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In Part 3, What Market Leaders Do, we’re going to finish our discussion about what market leaders do. In the final part, we will look at some tactical moves a market leader can make as well as learning when a market leader needs to make its move.

Before we move further, though, we’re going to take a quick look at the battle for market supremacy between Australian’s airline rivals, Qantas and Virgin Blue. There is nothing like a decent case study to illustrate the power and resilience of a market leader.

HOW QANTAS DEALT A FAST ONE TO VIRGIN BLUE.

It was a classic Pincer Move, otherwise known as an encirclement strategy, that Qantas used to render its rival Virgin Blue’s market positioning as useless. From its beginnings as the mums-and-dads airline, Virgin is now the no-one-in-particular airline. But a bit of background first.

Australia is a difficult market to service. For national carriers (such as Qantas or telecommunications giant Telstra) it is expensive to service regional centres – but service them they must do. (In Telstra’s case it is a regulatory obligation for it to be the carrier of last resort.) But the market was attractive for another entrant. Ansett had met its demise leaving Qantas in virtually a monopoly position.

For Virgin Blue, the pickings were easy. Choose profitable routes (predominantly Eastern seaboard and popular destinations) that Qantas was using to subsidise the cost of flying to non-profitable centres, offer flights at discounted fares, and leave Qantas forced to slash its prices to compete whilst it still carried the cost of servicing its less profitable centres. (It isn’t a unique strategy. The telecommunications industry is peppered with entrants that attempt the same thing.)

For awhile Virgin Blue was very successful. The consumer was pleased to see the pricing pressure applied to Qantas. Then Virgin made its strategic blunder. It moved its brand towards Qantas heartland, seeking to attract the business traveller, and vacated its position as the family airline.

It was the opening Qantas needed. It launched Jetstar to take Virgin’s vacated market position, and it turned to fight Virgin head-on in the business travel market. Virgin was never going to win.

The strategic blunder was made when Virgin Blue abandoned its original position and left it open for Qantas to move Jetstar into the market. It simply wasn’t there to defend its core territory because it had itself moved away from it. Had Virgin stayed small, cheap and focussed on the market that built its brand, it would have be able to own a territory. Because it didn’t, it owns nothing.

WHEN TO RESPOND TO COMPETITIVE THREATS.

As a market leader, you ignore a competitive threat to your peril. Market leaders must be vigilant in seeking out potential threats. Each competitor needs to be assessed by strength, resources and the level of support they may muster from allies and alliances.

To make it harder still, the competitors that you think are your competitors may not be the ones that pose the greatest risk. For example, Telstra (and other telecommunications giants globally) didn’t see Skype coming until it was firmly established as a VoIP alternative to paying for fixed line calling. The current uncertainty around its future will come as welcome news to those telco giants. But the lesson learned has been painful. A market leader needs to monitor the competition that offer me-too products, but be especially vigilant of the threats posed from innovators.

Defense is a difficult task for market leaders since they may be under attack from a number of different competitors simultaneously, and this may require a deployment of resources to defend different parts. The market leader must make its own assessment to prioritize the importance of territories, and should be willing to relinquish those that are not important to defend for those that are.

The principles relating to responding to competitive threats include:

• Defend important territories and markets.
• Always counter an attack with equal or greater force.
• Always attack before the attacker has time to secure their new position.

Timing is everything. Many market leaders tend to adopt a wait-and-see approach. This may have both advantages and disadvantages.

Waiting to see what happens can be useful from the point of view that it enables the leader to see whether the competitive threat is developing any traction with customers. In other words, are customers responding favorably to the competitive offer? If traction occurs, the market leader needs to respond before the competitive threat grows so big that it’s too late to respond effectively.

Waiting can be disadvantageous too, most particularly if the time needed to respond to the competitive threat means that you provide your competitor with additional time it will find advantageous in making inroads into your market share.

Let’s say your competitor launches a new product. Since most products have a product development cycle which means it takes time to design, prototype and launch them, waiting to see if a competitor’s product is successful before you set about designing your own could result in a delay of two or three years before you have an alternative to use in defending your territory. Depending on your industry, that may be far too long. While you wait for your development cycle to run its course, your competitor has the edge they need to secure the perception of leadership.

There are many examples of market leaders responding too slowly, or underestimating the competitive threat, thus enabling competition to win large tracts of business from them.

In Australia, for example, the supermarkets are facing the same challenges which many other industries have already confronted.

The industry, long dominated by two major chains, Coles and Woolworths Safeway, is now under increasing competitive pressure from regulators and new aggressive price-driven entrants such as German retailer, Aldi and the imminent arrival of American giant, Costco. There is no doubt a large entrant like Costco will change Australian supermarket retailing. Australians are already seeing significant discounting from the major supermarkets. The big question is, though, is all this reactionary pricing too late?

Still Coles and Safeway have advantage position. Their supermarkets are established throughout the country. Their brands are household names. Costco is opening up its first premise in Docklands in Melbourne. It will take time for the giant to expand its operations to other states and centers, and to build its reputation.

As trade barriers fall, and deregulation continues to occur, incumbents have their dominance challenged, by overseas as well as local challengers. It is a very exciting time for marketers to prove their worth. They should think of it as a game of chess. The key to winning is to checkmate your competitor.

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In Part 1, What Market Leaders Do, we looked at why market leadership is important. In Part 2, we get more specific about exactly what a business has to do to protect its market leadership position.

A market leader always plays defense.

Only the market leader plays defense, and the best defense is always to stay one step ahead of competition. Marketing plans need to focus on competitive activity and detail defensive strategies that the market leader will deploy to identify and negate competitive threats.

This can include such elements as:

• Carefully monitoring, managing and controlling brand perception.
• Carefully monitoring, managing and controlling competitor brand perception.
• Analyzing key competitor marketing strategies (this is not normally hard to do if you understand marketing strategy) and responding or preemptive striking where you think you are vulnerable.
• Innovating your product or service lines so your competitors continually play catch-up. This strategy also positions your challengers as copycats. (There is more on this subject later in the post, look out for moving targets.)

So if consumers prefer to buy from leaders, it makes sense to ensure that your market knows that you hold this position. Yet, many market leaders attach meaningless slogans or taglines to their brand names, or roll out advertising copy that does not explain clearly what a business does, or how it is positioned against a competitor, or even why a customer should buy from it.

It adds up to wasted effort and budget since it adds little or no strategic value to your brand. If you’re the leader, start by saying so. That at least gives your customer a reason to buy from you.

Here are a couple of good Australian market leader examples and their slogans:

Seek: Australia’s No. 1 Job Site
Realestate.com.au: Australia’s Biggest Address in Property

Think about this. Would you choose the website that said “We have jobs” or the one that says “We’re Australia’s No. 1 Job Site”? Don’t bother answering, it’s a no-brainer.

It’s fairly easy to decipher a competitor’s strategy if you understand the basics of marketing strategy. Challenger brands operate in certain ways, as do budget brands, specialty brands, low cost leaders and so on. Make sure you get hold of their advertising, talk to your sales force about what they are hearing from customers, and analyze new competitor products plus the markets they are intended to target.

My favorite subject of all, innovation, is not about tweaking products, adding line extensions, updating your logo or reconfiguring pricing models. Innovation is when you so dramatically change what is currently on offer that it is difficult for your competitor to quickly copy you. Innovation, in the context of strategy, refers to the courage to self-cannibalize your products. In other words, make them redundant before your competitor has the opportunity to do it for you.

Market Leaders counter an attack with equal or greater force.

So if you’ve done your homework, you’ve figured out where your challenger’s strategy is at, you’re in a great position to implement your own tactical moves to negate any impact a competitor can have on your leadership.

In Part 1, we talked about the advantages on the market leader’s side. Most specifically, market leaders usually have two critical advantages. The first is time to respond to competitive activity and the second is the extent of the resources at their disposal.

In an age where the average consumer feels bombarded by advertising, they’ve tuned out. Getting a prospect to hear your message is harder than ever. It’s much harder for a challenger than a market leader. So while a challenger is trying to get a message heard, a market leader hears it before the market (because they happen to listen). This is often the trigger for a market leader to outgun its challenger on all fronts.

From outspending them in advertising, securing greater reach through more comprehensive distribution channels or better-placed shelf space, hiring bigger sales teams, offering deeper discounts or better commissions to agents or dealers, launching wider product ranges, building a higher brand profile and so on.

Market Leaders defend important territories.

There are several ways that a market leader can defend important territories. Some of the more common ones are:

• Creation of moving targets.
• Securing fringe segments and sides.
• Attacking first.
• Retaliating through counter-attack.
• Using financial leverage.

One of the most important territories a market leader should own is not geographically or segment-based. It is the territory of public opinion. And the territory of public opinion is the domain of journalists, bloggers and commentators, and the public relations experts that work with brands to create positive relationships with influential groups. If you are the market leader, this is territory you should want to protect from challengers.

The worst case scenario for a market leader is when key media and influencers turn to your competitors for information about your industry rather than turning to you. By surrendering this territory, you effectively turn the territory of positive public opinion over to your challenger. Why is this so important? It’s important because independent media is far more believable than your advertising agency.

The creation of moving targets is the domain of innovation. As said earlier, innovation is not about tweaking or tinkering with what you already have. Innovation is about upending your industry and leaving challengers in a constant, precarious position of trying to catch up to you.

To create moving targets, a market leader constantly moves its resources around. It deploys aggressive product roadmaps or chases new market segments to try to secure first mover advantage. A local Australian example of this took place between Telstra and its telecommunications rivals when Telstra announced the launch of a the world’s fastest wireless broadband service.

The objective of the strategy is to leave competitors continually playing catch up to the leader so that they can compete, so the onus is on the leader to take the initiative. While competitors play catch-up, the market leader has already moved on to the next big thing.

Of course, innovation carries risk (which is why so many companies shy from it). But if you don’t innovate, you risk being a sitting duck for another challenger that does. If consumers are looking for what is new and fresh, and you are not the brand delivering it, expect them to turn to the brands that are.

There are a couple of great examples of market leaders that deploy this strategy effectively. Google is one. Apple is another. Google stripped Yahoo! of its leadership position by out-innovating it. It figured out how to filter search results better, then it extended the idea of search to new levels.

It presented the hungry global public new forms of content, such as mapping services and news, which extended search to new levels. Its release of Chrome, a new browser, is a direct move on Microsoft territory. Expect more browser-based software to emerge that makes applications available to anyone with an Internet browser, irrespective of whether the user has a Microsoft operating system. Software that has relied on a Microsoft OS has been the major hurdle for Apple getting a more widespread foothold against its computing rival. Remove these barriers by making operating systems irrelevant, and all bets are off.

Apple was never the first manufacturer to MP3 players. But its iPod was different to anything else on the market at the time of its release. It enabled the easy transfer of music files between a computer and device. And its iPod continues to be superseded every few months, leaving previous models redundant, and cheaper Asian alternatives playing catch-up.

Securing the edges means identifying which niche markets are strategically important to a market leader and ensuring that challengers are unable to get a foothold in them. A defense of this nature means allocating resources to strengthen the market leader’s position in these territories. You might, for example, develop niche-specific products as part of a defense strategy. Critical to the success of this strategy is speed. Be fast or lose.

Not all markets are profitable, and not all are strategically important, so it’s up to the market leader to pick and choose which territories to secure depending on the nature of their business.

Unprofitable markets, or markets that require a great deal of customization, are often suited to a smaller challenger. By trying to defend everything, a market leader scatters effort and resources, and risks losing important territories by being distracted from the main game.

Of course, if you’ve been watching your competitors and analyzing their strategies, you’ll know where their strategy will lead and whether you need to negate it. Since time is on your side, you can attack first by launching a pre-emptive strike. If you know what a competitor is doing, you can do it first. Or you can counter-attack.

A great example of a counter-attack in Australia is the airline war that took place between Qantas and Virgin Blue. In marketing strategy terms, Qantas launched an encirclement strategy (or a Pincer Move) when it launched its Jetstar brand, and that left Virgin Blue’s brand position floundering around somewhere in no-mans land.

How Market Leaders Use Financial Levers.

Pricing, and how pricing is used, is one of the most critical levers for any business since pricing is the primary control of gross profit margin. Market leaders need to apply extreme caution to using a price-driven strategy.

Many countries have laws relating to predatory pricing and anti-competitive conduct that apply to market leaders in product categories.

Market leaders normally have a pricing advantage. In most industries, the market leader sells higher volume, and this enables it to derive cost advantages that apply to scale. It can afford to drop its price while still retaining a healthy margin while the same does not necessarily apply to its competitors. For this reason, smaller competitors are unwise to attack a market leader on price alone. If they do, the most common market leader response is to price-match or to offer a further discount in response.

Financial levers can also include additional incentives paid to dealers and third-party distribution outlets to promote the market leaders product over its competitors.

STAY TUNED:

In Part 3, What Market Leaders Do, we’ll cover off when to respond to competitive threats. We might even throw in some examples just to prove our points.

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If you are the market leader, everyone else wants your market share so everyone else becomes your enemy. Your job is to ruthlessly defend your territory. That’s pretty much it, in a nutshell.

If your enemies are smart, they won’t attack head-on. Instead, they will choose areas of weakness where you haven’t defended yourself and exploit them to their own advantage. Little by little, they will swipe your customers, take your share, disrupt your markets, and watch in amusement as your resources are scattered fighting little distractions here and there. That’s what attackers do.

Now since this post is about market leadership, it’s only fitting that we should start with the basics. Before we talk about what you have to do, let’s cover off why market leadership is such a big deal to begin with. After all, if you don’t understand the value of the market leadership position, you won’t appreciate why it’s so important to fight to keep it.

WHY MARKET LEADERSHIP IS IMPORTANT.

The reason market leadership is important is not the revenue (although that is obviously very important). It isn’t the status of being the leader either (although it does help build an ego). The reason that leadership is important is because most customers prefer to buy from leaders. Of course, you’ll always get the fringe-dwellers that as some form of protest support the underdog but, on the whole, most customers prefer to deal with leaders.

So customers create market leaders. They perceive leaders to be better (otherwise why would they be leaders?) and they perceive leaders to be a safer purchase. People are like sheep. If the majority votes you the best, the majority must be right. So they buy from where everyone else buys, thus strengthening the leader’s position.

It is hard for a challenger brand to dislodge a market leader if the market leader is actively defending territory. Time and resources have to be deployed to attack over a sustained period of time. Not all challengers are in the position to attack for long periods of time since it takes a significant amount of resources to be able to relentlessly pursue a leader. (It’s fun though.)

But market leaders are not invincible. Some get arrogant and complacent, a bit too big for their boots. They get distracted by internal issues like changes to senior management, or fall victim to regulatory interference, and this offers challengers a timely opportunity to strike. Market leaders do slip to challenger position (and it’s a bit of a bumpy ride downwards). If that happens to you, you’ll have to become an attacker yourself.

ADVANTAGES ON THE SIDE OF THE MARKET LEADER.

Amongst the armory enjoyed by the market leader are:

Greater resources to apply in defending a market territory.

Often market leaders can outgun competitors on all fronts – outspending them in advertising, having bigger and more comprehensive distribution channels, enjoying higher brand profile, and more.

Time to defend.

Since no-one listens to advertising anymore, a challenger’s message can get lost. This gives the market leader time to respond. A market leader usually hears competitive messages before most of the market does and simply outspends the challenger.

Distribution Channels favor the Market Leader.

Shelf space is a valuable commodity, and the best positions favour the product that sells in the greatest volume. In other words, it favors the market leader. The same is true for distributors and third-party agents that need volume sales to earn commission.

Brand profile favors the Market Leader.

More people buy “known” brands than “unknown” ones since positive branding instills a perception of trust. Brand profile is important since it is the mechanism used by marketers to facilitate the selling process, and the mechanism used by consumers to reduce their purchase risk.

Creation of barriers to market entry favor the Market Leader.

There are numerous ways in which a Market Leader can make it hard for competitors, ranging from the use of legal instruments such as patent protection (common in the pharmaceutical and information technology industries) through creation of market barriers such as exclusive distribution contracts, exclusive supply contracts, restricted access to essential channels, market or government monopoly status or removal of experienced staff from the market.

Using an Existing Customer base favors the Market Leader.

Having a customer base is always a strategic advantage, especially if you are closely connected to them. An established customer has a relationship already with the brand, and has a level of confidence and trust in it that it will not have in an untried brand. Strategies can be deployed to “lock down” an existing customer base, such as contracting which is common in the telecommunication industry.

The size of the customer base favors the Market Leader.

Large customer bases enable you to use the size to your advantage. Size offers critical mass. Cost advantages come with scale, including the opportunity to amortize cost across large numbers. In addition, having a large customer base reduces risk. Those companies that depend on one or two key customers for their survival can find themselves in a risky position if one or both of those customers take their business elsewhere.

STRATEGIES MARKET LEADERS DEPLOY.

• A market leader always plays defense.
• They counter an attack with equal or greater force.
• They defend important markets.
• They remain vigilant in scanning for potential attackers. (This means they must assess the strength of every competitor and consider the support that an attacker might muster from allies.)
• They attack themselves before a competitor has the opportunity to attack them.

STAY TUNED.

In Part 2: WHAT MARKET LEADERS DO, we’ll take a closer look at what a marketer needs to do to protect their market leadership.

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So, you’re United Airlines and Dave Carroll has socked an almighty punch to your brand reputation.

Of course, you wouldn’t be in this position in the first place had you not given him due cause to take his protest onto the international stage. But that’s another story. The big question is, what do you do now?

TIPS FOR REPUTATION DAMAGE CONTROL.

1. Accept responsibility for what happened. Be gracious, apologize and offer to make amends. (Look on the bright side. You’ve been offered constructive criticism that highlights an opportunity for you to do it better.)
2. Explain how you are going to ensure it doesn’t happen again. This means acknowledging the problem and fixing it. Then you need to communicate that the problem has been fixed and what people should do in the unlikely event it reoccurs. Depending on the industry you are in, you might hire your critic. If they are the one person who really knows exactly what’s wrong, they might also be the best person around to help you to fix it. You might even convert them to a brand champion in the process.
3. Walk the talk. Or don’t make promises you won’t keep. (You’ve already broken one promise, it’s what got you into this mess in the first place, so don’t compound your problems by breaking another one.) Now that the world is aware of what has happened once, customers and competitors will not be shy about saying something when it happens again.
4. Do not threaten, intimidate or any way force the person to retract, remove or change damaging content. Bribery, coercion and lawyers letters are the last thing that should be on your mind right now. You can’t shut up things on the Internet. Just trying to do it can lead to worse damage.
5. Implement a brand reputation program.

ELEMENTS OF A BRAND REPUTATION STRATEGY.

There is little more harmful than a flurry of negative press. And with the Internet offering far-flung strangers the opportunity to share opinions and scrutinize your performance, it’s even more imperative to manage the effects. Consumers in their droves are heading to the Internet to select which brands they will support and they are reading all the stuff that’s said about you.

The vehicle companies use to manage their reputations is a brand reputation program. It is essentially a hybrid of the traditional public relations model that incorporates a management component for activity online. It works like this:

Step One: Monitor what is being said.

You should be aware of what is being said about you, your products, brands and competitors. You can do this easily by using some tools that are freely available. Examples of these tools include Google Alerts, Yahoo Alerts, Google News, Technorati, BlogPulse or BoardTracker. Set yourself up to receive free alerts, or go to these websites (such as news or Technorati) and perform a search.

Step Two: Respond to Negative Feedback.

Here are the guidelines:

• Respond, don’t react. Be measured, positive and calm about what is being said. You don’t have to respond to absolutely everything. It’s a judgment call on your part whether you think you should engage.
• Figure out whether the feedback is genuine or competitor-driven. This will govern how you respond.
• If it’s customer-driven genuine feedback, be timely (don’t respond to old posts), transparent (say who you are) and honest. Thank them for feedback. Engage in an open friendly way. You can invite trial of your product or use some other form of inclusionary brand tactic.
• If you suspect it’s competitor-driven, don’t make accusations without proof. Use positive brand messages from other sources to use as links in a reply post. Be nice. Ask for their contact details so you can handle their issue personally. If they won’t supply it, it may impact negatively on their credibility not yours. You can report harmful or defamatory content and request its removal. Try to identify the person posting the content. Leave your lawyers as a last resort

Step 3: Build a Resilience Plan.

People are surprisingly forgiving. For the most part, brands can afford to make a few mistakes provided that they admit them, fix them, and don’t make mistakes all the time. To counteract the impact of negative publicity and feedback, brands need to build resilience against negative perceptions, and they can do this by:

• Creating on-going two-way conversations with customers. This enables the brand to better understand exactly what its customers want. Create a blog, engage in forums and groups, survey your customers or invite them into your premises. Get feedback from your sales teams. Try to understand what’s important to your customers.
• Writing regular news stories with positive messages that can be released to media, influencers and uploaded onto your own website. Smaller businesses can do this quite cheaply using PRWeb or another media distribution firm that also offers an editorial service.
• Thinking the value ledger concept. Build a repository out there of good things your brand thinks, has said or done. It boils down to having more good stories to outweigh the few bad ones.
• Encouraging active, influential brand champions to talk about you in the market. Credible bloggers and journalists can do a lot to help build your brand resilience. Implement a concerted campaign to win them over.
• Actions speak louder than words. Transparency and action build positive brand perceptions which in turn offer cover against future PR disasters. Spin doesn’t work. You have to be seen to be believed. Get involved in activities that ensure your brand is seen positively. For example, if you make a food product, be the first to offer transparency in labeling.

In a fast-moving, complicated world, no single PR strategy is going to enable you to escape some degree of brand attack. But what smarter companies do is plan ahead. By doing so, they are armed and ready to defend their good name.

See Related Post: How Goliath Gets Real.

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The Internet is the ultimate democracy. Anyone with an Internet connection can share their opinions, regardless of whether they are good or bad, and they can do it honestly, publicly and uncensored. When you sit on the right side of the ledger, the collective opinion can propel your brand onto the world stage. Do it wrong, though, and in some cases it can render it almost worthless.

You are powerless to stop negative commentary and feedback. This is part of the power of this new democracy. Send a threatening lawyer’s letter to shut someone up, and they might just publish it online causing you even greater havoc. You don’t have control, and those brands that try to enforce it end up looking scared.

The power of the Internet doesn’t stop there, of course. It is also a powerful leveler, one where a single person can etch the name of your company onto a lone bullet, aim and fire, and leave even the most powerful brands in the world reeling from the carnage. If you’re one of the very few brands who still hold any shred of doubt about your vulnerability, just turn to Dave Carroll’s story to set your own internal barometer straight.

You can Google for the rest of the story, but the lesson is clear. Before the Internet, big brands may have got away with less-than-ordinary behavior. Now it isn’t possible to escape penalty for it. When Dave Carroll warns United he’s going to write songs about his experience with their brand, one can almost imagine the rolling of the eyes in their hallowed corridors. Those same eyes will be spinning, not rolling, anymore.

For what started as a simple compensation claim for $USD1200 for the repair of a guitar morphed into brand carnage. The video reached more than 4 million viewers in 3 weeks, was reported in most major media, and became a lively topic for blogs, forums and dinner parties around the world.

It will cost United millions of dollars to repair the damage to its reputation. One wonders whether it can even be done. And sadly for United it will take a long time. High profile, catchy ditties, such as the one created by Dave Carroll, just don’t fade from people’s memories fast enough to save the biggest brands in the world.

Of course, the last laugh is with Dave Carroll. He’s gone on to international recognition for his music and song-writing. His music sales have soared. His band is in demand. He has offers pouring in. Bob Taylor wants to give him guitars.

And it’s all thanks to a big brand that claims to care about its customers but when the time came to walk the talk, it stubbornly refused to step forward.

See related post: How Goliath Should Respond To David

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