Market follower – strategies


“Innovative Imitation� is a strategy of product imitation which may be as profitable as a strategy of product innovation. The innovator bears the expense of developing the new product, getting it into distribution, and informing and educating the market. The reward for all this work and risk is normally market leadership. However, another firm can come along and copy or improve on the new product. Although it probably will not overtake the leader, the follower can achieve high profits because it did not bear any of the innovation expense.

Many companies prefer to follow rather than challenge the market leader. Patterns of “conscious parallelism� are common in capital intensive, homogeneous product industries, such as steel, fertilizers, and chemicals. The opportunities for product differentiation and image differentiation are low; service quality is often comparable; and price sensitivity runs high. The mood in these industries is against short-run grabs for market share because that strategy only provokes retaliation. Most firms decide against stealing one others’ customers. Instead, they present similar offers to buyers, usually by copying the leader. Market shares show high stability.

This is not to say that market followers lack strategies. A market follower must know how to hold current customers and win a fair share of new customers. Each follower tries to bring distinctive advantages to its target market >> location, services, financing. Because the follower is often a major target of attack by challengers, it must keep its manufacturing costs low and its product quality and services high. It must also enter new markets as they open up. The follower has to define a growth path, but one that does not invite competitive retaliation. Four broad strategies can be distinguished.

1. Counterfeiter: The counterfeiter duplicates the leader’s product and package and sells it on the black market or through disreputable dealers. Music record firms, Apple Computer, and Rolex have been plagued with the counterfeiter problem, especially in Asia.

2. Cloner: The cloner emulates the leader’s products, name, and packaging, with slight variation. For example, Ralcorp Holding Inc. sells imitations of name-brand cereals in look-alike boxes. Its Tasteeos, Fruit rings, and corn Flakes sell for nearly $1 a box less than the leading name brands.

3. Imitator: The imitator copies some things from the leader but maintains differentiation in terms of packaging, advertising, pricing, or location. The leader does not mind the imitator as long as the imitator does not attack the leader aggressively. Fernandez Pujals grew up in Fort Lauderdale, Florida, and took Domino’s home delivery idea to Spain, where he borrowed $80,000 to open his first store in Madrid. His Tele Pizza chain now operates almost 1,000 stores in Europe and Latin America.

4. Adapter: The adapter takes the leader’s products and adapts or improves them. The adapter may choose to sell to different markets, but often the adapter grows into the future challenger, as many Japanese firms have done after adapting and improving products developed elsewhere.

What does a follower earn? The follower normally earns less than the leader. For example, a study of food-processing companies showed the largest firm averaging a 16% return on investment; the number two firm, 6%; the number-three firm,-1%, and the number-four firm,-6%. In this case, only the top two firms have profits. No wonder jack Welch, former CEO of GE, told his business units that each must reach the number-one or number-two position in its market. Following the leader is often not a rewarding path.