6. Market leaders, challengers and followers

“ Big companies are small companies that succeeded”

R. Townsend, 1970

Market Leaders

In most markets there is a definite market leader: the firm with the largest market share. This is often the first company to have entered the field, or at least to have succeeded in it. The market leader is able to lead other firms in the introduction of new products, in price changes, in the level of promotion, and so on.

Market leaders usually want to increase their market share further. One way to do this is to try to find ways to increase the size of the entire market. Contrary to a common belief, dominating a market is seldom an advantage: competitors expand markets too. A market can be expanded by stimulating more usage: for example, many households no longer have only one cassette player, but perhaps one in each room, one in a car plus a Walkman or two.

Market Challengers

In many markets, there is often a distinct market challenger, with the second largest market share. Market challengers can either attempt to attack the leader, or to increase their market share by attacking various market followers.

Market Followers

The majority of companies in industry are merely market followers, which present no threat to the leader. Many market followers concentrate on market segmentation: finding a profitable niche in the market that is not satisfied by other goods or services, and that gives the company a differential advantage. A market follower, which does not establish its own niche, is in a vulnerable position: if a product doesn’t have a “unique selling proposition” there is no reason to buy it. In fact, in most established industries, there is only room for two or three major companies: think of soft drinks, soap and washing powders, jeans, and so on. Although small companies are generally flexible, and quickly respond to market conditions, their narrow range of customers causes problematic fluctuations in turnover and profit. They are also vulnerable in the period of a recession when distributors, retailers and customers prefer to buy from big suppliers.

Comprehension:

1. How do market leaders increase their market share?

2. What are the two ways for market challengers?

3. What do market followers concentrate on?

4. When are market followers in a vulnerable position?

5. What is the reason for fluctuations in turnover and profit in small companies?

Text organization.

The statements below express the main ideas of the text. Number them so that they are in the same order as the ideas in the text. The first one is given for you:

Viewpoint:

Can you name companies that are leaders, challengers, and market followers in the market?