Over time, every category diverges, creating endless opportunities to build new brands. Take the computer category, for example. It was the mainframe computer that built the IBM brand. Then the category diverged into minicomputers (Digital Equipment), home personal computers (Applel), business personal computers (Compaq), business personal computers sold direct (Dell), personal computer software (Microsoft), microprocessors (Intel.) These are just a few of the many opportunities to build new brands created by divergence in computers.

It?s the difference between being a follower and a leader. When you serve a market that already exists, you are automatically a follower because some other company created that market. When you create a new market, you are automatically the leader. (Intel in microprocessors. Red Bull in energy drinks. Starbucks in high-end coffee shops.) It?s an enormous advantage to start off as the leader because it is very difficult for someone else to take your leadership away from you. When you start off as a follower, it is extremely difficult to ever become the leader.

As a market matures, it tends to fragment into two different markets, usually at opposite ends of the scale. In razors, expensive multi-blade razors like Mach 3 and Fusion are big sellers as are cheap disposables like Bic. There just isn?t much action in the middle of the market. Red wine is a big seller as is white wine, but rose wine is nowhere. Regular Coke is a big seller as is Diet Coke, but the company?s mid-calorie brand, C2, was a disaster. Many industries are in trouble today, including the automotive industry, the airline industry and the supermarket industry because companies in these industries are focused on the mushy middle instead of the high and low ends of the markets.

A market starts off as a single market without extremes. So naturally the brands that create the markets are initially positioned in the middle. As time goes on, the market fragments creating opportunities as both ends of the market. It?s difficult to reposition existing brands to take advantage of this fragmentation. The best strategy to use is to launch new brands. (Gillette has done this to great success in the wet-shaving market.) Most companies, however, are reluctant to launch new brands. They would rather line-extend existing brands.