What Market Leaders Do – Part 3

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.


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.


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.

Defence 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.
READ: Part 1: What Market Leaders Do and Part 2: What Market Leaders Do

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