Market Situation Strategy

8/3/2019 Market Situation Strategy

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Market Situation Strategy

Leaders, challengers, followers,

nichers



What is market dominance?

• Market dominance is a measure of the

strength of a brand, product, service, or firm,

relative to competitive offerings.



Ways of calculating market dominance.

• The most direct is market share. This is the

percentage of the total market serviced by a

firm or brand.



Market dominance strategies

• There are four types of market dominance

strategies that a marketer will consider: There

are

• Market leader,

• Market challenger,

•

Market follower, and• Market nicher.



Market Leader

• The market leader is dominant in it’s industry. It hassubstantial market share and often extensivedistribution arrangements with retailers.

• It typically is the industry leader in developing

innovative new business models and new products(although not always).

• It tends to be on the cutting edge of new technologiesand new production processes. It sometimes has somemarket power in determining either price or output.

• Of the four dominance strategies, it has the mostflexibility in crafting strategy. There are few options notopen to it.



• Research experience during the 1970sconcluded that market leadership was the mostprofitable strategy in most industries.

• It was claimed that if you cannot get enoughmarket share to be a major player, you shouldget out of that business and concentrate yourresources where you can take advantage of experience curve effects and economies of scale, and thereby gain dominant market share.



The main options available to market

leaders are:

• Expand the total market by finding new users of the product ,new uses of the product , moreusages on each use occasion.

•Protect your existing market share by:-

• Developing new product ideas,

• Improve distribution effectiveness,

•

Reduce costs• Expand your market share by targeting one or

more competitor



Strategies for Market Leaders

Market Leader’s objectives:

• Expand the total market by –

Finding new users – Creating new uses, and

– Encouraging more usage

• Protect its current market share by –

Adopting defense strategies (see following slides)• Increase its market share

– Note the relationship between market share andprofitability



Which strategy to use?

Depends on your answer to the following:

• Is it worth fighting?

• Are you strong enough to fight?

• How strong is your defense?

•

Do you have any choice but to fight?



Defense Strategy

• A market leader should generally adopt a defense

strategy

• Six commonly used defense strategies

– Position Defense

– Mobile Defense

– Flanking Defense

– Contraction Defense

– Pre-emptive Defense

– Counter-Offensive Defense



Defense Strategy (cont’d)

Position Defense

• Least successful of the defense strategies

•“A company attempting a fortress defensewill find itself retreating from line after lineof fortification into shrinking productmarkets.” Saunders (1987)

• e.g. Mercedes was using a position defensestrategy until Toyota launched a frontalattack with its Lexus.




Mobile Defense • By market broadening and diversification

•

For marketing broadening, there is a need to – Redefine the business (principle of objective), and

– Focus efforts on the competition (the principle of

mass)

• e.g. Legend Holdings, the top China PC makerLegend has announced a joint venture with AOL

to broaden its business to provide Internet services

in the mainland




Flanking Defense:

• Secondary markets (flanks) are the weaker

areas and prone to being attacked• Pay attention to the flanks

• e.g. San Miguel introduced a flanking brand

in the Philippines, Gold Eagle, as a defenseagainst APB’s Beerhausen




Contraction Defense

• Withdraw from the most vulnerable

segments and redirect resources to thosethat are more defendable

• By planned contraction or strategic

withdrawal• e.g. India’s TATA Group sold its soaps and

detergents business units to Unilever in

1993




Pre-emptive Defense

• Detect potential attacks and attack the

enemies first• Let it be known how it will retaliate

• Product or brand proliferation is a form of

pre-emptive defense e.g. Seiko has over2,000 models




Counter-Offensive Defense

• Responding to competitors’ head-on attack

by identifying the attacker’s weakness andthen launch a counter attack

• e.g. Toyota launched the Lexus to respond

to Mercedes attack



• EXPAND TOTAL MARKET

• • New Users

• E.g.: perfume:-- non-users (market-penetration strat)

• men (new market strategy)

• -- other countries (geo-expan strat)

• E.g.: J&J Baby shampoo: birthrate declining• -- ads target adults --> leading brand

• • New uses

• Cereals: as snacks -- increase frequency of use

• OJ: “not for breakfast anymore”

•Du Pont nylon: parachute-->pantyhose-->blouses & shirts --> auto tires -->seat beltscarpeting

• Arm & Hammer: baking--> fridge deodorant --> quell kitchen grease -->carpet/pet deodorant



Market Challenger

• A market challenger is a firm in a strong, but

not dominant position that is following an

aggressive strategy of trying to gain market

share.

• It typically targets the industry leader (for

example, Pepsi targets Coke), but it could also

target smaller, more vulnerable competitors.

Th f d t l i i l i l d



The fundamental principles involved

are:

• Assess the strength of the target competitor. Considerthe amount of support that the target might muster fromallies.

• Choose only one target at a time.

• Find a weakness in the target's position. Attack at thispoint. Consider how long it will take for the target torealign 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, anattacker has the advantage of being able to concentratetheir forces at one place.

• Launch the attack quickly, then consolidate.



Some of the options open to a market

challenger are:

• Price discounts or price cutting

• Line extensions

• Introduce new products

• Increase product quality

• Improve service

• Change distribution

• Cost reductions

• Intensify promotional activity

MARKET CHALLENGER



MARKET CHALLENGER

STRATEGIES

• Targets of attack: conditions for success

• 1. Market leader not in tune with market:

vulnerable

• - dissatisfied customers

• -technology shifted

• Intel & Microsoft Vs IBM

• Firm its own size -- underfinanced, not doing job

• Small and regional firms -- underfinanced



Market Challenger Strategies

The market challengers’ strategic objective is to

gain market share and to become the leader

eventually

How?

• By attacking the market leader

•

By attacking other firms of the same size• By attacking smaller firms



Market Challenger Strategies

(cont’d)

Types of Attack Strategies

• Frontal attack

• Flank attack

• Encirclement attack

• Bypass attack

• Guerrilla attack



Frontal Attack

• Seldom work unless

– The challenger has sufficient fire-power (a 3:1

advantage) and staying power, and – The challenger has clear distinctive

advantage(s)

•

e.g. Japanese and Korean firms launchedfrontal attacks in various ASPAC countries

through quality, price and low cost



Flank attack

• Attack the enemy at its weak points or

blind spots i.e. its flanks

•Ideal for challenger who does not havesufficient resources

• e.g. In the 1990s, Yaohan attacked

Mitsukoshi and Seibu’s flanks byopening numerous stores in overseas

markets



Encirclement attack

• Attack the enemy at many fronts at the

same time

•Ideal for challenger having superiorresources

• e.g. Seiko attacked on fashion, features,

user preferences and anything that mightinterest the consumer



Bypass attack

• By diversifying into unrelated products

or markets neglected by the leader

•Could overtake the leader by using newtechnologies

• e.g. Pepsi use a bypass attack strategy

against Coke in China by locating itsbottling plants in the interior provinces



Guerrilla attack

• By launching small, intermittent hit-and-

run attacks to harass and destabilize the

leader• Usually use to precede a stronger attack

• e.g. airlines use short promotions to

attack the national carriers especiallywhen passenger loads in certain routes

are low



Which Attack Strategy should a

Challenger Choose?

Use a combination of several strategies

to improve market share over time



Market Follower

• A market follower is a firm in a strong, but notdominant position that is content to stay at thatposition.

• The rationale is that by developing strategiesthat are parallel to those of the market leader,they will gain much of the market from theleader while being exposed to very little risk.

• This “play it safe” strategy is how Burger Kingretains its position behind McDonalds.



The advantages of this strategy are:

• No expensive R&D failures

• No risk of bad business model

• “Best practices” are already established

• Able to capitalize on the promotional activities of the market leader

• No risk of government anti-combines actions

•

Minimal risk of competitive attacks• Don’t waste money in a head-on battle with the

market leader



Market-Follower Strategies

• Theodore Levitt in his article, “Innovative

Imitation” argued that a product imitation

strategy might be just as profitable as a product

innovation strategy

e.g. Product innovation--Sony

Product-imitation--Panasonic



Market-Follower Strategies (cont’d)

• Each follower tries to bring distinctive

advantages to its target market--location,

services, financing

• Four broad follower strategies:

– Counterfeiter (which is illegal)

– Cloner e.g. the IBM PC clones

–

Imitator e.g. car manufacturers imitate the style of one another

– Adapter e.g. many Japanese firms are excellent

adapters initially before developing into challengers

and eventually leaders



Market Nicher

• In this niche strategy the firm concentrates on a select fewtarget markets. It is also called a focus strategy. It is hopedthat by focusing ones marketing efforts on one or twonarrow market segments and tailoring your marketing mixto these specialized markets, you can better meet the needs

of that target market.• The niche should be large enough to be profitable, but small

enough to be ignored by the major industry players. Profitmargins are emphasized rather than revenue or marketshare.

• The firm typically looks to gain a competitive advantagethrough effectiveness rather than efficiency. It is mostsuitable for relatively small firms and has much in commonwith guerrilla marketing warfare strategies

The most successful nichers tend to



The most successful nichers tend tohave the following characteristics:

• They tend to be in high value added industries andare able to obtain high margins.

• They tend to be highly focused on a specific

market segment.• They tend to market high end products or

services, and are able to use a premium pricingstrategy.

• They tend to keep their operating expenses downby spending less on R&D, advertising, andpersonal selling.



Market-Nicher Strategies

• Smaller firms can avoid larger firms by

targeting smaller markets or niches that

are of little or no interest to the largerfirms

e.g. Logitech--mice

Microbrewers--special beers



Market- Nicher Strategies (cont’d)

• Nichers must create niches, expand the

niches and protect them

– e.g. Nike constantly created new niches--

cycling, walking, hiking, cheerleading, etc

• What is the major risk faced by nichers?

– Market niche may be attacked by larger firms

once they notice the niches are successful



Multiple Niching

“[A] firm should `stick to its niching’ but not

necessarily to its niche. That is why multiple

niching is preferable to single niching. By

developing strength in two or more niches thecompany increases its chances for survival.”

Philip Kotler



Example of Nicher:

Challenger Superstore• Challenger Superstore is a discount retailer

of computers and accessories

• It opened its first overseas store in Bangkok at a cost of 90 million baht (S$3.7 million)

• In October 2000, it closed its Bangkok store“after failing to pay rent amounting to about

6 million baht”



Conditions for successful niching:

• • substantial --> sufficient size & purchasing

power

• • has growth potential

• • of negligible interest to major competitors

• • has resources & skills to niche successfully

•

• can defend against attack via customer goodwill



Business Model

• A business model (also called a business

design) is the mechanism by which a business

intends to generate revenue and profits.

• It is a summary of how a company plans to

serve its customers.

• It involves both strategy and implementation.



It is the totality of:

• How it will select its customers• How it defines and differentiates its product

offerings

• How it creates utility for its customers

• How it acquires and keeps customers

• How it goes to the market (promotion strategyand distribution strategy)

•

How it defines the tasks to be performed• How it configures its resources

• How it captures profit



• This involves offering a basic product at a very lowcost, often at a loss (the "bait"), then charging excessiveamounts for refills or associated products or services(the "hook").

•

Examples include: razor (bait) and blades (hook); cellphones (bait) and air time (hook); computer printers(bait) and ink cartridge refills (hook); and cameras(bait) and prints (hook).

• An interesting variant of this model is a software

developer that gives away its word processor reader forfree but charges several hundred rupees for its wordprocessor writer.



• In the 1950s new business models came from McDonald'sRestaurants and Toyota. In the 1960s the innovators were Wal-Martand Hypermarkets.

• The 1970s saw new business models from Federal Express and ToysR Us;

•

the 1980s from Blockbuster, Home Depot, Intel, and Dell Computer;• the 1990s from Southwest Air, eBay, Amazon.com, and Starbucks.

Poorly thought out business models were a problem with many dot-coms. Each of these business model innovations can gave the firm asustainable competitive advantage.

• But times are changing and companies must continuously rethink their business design. Companies must change their business modelsas value migrates from industry to industry. Ultimately the successor failure of a company depends first on how well its businessdesign matches their customers' priorities.

Market Situation Strategy

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