Standardization has been a powerful strategy in consumer markets, but it's reached the point of diminishing returns. And diversity is not the only chink in standardization's armor: Attempts to build stores in remaining attractive locations often meet fierce resistance from community activists. From California to Florida to New Jersey, neighborhoods are passing ordinances that dictate the sizes and even architectural styles of new shops. Building more of the same--long the cornerstone of retailer growth--seems to be tapped out as a strategy. Of course, a company can't customize every element of its business in every location. Strategists have begun to use clustering techniques to simplify and smooth out decision making and to focus their efforts on the relatively small number of variables that usually drive the bulk of consumer purchases. The customization-by-clusters approach, which began as a strategy for grocery stores in 1995, has since proven effective in drugstores, department stores, mass merchants, big-box retailers, restaurants, apparel companies, and a variety of consumer goods manufacturers. Clustering sorts things into groups, so that the associations are strong between members of the same cluster and weak between members of different clusters. In fact, by centralizing data-intensive and scale-sensitive functions (such as store design, merchandise assortment, buying, and supply chain management), localization liberates store personnel to do what they do best: Test innovative solutions to local challenges and forge strong bonds with communities. Ultimately, all companies serving consumers will face the challenge of local customization. We are advancing to a world where the strategies of the most successful businesses will be as diverse as the communities they serve.

Bain consultants Ann Chen and Vijay Vishwanath offer three key strategies multinationals can use to expand from China's premium segment into the broader market.

Consumer-product consultants have analyzed the revenue growth of more than 500 major national brands and conclude that any brand, regardless of its competitive position, can outperform the average for its category through aggressive innovation and promotion.

When Starbucks made coffee hip, its success set off a chain reaction of innovation that boosted the whole category's profits. New research shows the same phenomenon at work in other markets, but the effect can work in reverse as well.

Conventional wisdom holds that market share drives profitability. Certainly, in some industries, such as chemicals, paper, and steel, market share and profitability are inextricably linked. But when the authors studied the profitability of premium brands--brands that sell for 25% to 30% more than private-label brands--in 40 categories of consumer goods, they found that market share alone does not drive profitability. Instead, a brand's profitability is driven by both market share and the nature of the category, or product market, in which the brand competes. Developing the most profitable strategy for a premium brand, then, means reexamining market share targets in light of the brand's category. That is, managers must think about their brand strategy along two dimensions at the same time. First, is the category dominated by premium brands or by value brands? Second, is the brand's relative market share low or high?