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.
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.