Monday, November 20, 2006

Management Lite & Ezy 15 – Competitive Strategies for Market Leaders

In Management Lite & Ezy 14, we discussed the roles played by firms in a market – leader, challenger(s), follower(s) and nicher(s). Now we will discuss how a market leader deals with competition. In general, there are three strategies that can be taken by a market leader.

Expanding the Total Market

The dominant firm normally gains the most when the total market expands. The market leader should look for new customers or more usage from existing customers.

New users can be searched among 3 groups: those who might use it but do not (market-penetration strategy), those who have never used it (new-market segment strategy), or those who live elsewhere (geographical-expansion strategy).

Usage can be increased by increasing the quantity of consumption or increasing the frequency of consumption.

Defending Market Share

How can the market leader do to defend its terrain? It can be responsive – finds a stated need of customers and fills it. It can also be anticipative – looks ahead into what needs customers may have in the near future. Finally, a firm can be creative – discovers and produces solutions customers do not ask for but to which they enthusiastically respond.

Expanding Market Share

A market leader can improve its profitability by increasing its market share. However, there are some pitfalls:

  • The cost of gaining further market share might exceed the value.

  • Too many customers can put a strain on the firm’s resources.

  • If “exclusivity” is a key brand benefit, existing customers may resent additional new customers.

  • The possibility of provoking antitrust action.

Reference: Kotler & Keller, “Marketing Management”, 12th edition

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