Competitive strategies for Market Leaders

We can gain an insight of Marketing firms by classifying firms by the roles they play in the target market: leader, challenger, follower, or nicher. Forty percent of the marketers is in the hands of a market leader; another 30 percent is in the hands of a market challenger; another 20 percent is in the hands of a market follower a firm that is willing maintain its market share and not rock the boat. The remaining 10 percent is in the hands of market nichers, firms that serve small market segments not being served by larger firms.

Many industries contain one firm that is the acknowledged market leader. This firm has the largest market share in the relevant product market and usually leads the other firms in price changes, new product introductions, distribution coverage, and promotional intensity. Some well-known market leaders are Microsoft (computer software), Intel (microprocessors), Gatorade (sports drinks), Bets Buy (retail electronics), McDonald’s (fast food), Gillette (razor blades), United Health (health insurance), and Visa (Credit cards).

Well-known products generally hold a distinctive position in consumers’ minds. Nevertheless, unless a dominant firm enjoys a legal monopoly, its life is not altogether easy. It must maintain constant vigilance. A product innovation may come along and hurt the leader (Nokia’s and Ericsson’s digital cell phones took over from Motorola’s analog models). The leader might spend conservatively where as a challenger spends liberally. Montgomery wards lost its retail dominance to Sears after World War II. The leader might misjudge its competition find itself behind as Sears did when it underestimated Kmart and later WalMart. The dominant firm might look old-fashioned against new and peppier rivals. Pepsi has attempted to take share from Coke by portraying itself as the more youthful brand. The dominant firm’s costs might rise excessively and hurt its profits, or a discount competitor can undercut process.

Under constant pressure from fast growing snack makers of all kinds, Hershey Foods Corp., had sound that domination of the US chocolate candy business is not enough increasingly, consumers are passing up Hershey’s candies for chips, sports bars, cereal bars, granola bars. To maintain profit targets, Hershey has cut costs, dropped weak product lines such as Luden’s throat lozenges, cut hundreds of slow-selling package sizes, improved distribution by increasing high-margin convenience store presence, and introduced extension of its strongest brands such as Reese’s Inside Out Cups. To more broadly compete and sustain growth, however, Hershey’s is even considering other new snack products.

Remaining number one calls for action on three fronts. First, the firm must find ways to expand total market demand. Second, the firm must protect its current market share through good defensive and offensive actions. Third, the firm can try to increase its market share, even if market remains constant.

Expanding the Total Market:

The dominant firm normally gains the most when the total market expands. If Americans increase their consumptions of Ketchup, Heinz stands to gain the most because it sells almost two thirds of the country’s ketchup. If Heinz can convince more Americans to use Ketchup or to use ketchup with more meals or to use more ketchup on each occasion, Heinz will benefit considerably. In general, the market leader should look for new customers or more usage from existing customers.

New Customers: Every product class the potential of attracting buyers who are unaware of the product or who are resisting it because of price or lack of certain features. A company can search for users among three groups: those who might use it but do not (market penetration strategy), those who have never used it (new market segment strategy), or those who live elsewhere (geographical expansion strategy).

Starbucks Coffee is one of the best known brands in the world. Starbucks is able to sell a cup of coffee for $3 while the store next door can only get $1. And if you want the popular café latte, it’s $4. Starbucks has more than 7,200 locations throughout North America, the Pacific Rim, Europe, and the Middle East and its annual revenue for 2002 topped $3.3 billion. Its corporate Web sites give a peek into its multi-pronged approach to growth.

Starbucks purchases and roasts high quality whole bean coffees and sells them along with fresh, rich-brewed, Italian style espresso beverages, a variety of pastries and confection and coffee-related accessories and equipment primarily through its company-operated retail stores. In addition, Starbucks sells whole bean coffees through a specialty sales group and supermarkets. Additionally, Starbucks produces and sells bottled Frappuccino coffee drinks and a line in premium ice creams through its joint venture partnership and offers a line of innovative premium teas produced by its wholly owned subsidiary, Tazo Tea Company. The company’s objective is to establish Starbucks as the most recognized and respected brand in the world. To achieve this goal, the company plans to continue to rapidly expand its retail operations, grow its specialty sales and other operations, and selectively pursue opportunities to leverage the Starbucks brand through the introduction of new products and the development of new distribution channels.