Typically there are four types of market dominance strategies that a marketer will consider: There are market leader, market challenger, market follower, and market nicher.
The market leader is dominant in its industry. It has substantial market share and extensive distribution arrangements. It is typically the industry leader in developing innovative new products and business methods.
Of the four dominance strategies, it has the most flexibility in crafting strategy. However it is in a very visible position and can be the target of competitive threats and government anti-combines actions.
Research (the PIMs study in the 1970s) concluded that market leadership was the most profitable strategy in most industries. Today we recognise that other strategies can also be effective.
The main options available to market leaders are:
- Expand the total market by finding new users or new uses of the product
- Expand the total market by encouraging more usage on each use occasion
- Protecting market share by developing new product ideas, improving customer service
- improving distribution effectiveness
- Expanding market share by targeting one or more competitors
A market challenger is an organisation a strong, but not dominant position that is following an aggressive strategy of trying to gain market share. It typically targets the industry leader.
The main principles involved are:
- Assess the strength of the target competitor.
- Understand the (amount of support) that the target can might muster.
- Choose only one target at a time.
- Find a weakness in the target’s position.
- Consider how long it will take for the target to realign their resources so as to reinforce this weak spot.
- Launch the attack on as narrow a front as possible. Whereas a defender must defend all their borders, an attacker has the advantage of being able to concentrate their forces at one place.
- Launch the attack quickly, and then consolidate.
- Some of the options open to a market challenger are:
- Discounting or price cutting
- Product line extensions
- New product introduction
- Increase product quality
- Improve service (see Section 17)
- Find new distribution channels
- Improve and intensify promotional activity
A market follower is an organisation in a strong, but not dominant position that is content to stay at that position. The rationale is that by developing strategies parallel to those of the market leader, they will gain a good share of the market while being exposed to very little risk. This is a “play it safe” strategy. The advantages of this strategy are:
- No expensive R&D failures
- Being able to capitalise on the promotional activities of the market leader
- Low risk of competitive attack
- Save money avoiding a head-on battle with the market leader
Market specialist or nicher
In this niche strategy the firm concentrates on a select few target segments. This is also called a focus strategy. The objective is focusing marketing efforts on one or two narrow market segments and tailoring the marketing mix, the organisation can better meet the needs of that target market. The firm typically looks to gain a competitive advantage through effectiveness rather than efficiency. The most successful nichers tend to have the following characteristics:
- They tend to be in high value added industries and are able to obtain high margins.
- They tend to be highly focussed on a specific market segment.
They tend to market high end products and are able to use a premium pricing strategy.