INTRODUCTION
Having a competitive
advantage is necessary for a firm to compete in the market, but what is more
important is whether the competitive advantage is sustainable. A firm must
identify its position relative to the competition in the market. By knowing if
it is a market leader, challenger, follower or nicher and it can adopt
appropriate strategies to compete.
WHAT
IS A COMPETITIVE STRATEGY?
Competitive strategy is a
plan on how a firm will compete, formulate after evaluating on its strengths and
weaknesses compared to those of its competitors. It can also be defined as a
long term, action plan that is devised to help a company gain a competitive
advantage over its rival.
MARKET LEADER
The leader has the largest
market share and usually leads the other firms in price changes, new-product
introductions, distribution coverage and promotion spending. The leader may or
may not be admired or respected but other firms concede or accept its
dominance. Competitors focus on the market leader as a company to challenge,
imitate or avoid. The market leader might grow arrogant or complacent and
misjudge the competition or the leader might look old fashioned against new and
peppier rivals. To remain number one, leading firms can take any of these three
strategies: -
1.
Expanding The Total Demand
The
leading firm normally gains the most when the total market expands. Market
leaders can expand the market by developing new users and more usage of its
products. It can expand the market by discovering and promoting new users for
the product.
2.
Protecting Market Share
The
market leader can protect its market share or position by preventing or fixing
weakness that provide opportunities for competitors. It must always fulfil its value
promise, its price must remain consistent with the value that customers see in
the brand and work tirelessly to keep good and strong valued customers
relationship.
3.
Expanding market share
Market
leader can also grow by increasing their market share.
Competitive strategies a
market leader should use in order to remain on top includes one or more of the
following six commonly used defense strategies: -
1)
Position Defense
A
company attempting a fortress defense will find itself retreating from line
after line fortification into shrinking product markets.
2)
Mobile Defense
Through
market broadening and diversification. For market broadening there is a need to
redefine the business and focus efforts on the competition.
3)
Flanking Defense
Secondary
market and flanks are the weaker areas and prone to attacks. Market leaders are
to pay attention to flanks.
4)
Contraction Defense
Market
leaders should withdraw from the most vulnerable segment and re-direct
resources to those that are more dependable.
5)
Pre-Emptive Defense
Market
leaders should detect potential attacks and attack the enemies first. Product
or brand proliferation is a form of pre-emptive defense.
6)
Counter-Offensive
Market
leader should respond to competitors’ head-on attack by identifying the
attacker or challenger weakness and then launch a counter attack.
MARKET CHALLENGER
They can challenge the
leader and other competitors in an aggressive bid for more market share (market
challengers). A market challenger must first define what competitors to
challenge and its strategic objective. The challenger can attack the market
leader, a high risk but potentially high gain strategy, its goal might be to
take over market leadership or to wrest more market share.
Market challengers have
second mover advantages, the challenger observes what has made the market leader
successful and improves upon it or the challenger can avoid the leader and
instead challenge its size or smaller firms local or regional. The challenger
must choose its opponents carefully and have clearly defined and attainable
objectives.
Competitive strategies a
market challenger may follow to overthrow the market leader or wrest more
market share:
1.
Frontal Attack
It
seldom works unless the market challenger has sufficient fire power and staying
power and the challenger has clear and distinctive advantages e.g. new market
or production innovation.
2.
Flank Attack
Attack
the market leader at its weakest points and blind spots i.e. flanks. Ideal for
challenger who does not have sufficient resources e.g. in the 1990’s Yaohan
attacked Mitsukohi and Seibu’s flanks by opening numerous stores in iverseas
market.
3.
Encirclement Attack
The
challenger attack the market leader other competitors or challengers at many
fronts at the same time. Ideal for challengers’ having superior resources.
4.
By Pass Attack
By
diversifying unrelated products or market neglected by market leaders or could
overtake the leader using new technologies or innovation.
5.
Guerrilla Attack
By
launching small and intermittent hit and run attacks to harass and destabilize the
leader, the challenger can usurp the leader. This small hit and run attack
usually precede a stronger attack.
MARKET FOLLOWER
A market follower is a firm
in a strong but not dominant position that is content to stay at that position.
The rationale is that by developing strategies that are parallel to those of
the market leader they will gain much of the market from the leader while being
exposed to very little risk. This play it safe strategy is how Burger King
retains it behind McDonalds.
Advantages
1) No
expensive research and development failures unlike the leader and challenger
forever trying to overthrow or subdue.
2) No
risk of bad business model
3) Best
practices are already established by the market leader
4) The
ability to capitalize on the promotional activities of the market leader
5) No
risk of government anti-combined action.
6) Minimal
risk of competitive attack.
7) No
wastage of money in competitive battle with the market leader.
Some strategies a follower
would follow to always stay in line with the leader include the following:
1.
Counterfeiting
2.
Cloning
3.
Imitating
4.
Adapting
MARKET NICHER
In this niche strategy, the
firm concentrates on a select few target market. It is also called Focus
strategy. It is hoped that by focusing one’s marketing efforts on one or two
narrow market segment and tailoring your marketing mix on those specialized market
you can better meet the needs of that target market. The niche should be large
enough to be profitable but small enough to be ignored by the major industry
player (market leaders and challenger). Profit margins are emphasized rather
than revenue or market share. The firms typically look to gain competitive
advantage through effectiveness than efficiency.
Strategies for market
nichers
1.
Guerilla Marketing Warfare Strategies
The
most successful nichers tend to have the following characteristics: -
a) They
tend to be in high value added industries and are able to obtain high margins.
b) They
tend to highly focus on specific market segment
c) They
tend to keep their operating experiences down by spending less on research and
development, advertising and personal selling.
d) They
tend to market high end products and services and are able to use a premium
pricing strategy.
2.
Multiple Niching
A
firm should stick to its niching but not necessarily to its niche. That is why
multiple niching is preferable to single niching. By developing strength in two
or more niches, the company increases its chance of survival.
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