This sure aint easy. You want to enter or expand in a market where someone is a dominant player who has excellent distribution, is strongly positioned as the leader and has a few brand extensions. What do you do?
Situation : You’re a runner-up firm in a certain industry and you want to enter/ expand. Start with the basics. Ask yourself what you would like to accomplish here.
The images below have the market share break-up of search engines as well as Internet browsers for reference. IE was perceived to have an impregnable position until Firefox came along – a lesson to remember.
Solutions :
Step 1:
Define your strategic objectives (e.g. To increase market share in XYZ market by X% in Y months.) It pays to be objectively sensible. If you’re going head-to-head with the market leader, the aim should be to increase market share not take over #1 because there are many reasons why the market leader is in first place. If you think to0 big, you’ll think (and outspend) yourself out of business.
For e.g. Bic understands well that Gillette is the undisputed leader in the razor market so all it want to do is increase market share.
Step 2:
Understand the market leader well. Conduct a SWOT analysis, product positioning maps, brand loyalty matrices, a BCG matrix – I guess I’m saying, do your analysis!
Step 3:
Choose a plan of attack. Here comes the fun part :
1. Frontal attack : All bets are off with this one. You clearly indicate that you’re taking the leader head-on in a high-risk but potentially high-payoff strategy. Here’s you match your opponent in all respects : product, advertising (spend & reach), pricing and distribution.
- Success factors : Basic warfare 101 says that the side with the greater resources will win. For a frontal attack to succeed against a well-entrenched opponent or someone controlling a high ground, the attacker must have a 3-to-1 advantage in firepower. Example : A local cola brand in India “Thums Up” took on Coke and Pepsi head on when they first entered India. But, it lacked the resources and marketing acumen to carry on the fight and was bought out by Coke in the 90s.
How to succeed : Modify your frontal attack. fight on one or two fronts at the most pecking away at your opponent. If he retaliates, be prepared for an all out response.
2. Flank Attack:
Here you concentrate your strengths against the weak spots of your opponent. You can do this either geographically or by segmentation.
- Success Factors: Identify a shift in market segments that cause gaps to form, act swiftly to fill those gaps and develop them into strong segments that are loyal to you. This is basic marketing : Identify needs and satisfy them. Period. Note that this form of attack makes sense if you don’t have as many resources as the leader and has a higher probability of success. Example : Japanese car firms back in the 80s when they introduced fuel-efficient cars or Honeywell when it competed with IBM in the mainframe market, set up strong sales infrastructure in medium and smaller-sized markets that were neglected by IBM.
3. Encirclement attack:
This is simple. If you’re a big firm with lots of resources, you attack the leader on multiple fronts.
- Success factors: The objective is clear. Grab as much share as possible through a simultaneous attack on a couple of fronts. Add more value to your product, advertise on strategic fronts, partner with like-minded products. Example : Facebook opened up its API to developers at a time when a move like this was considered a no-no. This resulted in the creation of Apps which at the time were intriguing to users. It also rolled-out multiple features and new add-one consistently to the point that mySpace was left to watch helplessly while it struggled to catch on.
4. Bypass Attack:
Here marketing takes some Machiavellian turns where you pretend to neglect the direct competitor and instead work on expanding your resource base. There are three ways to do this : Diversify into unrelated products, diversify into new markets geographically or supplant existing products with new technologies.
- Success factors: Here you’re consolidating your base and building up to a frontal or flank attack. Patience is key. An indirect strategy like this will leave your opponents guessing and snickering but, if executed well with a clear vision of what is to be accomplished at the end, it possible to win.
Example 1 : Summer of 98′ – Pepsi buys Tropicana for $3.3billion. buying the market leader in the OJ space helps it compete directly against Coke’s Minute Maid.
2000 – Pepsi buys Quaker Oats, the owner of Gatorade another dominant player in the sports drink market (80% market share as opposed to Coke’s Powerade) for $14 billion.
Earlier in the program, Pepsi develops its bottled water brand Aquafina which now commands a 14% market share as opposed to Coke at 11% and Poland springs at 10%.
Moral of this story : You may lose the brand war with your flagship product but could win the overall EBIT war with your family of brands.
Example 2 : Nintendo bides its time patiently in the video game console wars to a point where it’s perceived as insignificant with GameCube being a distant third. Microsoft and Sony battle it out with Sony claiming the dominant position. Behind the scenes, Nintendo invests heavily into R&D and then releases its Wii console in ‘06 with new technological characteristics and an entirely new style of playing games and with expanded appeal to a broader audience. It employs a retroactive hold-back strategy where limited amounts of Wiis are available for purchase and keeps building anticipation years after it is launched. In Jan ‘09, 2.1 million units of Wii are sold in the US market. X-box sales – 1.4 million units. PS3 – 726,000 units.
In conclusion, being the #2 or lower in a market is not necessarily a bad situation for you as it’s quite possible to seize a portion of market share from leader and increase your share over a period of time using some of the tactics above or innovating with new products and technologies.
