In this paper we discuss the relationship between the competence-based perspective and market positioning. We argue that a product, which as the ultimate expression of a firm's competence reflects a firm's distinctive competences, should have the potential to achieve a superior market position. We suggest how a specific capability of central importance in product creation - modular design capability - may help firms to achieve advantageous market positioning. In particular, we develop a framework for assessing the potential impact of modular design capability on customers' perception of competing products in the market for mobile phone handsets.