Research confirms what common sense already tells us: market leaders have all the fun. As I discussed previously, the reason market leaders have so much fun is that in many industries market leaders not only benefit from lower costs due to economies of scale; market leaders also benefit from higher prices due to product externality (when people prefer to buy and use products that are bought and used by other people). Microsoft Windows is a classic example of product externality. If you invent a new personal computer operating system, nobody will use it, even if you give it away for free, even if you are IBM. Everybody only wants to use the computer operating system everybody else uses.

So what do you do if you are not a market leader. How do you become a leader if you are small? If you are small but you still want to have fun, you must define your market sufficiently narrowly so you can lead it. You can define your market more narrowly by focusing on women instead of on both men and women , or focus only on young women, or young educated women, or young educated Japanese women, or young educated Japanese women in Shanghai, or Pudong .

The secret to being a market leader and having all the fun is quite simple: You must have the courage to go for 100 percent of 10 percent of the market rather than 10 percent of 100 percent of the market. I use the word "courage" here because very often companies are afraid to give up on any part of the market. But by focusing your efforts more narrowly, you can afford to be a big spender somewhere rather than a small spender everywhere. Put simply, if market leadership is not achieved by sales, you must achieve it by market definition. You must invent and develop your own segment. Shanghai Jahwah, for example, made its Liushen shower cream successful by positioning the products as "special refreshing for the summer". Liushen thereby invented its own segment and became the leader of that segment. Because Jahwah had the courage to say "do not buy us in winter", Jahwah became the leader in the summer.

By defining your market more narrowly in order to become a leader, you might even achieve an important advantage over an existing much bigger player. Smaller players can choose which 10 percent of the market they will concentrate on. They can take the cream of the market, pursuing the faster growing segments, the more prosperous segments. The larger player may then get stuck in the least attractive part of the market. This happened to GM in the US. In the passenger car market in the US , it is left mostly with customers nobody has bothered to steal -- customers who are older, in the middle of the country, in the middle of the middle class. Young customers and rich customers have been taken away by Toyota , Hyundai, BMW, Mercedes Benz, etc.

The surest way to become market leader in your chosen segment is to invent that new segment. You need to do R&D. When I say R&D, you may think automatically of R&D of products and production, but I am talking here about R&D of markets and marketing. The ability to invent and focus on the right market segments is more important than ever before. Technology offers little protection these days. Everybody can make a good DVD player, construct a fine car, build a world-class air-conditioner, or brew a great beer. Everybody can do everything, and most of the time there is somebody who can do it cheaper, or at least sell it cheaper than you.

Frequently, we see that one company invents a new product, but another company invents the market for that new product. Chrysler did not invent the minivan. Volkswagen did. Chrysler invented the suburban housewife market for minivans. Miller did not invent low-cal orie beer. Miller invented the yuppie market for its socalled light beer. IBM/Microsoft did not invent the personal computer. IBM/Microsoft invented the adult and office market for personal computers. Dell never invented a better computer. Dell invented a better way to sell and service computers.

Segmentation or "segment invention" is a creative process. Segments exist when we find away to create them. Why don't we have men's and women's toothpastes when other body care products have been successfully segmented by gender? Because no one has figured out yet how to do it. When we speak about invention and innovation and R&D in our companies, we should remember to turn our minds and creative energies also to the invention of new markets and market segments.

(Once I gave the above example of toothpaste segmentation to an executive MBA class in Beijing , kidding that we could make toothpaste for women that "makes your breath smell like a flower" and for men that "makes your breath smell like a cigar." A manager's hand went up. "Wrong. The man's breath should smell like a flower to attract a woman, and the woman's breath should smell like a cigar." Good point.)

Possibilities for segment invention are near infinite. For example, look at the vitamins market. What segments can we think of?

Children, seniors, babies, men, women, pregnant women, women going through menopause, women on a diet, body builders, truck drivers who need to stay awake, large families, people suffering from a cold, smokers, shift workers, travelers, people during winter, jet lagged travelers, pets, cats, dogs, puppy dogs, old dogs, birds, hospitals, prisons, nursing homes, cereal manufacturers, soft drink makers, bread makers, cosmetics companies, convenience stores, pet stores, bars.

As I said, there is no limit to segmentation. Perhaps you thought of 20 additional possibilities already ( Vitamins with ginseng extract maybe?) . The secret of market leadership is simple: concentrate on 100% of 10% of the market. What 10% of the market? The best thing you can do is to invent your own market!