Leader Challenger Niche Follower

Differentiation Overall cost advantage

focus

Strategic advantage

stra

tegi

c ta

rget

Uniqueness perceived by the customer Low cost position

Particular segment only

Three generic strategies

Differentiation Cost

Focus

Middle of the road

Cost leadership

How?•Size and economies of scale globalization.•Relocating to low cost parts.•Modification/simplification of design.•Operating effectiveness•Strategic alliances•New sources of supply

Benefits •The ability to outperform rivals•Erect barriers to entry•Resist the five forces

Possible problems•Vulnerability to even lower cost operators•Possible price wars•Difficulty of sustaining it in the long term

Focus

How?

•Concentration upon one pr a small number of segments•The creation of a strong and specialist reputation

Benefits

•A more detailed outstanding of a particular segments•The creation of Barriers to entry•A reputation for specialisation•The ability to concentrate efforts

Possible problems

•Limited opportunities for sector growth•The possibility of outgrowing the Market•The decline of the sector•A reputation for specialization which ultimately inhabits growth and development into other sectors

DifferentiationHow?

•The creation of strong Brand activity•The consistent pursuit of those factors which customers perceive to be important•High performance in one or more of a spectrum of activities

Benefits

•A distancing from others in the market•The creation of a major competitive advantage•Flexibility

Possible problems

•The difficulty of sustaining the bases for differentiation •Possibly higher costs •The difficulty of achieving true and meaningful differentiation

Strategic Frameworks

• Order of Entry– pioneers– followers

• Competitive Posture– market leaders– market challengers– market followers– market nichers

Pioneers

• First to market• Prospectors or analyzers• Focus on new product R&D

– P&G – Disposable Diapers– Quaker Oats– Apple products– Amazon.com

Followers

• Second, third, fourth, etc. . . . to market

• Typically analyzer, defender, or reactor

• Typically enter a market in growth phase of PLC

Pioneers vs. followers

• Being a pioneer does not guarantee success• Little empirical evidence about the success of

pioneers vs. followers• eg - the innovators of the following are not

leaders– Word processing software (Wordstar)– Web browser (Mosaic)– Internet search engine (Webcrawler)

Advantages of pioneering strategy

• First choice of market segments & positions• Define the rules of the game• Distribution advantages• Economies of scale and experience• High switching costs for early adopters• Positive network effects• Possibility of preempting scarce resources and

suppliers

Success factors for pioneers

• Large entry scale (sufficient resources & competencies)

• Broad product line• High product quality• Heavy promotional expenditures

Success factors for pioneers

• Large barriers to entry– high capital requirements– economies of scale– patents and licensing requirements– scarce locations, raw materials, or distributors– reputational requirements

Success factors for pioneers

• Low exit barriers – Examples of exit barriers:

• low asset salvage value due to overspecialization or obsolescence

• lack of alternative opportunities• legal or moral obligations to customers, creditors, and

employees• government restrictions• high vertical integration• emotional barriers

Strategies for pioneers

• Mass market penetration• Niche penetration -- achieves high margin vs.

high volume• Skimming and early withdrawal

Strategies for pioneers (cont’d)

• Mass market penetration• Gain large share of total market• Requires substantial resources• More likely to work when barriers to entry

exist

Strategies for pioneers (cont’d)

• Niche penetration• Gain large share of one segment (niche)• Requires fewer resources• More likely to be used when several

competitors with substantial resources are likely to enter the market

• Must have clearly distinguishable segments

Strategies for pioneers (cont’d)

• Skimming and Early Withdrawal • Charge high price, withdraw product when

substantial price competition appears• Must have inelastic demand for product

category• Must have continuously strong R&D

capabilities

Knowing who you are

• Market position– Market leader– Market challenger– Market follower– Market nicher

• Determines largely what strategies you will adopt

Designing Competitive Strategies

• Market leader (40%)• Market challenger (30%)• Market follower (20%)• Market nichers (10%)

Leaders

challengers

Nichers followers

•Expand the market

•Protect the current share

•Expand share

•Discount or cut prices•Cheap goods•Innovate•Promote heavily•Proliferate the range•Reduce costs

•Segment carefully

•Use R&D

•Challenge commercial wisdoms

Get started

Market Leader

• Expanding the total market• Defending market share• Expanding market share

Market leadership

Expansion of the overall market

Guarding the existing market share

Expansion of the current market share

•Strong market positioning•Developing competitive advantage•Product / process innovation•Heavy advertising•CRM•Strong distribution relations

•Heavy advertising•Improved distribution•Price incentives•New product development•Mergers•Takeovers•Geographic expansion•Distributor expansion

•Target groups –currently non-users•Identifying new uses for the offering•Increasing usage rates

Expanding the Total Market

• New users– Market-penetration strategy– New-market segment strategy– Geographic-expansion strategy

• New uses• More usage

– Planned obsolescence– Ex. Michelin, Gillette

Expanding the Total Market• The dominant firm normally gains the most when the

total market expands.• Every product class has the potential of attracting

buyers who are unaware of the product or who are resisting it because of price or lack of certain features.

• Search for new users among three groups:– Those who might use it but do not (market-

penetration strategy).– Those who have never used it (new-market segment

strategy).– Those who live elsewhere (geographical-expansion

strategy).

More Usage

• Increasing the level of quantity of consumption• Increasing the frequency of consumption• Increasing the amount of consumption -

through packaging or product design• Increasing frequency of use

• identify additional opportunities to use the brand in the same basic way

• identifying completely new and different ways to use the brand.

Additional Usage Opportunities

• Communicate the appropriateness and advantages of using the brand more frequently in new or existing situations.

• Identify completely new and different applications.

• Product development can spur new uses.

Leader

Market Leaders

• May be the pioneer, particularly in new and growing markets

• Has dominant market share• The likely target of challengers’ strategic

attacks

Industry leaders

Runner-up firms

Weak or crisis-ridden firms

Strategies Based on a Company’s Market Position

Industry Leaders: The Defining Characteristics

• Strong to powerful market position

• Well-known reputation

• Proven strategy

• Key strategic concern – How to sustaindominant leadership position

Six Types of Defense Strategies

Strategic Choices for Share Leaders in Growth Markets

COMPETITOROR

POTENTIALCOMPETITOR

Contractionor strategicwithdrawal

Market expansion

Flanker strategy - ProactiveFlanker strategy - Reactive

LEADER

Fortressor position

defensestrategy

Confrontationstrategy

ProactiveReactive

Source: Adapted from P. Kotler and R. Singh Achrol, “Marketing Warfare in the 1980’s” Reprinted with permission from Journal of Business Strategy, Winter 1981, pp. 30-41. Copyright © 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA 02111. All rights reserved.

Defending Market Share

• Position defense• Flank defense• Preemptive defense• Counteroffensive defense• Mobile defense

Share Maintenance Strategies

• Continuous innovation• Coverage of all profitable market segments• Product proliferation

Defensive strategies

• Fortress (position) defense • Flank defense• Confrontation strategy (often reactive in

nature)• Contraction strategy

Position Defence

• continuous innovation & improvement– developing new product – customer services– distribution effectiveness– cost cutting

Flanking strategy

• Strengthening your flanks (sides)• Add operations in less important areas

                                        

                                                                                                       

Pre-emptive defense

• Attacking before you are attacked

                                        

                                                                                                       

Counter-offensive defence

• When attacked, launch a counter attack

Mobile Defence

• Constantly changing positions

Contraction defense

• Examples– Sony eliminates 48 product lines, including VCR

and computer peripherals.– Unilever – 1600 → 400. (brand)– Panasonic – 5000 → 1000. (product line)

• The cost of abandoning an unprofitable product/market segment can be higher.– GM, Xerox, Steel industry

Market Leaders

• Must defend market share against attack (fortress defense, flank defense, confrontation strategy)

• Usually seeks to expand sales and market share (frontal attack, flank attack, encirclement strategy, leapfrog, market expansion strategy)

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Expanding Market Share

Market leaders can improve their profitability by increasing market share.

Gaining increased share in the served market does not automatically produce higher profits.

A company should consider four factors before pursuing increased market share:The possibility of provoking antitrust action.Economic cost.Pursuing the wrong marketing-mix strategy.The effect of increased market share on actual and

perceived quality.

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OTHER COMPETITIVE STRATEGIES

Firms that occupy second, third, and lower ranks in an industry are often called runner-up, or trailing firms. These firms can adopt one of two postures.

Each can attack the leader and others in an aggressive bid for further market share (market challengers), or they can play ball and not “rock the boat” (market followers).

Types of Runner-up Firms

• Market challengers

– Use offensive strategies to gain market share

• Focusers

– Concentrate on serving alimited portion of market

• Perennial runners-up

– Lack competitive strength to domore than continue in trailing position

I’m trying!

• When big size is a competitive asset, firmswith small market share face obstacles in trying to strengthen their positions

– Less access to economies of scale

– Difficulty in gaining customer recognition

– Inability to afford mass media advertising

– Difficulty in funding capital requirements

Obstacles Runner-UpFirms Must Overcome

Strategic Optionsfor Runner-Up Firms

• When big size provides larger rivals with a cost advantage, runner-up firms have two options

– Build market share

• Lower costs and prices to grow sales or

• Out-differentiate rivals in ways to grow sales

– Withdraw from market

Rule of Offensive Strategy

Runner-up firms should avoid attacking

a leader head-on with an imitative

strategy, regardless of the resources and

staying power an underdog may have!

Challenger strategies

Challenger faces two key questions 1. Choice of battle ground to mount the attack2. Evaluation of leader’s reactive and defensive abilities

Choice of battle ground

Frontal attack•Balance of power•Balance normally 3:1

Lateral attacks•Confronting over one or more strategic dimensions

Outflanking, encircling,guerilla tactics, mobile defence

Mounting the attack

Before the attack it is essential to asses correctly a dominant firm’s ability to react and defend using the following criteria

1. Vulnerability :to what strategic moves and governmental macroeconomic or industry events would the competitor most vulnerable.

2. Provocation : what moves or events will provoke a retaliation from the competitors, even if retaliation is costly and leads to marginal financial performance

3. Effectiveness of retaliation : identify moves /events to which competitor may not react quickly given its goals, strategy, existing capabilities and assumptions.

Attack strategies

• Frontal or confrontation attack• Flank attack• Encirclement strategy – envelope opponents

positions with number of products• Leapfrog – completely by-pass existing

competition with very different product

Exhibit 17.12

Strategic Choices for Challengers in Growth Markets

TARGETCOMPETITOR

Flanking attack

Frontalattack

Encirclement strategy

Leapfrog strategy

Source: Adapted from P. Kotler and R. Singh Achrol, “Marketing Warfare in the 1980’s” Reprinted with permission from Journal of Business Strategy, Winter 1981, pp. 30-41. Copyright © 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA 02111. All rights reserved.

CHALLENGER

Market Challenger

• 2nd and 3rd running brand • Usually emulates the market leader strategy• May conform to strategy or change focus on

market to gain head way

Market Challenger

• Defining the strategic objective and opponents• Choosing a general attack strategy• Choosing a specific attack strategy

Defining the strategic objective and opponents

• Attack– The market leader– Firms of its own size that are not doing the job

and are underfinanced.– Small local and regional firms

Choosing a general attack strategy

How do you attack a category leader?

Take a position: The best way to challenge a leader is to attack its strengths versus The best way to attack a leader is to avoid a head-on assault and adopt a flanking strategy. Cite relevant Asian marketing examples to support your position.

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Market-Challenger Strategies

Many market challengers have gained ground or even overtaken the leader.

A market challenger must first define its strategic objective. The challenger must decide whom to attack:It can attack the market leaderIt can attack firms of its own size that are not

doing the job and are underfinancedIt can attack small local and regional firms

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Choosing a Specific Attack Strategy

• Price discount.• Lower price goods.• Prestige goods.• Product proliferation.• Product innovation.• Improved services.• Distribution innovation.• Manufacturing-cost reduction.• Intensive advertising promotion.

Market follower strategies

• Policy of peaceful coexistence• Behavior observed mainly in Oligopolistic markets where

differentiation are minimal and cross price elasticity's are very high

• Four main features of strategies to be adopted are

1. Creative market segmentation.2. Efficient use of R&D3. Think small4. Ubiquitous chief executive

Advantages of follower strategy (from text)

• Ability to take advantage of – pioneer’s positioning mistakes– pioneer’s product mistakes– pioneer’s marketing mistakes – pioneer’s limited resources– latest technology

Success factors for followers (from text)

• Fast followers• Larger entry scale than pioneer

– Resulting in economies of scale & lower unit costs• Leapfrogging the pioneer with superior:

– product technology– product quality– customer service

Success factors for followers (from text)

• Late Entrants

• May focus on peripheral target markets or niches

Market Follower

• Counterfeiter• Cloner• Imitator• Adapter

Market Follower

• Lowest in profitability• Only one of the many minor players in the

industry• Usually is price driven • Their prices are squeezed by distribution

channels

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Market-Follower Strategies

A market follower must know how to hold current customers and win a fair share of new customers.

Each follower tries to bring distinctive advantages to its target market—location, services, and/or financing.

Market Nicher

• Know the target customers much well.• Three tasks: creating, expanding and

protecting niches.• Highly specialized resources

Market nicher

A nicher is interested in one or few market segments, and not in the whole market. the objective is to be a large fish in a small pond rather than being a small fish in a large pond. This competitive strategy is based on “focus”

The key to a focus strategy is specialization in a niche. For a niche to be profitable and sustainable five characteristics are essential.

1. Sufficient profit potential2. Growth potential3. Unattractive to rivals.4. The market corresponds to the firm’s distinctive competence.5. A sustainable entry barrier.

Market Nicher

• Very small player • Choose to focus on one category and one

target segment• Specializes with premium quality• Prices at premium too• Limited volume but high profitability

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Market-Nicher Strategies

Firms with low shares of the total market can be highly profitable through smart niching.

Such companies tend to offer high value, charge a premium price, achieve lower manufacturing costs, and shape a strong corporate culture and vision.

The market nicher ends up knowing the target customers so well that it meets their needs better than other firms selling to this niche. The nicher achieves high margin, whereas, the mass marketer achieves higher volume.

Market nichers

• Operate on high profit margins vs. high volume

• Compete in well-defined market segments (niches)

• Successful nichers usually have a large share of their niche