Strategy of Market Leader

Strategic Choices for Market Leadership Firms

Market leader or leaders are dominant firms in an industry with the largest market share. Many times, only one firm is acknowledged as the market leader. Market leader usually takes initiative in new product introduction, price changes, increasing distribution outlets or coverage and increasing advertisement and promotion intensity. The leader may not be admired or respected but its dominant position is obviously visible to every observer.

The leader has to face challenges from competitors unless, its dominance is protected by a patent ( or legal monopoly). It has to defend its position against challengers. But the first strategic choice for the leader is to take actions that expand the market for the product in general. The alternative ways for increasing the usage of a product are: finding new users, finding new uses for the product and increasing the usage by existing customers. Market leaders make appropriate efforts to increase usage of their industry product. As market expansion is generally profitable to the market leader.

But in case there is competition for market share, a leader has to defend its market share. Kotler quotes Sun Tsu in this context. Leaders should not rely on the enemy not attacking, but have to become unassailable. Market leading firms have to innovate continuously and be the first to introduce new product variants and customer services. They have to undertake cost reduction and thereby decrease selling prices and improve distribution net work. It has to keep on maintaining and improving its competitive advantage and provide increased value to its customers. Increased strength is always the best defense.

The marketing competitive strategy literature has borrowed heavily military strategy literature. Philip Kotler and Ravi Singh in their paper, "Marketing Warfare in the 1980s" (Journal of Business Strategy, Winter 1981) identified six defensive strategies that a market leader can implement to ward off competition or challenge.

1. Position defense
2. Flank defense
3. Preemptive defense
4. Counteroffensive defense
5. Mobile defense
6. Contraction defense

Gaining Market Share: Market leaders can also try to increase their market share. According to Buzzell and Wiersema ("Successful Share Building Strategies" Harvard Business Review, Jan-Feb 1981), gain in market share can be achieved by new product introduction, improving relative product quality and increasing marketing expenditures relative to market growth.

Further Reading

Read how a market leader in Thailand applied the defensive strategies. (2008 conference paper)
http://www.waset.org/journals/waset/v43/v43-90.pdf

Originally posted in
http://knol.google.com/k/narayana-rao/strategy-of-market-leader/2utb2lsm2k7a/3905

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