What Market Leaders Do – Part 2

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 defence.

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.
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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.

Read: Market Leaders Part 1 and Market Leaders Part 3.

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