Market Leader Strategies

market leaderYou may find industries dominated by only one firm. The largest share of the market is occupied by the said firm and is known as the market leader. The other firms operating in the said market enjoy only a relatively small portion of the total market.

They are always under pressure by the leader because of their lack of strengths. Other firms continuously try to find out ways to hold their positions and gradually increase it in such a situation. They may change their prices, introduce new products, extend their distribution networks, or intensify position to achieve this.

It concludes that a firm does not always enjoy a monopolistic position unless the law of the land protects it.

Threats may come at any time, from any corner, by any form, and in any intensity. To cope up with this, the leader should always keep his eyes and ears open. The leader should know that it has muscle (strength) as well as fat (weakness).

His competitors will try and do their best to cut his muscle or exploit him by taking advantage of his fat. If he cannot hold his muscle and reduce his fat, his position once may become vulnerable in the face of competitive action. He may lose his position and fall back in the race, whereas he was once leading the race.

He should, therefore, foresee the innovation that may be made by his competitors, no matter how small they are; spend proportionately to his competitors to improve product and related services to hold his market position; should not underestimate the competitors’ strengths and abilities, and do the best to be most cost-effective.

The leader, if wishes to hold his position, i.e., to remain number one, may take action in three areas;

  1. action that may be taken to expand the total market;
  2. action that may be taken to defend market; and,
  3. action that may be taken to expand market share.

Each of the above three can be discussed in the following sections and subsections:

  1. Action That May be Taken to Expand Total Market

Expanding the total market may put the leader at ease and reduce his tension significantly. The total market may be expanded by creating new users, discovering new uses, and ensuring increased uses of the item sold. Let’s have a brief discussion on each of the above :

Creating New Users

It is not surprising that a particular product is neither known to everybody nor used by everybody in the marketplace. Some may be unaware of the product’s existence, where others may not be able to afford it, yet another group may find the product unsuited to their needs. This indicates that every product has the potential for market expansion.

Three strategies may be pursued in this regard by the market leader;

  1. market penetration strategy,
  2. new-market strategy, and
  3. geographical expansion strategy.

In a market penetration strategy, a company attempts to fill an existing market’s needs with its present products. This type of strategy may use several approaches.

For example, a marketing manager may wish to increase the number of users in the present markets. The manager may believe several potential users in the market still are not using the company’s products.

The manager may also wish to increase the product’s rate of use by both present and potential users. Besides, the manager also wants to prevent competitors from taking away present customers.

With a market penetration strategy, the manager attempts to better serve a greater portion of a present market with existing products or services.

The new-market strategy occurs when the marketing manager attempts to find new markets for its existing products or services.

The manager hopes to find a new group of customers of its product. Henolux complexion cream, one of the locally manufactured fairness cream, pursued this strategy quite successfully.

They targeted the soldiers and sportsperson.

Under the geographic expansion strategy, the manager hopes to find customers in new markets for his products.

For example, in the case of Henolux, marketing people may try to develop markets for their cream in Middle Eastern countries. Since many Bangladeshi people live there, they may love it to buy a local product sitting abroad.

Discovering New Uses

By discovering new uses of the product, the market leader may expand the market of his product. Bread, for example, is used in urban areas of Bangladesh during breakfast. A manufacturer of breakfast may gain if he can promote the other uses of his product, such as lunch-time bread, any-time bread, etc.

By surveying consumers’ opinions, companies can easily discover new uses and expand their markets very easily. By regularly monitoring customers’ uses of products, companies easily get clues as to new uses and can capitalize on that.

Ensuring Increased Uses of the Item

The volume or quantity being consumed by the users can be increased by undertaking campaign and promotional activities. It is found from different studies that heavy users, though constitute a small percentage of the total market but, they account for a high percentage of total consumption, which interests many marketers.

Quite a number of consumer goods manufacturing companies such as beverages and powder milk here in Bangladesh could successfully increase consumer consumption by offering special inducements.

  1. Action That May be Taken to Defend Market

A market leader should always keep in mind that he is always subject to attack by competitors. If he does not work out strategies to defend himself against potential attacks, he may lose substantial market share. He should, therefore, in addition to concentrating on market expansion, do everything possible to defend his position in the marketplace.

He should never underestimate the abilities of his rivals. As you know, rivals always look at his muscle and fat; he should have a mechanism ready to protect his muscle and cut his fat. This is the strategy we call a defense strategy that protects you from your rivals. No matter how big you are, you are subject to attacks by your opponents.

Keep in mind that you are subject to attack from both domestic and overseas rivals, and therefore, you should prepare yourself accordingly.

Now the question that comes to your mind is: ‘how the leader can defend his position?’. There are several answers to this question. Before giving the specific answers, we will tell you what the leader should do in general to defend himself.

First of all, he should try to innovate continuously in every aspect ranging from product features to pricing to distribution, customer service, and promotion. “The leader applies the military principle of offensive: The commander exercises initiative, sets the pace, and exploits enemy weaknesses. The best defense is a good offense”.

In addition to taking offensive measures, the market leader should keep all frontiers guarded so that his enemies cannot penetrate inside.

It should have all measures taken to control costs so that the customers perceive the product’s price positively. It should keep all the points sealed to prevent competitors’ entry. The product should be made in a way that satisfies the varied needs of customers.

A hair shampoo manufacturer, for example, may produce shampoos for normal hair, oily hair, and dry hair, as well as in regular size, family size, and mini size. Such a variety will satisfy the needs of all types of customers using hair shampoo.

Pursuing such a policy of manufacturing products aimed at different segments may cause the company to incur losses in certain types in the short-run, but it may help the firm avoid future risks. The firm should, after analyzing the market, decides which particular territory it should concentrate on.

The defensive strategy helps attain a number of objectives. They are: to reduce the probability of attack, divert attacks to less threatening areas, and lessen the attack’s intensity.

These aims may be attained by following a number of defense strategies shown in the figure below:

defense strategies

Position Defense Strategy

In this strategy, the decision is taken to solidify its position on one or more specific markets that the company is serving presently.

By catering to individual markets in this way and adapting products to meet the precise needs of those markets, the company reduces the competition it faces and becomes, in effect, a ‘big fish in a small pond.’ Within these markets, the company can develop a policy of either cost leadership or product differentiation.

In this way, a company can avoid the danger of trying to do everything well but excelling in none. A marketing manager must always ask himself, ‘why should my customers buy my products rather than those of my competitors?’

Unless he gets a sound answer to this question, the product’s success will remain in doubt. A popular exercise for marketing managers is to produce a product positioning map, revealing the customers’ image of existing companies competing in certain fields.

This can help a company already operating in the market or one contemplating launching a new product. In the position defense, a company usually tries to do everything possible to protect its existing market position.

But, this strategy, at the time,s becomes suicidal for a company. Since the company engages its resources heavily on a particular segment(s) and products, it may put the company in great trouble if those segments or products become sour.

Flank Defense Strategy

The flank strategy suggests that it is not wise for a company only to take measures protecting its present domain, but also should take measures to protect its weaker front.

Also, measures should also be there to develop a foundation to counterattack its competitors if it faces so immediately. The flank defense strategy is neither a joking matter nor a company should pursue it in a ‘wily nicely way.’ This rather requires serious attention by the management to be successful.

If a company formulates a flank defense strategy, keeping in mind the short-term perspective and without giving much thought, it may immediately become useless by the competitors’ immediate further attacks.

Preemptive Defense Strategy

The preemptive defense strategy is compared with the well known saying ‘prevention is better than cure.’ Here a company decides to attack competitors before they attack it. It may help the firm to strengthen its position in the market further.

There is a number of ways in which a company can launch a preemptive defense. The first option could be a shotgun attack, i.e., attacking competitors here and there simultaneously instead of attacking only one at a time (the rifle attack). It creates fears among competitors, and feel more threatened as their positions are upset by such attacks.

The second option could be an attempt to cover a huge market through pervasive distribution. Another option could be to attack competitors in terms of price, i.e., lowering prices significantly.

Pursuing such policies will always keep the competitors busy defending their positions. They will have little opportunities to think about offense. It will also increase employees’ motivation and initiative, and they will remain ever vigilant.

One may also pursue a preemptive defense strategy by creating psychological pressures on competitors.

If a company, for example, after becoming aware of an emerging competitor, transmits a message in the market that it will build another plant shortly and cut the price, it will definitely de-motivate competitors. The emerging competitor, after knowing this, may drop its idea of entering the market. This is called psychological warfare.

Since market leaders are likely to be financially strong, they can comfortably defend themselves in the face of a competitive attack. They may also create a situation that makes attacks very costly to the competitors. This is usually done by adding products, price inducements offered to customers and trade members, and spending heavily on promotion.

Counter-offensive Defense Strategy

This strategy suggests that attack your enemy when he hurts you.

Market leaders, when attacked by their competitors, launch counterattacks to protect their positions. Competitors may attack the leader through price cuts, improved products, or even straight invasion into the leader’s territory. The market leader has got a few options in this situation.

He may counterattack competitors directly, attack a particular corner of the competitors, or launch an all-out attack. The frontal or direct attack is undertaken when the leader starts losing his market share rapidly. When the leader does not face such a situation, he may wait for the opportune moment and launch the attack when the time comes.

If the competitors invade directly into the leader’s territory, the leader should also launch an attack into the major territories of the attackers so that they re-treat from his territory to protect their ones. The leader may also exploit his economic and political strengths so that the attackers fall back to him.

Using his economic muscle, the leader may offer vulnerable products at lower prices, jeopardizing the attackers’ positions. He may also discourage people from buying competitors’ products by announcing the product improvements he is contemplating in advance.

Mobile Defense Strategy

In mobile defense, the leader and defending his existing territories expand into prospective areas. Such an expansion may help him to defend as well as attack his competitors in the future. These expanded territories may be used as bases for the future offense as well as defense. The mobile defense may be launched through market broadening as well as market diversification.

In a market broadening strategy, a firm looks at the consumers’ generic need, not the specific need, and tries to find out ways to satisfy needs from a broader perspective. A telephone set manufacturer, for example, may look at producing other products that aid in communication and thus can satisfy broader communication needs.

Broadening at greater length may put a company in trouble as it looks at the distant future overlooking its present. It should, therefore, go for reasonable broadening.

Reasonable broadening is possible if the company precisely defines its business domain, not the general domain. This narrowing down of the domain helps the company focus its attention on the right path and easily reach the goal.

Contraction Defense Strategy

When companies think it becomes difficult to hold a bigger sales territory in the long run, they consider it wiser to pursue a contraction defense strategy. Under this strategy, the firm first finds out the weaker territories and then gradually withdraws from those territories.

Thus it can concentrate and mobilize its resources on stronger territories. It can thus consolidate its forces and fight back more aggressively.

Such a contraction should not be confused with market abandonment. Rather the firm decides to withdraw itself from the weaker parts in a planned and purposive way.

  1. Action That May be Taken to Expand Market Share

An important measurement in marketing management is market share. This type of measurement involves estimating the company’s share of total industry sales for products or product lines and market segments. Market share is computed as follows with the measurement then presented as a percentage.

Market Share = Company Sales + Industry Sales.

Once the market share is known, the leader may take measures to increase the existing share, which obviously can increase the firm’s profitability.

How can a marketing manager move to increase his market share? The answer lies in the marketing strategy the firm will pursue. The selection of a specific strategy depends on the firm’s marketing strengths and successes in the past.

More specifically, selecting a particular strategy and various mix components depends upon a number of factors. Such factors should have been uncovered in the situational analysis of the overall marketing plan. They include the following:

  • Company mission and corporate goals and objectives.
  • Product quality compared to that of competitors.
  • Competitive track record.
  • Size and growth rate of the markets to be considered.
  • The profitability of the products and markets under consideration.
  • Overall economic situation.
  • The cost structure of the company as it relates to engineering and production.
  • Competitive strengths and weaknesses of the company in non­marketing areas.
  • Cost of employing various marketing mix components and activities.

Factors such as these help determine the strategy that the marketing manager employs. The table below shows in summary form the strategies that may be adopted to expand market share.

Strategies for Market Expansion

StrategyWhen usedHow to apply in MarketplaceCost implications
1. Price

To gain share in a product line

(a)    Where there is room for growth

(b)  In launching a new product, preferably in a growth market

A. Set general market price level below averageWill lower gross margin by decreasing spread between cost and price for a period of time

B.  Lower prices at specific target customer accounts where reduced prices will capture high volume accounts and where competition is vulnerable on a price basis; lower prices enough to keep the business

C.   Lower prices against specific competitors who will not or cannot react effectively

Will lower cost as cumulative volume increases and costs move down the experience curve
2. New product

When a new product need can be uncovered and a new product will (a) displace existing products on a cost or performance basis, or

(b) expand the market for a class of product by tapping previously unsatisfied demand

A.   Develop and launch the new product, generally

B.  Target specific customers and market segments where the need for the product is strongest and competition most vulnerable, and immediate large gains in share can be obtained

Cost of R & D necessary to develop a product

Capital expenditures on the plant to manufacture the product Start-up operating losses Promotion costs of launching the new product

3. ServiceTo gain share for specific product lines when competitive services levels do not meet customer requirements

A.     Improve service generally beyond competitive levels by increasing capacity for specified product lines

B.  Target specific accounts where improved service will gain share and the need for superior service is high.

C.      Offer additional services required in general or at specific customers.

D.  Expand distribution system by adding more distribution points

Cost of adding capacity

Cost of expanding the distribution system, including additional inventories required

4. Quality/ strength of marketingWhen a market segment or specific customers are getting inadequate sales force coverage or inferior quality of the coverage

A.  Add salespeople to improve call frequency above competitive levels in target territories

B.    Sales training programs to improve existing sales skills, product knowledge, and territorial and customer management abilities

C.  Sales incentive programs

Salary and overhead cost of additional salesmen

Cost of training or retraining

Cost of incentive program

5. Advertising and sales promotion

(a) When a market segment is getting inadequate exposure to product, service, or price benefits compared to the competition

(b) A change in the benefits offered is made and need to be communicated

A. Select appropriate media to reach target customers

B. Set level and frequency of exposure of target customers high enough to create adequate awareness of benefits and counter level of competitive efforts

Cost of creative work to campaign

Production and media costs

Considering the pros and cons, the marketing manager should devise a strategy that may be pursued to expand the market to increase the market share.

 

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