Market Leaders, Challengers and Followers

In most markets there is a definite market leader: the firm with the

largest market share. This is often the first company to have entered the

field, or at least the first to have succeeded in it. The market leader is

frequently able to lead other firms in the introduction of new products,

in price changes, in the level or intensity of promotions, and so on.

Market leaders usually want to increase their market share even fur-

ther, or at least to protect their current market share. One way to do this

is to try to find ways to increase the size of the entire market. Contrary to

a common belief, wholly dominating a market, or having a monopoly,

is seldom an advantage: competitors expand markets and find new uses

and users for products, which enrich everyone in the field, but the mar-

ket leader more than its competitors. A market can also be expanded by

stimulating more usage: for example, many households no longer have

only one radio or cassette player, but perhaps one in each room, one in

the car, plus a Walkman or two.

In many markets there is often also a distinct market challenger, with

the second largest market share. In the car hire business, the challenger

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actually advertises this fact: for many years Avis used the slogan “We’re

number two. We try harder”. Market challengers can either attempt to

attack the leader, or to increase their market share by attacking various

market followers.

The majority of companies in any industry are merely market fol-

lowers which present no threat to the leader. Many market followers

concentrate on market segmentation: finding a profitable niche in the

market that is not satisfied by other goods or services, and that offers

growth potential or gives the company a differential advantage because

of its specific competencies.

A market follower which does not establish its own niche is in a vul-

nerable position: if its product does not have a ‘unique selling proposi-

tion’ there is no reason for anyone to buy it. In fact, in most established

industries, there is only room for two or three major companies: think

of soft drinks, soap and washing powders, jeans, sports shoes, and so

on. Although small companies are generally flexible, and can quickly

respond to market conditions, their narrow range of customers causes

problematic fluctuations in turnover and profit. Furthermore, they are

vulnerable in a recession when, largely for psychological reasons, dis-

tributors, retailers and customers all prefer to buy from big, well-known

suppliers.

Text 3

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