Divide and conquer: follow the leaders but don't follow them everywhere.

A marketing revolution is underway, wrought by deregulation in markets across the board and by technology-driven changes in communications, manufacturing, and logistics - all of which have combined to facilitate greater consumer choice. Say goodbye to growth based on head-to-head battles for market share, following the leaders across state lines and national borders. Say goodbye to one-size-fits-all, national media campaigns that depend on a handful of print and broadcast channels. Say goodbye to a system that allows only business giants to play and forces look-alike products down everyone's throats.

Here's the new marketing maxim that is revamping the way profits are generated in markets from insurance to steel, from skin care to regional airlines: Find your niche, and cultivate it.

U.S. companies in mature markets are growing at 3 percent a year or less. But niches often provide superior growth, margins, and quality. A $50 billion firm isn't geared to serve a $30 million market. But string together a couple dozen smaller markets, and you have world-class growth. Americans have been so in love with size that the switch to small markets is difficult. But before you can share the spoils of niche marketing, you'll have to jettison the old philosophies. Here's how Dial and other companies made the switch.

OUT WITH THE OLD

Starting in 1986, Dial spent $125 million a year making its automated plants the most efficient in their industries. We set out to become the leader in "value" pricing and niche marketing. We were concerned above all with making a profit. The result: some 31 consecutive quarters of increased revenues and per-share earnings for our consumer-products group. We became partners with our customers, exiting the outdated control-and-command society, in which manufacturers tell retailers the amount of shelf space every product should receive. Mass merchandisers have their own strategies. But most industry giants find it hard to adapt to the new ground rules.

In yesterday's world, companies reached everyone through a handful of national newspapers; a sheaf of magazines; and three dull, shut-off-at-midnight-because-we-know-best TV networks. Hierarchical, 12-layer corporate management set the rules, and the customer was a faceless, abstract entity. In the 1980s, however, deregulation set the stage for customer choice. A homogeneous media fissured into 50 cable channels and an endless supply of specialized print outlets. One result was a brave, new marketing world. You could think the unthinkable, even if you were one of those lowly, "second-tier" companies. In the 55-and-over markets, you could design skin-care products for the Healthy Hermits (20 million people), Ailing Outgoers (18 million), or Healthy Indulgers (7 million). Some 18 million teens wanted to buy ready-to-eat meals. When Dial invested in such profitable niches, the bottom line increased dramatically.

Greater choice became possible because of high technology systems applied to three vital business systems - communications, manufacturing, and logistics. Integrated systems enabled niche players of all sizes to join with strategic partners, thus allowing low-cost production whether you're running batches of product or millions of units. For example, Dial gets chemicals from BASF in Germany, and containers and packaging from Taiwan. We remain flexible and are equipped to react quickly to ever-changing consumer demands.

ANYTHING GOES

The media were instrumental in creating the niche dance. At one time, the big three networks had it all to themselves. Then CNN, ESPN, MTV, News Corp. Fox, Gannett, Time-Warner, and a few other upstarts saw their bread could be buttered not by a dull mass culture, but by enthusiastic customers with pay-per-view and pay-per-channel systems. They not only built a series of profitable niches for themselves, but they paved new avenues along which other companies could reach their own specific targets.

In this world of "cyberspace" and the "information highway," anything goes. The size, color, packaging, and fragrance of products give marketers unlimited possibilities. Demanding customers must be reached through all sorts of new channels routed to niche markets, not mass markets. Conventional wisdom is out; creativity is in.

Bigness for its own sake is a handicap as heavy as expecting a Kentucky Derby favorite to lug 160 pounds when every other mount is carrying 128. Wal-Mart in Bentonville, AR, operates each of its stores as a business niche, and look where it is - at the forefront of the retailing revolution. Houston-based Compaq outflanked IBM in Armonk, NY, to become the leader of the desktop computer niche. Redmond, WA-based Microsoft concentrates on software for the small computer operator. Yet most of the leaders continue to do business as if the 1970s had never ended. Some of these, with long-established, rock-solid market positions, continue to prosper. Others are just getting by. Unfortunately, far too many upstarts are marching in lock-step with the leaders, and they're suffering, while niche development opportunities are left untapped.

Even some old elephants are learning to dance the niche. Witness Caterpillar in Peoria, IL. In the 1980s, increased market share no longer automatically benefited its bottom line. Caterpillar had a centralized management with a marketing group driven by market share. "The trouble was," says Chairman and CEO Donald Fites, "we were gaining market share, but we weren't making any money." Fires broke the company into 13 niche units to get away from the profit-less prosperity of centralized management. It worked - far better and far sooner than the consultants expected.

Profitable gaps exist in a variety of industries. Memphis, TN-based Federal Express formulated its overnight shipping strategy in 1973. The market was small at first: one country, one package size, and one delivery time. Today, FedEx is a landmark, customer-driven, global enterprise. But its management philosophy has not changed. The message? Keep your promises to customers, and you'll make money. Cultivate your niche, and you'll prosper.

JUST DO IT

Great niche players can be based anywhere. Nike is located in Beaverton, OR. Founder Philip Knight used niche marketing from the beginning to build a world leader in athletic shoes. Beginning with the jogging craze of the 1970s, Nike's design innovations targeted basketball in the U.S., badminton in Asia, and handball in Scandinavia. By exploiting diversity, Knight claims Nike will become the leading sports and fitness company in the world.

Can a niche player survive in the international airline business, where the little guy historically was squeezed out? Of course. Richard Branson, founder of London-based Virgin Atlantic Airways, started with a clean sheet of paper a decade ago. His winning idea? Fill every seat on an aircraft by making each flight an entertainment experience, with features ranging from individualized electronic games and audio/visual units to personal massages. It appears to be working. Virgin's strong load factor recently enabled it to offer a New York to London, one-way fare of only $99.

Niche marketing is also a global trend. Finland's latest hero is CEO Jorma Ollila, who turned a bits-and-pieces conglomerate into Nokia. Since 1981, 35 million cellular telephones have been sold. Nokia accounted for more than 5 million of them, many in the U.S. under the brand names of the Bell companies; McCaw Cellular in Kirkland, WA; and Stamford, CT-based GTE Corp.

In America, Chairman, President, and CEO Herb Kelleher made Southwest Airlines in Dallas the world's most efficient carrier by attacking market niches with two great non-airline ideas: Make the employees partners, and compete against ground transportation. By offering a per-mile cost that was competitive with bus fares, Kelleher helped put one of my old companies, Dallas-based Greyhound, behind the eight-ball.

Wherever you look, the switch from mass marketing to niche marketing is evident. Columbus, IN-based Cummins Engine learned the niche dance in the 1980s, when then-CEO Henry Schacht beat back a challenge from Japan's Komatsu by cutting prices and upgrading manufacturing technology. Today, Komatsu comes, hat in hand, to buy engines from Cummins.

"Never follow the crowd," is the wise message of Nicolas G. Hayek, CEO of The Swiss Corp. for Microelectronics and Watchmaking (SMH). Hayek took over SMH when the Swiss watchmakers' markets were being threatened by cheap quartz Asian commodity watches. Hayek used design as a niche-making tool. His design center in Milan is an idea factory, often tapping celebrities (e.g., movie directors Robert Altman, Pedro Almodovar, and Akira Kurosawa) for Swatch watch concepts.

REGIONAL STRATEGIES

Unfortunately, some leaders still view competition as a continent-sized war. The latest casualty of this mistaken philosophy is $48 billion Unilever in Rotterdam, Netherlands, which allowed its detergent arm to spend 10 years and stake $300 million formulating a new product. The product, hopped up by a manganese catalyst, proved flawed, causing consumer concern throughout Europe and a corresponding loss of market share and reputation.

Unilever, Procter & Gamble in Cincinnati, and other consumer-products behemoths aren't geared to serve the market on a niche-by-niche basis. They "drive" the market, on a global basis. It works for them...most of the time.

At Dial, we never go head to head with these giants. We stopped national advertising, because it was inefficient. Instead, we customize by region, by product, and by customer. Yet we have well-known national brands such as Dial, Purex, Breck, Renuzit, Brillo, and Armour Star, as well as lesser-known, but highly profitable, regional brands such as Sno-Bol. In formulation and quality, our products are the equal of any so-called top-of-the-line brands. But we're priced so keenly that at the retail level, even private or house brands can't compete successfully.

Using niche marketing, and refusing to follow the leaders into no-win situations, we've forged a high-growth company in industries that, overall, seem stagnant. The soap and detergent business grows at 2 percent a year, while we see an 8 percent to 12 percent annual growth rate in that sector, and our brands will show a return of 20 percent on equity. Let the corporate lemmings stampede over the cliff. They won't be around to share in the promises of the 21st century.

John W. Teets is chairman, president, and chief executive of The Dial Corp. a $3.5 billion consumer products and services company based in Phoenix, AZ.