines. A computer
is perceived one way if sold at K mart, another way if sold at
Businessland. Sold at K mart, the computer seems like a toy;
at Businessland, it seems like a productivity tool.
Timing is also critical, as customer perceptions also change
with time. A $3,000 home computer would have been perceived
as cheap in 1977, but expensive in 1984. As market conditions
change, customer perceptions change-and product definitions
change. Product definition is, to a great extent, in the mind of
the beholder.
40 The Regis Touch

The trick to positioning, then, is to use the market environ-

ment effectively. Companies should use the environment to make
their products seem unique. Marketing expert Theodore Levitt
of the Harvard Business School made this point in his article
''Marketing Success Through the Differentiation of Anything.''
He explained: "Economic conditions, business strategies, cus-
tomers' wishes, competitive conditions, and much more can
determine what sensibly defines the product. One thing is cer-
tain. There is no such thing as a commodity-or, at least, from
a competitive point of view, there need not be.''
Successful companies always consider the environment when
trying to position their products. The case of Intel and the
"Software Crisis" provides an-example~-In the-early-1-980s-,-Intel--
noticed its customers were becoming increasingly concerned
about the cost and productivity of software development. To
make Intel microprocessors useful to a broader audience, com-
panies needed to develop a vast array of software for them. But
software development is a slow, expensive, and labor-intensive
process. Companies worried they wouldn't have the time, money,
or manpower to develop all the new software that was needed.
Intel president Andy Grove understood this environment and
coined the term "Software Crisis" to describe it. He explained
how Intel products could help ease the crisis. He focused on
several new Intel chips. In these chips, some software was ac-
tually built into the silicon itself, thus reducing the work for
software designers. In this way, Intel products were successfully
positioned as solutions to the Software Crisis.
As companies see changes in the environment, they must
change the positioning of their products. Consider the case of
Measurex. In the early 1970s, Measurex sold a digital computer
to paper manufacturers. Using the Measurex computer, paper
manufacturers could produce more paper using the same amount
of raw material. Customers viewed the product as a productiv-
ity-improvement tool, and Measurex reinforced this image through
its advertising and sales approach.
But in 1973, the oil embargo caused the environment to shift
dramatically. Paper manufacturing is an energy-intensive pro-
cess, so rising oil prices posed a major threat to industry prof-
itability. In response to this changing environment, Measurex
repositioned its product. It ran ads that read: "The Interstate
 Product Positioning: The FOur Golden Rules 41

Paper Company will save 100 barrels of oil a day using the
Measurex ..."
In essence, Measurex redefined the product as an energy-
saving product. Paper manufacturers bought Measurex com-
puters to save energy, and Measurex's sales continued to grow.
The product was physically the same as before, but it had a new
definition and a new position in the market.
Other companies should work at redefining their products in
the same way. In dynamic industries, the environment usually
changes from one year to the next. Companies must constantly
monitor the environment to spot changes in customer percep-
tions and attitudes. Then, like Measurex, they can shift their
marketing strategies to fit the new environment.

Focusing on the Intangibles

Companies love to make product comparisons. It is common
for a company to boast that its product has the lowest price in
the industry, or that it is 25 percent more powerful than any
competing product. Indeed, an incredible number of positioning
strategies center on price and "specsmanship." (That is, pro-
moting a product by its superior technical specifications, or
"specs.")
But these approaches to product positioning have serious
flaws. Companies are much better off if they establish positions
based on what I call "intangible" factors, qualities such as
reliability and service. Unlike price and technical specs, intan-
gibles 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
42 The Regis Touch

the threat that someone else will offer a lower price and steal
their position.
The digital-watch business illustrates the point. The first dig-
ital watches, introduced in 1972, sold for about $400. But
digital-watch manufacturers kept lowering their prices to un-
derprice the competition. Soon, the prices dropped to $99. Then
$49. 'Then $20. Sales of digital watches increased; But hardly
anybody was able to make a profit, and many companies left the
business.
The idea of the "learning curve," or "experience curve," en-
courages 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 economies of scale and mass-production experi-
ence to cut its manufacturing costs. Prices are lower, but so are
costs.
Unfortunately, the logic breaks down when several companies
play the game at once. Prices spiral downward more quickly
than expected, and profits follow downward. Makers of semi-
conductor memories have fought this type of pricing battle sev-
eral times-to no one's advantage. ·
Positioning based on specsmanship has similar problems.
Companies that 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 environment. They
see product positioning as an analytic process of product com-
parisons. 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 Prod-
uct 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
 Product Positioning: The FOur Golden Rules 43

personal computers understand the technical differences be-

tween 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.
The German company Zeiss, for example, has established
itself as a leader in optics technology. Its microscopes and tele-
scopes are perceived as the finest available. This image carries
over to other products. Some Zeiss sunglasses sell for well over
$100, not because of any special features, but because of the
Zeiss reputation for quality optics.
The power of intangible positioning became clear to me a few
years ago when I was doing a market survey for Intel. As part
of the survey, I talked to a number of engineers about a certain
memory chip. I remember asking one engineer why he selected
the Intel chip. This chip was a fairly technical product, and you
might have expected the engineer to answer in technical argot:
"The memory had an access time of so many nanoseconds," or
"Its power dissipation is only such-and-such."
That didn't happen. Instead, the engineer told me his com-
pany buys almost all its chips from Intel, so it was natural to
buy the new chip from Intel too. Had he evaluated the new
product? Not really. "We just tend to buy from Intel because
we have a business relationship there," he explained. "We know
where they are going and we trust the company."
I had a similar experience when I visited two small computer
manufacturers. Each used Japanese semiconductors in its prod-
ucts. I asked the president of each company why he bought the
Japanese chips. The answers were the same: "Quality." I asked
if they had done any comparative testing. The answer was no. I
asked if they did incoming inspections. Again, no. Yet they were
convinced the Japanese chips were higher quality. After all, don't
the Japanese have a reputation for high-quality manufacturing?
These incidents are hardly unique. Most buying decisions are
made the same way. Product managers spend days, if not weeks,
44 The Regis Touch

drawing up charts and graphs that compare products on the

basis of specifications and price. But buying decisions are rarely
based on these objective standards. The important product com-
parisons come from the minds of those in the marketplace. And
in people's minds, it is intangible factors that count.
How can a company gain a position based on intangibles?
Intel provides a good example. Intel has succeeded in positioning
its products as technology leaders in the semiconductor industry.
Intel didn't gain this position by specsmanship. In fact, com-
petitors' chips often have superior specs. Rather, Intel's image
as a technology leader is based on its people and its production
processes. Top executives Bob Noyce, Gordon Moore, and Andy
Grove have a long list of engineering accomplishments, and they
have often served as spokesmen for the semiconductor industry.
Competitors and customers see Noyce, Moore, and Grove as
three of the best technical minds in the industry.
Intel has also convinced customers that its proprietary HMOS
processing technology is the best in the industry. The process
has developed an aura about it. Even when other companies
introduce chips that are faster or denser than Intel's chips, Intel
is still viewed as the technology leader in the industry. Specs
alone cannot dislodge Intel from its intangible positioning.
IBM's products occupy a similar position in the computer
industry. Few of IBM products are at the leading edge of tech-
nology. Yet IBM is viewed as a technology leader by many cus-
tomers. IBM buttressed its position in 1982 when it accused
two Japanese companies of stealing the designs to its computers.
IBM emerged as a defender of American technology. Because
the Japanese wanted to steal IBM's designs, people assumed
IBM must be the technology leader. IBM's reputation as a tech-
nology leader is very solid, and will continue even if there is
little evidence to support it.
Reputation works in the other direction as well. Texas Instru-
ments stumbled in the introduction of its first personal com-
puter, and the market won't let TI forget it. No matter how good
TI's new computers are, customers still associate TI computers
with failure.
 Product Positioning: The Four Golden Rules 45

Finding the Right Targets

Product positioning is not based solely on the characteristics
of the product, be they tangible or intangible. It is also based
on how the product is targeted. Companies can build strong
product positions by focusing on specific market segments.
Baseball old-timers used to say: "Hit 'em where they ain't."
Companies can do the same. They can find segments of the
market that other companies have ignored, then "hit" into the
open spot.
Too many companies try to be all things to all people. They
want to become $1 billion companies overnight. I've encoun-
tered many start-up companies that focus on getting orders
rather than on developing markets. They go after and get busi-
ness in diverse and often unrelated markets, taxing their already
limited resources. That is a big mistake. A shotgun approach
not only taxes limited resources, but also limits the leverage 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 chooses. 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 under-
standing and meeting the needs of its customers. And that
certainly puts the company in a better position to succeed.
Product positioning is strongest when a company can invent
an entirely new market segment as its target. Then, the company
can establish a new positioning hierarchy and automatically
establish itself as the leader. But in most cases, creating a new
segment is not possible. Instead, companies must examine the
market environment and decide which existing segments are
best suited to their strengths~
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
46 The Regis Touch

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 out-
side sources, and organizes all the information in a form that is
convenient for the manager to use at his desk.
To market this 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: con-
sumer packaged goods and financial services. And in each in-
dustry, it decided to focus on managers in two functional areas:
marketing and finance. Metaphor hired experts from each of the
target industries, and developed specialized software packages
to meet the needs of the target managers in those industries.
Metaphor also targeted its efforts geographically, initially lim-
iting itself to customers in three cities: New York, Chicago, and
San Francisco. The company understood the importance of sup-
port and service, and it recogized that it could offer high-quality
services only if it limited its geographic reach.
Metaphor's targeting strategies clearly paid off By late 1984,
Metaphor had installed systems at Bank of America, Beatrice,
Carnation, and several other companies. The company expects
sales to grow to $100 million by the end of 1986.
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. Companies
often feel an the urge to expand into new areas where they have
little expertise and n~ established position. Of course, compa-
nies must continue to experiment with new ideas. They can't
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 standard and the company's
profits soared.
 Product Positioning: The Four Golden Rules 41

But Digital Research then expanded into "retail" application

software,-that is, low-end application software aimed at con-
sumers. The retail software business is very different from the
system-software business, and Digital Research's culture and
expertise were poorly suited for the new business. Its expansion
efforts flopped, and the company saw profits drop sharply.
TeleVideo is another example. In its early days, TeleVideo
established a strong position by selling multiuser computer sys-
tems-that is, systems used by more than one person at a time.
It sold the computers to other companies, which repackaged
and resold the systems. It was in a business-to-business business.
Then TeleVideo tried to expand away from its strength. It
ignored its established position and tried to sell computers
through retail stores. It wanted to build up volume to cut its
manufacturing costs. Expenses rose, but volume never followed.
Dozens of new computers were competing for retail shelf space,
and TeleVideo had no way of distinguishing itself. Retailers were
unfamiliar with TeleVideo, and few of them carried the Tele-
Video machine. Eventually, TeleVideo was forced to shift back
to its strength, selling multiuser computers to middle-man
companies.

Experimenting and Changing

Product positioning is not a one-time operation. It is an on-
going process that never ends. A company president once said
to me: "How can we ever position ourselves in a marketplace
that is changing every three months?" He had a good point.
Dynamic positioning is a tricky process. The only way to survive
in dynamic marketplaces is to keep the positioning process
flexible. Companies must be willing to experiment and learn
and change. There is no right and no wrong. In fact, the path
to success is often filled with failures.
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
48 The Regis Touch

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 image of traditional
consumer businesses. In traditional businesses, companies sur-
vey people to find out what they want, then create a product to
fill the need. In technology-based industries, the product usually
comes first. Companies invent things and develop things. Then,
they work with the market to see how the product should be
used.
The process might seem backward, but in some cases it's the
only way it can be done. With ground-breaking products, cus-
tomers can't know what they want until they've seen the prod-
uct. But after trying the product, they can suggest modifications
so the new product or technology fits their needs.
When the first personal computers came to the market, for
instance, people didn't know how they might use the new ma-
chines. A market research study would have shown very little
demand. But a few pioneering companies put personal com-
puters on the market, people came up with suggestions on how
to make the machines better and put them to new uses.
The same thing 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 prod-
uct, 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.
 Product Positioning: The Four Golden Rules 49

Experimenting, however, can't end with beta sites. Companies

must continue to modify their products and strategies after the
product is already on the market. The environment keeps chang-
ing, and companies must adapt.
Vitalink is one company that has experimented and adapted
well. The company, a well-financed startup in the satellite com-
munications business, originally planned to sell a complete, end-
to-end system for sending voice and data messages via satellite.
But through market experimentation, Vitalink found the market
wasn't really ready yet. Not many companies had a high enough
volume of communications traffic to justify the high cost of the
service. Even IBM and AT&T were having trouble attracting
customers. So Vitalink switched its positioning plan. It began
offering specialized services to companies with lower levels of ·
communications traffic. And it began offering some specific
applications, like teleconferencing.
Selling into a changing environment can be tough on the
nerves. We once did some work for a large company which was
launching a product into a new area. The company's managers
didn't know how to price the product and kept saying how
insecure they felt with this product. But that's only natural.
What they were doing had never been done before. You can't be
secure unless you have a proven model. In new product areas,
there are no models. The answer is to set a price and try it. You
have to experiment. The people who usually win are the ones
who have the guts to move forward.
All products must be seen as experiments. Many products go
through the cycle of failure, change, failure, change. Failure is
not necessarily a problem. The critical issue is how quickly a
company can react and respond. Managers must first monitor
how the market reacts to their product. Then they must modify
the product before competitors come up with their own solutions
to meet the market's needs.
The stakes are great. Whichever company modifies its product
most quickly and most effectively will win the product-position-
ing battle.
W hich personal computer should I buy?
Virtually everyone
 ~arket
4 Position!ng:
· Ftve Ways to Gatn
Recognition

Gaining Credibility
If you just looked at the numbers, you would think the Apple III
computer got off to a pretty good start. The machine, aimed at
small businesses, was introduced in 1980. By the end of 1983,
the annual sales of Apple III computers topped $100 million.
That's not a bad year for a product in a young industry. The
Apple III outsold many other computers on the market.
But the market saw the Apple III as a loser. Many people
expected the Apple III to be as successful as the company's first
major product, the Apple II. The new computer never lived up
to those expectations. Because of some early manufacturing
glitches and a lack of software, the machine got off to a slow
start. It acquired a bad reputation, and it was never able to get
rid of its negative image. The product itself didn't have any
fundamental flaws. The product positioning was pretty solid.
But the Apple III never established a strong market position.
In market positioning, the second phase of the positioning
process, the marketplace reacts to the new product. The com-
pany finds out whether its product positioning is working. Win-
ning a quick endorsement from the market is critical to success.
Once a product wins rave reviews, it picks up momentum in the
marketplace. Success builds on itself. The product develops a
54 The Regis Touch

positive image, and customers flock to it. On the other hand,

once the market sticks a product with a "loser" label, the prod-
uct has a tough time recovering.
Clearly, companies have much less direct control over this
stage of the positioning process. Market positioning is deter-
mined 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, compa-
nies can influence the perception of their products. They can
create a stronger image for their products. They can take steps
to make themselves and their products seem more credible.
Credibility is the key to the whole market-positioning process.
With so many new products and new technologies on the market,
customers don't know who to believe, they don't know who to
trust. Many customers don't even understand the technologies
involved in new products. Technology-based products are links
in a chain: They are attractive because they are linked to the
future. But when people are buying a piece of the future, they
need to be reassured. They want to buy from a supplier with
credibility. '
Quite simply, customers are frightened and confused. To make
matters worse, some large companies play on customer inse-
curities, in an effort to scare customers away from smaller
competitors. IBM has turned this fear-raising game into a cen-
tral element of its strategy. The strategy has become known as
FUD: Fear, Uncertainty, and Doubt. IBM salesmen build on the
fears that already exist in the marketplace. They portray IBM as
the only safe haven in an unpredictable, stormy environment.
Their argument can be powerful. Why risk buying from a smaller
company? No one has ever lost his or her job for choosing IBM
as a vendor.
To establish market positioning, companies in fast-changing
industries must find ways to ease customer fears and offset the
FUD strategies of corporate giants. They must offset Fear with
Comfort, Uncertainty with Stability, Doubt with Confidence.
They must build images of credibility, leadership, and quality.
They must supply the customer with a "security blanket" in
addition to a top-notch product.
 Market Positioning: Five Ways to Gain Recognition 55

How can companies build credibility with customers? Adver-

tising, of course, can play a role. But advertising doesn't get to
the heart of the matter. Advertising can only reinforce positions,
it can't create them. Increasingly, people are skeptical of what
they read or see in advertisements. I often tell clients that ad-
vertising has a built-in "discount factor." People are deluged
with promotional information, and they are beginning to dis-
trust it. People are more likely to make decisions based on what
they hear directly from other people-friends, experts, or even
salespeople. These days, more decisions are made at the sales
counter than in the living-room armchair.
Advertising, therefore, should be one of the last parts of a
marketing strategy, not the first. Companies in technology-based
businesses need other ways to build credibility. They must seem
secure and trustworthy to customers who are scared by tech-
nology. And they must build a solid foundation that will survive
the inevitable changes in the market environment.
Of course, companies must start with strong product posi-
tioning. Then, they can build credibility-and market position-
ing-in several ways. The three most important ways are by
inference, by reference, and by evidence.
Inference. If a startup is funded by reputable financial backers,
or if the startup has a relationship with a respected large com-
pany, people infer that the startup must be a credible competitor.
Retailers, distributors, and customers begin to take the startup
seriously. Compaq and Lotus had instant credibility because
Ben Rosen, the well-known venture capitalist, was a lead inves-
tor in each company. A deal with IBM also brings instant cred-
ibility. Few people had heard of Sytek before IBM chose the
small California company to develop a networking product. Now
everyone sees Sytek as a technological leader. Similarly, a deal
with Burroughs brought credibility to Convergent Technologies,
and a deal with Eli Lilly brought credibility to Genentech.
Reference. When people buy complex or expensive products,
they often rely on personal references. They'll look for a friend
or colleague who has purchased the product, and ask if he is
satisfied. Anyone who interacts with the product or the company
could act as a reference in the future. Analysts, retailers, jour-
nalists, and customers all talk to one another and spread the
56 The Regis Touch

word about the product. If one person has a good experience

with the product, he'll tell others about it, and they in turn will
tell still others. Credibility builds and builds. But the process
works in reverse as well. A rule of thumb: If a customer has a
good experience, he'll tell three other people. If he has a bad
experience, he'll tell ten other people.
Evidence. Success in the market reinforces itself. People in the
industry look for tangible evidence: rising market share, rising
profits, more retailers, new ventures, new alliances. Each piece
of evidence adds to the company's credibility and image. As Jim
Morgan of Applied Materials said, image is just a collection of
the things we do.
There are many things companies can do to put these three
credibility-builders to work for them. For example, they can
develop relationships with key people in the industry infrastruc-
ture. Certain analysts, distributors, retailers, and journalists
play a powerful role within an industry. They serve as important
references and spread the word about the company. By winning
over the infrastructure, a company is 90 percent of the way
toward winning the market-positioning battle.
Customers can help a company gain credibility both by ref-
erence and by inference. By choosing its custorr:ers carefully,
rather than simply selling to all takers, a company can control
its image. If a small company sells products to a respected
corporate giant, such as IBM or General Motors, the small
company will probably seem reputable and solid. If it sells to
fast-growing startups, it could build an image as an innovative
supplier.
Companies can also gain credibility by forming strategic al-
liances with other companies. Genetic Systems, a biotechnology
company based in Seattle, initially seemed similar to many other
biotechnology startups: strong in science skills, but weak in
business skills. Analysts wondered whether its products could
ever succeed in the market. But when Genetic Systems teamed
up with Syntex, a large and successful pharmaceutical company,
it was suddenly perceived as a legitimate competitor in the
medical-diagnostics industry.
Building credibility is a slow and difficult process, but it can
be done and it is critical to market success. For the rest of this
 Market Positioning: Five Ways to Gain Recognition 51

chapter, I will examine ways in which companies can build

credibility, and, in turn, establish market positioning for their
products. The strategy can be broken down into five key elements:
• Using word of mouth
• Developing the infrastructure
• Forming strategic relationships
• Selling to the right customers
• Dealing with the press

Using Word of Mouth

A little while ago, I had breakfast with presidents of a half
dozen major manufacturing companies. Over orange juice, they
discussed the telephone systems their companies were using.
Two or three of the presidents were looking to buy new systems
at the time. During the conversation, one of the presidents made
a remark about a certain company that supplies telephone sys-
tems, a company I'll call Company X. "Company X is putting
me out of business," he complained. "It seems like the system
is always down."
Well, Company X happens to be a very successful supplier of
telephone systems, and the company has hundreds of satisfied
customers. But that one comment probably made a decisive
impression on the other executives at the breakfast. Company
X might have the best systems on the market. Its systems might
handle more lines than any other competitive product. They
might integrate voice and data better than any other system. But
the presidents at that breakfast are unlikely to buy a system
from Company X. That one offhand comment made them all
feel a bit insecure about Company X.
Thus is the power of word of mouth. Forget about market
surveys and analyst reports. Word of mouth is probably the most
powerful form of communication in the business world. It can
either hurt a company's reputation, as in the example above, or
give it a boost in the market. Word-of-mouth messages stand
58 The Regis Touch

out in a person's mind. Memorandums might contain all the

correct information, but face-to-face communication is much
more likely to gain commitment, support, and understanding.
Quite simply, we find messages more believable and compel-
ling when we hear them directly from other people, particularly
when we hear them from people we know and respect. We use
word-of-mouth communication to help with all sorts of deci-
sions. We rely on word of mouth to determine what products to
buy, what companies to trust, what written reports to read,
what corporate leaders to believe.
Information and communication are not the same. Informa-
tion is objective and cold. Communication is experiential and
qualitative. A computer terminal can convey information, but
only people can communicate. For communication to be effec-
tive, the sender and the receiver must be in sync, on the same
wavelength. When people meet face to face, using word of mouth,
they are more likely to communicate effectively. Each person can
read, analyze, and interpret the attitude of the other person. The
same information could be transmitted in a telegram or a written
report or an advertisement. But those forms do not utilize the
full potential of human communication. They are limited com-
munications tools. Word of mouth turns raw information into
effective communication.
Word-of-mouth communication can take on many different
forms. Industry participants form "old-boy networks" to keep
each other informed about new developments. One recent mar-
ket-research report showed that such a network plays a key role
in the telecommunications industry. Gaining access to the net-
work is critical to success.
Customers use word of mouth too. People are confused about
products developed by technology-based industries and they
want personal advice. Hardly a day passes without someone
asking me that familiar question: "What personal computer
should I buy?" Hardly any computer of any size is sold these
days without some word-of-mouth reference.
Word of mouth is so obvious a communications medium that
most people do not take time to analyze or understand its
structure. To many people, it is like the weather. Sure, it is
important. But you can't do much about it. You never see a
"word-of-mouth communications" section in marketing plans.
 Market Positioning: Five Ways to Gain Recognition 59

As management expert Peter Drucker once noted, more business

decisions occur over lunch than at any other time, yet no MBA
courses are given on the subject.
Of course, much of the word-of-mouth communication about
a company and its products is beyond the company's control.
But a company can take steps to put word of mouth to its
advantage. It can even organize a "word-of-mouth campaign."
Such an effort can be very powerful, because word of mouth is
fundamentally different from other forms of communication. It
differs in three major ways.
First, it is an experienced process. The message is always
carried by a living person. The listener does not only listen to
speaker's words. The listener also observes the speaker's tone
of voice, facial expressions, hand gestures, and other nonverbal
means ·of communication. The same words could be sent over
telephone lines, but they would not carry the same weight.
Businessmen recognize this fact, travelling thousands of miles
just so they can meet face to face with salespeople and cus-
tomers. A face-to-face meeting can have greater impact than an
avalanche of advertisements, press releases, memos, and
brochures.
Second, the message is tuned to the individual listener. The
word-of-mouth message can be changed, simplified, altered,
embellished, and verified for each person. The message delivered
to. the director of marketing can be different from the message
delivered to the director of engineering. The message can be
altered according to the setting as well. A message can be
delivered one way in the company cafeteria, another way in a
presentation to the board of directors.
Third, feedback is instantaneous. If the listener agrees with
the speaker, he will nod or show some other sign of concurrence.
If the listener disagrees, he will scowl or suggest alternate ar-
guments. He ,can help fortify weak points and eliminate irrelev-
ent ones. If the listener does not understand, he will ask for
further explanation.
So how can a company harness the power of word. of mouth?
First the company must decide what message it wants to spread.
Word of mouth is most effective in delivering messages about
intangible qualities, such as commitment, credibility, appeal,
and support.
60 The Regis Touch

Then the company must decide who should receive the mes-
sage-and who from within the company should deliver it. By
the nature of word-of-mouth communications, it is not possible
to spread the message too widely. Luckily, there is no need to.
Word of mouth is governed by the 90-10 rule, which I mentioned
in Chapter 2. The rule: "90 percent of the world is influenced
by the other 10 percent." So if a company can reach the ·critical
10 percent, it will indirectly influence all the others. The word-
of-mouth message will grow like a snowball rolling downhill, as
the critical 10 percent pass the word on to others.
A word-of-mouth campaign should be based on targeted com-
munication. Word of mouth is not an efficient means for dis-
tributing information widely. Communications should be directed
toward specific audiences. A word-of-mouth campaign aims to
develop or change the attitudes and opinions of the people in
these target groups, so it is very important to understand some-
thing about the minds of the people in the targeted audience.
Without this type of understanding, word of mouth is not likely
to be effective.
The targets for a word-of-mouth campaign fall into several
categories, some of which are discussed in greater detail later
in this chapter. The possible targets include:

The financial community. Who backs a company is often more

important than how much money is behind it. The community
of venture capitalists and private investors is a small, close-knit
group. A company's initial backers can use word of mouth to
spread the company's message to other venture capitalists, and
later to investment bankers, analysts, and brokers.

Industry-watchers. Rapid-growth industries are filled with con-

sultants, interpreters, futurists, and soothsayers who sort out
and publish information about the industries. These industry-
watchers gain most of their information through word of mouth-
visiting companies, attending analysts' meetings, talking to peo-
ple in the industry.

Customers. Companies can use word of mouth to reach cus-

tomers at trade shows, technical conferences, training programs,
and customer organizations. Beta sites and early customers
 Market Positioning: Five Ways to Gain Recognition 61

become especially important. They can spread the word about

a new product to other potential customers.
The press. More than 90 percent of the major news stories in
the business and technical press come from direct conversations.
All journalists have networks of sources they use for back-
ground, opinions, and verifications. It is valuable to become
part of this word-of-mouth network.
The selling chain. The selling network includes sales represen-
tatives, distributors, and retailers. Pricing information and other
product data can be distributed through the selling chain in the
form of written documents and formal reports. But word of
mouth is needed to generate enthusiasm and commitment to-
ward the product.
The community. Every person who is interviewed, or delivers
a package, or visits a company walks away with an impression.
If company employees communicate properly, every person who
comes in contact with the company becomes a salesperson for
the company, a carrier of good will about the company.
There are problems with word-of-mouth campaigns. Some-
times it takes a while for the message to spread, and there is
always the danger that the message will be garbled as it moves
from one person to another. But the benefits of word-of-mouth
campaigns greatly outweigh the problems. Companies should
learn how word of mouth operates in their industries. Then pass
the word.

Developing the Infrastructure

When personal computers first became available in the mid-
1970s, most businesspeople saw them as a passing fad. Not Ben
Rosen. At the time, Rosen was working as an electronics indus-
try analyst at the Wall Street firm of Morgan Stanley and pub-
lishing a newsletter on the electronics business. He began writing,
and talking, about personal computers. While others saw per-
sonal computers as toys, Rosen viewed them as the basis for a
62 The Regis Touch

dynamic new industry. Through his newsletter and informal

conversations, Rosen began to spread the gospel of personal
computing.
Gradually, Rosen began to win converts. First the readers of
his newsletter became believers. Then FOrbes magazine ran an
article showing how Rosen used a personal computer for finan-
cial analysis. More people started to pay attention to these new
machines. Soon, companies began to view a favorable report
from Ben Rosen as the key to success in the personal computer
business. A bad review from Rosen was the kiss of death.
Why was Ben Rosen so influential? Had he been an obscure
broker, his endorsement of the personal computer, or any par-
ticular personal computer company, would not have been very
significant. But Rosen was considered one of the top analysts in
the country. People believed him to be a credible source of
information.
Rosen played a key role in the infrastructure of the electronics
industry. Every industry has an infrastructure, though it takes a
somewhat different form in each case. The infrastructure in-
cludes all those people between the manufacturer and the cus-
tomer who have an influence on the buying process. These
people give credibility to the product and the company (or, in
Rosen's case, to a whole new industry). Without the support of
the infrastructure, the product and company are sure to fail.
I like to picture the infrastructure as an inverted pyramid,
with the manufacturer at the bottom and the customers at the
top. Figures 5 and 6 show the infrastructures for two indus-
tries-personal computers and microprocessors. In each case,
information about the product and the company bubbles up to
the customer through the infrastructure pyramid, largely through
the word-of-mouth process discussed in the previous section.
Each level of the pyramid influences other levels, particularly
those above it. Take a look at the personal-computer infrastruc-
ture. If third-party hardware and software companies· develop
products to be used with a new personal computer, industry
opinion leaders or "luminaries" begin to take notice. These
luminaries, who can be consultants or financial analysts or key
users, begin to influence others. Dealers and distributors be-
come interested.
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 Market Positioning: Five Ways to Gain Recognition 65

Next come the financial analysts. An analyst's favorable report

on a new product can significantly improve the product's chances
of success. Where do financial analysts get their information?
Some comes from the manufacturers themselves. But more comes
from dealers and independent suppliers and luminaries.
The business and trade press, in turn, rely heavily on com-
ments and recommendations of the financial analysts. I once
went through a long Business Week article with a yellow marker
and highlighted all the quotes from financial analysts and lu-
minaries. When I was finished, nearly the entire article was
yellow.
The spreading enthusiasm bounces up and down the infra-
structure. When an influential luminary like Ben Rosen tags a
product as a future leader in the marketplace, still more software
companies begin writing programs for the computer. Eventually,
the word reaches the top of the pyramid and the customers
begin buying. It's like a massive game of whispering down the
lane, with more and more people involved at each level. Each
part of the infrastructure validates the others.
The situation is similar with microprocessors. If a new mi-
croprocessor is supported with development tools, peripheral
chips, and software, other semiconductor companies are more
eager to act as second sources-that is, to make microproces-
sors based on the same design. This is very important, as few
cu~~omers want to rely on a chip manufactured by a single
company. Second-sourcing agreements attract the attention of
industry luminaries and financial analysts, and the word contin-
ues to flow up the pyramid toward the customer.
If a company is missing any levels of the infrastructure, the
whole pyramid can come tumbling down. National Semicon-
ductor has run into this problem with its 32-bit microprocessor.
The product is excellent, superior to some of its better-selling
competitors. But the microprocessor has had little in the way of
peripheral chips and software support.
As a result, National has not been able to build a reputation
as a major force in the market. I recently attended a board
meeting at a manufacturing company deciding which micropro-
cessor to use in its next-generation products. Fully three-quar-
ters of the discussion focused on qualitative factors. Board
66 The Regis Touch

members were looking for a microprocessor maker they could

count on for new products and support in the future. National,
despite its highly advanced product, was quickly knocked out
of consideration. Why? It had no history of success in the
microprocessor business and little support from the infrastructure.
The infrastructure tends to be particularly important in rap-
idly changing industries with complex products. In these indus-
tries, there is so much going on that it is difficult for even
knowledgeable people to sort out all the details. To understand
the significance of new developments, people rely on what they
hear from the infrastructure. No dealer is going to open shelf
space for a new product without speaking to other dealers or
third-party software vendors, or reading trade magazines and
financial analysts' reports.
In general, the infrastructure is most critical when the con-
fusion in the marketplace is the greatest. If people are totally
secure, they won't ask questions. They will simply buy the best-
known brand or the lowest-priced product. But when insecurity
is in the air, the company most skilled at lining up the infrastruc-
ture will win in the marketplace.
As a result, infrastructure is probably more important for
computers than for stereos, and more important for stereos than
for cereal. The supporting infrastructure in Silicon Valley is the
most sophisticated outside of Wall Street. Analysts, consultants,
lawyers, distributors, bankers, and software suppliers all play
key roles. Pundits and analysts don't talk nearly as much about
new cereals as they do about new computers.
So how can a company line up a supporting infrastructure?
I recently talked with a group of junior marketing people at a
successful personal-computer company. They told me about their
plans to use public relations to create consumer demand for
their product. I told them that their plans were bound to fail.
Traditional public relations is not enough. Public relations can
get your product mentioned in Time magazine once a year-if
you are lucky. That won't create much demand for a product.
Instead, marketing people must work at identifying and lining
up the key members of the infrastructure-and keeping track
of how the infrastructure is changing. In the computer business,
they must identify the luminaries, the key people in the trade
 Market Positioning: Five Ways to Gain Recognition 67

press, the independent software people, then get all of them

committed to the new product. They might try starting a news-
letter for dealers, or running conferences for industry luminaries.
They might give special demonstrations and technical support
to independent software companies.
All the time, marketing managers should pay attention to the
hierarchies of influence that exist within the infrastructure. Some
luminaries are more "luminous" than others. When Intel intro-
duced its first 32-bit microprocessor, it gave an extensive briefing
to Gordon Bell, a well-known technology guru, then at Digital
Equipment Corporation. When Fortune ran an article about the
new chip, it ran a quote from Bell to back up Intel's claims
about the chip's likelihood of success.
Certain distributors and dealers are more influential than
others. K mart is an effective mass distributor, but it will not
build credibility for a business computer the way Sears will. So
companies would rather that Sears carry the computer, at least
initially. Higher up the hierarchy are specialized retail chains
such as ComputerLand and Businessland.
In the computer business, lining up the right software com-
panies is even more important. The major "system software"
companies can make it easier for the smaller software companies
to develop application programs for the computer. And once the
software companies commit themselves, manufacturers of add-
on hardware, such as plug-in boards and disk drives, are sure
to follow.
When a company is able to develop the infrastructure fully, it
is almost impossible for its product to fail. The product is a
certain success even before it reaches the market. Perhaps the
best example is 1-2-3, the integrated software product from
Lotus Corporation. Once again, Ben Rosen played an influential
role. Rosen, who now heads a venture-capital fund, was the
primary investor in Lotus. He began talking about the product
months before its introduction. Lots of people had early proto-
types. I had one. Many magazine editors had them. We talked
to each other about it and the excitement grew. We could hardly
wait for the final product to hit the market. By the time of
introduction, 1-2-3 was the industry's worst-kept secret, but
also its most sure-fire success.
68 The Regis Touch

Forming Strategic Relationships

Companies in fast-changing industries need to form all types
of relationships. As I have already discussed, they need relation-
ships with venture capitalists, with dealers, with industry lu-
minaries. But just as important, if not more so, are relationships
with other companies in the same industry.
In fast-changing industries, these relationships are becoming
more important than ever before. As technologies advance and
become intertwined with one another, no single company has
the full range of skills and expertise needed to bring products
to market in a timely and cost-effective way. To produce a per-
sonal computer, for instance, a company needs expertise in
semiconductor technology, display technology, disk-drive tech-
nology, networking technology, keyboard technology, and several
others. No company can keep pace in all of these areas by itself.
As a result, collaborative efforts are proliferating. Fast-grow-
ing companies, once fiercely independent, are now forming all
sorts of alliances, even with former competitors. Every small
company, it seems, is looking for "sponsors," while large com-
panies are trying to link up with as many innovative startups as
they can. As Business Week magazine wrote in a 1984 special
report on the computer industry: "For companies large and
small, collaboration is the key to survival." These collaborations
can take many forms: joint ventures, technology exchanges,
manufacturing agreements, and equity positions, among others.
Although some of the agreements seem aimed at R&D or fi-
nance, these relationships can play a critical role in a company's
marketing strategy.
Companies in fast-changing industries need to form strategic
relationships for a variety of reasons:
• To compete in today's markets, companies need a diverse set
of technologies. Fields like computers and communications
are merging, and customers want complete solutions. No com-
pany can develop all of the necessary technologies by itself.
• The costs of developing new technologies are rising rapidly.
Companies must share the costs if they are to survive.
• U.S. companies are facing increasing competition from Japan.
 Market Positioning: Five Ways to Gain Recognition 69

The Japanese government has led and helped finance coop-

erative development efforts in fields such as integrated circuits
and robotics. U.S. companies must team up to keep pace.
• Technologies are changing more quickly than ever before. At
one time, a company could stay at the forefront of many
different technologies. Now it is much more difficult.
• Srriall companies need to gain management expertise, distri-
bution muscle, and capital in order to compete. Strategic
relationships can provide these.
• Less tangible, but just as important, strategic relationships
can bring added credibility to the companies involved. By
choosing the right strategic partner, a company can gain cred-
ibility by association.
Many strategic relationships link a small company with a large
company. These relationships are not a zero-sum game: Both
companies can benefit. Small, growing companies acquire an
important aura of credibility by linking up with large, respected
companies. The large company acts as a credible reference that
tells the market the small company is a winner. Customers are
more willing to take a chance with a small company if the small
company has IBM or Digital Equipment standing behind it.
At the same time, large companies can gain a window on new
technology. Typically, small companies develop new technologies
faster than large bureaucratic companies. So by forming links
with small companies, large companies can bring more inno-
vative products to the market, and get them there quicker.
A good example of this type of strategic relationship is the
alliance between IBM and Microsoft. IBM agreed to use Micro-
soft's MS-DOS software as the primary operating system on its
personal computer. The operating system, essentially the traffic
cop controlling activity inside the computer, is a critical element
in a computer system. Designers of the operating system and
the computer itself must work closely together. For that reason;
IBM had always developed its own operating systems for its
computers. But the deal with Microsoft made sense for both
companies.
For Microsoft, the IBM deal meant instant credibility. Micro-
soft was an obscure company in Washington state, run by a kid
70 The Regis Touch

in his 20s. Suddenly, Microsoft was seen as a significant com-

pany in the personal computer industry. Its revenues have soared
ever since. For IBM, the Microsoft deal meant the giant company
could get its personal computer to the marketplace much faster
than it could have otherwise. IBM was already somewhat late
getting to the market. If it had to develop its own operating
system, it might have arrived too late to become a leader.
IBM has forged other alliances as well. To help in the devel-
opment of floppy disk drives, it struck a deal with Tandon. In
microprocessors, it decided to standardize on Intel's family of
16-bit processors. It also invested in Intel, buying 12 percent of
Intel's stock, and later increasing its stake to 20 percent. In each
case, IBM gained quick access to new technology, while its
smaller partner gained an important shot of capital and credi-
bility. IBM's stamp of approval delivered a clear message: This
company is a winner.
These strategic relationships allow each company to maintain
its independence and unique corporate character. These alli-
ances should not be confused with traditional acquisition and
diversification moves. Acquisition strategies often suppress in-
novation rather than foster it. The larger company often forces
the acquired company into its corporate mold, thereby killing
the innovative character of the small company that made it
attractive in the first place.
Indeed, acquisition strategies in technology-based industries
have a pretty dismal record. Schlumberger, for example, tried
to acquire its way into high technology. The company, a leader
in the oil-services business, wanted to gain a foothold in new
technologies, so it acquired Fairchild Semiconductor, the pioneer
of Silicon Valley's semiconductor industry. But the strategy back-
fired. Key employees left the company and Schlumberger's
corporate culture did not translate well to Silicon Valley.
Schlumberger's desired foothold has turned into nothing more
than a toehold, if that.
Exxon Corporation's effort to enter the office-automation mar-
ket through acquisition of small high-technology companies turned
into a disaster. Western Electric acquired robot maker Unima-
tion in 1982, then saw Unimation's sales drop sharply. And AM
International's high-technology acquisitions drove it into bank-
ruptcy in 1982.
 Market Positioning: Five Ways to Gain Recognition 71

Clearly, acquisitions are filled with pitfalls. In many cases,

large companies would be wiser to buy minority interests in
small companies, or sign development contracts with them.
These approaches allow the small companies to maintain their
culture and entrepreneurial zeal.
To better understand the growing need for strategic relation-
ships, it is important to understand the product-development
cycle in technology-based businesses, as shown in Figure 7.
There are many steps between the scientist's workbench and the
assembly line, and no company can handle all steps. Strategic
relationships are needed to bridge the gaps.
As the illustration shows, the product-creation process breaks
down into four stages:
Basic research. Although most industrial advances rely on
progress in basic research, industry funds very little of this work.
Basic research seeks to answer fundamental scientific questions,
such as the internal structure of matter or the properties of
human-body proteins. It is a long and uncertain process. No
one can know ahead of time whether it will lead to new appli-
cations or technologies. Few companies have the resources or
patience to fund this type of research. So most basic research
in the United States is performed at universities or national
laboratories, with funding coming primarily from the government.
Applied research. When a scientific endeavor becomes di-
rected toward a particular industrial result, it becomes applied
research. Squeezed between basic research and development,
applied research suffers the woes of a middle child: ambiguity
and neglect. University researchers, whose main goal is to ex-
pand scientific knowledge, prefer to focus on basic research.
Small companies cannot afford to get involved until research
has already passed through the applied stage. So most applied
research is performed at large industrial labs, such as AT&T's
Bell Laboratories and Xerox's Palo Alto Research Center.
Development. This is the most directed phase of product cre-
ation. Its goal is a finished product that can compete in the
marketplace. All companies do development work. But in fast-
changing industries, small companies are the most productive
and successful in development efforts. Unlike corporate giants
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 Market Positioning: Five Ways to Gain Recognition 73

who must invest substantial resources in maintaining their bu-

reaucratic structures, small startups direct almost all their re-
sources and energies toward development of a product. Necessity
presses startups to be more innovative: The company's very
survival depends on success of the development effort.

Manufacturing and marketing. The first three stages of the

cycle, from basic research through development, all represent
investment costs. It is through manufacturing and marketing
that companies produce a return and recoup the costs of product
creation. Without this return, the investment is lost and it has
generated no new capital for the next generation of product
innovation. Size and resources are often major advantages in
manufacturing and marketing, so big companies tend to be the
leaders in this final stage of the product-creation process.

It is in this final stage that Japanese companies have their

biggest advantage. Japanese companies usually lag behind their
U.S. counterparts in the first three stages of the product-creation
cycle. But in some fast-growing markets-such as consumer
electronics and semiconductor memories-they have managed
to leap ahead in the final stage, in part because of superior
manufacturing technologies, and in part because of the special
treatment they receive from the Japanese government and Japa-
nese financing system. In winning the manufacturing battle, the
Japanese have deprived U.S. companies of the returns they need
to invest in future-generation products.
Strategic alliances can help U.S. companies share costs and
expertise, and thus meet the Japanese challenge. In looking at
the product-creation process, it is clear that different companies
have different strengths in different parts of the cycle. Teaming
up is a way to share expertise. If big companies are typically
stronger in applied research and manufacturing, while small
companies are the most innovative at development, why not join
forces? IBM's strategic alliances have done just that, linking its
manufacturing prowess with the developmental skills of Intel,
Microsoft, Tandon, and others.
As competition continues to grow in technology-based indus-
tries, strategic relationships will become ever more important.
74 The Regis Touch

Industry shakeouts are inevitable. Not all 500 computer com-

panies and 10,000 software companies will survive. Small com-
panies have to ask themselves whether they can go it alone
without the resources and credibility offered by larger compa-
nies. For companies that start to slip, strategic relationships will
be the only way to regain credibility, to build a new image. These
slipping companies need a dramatic change. Osborne and Vic-
tor, two personal-computer companies that went bankrupt, both
should have paid more attention to strategic alliances. They
didn't and they failed.
In some product categories, such as computer operating sys-
tems, one or two dominant standards will emerge in the next
few years. For companies developing those products, strategic
relationships are particularly important. Those companies must
link up with others to help establish their products as standards.
Pauline Alker, one of the founders of Convergent Technologies,
founded her second company, Counterpoint Computers in early
1984. Counterpoint is in the high performance, mini-computer
business. But so are many other companies. The major differ-
ence that has made Alker's company successful so early in its
corporate life is her approach to strategic alliances. Pauline set
out from the beginning by pursuing and attracting capital from
three of the premier venture capital companies, Arthur Rock,
Hambrecht & Quist, and Mayfield. While her products were in
the development stage, Pauline set out to establish relationships
that would ensure success. Counterpoint's initial strategic alli-
ances include technology exchanges and marketing, product de-
velopment, manufacturing and equity relationships with three
strategic partners: AT&T Informations Systems, Kyocera and
British & Commonwealth. These companies have combined
assets in excess of $150 billion.
AT &T provides equity, access to operating systems technology,
low cost manufacturing capabilities, and credibility. Kyocera, a
Japanese manufacturer of ceramic packaging for the semicon-
ductor industry and other high technology products, also pro-
vides equity as well as access to the Asian market, sophisticated
packaging technology and manufacturing capability. And British
& Commonwealth, a London-based shipping conglomerate, pro-
vides equity and access to the European markets. The chairman
ofKyocera and the president of AT&T Information Systems are
 Market Positioning: Five Ways to Gain Recognition 15

active participants on Counterpoint's board of directors. Ac-

cording to Pauline, "These relationships are just the beginning."
Of course, simply establishing the new relationships is not
enough. Companies also must know how to capitalize on the
links after they are formed. ZyMos is one company that has
failed to do that. As a small company manufacturing custom-
made semiconductor chips, ZyMos needs to convince customers
of its reliability. The marketplace is fearful of a small company
in today's environment. All companies are growing so quickly
that they need a reliable supplier. They can't afford to have their
lines shut down.
Strategic relationships are an ideal way to ease these customer
fears, and ZyMos has an impressive list of partners. It has
technological agreements with many top-notch companies, in-
cluding Intel and Apple. But ZyMos is still going out and pre-
senting its product on the basis cif technical data. ZyMos's
managers came to us and talked for an hour about line widths.
That makes no sense. Pitching technology doesn't work in this
environment. ZyMos should be stressing its relationships with
Intel and Apple. They have the right relationships, but they're
not using them.
The idea of strategic relationships is not limited to the elec-
tronics and computer businesses. It applies to all fast-changing
industries. Strategic alliances can be critical in the biotechnology
industry. As in the electronics industry, most of the innovation
in the biotechnology industry comes from small firms. But bring-
ing products to market is particularly difficult for small com-
panies in biotechnology. Many biotechnology products must gain
government regulatory approval. That is a long and expensive
process. Few small companies have the resources to wait out
the entire process. Teaming up with large companies solves this
problem, while also giving the startups much-needed marketing
muscle and credibility.
Strategic relationships helped establish Genentech as a leader
in the biotechnology industry. Genentech had a fair amount of
credibility from its very beginning because its funding came
from one of the most respected venture-capital firms, Kleiner
Perkins Caufield & Byers. Using that initial credibility, Genen-
tech was able to attract the interest of Eli Lilly, the pharmaceu-
tical giant. The two companies signed a deal under which
76 The Regis Touch

Genentech would develop human insulin using recombinant

DNA technology and Lilly would produce and market the prod-
uct. This deal gave Genentech production and marketing ca-
pabilities it never could have financed on its own. Equally
important, the association with Lilly gave the startup an aura
of credibility and established it as the technology leader in the
infant industry.
While strategic relationships seem increasingly attractive, there
are problems. Nothing is an automatic success. There are many
factors working against the formation of strong bonds between
companies. Perhaps the biggest source of problems between
partners is poor communication. Oftentimes things do not get
done because each partner believes the other is responsible.
When entering into a new relationship, all companies involved
need to be explicit about their objectives and expectations. The
companies must agree on all details: What is to be done, by
whom, and when. Management responsibilities and financial
policies should be clearly stated. In some cases, companies
define their markets and goals so differently they always will be
in conflict. These types of philosophical differences should be
aired and resolved before any agreement is reached.
Antitrust also can be a problem. In light of the economic
challenge from Japan and other international competitors, the
U.S. government is allowing companies a greater degree of
flexibility in structuring alliances. The government has raised
no objection to the Microelectronics and Computer Technology
Corporation, an alliance of a dozen computer and electronics
companies that was formed to share research costs. But other
relationships are sure to raise objections. The intent of the
partners is the critical factor. Relationships structured to restrict
competition are, and should be, unacceptable.
Another problem is that small companies can become overly
dependent upon their larger partners. This is similar to the
problem faced by military contractors, many of which survive
at the whims of the Pentagon. Companies that depend on a
single relationship as a primary source of business can end up
in big trouble. MiniScribe, a tiny Colorado company that sup-
plies disk drives to IBM, saw its stock plummet by more than
one-third when IBM changed its buying patterns. The situation
can be even worse when a large company decides to vertically
 Market Positioning: Five Ways to Gain Recognition 77

integrate, developing its own production capabilities for parts

that it once bought from outside partners. Small companies
must remain aware of where they stand in their partner's plans,
and should never get in a position where their very survival
depends on the continuation of the relationship.

Selling to the Right Customers

Customers are the key to any business. Companies are always
looking to attract new customers. However, many companies
fail to realize which customers they attract is often more im-
portant than how many customers they attract.
Just as companies should look to form strategic relationships,
they should try to sell to strategic customers. An impressive
customer list can give a company a reputation as an innovator
or a technological leader. Tandem, the pioneer in "nonstop"
computers that never fail, sold its first system to Citibank in
New York. To outsiders, the message was clear. If Citibank
trusted Tandem, then Tandem must be a winner. Business Week
quickly ran an article on Tandem, based in part on the Citibank
reference. If Tandem had gone to Southwest Mutual as its first
customer, it probably would have taken much longer to develop
its reputation.
Key customers can help in other ways too. They can give
valuable feedback, providing a company with new ideas on how
to improve a product. What is more, key customers feed infor-
mation· about the manufacturer into the word-of-mouth net-
work. If every key customer tells two others, and each of them
tells two others .... You get the picture.
Companies should pay attention to choosing the right cus-
tomers even before they introduce their product. Picking the
right beta sites to test early versions of a product can be critical
to the product's ultimate success. Valid Logic, a new manufac-
turer of computer-aided engineering systems for the electronics
industry, found that one of its beta sites, Convex Computer
Corporation, provided important suggestions for improving its
product. Convex, itself a high-powered startup, was developing
78 The Regis Touch

a highly sophisticated supercomputer, and thus was able to push

the Valid Logic system to its limits. At first, the Convex engineers
complained about the Valid system. But as Valid responded to
the criticisms and modified its prototype, Convex became an
important Valid supporter.
Convex itself faced an important decision in choosing beta
sites for its supercomputer. We had long discussions with Convex
about the decision. Should the beta site be at a university? How
about a government agency? Or a military contractor? Each
possible site had its own unique characteristics. Convex would
learn different things from different sites. Equally important,
the choice of a site would start to position the company. By
choosing a military contractor, Convex might be positioned as
a military supplier, and then find it difficult to sell into' the
commercial market. Ultimately, Convex chose two beta sites: a
semiconductor company which is using the computer for chip
design and a petroleum company which is using the computer
for geophysical research.
Deciding which customers to sell to requires creative seg-
mentation of the market. Many companies selling industrial
products give segmentation little thought. They segment the
market geographically, or into big and small companies. This is
especially true of startups. Ask a startup: What's your market?
The answer is predictable: The Fortune 500. They all think the
Fortune 500 is some type of magic formula. Sell to the Fortune
500 and you're bound to succeed.
Well, the world doesn't work that way. Fortune 500 companies
are large, bureaucratic organizations. They have numerous rules
and qualification criteria, and they are generally hesitant to try
new technologies and products. Selling to those companies is a
long and tedious process, lasting a year or more. Startups would
be better off selling to the "emerging Fortune 500;" that is, the
500 companies most likely to grow and be successful in the next
decade. These companies have to make purchase decisions more
quickly, they are more likely to try new and innovative products,
and they probably will come back for repeat purchases as they
grow.
Finding the emerging Fortune 500 is not necessarily easy.
Tomorrow's winners are not always readily apparent. It's not
purely statistical; it's more qualitative. You can't just tear a
 Market Positioning: Five Ways to Gain Recognition 79

chart out of Fortune magazine. But identifying these companies

can pay off. ASK Computer in Los Altos, California, has put
this type of strategy to work. ASK sells software to manufac-
turing companies. Rather than target the Fortune 500, it first
went down the street and sold to other high-technology com-
panies in Silicon Valley. Its customer list includes many of the
fastest-growing companies in the country. Because these com-
panies do not drag their feet on purchase decisions, ASK was
able to quickly grow to a $1 00 million company.
Another, closely related, approach to segmenting the market
involves the "adaptation sequence." Social-science researchers
have noted that people fit into four categories according to how
quickly they adopt new products and beliefs. Some people lead
the way. They are the Innovators. Next come the Early Adopters,
then the Majority. Finally, there are the Laggards, who are the
slowest to adopt new ideas. According to one book on the
subject, about 2.5 percent of the public are Innovators, 13.5
percent are Early Adopters, and 16 percent are Laggards.
These groupings can be used to classify companies as well.
Companies have attitudes just as people do, and these attitudes
can be used in positioning new products. Only one change: I
like to think of companies "adapting" to new technologies,
rather than "adopting" them. So I call the process the "adap-
tation" sequence.
Figure 8 breaks down the personal-computer market into
Innovators, Early Adapters, Late Adapters, and Laggards. As
you can see, members of different groups have very different
motivations and attitudes. Innovators are fascinated with tech-
nology and are willing to educate themselves about new prod-
ucts. Laggards, at the other extreme, are much less knowledgeable
about new technologies and will not purchase a new type of
computer unless there is an absolute need. They respond to
competitive pressures. Selling to these different groups requires
very different strategies.
There is a great temptation to target Laggards in your mar-
keting strategy. First of all, there are generally many more Lag-
gards in the marketplace than Innovators and Early Adapters.
What is more, Laggards are typically large corporations that
could lend immediate credibility to your business.
 The Market Adaptation Sequence
~ Small Business/Personal Computer
~
t! Adaptation Innovator Early Adapters Late Adapters Laggards
00 Criteria
Product Tecl:mology Fascination The Coming Thing Obvious Solutions To Absolute Need
Acceptance Problem
Motivation Implement New Idea Leap Frog Competition Competitive/Social Extreme Competition/
Pressure Social Pressure
Improve Business
Fear of Obsolescence
Confidence Willing to Experiment Willing to Try New Things No Risk Reluctant to Change
Level
High Self Confidence Will Go With Reasonable Slow to Change Culture Problems
Risk
High Risk Needs References Strong Justification
Education Self Taught Will Attend Night School Will Attend Seminar Will Send Someone to
Attitude to Learn Seminar
Independent Wants to Buy a Proven
Product Needs Proof
Needs Lots of Hand Ease of Use
Holding
Acceptance Latest Technology Innovation Brand Important Lowest Cost
Criteria Better Way to Do Job
New Features Pay For Only Needed Competitive Terms And
Features Conditions
Performance Selective
Terms and Conditions Brand Very Important
Important
Selling Self-Sold, Once Turned Benefits Address Cost Problems/ Productivity Increases
Strategy on
Reference
Technical Support
Fear
Word of Mouth Needs Examples
Word of Mouth
Demonstration
 Market Positioning: Five Ways to Gain Recognition 81

But it usually makes more sense to aim new products at the

Innovators and Early Adapters. Innovators are more likely to
take a chance with a new product or new technology. And
because innovators are usually, though not always, small com-
panies, they make purchase decisions more quickly. Moreover,
the actions of Innovators influence all the others. Innovators
spread information about the product through word of mouth.
If Innovators buy a product, others are likely to follow suit. So
selling to an Innovator might actually bring more credibility
than selling to a Laggard, even if the Laggard is many times
larger and better known. As Innovators influence companies
downstream in the adaptation sequence, credibility for the prod-
uct grows and grows.
A comment from a senior vice president at General Electric
backs up this idea. GE is a major Intel customer, and I would
classify it as a Late Adapter. GE made a commitment to use
Intel's 8086 microprocessor in a variety of its products. But
when I talked to a senior manager at GE in 1982, he was getting
nervous about the decision. He noted that many innovative com-
panies in Silicon Valley, including Apple and Fortune Systems,
had decided to go with Motorola's 68000 microprocessor. Intel's
8086 still had dominant market share, and its customer list
included many major companies. But the Motorola chip took
on a certain aura. As the GE executive said to me: "Those
startup companies in Silicon Valley are capturing our imagina-
tion. If we had to make the decision today, we would not go
with the 8086."
Large companies can sometimes afford to wait until Laggards
begin to buy a product. Then, they can sell in large volumes to
the Laggards. But small companies cannot afford to wait for the
Laggards to come around. They must target the Innovators,
preferably the most visible of the Innovators. If I were a startup
selling disk drives, and I could choose to sell to Apple, Xerox,
AT&T, or a startup like Metaphor, I would probably choose
Apple and Metaphor. The order might be for fewer drives, but
my reputation would be established. Rather than spending mil-
lions of dollars on promotion, I could simply rely on word of
mouth.
Of course, identifying the Innovators in an industry is not
always easy. Not all Innovators are small. Some pockets of large
82 The Regis Touch

organizations are Innovators. At banking giant Citicorp, for

example, the MIS division is an Innovator. At Xerox, some
divisions are Innovators, while others are Laggards. So you must
understand the organizational forces acting within large com-
panies to decide whether or not to target certain divisions. Intel
has an Innovators Program that identifies which divisions at
other companies are Innovators, and which are not. Other com-
panies might benefit from similar programs.

Dealing with the Press

I put this section last because it should come last. Too many
companies think press relations come first. They want to make
a splash in the press even before they position their products.
They think that a good article in Business Week or Fortune or
The Wall Street Journal can create their markets and solve their
problems. They believe a strong media campaign can make up
for deficiencies in product quality, customer relations, and other
basic marketing skills.
These ideas are totally backward. Press relations cannot change
reality. Press relations do not create what you are; they reflect
what you are. Press relations cannot take the place of a broad-
based marketing strategy. Companies must first position them-
selves and establish themselves in the marketplace. Then, and
only then, should they worry about getting press coverage.
Now that I have deflated the importance of press relations, I
should emphasize the flip side: When handled properly, press
relations can be a valuable part of a company's marketing strat-
egy. Indeed, a company is unlikely to succeed without good
press relations. A company can lose in the press and still win
in the market in the short term, but that can't happen in the
long term.
Press relations do not have to be all "fluff." They are serious
business. Once a product is positioned, press coverage can help
reinforce and broaden the credibility that the product and com-
pany have already gained. The press can ease customer fears
and make customers feel more secure about new technologies.
 Market Positioning: Five Ways to Gain Recognition 83

In new and fast-growing industries, journalists can play the role

of evangelists. They can preach the new technology.
Advertising can perform many of the same functions. But
press relations is usually more effective and credible. Articles in
the medja are perceived as more objective than advertisements.
If a company can win favorable press coverage, its message is
more likely to be absorbed and believed.
Press relations serve a second purpose: They can provide a
company with valuable feedback. Communications is a two-way
street. Companies can learn a great deal from journalists. Like
analysts and other industry observers, journalists serve as a
microcosm of the world at large. By talking to the right jour-
nalists, a company can learn much about how the world views
its products and the company itself. This type of feedback can
be invaluable as a company attempts to fine-tune its public
image.
If a company has monitored the environment and thought
about positioning, it should have no difficulty figuring out what
message to deliver to the press. The message should evolve
naturally from the positioning process. But it is not always easy
to deliver that message in an effective way. Communication
seems so simple. Yet, so few companies do it well.
Successful press relations requires time, planning, and con-
stant reinforcement. It rests with an understanding of how jour-
nalists work and how information is communicated. I have put
together a set of guidelines that can be useful in developing an
effective public-relations strategy:

Understand the journalist's role. Journalists value their role as

independent observers. They resent companies that try to bla-
tantly influence them or co-opt them. They do not want to be
viewed as an extension of the company's promotional efforts.
The notion that a story is free advertising is degrading to the
journalist and to journalism.
Companies must present information without trying to ma-
nipulate. Manipulation can be counterproductive. Litronix, which
sold light-emitting diodes in the early 1970s, learned this lesson
the hard way. The company saw its sales starting to turn down-
ward, and it decided an article in Business Week would help
84 The Regis Touch

revive the business. Sure enough, Business Week was interested

in an article. But the headline read: "Burnout of a Star."
Don't go to the press too early. Obviously, no one wants negative
press coverage before a product is even introduced. But positive
coverage can be almost as bad. A favorable article while the
product is still in development might build expectations that are
difficult to meet. If problems crop up and slow the development
cycle, as so often happens, the whole world will know.
Synapse Computer ran into this problem. Synapse had im-
pressive credentials. Started by a group of engineers from Data
General, the company planned to build "fault-tolerant" com-
puters that would never break down. They had an excellent
chance to succeed in the market. But they had the itch to tell
the world they were great before they actually were. Even while
still working in the back of a candle factory, they began running
ads and talking to the press. Expectations rose. Then, Synapse's
computers ran into technical problems at the beta sites. Nothing
that abnormal, just typical beta-site problems. But Synapse was
very visible now. Journalists were watching Synapse, and they
reported on the company's problems. Synapse's credibility sank
like a rock. Whether or not it solved the technical problems,
Synapse faced an uphill struggle.
Don't "imprint" the wrong image. When a baby chick is born,
it looks around for its mother. If the first thing it sees is a human,
it assumes the human is its mother, and its mind will never be
changed. This process is called "imprinting." Customers often
act the same way. When a startup company introduces its first
product, customers will form an image of the company, and that
image is very hard to change. In short: You never have a second
chance to make a first impression.
3Com, a small company that develops communication net-
works for computers, managed to avoid this problem by being
patient. The company developed the first personal-computer
network compatible with Ethernet, the industry standard for
larger computers. But 3Com faced a promotion dilemma. Not
all pieces of the network were ready at the same time. It wanted
to introduce each piece-the software, the controller, the trans-
ceiver-as it was ready, so it could start receiving revenues and
gain market experience. But the company didn't want to be
 Market Positioning: Five Ways to Gain Recognition 85

perceived as a component company. It wanted to be seen as a

full-systems supplier. With our advice, 3Com waited until all
pieces were in place, then began communicating its message to
analysts and journalists. The strategy worked: The company is
now firmly positioned as a systems supplier.
Get the infrastructure ready. Most journalists practice what I
call "he said, you said" journalism. Rather than present their
own analysis, they simply quote what other people say. And who
is it they quote? Most often, they quote members of the industry
infrastructure-financial analysts, consultants, distributors, early
customers. The infrastructure serves as a type of filtering mech-
anism, helping journalists separate fact from fiction.
Companies should take advantage of this filtering mechanism.
They should educate and win over members of the infrastructure
before going to the press. If a company tries to go to The New
York Times or The Wall Street Journal without first developing
the infrastructure, it could run into big problems. Reporters will
go to members of the infrastructure, and the company might
not be happy with what the people in the infrastructure say.
Clearly, what people in the infrastructure say about you matters
a great deal.
Meet with journalists one on one. Many companies build their
press strategies around press releases and press conferences.
But these are not the most effective ways to communicate a
message. National magazines get thousands of press releases
every week. It's tough to get heard through all the noise. Many
press releases are thrown out without being read.
Nor are press conferences very effective. There are two prob-
lems. First, journalists are reluctant to ask their best questions
at a press conference, because they don't want to tip off the
competition. Second, different parts of the media have different
interests. Byte magazine wants to hear about nanoseconds and
megaflops. The newsmagazines want the broad trends and social
implications. It's impossible to satisfy everybody. There's a lot
of information, but not much good communication. A press
conference is a nice spectacle, but the press loses out-and so
does the company.
Instead, companies should meet members of the press indi-
vidually. A one-on-one meeting takes more time, but it makes
86 The Regis Touch

more of an impression on the journalist and it delivers the

message more efficiently. Messages can be tailored for the au-
dience: one for the trade magazines, another for the business
magazines, a third for the general-interest press. Once again,
the 90/10 rule applies: 10 percent of the press influences the
other 90 percent. So select the most influential members of the
press and meet with them.

Educate the media. Press relations should be seen as an edu-

cation process. Fast-moving industries are becoming more di-
verse, fragmented, complex, and difficult to understand. At the
same time, there is more information available about every facet
of every industry. For most journalists, these industries are be-
coming more and more confusing.
Companies need to help journalists create order out of the
chaos, so journalists can present a cogent description of emerg-
ing trends and technologies. Rather than simply pitching ideas
to the press, public relations people must be willing to spend
time and educate the press. Companies should treat journalists
as well as they treat their major customers. It's not enough to
hold a new product up to a press conference of 600 people and
say: "Here it is."

Develop long-term relationships. Developing good relationships

with the press takes time. Press relations is a process not an
event. Pressing the media for an immediate article will rarely
succeed. Most major business stories take months, even years,
to evolve. Companies must be patient.
Companies should view press relations as a continuing in-
vestment. It will pay off with time. Once you establish good
relationships with the media, you will be able to present new
products more effectively. Moreover, you will be able to partici-
pate in broader articles about industry trends, and you will
become less susceptible to speculative stories. Journalists will
seek your side of the story before going to press.

Look beyond products. In new industries, the press typically

focuses on products. The stories are generally naive and super-
ficial. Most of the coverage comes from the trade press. But as
an industry matures, so does press coverage. Journalists learn,
 Market Positioning: Five Ways to Gain Recognition 87

question, dig into the "news behind the news." The business
and general-news media become increasingly interested.
Companies must deal with the business and general-news
media differently than they deal with the trade press. There
should be much less emphasis on product performance and
characteristics. Seasoned journalists know a technological ad-
vantage is short-lived. Companies should explain how they fit in
the present and future business environments. When products
are discussed, they should be placed in a broader context, such
as "The Office of the Future" or "The Factory of the Future."
The press is fascinated by glimpses of what lies ahead.
Be honest about bad news. When bad news strikes, it's not
worth fighting the press over it. As a politician once told me:
"Never pick a fight with someone who buys his ink by the
barrel." Being honest scores points with the press. In negative
situations, a company's character and style will greatly influence
how the press perceives and writes about the company.
It almost never makes sense to hide bad news. It is best to
get the bad news out, so it's over and done with. If you try to
hide the news, it will fester and go on forever. Three Mile Island
is a classic example. The Nuclear Regulatory Commission with-
held information, and public confidence sank lower and lower.
On the other hand, Johnson & Johnson was very open with
journalists during the Tylenol scare, and Tylenol has since re-
gained its credibility in the market.
Use top management. At most companies, top management
pays attention to press coverage only when the coverage is neg-
ative or when the competition receives a lot of positive coverage.
I believe top managers should play a more active role in press
relations-and marketing in general.
At most companies, especially small, technology-based com-
panies, the personality and culture of the company can be traced
to the management team. As the company grows, and marketing
plans proliferate, that corporate personality often fades. Top
managers are then the only ones able to communicate the cor-
porate character and ideals. They are the only ones who can
offer a simple, unified view of the total corporation.
If you put layers of people between company management
and the journalist, the journalist will never get a true sense of
88 The Regis Touch

what drives the company. If, on the other hand, top managers
would meet on a regular basis with journalists, financi<il ana-
lysts, and employees, everyone would benefit. Each group would
come away with a better understanding of the other's positions.
There would be less likelihood of misunderstanding and distrust
and surprise. It's a job that no public-relations agency can do
without top management's help.

Putting It All Together

Several years ago, a well-known industrialist told me that all
business success is based on two things: building relationships
and patience.
Nowhere is this more true than in market positioning. None
of the market-positioning activities-using word of mouth, de-
veloping the infrastructure, forming strategic relationships, sell-
ing to the right customers, dealing with the press-will guarantee
success by itself. And none of them will bring success overnight.
It takes a long time to establish contacts and build relationships.
But taken together, and given enough time, these elements are
almost certain to work. They will bring recognition and credi-
bility to a company and its products. It might take a while, but
it's worth the wait.
W hen you're rich, they think you really know.
Tevye, Fiddler on the Roof
 Corporate
S Positioning: There's
Only "One Thing
that Counts

Would you buy a computer from Osborne Computer Corpo-

ration? Probably not. The company is still in business, but it
went through a highly publicized bankruptcy. Now everyone has
doubts about the company-with some justification. Even if
Osborne introduced the best personal computer in the world,
and developed the best product-positioning strategy, most peo-
ple would shy away from it. In short, Osborne has lost its
corporate positioning.
A strong corporate position is hard to achieve and even harder
to regain. Just as product positioning gives individual products
a unique presence in the market, corporate positioning provides
a unique presence for an entire company.
Corporate positioning is based upon many factors, including
management strengths, corporate history, and even the person-
alities of the top executives. A well-known entrepreneur can help
position a startup company. People such as Intel's Bob Noyce
and Advanced Micro Devices' Jerry Sanders give their compa-
nies a unique personality. Noyce, co-inventor of the integrated
circuit, was highly respected in engineering circles, so it was
much easier for Intel to position itself as a technology leader.
92 The Regis Touch

Similarly, marketing whiz Sanders helped win AMD a reputa-

tion as a strong marketing company.
But the most important factor, by far, in corporate positioning
is financial success. Without financial success, everything else
is meaningless. A company without profits will not maintain its
position for very long. When people buy complex products such
as computers or telecommunications equipment, they are mak-
ing a long-term commitment. They don't want to buy from a
company in financial trouble.
The flip side of the argument is also true. People feel more
secure when they buy complex products from a company with
a strong balance sheet. Everyone is eager to listen to profitable
companies. As Tevye said in Fiddler on the Roof: "When you're
rich, they think you really know."
Corporate positioning sits at the top of the positioning hier-
archy. Companies must position their products first. Next, the
products must gain market recognition. Only then can compa-
nies build a solid corporate position.
As the last of the positioning trio, corporate positioning rein-
forces each of the previous two. A strong corporate position can
validate a company's market positioning and its product posi-
tioning. When a company establishes a strong corporate posi-
tion, its other positions become stronger and more lasting.
The Japanese effort in RAM (random-access memory) chips
illustrates the point. First, Japanese semiconductor companies
made the decision to position their products as high-quality
parts. They set up manufacturing operations that minimized
the chance for defects in the chips. They also selected a few key
customers, such as Hewlett-Packard and IBM, and did addi-
tional testing to make sure the chips going to those customers
were top-notch.
The Japanese gained market position when Hewlett-Packard
began running quality-comparison tests between American and
Japanese chips. The Japanese chips had fewer defects in test
after test, and HP announced the results publicly. In effect, HP
held up its scorecard and showed the Japanese as winners.
After the HP tests, Japanese RAM chips gained market share
quickly. Some customers checked other types of Japanese chips
and found that they, too, were high quality. Soon, Japanese
 Corporate Positioning: There's Only One Thing that Counts 93

semiconductor companies had a solid corporate position as

high-quality suppliers.
Sometimes, a corporate position can be established on the
basis of just one or two key products, which I call "silver
bullets." If a company chooses its silver bullets carefully, and
highlights them to the public, it can gain a strong corporate
reputation, even if the rest of its product line is only mediocre.
In this case, image becomes the reality.
Silver bullets are particularly important in technology-based
businesses. Products at the forefront of technology are difficult
to mass produce. Typically, they sell at high prices and in low
volumes. Companies make most of their money on mass-pro-
duction items, but these products are usually "plain vanilla"
products. That is, they are rarely at the cutting edge of technol-
ogy. Companies sacrifice some performance when they design a
product for mass production. Moreover, it usually takes a while
to work out all the production problems. By the time the mass-
produced product finally reaches the market, new products,
using even more advanced technology, already will be out.
The solution, then, is for companies to develop a balanced
product mix. They should sell a few silver bullets to build an
image of technological leadership, but they also should sell plain
vanilla, mass-produced products to keep the money rolling in.
Take Intel as an example. It will probably be a long time before
Intel's sophisticated 32-bit microprocessors bring in as much
money as its 16-bit microprocessors. But the 32-bit chips are
widely praised in technology journals. They give Intel an image
of technological leadership. That is critical to Intel's corporate
positioning. Intel's image of technological leadership is a comfort
factor. It reassures customers they are buying from the best.
If a company manages to establish a strong corporate posi-
tion, or corporate personality, it can reap many benefits. Cor-
porate positioning tends to have long-lasting effects. Consider
the case of the Japanese chip manufacturers described earlier.
American semiconductor companies have improved on quality,
and they now match the Japanese in quality tests. But many
customers still believe Japanese chips are of higher quality.
Among the other benefits of an established corporate position are:
Lower cost of sales. When a company has a strong corporate
position, the market accepts the company's new products more
94 The Regis Touch

readily, simply because they carry the company's name. The

company's salesmen don't have to work as hard.
Higher prices. Companies with strong corporate positions can
sometimes charge higher prices. For many years, Advanced Mi-
cro Devices was able to set its prices above the industry average
because the company had a reputation for high-quality production.
Faster market penetration. The media usually pays more atten-
tion to companies with strong corporate positions.
Customer loyalty. Customers feel more secure doing business
with a recognized leader.
Product drag. Not all of a company's products will be world-
beaters. A strong corporate position enables the company to be
successful in selling its weaker products as well as its strong
ones.
Better recruiting. Leading companies can recruit the best tal-
ent, because people want to work where the "action" is.
Employee loyalty. A strong corporate character encourages em-
ployees to identify with the company's success: It provides focus
and direction through the organization.
Higher price-to-earnings ratio. Investors are attracted to com-
panies with a strong corporate position.
Of course, all these benefits will disappear if the company's
profits begin to slip. As mentioned earlier, profitability is the
most important factor in corporate positioning. The minute
profits decline, the market begins to worry. Everything else is
called into question.
Tandem Computer provides an example. Tandem was the first
company to sell "nonstop" computers-that is, computers that
never break down. Ever since it shipped its first computer in
1976, Tandem has built a reputation as a high-quality company.
Its technology was advanced and its market positioning was
strong.
But when Tandem's earnings dropped below expectations in
early 1984, analysts began looking for reasons. They decided
Tandem's market positioning and technology were slipping. They
 Corporate Positioning: There's_ Only One Thing that Counts 95

wrote reports about new startups that were putting pressure on

Tandem. Tandem's hard-earned positioning began to slip away.
The truth is that Tandem's technology and products were just
as strong as ever. The new startups were not a threat. Tandem's
problems were more complex, relating to forecasting and pricing.
The problems were soon corrected, but the damage had already
been done. Financial performance clearly had a major impact
on Tandem's marketing efforts.
Trilogy Systems ran into even worse problems with its cor-
porate positioning. The company was founded by Gene Amdahl,
one of the geniuses of the computer industry. Amdahl has an
impressive track record both as an engineer and as an entrepre-
neur. Amdahl Corporation, the company he founded in 1970
now has sales of $462 million.
So when Trilogy announced plans to develop a line of powerful
computers using a new semiconductor technology called wafer-
scale fabrication, it was able to quickly establish itself as a
technology leader. Raising money was no problem at all, and the
company received lots of favorable publicity. But this positioning
was fragile. When the company began to have financial problems
in 1984, its credibility disappeared. Everyone began to question
whether Amdahl could pull it off again.
People don't worry as much about the financial stability of
consumer-goods companies. People wouldn't hesitate to buy a
tube of toothpaste or a box of detergent from a bankrupt com-
pany. Most consumers don't even know what company makes
the toothpaste they use.
Buying an expensive technology-based product is a greater
commitment. If the company goes bankrupt, who will provide
the service? Who will provide the new parts? Once a computer
company, such as Osborne or Magnuson or Victor, gets into
financial trouble, no one wants to buy their products. No one
knows if the company will be around in six months.
When a company loses its corporate positioning, the only
thing it can do is to start the whole positioning process over
again. It must go back and reinforce its product positioning,
then move up to market positioning. Finally, it can try to recap-
ture its corporate position.
Intel went through this process in the recession of 1981-82.
Profits fell at all semiconductor companies, and some companies
96 The Regis Touch

even lost money. Intel had been a darling of Wall Street for ten
years, but people began to wonder about the company. Many
analysts questioned whether Intel's profit margins would ever
return to their prerecession levels. They pointed to the loss of
key people and the company's declining market share in the
microprocessor market. They even began to question Intel's
management practices. People no longer thought of Intel as an
innovator or a technology leader.
Intel responded by focusing on products and product posi-
tioning. The company introduced more than 100 new products
in 1981, a record for the company. Gradually, Intel shifted the
focus back to technology and products. When the recession
ended, profits returned and people once again began to view
Intel as the industry leader.
This focus on financial success is likely to intensify, if anything.
Using computerized data bases, people can look up financial
information instantly. Say a factory manager is going to buy a
sophisticated piece of equipment. He can hit a button on his
computer and get a complete financial profile of the company
selling the equipment. If the company looks a bit shaky finan-
cially, he is likely to buy from a competitor.
I was once involved in a situation very much like that. A friend
telephoned me and asked what I knew about Inmos, the British
semiconductor company. My friend was in charge of distributing
some research funds, and he was thinking about funding a
project at Inmos. I went to the computerized data base and got
all the public numbers on Inmos. The numbers showed Inmos
had been spending a lot of money and losing a lot of money.
I passed along the information, and my friend decided not to
fund the Inmos project. He didn't want to fund a company that
was losing money. Inmos's technology might have been first -rate,
but its corporate positioning was lousy.
Financial officers should keep this story in mind. Positioning
strategy is not just for marketing managers. It is for all man-
agers. Financial results can destroy a company's positioning-
or they can solidify the company's position as an industry leader.
I fyou don't know where you're going, you might end
up somewhere else.
Casey Stengel
6 Developing a
Strategy: Three
Steps to Success

Knowing Where You're Going

In the minds of many, there is a recipe for success in Silicon
Valley. The company should design innovative, user-friendly
products, using leading-edge technology. It should offer cus-
tomers a total solution to their needs. It should target Fortune
500 companies as its primary customers. Mix all these ingre-
dients, and sales should grow to $500 million in five years.
Many entrepreneurs think success is as easy as that. Dozens
of entrepreneurs approach me each year with business plans not
much different from that described above and illustrated in
Figure 9. Unfortunately, introducing a new product, or building
a new company, is not that simple. Of course, advanced tech-
nology and sound management are important. But unless a
company can identify and achieve a unique position for its
products and itself in the marketplace, it will never succeed.
Developing a strong positioning strategy is the key to marketing
success. ,
How can a company develop such a strategy? That is the
subject of this chapter. In the last four chapters, I laid out the
basic ideas behind dynamic positioning. Now, it's time to look
at how companies can put those ideas to work. How can a
company identify the proper niches for its products? How can
it gauge the trends and attitudes of the market? How can it
convert those trends into a successful strategy?
The Entrepreneurial Dream
Market: Fortune 500
Potential Size: $500 million in 5 years
Expected Image: IBM-like
Products: User-friendly
Design of Products: Innovative
Technology: Leading edge
Client contribution: Total solution
Industry growth: Dynamic
Competition: None perceived (creating new business)
Why now: Window of opportunity
Marketing: Aggr~ssive, world-wide
Backing: Kleiner/Perkins, Hambrecht & Quist,
Sequoia, Mayfield, A. Rock, Venrock,
Sevin/ Rosen
Capitalization: $10 million
Valuation: $100 million
Headquarters: Silicon Valley
Management: Veteran, experienced
Founded: January 1983
Founder: Ex-lntel
VP Engineering: Ex-Hewlett-Packard
VP Marketing: Ex-IBM
Total employment: 3
Manufacturing: Low cost
Strengths: Depth of management
Weaknesses: None perceived
Why need PR?: Going public in 3 months

Figure 9
 Developing a Strategy: Three Steps to Success 101

As I see it, developing a positioning strategy is a three-step

process. To start with, a company must have a good understand-
ing of itself-its strengths and weaknesses, its goals and dreams.
Top managers should have a coherent vision of the culture and
goals of the company. If different managers have widely differing
visions, the company will never be able to develop a solid posi-
tioning strategy.
Second, the company needs to understand the market envi-
ronment. That is trickier than it might seem. Most companies
gather statistics about customer behavior. Then, they make de-
cisions based on the market data. This quantitative approach is
quite satisfying to numbers-happy MBAs. In most cases, how-
ever, it obscures reality. Instead, companies should use more
qualitative approaches to understanding the environment. Mar-
keting managers must develop an intuitive feel for the market.
Rather than gathering numbers, companies should listen to
customers' frustrations and desires. Their comments won't fit
into a graph. But they will lead to a better understanding of the
marketplace.
Finally, the company must use all this information to decide
on a positioning strategy. There is no single formula for deciding
on a strategy. Just as the world is filled with a tremendous variety
of technologies and products, so too is it filled with a variety of
positioning strategies. Every company must find its own road
to success. Managers must keep an open mind and seek a variety
of opinions before settling on a strategy. Then, once the strategy
is in place, managers should be willing to adjust the strategy as
market conditions change.
In this chapter, I'll discuss each of these three keystones of
the positioning process: understanding your own company, un-
derstanding the environment, and, finally, deciding on a posi-
tioning strategy.

Internal Audits: Know Thyself

It is remarkable how many companies have trouble answering
the simple question: "What business are you in?" Recently, one
102 The Regis Touch

of my colleagues interviewed seven people at a startup company

in Silicon Valley. She asked that seemingly simple question, and
got seven different answers. One person described the company
in terms of product applications. Another described it in terms
of the technology used in the products. Yet another talked about
the nature of the marketplace.
This company was suffering from a severe identity crisis. The
company was developing a good product. But inside the com-
pany, it had still not developed a coherent identity. Does this
really matter? It certainly does. If company executives do not
have a uniform and clear vision of where they are heading, they
are likely to run into trouble down the road. As the market
environment shifts with time, the company might not recognize
that it, too, needs to change. Just as bad, company executives
could find themselves at odds with one another over how the
company should adjust. Infighting could paralyze the company
while the industry speeds ahead without it.
Harvard professor Theodore Levitt presented the classic ex-
ample in his article "Marketing Myopia." Levitt describes the
plight of the railroads. Had the giant railroads defined them-
selves as "transportation companies," they might have adjusted
more effectively to the coming of airplanes. As it was, the rail-
roads saw air transportation as competition, not a new opportunity.
Similar situations abound today. Indeed, a clear but flexible
view of your company's mission is more important than ever in
these times of rapid change. A few years ago, a Silicon Valley
company tried to market computer-music software programs.
The company went bankrupt when the market did not grow as
quickly as expected. The company's problem was that it saw
itself as a computer-music company. Had it seen its mission as
"creative uses of computers," or even "computer-based enter-
tainment," it would have had a better chance of success. It could
have adjusted more effectively to the changing environment.
Similarly, publishing companies had best view themselves as
"information companies" if they want to survive the next decade.
At the same time, each company must understand the internal
"cultural" factors that drive the company. Much has been writ-
ten about corporate cultures in recent years, and culture can
indeed be a powerful force. If a company can develop a culture
that emphasizes quality and reliability, all employees are likely
 Developing a Strategy: Three Steps to Success 103

to work harder toward those goals. Similarly, a company with

a culture that encourages innovation is more likely to develop
creative new products.
In new companies, the founding entrepreneurs play a domi-
nant role in determining the company's culture. Long after hav-
ing given up day-to-day control of the company, Bill Hewlett and
Dave Packard continue to have an important effect on Hewlett-
Packard through the cultural norms they established at the com~
pany. Founders should take time to consider the cultural quali-
ties they want their companies to have. If several founders are
involved, they must make sure their ideas of corporate culture
are in sync.
Understanding the internal forces at a company should come
naturally, but often it doesn't. Many managers are so focused
on the outside forces afffecting their companies-new technol-
ogy, new competitors, new markets-they forget to look inside.
When we begin to work with a new client, the first thing we
do is to force the company to do some soul-searching. We have
developed a formal process called an "internal audit," during
which we probe the inner workings of the company to find out
what really makes it tick, and to make sure that different parts
of the company aren't working against one another.
Typically, we meet with five or six top people in the company.
We always talk to the president and the vice president of mar-
keting, and we usually meet with the vice presidents of engi-
neering, finance, and manufacturing as well. Each interview
lasts for ninety minutes or so. During that time, we ask general
questions about the company's history, its products, market,
competition, and goals. We also ask about the individual him-
self, and how he perceives his role in the company.
We perform these audits in part to acquaint ourselves with
the new client, and to gather information for upcoming com-
munications efforts. But more important, the audit helps in
developing a positioning strategy. The perceptions and attitudes
of company executives are critical to the company's positioning.
At National Semiconductor, for example, chief executive Charlie
Sporck is a manufacturing-oriented manager. His emphasis on
manufacturing flows down through the company. So it was only
natural that the market would come to view National as a
I 04 The Regis Touch

production-oriented company, a company that could turn out

high volumes of product at low cost.
By examining the perceptions and attitudes of individual man-
agers, we also can expose inconsistencies and conflicts among
company executives, and we can get a feel for the company's
expectations. After finishing the internal audit, we typically
conduct an "external audit" of key industry observers and po-
tential customers to determine whether the company's goals and
expectations are, in fact, realistic. (External audits will be dis-
cussed in greater depth later in this chapter.)
Obviously, the questions we ask in an internal audit will vary
from one company to another, and, to a lesser extent, from one
individual to another within the same company. You can get
some idea of the process from the following questions, used
during the internal audit at a software company:
• What business are you in?
• Describe your market. Is it mature?
• What do you think are your company's strengths and weak-
nesses? Technical, financial, cultural, others?
• What do you think the public considers to be your strengths
and weaknesses?
• Who are your competitors? What are their strengths and
weaknesses?
• What directions do you foresee taking in the near future and
longer term? That is, what is your market strategy regarding
operating systems, languages, and applications software?
• What are the key factors for success in each of the above
market segments?
• How long will it take you to implement your strategy in each
segment?
• What are the trends in each of these market segments?
• What percentage of the company's resources will be devoted
to each market segment?
With these and other questions, we are not trying to gather
facts and figures about the company. Instead, we are looking for
 Developing a Strategy: Three Steps to Success 105

qualitative information, such as perceptions and feelings. We try

to avoid making any assumptions ahead of time, and we lead
clients only to stimulate their own thinking. Oftentimes, we will
let clients "ramble" in order to learn more about their hidden
feelings. Most important, we want to find out if all the key
members of the management team are singing the same song,
and how deeply they believe in that song.
Even with simple questions, an internal audit can expose
important information and insights about the company. Take,
for example, the final question in the above list. In estimating
the percentage of resources that should go to the development
of language software, executives at the software company gave
consistent answers. All the responses fell between 20 percent
and 30 percent. But for operating systems, responses varied
from 25 percent to 75 percent. Estimates for consumer-market
software also varied widely.
These differing estimates exposed an important split in the
company. A more qualitative analysis of the executives comments
backed up this finding. The company seemed to be split into
two camps that, in many ways, were sabotaging each other. One
camp, led by a manager who favored consumer marketing in
the style of Procter & Gamble, wanted the company to focus on
entertainment software. The other, led by a manager with a
strong technical background, wanted the company to dedicate
its efforts to systems software-a smaller market, but one in
which the company had already proved itself.
- An internal audit at another company, this one specializing
in communications, unearthed a different type of conflict. We
found the engineer in charge of software development thought
he was the top engineering officer at the company. That would
have been fine, except the engineer in charge of hardware de-
velopment thought the same thing.
Most companies, especially small and fast-growing ones, like
to sweep these conflicts under the rug. They ignore conflicts
until company performance starts to sag. That is a formula for
trouble. It is critical each member of the management team
understands his or her own role in the company, and that they
all share a common vision of the company's plans and goals.
To develop that common vision, different parts of the company
must understand each other's needs and goals. In particular,
106 The Regis Touch

marketing and product -development staffs need to work closely

together and grow to understand one another. At many tech-
nology-based companies, these staffs hardly interact at all. Mar-
keting people develop positioning strategies without even
consulting the product designers, and certainly without any deep
understanding of the product-development process.
This compartmentalization of companies, the splitting of mar-
keting and product development, is a serious problem. As ad-
vanced technologies influence more and more industries,
marketing managers everywhere need to learn to package and
symbolize the essence of a technology. They must take the com-
plexity of a technology and turn it into simplicity. They must
remove the customer's fear and create an aura of familiarity
around the technology.
This is a difficult job, with objectives that sometimes seem
incompatible. Marketing managers must let the customer know
the product is technologically advanced and exciting. They must
not denude the product of its technology. People like to have the
latest technology. The product should be a symbol of advance-
ment, a type of status symbol.
Intel's Ed Gelbach once called this the "hexachlorophene syn-
drome." In the 1950s, a toothpaste maker advertised a secret
ingredient called hexachlorophene, even though few consumers
understood the term. Today, customers are excited to own a
"16-bit processor," even if they don't know the difference be-
tween a bit and a byte. At the same time, customers want to be
teassured about the new technology. Marketing managers must
find ways to make the customers feel comfortable and secure
with new ideas and new technologies.
To translate complex new technologies into the appropriate
symbols and messages, marketing managers must understand
and appreciate the technological process. Without that type of
understanding, it is impossible to create marketing messages
that capture the importance and meaning of the product. I still
find it useful to go to a new production line and watch the
products-chips or computers or video screens-coming off
the line. It helps bring the technology to life.
Even better, I like to see the product at early stages in the
design process. I remember seeing Intel's 8086 chip at a very
early stage. The drawing of the layout filled an entire wall. At
 Developing a Strategy: Three Steps to Success 107

Genentech, I saw a photograph of DNA strands and was told

these strands were the beginning of a chain that would produce
pure human insulin. In each case, I gained a sense of the
complexity of the product, and I was better able to communicate
the excitement of the new technology.
Designers themselves can offer important marketing insights.
In fact, I would say I have gotten more good ideas from technical
people than from marketing people. Technical people have a lot
of intuitive knowledge that doesn't come across on the spec
sheet. Of course, some engineers are not very articulate. But
others can speak about technology in an almost poetic way. They
have lived with the product and understand the technology on
a deep level. They can explain why the technology is important,
and where it is heading.
Companies where marketing people don't mix with designers
often miss out on great opportunities. The marketing people
don't really understand what their company's products and tech-
nologies are all about. Xerox fell into this trap and the company
has suffered as a result. Researchers at the company's Palo Alto
Research Center have been at the forefront of the personal-
computing revolution. They developed many of the technologies
that Apple used in the Macintosh computer. But Xerox market-
ing managers never had an appreciation for these advanced
technologies. Xerox introduced many of the technologies-such
as the mouse and bit-mapped display-in its Star computer two
years before Macintosh, but Xerox's marketing managers did
not position the product well. They didn't realize what a pow-
erful technology they had. Several frustrated Xerox designers
defected to Apple, helping Apple turn those same technologies
into a mass-market success.

External Audits: A Qualitative

Approach
No company can develop a positioning strategy in a vacuum.
No matter how advanced its technology, no matter how low its
prices, no matter how extensive its distribution, a company will
108 The Regis Touch

succeed only if it understands the market environment into

which it is selling its product. That is, it must understand the
strengths and weaknesses of its competitors, the perceptions
and attitudes of potential customers, and the social and political
trends of the nation. A product that flopped miserably might
have been a wild success had it been introduced six months
sooner-or six months later. It all depends on the market
environment.
Companies must satisfy customer needs, not simply produce
goods. And to do that, they must monitor and understand the
environment. For companies in fast-changing industries, this
task is particularly difficult and important, as the environment
is on a roller coaster of change. Only with constant and creative
monitoring of the environment can these companies position
their products effectively.
Most companies survey the market to determine the level of
customer demand. But the qualitative aspects of the market are
more important. By monitoring the market, a company can learn
how receptive customers are to change, and what "mental ob-
stacles" the company must overcome to get people to accept
new products and technologies. It can get a better sense of
customers' expectations, their level of understanding, and their
willingness to be educated.
A few years ago, manufacturers of digital control equipment
found that workers in mature process industries, like the tobacco
industry, felt uneasy about new digital equipment. Why? Inter-·
views revealed the workers were accustomed to operating equip-
ment that had knobs and gears. To operate the new digital
equipment, workers had to push buttons, and workers felt un-
comfortable pushing buttons. They would rather turn knobs as
they always had. So manufacturers began installing knobs rather
than buttons on their equipment.
When Apple introduced its first personal computer in 1976,
it also had to account for customer perceptions and attitudes.
Apple's founders were keenly aware of the public's fears of
computers, and they took steps to ease those fears. They chose
the name "Apple" because it was friendlier than "Computec"
or "Alphatecdyne." By developing a colorful logo, they made the
machine seem even less intimidating.
 Developing a Strategy: Three Steps to Success 109

Management expert Peter Drucker has noted that companies

cannot really answer the question "What business am I in?"
until they understand customer attitudes and perceptions. He
explains:

What is our business is not determined by the producer,

but by the consumer. It is not defined by the company's
name, statutes, or articles of incorporation, but by the
want the customer satisfies when he buys a product or
service. The question can therefore be answered only by
looking at the business from the outside, from the point
of view of the customer and the market.

In an attempt to understand customer wants and needs, most

companies use market research and statistical analyses. In some
mature businesses these techniques work adequately. Tire man-
ufacturers, for example, have developed statistical demand anal-
yses that link tire sales to automobile sales. And manufacturers
of toothpaste can forecast demand largely on demographic data
showing the number of people in each age category.
However, these statistical techniques do not work well in fast-
changing industries that are moving into unexplored territory.
When you are creating new markets, no one really knows where
you are headed. You have to be more creative. John Sculley, the
chief executive at Apple, says he is wary of numbers-oriented
analysis. He explains: "The only quantitative data I use are what
people have done, not what they are going to do. No great
marketing decisions have ever been made on quantitative data."
Indeed, market statistics are rarely meaningful in rapid-change
industries. Look, for example, at the personal-computer soft-
ware industry. Projecting the size of this industry is little more
than guesswork. In 1983, three respected market-research or-
ganizations tried to project growth for the personal-computer
software industry. The three companies couldn't even agree on
the size of the market when they looked backward, to 1982.
When they tried to project the industry size in 1987, the num-
bers flew off in all directions, ranging from $3.7 billion to $13.6
billion. What can you conclude from these numbers? Not very
much. You can choose any numbers you want, and reach any
conclusions you want.
110 The Regis Touch

This case is hardly unique. In growth markets, few projections

have ever been correct. Even the Semiconductor Industry As-
sociation, which gathers data directly from the companies in
the semiconductor industry, is usually way off target with its
projections. Surveying customers doesn't help much. Customers
are always enthusiastic about future products, but they don't
necessarily buy the products once they are introduced. In many
cases, there seems to be an infinite demand for the unavailable.
Nevertheless, market projections proliferate. Like economists,
market researchers do not seem shamed by their continuing
failures. Numbers seem to make people feel more secure, so
everyone tries to come up with some statistics, however mean-
ingless they may be. Rare is the marketing vice president who
has the confidence to go into a meeting and say: "There simply
aren't any good numbers available." Instead, marketing man-
agers somehow create numbers that justify their plans.
Numbers with little scientific basis swirl around the industry
and sometimes come full circle. When Business Week did an
article on commercial uses of superminicomputers in 1979,
there were no projections of the market. So a Business Week
reporter called three companies and produced a graph for the
magazine in thirty minutes. A few weeks later, the reporter was
working on an article about computer printers. A leading man-
ufacturer of printers showed him the Business Week graph and
used it to justify his company's strategy and production plans.
The problem is caused, in part, by the way business schools
train MBA students. Students are taught to rely on abstract
theories and numbers-oriented planning. They have little appre-
ciation for how fast-changing industries really work. Tektronix,
a leading manufacturer of electronic instrumentation, learned
this lesson the hard way a few years ago. Recognizing that it
needed to become more marketing-oriented, Tektronix hired a
group of new MBAs with interests in marketing. They came to
Tektronix armed with charts and theories, but they only made
matters worse. They had no understanding of the peculiarities
of the electronic-instrumentation business, and they never made
much of an effort to learn. Within a few years, nearly all the
hot-shot recruits were gone. Tektronix still needed marketing
help, but it learned that a flock of MBAs was not the answer.
 Developing a Strategy: Three Steps to Success Ill

The case-study approach used at many business schools causes

additional problems. In the case-study approach, students learn
by analogy. But for many new markets, there are no analogies.
Personal computers don't follow the same rules as stereos or
consumer electronics. They don't even follow the same rules as
big computers. The textbook has to be rewritten every day in
emerging industries.
The problem with most traditional approaches to marketing
is that they try to accurately predict the unpredictable. Unfor-
tunately, you can only measure what you can control. And you
can't control how people will respond to new-developments.
People themselves don't know how they will respond to new
developments. Before 1984, many polls tried to predict how
people would react to a woman vice-presidential candidate. But
these polls were meaningless. Until people were actually con-
fronted with Geraldine Ferraro, they could not answer in a
meaningful way.
Trying to make predictions about technology-based products
is even tougher. In 1976, very few people thought they needed
a personal computer. Traditional market research would have
shown a market of a few hundred, not a few million, units. Only
as companies brought new and useful software to the market
did people realize a personal computer could, in fact, be a useful
tool.
Recognizing this problem, some leading-edge companies pay
no attention to market research. At Activision, a leading pro-
ducer of video-game software, no one does any market research
until the game is finished. James Levy, Activision's chief execu-
tive, explains it this way: "Market research will kill as many
good games as bad ones. It's not a definitive tool. You never
know about a new title for sure until it hits the street."
Levy believes companies in fast -changing industries must wean
themselves from numbers. "People want everything to be pre-
dictable," he explains. "They try to turn everything into a sci-
ence. They're uncomfortable with uncertainty. But to be successful
in this business you must deal with and live with uncertainty
and surprises. A certain aniount of uncertainty you must accept
as a fact of life."
112 The Regis Touch

Indeed, it is insecurity that drives the development of new

markets. Insecurity keeps companies sensitive to changes. Sta-
tistical information, with its illusion of certainty, provides a false
sense of security. Companies relying on statistical data become
lax and less sensitive to changes in the market. In fast-changing
markets, you can't afford that.
If marketing managers can't rely on numbers, how can they
ever understand the market environment? They must use a
combination of intuition and keen sense for changing attitudes.
They must develop a feel for the market, just as a card player
develops a feel for the table. That doesn't sound as scientific as
statistical analysis, but the fact is, it works better.
Developing a feel for the market, an intuitive sense of the
market, is not easy. Few people can articulate how they do it. A
good salesman can't necessarily explain his technique, but he'll
know exactly when to close an order. Similarly, an effective
marketing manager will say: I just sense this is the way the
market is.
You get that type of sixth-sense only by spending time in the
marketplace. You need to live and breathe the market. You need
to talk to market participants on a continuing basis. It is ironic,
but true, that in this age of electronic communications, personal
interaction is becoming more important than ever.
Some product marketing people spend their time putting to-
gether data sheets, writing application notes, conducting train-
ing sessions, sending memos to the field. But memos do not a
market make. In my mind, marketing people should be on the
road half the time-meeting customers, talking to people, build-
ing relationships, seeing where the next product should go.
Indeed, conversations with market participants often provide
more insights than a long list of statistics or a set of sophisticated
theories. In marketing, experience is more valuable than logic.
Students coming out of Harvard Business School think they're
going to teach the world how to market. But experience is far
more valuable.
In most aspects of Western life, logic is king. The Western
approach to life encourages us to break things apart and analyze
them. It embraces an engineer's view of the world: Things that
can't be measured are irrelevent or illogical. This approach
underrates the value of intuition. When you break things into
 Developing a Strategy: Three Steps to Success 113

little pieces, when you "statisticalize" them, you lose the intui-
tive feel that is so important. When you turn a perception into
a statistic, you rob the perception of its richness.
Relying on intuition scares people. But the most successful
marketing people rely on intuition. John Sculley of Apple says
most of the important marketing decisions in his life have been
intuitive decisions. Intuition should not be seen as negative. It
is merely another form of knowledge. Intuition comes largely
from experience, rather than intellectual or analytic thinking.
You gather information through your senses, sort through it in
your subconscious mind, and intuition emerges. It might sound
"soft," but it is just as valid as any other form of thinking.
In an intuitive approach, it is important to look for patterns
and trends and connections, not raw numbers. Statistical studies
might show 10 percent of your customers are disappointed with
their products. That doesn't tell you whether the 10 percent is
growing or shrinking. Nor does it tell you how intensely the
disappointed customers feel. Or whether the disappointed cus-
tomers are influential and vocal.
Focus groups can provide that type of qualitative information.
In these groups, potential customers directly express their ideas
and opinions. At too many companies, however, the information
from focus groups is quantified before it is distributed to deci-
sion-makers. This filtered information is not nearly as useful in
understanding the attitudes and perceptions of customers. Key
decision-makers must hear the opinions of customers directly.
Qualitative information can come from all types of sources.
I have gained lots of useful information just by standing at the
counter of an electronics or computer store. In the early days of
calculators, I saw a man take two calculators in his hands to
see which was heavier. He bought the heavier model. So I
suggested to a client company that it put weights in its calcu-
lators. It did, and that seemed to help sales. The weights made
the calculators feel more substantial.
You don't get information like that by going out and asking
10,000 people to list their likes and dislikes. You do it by
observing. When you go to enough retail stores, you get to
understand the selling process. You see what customers are
asking about. You see where they hesitate. You get to understand
their fears.
114 The Regis Touch

Many marketing managers get so wrapped up in their prod-

ucts they become deaf to criticism and insensitive to the market.
They spend all their time promoting the strengths of their prod-
uct. They begin selling everybody and listening to nobody. They
begin to think their view is the view of the marketplace. A
marketing manager at Spectra-Physics, who recognized this
problem, told me he got rid of one outside marketing consultant
because "he began to believe us." It is critical to maintain a ·
fresh and unbiased view of the marketplace. That comes only
by talking, and listening, to customers.
When you go out and ask questions, you don't need to talk
to a "statistically significant" sample. You just need to talk to
the right people. I recently did some work for a fast-growing
telecommunications company. Rather than conducting a survey
of 500 people, I talked to the telecommunications managers at
Coca-Cola, McGraw-Hill, and a dozen other major companies.
I quickly discovered the key issues affecting telecommunications
customers. Marketing managers should make regular trips to
customer sites. It is probably one of the best market research
tools that exists.
We use these ideas when we perform "external audits" for
our clients. The purpose of an external audit is to gather infor-
mation and insights from the environment. That information is
then used in developing a positioning strategy. The audit can act
as a "reality check" on the perceptions that were expressed by
company executives during the internal audit described earlier
in this chapter. Sometimes, the external audit shows the execu-
tives understand the market well. Other times, it shows company
executives are out of touch with the realities of the market, so
positioning plans must be drastically altered.
During the audit, we interview people from a number of
different groups: existing customers, potential customers, dis-
tributors, industry "experts," financial analysts, and perhaps
key journalists. We typically talk to a dozen or so people in all.
For a semiconductor company, we might talk to five startups
that will be buying semiconductors, five established semicon-
ductor customers, and five industry analysts.
In these interviews, we do not look for specific facts and
figures. Usually, we do not even talk about the specific product.
 Developing a Strategy: Three Steps to Success 115

Rather, we identify patterns, attitudes, and opinions that influ-

ence the thinking process. For example, we want to find out how
open people are to the acceptance of new technology. Are they
willing to try something different and new?
We might ask questions such as:
• Of the products currently on the market, which do you like
best? Why?
• Where do you think the market is headed? What are the most
important trends?
• What do you think of XYZ technology? What are its advan-
tages and disadvantages when compared to ABC technology?
• Which companies do you see as the rising stars of the indus-
try? Why?
• When you buy this type of product, what factors influence
your decision? How much are you influenced by cost? Ease
of use? Added features?
• What do you see as the major limitations to growth in this
market?
• Who do you see as the key opinion leaders in this industry?
A recent audit we performed for Rolm provides an example.
Rolm was about to introduce an advanced telephone exchange
system that would handle both voice and data. We talked to
fifteen or twenty managers in charge of either management
information systems or telecommunications for their companies.
Among the questions we asked: How soon do you see the con-
vergence of voice and data? Who do you see providing that kind
of solution? Who at the corporation will be responsible for
purchase decisions-the MIS manager or the telecommunica-
tions manager? Will the breakup of AT&T have a positive or
negative impact on this trend?
We found there were many divergent views. Some thought
integrated voice-data systems were twenty years away. Some said
integration had already begun and they needed it yesterday.
There was a tremendous amount of confusion in the market-
place. The breakup of AT&T added to the confusion. As a result,
we decided Rolm had to simplify the message associated with
116 The Regis Touch

its new product. The company had a good product, but the
product and the explanations of its advantages were quite com-
plex. That complexity would just add to the confusion. With a
simplified message, Rolm had a great opportunity: It could
stand above all of the confusing noise in the market.
Sometimes, external audits simply confirm what the company
expected. An audit for Cohesive Network, for example, showed
that telecommunications managers were increasingly interested
in using private networks. Convex, a startup in the supercom-
puter business, thought the key feature that distinguished su-
percomputers from smaller machines was their ability to handle
sixty-four bits of data at once. Instead, customers believed the
ability to perform integrated vector processing was the key fea-
ture. Convex also discovered a new market to target. It expected
people involved in seismic exploration would be most excited by
low-cost supercomputers, but it found there was just as much
excitement among people in the computer-aided design business.
External audits are particularly useful when they reveal trends
and patterns for which the company was not even looking. To
help in positioning a new microprocessor for Intel, we talked to
engineering managers at Hewlett-Packard, Xerox, TRW, and
several other major companies. We asked about their expecta-
tions for the next generation of microprocessors. We found sig-
nificant segmentation at age thirty-five, even though we weren't
specifically looking for it. The managers older than thirty-five
were reluctant to try a new technology. They were more inter-
ested in quality assurance and documentation. The younger
managers, on the other hand, wanted to experiment. We learned
that Intel should present different messages to different man-
agers, depending on their ages.
External audits should not be a one-shot deal. Companies
must continuously monitor the environment to detect changes
in mood and attitude. Everyone, not just marketing managers,
should be involved in the process. Engineers should meet reg-
ularly with customers, and so should top management. Only
through constant monitoring of the environment can companies
stay on the right track.
Many startups forget about this as they grow. Entrepreneurs
usually start off on the right foot. They almost always have an
intuitive feel for the markets to which they are selling. Top
 Developing a Strategy: Three Steps to Success 117

executives deal directly with their customers. They are con-

stantly aware of what is happening in the market. This is a key
reason for the success of so many small companies in fast-
growing industries. They are more in tune with the market than
their larger competitors.
As they grow, corporations tend to lose this feel for the market.
They begin to suffer from what I call "bigness mentality." Top
executives forget their roots. Rather than relying on intuition, as
they did in the early days, they start to manage by numbers.
Qualitative information becomes statistical. As staffs grow, they
separate the top managers from the market. Managers begin to
worry more about the efficiencies of mass production and less
about the needs of the market. They no longer want to take
risks. Their whole thinking process changes.
To continue with success, growing companies must continue
to "think small." Managers must maintain their intuitive feel
for market trends and attitudes. They should look at the num-
bers, but they shouldn't be ruled by them.

Deciding on a Strategy

Once a company understands the market environment, it

must decide on a strategy to get its products positioned within
that environment. This is a fuzzy process with no firm rules. It
is different in every case. Sometimes, it evolves naturally. Other
. times, it is the result of formal meetings and strategy sessions.
In the best cases, it is a combination of the two.
Coming up with a massive positioning document is not all
that important. Marketing plans usually sit on shelves, gathering
dust. People don't follow them day to day. Rather, it is the ideas
that are important. The key people in the company must con-
verge on a common positioning strategy, then put it into effect.
Spending weeks or months writing down the ideas is simply a
waste of time.
118 The Regis Touch

To give a taste of the process, I will describe how we conduct

positioning sessions with our clients. The sessions have two
primary goals. First, to identify a position. And second, to
decide what actions are needed to achieve the position. As a
result of the sessions, many things can change. It is not just a
matter of coming up with a new slogan. The company might
change its market direction, its target customers, its distribution
strategy. It might even change the products themselves.
We run positioning sessions after completing the internal and
external audits, so we already have a good feel for the internal
dynamics of the company and the attitudes of the marketplace.
We walk into the meeting armed with direct, qualitative infor-
mation from the marketplace. The challenge is to use this infor-
mation to help the company target its product and develop a
unique position in the marketplace. We must decide how to
differentiate the product from its competitors, how to distribute
and promote it, and how to gain credibility in the marketplace.
Typically, we meet with six to ten people from the company.
The people represent different groups and different experiences.
Some people should be from the sales organization. They con-
tinually interact with the customers, so they have direct infor-
mation from the market. But their views are somewhat limited:
Selling is a one-to-one process, and marketing must consider
the broader picture. The meeting also should include some
people from the technical side of the company. They, too, have
a somewhat narrow perspective, but they can mark the bound-
aries of the discussion. They won't let you go too far with your
analogies.
Each person can relate individual experiences. One might
say: "When I was at DEC, such and such happened." Another
will add: "When I was at Hewlett-Packard, we did it this way."
With a new product, none of these past models will be perfect.
But some mixture of these experiences should lead to the right
approach.
The interaction at the sessions usually is not systematic. It's
more 1ike brainstorming, or free association. The goal is to
maximize creativity. Everyone tosses out ideas, then others mod-
ify the ideas and add to them. In running a session, I try to
listen to a variety of experiences and a diversity of views, without
allowing any one of them to dominate my thinking. I make sure
 Developing a Strategy: Three Steps to Success 119

not to reach conclusions too quickly. I don't want to get locked

in place and lose flexibility. Once you draw a conclusion, you
begin to argue over the conclusion, rather than look for new
insights. The phenomenologist philosopher Husser! used to say:
Bracket your prejudices. I try to follow that advice. I keep prej-
udices out so reality can penetrate.
Ideally, the session breaks neatly into three stages: Input,
Analysis, and Synthesis. Each stage lasts about an hour. In the
first hour, I sit and listen. I take notes and absorb information.
I look for patterns and connections. These don't always come
quickly. I wait, wait, wait. Maybe there's a different way. Maybe
there's a better way. I encourage off-the-wall ideas. I look for
things that the other people know intuitively but they haven't
been able to articulate.
I'll look for all types of relationships. How does the product
relate to past and future products? How will salespeople and
customers relate? How does the operating system relate to the
applications program? How does the telecommunications man-
ager relate to the MIS manager? How does the company relate
to its suppliers? I'm always looking for ways in which the com-
pany can use these relationships to its advantage.
In the second hour, I write some of my ideas on the board. I
list obstacles. Competitors. Environmental factors. I put all
types of things on the board and try to relate one thing to another.
I'll bring up examples from other companies, add some ideas
about industry structure.
Sometimes, I'll use the idea of "positioning denominators." I
make a chart listing strengths and weaknesses in the three
positioning categories: product, market, and corporate. In the
product category, I compare the product to its competitors in
terms of power, speed, compatibility. In the market category, I
compare distribution, sales forces, customers. In the corporate
category, I compare financial resources, reputation, manage.-
ment image.
The third hour of the session is devoted to synthesis. There
are no numbers or graphs, just manipulation of ideas. Working
together, we try to integrate all the ideas brought up by the
salesmen, technical people, and others. We link together the
strengths among the positioning denominators, and try to turn
them into a coherent plan.
120 The Regis Touch

We battle back and forth until we hit upon the right position-
ing plan. It usually comes in an "aha!" experience. All of the
sudden, everything makes sense. Everyone agrees: "That's it!
That's right!" Out of the murky mess of information, a clear
vision of the future has emerged. I've gone through the process
hundreds of times, and we've reached that type of conclusion
in all but a couple cases.
One of the failures involved Imagic, a company that produces
video-game software. We met with Imagic managers for a total I
of six hours, but we could not find any perceptible differences
between their strategy and the strategy at industry leader Acti-
vision. None. They simply said: "We're going to make games
and take market share away from Activision." Their goal was to
get a lot of sales and to go public fast. There were no real
differences between Activision and Imagic. If one had a "Turtle
Walk" game, the other would have a "Rabbit Walk" game. The
differences were all superficial. Imagic had no solid basis for
differentiation of themselves or their products.
In most cases, though, the combination of internal audit,
external audit, and positioning session leads to a clear position-
ing statement. Convex, the supercomputer company mentioned
earlier, provides a good example. The company has a strong
technology group, led by Steve Wallach, one of the star engineers
in the book Soul of a New Machine. When they came to us,
however, the company founders had no clear vision of their
position in the market.
Convex initially planned to position its computer as a super-
minicomputer. That product category was established in the late
1970s, when Digital Equipment Corporation introduced a line
of computers, known as VAX computers, that was more pow-
erful than traditional minicomputers. Within a few years, su-
perminis became very popular, particularly for scientific
applications. Convex was designing a machine that would run
the same software as a VAX, but would be even more powerful.
There was one big problem: The superminicomputer field was
already quite crowded. There were more than fifty companies
selling superminicomputers. Convex's machine was probably
better than the rest, but it would be difficult to make the ma-
chine stand out in that market.
 Developing a Strategy: Three Steps to Success 121

So we began our external audit and looked for ways to dif-

ferentiate the Convex computer. We found a tremendous demand
for superminis like the VAX, but also growing dissatisfaction.
After many years as the workhorse for scientific applications,
the VAX was starting to show its age. Scientific problems, such
as the design of very-large-scale integrated circuits, were becom-
ing more complex, and VAXs could no longer handle the job
very well. Many users wanted the high speed and special capa-
bilities of a "supercomputer." But existing supercomputers, sold
by Cray and a few other companies, had drawbacks. They were
too expensive for most applications. And they couldn't run nearly
as many different types of software programs as the VAX could.
At the positioning session, we quickly recognized there was
a huge gap in the market. On one side was the VAX: lots of
software, prices ranging from $500,000 to $2 million, but in-
sufficient power for many new scientific application. More than
50,000 of them had been sold. On the other side were Cray-like
supercomputers: lots of power, but not much software and prices
up to $5 million to $10 million. Fewer than 150 of these com-
puters had been sold.
We saw an oppprtunity to open an entirely new market seg-
ment between the VAX and the supercomputers. There was a
huge gap in price and performance, and the Convex computer
could fit right in the middle. It was twenty times faster than a
VAX, but only one-quarter the price of a supercomputer. It could
run all the VAX software, but it also could provide almost as
much power as a supercomputer. In the future, the computer's
performance could be incrementally expanded into a more pow-
erful supercomputer.
The question then became: Should we position the computer
as a super-VAX or baby supercomputer? We quickly decided
that it made more sense to position the computer as a baby
supercomputer. Rather than competing directly against fifty sup-
pliers of VAX-like machines, including powerful DEC, Convex
would be positioned in the supercomputer industry, a segment
with only three or four manufacturers.
The technology had not changed at all, but the marketing plan
was now totally different. The company has begun to think of
itself differently. It is in a Cray-like business, not a DEC-like
business. That means different types of pricing and different
122 The Regis Touch

types of marketing. Convex managers now pay attention to all

issues relating to supercomputers. For example, the press has
become quite interested in the Japanese efforts to leapfrog past
the United States in supercomputer technology. Now Convex can
share in that limelight. Convex's president was invited to par-
ticipate in a round-table discussion on the Japanese challenge,
giving the company unexpected visibility. Suddenly, Convex is
not just an innovative company; it is an American asset in an
important international competition. It's amazing what a little
positioning strategy will do.
Startups are not the only companies that need to formulate
positioning strategies. In dynamic markets, companies must
constantly re-evaluate their positioning plans. A positioning plan
that seems to make sense one month can be thrown into disarray
the following month as new products come to the market and
customer attitudes change.
Intel faced this problem with its highly successful 8086 mi-
croprocessor. After its introduction in 1978, the 8086 quickly
became an industry star. It gained a dominant market share in
the market for 16-bit microprocessors-that is, microproces-
sors that can handle sixteen bits of data at one time.
By 1981, however, storm clouds were gathering. Motorola had
introduced a competitive chip in late 1979, and the Motorola
chip, the 68000, was beginning to attract attention in the in-
dustry. Motorola had followed a classic "second-company-in"
strategy. It improved on some of the weaknesses of Intel's 8086,
then tried to grab onto the market momentum the 8086 had
created.
Intel's marketing staff had been slow in identifying the new
trend. They were sitting in Santa Clara looking at industry
growth charts and design wins, and they didn't see any big
problems. But Intel salesmen in the field began to see something
different. The 8086 was still selling well, but customers were
clearly intrigued with the Motorola chip. The salesmen had to
work harder to sell the Intel 8086. They sensed momentum was
shifting from the 8086 to the 68000.
Clearly, Intel needed to do some repositioning of the 8086.
This was more than a chip v. chip battle. Entire product lines
were at stake. If a microprocessor sells well, it emerges as a
standard and all the other chips in the product family are carried
 Developing a Strategy: Three Steps to Success 123

on its commercial coattails. The battle between the 8086 and

the 68000 was really a battle between Intel and Motorola for
industry leadership.
To get a better feel for customer attitudes, I did a quick
external audit of the market. Then Intel president Andy Grove
called together a special committee to study the problem. The
committee consisted of six Intel managers and myself. We met
for three days straight, from Wednesday through Friday, at Rick-
ey's Hyatt House in Palo Alto.
Our repositioning project went by the code name CRUSH.
Our mission was straightforward: Identify why the Intel 8086
was beginning to slip in its competition with the Motorola
68000, then implement a strategy to respond and recover.
We began by dividing the market into different types of cus-
tomers. We segmented the customers not according to size or
location, but according to their thinking process and attitudes.
We decided that some customers were hardware oriented. They
cared most about raw performance factors, like speed and power. .
Other customers were software oriented. They had much dif-
ferent priorities. They wanted a microprocessor with a "clean"
architecture so it would be easy to develop software for it.
The external audit, along with comments from Intel salesmen,
indicated the Intel 8086 was holding its own among hardware-
oriented companies. But the Motorola 68000 was gaining quickly
among software-oriented companies. Software developers felt
more comfortable with the Motorola chip. They felt it provided
more support and flexibility for developing new applications. We
didn't have specific statistics to support these findings, but our
qualitative information left little question in our minds.
The challenge, then, was for Intel to reposition itself among
software-oriented companies. We decided on several ways to do
that. One way was to focus more on the breadth and depth of
Intel's product line. As long as customers continued to focus on
chip v. chip, 8086 v. 68000, Intel would have troubles. In a
horse race among chips, Motorola would win among certain
customers. But if customers looked at overall solutions and
future directions, Intel would have advantages. Intel's 8086
could be combined with its 8087, for example, to provide the
best solution for scientific applications. It could be combined
with a different Intel chip for a communications application.
124 The Regis Touch

By focusing on the whole product line, we also hoped to get

customers thinking about the future. We wanted people to worry
about the consequences of committing themselves to Motorola.
We wanted to play on the customers' fears. Sure, Motorola had
a hit product, but could the company support it with other chips
and future enhancements? The 68000 had almost no software,
no peripheral chips, no development system. And Motorola had
not explained its future plans. By committing to the 68000
architecture, might customers get stuck in the future?
Intel, by contrast, already had a full family of microprocessor
products. It was a safe bet for the future. To reinforce this point,
we planned to show customers Intel's plans for future-generation
microprocessors, both up and down the product line. The mes-
sage would be clear: Intel had a well-developed plan for the
future. With Motorola, the future was murky.
We also identified another Intel advantage. Intel's top execu-
tives-Bob Noyce, Gordon Moore, and Andy Grove-were per-
ceived, accurately, as pioneers and innovators in semiconductor
technology. Their credibility was high. If they talked directly to
major customers, their message would carry a great deal of
weight. We planned to have the top three and other leading
technical people make presentations at small seminars. These
seminars would require a lot of valuable time, but they would
make a much stronger impression on customers than advertise-
ments and articles. Intel would come across as having a great
deal of technological depth, just on the basis of the people who
gave the seminars.
Intel wasted no time putting CRUSH into action. Our group
finished its three-day positioning session on Friday. The following
Tuesday, the group presented its findings and requests for bud-
gets to the executive staff of Intel. On Wednesday, we assembled
more than 100 Intel managers from all over the world to explain
the project. Each was assigned a specific task-a software task,
a technical task, a documentation task, an advertising task.
It took Intel less than seven days to develop a new positioning.
strategy and put it into place. This ability to respond quickly is,
an important corporate asset. Sometime later, when I told a
former Motorola executive that it took only seven days to develop
the CRUSH program, he told me that Motorola could not have
even organized a meeting in seven days.
 Developing a Strategy: Three Steps to Success 125

During the next three months, Intel executives. gave presen-

tations to more than thirty major customers. In the following
quarter, Intel gave nearly fifty half-day seminars to potential
customers. Gradually, the momentum shifted away from the
68000 and back toward the 8086. Motorola had a strong tech-
nical product, and its sales continued to grow. But Intel had
won the positioning battle. Its 8086 remained the leading 16-
bit microprocessor in the industry.
There is no special magic in what Intel did. This same ap-
proach can work for other companies and other industries. Many
companies lose their "capacity to act," losing both the value of
the market momentum and the timeliness of response. Compa-
nies that plan qualitatively and react swiftly always will be a
step ahead of the competition in the battle for strong market
positions.
w e have met the enemy and he is us.
Pogo
 Why Marketing
7 Plans Fail: The Ten
Competitors

Intangible Competition
Ask a marketing manager to name his primary competitors,
and he'll rattle off the names of a few other companies in the
industry. Marketing managers in the personal-computer industry
worry about competition from IBM and Apple. Those in the
semiconductor industry worry about Intel and Motorola.
These worries are, to a large extent, misplaced. Certainly,
IBM, Apple, Intel, and Motorola are all tough competitors. But
they aren't the toughest competition. They aren't the real
competition.
The real competition comes from what I call "intangible com-
petitors." These competitors involve ways of thinking and ways
of looking at the world. When a marketing manager resists
change, that is an intangible competitor. When an entrepreneur
begins thinking in the bureaucratic style of a large-corporation
man, that is an intangible competitor.
These intangible competitors are the primary reason market-
ing plans fail. If companies can deal with these competitors,
they are bound to succeed-no matter what other companies
in the industry do. I have identified ten intangible competitors
that all companies confront, regardless of what industries they
are in. They are:
130 The Regis Touch

l. Change
2. Resistance to change
3. Public knowledge about the product
4. The customer's mind
5. The commodity mentality
6. The bigness mentality
7. Broken chains
8. The product concept
9. Things that go bump in the night
10. Yourself

Competitor 1 : Change
Our society is in a perpetual state of change. Everything is
changing.
Companies change. One day the newspapers carry a story
about a computer company hitting $100 million in sales. A few
weeks later, they carry a story about the same company going
bankrupt.
Industries change. The breakup of AT&T is radically tran-
forming the communications industry. A few years ago, AT&T
had a monopoly on long-distance service. Now there are dozens
of competitors. The software industry has undergone an even
bigger change. A decade ago, the industry included a few hundred
companies. Today there are thousands.
Products change. Today, it seems that every product is becom-
ing "smart." Microwave ovens have microprocessors in them.
Telephones have microprocessors in them. Even toys have mi-
croprocessors in them. With these microprocessors tucked in-
side, familiar products take on new traits and perform new
tasks. Computers themselves are changing too. Today we have
computers in all shapes and sizes-personal computers, hand-
held computers, portable computers.
 Why Marketing Plans Fail: The Ten Competitors 131

Distribution channels change. A decade ago, no one believed

you could sell a computer through a retail store. Today, retail
stores sell hundreds of thousands of computers each month.
Issues change. A few years ago, every newspaper and maga-
zine was writing articles about the high quality of Japanese
products. Now, we hardly hear anything about that. The media
is in a state of perpetual motion, latching onto a "hot" topic
one day, then forgetting it when a new issue appears on the
scene.
These changes are a major competitive force. They have a
deep influence on the growth and direction of every company.
Companies blind to change are doomed to failure. Change can
topple even dominant companies. Companies simply cannot
afford to stay in the same place.
Business history is full of examples of companies that didn't
recognize change in the market, and paid a heavy price as a
result. For years, the U.S. auto companies ignored the growing
demand for small cars. Japanese companies were attuned to the
changing market, though, and they quickly stole market share
from their American rivals.
The story is similar in the semiconductor industry. In the early
1960s, Fairchild, Philco, and General Electric were dominant
forces in the industry. None of them recognized the growing
importance of integrated circuits, however, and none of them is
a major factor in the industry today. The process goes on and
on. Five years ago, semiconductor companies felt pretty secure.
They believed the capital intensity of semiconductor manufac-
turing would prevent new companies from entering the business.
But dozens of new companies have been formed since then,
largely because of new technologies.
The computer industry is another example. The major com-
puter companies all ignored personal computers in the 1970s.
Small startups began selling personal computers in 1976, but
big companies like DEC didn't react until five years later. A
major revolution took place right under the noses of the industry
giants. Many large computer companies, such as Honeywell and
Burroughs, will never fully recover.
Change has become a part of our lives, with one thing inex-
orably replacing another. We destroy the old and create the new.
132 The Regis Touch

In all industries, change is a tough competitor. What can mar-

keting managers do to cope with this competitor? Two things.
First, marketing managers must constantly question their as-
sumptions. They must ask questions such as: "What am I as-
suming about the market?" "What am I assuming about the
competition?" "What things must happen to make my assump-
tions valid?" "Under what conditions are my assumptions no
longer valid?"
Second, marketing managers must keep their ears to the
ground. They must sense change as it is occurring. They must
monitor the market, live with it, work with it. Oftentimes,
changes do not show up in the numbers and statistics until it is
too late. Marketeers must develop an intuitive sense of the
market. They must work with customers and listen to them.
They must meet with dealers and listen to them. And they must
really listen. That is the only way they will spot changes in time
to adjust.

Competitor 2: Resistance to Change

Sometimes companies recognize change is occurring in the
marketplace, but they still don't react. For these companies, the
competitor is resistant to change. Resisting change can be just
as damaging as being oblivious to change. In either case, the
company can get left in the technological dust.
Examples of resistance to change abound. Consider the case
of Gary Boone. In 1972, as a young engineer at Texas Instru-
ments, Boone came up with the idea for a full computer on a
chip, later to be called the microprocessor. Boone got a patent
on his invention, but he had trouble getting his colleagues inter-
ested in his work. He went around TI trying to sell the concept,
but he was shot down everywhere. Other people looked on him
as a young guy with a crazy idea.
Finally, Boone made enough noise to get a meeting with TI's
top "guru" on computers. Boone went into his office, sat in
front of the expert, and explained his idea for a computer on a
chip. The expert looked at him with a condescending smile.
 Why Marketing Plans Fail: The Ten Competitors 133

"Young man," he said, "don't you realize that computers are

getting bigger, not smaller?"
There are similar stories with personal computers. Steve Jobs
and Steve Wozniak tried to sell the idea of personal computers
to their bosses at Atari and Hewlett-Packard. But their bosses
weren't interested. So Jobs and Wozniak started Apple Com-
puter. Intel also had a chance to get in on personal computers
early. Several Intel marketing pros went to visit one of the early
designers of personal computers sometime in the mid-1970s.
They came back and reported: "Bunch of hobbyists. It will never
be anything of a market."
Such resistance to change can destroy companies. Take a look
at the following American industries: autos, steel, consumer
electronics, calculators, machine tools, and textiles. In the mid-
1960s, imports accounted for less than 10 percent of sales in
the U.S. market in each of these industries. But American com-
panies in these industries became resistant to change, while
their foreign competitors did not. The result: In 1981, the U.S.
imported 26 percent of its cars, 17 percent of its steel, 60 pecent
of its consumer electronics (television, stereos, videocassette
recorders), 41 percent of its calculators, 53 percent ot its ma-
chine tools, and 35 percent of its textiles.
What makes companies resistant to change? Sometimes bu-
reaucracy is to blame, sometimes it's just that people are scared
and intimidated by new things. People tend to get wedded to
ideas. They look toward the past, rather than toward the future.
When people move to a new company or a new project, they
bring their histories with them. This experience can be useful,
but it also can cause problems. Marketing people often say things
such as: "This is the way we did it at my old company." This is
helpful sometimes, but every once in a while, they should say:
"Let's experiment and try something new."
The resistant-to-change demon rarely haunts young entrepre-
neurial companies. Entrepreneurs thrive on innovation and change.
They are always willing to experiment with new ideas and new
technologies. Resistance to change is anathema to entrepreneurs.
As entrepreneurial companies grow, however, they become
more and more resistant to change. They begin to think more
about high-volume production. They invest in special-purpose
equipment that commits them to manufacture certain products
134 The Regis Touch

in a repetitive, predictable way. That locks them into certain

products and technologies. They begin to ask questions such
as: "How do I keep my factories going?" and "How do I keep
selling at this rate every month?"
In short, the factory becomes the central focus of the company.
The company begins to worry more about manufacturing and
less about serving the needs of the market. As a result, the
company takes on the personality of a large company and be-
comes less likely to develop innovative new products. Small
companies grab the lead in innovation.
The scenario is repeated time and again. The semiconductor
memory business provides one example. Intel developed the first
semiconductor memory chips, the lK RAM. It clearly estab-
lished itself as the leader in this new product category. But when
Intel began working on the next generation of memory chips,
the 4 K RAM, it lost its innovative edge. Intel was committed to
the approach it used in its money-making 1K RAM, but other
approaches were better suited to the new generation. A small
company called Mostek developed a more innovative 4K RAM,
and it emerged as the new leader.
In many ways, mass production inhibits change and innova-
tion. It is based on stability and predictability. When a company
moves into mass production, it becomes resistant to change. It
wants to build up economies of scale. Innovation can disrupt
that effort.
Growth companies face a difficult challenge. They must figure
out a way to move toward high-volume production, while not
losing the innovative spirit that made them successful in the first
place. They must continue to use innovation and change as allies,
not competitors.

Competitor 3: Public Knowledge

About the Product
An uninformed customer is easily satisfied. But there aren't
many uninformed customers around these days. Customers to-
day have access to more product information than ever before,
 Why Marketing Plans Fail: The Ten Competitors 135

and they study it carefully. With technology products, customers

are becoming more "technology-literate." ·
Technology literacy is clearly a challenge for manufacturers.
Customers are no longer pushovers. They want to understand
more. They are skeptical and critical, and more often dissatisfied.
Manufacturers must meet a higher level of expectations.
Consider the amount of computer information reaching the
public these days. A few years ago, there were a handful of
computer magazines. Now there are hundreds. A few years ago,
Time and Newsweek hardly ever wrote about computers. Now,
they both have computer editors. A few years ago, television
news never ran stories about computers. But for the introduction
of Macintosh, all three networks ran stories, as did more than
twenty individual stations.
As the quantity of coverage has increased, the quality of
coverage has improved. Journalists themselves are becoming
more technology-literate. Until a short time ago, computer com-
panies could use journalists to spread just about any message
they wished. The journalists didn't know enough about tech-
nology to critically evaluate computer companies and their prod-
ucts. That has changed. Many journalists use personal computers,
and are quite knowledgeable about them. When a company
introduces a new computer today, journalists want to evaluate
the computer themselves. They won't take the company's word
about what the machine can and cannot do. In effect, the jour-
nalist becomes an evaluator for the public.
To succeed, companies must turn this increasing knowledge
of their products from an obstacle into an asset. Rather than
battle against a skeptical and critical public, they should learn
from it. They should elicit feedback from customers, then adjust
their products and strategies to meet the market needs.
Some consumer-goods companies are already quite success-
ful at putting customer dissatisfaction to their advantage. Ac-
cording to a Wall Street Journal article, Procter & Gamble phones
or visits 1.5 milliion people each year to ask about P&G prod-
ucts. P&G researchers ask hundreds of detailed questions to
find out why customers are dissatisfied and what actions P&G
should take to improve its products.
The same article quoted from a recent study by the U.S. Office
for Consumer Affairs: "Many managers view complaints as a
136 The Regis Touch

nuisance that wastes valuable corporate resources. However, the

survey data suggest that complaints may instead be a valuable
marketing asset. Responsive companies were rewarded by the
greatest degree of brand loyalty."
Technology-based companies should learn a lesson from this.
As customers become more knowledgeable-and more criti-
cal-about technological products, companies must become
more sensitive to customer needs. The philosopher John Stuart
Mill once said: "Better to be Aristotle dissatisfied than a fool
fully satisfied." Customers of technological products are taking
Mill's advice, and companies must adjust.

Competitor 4: The Customer's Mind

People in technology-based businesses tend to think decision-
making is a simple and rational process. They are wrong. Indeed,
when a customer considers buying a product, the decision-
making process is neither simple nor rational. All types of fears,
doubts, and other psychological factors come into play.
Winning over the customer's mind is the central challenge of
marketing. The customer's mind can be seen either as a com-
petitor or as a competitive tool. Sometimes the customer's mind
can act as an obstacle to success. But if companies can under-
stand the customer's mind, they can use psychological factors
to their advantage.
All types of things influence the customer's mind. Indeed, the
battle for sales is largely a psychological battle. As I explained
before, decisions are made largely on intangible factors such as
quality image, support, and leadership. In Future Shock, Alvin
Toffier describes the psychological battle this way:

por even when they are otherwise identical, there are likely
to be marked psychological differences between one
product and another. Advertisers strive to stamp each
product with its own distinct image. These images are
functional. The need is psychological, however, rather
 Why Marketing Plans Fail: The Ten Competitors 137

than utilitarian in the ordinary sense. Thus, we find that

the term "quality" increasingly refers to the ambiance,
the status associations-in effect, the psychological
connotations of the product.

Customer attitudes toward a product are not developed by a

single event or a single advertisement. Rather, customer attitudes
develop gradually. They are constantly changing and evolving
throughout the decision-making process-and continue to evolve
after the decision is made. The "product image" is simply the
accumulation of all these attitudes.
The customer's mind can be influenced at every step during
the decision-making process. First, the people become aware
of the existence of the product. Then, they recognize the need
for the product. At that point, they will try to find out more
about the product. They might talk to people who already have
used the product, or read reviews written by experts. They might
use the product on a trial basis. At each stage, their attitudes
are modified and reformed. After the purchase, customers' at-
titudes continue to evolve as they use the product. They expect
a certain level of product support and product performance. If
their support and performance fall short of expectations, their
attitudes will turn negative.
Throughout the entire process, "psychological bogeymen" af-
fect the customer's mind. These bogeymen include all types of
doubts and fears that surround the product, making the cus-
tomer uneasy about making the purchase. Customers might
worry about such things as:
• Is the company going to be around for a long time?
• Am I going to be able to get product support after the purchase?
• Will the manufacturer be able to supply future generations of
products?
• Will I be technologically behind if I buy this company's prod-
ucts now, rather than waiting for its competitor's upcoming
product?
In winning the battle for the customer's mind, companies
might fight against these psychological bogeymen. They must
provide "comfort factors" that put the customer's mind at ease.
138 The Regis Touch

For complex technical products, these comfort factors are par-

ticularly important. A company must convince customers that
it is financially and technically strong enough to meet all of the
customer's future needs.
At the same time, companies can try to influence customer
attitudes toward competitors' products. With its FUD strategy
mentioned earlier, IBM works from both sides. It adds comfort
to its own products and psychological bogeymen to its compet-
itors' products. Clearly, the strategy has been quite successful.
To succeed in the market, companies also must work to un-
derstand the customer's mind. It is not enough to know what
competitive products are on the market and who is using them.
Marketeers must understand the psychological bogeymen and
comfort factors that influence the customer's mind, then use
these psychological factors to their advantage.

Competitor 5: The Commodity

Mentality
What is good for manufacturing is not always good for
marketing.
For efficient, low-cost manufacturing, nothing beats commod-
ities. By churning out the same commodity product time after
time, manufacturers can work all of the kinks out of the pro-
duction process. As volume increases, manufacturers move down
the so-called learning curve, and their costs drop lower and
lower.
But a marketing strategy that depends on a commodity men-
tality can be deadly. Customers usually prefer custom-made,
"just-for-me" products. They want their needs satisfied exactly.
We are in an age of diversity, and people want to feel as if they
are getting something special.
Companies that view their products as commodities will have
an increasingly difficult time competing, especially in evolving
markets. Companies that sell commodity products can attract
customers only by keeping prices low. Competition generally
 Why Marketing Plans Fail: The Ten Competitors 139

degenerates into a struggle for price leadership, and no one ends

up making much money.
How can companies get out of this commodity trap? Meshing
the differing needs of manufacturing and marketing isn't always
easy, but it can be done. The trick is to view products as more
than physical entities. Even if a company manufactures com-
modity-like products, it can differentiate the products through
service, support, or target marketing. It can leave its commodity
mentality in the factory, while bringing a mentality of diversity
to the marketplace.
To move away from the commodity mentality, companies must
view their products as problem-solvers, and then sell the prod-
ucts on that basis. In his article "Marketing Success Through
the Differentiation of Anything," Theodore Levitt describes the
approach this way:

To the potential buyer, a product is a complex cluster of

value satisfactions. The generic thing is not itself the
product... A customer attaches value to a product in
proportion to its perceived ability to help solvehis
problem or meet his needs.

An automobile, for example, is not just four wheels and an

engine. It is a means of fulfilling customer needs, psychological
and otherwise. Manufacturers can differentiate their auto-
mobiles according to the needs they fulfill. One can be posi-
tioned as a "status" product, another as a "performance" product,
even if the products themselves are quite similar. If automobiles
were marketed solely on the basis of their specifications (the
number of cylinders, the size of the engine, and others), cus-
tomers would perceive them all as being very much alike. Indeed,
"specsmanship" marketing is a sure sign of a commodity mentality.
The personal computer provides another example. Everyone
views the personal computer in a different light. Many managers
see it as a productivity tool that provides increased freedom to
information-users. But some MIS managers see the personal
computer as a device that causes information and other re-
sources to be used inefficiently within large organizations. The
same product, but very different perceptions.
140 The Regis Touch

The perception of personal computers also changes with time.

At first, the Apple II was seen as a hobbyist computer. Then a
small-business computer. Then as a "vertical market" com-
puter-that is, a computer able to serve many different, spe-
cialized applications. The Apple II has remained the same. But
the marketplace has changed, and so has Apple's marketing
strategy. Apple has manufactured the Apple II like a commodity.
But in its marketing, Apple has tried to make the Apple II special
to every customer. It has stayed away from a commodity mentality.

Competitor 6: The Bigness Mentality

Edward Schumacher was certainly right when he coined the
phrase "Small is Beautiful." Just consider the following statistics:
• More than half of the innovations in the United States in the
last twenty years have come from companies with fewer than
200 employees.
• A study by Massachusetts Institute of Technology professor
David Birch showed that companies with fewer than twenty
employees created 60 percent of all new jobs, and companies
with fewer than 500 employees created 86 percent of all new
jobs.
• Of the 9 million jobs created between 1966 and 1977, 6
million were created by small businesses, 3 million .by gov-
ernment, and zero by Fortune 1000 companies.
• Small companies are more efficient with R&D. A study by
the National Science Foundation showed that small companies
(fewer than 1,000 employees) produced four times as many
innovations per R&D dollar as medium-sized companies ( 1,000
to 10,000 employees) and twenty-four times as many inno-
vations as large companies (more than 10,000 employees).
Indeed, study after study shows that small companies are
more innovative and productive than larger companies. Unfor-
tunately, as small companies grow and become large companies,
 Why Marketing Plans Fail: The Ten Competitors 141

most of them run into the same problems as other big compa-
nies. They become less creative and less dynamic. They begin
to suffer from what I call bigness mentality.
A major element of bigness mentality is an aversion to risk.
Small companies cannot afford to take the safe path. They could
not compete with established companies on that basis. They
must come up with new ideas, experiment with new approaches,
try new things. They must innovate or they will not survive.
As companies grow, they become more reluctant to take risks.
If the company decides to go public, as most do, it is evaluated
by the financial community on a quarterly basis. If financial
results slip one quarter, the stock price could plummet and the
company could have trouble raising new funds. So public com-
panies must play it safe. They can't afford to take short-term
risks, even if they might pay off with long-term benefits. Wall
Street thinks short term, not long term.
Corporate bureaucracy also reduces risk-taking and innova-
tion. As small companies grow, they restructure themselves to
look and act like big companies. Decisions are made by com-
mittees, not individuals. As a result, decisions tend to be com-
promises, not bold new approaches. People begin to worry more
about avoiding mistakes than creating new ideas.
Take advertising decisions. Advertisements run by small com-
panies tend to be much better than those run by big companies.
They are more creative, more aggressive, more interesting, more
attention-grabbing. Why? Big companies usually have large ad-
vertising departments that make decisions by committee. No
one is willing to stick his neck out.
As a growing company adds new committees and new levels
of bureaucracy, it is slower to notice new opportunities in the
market and slower to respond to changes in the market. Its
"corporate reaction time" shoots up. Earlier, I discussed Intel's
quick reaction to the challenge from Motorola's 68000 micro-
processor. Within seven days, Intel designed a new strategy,
presented the plan to 150 managers from around the world,
and began to put the plan into action. At most large companies,
it probably would have taken seven days just to arrange the
initial meetings.
How can companies avoid the bigness mentality? One way is
to maintain small, entrepreneurial project groups within the
142 The Regis Touch

company. IBM took this approach with its personal computer.

The company created an independent group in Boca Raton,
Florida, and gave the group an unusual degree of freedom. In
doing so, IBM acted in an un-IBM way. Although IBM was still
a big company, it was thinking like a small one. It broke all its
own rules, and took some risks. The risks certainly paid off.
Another key is to avoid compartmentalization in the corporate
organization. Many growing companies break various functional
groups into different divisions, then make it difficult for those
groups to interact. In small companies, people in engineering,
marketing, and sales talk regularly and exchange ideas. This
interaction is vital to creativity and innovation, but it is usually
missing in large companies.
In his book The Next American Frontier, Harvard professor
Robert Reich argues that large companies must develop new
forms of organization which allow greater interaction among
different groups. He writes:

precision manufacturing, custom-tailoring, and

technology-driven products have a great deal in
common. They all depend on the sophisticated skills of
their employees, skills that are often developed within
teams. And they all require that traditionally separate
business functions (design, engineering, marketing, and
sales) be merged into a highly integrated system that can
respond quickly to new opportunity. In short, they are
premised on flexible systems of production.

Only with this type of flexibility can companies avoid the

bigness mentality and maintain their creativity and productivity
as they grow.

Competitor 7: Broken Chains

The business world is full of chains and connections. Pro-
cesses and products are linked to one another in a great chain
that ultimately connects companies and customers. No problem
or business decision is isolated or self-contained. Companies
 Why Marketing Plans Fail: The Ten Competitors 143

get into trouble when they think about one link at a time,
focusing on advertising or public relations or manufacturing,
without recognizing that all these functions are interrelated. By
ignoring the linkages, companies end up with a broken chain-
and a failed product.
To get more specific, consider the most important chain: the
product-customer chain. This chain connects everything in the
product development and marketing process. It starts with the
design and planning of the product. Other links include product
development, manufacturing, marketing, sales, distribution,
product support, and service. The final link is the customer.
All of these links are part of one common process with one
common goal: serving the customer. What a company does in
one stage of the process can affect many other stages. Manufac-
turing affects marketing, and marketing affects sales. If any link
in the chain is broken, the primary goal of the chain-serving
the customer-goes unfulfilled.
A chain is only as strong as its weakest link, so companies
must pay attention to every link. They also must maintain strong
connections between the links. Different departments must talk
to one another and work with one another. If a company frag-
ments into a bunch of loosely connected fiefdoms, it will lose to
a more coordinated competitor. The problems at Xerox's Palo
Alto Research Center, discussed earlier, provide an example.
The researchers in Palo Alto were top-notch, but they rarely
talked to other groups within Xerox. Thus, the product-cus-
tomer chain was broken, and products got to the market late,
if ever.
Another important marketing chain involves what are known
as "consumption patterns." These patterns are, in fact, product-
product chains: They link together the sales of different prod-
ucts. When people buy lettuce in a supermarket, for instance,
they also buy an average of $2 to $3 of complementary products,
such as salad dressing and croutons. By understanding how this
chain works, a supermarket might put its lettuce on sale in order
to spur sales of the complementary items.
The same type of chain works in the computer business.
People that buy personal computers buy a variety of comple-
mentary products, including software, printers, and modems.
144 The Regis Touch

These products are not isolated products. Each one helps sell
the others.
When consumption-pattern chains are broken, trouble is sure
to follow. If one link of the chain-say, software-is missing,
sales of all other products will slump. Intel's success in the
microprocessor business is largely because of its understanding
of consumption patterns. Intel sells not only the microprocessors
themselves, but also the peripheral chips and development sys-
tems needed to put the microprocessors to use. Iritel constantly
adds new types of peripheral chips and microprocessors, and
each new product enhances the sales of the others.
Distribution strategy also plays an important role in product-
product chains. In some cases, all the products in the consump-
tion-pattern chain are available, but they are sold through dif-
ferent distribution channels. That can be just as bad as a missing
link. The pieces all exist, but they are not linked together into a
strong chain. The customer cannot easily buy everything he
needs, so he might end up buying nothing. For this reason,
retailers usually like to handle full product lines, not just indi-
vidual hot products.
Another important chain is the chain between different mar-
kets. Sales of a product into one market influence sales of the
same product into other markets. In the personal-computer
business, for instance, the home and office markets are strongly
linked. People who use personal computers at work are more
likely to buy them for their homes. The reverse also holds: People
with computers at home push for greater use of computers in
the office. In many cases, parents will learn from their children.
They buy home computers for their children, then they, too,
become interested in the machines. Before long, they want to
use computers in their businesses.
The education market is another link in this chain. Children
who use computers in schools often pressure their parents into
buying home computers-usually the same brand used in the
school. The university market is also important. Today's college
students are tomorrow's decision-makers in the business world.
In a few years, they could be deciding what types of computers
to buy for their businesses. They are likely to buy the same brand
of computer they used in college.
 Why Marketing Plans Fail: The Ten Competitors 145

Computer companies are now scrambling to take advantage

of this linkage, offering computer systems at great discount to
schools at all levels. IBM, for instance, has donated thous.ands
of computers to elementary schools, high schools, and colleges.
Apple has donated more than 10,000 Apple II computers to
schools in California, and it sells its Macintosh computer to
select universities at less than the retail price. As long as the
home-office-school chain remains unbroken, these giveaways could
lead to big sales down the road.

Competitor 8: The Product Concept

What do IBM, AT&T, CBS, Dow Jones, and Apple have in
common? Five years ago, the answer would have been not much.
IBM sold big computers and office equipment. AT&T was in
the telephone business. CBS was a television network. Dow Jones
was a publishing company. And Apple sold personal computers.
Today, however, all five companies compete against one an-
other, at least indirectly. All are involved in the information
business. All offer equipment and services that enable customers
to access information more quickly and efficiently. In the future,
they will compete directly with one another more and more
often.
In this type of environment, companies cannot afford to think
about their products too narrowly. They must look for oppor-
tunities-and expect competition-in every possible direction.
A company with a narrow product concept will move through
the market with blinders on, and it is sure to run into trouble.
The product concept itself will become a competitor.
Earlier, I mentioned the classic business school example of
the railroads. Had the railroads considered themselves "trans-
portation companies," rather than railroad companies, they might
have moved into the airline business. Instead, the railroads stuck
to their narrow product concept and watched the new airline
companies steal much of their business.
The same situation exists now in many evolving industries.
Dow Jones, for instance, cannot afford to think of itself as a
146 The Regis Touch

magazine and newspaper company. It must see itself as an

information company. It must provide information in whatever
form customers desire, whether it is written on paper, broadcast
to radios, or sent over telephone lines to computer screens.
Similarly, a personal-computer company should not view its
product simply as a box with a keyboard and a display. If it sees
its product that way, the company will have a narrow view of its
competition. It will see other personal-computer companies as
its only real competitors, and it will plan its strategies with a
false sense of the market.
In fact, many different products could compete with personal
computers. Application-specific devices, such as pocket pagers
and stock-quotation devices, are potential competitors. So are
computer terminals and touch-tone telephones. Many companies
are setting up information networks that allow users to access
information through inexpensive "dumb" terminals. If people
use these networks often, they might just buy a terminal, not a
personal computer.
Home televisions also could be competitors. In two-way cable-
television systems, subscribers can use their televisions for all
types of information services. They can order airline and theater
tickets, check their bank account balances, pay their utility bills,
and check the prices of the stocks they own. Televisions will
become even more formidable competitors to personal com-
puters as manufacturers begin to build computers right into the
sets that they sell.
In developing their marketing and positioning strategies, per-
sonal-computer companies must consider all these new com-
petitors, and try to anticipate other challengers. If they limit
their product concept and keep their blinders on, they are sure
to be blind-sided in the market.

Competitor 9: Things That Go Bump

in the Night
No matter how well a company understands its market, it is
bound to be taken by surprise sometimes. New technologies,
 Why Marketing Plans Fail: The Ten Competitors 147

new companies, new applications all can shake up an industry

in a hurry. I call these unanticipated events "things that go
bump in the night." Companies don't see them coming. But like
the iceberg that sank the Titanic, they can do a lot of damage .
.There are more things going bump in the night today than
ever before. The prime reason is the speed-up in technological
innovation. According to one estimate, 99 percent of all tech-
nological innovations in the history of mankind have occurred
in the past twenty years. Every year, there are more innovations
than the year before, and each innovation holds the potential for
shaking up a company, if not an industry.
The base of scientific knowledge, from which technology evolves,
is continuing to grow rapidly. According to some estimates, more
than 90 percent of all the scientists that ever lived are alive today.
More important, scientifi.c knowledge is being put to use more
quickly than ever before. Engineers are constantly shrinking the
time it takes to translate scientific advances into new technological
products. One researcher, studying twenty major innovations,
found that the time lag between scientific discovery and tech-
nological product has dropped by 60 percent since 1900.
No company in a technology-based industry is safe from un-
anticipated bumps in the night. The steel industry, the petroleum
industry, even the textile industry-all have been jolted by tech-
nological change. A decade ago, the major pharmaceutical com-
panies thought their industry was fairly mature and stable. Then
came the development of recombinant DNA technology, and
now dozens of new companies are challenging the products of
established industry leaders.
The semiconductor industry has been predicting a major
shakeout for fifteen years now. In the late 1960s, many industry
experts predicted the semiconductor industry would soon re-
semble the auto industry, with only three or four leading man-
ufacturers. They argued the business was too capital-intensive
for new companies to join. At the time, there were about ninety-
five semiconductor companies. Today, there are more than 200.
Steve Jobs, founder of Apple, made a similar prediction. He
said the personal-computer industry was too capital-intensive
to support new entrants, and he predicted a major shakeout in
the industry. Certainly, there will be some type of shakeout, but
there is no way the industry will consolidate into a handful of
148 The Regis Touch

companies, at least not in the near future. There is still plenty

of room for technological innovation, and that means plenty of
room for new competitors.
There is no way for companies to avoid bumps in the night.
But companies can be prepared for them. They can stay humble,
expect the unexpected, and react quickly when the unexpected
occurs. They must understand that no company is too big, and
no industry is too capital-intensive, to be shielded from the havoc
caused by technological innovation.

Competitor 10: Yourself

This is the toughest competitor of all. Machines don't com-
pete, people do. People have to spot the market opportunities
and take advantage of them.
There are many ways people end up competing with them-
selves. When people underestimate their own ideas, just because
the ideas have never been tried out before, they are competing
with themselves. When, on the other hand, people develop an
air of omnipotence and believe they can't fail, they also are
competing with themselves. When people are unwilling to listen,
when they are unwilling to change, when they are unwilling to
experiment-in all these cases, they are competing with
themselves.
People must leave themselves open to think creatively. With
markets changing so rapidly, managers must be able to analyze
new situations and apply creative approaches. Old approaches
to new problems simply won't work.
Above all, managers must pay attention to the market. They
must listen and respond to it. They must not underestimate their
competition-or overestimate it. And they must continue to
experiment.
If managers adopt this pattern of thinking, this frame of mind,
they can avoid the biggest problem of all: turning themselves
into a competitor.
J
nsanely great!
Steve Jobs
 Putting Ideas to
8 Work: Marketing
Macintosh

Macmarketing
Annual meetings for Fortune 500 companies are usually rather
boring affairs. The corporate secretary announces the predict-
able results of proxy votes. Other executives read off kmg lists
of corporate accomplishments and financial results. If the cor-
poration has performed well in the past year, the stockholders
applaud politely. If not, they ask a few questions and worry
about their dividend checks.
But when Apple Computer stockholders met on January 24,
1984, it was hardly an ordinary annual meeting. More than
2,500 people jammed into the Flint Center in Cupertino, Cali-
fornia. The atmosphere was part carnival, part revival meeting.
Like a minister at the pulpit, Apple chairman Steve Jobs preached
to the gathered masses. He told them that January 24 marked
the beginning of a new revolution in personal computing. The
cheers from the crowd rose to a crescendo as Jobs walked over
to a table carrying a suitcase-sized case. Jobs unzipped the case,
and the world got its first look at the Macintosh computer. The
crowd screamed its approval.
Apple backed up the Macintosh introduction with an enor-
mous media campaign. It ran twenty-four Macintosh commer-
cials during the Winter Olympics, and it paid for a twenty-page
152 The Regis Touch

advertising insert to appear in eight magazines. To build up

media interest, Apple sent Macintosh press kits, including Mac-
intosh T-shirts, to 3,000 financial analysts and journalists. Ar-
ticles about Macintosh seemed to be everywhere. The computer
appeared on the cover of thirteen magazines. Television news
shows ran features about Apple and its revolutionary new prod-
uct. So did Time and Newsweek. Computer dealers were be-
sieged with inquiries and orders. Within 100 days, Apple sold
more than 75,000 Macintoshes.
To the outside world, the marketing of Macintosh seemed like
a big promotional event. But success does not come that easily.
Hidden behind the splashy introduction were hard years of
marketing development and planning. And in reality, Mac mar-
keting, the adaptation of the product to specific markets, had
hardly begun.
The story of the Macintosh success presents an instructive
example of how to market new products in an era of rapid
change. It is a story of a small group of people who succeeded
in positioning a new product while ignoring many traditional
rules of marketing. The members of the Macintosh team relied
to an extraordinary degree on their collective intuition about the
market, performing hardly any statistical analyses. They su-
ceeded by constantly refining and readjusting the positioning of
their product to match the ever-changing market environment.
In this chapter, I'll present an inside look at the Macintosh
marketing effort, relying heavily on the insights I gained while
consulting for the Macintosh team. The chapter is, in many
ways, an appropriate conclusion to the book: It will show how
Apple struggled to establish a coherent strategy to launch a new
standard in the personal computer business.

Macbeginnings
The story of Macintosh begins nearly five years before the
product's introduction. Jef Raskin, an engineer who had written
technical publications and manuals for Apple, came up with the
initial idea for Macintosh in 1979. While many engineers were
 Putting Ideas to Work: Marketing Macintosh 153

trying to modify or enhance the enormously successful Apple II

computer, Raskin believed Apple needed a radical new approach
to computing.
The Apple II was itself a pretty radical product in the world
of computing. Introduced in 1976, the Apple II created an
entirely new product category called personal computers. By
1980, Apple held an 80 percent share of the personal-computer
market. It had changed forever the way people thought about
computers. Computers were now light enough to carry and
cheap enough to sell through retail stores. Across the country,
thousands of software developers dedicated themselves to de-
signing programs for the Apple II, opening up myriad new
applications for personal computers in homes, offices, and
factories.
But Raskin's intuition told him the technologies used in the
Apple II would never bring computing to the masses. The Apple
II was fine for hobbyists and people willing to spend long hours
learning arcane computer commands. But Raskin wanted to
build a computer that anyone could use. At first, he called it
"Everyman's Computer." Raskin knewthat the Apple II and its
direct descendents would never fill that role. Raskin didn't do
any market research or customer surveys; he relied on intuition.
He knew that Everyman's Computer would have to be far easier
to use than the Apple II or anything else then on the drawing
boards.
To make his computer easier to use, Raskin relied on a new
"user interface" -that is, a new way for users to interact with
the machine. Communication with the machine was based on
pictures more than words. Using a hand-held device called a
mouse, users could point to pictures that appeared on the screen.
The result was a much more natural interaction. Rather than
typing out strange commands, as they had to do with other
computers, Macintosh users would simply point. The screen,
for instance, could simulate a desktop. Users could point at
items on the screen just as they would pick up pieces of paper
on their desks.
The original designs for Macintosh were quite different from
the final product. Raskin and his colleagues figured the machine
would weigh less than ten pounds. In fact, it ended up weighing
seventeen pounds. They hoped that the machine could be priced
154 The Regis Touch

under $1,000. Instead, it came to market at $2,495. The orig-

inal design was battery-operated. The final product was not.
One thing about the Macintosh project never changed, though:
the commitment to making Macintosh easy to learn and use.
Raskin's dream computer probably would have stayed just a
dream had it not been for Steve Jobs. When Jobs saw Raskin's
design, he fell in love with it. Like Raskin, Jobs believed Apple
had to try some radical new approaches to computing. Jobs had
tried to get involved in Apple's Lisa project, but was not really
welcomed there. He was a founder and a top officer of Apple,
but in many ways Jobs was a man without a company. Macintosh
captured his imagination. He became head of the Macintosh
project.
Under Jobs, the Mac project became a company within a
company. In effect, Jobs was heading a startup company, just as
he had done in the early days of the Apple II. The Mac group
remained rather small. In early 1982, there were still only twenty-
five members.
In the rest of Apple, the Mac project had low credibility. Few
people expected it to succeed. But inside the Mac project, every-
one was a believer. Mac team members shared a vision of what
personal computers could and should be. They developed an
extraordinary sense of community and comraderie. They often
would sit on the floor and talk through the night. Their intuitions
were strong: They knew they had a winner.

Macaudience
For the first two years of the Macintosh project, there was no
marketing staff. The project was driven purely by technology.
The Macintosh team and its budget were both small, and team
members wanted to put all their time and money into develop-
ment, not marketing.
In 1982, though, the Macintosh group began adding some
marketing people and holding strategy sessions. Four or five
people (including myself) met every two weeks to talk about
positioning for Mac. The meetings were mostly brainstorming
 Putting Ideas to Work: Marketing Macintosh 155

sessions. We spent a great deal of time trying to figure out how

to "create" the market and what users to target, who was going
to use Macintosh, and how we could best communicate new
ideas to those potential users.
We decided that Mac's target audience would not be a tradi-
tional market segment. For some products, you can take a neat
slice of the market-for example, all small businesses in service
industries, with annual sales between $500,000 and $1 million.
That type of segmentation wouldn't work for Mac. Mac cut
across the usual boundaries. We needed to come up with what
I call a "concept market." Most marketing managers look to
divide a market along demographic or geographic lines. But
concept markets are divided along "psychographic" lines. That
is, they include people with similar attitudes and beliefs.
We came up with the idea of "knowledge workers." These
are people who typically sit at a desk during the day. They create
ideas, make plans, analyze data. Knowledge workers exist in
many different settings. Some work in large offices as profes-
sionals, others in homes as consultants, and still others in dor-
mitories as college students. One internal Apple marketing plan
described knowledge workers this way:

Know ledge w.orkers are pr?fession~lly train~d1 in~ividuals

who are pmd to process mformatwn and zdeas mto
plans, reports, analyses, memos and budgets. They
generally sit at desks. They generally do the same
generic problem solving work irrespective of age,
industry, company size, or geographic location. Some
have limited computer experience-perhaps an
introductory
programming class in college-but most are computer
naive. Their use of a personal computer will not be of
the intense eight-hour-per-day-on-the-keyboard
variety. Rather they bounce from one activity to
another; from meeting to phone call; from memo to
budgets; from mail to meeting. Like the telephone,
their personal computer must be extremely powerful yet
extermely easy to use.

After some rough calculations, Apple figured there were about

25 million knowledge workers in the United States that might
156 The Regis Touch

use Macintosh computers. That included 5 million in small

businesses (less than $5 million in annual sales), 5 million in
large businesses (Fortune 2000 companies), and nearly 9 mil-
lion in medium-sized businesses. The other knowledge workers
were in the college and home markets.
At the time, not many knowledge workers were using personal
computers. People need a significant amount of expertise and
training to use the Apple II. To really appreciate the machine,
you have to take the top off and put new boards in. Selling the
Apple II was like selling a telephone you had to put together
yourself. But Mac would be different. It would be nonintimidat-
ing and easy to use. People could learn to use it in two to four
hours, rather than the twenty to forty it took for the Apple II.
Knowledge workers would feel comfortable with it. With Mac,
Apple could tap into a new market of 25 million workers. Mac
could become the standard product of knowledge workers.
We began to view knowledge workers as the next stage in the
adaptation sequence for personal computers. As discussed in
Chapter 4, most new products are accepted by the market in
stages: First by Innovators, then by Early Adapters and Late
Adapters, finally by Laggards. Before Macintosh, only Innova-
tors had purchased personal computers. They were willing to
read a 400-page user's manual and spend tweny to forty hours
learning how to use the computer. The computer was an impor-
tant part of their lives. Some were known as "spreadsheet junkies."
But the market had begun to run out of Innovators. In the
same way many Americans had waited for Interstate 80 before
heading West, so too were many people waiting for easier-to-
use computers. Most knowledge workers were part of this group.
The next generation of computers had to address the needs of
these workers.
We spent hours discussing such questions as: Who are knowl-
edge workers? Where are they? How can we identify them? The
strategy was to make Mac so unique and innovative that knowl-
edge workers would be romanced into using it.
At the marketing meetings, we also spent a lot of time thinking
about words and language. How could we communicate about
Mac? We decided we had to create our own vocabulary. Revo-
lutions create their own language. We knew language would be
very important in positioning Mac. We knew Mac was radically
 Putting Ideas to Work: Marketing Macintosh 157

different from other personal computers on the market, and we

didn't want them compared. We didn't want people to compare
operating system v. operating system, keyboard v. keyboard.
Instead, we would create our own words. Then, when the press
and dealers talked about computers, Mac would stand out. It
was a type of forced differentiation.
Some words were obvious, like "mouse" and "user interface."
But most of the discussion focused on the word "appliance."
Mike Murray, the marketing manager for Mac, felt that Apple
could position Mac as an information appliance. Some of us,
myself included, were somewhat skeptical. We argued that com-
puters were more complex than refrigerators and other tradi-
tional appliances. We also worried that the word "appliance"
would target Mac toward the home, not the office.
But Murray insisted. He gave away miniature food processors
to members of the Mac team. In August 1982, when Murray
wrote the first product plan for Mac, he drew heavily on the
appliance metaphor. He wrote:

Think of Mac as an appliance. A thing applied as a

means to an end. Like a Cuisinart in the kitchen, one
could live without a Macintosh on the desk. Yet the
increased personal productivity combined with the
opportunity for personal creative expression will hit hard
at our customers' psychic drives. Perhaps only 15-20
percent of a person's working time will be spent using a
Mac, but as with the Cuisinart, it will make all the
difference in the world. Our customer will find it very
difficult to return to the "old way" of doing things.
Macintosh will become an integral part of life at a desk.
In fact we would like to see the day when a freshly hired
product manager for a Fortune 500 company walks up
to his new desk and finds a telephone, a couple pens, a
tablet of paper, a company magazine and a Mac.

Macconflicts
Differentiating Mac from competitors' products was only part
of the marketing problem. Just as important, the Mac marketeers
158 The Regis Touch

had to figure out a way to differentiate Mac from the rest of the
Apple product line. All Apple computers, those on the market
and those in development, aimed at roughly the same audience.
There were serious fears that each Apple computer would can-
nibalize the others.
All companies with more than one product face these internal
conflicts. The typical solution is to divide up the turf. Target one
product at small businesses, another at professionals. Sell one
product at a premium price, another at a discount. If products
overlap too much, dealers and customers will be confused.
Dealers won't know how to sell the products, and customers
won't know which one to buy. Each product must give up a bit
of its territory for the sake of clarity.
At Apple, however, this normal approach seemed impossible.
Each Apple product group was an individual fiefdom, and each
was more interested in competition than cooperation. Many
Apple products were targeted at small businesses and profes-
sionals, but the different Apple marketing groups wouldn't sit
down together to resolve the conflicts.
Perhaps the biggest conflict came between Mac and Lisa. The
two projects had very different roots. The Lisa project was a
major corporate effort, with lots of people and lots of money,
while the Mac project was more of an in-house guerrilla group.
By 1982, the two projects were on a collision course.
Lisa's development group hoped to establish its product as a
new standard in personal computing. Mac's group had the same
hopes. Lisa's team planned to make its computer dramatically
easier to use than traditional computers through the use of a
new graphics-based user interface. Mac's team had the same
plans. Lisa used the Motorola 68000 microprocessor. Mac used
the same. Lisa used a mouse as a pointing device. So did Mac.
Even the target audiences were growing more alike. In the
beginning, Mac's designers shunned business applications. They
wanted to bring computer power to the "masses," not money-
hungry businessmen. They were suspicious of anyone who read
The Wall Street Journal and actually enjoyed it. But when Jobs
took over the Mac effort, he steered it toward office applications
and knowledge workers-aiming at much the same audience as
Lisa.
 Putting Ideas to Work: Marketing Macintosh 159

The two groups became intensely competitive. Each wanted

to outshine the other. The general managers of the two groups,
Jobs and John Couch, even made a personal bet over which
computer would reach the market first. The loser would have to
throw a celebration party for the winner.
Conflicts also existed between Mac and the aging Apple II.
Most people saw the Mac as the replacementfor the Apple II.
It would make the Apple II obsolete. That could cause big
problems for Apple, however. Despite its incredible growth,
Apple was still, to a large extent, a one-product company. It was
doing $500 million in sales with one basic product, the Apple II.
What would happen if that one product became obsolete
overnight?
When developing a successor to an existing product, compa-
nies usually try to arrange for one product to gradually replace
the other. As sales of the new product shoot upward, sales of
the old one gradually fall. Many Apple marketeers worried the
transition from the Apple II to the Mac would not be so smooth.
When Mac was introduced, they figured, Apple II sales would
plummet. But Apple could only build up its production of Macs
slowly. The transition could be disastrous.

Mac trouble
The year 1983 was one of turmoil and changes for Apple
Computer. It started smoothly enough. In January, Apple intro-
duced its Lisa computer. (Lisa had moved through the devel-
opment cycle faster than Mac, allowing John Couch to collect
on his bet with Jobs.) The marketplace quickly acknowledged
Lisa as a revolutionary product. Magazines ran glowing reviews
about the new machine. Some people complained about Lisa's
$10,000 price tag, but nearly everyone agreed Lisa set a new
direction for the personal-computer industry.
The enthusiastic reception for Lisa was due, in part, to a
remarkably favorable market environment. Everything seemed
to be going Apple's way. The personal-computer industry as a
160 The Regis Touch

whole was still expanding rapidly. Almost everyone was pros-

pering-Atari, Osborne, Commodore. Time magazine had even
selected the personal computer as its "Machine of the Year" for
1982.
The entry of IBM into the personal-computer market in 1981
had scared some competitors, but IBM's presence seemed to be
helping rather than hurting other manufacturers. IBM stamp of
approval gave added credibility to the new industry. The rising
tide of enthusiasm about personal computers lifted all boats in
the industry.
No one benefited from the booming market as much as Apple.
Apple was still the clear industry leader in sales and profits. Just
five years after Steve Jobs and Steve Wozniak started the com-
pany in a garage, Apple was a member of the elite Fortune 500.
Never before had a company joined the ranks of the Fortune
500 so quickly.
But as it so often does in dynamic industries, the market
environment for personal computers shifted dramatically in the
first six months of 1983. Prices continued to drop and compe-
tition continued to grow, putting the squeeze on industry profits.
The personal-computer industry was no longer a paradise. One
company after another ran into financial trouble. Osborne and
Victor filed for bankruptcy. Texas Instruments and Atari lost
hundreds of millions of dollars.
Apple, too, began to struggle. Its quarterly profits fell for the
first time in its history. Even worse, the heralded Lisa computer
faltered in the marketplace. Production problems forced Apple
to delay shipping the new computer, and Lisa never regained its
initial momentum.
Apple had expected to sell lots of Lisas to knowledge workers
at large corporations, but the shifting environment foiled Apple's
plans. Before 1983, personal computers were seen as stand-
alone machines. Individuals in large corporations bought per-
sonal computers without even consulting the manager in charge
of management information systems. Apple hoped to sell Lisas
the same way. It figured people would be willing to spend
$10,000 for a technologically advanced stand-alone system.
Things didn't work that way. MIS managers began to worry
about the uncontrollable influx of personal computers. Many
corporations were getting stuck with a random collection of
 Putting Ideas to Work: Marketing Macintosh 161

machines from many different manufacturers. In most cases,

these machines were incompatible. They couldn't use the same
software or peripherals, and they couldn't be connected into
networks to share data and information. MIS managers declared
war against these unauthorized computers. They sought to re-
gain control over all computer resources in the company.
That was bad news for Apple and good news for IBM. MIS
managers had bought from IBM for years, and they trusted
IBM. They began to buy IBM personal computers by the hundreds,
even thousands. Apple couldn't get its foot in the corporate
door. MIS managers saw Lisa as too expensive and lacking in
networking and data communications capabilities. And the
Apple II simply wasn't powerful enough for many new
applications.
IBM continued to gain momentum. Its personal-computer
market share grew from 18.4 percent in 1982 to 30 percent in
1983. IBM seemed invincible. Rumors circulated about IBM's
next personal computer, an inexpensive home computer code-
named Peanut. Analysts and retailers predicted Peanut would
be the first true mass-market computer. They declared Peanut a
winner even before it was introduced. Stock prices of other
personal computer companies fell sharply in anticipation of
Peanut. Apple's Macintosh seemed out of step with the environ-
ment. Apple was getting ready to introduce a $2,500 computer
while everybody in the industry was talking about the $500
Peanut.
In the span of a few months, IBM's image in the industry had
changed dramatically. To customers and analysts, IBM was the
dominant industry leader. To other manufacturers, IBM was
now Enemy No. 1. When IBM introduced its PC, f\pple had run
an ad in The Wall Street Journal saying "Welcome IBM." But
now, Apple wanted to take in the welcome mat. A joke circulated
around Apple's Cupertino headquarters:

Question: What are the two biggest lies in the world?

Answer: The check is in the mail and Welcome IBM.

162 The Regis Touch .

Maccomeback
When John Sculley joined Apple as chief executive in April
1983, he faced a desk full of troubles. With the disappointing
sales of Lisa, Macintosh was now more important than ever. It
was no overstatement to say the future of Apple depended on
Macintosh.
Apple managers were still enthusiastic about Macintosh, but
they were depressed about the market. The environment was
nasty. No one knew how the market would accept Macintosh,
and no one was quite sure how to market Mac. The marketing
for Mac had been kicked around for a few years as the market-
place went up and down, back and forth, constantly changing.
Somehow, Apple had to fit Macintosh into the current
environment.
Sculley also had to clean up two other problems. First, he had
to make sure the company remained profitable. Apple had built
up for huge Lisa sales that never came. The company was ov-
erextended and profits were falling. If profits ever dipped into
the red, it would be disastrous for Apple. The company would
lose its credibility and its corporate positioning. In people's
minds, Apple would be thrown in with Osborne, Atari, and
Texas Instruments. People would start questioning Apple's fu-
ture. But if Apple could cut back expenses and remain profitable,
even with lower sales, it could stay separate from the Osborne-
Atari crowd.
The second task was to rescue Lisa. Product success builds
on product success. If you have a failure, you lose credibility on
your next product introduction. If Lisa remained a problem,
retailers and other people would keep worrying about Lisa,
diverting attention from Macintosh. To revive Lisa, Sculley and
Jobs put together a plan to cut Lisa prices, expand the number
of retailers selling Lisa, and develop some form of compatibility
between Lisa and Mac, so that the two computers could form a
coherent product family.
While this was going on, Apple began to get some goodnews
in the marketplace. The latest version of the Apple II, called t~e
Apple lie, was selling like gangbusters. During 1983, Apple sold
more than 700,000 Apple II computers, up from approximately
 Putting Ideas to Work: Marketing Macintosh 163

300,000 in 1982. Apple marketing managers began to realize

the Macintosh might not make the Apple II obsolete after all.
Year after year, sales of the Apple II continued to rise. IBM was
already in the market and Mac was in the wings, but people
kept buying the Apple II. Apple marketeers began to believe
there would be life after life for the Apple II.
Macintosh and the Apple II, once seen as competitors within
Apple, began to differentiate themselves. A few years earlier,
Apple managers figured the Macintosh and the Apple II would
both sell at price points between $1 ,000 and $1 ,500. But the
price points were now drifting further apart. While the price of
the Apple II continued falling, the development costs of Mac-
intosh continued to rise. Macintosh would have to sell at $2,000
or $2,500, well above the Apple II price range.
The target markets for the Apple II and the Mac also began
to split. More and more, the Apple II was going toward vertical
markets. Since the introduction of the Apple II in 1976, software
developers had written thousands of specialized programs for
the computer, so it could be used in thousands of specialty
applications. There were Apple II programs that could help
manage pig farms and others to help educate kindergarten chil-
dren. Even after the introduction of Mac, these applications
would not disappear. Macintosh, meanwhile, would be aimed
at the horizontal market of knowledge workers.
About the same time, the Macintosh project received some
help from a most unexpected source: IBM. After two years of
flawless performance in the personal-computer market, IBM
began to make a few mistakes.
For one thing, the IBM Peanut, officially called the PCjr, fell
short of expectations. With its toy-like keyboard and limited
memory, the PCjr disappointed retailers and customers. People
began to realize IBM was not invincible. It was not an automatic
winner. Among retailers and software designers, there was a
new hesitancy, an uncertainty, about IBM. The computer giant
would have to reestablish its credibility in the personal-com-
puter market.
What's more, the PCjr flop gave Apple more flexibility in the
positioning of Macintosh. Had PCjr been a raging success, peo-
ple inevitably would have compared Mac to PCjr, even though
they were totally different machines aimed at very different
164 The Regis Touch

markets. Positioning Macintosh properly would have been dif-

ficult. When PCjr fizzled, that problem disappeared.
Even before the PCjr flop, some retailers and software devel-
opers had begun to worry about their relationship with IBM.
Many retailers had become heavily dependent on IBM. At some
stores, IBM products accounted for 75 percent of all sales. No
retailer likes to be that dependent on a single supplier.
The retailers' worst fears were realized when IBM began
expanding its own distribution channels. It added more IBM
Product Centers and expanded its direct sales force. Analysts
reported IBM was expected to sell 60 percent of its computers
through its own sales channels, up from 40 percent in 1982.
Independent retailers were justifiably nervous. What was to stop
IBM from selling 70 percent or 80 percent or even 100 percent
of its products through its own channels, leaving little or nothing
for independent retailers?
Independent software developers faced a similar dilemma.
Like retailers, they were becoming heavily dependent on IBM.
They made most of their money selling programs to run on IBM
personal computers. These software designers had helped make
the IBM PC a success, but now IBM was beginning to compete
with them. IBM was publishing more and more software itself,
taking sales away from software companies. Some software com-
panies licensed their software to IBM, but that was a mixed
blessing. They got the licensing fees, but lost the market.
To make matters worse, IBM was reportedly working on a
new operating system. By keeping parts of the operating system
secret, IBM could make life difficult for independent developers
of application programs. Major software companies were clearly
feeling uneasy about the trends in the industry. Fred Gibbons,
president of Software Publishing, the developer of the PFS family
of software products, told me he was "sweating bullets" over
how to deal with the changing business conditions.
All of this activity added up to a new environment in the
personal-computer industry. The concept of Fear, Uncertainty,
and Doubt had been turned on its head. In most markets, IBM
uses FUD to its advantage. Customers are fearful of buying
from any supplier other than IBM. It is the safe bet in an
uncertain world.
 Putting Ideas toWork: Marketing Macintosh 165

But in the personal-computer market, IBM had FUDed itself.

The company itself was the source of uncertainty and doubt.
Members of the industry infrastructure-retailers, software de-
signers-no longer trusted IBM. They were suspicious of IBM's
motives, uncertain of IBM's future directions. They still wanted
to do business with IBM, but they didn't. want to be too de-
pendent on the computer giant.

Macinfrastructure
This new environment presented a tremendous opportunity
for Apple and Macintosh. Members of the industry infrastruc-
ture no longer saw the world through Big Blue-tinted glasses.
They were looking for alternatives to the IBM PC. Apple rec-
ognized this, and set out to turn members of the infrastructure
into Mac believers.
The industry infrastructure is enormously important in the
personal-computer business. No personal computer, no matter
how powerful it is, no matter how advanced it is, can win in
the marketplace without the support of the infrastructure. Soft-
ware designers must write programs for the computer, retailers
must carry it on their shelves, analysts must praise it in their
newsletters.
If a product can win the support of the infrastructure, it is
almost certain to win in the marketplace. The infrastructure
works like a chain reaction. News about the product spreads by
word of mouth, and enthusiasm grows. If programmers write
software for the new machine, retailers are more likely to carry
it. If more retailers carry it, analysts and journalists tout it as a
winner. The product builds momentum and credibility. For cus-
tomers confused by new technologies and changing markets, the
computer looks like a safe bet.
Months before the Macintosh introduction, Apple began
working on the infrastructure. As word spread about IBM's
plans to sell 60 percent of its computers through its in-house
channels, Apple solidified its own relations with dealers. It set
up regional dealer councils to serve as a liaison between itself
166 The Regis Touch

and the retailers. And it cut back its plans for a direct-sales
force, making a commitment to independent dealers that they
would remain the primary sales channel for Apple computers.
Apple also went after software developers. Here it had some
fences to mend. At one time, Apple had been the darling of the
software industry. Everyone had wanted to design software for
the Apple II. But Apple had turned arrogant with success. When
it developed the Apple III and Lisa, Apple didn't let software
companies work with the computers before the product intro-
duction. Software designers grew frustrated with Apple, espe-
cially when the Apple III and Lisa fell short of expectations.
Software companies began focusing on the IBM PC instead.
Now, Apple tried to turn that around. With new humility,
Apple managers and engineers visited software developers and
asked them to develop programs for the Macintosh. It offered
to help and support them in their development efforts. About
100 companies signed up, including three of the biggest and
most influential-Microsoft, Lotus, and Software Publishing.
Each software company signed a nondisclosure agreement.
That didn't stop the word from spreading. The software com-
munity is small, and everybody talks to everybody else. Before
long, everybody was talking about the Mac. Designers heard
that Microsoft and Lotus were working on Mac software, so
they assumed Mac must be a winner. They wanted to get in on
the action too. Everybody wanted to design software for the
Mac.
Dealers like to hear that type of commitment directly from
top management, so John Sculley travelled around the country
and met with all the Apple dealers. By the time of the introduc-
tion, about 4,000 dealers had been trained on Macintosh. Many
had fallen in love with it. Apple won shelf space for the Mac.
More important, it won space in the dealers' minds.
Finally, Apple took its message to analysts and industry lu-
minaries, and, later, to journalists. Key members of these com-
munities got seven-hour demonstrations of the Macintosh, with
plenty of hands-on time. Many of these people are computer
afficianados, and they fell in love with the Mac as soon as they
began playing with it. Before long, they started to spread the
good word about the new product.
 Putting Ideas to Work: Marketing Macintosh 161

The mission was complete: The infrastructure was lined up

solidly behind Macintosh.

Macmessage
In preparing its merchandising and public-relations cam-
paigns, Apple marketeers had one overriding goal: They wanted
to establish Macintosh as the third standard in the personal
computer industry.
Apple argued that only two products had emerged as industry
standards in the eight-year history of the personal-computer
industry. Those products were the Apple II and the IBM PC.
The Mac would not become a new standard overnight, but Apple
wanted to plant the idea early.
To convince customers and the media that Mac was indeed a
new standard, Apple stressed its product features. Mac mar-
keteers wanted to drive home the point that Mac was radically
different from other personal computers. They identified four
key messages about the Mac. Then they repeated those messages
over and over. The messages were:
Mac offers "Lisa technology." Although Lisa had fallen short
of expectations in the marketplace, its technology won rave
reviews. People were intrigued and impressed with Lisa's
"friendly" interface-its mouse pointer, its pull-down menus,
its bit-mapped graphics, its windowing capabilities. Apple wanted
people to know they could get the same features in Macintosh.
Or, as Apple marketeers love to say, Mac offers "radical ease of
use."
Mac uses a 32-bit processor. Many people don't understand
what "32-bit" means, but they know that it stands for advanced
technology. After all, the processor in the IBM PC is only a 16-
bit processor. As one piece of Mac literature put it: Mac offers
"incredible power under the hood."
Mac offers personal-productivity tools. This is where Apple's
infrastructure development paid off. At the time of the Mac
168 The Regis Touch

introduction, Apple could boast that 100 leading software firms

were working on Mac software. That software would increase
personal productivity and creativity.
Mac comes in one box. The message helped eliminate customer
fear. Mac is compact and simple. You can take it out of the box
and plug it in. If you want to move the computer, it is easy to
carry around. As the marketing plan stated: "Macintosh fits
comfortably on your desk and in your life."
The Mac marketeers used these four messages everywhere:
in meetings with the media, in meetings with dealers, in cus-
tomer brochures. At the time of introduction, every one of the
10,000 salespeople selling the Macintosh could recite the four
key messages. Apple kept its messages clean and simple. With
the Apple lie, Apple gave forty pieces of information to dealers.
With Mac, the company gave dealers a single book.
In meetings with journalists, Apple added a number of other
messages about Macintosh. For some publications, Apple stressed
the new automated Macintosh factory. The factory, filled with
the latest robotics equipment, would turn out one Macintosh
every twenty-seven seconds. The story of the factory fit in well
with the market environment. Many people were worried about
the manufacturing capabilities of American companies. The
United States seemed to be losing out to Japan in robotics and
other manufacturing technologies.
The Mac factory stood out as a bright spot in this dark
environment. While Atari had just shifted its manufacturing
overseas, Apple was bringing its manufacturing back to the
United States. What is more, the Mac factory was in Fremont,
California, where General Motors had just closed down an
automobile factory. It was a clear case of a new industry taking
over from an old one. It helped give Macintosh a higher profile.
Mac was not just another computer. It was a symbol of the
American future.
The Mac marketeers also focused on the engineering team
that developed the Mac. The team consisted of a dozen or so
young people who had contributed their sweat and talent for
Macintosh. They had worked day and night for four years. The
story of the engineering team showed Apple as a human com-
pany, a personal company.
 Putting Ideas to Work: Marketing Macintosh 169

Apple already had a strong corporate personality based on

the story of Steve Jobs. The Macintosh story built on that image.
Apple was a company for which the public liked to root. Apple
people were young, dynamic, and innovative. IBM, on the other
hand, was perceived as an anonymous, monolithic corporation.
Millions of people knew the story of Steve Jobs. How many
people even know the name of IBM's president?
With these and other stories, Apple turned Macintosh into a
huge media event. Mac managers began giving key journalists
a sneak preview of the machine months before its January 24
introduction. In mid-January, they went on a big press tour,
capped by a Macintosh "coming-out party" on January 22. The
day of the introduction, Apple mailed out 3,000 press kits, each
containing not only pictures and press releases, but a Macintosh
T-shirt. After five years of work, Macintosh finally was moving
outside of Apple and into the world.

Macadvertising
Apple's advertising strategy for Macintosh broke into two
categories: the "1984" television ad and everything else.
The "1984" ad, created by Chiat/Day Advertising, used im-
ages from George Orwell's classic book. It was unlike any ad
that Apple-or any other company, for that matter-had ever
done. It was shown nationally only once, during the 1984 Super
Bowl. But it became the most talked-about advertisement in
years. Inside Apple, it caused arguments, controversy, and, in
the end, big smiles.
The ad looks like a clip from a movie or a rock video, not a
television commercial. It begins with a view of a dark and
somewhat eerie room. Men with shaved heads sit on row after
row of benches. They stare blankly at a huge screen on the wall,
where a cold and grim man, clearly representing Big Brother,
talks in a monotone voice.
Suddenly, the camera shifts to a young woman dressed in
bright red running shorts and an Apple shirt. She is running
down a dark corridor, carrying a sledgehammer. Chasing her is
170 The Regis Touch

a group of uniformed men, apparently the Thought Police. As

she enters the main room, she swings the sledgehammer and
throws it at the screen. The screen shatters and a huge gust of
wind sweeps past the zombie-like men.
The screen goes blank, then the Apple logo appears. A nar-
rator says: "On January 24, Apple will introduce Macintosh.
And you'll see why 1984 won't be like 1984."
The ad, produced in London for $500,000, almost died before
it reached the air. Mike Murray, Mac's marketing manager, showed
the commercial to Apple's board of directors in November.
Murray loved the ad and expected the board would love it too.
He was in ·for a surprise. Murray explains it this way:

When the commercial was over, I thought I had just come

out of a funeral. Their faces were extremely solemn. I
thought that I had just made a major career decision.
One of the directors looked at Steve (Jobs) and said:
"You really like that?" He was just incredulous.
Another director had his head on the table and was
pounding with his fist. At first, I thought he was
laughing. But he was nearly crying.

Murray tried to explain the reasoning behind the ad. He

believed that Apple needed an attention-grabber. People in the
personal-computer industry already knew about Macintosh. But
out in the marketplace, Macintosh was a total unknown. If
nothing else, the ad would establish the Macintosh name. Even
if the commercial seemed a bit bizarre, or maybe because it
seemed a bit bizarre, many of the 80 million people watching
the Super Bowl would remember the Macintosh name. The
commercial would make them sit up and take notice: Macintosh
was something new and radically different.
In addition, the commercial would add to Apple's personality.
It showed Apple as daring and creative, and it set the stage for
the Apple-IBM battle. Many viewers would recognize Big Brother
as a thinly-veiled image of IBM. The interpretation was clear.
Apple, the daring and creative upstart, was taking on the colos-
sus. Framing the battle that way gave Apple a big advantage.
Americans like to root for underdogs. Everyone likes to see
 Putting Ideas to Work: Marketing Macintosh 171

entrepreneurs succeed. It made sense for Apple to play up the

Apple-IBM battle.
The board didn't buy these arguments. They told the Mac
managers to resell the air time they had bought. Apple tried to
sell the air time, which cost $950,000 per minute. But as luck
would have it, Apple couldn't find any buyers, and the "1984"
commercial went on the air.
Reaction to the commercial was extraordinary. Everyone in
the advertising community was talking about it. Newspapers
ran articles about it. Television news programs showed the com-
mercial as a news item, giving the Macintosh even more expo-
sure. Inside Apple, the doubters and skeptics, myself included,
realized the commercial had worked. At the next board meeting,
Murray got a standing ovation.
The rest of the Mac advertising took a very different approach.
If the "1984" commercial appealed at an emotional level, the
rest of the advertising appealed at a rational level. The ads, both
print and television, were very product oriented. They presented
product features and product benefits. And they made direct
comparisons between the Mac and the IBM PC.
This was a switch from Apple's advertising for Lisa. Apple
had used lifestyle ads to promote Lisa. One television ad showed
a young executive, dressed in running clothes, working with his
Lisa in his office. He was on the telephone with his wife, telling
her he would soon be home for breakfast.
Apple learned a lesson from those ads. It learned that lifestyle
ads simply do not work for complex new products. With new
technologies, differentiation must begin with the product. Com-
panies must start by giving tangible evidence of the product
benefits. Companies can't just go out and say: We are the
leaders. Intangibles, such as leadership image, must grow out
of the tangibles. Corporate and lifestyle advertising start at the
wrong end. They start with the intangibles.
With its Macintosh advertisements, Apple shifted back to
tangibles. A big chunk of the advertising budget went toward a
twenty-page magazine insert, which ran in ten different maga-
zines including rortune, Time, and Business Week. The insert
was filled with facts and figures about Macintosh. On one page,
a cut-away diagram showed the inside of a Macintosh. On a
172 The Regis Touch

four-page foldout, the ad showed how to use the Macintosh

mouse. Point. Click. Cut. Paste.
The insert was enormously successful. It had one of the high-
est recall rates of any advertisement ever run. Apple printed up
extra copies of the advertisement and used it as a point-of-sale
brochure. The ad did its job well: It helped differentiate Mac-
intosh from other computers and it solidified Macintosh's prod-
uct positioning.

Macfuture
Apple hoped to sell 50,000 Macintoshes during the first 100
days following the product introduction. In fact, it sold more
than 75,000. Clearly, the marketing plan was working. Macin-
tosh had achieved a unique presence in the market.
As is often the case, Macintosh's product position cannot be
articulated in a short sentence. There is no single slogan. Rather,
Macintosh's positioning arose from a variety of factors: Cus-
tomers see the product as technologically advanced and easy to
use; dealers want to carry it; software people enjoy working
with it; it is produced in the only automated personal-computer
factory in the world; it was designed by a bunch of creative
young engineers. All these things add up to a product position.
The marketing work on Macintosh is hardly done, however.
The product introduction was just the beginning. In many ways,
the product introduction is the easiest thing to do in marketing.
It's like having a baby. Giving birth seems tough at the time, but
raising the child is a lot tougher. Growing is a process of change,
experimentation, and adaptation. Parents have to provide guid-
ance, support, and discipline. The same goes for products.
Apple still has a lot to learn about marketing. Apple is a great
product development company. There is nobody better in the
computer industry. And Apple is a great promotions company.
It can throw a great party and get a lot of great press. But in
between product development and promotion, there is a lot of
marketing to be done. For example, marketing managers must
 Putting Ideas to Work: Marketing Macintosh 173

decide on target markets and figure out how to offer solutions

to these markets.
Marketeers at Apple still don't have a very good handle on
Macintosh's target audience. Macintosh is seen as a trendy,
upscale product. It is being bought by a subset of knowledge
workers-the knowledge yuppies. Mac marketeers must figure
out ways to reach the rest of the 25 million knowledge workers.
The idea of an "information appliance" hasn't really caught on.
Apple must find new ways to communicate its message about
Macintosh.
The marketing of Macintosh evolved quite a bit in the three
years before the introduction. It will continue to evolve over the
next few years. In many ways, the early Macintoshes are devel-
opment tools. Apple is pushing Macs onto the market, and it is
waiting for the market response. Customers are giving feedback ·
to Apple. Adaptation will follow.
In reaction, Apple will experiment with new strategies and it
will modify the product. Constant adjustment is the only way
to maintain a position in a dynamic marketplace. Less than a
year after the Macintosh introduction, Apple introduced a laser
printer and networking capabilities to make Macintosh better
suited to office applications. There will be more changes in the
future. More memory will be added. New peripherals will be
added. Color will be added. New video capabilities will be
added. Eventually, specialized software to reach specific types
of knowledge workers will be offered.
While making all these changes, Macintosh managers must
avoid the pjtfalls of bigness. In the development of Mac, intuition
reigned supreme. There was little market research and little
managing. Everyone was close to the product. As the Macintosh
division grows, managers will inevitably become more detached.
They will spend more time managing. They won't have time to
walk around and talk to people in the lab.
Can Macintosh continue its success? Only time will tell. Noth-
ing is certain or fixed in the computer industry. The marketplace
will continue to change, technologies will continue to change-
and Macintosh will continue to change. That is the way of life
in dynamic industries.
174 The Regis Touch

Macpost-mark
This last chapter was written just after the launch of Macin-
tosh and a year or so prior to the departure of Steve Jobs from
Apple. A lot of water and emotion has gone over the dam since
then. Changes in management and changes in product direction
often go hand in hand. These changes are often necessary be-
cause, as we said in Chapter 7, one of the most formidable of
competitors is "resistance to change."
Computers are not born perfect. They must adapt and be
adapted to specific markets. That is true of most technical
products. Once a product hits the market, the market begins to
mold the product to its own unique ways of doing business.
Mac's technical inflexibility cut off its access and acceptance to
many potential markets. Further, its futile challenge to take IBM
on in the big business environment was arrogant. Mac's real
potential lies in its unique capabilities to develop new markets.
In effect, most markets are still looking for computer systems
that everyone can use to solve problems or improve productivity.
Mac can fill that bill. But most markets also want computers
that can be integrated into their existing environment or easily
adapted with software, peripherals within networks. Mac was a
closed component not an open system.
Mac has set a new standard in personal computers. Users
love it. Although it took much struggle and pain, Mac is now
changing to meet the market's desires. Mac's ease of use and
advanced graphics interface has kept it a favorite computer
among university students, small businesses, and a host of di-
verse markets. The combination of the Mac and the Apple Laser
Printer created the Desktop Publishing market. New, expanded
versions of Mac have already been introduced and others are
forthcoming. Many new market opportunities are beginning to
emerge and, for now, Mac is back on track.
Index

1-2-3, 67 Bigness mentality, 11 7

and qualitative approach, 28 and IBM, 142
3Com, and press relations, 84-85 and intangible competition,
90/ I 0 rule, 60 140-142
and press relations, 86 Boone, Gary, 132-133
Burroughs, and Convergent
Acquisition strategies Technologies, 55
and AM International, 71
and Exxon Corporation, 70-71 Cohesive Network Corp.
and Schlumberger, 70 and external audits, 116
and Western Electric, 71 Commodity mentality, and
Activision, and market environment, intangible competition,
Ill 140-142
Adaptation sequence, 79-82 Compaq, and Ben Rosen, 55
and General Electric, 81 Convergent Technologies, and
Alker, Pauline, 74-7 5 Burroughs, 55
AM International, and acquisition Convex Systems
strategies, 71 and external audits, 116
Antitrust, and strategic and positioning strategy, 120-122
relationships, 76 and strategic customers, 78
Apple Computer Corporate positioning
and dynamic positioning, 23, 25
benefits of strong, 93-94
and market environment, 108
factors in, 91-92
Apple II
and Inmos, 96
history of, 153
and Macintosh, 156, 159, 163 and Intel, 95-96
and market environment, 31-33 and the Japanese, 92-93
and market perception, 140 loss of, 95
Apple lie, and Macintosh, 162-163 and silver bullets, 93
Apple Ill, 53 and Tandem Computer, 94-95
ASK Computer, and creative and Trilogy Systems, 95
segmentation, 79 Couch, John, !59
Avis-Hertz rivalry, and dynamic Counterpoint Computers, and
positioning, 14 strategic relationships, 74-7 5
Creative segmentation, 78-79
Bell, Gordon, 67 and ASK Computer, 79
176 The Regis Touch

Customer, and intangible and Intel, 70

competition, 79 and Macintosh, 70, 160-161,
163-165,174
Digital Research, Inc. and Microsoft, 69-70
and targeting markets, 46-4 7 and the PCjr, 25
Drori, Zeev, 37 and Sytek, 55
Drucker, Peter, 59, 109 and Tandon, 70
Dynamic positioning, 14-19 !magic, and positioning strategy,
and Apple, 23,25 120
and Avis-Hertz rivalry, 14 Infrastructure, 21005
and the infrastructure, 16 and dynamic positioning, 16
and Intel, 24 and Intel, 67
key ideas of, 19-33 and Macintosh, 165-167
and market environment, 15 and market positioning, 61-67
and market structure, 15 and National Semiconductor, 65
stages of, 15 and press relations, 85
and strategic relationships, 15 Inmos, and corporate positioning,
and Tandy, 23 96
Eli Lilly, and Genentech, 55 Intangible competition
External audits and the bigness mentality,
and Cohesive Network, 116 140-142
and Convex, 116 andbrokenchains, 142-145
and Intel, 116 and change, 130-132
and market environment, I 08 and the commodity mentality,
procedure for, 114-115 138-140
and Rolm, 115-116 and the customer's mind,
Exxon Corporation, and acquisition 136-138
strategies, 70-71 definition of, 129-130
and product concept, 145-146
FUD, 20, 164-165 and psychological bogeymen, 137
and IBM, 54 and public knowledge, 134-136
Focus groups, and qualitative and resistance to change,
approach, 113 132-134
and surprises, 146-148
Gelbach, Ed, 106 and you, 148
Genentech Intangible positioning factors
and Eli Lilly, 55 description of, 16
and strategic relationships,75-76 and IBM, 44
General Electric, and adaptation and Intel, 43
sequence, 81 and product positioning, 41-44
Genetic Systems, and Syntex, 56 and Zeiss, 43
Gibbons, Fred, 164 Intel
Gravitational forces, 19-21 and corporate positioning, 95,96
Grove, Andy, 40, 44, 124 and dynamic positioning, 24
Hewlett, Bill, I 03 and external audits, 116
Husser!, 119 and IBM, 70
and the infrastructure, 6 7
IBM and intangible positioning factors,
and the bigness mentality, 142 43
and FUD, 54 and positioning strategy, 122-125
and intangible positioning factors, and product positioning, 40
44 and resistance to change, 134
 Index 177

Internal audits and product positioning, 39

conflict in, I 05-106 Marketing-driven approach, 26
cultural factors in, 102-103 andRolm, 26
and National Semiconductor, and TeleVideo, 26
103-104 Market positioning
and qualitative information, and the infrastructure, 61-67
104-105 and the press, 82-88
and strategic relationships, 68-77
Jaunich, Robert, 26 strategy for, 57
Jobs, Steve, 4, 31, 133, 147, 154, and word of mouth, 57-61
159,160,169,174 Market-share mentality, 21-25
Market structure, and dynamic
Kapor, Mitch, 28
positioning, 15
Levitt, Theodore, 40, 102, 139 Measurex, and product positioning,
Levy, James, 111 40-41
Lisa Metaphor Computer Systems, and
and Macintosh, 158, 162 targeting markets, 45-46
reception of, 159-160 Microsoft, and IBM, 69-70
Litronix, and press relations, 84 MiniScribe, and strategic
Lotus relationships, 77
and 1-2-3, 67 Monolithic Memories, and product
and Ben Rosen, 55, 67 positioning, 37
Moore, Gordon, 44, 124
Microelectronics and Computer Morgan, James, 26
Technology Corporation, and Morgan, Jim, 27, 56
strategic relationships, 76 Murray, Mike, 157, 170
Macintosh
advertising strategy for, 169-172 National Semiconductor
and Apple II, 156, 159, 163 · and the infrastructure, 65
and Apple He, 162-163 and internal audits, 103-104
audience for, 154-156 Noyce, Bob, 44, 124
and the future, 172-174
and the future of Apple, 162 Packard, Dave, 103
history of, 152-154 PCjr, 25. See also Peanut
and IBM, 160-161, 163-165, Peanut, and Macintosh, 161,
170-171, 174 163-164
and the infrastructure, 165-16 7 Positioning sessions
and Lisa, 158, 162 goals of, 118
marketingof, 151-162,174 procedures for, 118-120
and Peanut, 161, 163 Positioning strategy
and public knowledge of, 135 and Convex, 120-122
and public relations, 167-169 developing, 10 1
and turmoil at Apple, 157-162 and Imagic, 120
Market-creating strategies, 21-25 and Intel, 122-125
Market-driven approach, 26 re-evaluating, 122
Market environment Press relations
and Activision, 111 and 3Com, 84-85
and Apple Computer, 108 and the 90/10 rule, 86
and the Apple II, 31-33 and the infrastructure, 85
definition of, 29 and Litronix, 84
and dynamic positioning, 15 and market positioning, 83-88
and external audits, 108 and Synapse Computer, 84
178 The Regis Touch

Procter & Gamble, and public and Counterpoint Computers,

knowledge of, 135 74-75
Product-development cycle, stages and dynamic positioning, 15
of, 71-73 and Genentech, 75-76
Product positioning and japan, 73
definition of, 37 andlnarket positiuning, 68-77
and intangible positioning factors, and Microelectronics and
41-44 Computer Technology
and Intel, 40 Corporation, 76
key ideas of, 37-38 and MiniScribe, 77
and market environment, 39 and strategic customers, 77-78
and Measurex, 40-41 and ZyMos, 75
and Monolithic Memories, 37 Synapse Computer, and press
and Vitalink, 49 relations, 84
Psychological bogeymen, and Syntex, and Genetic Systems, 56
intangible competition, 137 Sytek, and IBM, 55
Qualitative approach Tandem Computer, and corporate
and 1-2-3, 28 positioning, 94-95
definition of, 28 Tandon, and IBM, 70
and focus groups, 113 Tandy, and dynamic positioning, 23
and Spectra-Physics, 114 Targeting markets
and Tektronix, 110 and Digital Research, Inc., 46-47
Qualitative information, and and Metaphor Computer Systems,
internal audits, 104-105 45-46
reasons for, 45
Raskin, jef, 152-154 and Silicon Graphics, 45
Regis McKenna, Inc., 3, 8 and TeleVideo, 47
Reich, Robert, 142 Tektronix, and qualitative approach,
Resistance to change, and Intel, 134 110
Rolm TeleVideo
and external audits, 115-116 and marketing-driven approach, 26
and marketing-driven approach, and targeting markets, 4 7
26 Toffler, Alvin, 5, 136-137
Rosen, Ben, 61-62, 65 Trilogy Systems, and corporate
and Compaq, 55 positioning, 95
and Lotus, 55, 67 Valid Logic, and strategic
customers, 78
Schlumberger, and acquisition Vitalink, and product positioning,
strategies, 70
49
Sculley, john, 26, 113, 162, 166
Silver bullets, and corporate Webster, Jr., Frederick, 7
positioning, 93 Western Electric, and acquisition
Spectra-Physics, and qualitative strategies, 71
approach, 114 Word of mouth, and market
Sporck, Charlie, 103 positioning, 57-61
Strategic customers Wozniak, Steve, 31, 133, 160
and Convex Systems, 78
Zeiss, and intangible positioning
and strategic relationships, 77-78
factors, 43
and Valid Logic, 78
ZyMos, and strategic relationships, 75
Strategic relationships
and antitrust, 76
 > $10-95 FPT USA
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"THE REGIS TOUCH leaves the reader braced and

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Newsweek calls him "Silicon Valley's SvengaW' Business Week named him
one of the "Corporate Elite:' And Fortune proclaimed, "Simply being a client of
Regis McKenna has become a kind of anointment for a high-tech business~' As
one of America's top marketing consultants, Regis McKenna has created highly
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McKenna's new brand of entrepreneurial marketing will be of vital importance
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Regis McKenna is a general partner in Kleiner, Perkins, Caufield & Byers,

a venture capital firm, and President of Regis McKenna, Inc.
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